Anatomy of a Multifamily Tech System

Here's a tried-and-tested four-step strategy for building a systems platform from the ground up.

9 MIN READ

Credit: cleftwich

It finally happened: Your CEO went ahead and made that big distressed asset acquisition, and your firm’s portfolio just quadrupled in size, jumping from 500 local units to 2,500 units across multiple states. Or perhaps, your board of directors decided that the time was ripe for your company to merge with another—which has the best practices and efficiencies-of-scale teams knocking on your department’s door. Or maybe, like hundreds of other industry and non-industry technology managers and executives, you find yourself with a huge top-down mandate to get wired with little, if any, directive on how to get it done.If you’re in any of the above situations, grab a cup of coffee and settle in: This article is for you.

Let’s face it: The apartment industry is still extremely fragmented—the top public apartment REITs lay claim to a collective 5 percent of the total market share, and even the entirety of the Multifamily Executive Top 50 Owners and Managers barely cracks into the universe of apartment owners and operators. From start-ups to growing regional shops to companies that suddenly find themselves without the support of a third-party fee manager running the show behind the scenes, there are tens of thousands of middle-market apartment firms looking to go high-tech. And their most common question? When it comes to multifamily IT platforms and systems, where do I start?

1. Chart a course—and stick to it.

READY, SET, RENEW

UDR attempts to automate portions of the resident renewal process.

LAST YEAR, HIGHLANDS RANCH, COLO.–BASED REIT UDR rolled out an electronic renewal system that had been in development for 20 months.

Powered in part by UDR’s revenue management software, the renewal system offers residents a range of renewal terms and options; provides UDR with greater visibility into expiration management and unit demand; and provides the chance to turn the renewal process into a broader opportunity for the REIT. Here’s how the system works: “Basically, 75 days before your lease expires, we e-mail you to go to the resident portal and view your renewal options,” says Jerry Davis, UDR’s senior vice president of property operations. “Historically, we would send a letter with limited choices and the requirement to come into the office to negotiate other options.”

This self-service approach allows a detail-oriented resident to get specific information on price, incentives, and terms. Meanwhile, residents with less interest can fly through the renewal in less than five minutes, Davis says.

Residents are responding positively to the new system, driven in part by incentives. For instance, if a resident commits to a renewal within 15 days of receiving notifi cation, “we offer carpet cleaning or painting of an accent wall or, at a high-end property, it might even be an iPad,” Davis says. “We are trying to get the quicker commitment, which does two things: First, it keeps the resident from going to look for an apartment. Second, when a large number of residents stay with us, it allows us to push the rents on vacant units because we know our exposure is less.”

Before you start to look at granular system options, you’ve got some higher-level decisions to make. Today, the world of multifamily technology is largely split between two operating paradigms: the integrated platform (where typically one service provider presents an entire vertical of core functionality and optional applications) versus a best-in-class or best-of-breed platform (where an IT exec selects from the entire universe of software and systems and then integrates them together in-house). It’s kind of like choosing between an HMO and a PPO health care provider.

Just don’t let the seeming banality of this choice get you undone—defining your systems strategy and culture at the outset is undoubtedly going to save you a lot of aspirin down the road. “If I had one multifamily commandment, it would be this: Thou shall listen to the end user and understand the needs of the business,” says John Martin, director of technology for Greenbelt, Md.-based multifamily owner/operator and developer The Bozzuto Group.

Even large multifamily titans such as Englewood, Colo.-based Archstone regularly confront the integration versus best-in-class divergence and have established a preference for one M.O. over the other. It’s a vital decision when making strategic—and often expensive—technology investments. “There are clearly choices out there: This guy is an integrated platform; that guy pieced together best-in-class solutions,” says Archstone group vice president of strategic systems Donald Davidoff. “You need to make the decision on what kind of a house you want it to be before it is even obvious what the implications are. Once you start building, you can end up in quicksand and not be able to get out of it.”

At Houston-based REIT Camden Property Trust, the IT chiefs elected to go best-of-breed, and thus far have been fortunate that consolidation among software providers—ever a looming threat to systems innovation and compatibility—has worked in the firm’s favor. “We have been lucky,” says Camden senior vice president of strategic services Kristy Simonette. “Our best-in-breed vendor selections have consolidated in a way that has made integration easier for us.”

When selecting companies at the outset, Simonette and her team will pay due consideration to a software provider’s financial viability. Decisions are also driven by the necessity to allow for future evolution of the firm’s IT platform. “Scalability and flexibility are two of our key drivers in that regard,” Simonette says.

2. Build a Foundation.

Virtually all multifamily technology has been spawned from the original need for core accounting and property management software, and those systems continue to form the central nervous system of an apartment tech platform. Major vendors including Santa Barbara, Calif.-based Yardi; Carrollton, Texas-based RealPage; Cleveland-based MRI; and Goleta, Calif.-based AppFolio offer various approaches towards vertically integrated platforms and best-of-breed integrating products—which one you ultimately choose will depend largely on your company size, your IT budget, the mixture of your portfolio geographically and by product type, and your growth expectations.

“If you are any size at all, even just 1,000 units, you need a modern accounting system and a modern property management system so you have both productivity and access to basic transactional data,” Davidoff explains. “But ultimately, you’ll end up with a web of applications working with each other to where there is no single notion of the No. 1 ‘can’t-live-without-it’ software or application. The can’t-live-without-it part is actually this whole platform of technology that you are going to build.”

3. Dive into the details.

Once you have your core system in place, it’s time for some serious shopping. The list of available applications for front-end and back-of-house operations, resource management, sales and marketing, lead-to-lease tracking, and unit pricing is almost endless. What’s more, vendors continue to innovate with powerful new applications every year—most of them web-based and mobile-optimized. Just a few of the available systems: revenue management, utility metering, Internet leasing systems and kiosks, electronic rent payment, resident screening, community Internet portals, work order software, product procurement systems, and even concierge services for tracking packages or securing resident reservations for that hot new bistro in town.

Simplified Systems

• Choose wisely. Multifamily technology systems can broadly be described as vertically integrated or best-of-breed. Decide which philosophy best fits your enterprise now and in the future. This will help guide decision-making at the outset.

• Stay true to yourself. Competing vendors and industry operators have specific needs and applications of software that might not suit your operation. Resist the tendency to go after the latest-and-greatest systems—no matter who says they are vital to your enterprise—without doing your due diligence on the utility to your organization.

• Be underwhelmed. The universe of multifamily IT tools and software applications can help to run virtually every aspect of the apartment business. Start with core property management and mission critical systems, and emphasize scalability to add the bells and whistles later as they prove out for your operation.

— Building out a multifamily technology platform can be a tough business. Follow these simple strategies to keep your sanity.

“Beyond our core property management system, we can’t live without credit screening, utility billing, and some sort of ACH/electronic payment solution,” says Bozzuto Management Co.’s vice president of software and systems Lisa Williams.

Still, trying to gauge which systems are indispensable for your organization can be an exercise in patience. There is no one-size-fits-all solution, experts say. Instead, software needs should be dictated by business challenges, so take the time to figure out what your enterprise needs in terms of core functionality. Conduct focus groups with operating staff. Do you have high payment delinquencies? Then perhaps an e-payment system might help. Are your residents waiting too long to have leaky faucets fixed? Then you might benefit from a work-order system.

Multifamily IT newbies should also keep in mind that—just like in any industry—the arguments over technology cultures and the value of certain systems are endless. Revenue management, for example, which uses complex algorithms to predict apartment demand and set prices, still has its fair share of supporters and detractors. “Revenue management is becoming technology 101,” Davidoff says. “All the big boys are using it, and it is definitely in rapid adoption mode.”

Williams, however, counters that Bozzuto has yet to make the technology prove out for its operating portfolio. “We use a revenue management system on seven sites and are not yet sold on the product,” she says.

4. Anticipate the future.

Camden’s Simonette recommends that tech green horns look at systems hosted over the web by tech vendors before embarking on building out data centers and server rooms that might be unnecessary. Why? Because it’s the future of technology. “Virtualization would be a primary objective if we were building our platform out all over again,” she says. “Virtualization allows for growth, flexibility, and responsiveness to ever-changing needs and requirements.”

Indeed, with technology evolving at its current pace—enticing tech-heads with mobile iPad-based leasing kiosks and location-aware marketing plans—it’s harder than ever to know what’s around the corner. But that’s the job of the tech executive, to stay abreast of the latest back-end and front-end developments and understand how they might change the business of apartment owning, leasing, investing, development, and management. All without getting lured by distracting bells and whistles.

Ultimately, disagreements and tough choices will face the multifamily tech platform builder at every turn, but with planning, forethought, and most of all, patience, any operator should be able to avail themselves to systems that make the grade.

“You cannot be everything to everybody, so don’t even try,” Davidoff counsels. “Figure out what is most important and have the discipline to stick to a plan. Our head of e-commerce has a saying: Beware of magpie tendencies, which is that willingness to be drawn to shiny new things. At the end of the day, core systems might not be sexy, but that’s where your money is made.”

About the Author

Chris Wood

Chris Wood is a freelance writer and former editor of Multifamily Executive and sister publication ProSales.

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