Tech Enables Smarter—and More Profitable—Class B Multifamily Operations

Typically, when CRE firms discuss their plans in various sectors, the directions are polar. Either the focus is on Class-A projects or distressed-type properties. But market segmentation often overlooks the great middle. 

In the terminology of high school physics and Newtonian mechanics, when companies do focus on the potential payoffs, technology, even if not new, can be the fulcrum that provides a long lever arm so a business can lift the great weight of profit. 

That’s been the case for Morgan Properties, which looks to Class-B multifamily as a driver of success. With technology playing an important role in better profitability.

The King of Prussia, Pennsylvania-based, family-owned company is in approximately 20 states and has about 96,000 units, according to area vice president Sean O’Neill. He sees Class-A as taking up the top third of markets, Class-C as probably the bottom quarter, and Class-B taking up the middle 42%.

“Class B is an underserved segment at a time where housing need is very high,” O’Neill tells GlobeSt.com. “The economy is strong, the job market is strong, but there’s a lot of pressure on pricing in single family homes and again not a lot of supply. That’s going to be in our favor as well. Class B is meat and potatoes, but it will certainly fill you up.”

Morgan Properties has been on something of an acquisition tear since 2019. While it does own some Class-A, picked up in acquired portfolios, Class-B is its jam.

“We’re in a lot of secondary markets and that’s where the opportunities are,” O’Neill says. “You look at something that may have been Class-A that was built and delivered in the late 90s and early 2000s. That’s 20 years old now. There’s also plenty of stuff in the 60s, 70s, 80s vintage that maybe has been undermanaged for a long time. Not putting the capital in and not taking care of the assets.”

This is where tech begins to tie in. For a company to know what it can afford to invest—whether for roofs, windows, landscaping, tree removal, upgrades in paint and carpet, improved appliances, or something else—it must know what it can get for rent. Morgan Properties uses revenue management system RealPage LRO. 

Many of the previous property owners weren’t really up on market prices, O’Neill explains, “We see opportunity for us to be more competitive and we have the confidence to be more competitive in pricing. LRO is a revenue management system that monitors market forces including demand, leasing velocity, competitor changes in pricing, and helps us to make pricing decisions about where we should push or maybe pull back on pricing. The prices will change daily, based on what is happening with those forces.”

For right now, that has meant upward pressure, and yet by improving properties while not trying to push them into Class-A, Morgan has achieved a balance between rent increases and retention.

“The last couple of years, retention has been in the mid-60s,” says O’Neill. “It used to be around 50%, give or take. People are staying put, have been staying put. To move or lease somewhere else or buy a house, that’s an extra expense.”

And knowing markets also means being able to manage when they eventually recede. “Rent growth we’ve seen is not sustainable, so we have to make sure we manage it on the way down too,” O’Neill says.