John Westrum knows what numbers he needs to hit to turn a profit. But decades of experience have taught this developer that intangible assets also can produce outsized tangible results.
Case in point: Happy hours.
“The biggest feature we have in our senior living facilities is always a bar room,” says Westrum, president of Westrum Development in the Philadelphia suburb of Fort Washington, Pa. “My investors and my company thought I was crazy when I put a bar into the first building we built. It’s a BYOB bar. In those communities Friday happy hour may start at 5 p.m., and people will get there at 4:10 to get a seat. It becomes a ritual.”
But it’s not just at senior facilities where this works. “In millennial housing, we put in a very large bar area that’s again BYOB, and it’s the centerpiece of all our amenities,” Westrum says. “People will go there and put their laptops up on the bar; they’ll hang out.”
Seeing crowded booths and early-bird attendees provides Westrum all the proof he needs that those BYOB bars were a good decision. But for developers, the data rarely is that obvious. It takes research to bet, as Westrum Development did, that today’s rental customers will give up some square footage in their apartments in exchange for more communal spaces. And then it took more number-crunching by Westrum to show that the bet paid off. “Some [other developers] might be getting $1.73 per foot for net leasable space,” he says, “but we get $2.67 a foot because we have so many other things.”
Soon, developers like Westrum will have the opportunity to dive into even more—and more useful—numbers, thanks to the arrival of both big data and 5G wireless networks.
Just as Georges Seurat combined millions of dots to create a painting, ever more powerful computers and networks are making it possible to combine data points into a much sharper portrait of a property’s prospects. Sometimes the results can be jarring. For instance, McKinsey noted that Seattle apartment buildings within a mile of specialty grocery stores like Whole Foods and Trader Joe’s appreciated faster during the past decade than apartment buildings farther away. Other influencers that developers might not typically factor include the number of cafes within a mile of the building and the quality of Yelp ratings for nearby restaurants. Taken together, such nontraditional variables can provide up to 60% of the “predictive power” when a developer calculates a site’s potential, McKinsey says.
“Advanced analytics cannot serve as a crystal ball,” McKinsey cautions. “In most cases, it should only support investment hypotheses, not generate them. But when it comes to these classic real estate conundrums, advanced analytics can rapidly yield powerful input that informs new hypotheses, challenges conventional intuition, and sifts through the noise to identify what matters most.”
Data and noise also apply to 5G wireless networks. These super-fast data connections won’t just speed up renters’ devices. They also will enable the so-called internet of things, in which devices that monitor the local environment nonstop can be plugged into a network that in turn can respond to those conditions.
Inside these smart buildings, landlords and customers will find it easier to adjust thermostats and other controls to save on heating and air conditioning. Lights will switch on only as needed. Facial recognition software will make the building more secure. Monitors on core systems will alert maintenance crews when equipment is nearing a breakdown. And motion detectors will help landlords determine which amenities—including the BYOB bars—are getting the most use.
IT investors are big on the sector, having invested a reported $20 billion in so-called PropTech companies. But if you’re a developer looking to cash in on the internet of things’ benefits, keep in mind that this data will require a robust infrastructure to deliver what you want while also keeping your Wi-Fi-crazed customers happy.
Ian Bryant is vice president of CEDIA, the Indianapolis-based trade association that’s devoted to electronic systems in the home. Speaking as someone who already counts roughly 40 wireless devices in his 1,100-square-foot apartment, he says developers should take care when they plan on installing systems that will layer hundreds of IoT devices on top of what renters will be using.
“My apartment complex is four stories tall and has 300 apartments, and from my room I can see 30 wireless networks,” Bryant says. “If all you do is put in a lot of wireless repeaters and put them to full blast, you’ll just be intensifying the noise. That’ll give people a bad experience.”
The challenge comes in part because IoT sensors are working around the clock, so even at 5G speeds there’s a potential to clog the airwaves. Another is that 5G signals don’t travel as far as current versions of wireless. His recommendation is that developers continue to provide hardwire connections in each apartment so that a high-bandwidth hog like a streaming device has unfettered access to the internet. A wireless router tucked into each apartment will serve the rest of the occupant’s needs, while a different system should link the IoT devices.
Bryant says 5G’s rollout isn’t as far along today as telecom companies might lead you to believe. At the same time, Westrum says he typically needs to think five years ahead—two years to get entitlements for a project, 18 months to build it, and up to 18 months to rent out the building. “In five years a lot can change, so you tweak it as you go along,” he says. That means Westrum will need to keep relying on his gut to make decisions a little while longer, until the time comes when big data and IoT will make his job easier.
