Dallas-based third-party multifamily property management firm Riverstone Residential Group announced this week that it has selected the RealPage Cloud Computing Platform to manage the majority of the firm’s IT functions. The deal marks the first significant multifamily sign-on to RealPage’s cloud computing services since the Carrolton, Texas-based multifamily software vendor announced the formation of its cloud computing division in September 2009. As part of the agreement, Riverstone Residential Group’s IT team will continue to serve the firm as full-time associate employees of RealPage.

“It wasn’t an easy decision to make. We certainly weighed the pros and cons for a while and also tried to figure out what are we losing by outsourcing,” says Riverstone Residential Group chief administrative officer Pal Ottesen. “The biggest con was losing the internal expertise. That’s something that every company that is entertaining the idea of outsourcing any part of their business has to begin to account for. What happens if it doesn’t work out and I need to rebuild my shop?”

The increasing costs of trying to update and maintain best-in-class systems and hardware for multifamily deployment ultimately swayed the Riverstone Residential decision. The RealPage cloud boasts two redundant data centers connected by dual 10-gigabit dedicated fiber circuits, hundreds of servers, and more than 600 terabytes of storage. 

“The simple fact is that RealPage is an IT shop, and they have tens of millions of dollars of infrastructure in place that we as a property management firm would never be able to assemble,” Ottesen says. “We get immediate redundancy, speed, performance, and change management. We see a long-term benefit of rising on their coat tails from an upgrade standpoint. As a non-tech firm, we’re constantly looking for ways to not have to chase the pace of upgrades.”

Riverstone Residential Group will retain all applications training staff as it moves its systems applications into the RealPage cloud, a process that is expected to last approximately 60 days. As an exclusively third-party manager, Riverstone Residential Group operates multiple accounting platforms, including systems from Santa Barbara, Calif.-based Yardi, one of RealPage’s chief competitors in the property management software arena. According to Ottensen, the ability of RealPage’s cloud computing division to deliver reporting across those platforms promises efficiencies that were also a motivating factor in deciding to place the firm’s systems in the RealPage cloud.

“The RealPage cloud is a data center dedicated exclusively to the multifamily real estate industry,” explained RealPage president of cloud computing Jason Lindwall in a statement announcing the deal. “In addition to hosting RealPage applications … we also offer hosting services form many popular third party accounting platforms and enterprise applications.”

Executives for RealPage, which is in the process of an initial public offering (IPO), were not otherwise immediately available for comment.

Still, RealPage’s hosting and application for competitor software systems could be viewed as a conflict of interest, and some question the firm’s ability to proffer a best-in-class support role for non-enterprise software.

“Most companies prefer to use the solution provider's cloud rather than a competitor's cloud to avoid potential problems,” said Yardi vice president of marketing Brad Setser in a statement provided to Multifamily Executive.

According to Setser, Yardi has offered client hosting services of Yardi software as a cloud computing option to its user base of some 1,500 clients for more than a decade, noting that the Yardi cloud option is the preferred offering for the majority of companies that use Yardi’s Voyager flagship property management system. “This arrangement avoids potential complications and liabilities associated with unauthorized transfer of intellectual property and proprietary information. It also avoids potential problems with divided responsibility and accountability; that is, problem resolution is more complicated when two separate entities are called upon to resolve a problem,” he said.  

Like most multifamily players testing the cloud computing waters, Yardi continues to watch and respond to the market as customer needs and technologies evolve. “Cloud computing presents an interesting potential opportunity for companies to streamline their operations and reduce costs,” Setser said. “We look upon this transition as one of those exciting and challenging periods.”

Ottensen, for one, seems nonplussed with any perceived vendor overlap. "The biggest concern that we have had from day one is what our clients are thinking and how to communicate that we have gained the resources of a third party that does nothing but IT and a hardware platform that is far superior to anything a property management firm could buy today,” he said. “Some will follow into the RealPage world and some will do something different. But going to a cloud environment is clearly something that more and more businesses are doing.”

Indeed, Seattle-based Pinnacle, an American Management Services Co., has already signed a letter of intent with RealPage to also provide outsourced co-location and network operation services and is in the process of finalizing a services agreement that could be complete as early as next week. 

“We are very close to executing the agreement; we’re just in the final stages of hashing things out,” says Pinnacle vice president of IT Scott McCurdy. “But we have signed a letter of intent for system hosting, cloud services, and networking operations. We are looking forward to it as an assurance that we will have a sound scalable datacenter operated by a company that we have a great relationship with and a lot of trust. It’s a good move for Pinnacle.”

According to the Multifamily Executive 2010 Top 50 Managers list, Pinnacle and Riverstone Residential Group are the two largest multifamily fee management firms and collectively have 365,219 units under management.