Smart Tech, Preparing for a Downturn Highlight Maximize Discussions
Blockchain, smart home tech and preparing for a down market were among the major topics at NAA’s asset management conference, Find out what other topics came to the forefront.
New technologies, whether they are blockchain, short-term rentals or smart-home features, are giving asset managers a lot to think about. With so many options, its harder than ever to invest in technologies and providers. Add on the challenge of figuring out when this rental run, well into extra innings, will end, and the asset manager’s job become even harder.
Fortunately, these topics were discussed at Maximize in October in Carlsbad, Calif. Here are seven takeaways:
Improving Data Collection
From revenue management to business intelligence, the apartment industry has come a long way in terms of the collection and analysis of data. But there is still more to do, according to Kyle Dupree, Senior Vice President with LaSalle Investment Management.
“As an industry, we are not as good at collecting demographic data as we should be, partially because it is not a mandatory process with some systems” Dupree says.
Jay Parsons, Vice President of Asset Optimization at RealPage, said his company did an analysis of data that property staff at communities around the country entered into databases. While most companies are mandating their staff makes proper inputs, some outliers do not. When that happens, often the income line would be represented with a 000 or 999. Translation: ignored.
“If your team is not inputting all data into its system, they should be,” Parsons says.
Some Deals are Problematic
While lenders and buyers have generally been more conservative this cycle, Ian Mattingly, President of LumaCorp, is seeing a return of some of the failed underwriting strategies from the mid-2000s—specifically buyers relying on large amounts of debt to buy deals. “Buyers are counting on debt to do their underwriting,” he says. “It’s a pure debt driven play.”
Much like what happened during the previous cycle, these buyers seem to have an overly optimistic view of the market. “You have to be realistic,” Mattingly says. “If you think you’re in the seventh inning, it’s not a great idea to project another five innings of above-average rent growth.”
Tech Solutions for Transactions
If a limited partner wants to sell its stake in an apartment investment, it can be a timely and expensive process to exit. Joshua Stein, CEO of Harbor thinks he offers a solution.
Harbor is working to tokenize private securities and solve the compliance challenges of trading them on blockchains, which is a growing list of records--called blocks--that are linked using cryptography. Stein contends that tokenization can cut the discount a seller has to take from 30 percent to 50 percent to 15 percent to 20 percent.
“Tokenization allows the industry to syndicate more efficiently and quickly,” he says.
Stein says he has six to eight deals in the pipeline, but admits that apartment owners will be skeptical about trying a new technology that could change the way partnerships in real estate deals are traded. The attendees at Maximize peppered him with questions about the security of blockchain trades and the ways properties are valued.
Said one attendee with skepticism, “Blockchain is an answer looking for a question.”
Short-Term Hotels Are Already Here
A number of companies, including Locale, The Guild and WhyHotel, want to take the pain out of the lease-up process. While their strategies differ, these companies assume management of the empty apartments in a lease-up and then rent them on hotel and short-term stay platforms.
WhyHotel signs a management agreement or retail-like lease to operate a 24-7 serviced hotel out of the vacant new construction apartments. The company then provides the apartment owner with up to 80 percent of the net profit.
The Guild and Lyric, which also rent units in stabilized deals, lease apartments for multiple years and offer varying levels of hospitality services.
“We are an anchor tenant with long-term stable cash flow that reduces the number of apartments you need to lease out on your own,” says Chris Herndon, Co-Founder of The Guild.
In addition to taking the risk out of lease-ups, these hospitality operators say they offer valuable resident amenities, such as deeply discounted stays for family members when they visit. The income they offer in lease up could also change the underwriting math for developers.
“When you can underwrite an additional two or three million dollars on lease-ups, that can help a deal pencil out,” says Jason Kamen, Director of Real Estate and Partnerships for WhyHotel.
Owners and operators who have been through the ups and downs of real estate cycles know the apartment industry’s almost decade-long run of growth cannot last forever. Some people are taking steps for the slowdown.
“We are giving up some rent growth in exchange for 96 to 97 percent occupancies,” Mattingly says. “At the B or C segment of the market, the population we are serving is not seeing as much wage growth.”
Not everyone is ready to put on the breaks yet. “We are still trying to push rent growth as much as we can,” says Michael Becker, Principal at SPI Advisory.
Smart Tech May Soon Reach a Tipping Point
Weighing the benefits of smart-home technology is not a new challenge for asset managers. But with more companies adopting these products, the competitive advantage of having them may end.
“I estimate in about 5 years, apartment operators won’t be able to charge more for smart-home features because they will be expected by residents – the time to capitalize on smart-home is now,” says Jeffrey Kok, CIO of Mill Creek Residential.
Steve Boyack, Senior Managing Director, Real Estate for Greystar, says operators should first invest in smart access technologies. With dog walkers, house cleaners and other service providers coming in and out of a community regularly, that strategy makes a lot sense.
“In a building with standard locks, all of these [service providers] must go to the front desk or concierge to get an entry code,” Boyack says. “That burns their staff members’ time.”
Marketing and Pricing are More Important in a Downturn
The long-term shift to marry marketing and pricing continues. In a down market, that becomes even more critical.
“When you hit a soft market, you go on the defensive and your pricing strategy shifts,” says Brandy Daniel, Vice President of Business Intelligence at BH Management Services. “It is important to get the word out through your marketing that you have lowered your pricing.”
In the last downturn, many apartment firms cut marketing positions. In the next recession, Trachelle Spencer, Director of Revenue Management for D2 Demand Solutions, say firms need to reconsider this strategy.
“Over the last ten years, marketing has become essential to a company’s success,” Spencer says. It oversees various third-party software platforms in addition to managing each community’s brand, messaging, campaigns and most importantly they help generate the leads needed to sustain occupancy."