Build or Buy?

Lane Co., an Atlanta-based third-party manager of more than 30,000 units, has always maintained a dedicated practice for public housing clients. “It may not be the most profitable stuff in the world, but we believe in doing it from a community-oriented perspective,” says Dan Haefner, Lane's chief information officer.

Such a philosophy hasn't been easy, technology-wise. While Lane's property management software has an affordable housing module that addresses 80 percent of what Lane needs for its public housing clients, “there's still that other 20 percent,” Haefner acknowledges. For example, the company's contract with the Atlanta Housing Authority requires Lane to track residents' progress through the agency's Moving to Work program. Since mainstream property management programs don't offer that type of specialized tenant-tracking capability, Haefner and his IT staff had to develop something that did.

Now, using a proprietary public housing module it created itself, Lane can tell the Atlanta agency when residents complete specific educational requirements, or fall behind in the program, while tracking numerous other pieces of information unique to the sector. But such features didn't come cheap: Haefner says the project took two years to develop and estimates the soft costs at $250,000. “We developed it because we had to,” Haefner says. “It was the only way we could stay on top of our client requirements.”

Lane's experience in deploying that system for its public housing clients belies a fundamental shift when it comes to multifamily technology today. In an industry where building technology from scratch was often the only choice firms had, doing IT projects in-house now has become a measure of last resort for apartment firms.

As a multitude of vendors have crowded into the business, offering everything from resident screening applications to online payment processing and electronic lease programs, in-house development has become a less appealing and less necessary choice. And given software programs' growing adaptability, multifamily tech execs say that if you can't find exactly what you want off-the-shelf, you probably can modify existing software to suit your needs.

“If you can buy it, buy it,” advises Patrick Gregory, chief information officer for Richmond, Va.-based United Dominion Realty Trust, a REIT that owns and operates nearly 75,000 units nationally. “There's so much more available now than there was, that it's really a much easier choice. If you build something, you own it, which means you own the cost of maintaining it and hiring the people to support it.”

Cost, of course, is a huge part of building something from the ground up. “I know this: Whatever you decide to develop on your own, it will cost you more than you anticipated,” Haefner says.

That's one reason that observers now say most in-house IT projects are only used to address highly specialized processes, such as Lane's public housing module, that aren't available commercially. “But in the future, I'm hoping [other solutions] will continue to evolve, so that we can carve away what we've developed, and enter everything into one system,” Haefner says.

With the advent of Web-based software, that evolution is happening faster, too. At United Dominion, Gregory says his team started developing an in-house lease-renewal system at the end of 2005. Since development time was kept short—less than six months—UDRT was able to keep costs relatively low. But in the interim, yield management systems from both Atlanta-based The Rainmaker Group and RealPage's M/PF YieldStar division have progressed to the point that Gregory and his team are now testing them to augment, or even usurp, what they developed internally.

“We've received great benefit from what we developed, but that doesn't mean that at some point, it won't be replaced,” Gregory says. “I think a lot of our peers are in the same situation: they may have developed something in-house, because it either wasn't available or they weren't ready to move to a commercial system, but now the functionality is there.”

Of course the question of whether to build or buy software often comes down to whether or not an off-the-shelf product can do what a business needs, from routine work to custom processes. “It's the classic strategic decision within IT,” says Patrick Gray, president of Prevoyance Group, an IT consulting company based in Harrison, N.Y. “Building offers the ultimate in customization, but at a higher cost. On the other hand, package software is growing increasingly more flexible, but still expects some level of adapting your processes to the software.”

After initially looking into developing a custom program itself, the Athena Group, a New York-based developer and operator of approximately 4,500 units on the East and West coasts, decided to implement a packaged solution instead. It chose Chicago-based Sonoma Partners' CRM Elements for Real Estate to help manage concessions offered by its sales force. “We're a small organization, relatively speaking,” says Harold Willig, the firm's controller. “It really came down to how much could we allocate to designing and working on something ourselves. It was going to be a tremendous investment to design our own application.”

But the firm was concerned about how tailored Sonoma's solution, which was written as an add-onto Microsoft's customer relationship management software, would be. Working with Sonoma, Willig says Athena was able to dictate specific fields in the program, which has enabled the firm to achieve 100 percent compliance on concessions. “We were able to customize it, and we continue to customize it, just like we would have if we developed something ourselves,” Willig says. “But here, we didn't have to start from scratch.”

At Lincoln Property Company in Dallas, a third-party fee manager that oversees 112,000 units, director of information technology Brian Galla says the firm has developed a number of in-house solutions, but that they usually work in tandem with commercially available packages. He cites Lincoln's intranet system, which is designed to work in conjunction with property management software from Santa Barbara, Calif.-based Yardi Systems. Beyond that type of specific customization, though, he says the options available on the market today are hard to ignore.

“If you're looking at a resident portal, for instance, 90 percent of it is going to be the same no matter who the management company or ownership entity is,” Galla says. “There might be a small percentage of functionality where you go in and customize it, but at that stage, you're really talking about point solutions. That's what we've done.”

Joe Bousquin is a freelance writer in Newcastle, Calif.

HOW TO DECIDE WHETHER TO BUILD OR BUY NEEDED TECHNOLOGY

• Only build what you have to. In-house development is expensive. There are a myriad of off-the-shelf packages today specifically tailored to the multifamily industry. “If you can buy it, buy it,” says Patrick Gregory, IT director at United Dominion Realty Trust.
• If off-the-shelf packages don't offer exactly what you want, work with the vendor to add custom features.
• In-house add-ons can help with internal operations, such as designing an intranet to work in conjunction with a commercially developed property management system.