The Rise of Technology in Multi-Family

The Multi-Family sector is extremely robust.  Forbes has a good rationale for why: “Because people always need housing, multifamily properties historically perform better than other commercial real estate classes. In contrast to office and retail, which ebb and flow dramatically with supply-and-demand cycles, multifamily typically remains stable and often continues to grow when other parts of the market contract.”  PropTech in multi-family is creating not only exciting new amenities and services, but also completely new models.

Flexible Stay

When we think of flexible real estate the first thing that typically comes to mind is Co-Working.  The office sector had been transitioning away from 15 year leases, and COVID has accelerated that trend.  But flex is not just for commercial real estate anymore.  One of the leading players in flexible living is Landing.  With $145M of funding, they aim to offer their members access to fully furnished (and unfurnished) apartments across 79 US cities and counting.  Their view of the world is that someone shouldn’t be tied to the same apartment for 12 months.  If someone wants to move anywhere in their network, all that they need to give is 30 days notice.  Their tech platform ties the entire experience together providing you with a single portal to coordinate everything from maintenance requests (changing a lightbulb) to moving to a new city.   

Senior Living

Senior Living is a segment often left out of the PropTech sector and that is something that Jake Rothstein of UpsideHōM realized as he was caring for an older relative. Jake noticed that there weren't many options for the aging community between the extremes of either living independently or in an expensive nursing home. Along with co-founder Peter Badgley, Jake decided to build an accessible and safe turn-key alternative to 'aging in place' for those who want to enjoy the benefits of communal living but aren't quite ready for an institutional setting. The key to making this happen was technology. The UpsideHōM platform provides everything from a dedicated manager, maintenance & housekeeping, a communication portal, and curated experiences & activities such as companion visits through on-demand services like Papa. They supply this all with the simplicity of a single bill. Currently available within Miami-Dade, Broward and Palm Beach counties in Florida, UpsideHōM plans to expand to Tampa, Orlando and Jacksonville later this year.

Co-Living

I must admit that the first time I heard about Co-Living, my initial thought was that this will never work.  I couldn’t imagine coming out of my bedroom and seeing a stranger sitting on my couch.  Obviously, I was oversimplifying the concept, and the market leader Common has done a really great job of creating beautiful shared living spaces at affordable prices.  They offer a fully managed service which includes furnished apartments, weekly cleanings, basic supplies, WIFI, and their platform provides 24 hour access to maintenance requests.  Covid has not been kind to this business model and some of the players have closed up shop (Quarters, HubHaus, WeLive), while others have consolidated (Starcity acquired the assets of Ollie in December).  However, Common has proven that there is definitely an appetite for this model as they closed a $50M funding round this past September, bringing their total amount raised to $113M (these funds will also be used to expand their workforce housing management brand Noah, and their family-first urban designer and operator Kin).  Not everybody believes that Co-Living is the best idea with the most colorful quote coming from Ofer Yardeni (Chairman of Stonehenge Partners) saying, “If you are a 35 year-old and you live in (WeLive of Common), you are a loser”.

Listing Sites

In a previous article where I defended the value of real estate agents, the one segment that I said was up for grabs and most likely to be disrupted is apartment rentals.  In early February, Apartment List announced their Series E of $60M, bringing their total amount raised to date to $169M (Fun Fact:  Their investors included a host of celebrities including A-Rod and Priyanka Chopra).  Along with competitors like Appartments.com (a Costar company), and Hotpads (a Zillow company), Apartment List is a direct conduit between renter and property owner bypassing agents directly and cutting out the middleman.  Apartment rentals are very different from home sales (no need for mortgages, hundreds of identical spaces, no inspections, short term commitments), which in my opinion reduces the reliance on an agent in many cases.  Since a lot of money is spent on brokerage fees for apartment rentals, there is a big prize to be had, and these companies are racing to gobble up market share.

Tenant Engagement Apps

Although Tenant Engagement Apps have been mostly focused on CRE, there is a growing number of players that are entering the Multi-Family space.  Companies like RiseBuilding have been around for some time now and provide a platform that offers comprehensive services like access control, visitor management, package solutions, and operational efficiencies among others.  One company launching their product, Sugar, has a slightly different focus.  While Sugar offers traditional services like access control and visitor management, their primary focus is on building community.  According to Founder and CEO Fatima Dicko, “Community engagement is more important now than ever before. As residents spend more time at home, the demand for products that enhance in-building experiences will continue to grow. Properties that are able to offer unique community experiences to potential residents will become more competitive in the market."

HILO provides a service that works across CRE and Multi-Family. Unlike apps that silo one building, the HILO Tenant Experience Network is a solution that connects people to their building community, neighborhood, and city, where they work, live, or visit. Their solution allows people to access rewards, content, programs, services, and each other, whether they are in the office, working from home, or commuting in between. “This will ultimately help building operators deliver the best possible customer experience”, according to David Abrams, HILO’s Co-Founder and CEO. 

Hardware

While a significant amount of money is going into Tenant Engagement Apps, providers typically require hardware in order to provide services like access control and visitor management.  I believe that access control is the most important feature in order to increase usage of these platforms.  For example,  a tenant can order food delivery through most engagement apps, yet chances are they will just go directly through Doordash or Grubhub if they don’t have a compelling reason to open the app.  Access control provides a necessary utility (you need the app to enter the building and even to unlock your unit door), so by embedding access into the Tenant App, you increase the residents reliance on it; which in theory should  lead to adoption of other services that they offer.

There are primarily 2 types of hardware manufacturers:  ones that integrate with other solutions like 3rd party access control providers and ones that are end-to-end and choose not to integrate.  ButterflyMX is an example of an open system.  Their intercom offers robust 2 way audio/video communication, allowing residents to speak with visitors and unlock doors from their cell phone.  Although ButterflyMX has their own end-to-end solution, they allow integrations to 3rd party systems as well .  An example of a solution that chooses not to integrate with 3rd parties is LATCH.  LATCH, which recently went public at a valuation of $1.6B via a SPAC, offers an elegant suite of proprietary wireless locks and intercom.  Although their operating system integrates with in-unit solutions like Google and Honeywell, their hardware does not currently integrate with 3rd party tenant apps or other access control solutions.  According to LATCH, their hardware merely serves as the gateway to a software ecosystem. Their focus on software means that their hardware, besides its core functionality, also serves as a portal to an entire software ecosystem that powers a building's most important capabilities, including guest and delivery management, connectivity, smart home and sensors, resident experience, and smart access.

Property Management Solutions

Property management solutions are the backbone for Multi-Family buildings, and Yardi is the dominant player in this space.  Another large player, RealPage, was just acquired by the private equity firm Thoma Bravo in an all cash deal valuing the company at $10.2B.  Other companies like Appfolio are starting to gain share in this space.  Unlike a tenant engagement app, property management platforms are geared more towards the property owner or manager.  Handling services such as accounting, document storage, facilities management, and marketing & leasing, property management platforms are table stakes for multi-family owners and operators.  Property management solutions tend to be very sticky and once they are deployed throughout a portfolio, it is challenging (although not impossible) for them to be replaced.

Integrations and Acquisitions

As technology continues to expand into Multi-Family and different types of services get introduced, a turf war is brewing for the precious real estate on the home page of residents’ cell phones.  Every service provider has their own app and the last thing that a resident is going to do is use one app to unlock their door, another app to let visitors in, another one to pay their rent, an app to enter a maintenance ticket, and so on.  Requiring a different app for every service removes all of the efficiencies that the technologies were intended to create.  To solve this, companies often expand their offering to encompass more services (example: a property management company that starts to offer tenant amenity).  Since both services are so different from each other, the expanded offerings are oftentimes subpar in quality compared to other companies that specialize in it.  That leaves 2 feasible possibilities:  Integration and Acquisitions.  

Multi-Family OS

In a previous article, I wrote about the need for an Operating System in commercial real estate.  I believe that the same is needed in multi-family.  A single interface that acts as the system of record, but tightly integrates with best-in-class providers of other services. The companies that I believe are the most likely to succeed in this area are the property management solutions mainly due to their existing penetration, the stickiness of their products, and the deep pockets of the leaders in that space.  LATCH announced in September that they are building a Multi-Family OS, and although that sounds like a significant undertaking for the 7 year old company, they have a massive war chest of cash that they just raised to make this happen.

Since everyone wants to be the system of record and the branded app that customers use, you end up with a situation where companies try to be everything to everyone instead of playing their role in the ecosystem.  The other scenario which is equally as likely is that industry giants continue acquiring companies that offer complimentary services and build a true end-to-end solution made up of the industry’s best offerings.  Yardi has completed over a dozen acquisitions in the last 10 years, and since 2018 RealPage has acquired ClickPay, SimpleBills, Buildium, Modern Message, and Stratis.  

What’s Next?

The next wave of advancements in multi-family will most likely take place inside the resident units.  Amazon is testing services like grocery delivery where the delivery driver enters your apartment and puts your food away in your refrigerator.  The biggest test is whether or not residents can get comfortable with a stranger entering their home. Time will tell, but I’m willing to bet that they will (10 years ago would you have never imagined getting into a stranger’s car, but then Uber quickly made this the norm).  Assuming that we can get comfortable with letting unattended strangers into our apartments, the possibilities for future PropTech services are endless.

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