What are Multifamily Operators Prioritizing in Tech This Year?

Ask Todd Watkins, COO and general counsel at multifamily investment and asset management firm RailField Partners, his technology wish list for 2024 and he’ll give a succinct and emphatic answer: “Less.”

“We now have property managers who think there should be a technology solution for every problem, and charge us as such,” he tells GlobeSt.com. “We need more people who will get up from their desks, walk their properties, and know their comps and their markets, not rely on some system to tell them what’s going on.”

His concerns echo something others have also told GlobeSt.com. While technology is in wide use in the multifamily industry, many owners, investors, and operators find a constant push to add more technology to what they’re using to be overemphasized, expensive, and underwhelming.

“I’m not against tech, but you reach a point where it’s just too much,” he says. “I have a kid who’s a computer science major. He uses real AI, not what people try to pass off as AI.” He hears companies tout the latest thing. “It’s shiny and it’s bright and it sounds new,” he adds. “Most people in the chain want to pass it onto someone else. I’m the someone else.”

RailField uses third-party property managers as it has properties in 12 markets through the Mid-Atlantic, Southeast, and Texas. The management companies are the ones who regularly push for new tech. “They will propose a budget to us, and it will have every cost you can imagine,” Watkins says. “But it will go under software licenses and maintenance fees.” During a phone conversation, he took count of charges from one property manager. There were seven different software licenses they charged for. “Just those seven in that one budget is $1900 a month that I pay in licenses.”

The latest push is for revenue management software. “We’re going to go old school and not use revenue management on some of the properties,” says Watkins. “I think it’s garbage in, garbage out. If you don’t have people who know how to use it, it’s useless. I think we’ve created a generation of managers who don’t know how to use it.”

Watkins and RailField aren’t the only ones with a skeptical eye.

“Our management software platforms work on AppFolio,” says Ryan Reich, chief investment officer of Mountain Shore Properties, which has commercial and residential interests with a self-reported $400 million in project value. “I feel they hit me up once a month. We have a real estate development fund, so we use AppFolio to manage a lot of different ways we interact with investors. They also have a management platform for residential managers.”

“I think most of the people talking about tech in the real estate industry are the people who develop the tech,” Reich adds.

The flood of offerings, many cryptic to people in commercial real estate who might not have a strong technical grounding, can in itself become a bewildering distraction.

“There is app and tech exhaustion,” Joya Pavesi, EVP of marketing and strategy at property manager RKW Residential, tells GlobeSt.com. “Everyone tells you why it’s going to benefit you, but too much technology can be a bad thing.”

“I’ve been in a bunch of different businesses in my career,” Jeff Klotz, founder and CEO of the Klotz Group of Companies, tells GlobeSt.com. “Formerly, I was in the commercial printing business. You were always chasing technology. If you didn’t play that game, you weren’t competitive. The multifamily industry is trying to become that way with all the tech software. We’ve been inundated with tech software.”

Pushing new software as something that companies must adopt or fall behind is about as old as the industry. There were two major strategies in place. One was to find economic sectors that have a relatively low use of technology, develop specific vertical tools and packages for those industries, and then push sales of the industry-specific products with a promise of remarkable paybacks and, as Klotz remembers, fear of being left behind.

The other strategy, that developed over time, was how to attain ongoing revenue. Vendors started with selling ongoing licenses for applications, but that soured because there wouldn’t be an outstanding need to get a new version until Microsoft and Apple developed new versions of their operating systems. The existing software often wouldn’t still work, so users had to buy newer versions.

A shift occurred in the early 2000s. Companies moved to hosted software models running on their own equipment or eventually in cloud structures. The software effectively became rental. Rather than owning a perpetual license for previous purchases, businesses had to pay annual fees for ongoing revenue to the vendor. Then vendors kept adding new features in part to keep people feeling that they had to stay with a package, even though license prices might rise. Then came add-on services for additional sales and revenue.

But not every service or even upgrade is necessary for each business. Owners and operators now need to develop other criteria than promises and often even hype. Does new tech help an aspect of the business in a clearly demonstrable way, might it make the business more difficult, or does it make more money?

Reich of Mountain Shore discusses a building project in Philadelphia — 247 residential units over two different anchor retail companies. The company was considering whether to provide digital and mobile access to the building. They’ve developed an approach of considering pros and cons of any new technology, including effect on residents, effect on the business, costs, and so on.

The new property has “some access crime issues that we have to deal with,” Reich says. Doing without that sort of fancy feature is “of marginal inconvenience to the tenant. But the tradeoff for the owner is that it’s a little harder to control the access.” That’s why they’ve decided on access fobs, so entry codes can’t be shared.

There is also the question of how long a particular product might be available. “Most of these companies aren’t profitable,” Reich notes. “Are they going to be around, are they going to keep up with [new releases]?” If a company might not make it, keeping building hardware separate from the software might make practical sense, even if the trendy approach is to integrate everything. Plus, what big company with staying power may enter the market?

“If you sit around and wait a little longer, Google will do it or Apple will do it,” says Reich. “Once Google layers in an access control platform to [its smart home platform] Nest, why wouldn’t you use Google?”

Klotz always asks the making money question. “On the building and unit automation, the smart home technology is the latest craze and buzz,” Klotz says. “Everybody wants access control, that comes with the technology.” However, once there’s a smart home controller, other things “you can sell as an ancillary package.”

Klotz’s company did a study on part of its portfolio. “They’re not concerned if they can have color-changing lights, or even Alexa or Google Home,” he says. But some features are a big sell — literally. “What we find interesting is on a particular portfolio sampling, we average $200 a month upgrade costs per unit. A lot of upgrades remain in the unit when the resident leaves. The price of the upgrades is reflected in the rent rate” Then, when someone who upgraded leaves, the next one keeps paying.

“We do all the work in our model homes and once you show them how great it is,” they often want it, says Klotz. “It’s sort of like the airline business. You charge for all these things that seem incremental. Then they all add up. The upgrades go straight to the bottom line. The ROI is significant and the addition to your bottom line is tremendous.”

Sometimes tech can seem like a muddled bother. But with the right attitude backed with analysis, you might just find that instead of being another cost, you’ve created a printing press for cash.