Anyone who has ever worked in multifamily knows the industry labors under the image that it's slow to embrace new technologies.
But ask Robert E. DeWitt about apartment operators' interest in adopting what's come to be known as "PropTech," i.e., technologies that help companies operate, buy, and sell real estate, and he sees a lot of energy and enthusiasm for exploring new solutions.
"I've never seen it more activated," says DeWitt, president and CEO of GID, an apartment developer and investor that operates more than 29,000 apartment homes in 14 states. "I'd say that all of the companies I'm aware of—the big public companies and the big private companies—have the same goal that we have in terms of availing themselves of new PropTech."
The energy isn't limited to operators. Both venture capitalists and startups see abundant opportunities for PropTech growth in the multifamily arena.
According to CREtech's 2019 Mid-Year Report, venture capital investments in PropTech companies totaled $14 billion in the first half of this year—up from $9.6 billion in 2018 and $12.6 billion in 2017.
Larry Bellack, president of Mobile Doorman, a software provider of custom mobile apps connecting residents and their communities, suggests renter preferences and expectations are a key catalyst to the engagement of more funding in multifamily PropTech.
“Over the last few years, residents have said ‘I deal with the most cutting-edge technology in every part of my life, except where I live,'" says Bellack. “Those sentiments are probably the single biggest piece that has pushed [its funding]. Our industry has spent so many years acquiring customers that over the last two years the big push now is what do we do with them once we have them?”
There has been a massive shift to introduce new PropTech into multifamily. That technology has taken the leap forward, offering a new bridge between the resident and multifamily operators to embrace new technology, he explains.
Operators, supplier partners and technology investors all have important roles to play if PropTech is to continue to advance in the industry, multifamily observers note.
Doing Due Diligence
For most apartment operators, the simple truth is that they need to turn to supplier partners for technological solutions. As DeWitt notes, multifamily companies typically don't have the resources to develop and implement new solutions on their own.
"Most of us recognize that we're real estate companies first and not technology companies," DeWitt said. "And we could all spend a lot of time and energy trying to develop something that's proprietary, and yet we'll probably never get it right."
Considering GID’s size and focus on property acquisition, finance, and management, the company doesn’t have a big in-house tech department and doesn’t want to spend financial resources or human capital to develop technologies. As such, the firm has deployed multiple vehicles—both by investing in private equity funds as well as piloting other technologies like Mobile Doorman within the space—to enhance its technology stack.
As part of Real Estate Technology Ventures, a venture capital fund focused on building cutting-edge technology companies to serve apartment owners and operators, GID, along with Aimco, UDR, Essex, and Cortland, invest in technology providers they deem promising. Operators can help them perfect their solutions and prepare those solutions for widespread deployment by conducting pilot tests, DeWitt notes.
Before making those equity investments, however, apartment companies need to ask themselves some tough questions and be prepared to dig to find the answers.
"It's not just the idea—it's can the technology provider translate that idea into a commercially viable product? Does the management team at the technology company have the requisite experience? Can they grow an enterprise themselves?" DeWitt says. "Is there anybody on the management team that can help sell the product? Do they have a back-office capability that will enable them to be a surviving enterprise?”
"You look at the actual technology and what need it's addressing," he continues. "And then you have to make an assessment as to whether or not you think that management team is capable of executing on the technology and on building an enterprise."
According to Ankeet Kansupada, who focuses on private investments on behalf of Reimagined Ventures, an early stage venture capital firm, venture capital investors are strongly interested in multifamily PropTech.
"There are obviously tailwinds in the market for the rental housing market," he explains. "Millennials are living in apartments more than buying homes."
According to Josh Porter, who also focuses on private investment on behalf of Reimagined Ventures, which was an early investor of Mobile Doorman, venture capitalists can't afford to skimp on their due diligence before committing investment dollars.
"We like to look for companies that have passionate founders and founding teams, that are really engaged in the problem they're trying to solve," Porter says. "We want to see that they are capital efficient. Are they looking at the ROI on every dollar that they're spending? And then we love businesses that are replacing pen and paper or analog practices, that have the potential to disrupt the industry."
The Importance of KPIs and Communication
A PropTech provider who can't provide or won't discuss its key performance indicators is one that is bound to have a rocky relationship with investors—if they're able to attract investors at all, Kansupada and Porter note.
"If a company can't provide KPIs, you don't know what they're managing toward or what they're managing for," Kansupada says. "The ones that say everything's going great are the ones that usually have trouble providing the KPIs. What we find is that the ones that are humbler and say, 'These things are going really well. But as you can see by our KPIs, these are the areas where we need to improve,' those companies are the ones that are going to get where you want them to be."
Porter reiterates the need for transparency in the investor-vendor relationship.
"When founders and management teams hang a lantern on their problems and are up front with investors about bad news, it allows us to collectively be proactive about trying to find a solution rather than being reactive and scrambling at the 11th hour," he says.
Bellack notes that supplier partners themselves need to conduct research on investors before accepting their helping hand.
"We look at the individual companies that are investing," Bellack says. "What is their experience in the multifamily space, or what is their experience from a software or tech space? For us, it has to be about the culture and the fit. In other words, we want to have a partner who is truly a value-add."
To enhance the company's relationship with its investors, Bellack suggests making a point to regularly share critical internal metrics. Both investors and PropTech companies should expect some natural tension, but that can be extremely productive, according to Bellack.
"Everyone has to understand at the beginning of a partnership that their job as investors is to help move the company forward, not become a hurdle you have to jump over," he says. "It's a balancing act—at some point in any good relationship one side is going to feel like they're giving more than they're getting and vice versa. We go through that, and our investors go through that. But at the end of the day if you're at least taking two or three steps forward and maybe only one step back, everybody wins."
