Business
PropTech in Multifamily Real Estate: Enabling a Curb to Couch Experience
As new construction in Commercial Real Estate has slowed down considerably since the start of the pandemic, the Multifamily sector has filled its void. Many of the country’s largest developers have shifted their new construction focus and resources into Multifamily projects. Interest rates have raised sharply, and with no signs of slowing down, housing has become less affordable; driving more people to rent instead of own. In order to lure residents to their buildings and increase what they can charge for rent, developers are getting very creative with the amenities that they offer. These include state of the art fitness centers, onsite pet salons, golf simulators and on demand workspaces. But I would argue that the most important amenity decision that the developer needs to make is the tech platform that they will deploy throughout the property.
Technology is designed to make everyone’s life easier, and we are heading in that direction with PropTech, but with so many companies promoting their latest innovations, the selection process can be disorienting. Many of the solutions on the market today are standalone solutions, and each one requires a different login, a separate database, and a specific App. If the property staff and residents need to utilize a dozen different Apps to access their property, book amenities, and communicate between each other, chances are high that they won’t use any of them.
Complexities of Managing Disparate Systems
To illustrate the complexities of technology in Multifamily, I have detailed the current process for a single task: Access Control. When a resident pulls into their community, they need to park their car. If the community utilizes a 3rd party parking operator, there is a high likelihood that they have their own access control system with their own credentials and billing solution. Once the resident approaches the perimeter door of their building, they need to utilize a separate credential which grants them access to the base-building (exterior doors, elevators, and amenity spaces). Then, once they get to their apartment unit (assuming the building has installed wireless locks), the resident often needs to use a 3rd credential to unlock the door. Lastly, in order to grant access to visitors and for deliveries, chances are that they use a video intercom to unlock the door. In this example, there are 4 different credentials, databases, and platforms that are needed for residents to simply enter their apartment. And from the perspective of the building staff, this requires them to manage 4 different systems as well, just to provide this fairly basic service.
To add to the complexities of Multifamily, the latest must-have technology is Smart Apartments. A smart apartment (typically running off of the building Wi-Fi) provides a host of benefits for the residents including connected thermostats, leak detection, smart lighting, automatic blinds, and a constantly growing list of other really cool features. Typically, this is provided by a completely different vendor. And as everyone knows, Wi-Fi reliability can be spotty, especially when you are powering a community of hundreds of units. Even if the Wi-Fi is down for just a few minutes here and there, the ramifications from a life-safety and convenience standpoint can be maddening. Smart Apartments are marketed as an amenity to residents, and although the benefits to them are significant, the benefits to the property owner and manager are equally important (more on this later in the article).
The Evolution of PropTech in Multifamily
Over the past 6, I had a front row seat to witness the evolution of PropTech in Multifamily during my job at Kastle Systems. After serving the Commercial Real Estate Industry for 50 years, Kastle expanded their offering into the Multifamily vertical in 2015. The challenges that I mentioned above are real life examples of the issues that I witnessed firsthand.
Electronic security companies started out by installing access control readers in the base-building of Multifamily properties (perimeter doors, amenity spaces, elevators), and CCTV. These solutions were not much different than what was typically installed in buildings that fall into most other real estate asset classes. The next must have feature that Multifamily developers were requesting were wireless locks on the resident doors. A variety of 3rd party companies developed wireless locks designed for resident doors, but these companies also developed their own proprietary software to operate these locks. Because this software was not interoperable with the base building’s card readers, residents needed to access 2 separate databases and 2 separate credentials. To solve this problem, access control providers needed to create a Software Development Kit (SDK) which enabled the wireless locks to operate on their platform with the same credential and database as the base-building.
The next major advancement in the industry was a new breed of video intercoms. Instead of the old metal call boxes that were attached to the outside of most apartment buildings (these required expensive wiring connecting every unit in the building), companies started to build beautiful devices with high-tech touch screens that took their place. The only wiring that was needed was a CAT5 and a PoE switch. When a visitor showed up at the building, the intercom called the resident’s cell phone, they could see and speak with the visitor, and unlock the door simply by swiping their finger. The devices were not only aesthetically pleasing, but they also functioned exactly as promised. But residents hated the fact that they had to use the one App to access their building and apartment unit, but they needed to utilize a completely different App to unlock the door for visitors and deliveries. The only way to solve this problem was if the video intercom manufacturer permitted the access control company to load their firmware onto the devices. For the access control companies that successfully negotiated partnerships with the video intercom manufacturers, the result included marrying the databases, and provided residents with the convenience to grant access to visitors and deliveries using a single App. A similar solution was needed to unify parking entry and exit.
Unified platforms had now solved for resident and visitor access from the parking garage to the resident door, but it still wasn’t solving for the Smart Apartment technology needed for inside the individual units. To accomplish this goal, Kastle recently inked a partnership with PointCentral, a wholly owned subsidiary of industry titan Alarm.com. In addition to their industry leading solutions, what really sealed the decision to partner with PointCentral was that instead of utilizing the base-building Wi-Fi, they install small Cellular Communicators (available on Verizon and AT&T), to provide a consistent experience that works every time for the building residents.
Property Management Software, Resident Apps, and More…
Even with all of this integrated technology, there was still more work that needed to be done. For starters, every property utilizes a property management platform such as Yardi, RealPage, Appfolio, and Entrata. Property Managers need to enter resident information into the property management software and also into the access control database. The more data entry that is required, the more work that falls onto the property manager’s plate, and anyone who has worked in property management can attest to the fact that they have more responsibilities than hours in a day. Not to mention that the more times the same data has to be entered into disparate systems, the greater the chance for errors. Companies like Kastle utilized their open architecture and the APIs from the leading property management software providers to build a seamless integration. Now, once a resident profile is created in the property management software, their access credentials are generated instantly with access rights to everywhere that they need (parking garage, perimeter doors, amenity spaces and their apartment unit). When that resident moves out, their access credentials are automatically deactivated.
Another technology which has started to grow in popularity is Resident Experience Apps. The services that they offer are different from what access control companies provide (Rent Payment, Community Engagement, Service Work Orders…), and both platforms are complementary to each other. To avoid the issue of multiple Apps and multiple databases, Access Control companies needed to build an SDK that takes all of the features that they provide and integrate it seamlessly with the Resident Experience App so that the resident can get everything that they need from a single platform. In addition to creating a single platform for just about every task that a resident and property manager needs to complete, adding access control to the Resident App has created a forcing function that increases the amount of time that each resident engages with the App, which in turn drives adoption for the other valuable features. The greater the adoption, the more brand loyalty is created between the property owner and resident, which increases the likelihood of renewal at the end of the lease term.
The Value for Property Managers and Owners
As referenced above, Smart Apartment Technology is as valuable to the property management teams as it is to the residents. For example, it is common that after a resident moves out, the temperature is set to a level that unnecessarily wastes energy for a vacant apartment. Another costly issue is water leaks in vacant apartments. It is common for leaks to go unnoticed until water starts flowing into units below, and the repair costs can be in the tens of thousands of dollars. A smart apartment can be configured so that after a resident moves out, the temperature is automatically reset to the optimal level for a vacant apartment and the property team is immediately notified the minute that water is detected. Additionally, with wireless locks and digital credentials, property managers never need to re-key doors or meet residents in person to distribute, replace, and collect access cards and Fobs.
The Complete Multifamily Platform
So how does this technology come together to offer value for the property management team as well as the resident? Below is how I see everything working in harmony:
A prospective resident is interested in renting an apartment. They book a self-guided tour online for a time that is convenient for them. They are texted/emailed a digital credential which grants them access to the unit (utilizing their cell phone) during the allotted time. They complete an online background/credit check, they e-sign the lease, they connect their bank account to make the payments for the security deposit and first month’s rent, and their information is added to the property management software. Their access credentials are automatically generated (which become activated on the day that their lease commences), and they are instructed to download the building App. The building App grants them access from Curb to Couch. From the same App, the tenant can submit service requests, register visitors, pay rent, communicate with other tenants and building staff, order food, learn about community events, control all of their smart devices, and just about anything else that they need to do. When their lease expires (assuming they do not renew), their access credentials are terminated upon the lease expiration date, and the vacant unit can be monitored for leaks, energy consumption, and unauthorized access. The process begins again with prospective residents booking Self-Guided Tours until a new lease is signed.
New Construction Verses Retrofits
Multifamily developers are deploying technology as referenced above in almost every new project that they build, but new construction represents a tiny sliver of the Multifamily industry. According to the National Multifamily Housing Council, there are currently 21.3M apartment units in the US. According to RealPage, 2022 will be a record year for new construction of Multifamily properties with 426,000 units that have either been delivered already, or are slated to be completed by the end of December. That means that newly constructed apartments this year represent only 2% of the total apartment units across the country. It is much easier to install technology in new construction projects because you can run cables before the walls and ceilings are closed, nothing needs to be retrofitted, and the cost of the deployment can be built into the underwriting for the construction budget. Retrofitting an existing building is much more complicated, but I believe that it is necessary as these buildings compete for the same residents that new construction projects are targeting.
Although retrofits are more complicated than new construction, PropTech providers have developed really innovative ways to deploy the same type of technology that is referenced above. A detailed site survey from a reputable company can easily provide a property owner/manager with an overview of what is possible, what the costs will be, and what disruption the residents may endure during the deployment. Fortunately, as long as the doors are properly prepped, a skilled vendor can install a resident door lock in less than 15 minutes, and they only need access to the inside of each unit for another 15 minutes to install the cellular communicator. If a building is fully leased, property owners may not see a need to upgrade their tech stack, but the operational efficiencies and potential increase to rent makes this a wise investment for any property.
The other thing that property owners need to consider when deciding whether or not to invest in these platforms, is how their property fits into their larger portfolio strategy or even a smart city. It is common that real estate owners have multiple asset classes in their portfolio. An owner with both Commercial and Multifamily assets may decide to offer their residents discounted rates to meeting spaces (or flex space) in their office portfolio. Maybe they offer short term rentals in other cities to their residents that travel often. Or, they may want to offer discount passes to nearby mass transit that can be activated by the building App’s digital credential. Another common practice is portfolio owners granting residents of one building with access rights to amenities in other nearby properties. All of these examples are only possible when the right technology has been deployed to activate these experiences.
Choose Wisely
There are many technology options in the market, and proper due diligence is always required. But if I can offer some advice to any real estate company thinking about deploying this type of technology, it is as follows: First, you need to make sure that the technology that you are purchasing utilizes an open architecture that can and has been integrated with all of the other building systems that you use. Secondly, it is imperative that the company that you choose to partner with is a company that you are confident will be around for many years to come. I am a huge proponent of startups, and oftentimes scrappy startups come out with the most innovative technology. But scaling a startup is filled with landmines. Some of these challenges are within their control such as product flaws, poor go-to-market strategies, or the inability to raise additional capital. Other challenges are out of their control such as macro factors in the market including global recessions, supply chain issues, natural disasters, and pandemics. I have seen too many examples of owners deploying the latest and greatest technology from a startup, only to see them go under shortly after. This results in a building full of expensive technology that is no longer supported, and completely useless.
We are in the early innings of PropTech innovation for Multifamily Real Estate, and winners have not yet been crowned. But the technology to power smart apartment buildings exists today, the price points have come down to a place that is affordable to the masses, and renters across the country have come to expect these amenities. The amenity race has officially begun as Real Estate owners continue to compete for the same customer base. Owners that delay these decisions will have a lot of catching up to do in the future.
