After a decade’s worth of multifamily automation, the truth has finally sunk in. Automation “frees” on-site staff from the arduous administrative task of shopping comps and setting rents in order to focus on leads. Translation: Less back-room busy work equals more customer face time. And therein lies the allure of automation. From leasing kiosks to electronic rent payments and online maintenance requests to Internet marketing and community portals, the entire thrust of property management technology development has been to virtualize leasing office operations.
“Automation on the operations side is the biggest thing we are being asked to help with from a systems development perspective,” says Blaine Davis, a senior product manager at Cleveland-based Intuit Real Estate Solutions (IRES). “Especially on the leasing side of the business, people are embracing operational automation changes much better than two years ago.”
Revenue management is the poster child of that automation. The technology has certainly proven itself out over the years, relying on algorithms and demand-forecasting to pinpoint optimal lease terms without the need for human input. It’s an artificial intelligence system that adopters say is better and faster at setting optimal rents than any submarket-steeped management veteran, delivering a typical 3 percent to 5 percent lift on net operating income (NOI) and a renewal matrix more evenly spread over time.
Ironically, these property-level systems advancements have helped to re-professionalize on-site staff. When leasing associates no longer have to shop and set rents, handle maintenance requests, accept checks, manage renewals, or process lease documents, they are suddenly able to better manage the sales and customer relationships. “You want managers who are assisting residents to make their apartment a home, where the reason for the knock on the door has nothing to do with asking for rent and addressing maintenance problems,” says Georgianna Oliver, president and CEO of Washington, D.C.-based real estate technology consulting firm EverGreen Solutions.
Meanwhile, a suite of automated operations systems chug along unhindered in the server room, producing a much-anticipated and heralded by-product: Vast amounts of specific data on the national, regional, submarket, asset, and unit level that is now available en masse and in real time. Prodded by stat-hungry multifamily executives, systems developers at all of the major multifamily tech firms are now engaging their R&D teams to figure out what else might be achievable when computers crunch the numbers. And that’s where things start to get interesting.
The comprehensive aggregation and analysis of data—in an effort to help forecast demand and automate the acquisition and disposition process—seems to be one of the latest goals of industry tech providers. “Consider the possibility of integrating best rents into valuation and cash flow modeling of potential developments or acquisitions,” offers Brad Setser, vice president of marketing for Santa Barbara, Calif.-based Yardi Systems.
“We [already] have the ability to model assets by using lease data and market leasing assumptions; it would be interesting to see how best rents over time could function as one of those market leasing assumptions,” Setser continues. “It could revolutionize property valuations and cash flow analyses.”
Setser says Yardi has been focusing heavily on forecasting for acquisitions and dispositions via tool sets in its PortfolioVMF (valuation, modeling, and forecasting) product, which allows owners and investment managers to leverage lease data, vacancies, budgeting data, and more at the operating level to forecast the outcome of A&D decisions for single assets and portfolios.
Yardi is not alone in its quest to help automate deal-penciling with a demand-forecast driven application. Both IRES and Carrollton, Texas-based RealPage are working on similar systems where users can use comprehensive rent data sets to gain greater transparency into the true current values—and expected future returns—of individual multifamily assets and property portfolios as a whole.
IRES senior product manager Mike Bates agrees that diminishing asset return in the multifamily arena is creating a need for quality decision-making of the likes that IRES’s IMPACT modeling software and future software integrating demand forecasting might provide. “People are looking across entire portfolios to gauge asset fundamentals and determine acquisition and disposition opportunities,” he says. “People used to be able to afford the time spent on those decisions because returns were better. Now, we’ve got the data to do it faster.”
Resistance is Futile
At the RealPage User’s Conference this past summer, CEO Steve Winn previewed PeerWatch, the firm’s real-time market intelligence application, which promises to provide instant visibility into national, market, and submarket rent fundamentals based on actual transactions at 13,000 RealPage connected communities across the country, approximately 2.3 million units. Aggregation of the PeerWatch 1.0 data set was on track to be completed last month (as of press time), and RealPage is already planning for next-generation apps that might leverage the data.
“I have been toying around in R&D with a simple valuation model: Give me your cap rate, per-door expense, and a couple of other metrics,” says Jeffrey Roper, principal scientist and chief product officer for RealPage’s M/PF YieldStar unit. “Those metrics could forecast, say, a revenue-optimized rent at $700 and a valuation-optimal rent of $736. I’m not a big dial fan, but maybe we allow for a blending of those, so if you are in NOI mode, you are cranked all the way over onto the revenue side, whereas if you’re thinking of disposing the asset, you start leaning towards valuation. Or, if you need to drop an asset immediately, then boom! You are at 100 percent valuation.”
Given the early perceptions and subsequent adoption hurdles of revenue management, Roper and others are clearly sensitized to the human variable in all of their automation efforts, particularly now that technologies promise to replace job functions of asset and portfolio managers and quite possibly even C-level executives. “The biggest barrier once you get past the idea of whether you can do the science is whether you are threatening,” Roper says. “You are introducing a system to people who have been at their jobs for 20 years. The closer we get to the deal, the harder that challenge is going to be.”
Multifamily tech pundits agree that current industry systems are pregnant with inefficiencies and often ripe for further automation. In their own words:
“It is still nearly impossible to completely go through the entire lease process and move-in online. Web sites have to become more interactive and be automated to handle the prospect all the way through the resident life cycle. In addition, the industry does not do a great job of mining data, but it almost has to get there to meet the demand from the executive dashboard level on down to make faster, more educated decisions in this economy. —Georgianna Oliver, EverGreen Solutions
“Amenities, because they are not static, are seasonal. They are also not durable. An amenity is an amenity for a couple of years until it saturates the market—then it is an expectation. The auto industry has more of the model that I think we will end up with. You no longer go in and say, ‘I want the stereo and the leather seats.’ Instead, you get to choose from the sports package or the fun package.” —Jeffrey Roper, RealPage
“For resident-facing automation, the industry could have more online service requests and fulfillment, lease renewal automation, online resident payments, online concierge services, and community social networking. On the operations side, there are plenty of opportunities as well—utility billing automation with electronic billing and resident accounting integration; e-procurement and procure-to-pay automation; online vendor management; and electronic vendor invoicing.” —Brad Setser, Yardi
“The whole concept of online leasing—we don’t believe that has truly been solved yet, but I think within the next three to five years, it will be adopted by the industry as a whole and expected by prospects who are looking for it already. From guest cards through to renewals, we will see a completely paperless process.” —Blaine Davis, IRES