2023 is being called the year of efficiency for the multifamily industry as owners and managers face a tougher operating environment, according to speakers at the MFE Leadership Summit in early March.
“Operating expenses increased 5% in 2021, 7.5% in 2022, and this year will be rough,” said Jeff Adler, vice president at Yardi Matrix. “Taxes and insurance aren’t going to go down, and you continue to have labor cost pressures. You’ll get some benefits from declining raw material costs and finished goods products, but it’s still going to be a tough year.”
With higher expenses and decelerating rents, Adler said operators are going to need to find ways to manufacture net operating income (NOI) growth.
Michael Lynd, CEO of Kairoi Residential, told the audience that the industry is back to an operators’ market.
“It's now a much more challenging environment where you're going to have to pay attention to expenses,” he said. “It's the most challenging insurance market I have experienced in my life. We're still experiencing significant wage pressure. In our area, it’s highly competitive, and we’re paying more.”
According to speakers, proptech can be one avenue to finding efficiencies this year and beyond.
“People are looking hard at expenses this year. I think it is the year to prove whether or not you have operations. Whether or not you can operate is also going to demonstrate whether you had investment discipline when you allocated the capital in the first place. If you didn’t buy it right, it’s hard to operate your way out of that,” said Anne Olson, chief operating officer at Centerspace. “I think technology is a real key to that.”
Olson said Centerspace has invested in a lot of technology in the last three years both internally on its own platform and in the proptech sector.
“Maybe not because it’s going to solve all of our problems, but because the staffing issues are becoming so exacerbated that we need to create efficiencies on-site to run the properties with less people but also run the properties with less qualified people than we had in the past. We are just not seeing the candidates,” she said. “That’s the approach we are taking.”
Middleburg partner and chief growth officer Janine Jovanovic said it’s an interesting intersection of forces right now.
“Achieving expense efficiencies is not that difficult on the people side because our customers actually don’t prefer to interact in person as much as they used to with teams on site, and our team members don’t prefer to work the same hours that they used to and be available to have that in-person interaction,” she said. “Accepting that new reality and leveraging the right technologies to enable a better customer experience and a better employee experience actually generates the efficiencies that everyone is looking to achieve today.”
Tom Bumpass, executive director of technology and business systems at Greystar, added that the industry is trying to do two things: drive and manage NOI by finding new forms of revenue as well as creating efficiency in operations.
“But at the same there’s this real change in demand and perceptions of what the customers expect—they are paying more and we want to do more for them. When you start thinking about centralization and taking people off the property, those things seem in opposition. Technology sits right in the middle of that.”
Bumpass said one of the silver linings from the COVID-19 pandemic was the acceleration of proptech. With a lot of innovative solutions with good capabilities now on the market, he urged a thoughtful approach.
“It’s not just technology for the sake of technology. It has to be eloquent technology that enables the business practices that you want and are simple enough and engaging enough with your residents to where it really does take that place of the human experience.”