Dave Marcinkowski is a founder/partner in Madeira Residential and Quext, focused on creating smarter, healthier apartment communities.
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Have you noticed how some industries or business categories seem to attract innovation like a magnet?
Take the auto industry, where Elon Musk’s Tesla is the most famous brand among dozens of automakers trying to make breakthroughs that will rid the world of the internal combustion engine. Or take aviation, where newcomers like Joby, Lilium, Volocopter, Wisk and Archer challenge big names like Airbus and Bell, leading groups revolutionizing urban transport with small electric vertical take-off and landing planes.
Still other industries seem to be content to lag behind in the development, adaptation and application of new technologies. I’d say multi-family management is near the top (or rather bottom) of that list, as it has introduced little innovation over the past 20 years. I estimate that 90% of the technology that multi-family businesses rely on today dates back to the 1990s or early 2000s. Basically, I’ve found that what technology is is in place today is mostly old, increasingly unreliable, standalone hardware and software that cannot easily integrate with new systems.
The technology world is exploding with new and relatively inexpensive offerings that can be easily applied to multi-family home management. Technological innovation can make properties more attractive and comfortable for residents while being less expensive to maintain, ensuring higher occupancy rates and making them more profitable for owners and operators.
So, why the hesitation? I’ve helped transform apartment complexes and worked on new technology, and I think what’s holding us back is more of a cultural problem than a lack of available technology.
Large owners of multi-family homes are reluctant to innovate.
I have noticed a reluctance to innovate in multi-family housing management. Few large multi-family conglomerates want the financial risk of investing in technological innovation, even as their residents increasingly demand it. Many medium-sized and smaller businesses are so focused on paying their debts that they are reluctant to spend money on something they see as unnecessary.
The little technological innovation that happens in the multifamily space is often done by smaller or newer operators, even if they have less money to do it. They are the ones who are willing to invest in innovations that make their properties stand out and become financially successful faster. If you think about it, it makes sense. It is the pattern now followed by many other sectors.
As these newer, more innovative operators succeed and improve their reputation and market values using technology, they tend to be bought out by their larger competitors. And so we come full circle.
The giant software vendors don’t feel the need to innovate.
It’s not just property owners who keep multi-family homes from innovating. I’ve seen it’s the property management? software also sellers.
I’ve been in this industry for 30 years and I’d say 75% of real estate management software runs through a handful of mega vendors. These big players have little incentive to update their software as soon as possible. When a grassroots innovator shows up to challenge the status quo, the big boys often buy them out — ostensibly to incorporate the new technology into their existing offerings. (Even the mega-sellers aren’t safe, because venture capitalists buy them up and “push” them to position them for another sale.)
Integrating cutting edge technology into fragile, decades-old software systems is not for the faint of heart. Rather than spend the time and resources required — not to mention the risk of breaking their existing software — vendors let their newly acquired innovation die. Even when it sees the light of day, the technology is often less spectacular than if the dominant suppliers hadn’t absorbed it.
After all, if you already own a significant chunk of the market, why bother? that is the major reason why the pace of innovation in multi-family housing management is so slow.
It’s time to invite the innovators to the multifamily party.
Ownership and management of apartments has been successful since the recession in 2008-2009. Rent grow goes through the roof. You have to do your best not to succeed in multi-family real estate today. Why invest in technological innovation when the industry is doing well? Because there will come a day when, due to a number or combination of factors, the streak of success will run out.
Wouldn’t it be better to invest in new technologies while the greenhouse is well stocked? Why not develop new systems to provide automation that will benefit both multi-family operators and their residents? Why not act now to access, analyze and monetize the vast wealth of data real estate management companies have about their residents? And why not leverage IoT devices to provide an exceptional experience for residents while collecting more operational data to reduce utility and maintenance costs?
Innovation doesn’t happen overnight, of course, but we can attack the cultural inertia that prevents innovation from thriving. For example, we can:
• Insist that the giant sellers modernize “or else”. Visit them at trade shows and other events and point out that other supplier options are emerging.
• Support the innovators. The disruptors today don’t have all the answers, so work with them to encourage the development of technology that works with and fills the gaps in existing solutions.
• Start embracing change now! Current and future residents (not to mention employees) want signs of action now. Don’t be afraid to incorporate the innovation available today, even if the wheel is still being reinvented.
• Prepare for the future. Promise to set aside a budget each year for new technology and be wise to select technology that doesn’t require a whole tech team to support it.
Where’s an Elon Musk when the multifamily industry needs him? We may be a little behind, but it’s never too late to innovate. Many of the technologies we need already exist or are under construction. In my opinion, we can no longer afford to let giant suppliers get in the way. It’s time we invited the true innovators to the party.
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