Wall Street investors continue to keep eyes on Carrollton, Texas-based multifamily software and service provider RealPage, which continues to trade near its high of 32.50 per share not even halfway through its second quarter as a public company. On Nov. 3, in conjunction with its inaugural earnings call, the firm announced that it had acquired Level One, a leading company in the multifamily leasing call center space. Following the earnings call—which saw RealPage post strong revenue growth across all company divisions and verticals—company CEO and chairman Steve Winn sat down with Multifamily Executive to share his thoughts on the acquisition, the transition to a public company, and the future of multifamily technology.
MFE: Congratulations on a great third quarter and your first full quarter as a public company. What do you think your revenue growth says about the financial health of your multifamily customers and their propensity to spend on technology?
Winn: I think there was a reticence among our customers to spend money on anything over the past couple of years given the uncertainty and liquidity concerns that have been prevalent. But I think the liquidity crisis is pretty much behind us. Debt is available now, and there is a lot of money on the sidelines to buy apartment assets. While job growth has not returned, I do think the rental housing market is extremely robust. It may be more robust today than at any time I have ever seen it. In good times, I think owners are more receptive to investing in technology, especially when it helps them improve their overall operating results.
MFE: If not jobs, than what is driving the positive fundamental trends in the apartment sector?
Winn: We are seeing a significant shift in the percentage of households that are rented versus owned, which swung over 200 basis points in the last two years and is expected to continue to move. With 13 million mortgages in default or without equity, there is a significant influx of renters coming out of homeownership. I think that floodgate is just now beginning to open. The banks seem to have gotten through the documentation freeze that had stalled out a bunch of them, and Gen Y is begging to reach its peak renting years. The rule of thumb used to be that you got one new apartment out of every four new jobs. I believe that there is very significant demand independent of job creation at this point, and if you couple that with a significant slowdown in new construction, there is a very positive dynamic working in favor of our industry.
MFE: RealPage is seeing revenue growth across its business verticals. Are clients bulking up on functionality or moving to a single-source model?
Winn: I wish people would glom onto this idea of a single source, but I don’t think that is the case at all. Every single product and service we offer is measured against the competition, and we have to win on the merits of each product individually. There’s not a rubber stamp here that is operating to move towards a single source—you have to be good at everything or you are not going to win.
MFE: Nevertheless, the Level One acquisition impressed a lot of industry watchers as an effort by RealPage to meet its customers at all touch points.
Winn: Well, Level One does the same thing that our [existing] Crossfire leasing center does. They are an extremely well-run organization. Todd Baldree and Buddy Long have done an incredible job of building a great organization that really begins with the recruitment and mentoring of leasing associates. I was delighted that we were able to combine our forces. It gives RealPage a significant amount of scale in the leasing center space, and it is my belief that the way sales and marketing operates in this industry is going to change.
MFE: Baldree indicated that RealPage is interested in being part of a positive but ‘disruptive’ change in the way apartments are marketed and rented. What do you think are the more likely operational changes at the site level when it comes to technology?
Winn: Look at the ILSs that are trying to drive more leads to customers and are defining their success on the quantity of leads they generate; we believe that formula is backwards. You don’t necessarily want to drive more leads—then you need a lot of resources on site to process those leads. You want fewer, much higher quality leads that result in the same or more leases. We want to complement the on-site leasing staff and improve the likelihood of closing leases and expand the capacity of the on-site leasing staff to process those leases. I think centralized leasing is a mega-trend in the way marketing is going to be conducted in this industry, and Level One gave us the footprint and scale we need to offer that service to the entire industry and not just the upper end of the market.
MFE: What do you think the multifamily leasing office looks like in the next three to five years?
Winn: I certainly don’t subscribe to the notion that you are going to get rid of a leasing office. You need great leasing professionals to show the apartments and close the leases. But I don’t think that leasing offices are staffed necessarily the right way to optimize their cost effectiveness. The costs here are astronomical—the typical community spends $150 to $250 per apartment in marketing to generate leads and another $350 to $500 per unit in sales and leasing costs to close the leases. The amount of money being spent in this area—if you can drive productivity improvements of just 10 or 15 or 20 percent—that becomes a giant number, perhaps the greatest opportunity for significant NOI performance improvement.
But it’s not one thing: It’s a combination of reengineering the work on site that will dramatically improve productivity. Leasing kiosks are a great example. Often leasing associates are occupied and cannot respond to a walk-in. To have a kiosk for prospect interaction with the community is extremely important. And the price of these kiosks has dropped like a rock—a lot of people are simply using an iPad within a kiosk frame.
MFE: Do you have any fears that technology spending will slow as firms enter this next golden age of growth in rent fundamentals? That is, will your clients be so busy with business that systems investments are an afterthought?
Winn: That is not our experience. This recession was a unique moment in history. In our industry, it wasn’t the economic slowdown as much as it was the change in liquidity that was so frightening to everyone. When banks stop loaning money and want to accelerate terms and you no longer have predictability on the ability to finance or refinance, that causes you to not want to move in any direction. And that’s what happened. It was an amazing sequence of events that caused the markets to freeze the way they did. I think some of the growth that we are experiencing right now is due to the fact that checkbooks have opened up again. They should have opened up before now, but people were simply afraid.
MFE: Thank you, Steve.
Winn: Thank you.