Multifamily Industry Truncates Tech Costs in the Downturn

For Don Phillips, managing director of Phillips Development in Tampa Bay, Fla., which has built more than 8,000 luxury units throughout the Southeast, the look and feel of “luxury” has changed. With lenders walking away from commitment letters to finance his deals, and potential residents focusing more on rent than amenities, Phillips has started cutting out the technology extras that were standard fare in his projects.“We’re redefining what ‘luxury’ means because the true definition of luxury isn’t going to be available any more,” Phillips says. “We’re back to the 1970s.”

Gone from his current projects are the in-unit, touch screen climate, security, and access control panels he used to market to prospects. Same with the dedicated theatre rooms complete with stadium-style seating and huge flat screen televisions in his clubhouses. They’ve been replaced with “multipurpose” entertainment areas and smaller TVs. And where he had numerous CAT-5 data outlets to let residents connect to the Internet from any room, he’s now installing just a couple in each apartment.

“Any place where we can knock out a few hundred dollars per unit, we’re seizing on that opportunity,” Phillips says. “The only amenity people want to see in this economy is a smaller rent check.”

Extras Axed

Phillips isn’t alone. As financing options for new development have evaporated—and equity requirements for operators who can get funding have skyrocketed to 40 percent and higher—apartment developers are starting to cut anything they can just to get projects out of the ground. While basic materials, square footage, and finishes are often the first places developers target, tech amenities are getting axed, too. That’s a huge turnaround from recent years, when no expense was spared on a community’s tech bling. Now, less is more.“No one is saying they have to have an iPod dock in each unit to fill their leases anymore,” says Henry Pye, vice president of resident technology solutions at Carrollton, Texas-based multifamily solutions firm RealPage. “The ‘gee whiz’ bells and whistles are being cut left and right.”

Indeed, even tech infrastructure is feeling the pinch. At Boston-based multifamily architectural firm Cubellis, managing partner Rohit Anand says clients who previously designed multiple Internet jacks for their units are consistently redrawing plans with just one. “I think it also hinges on the fact that more people are using WiFi, but where they can, they’re not wiring as much as before,” Anand says. At around $100 each, cutting several jacks per unit adds up.

No More Choice

Developers are also rethinking the costs of wiring units so multiple service providers can pump signals to them. Previously, owners often over-wired buildings at a cost of $750 to $1,500 per unit so residents could choose between at least two entertainment and Internet options. Service providers helped pay for those pipes in exchange for exclusive marketing agreements, although other providers could still sell in the community.

With money becoming tight for telecoms and cable companies now, too, fewer are willing to pitch in, especially if it means competing with others for customers. “With owners looking to pay for less infrastructure, the cable and telco guys are really getting squeezed,” says Larry Kessler, CEO of Mount Pleasant, S.C.-based infrastructure consultancy InteliCable Group. “It’s getting much more difficult to negotiate with them to put money into the pot.”

That means some owners are actually going back to yesterday’s ways: wiring units as cost effectively as possible, or having just one provider do it for them. “It’s really starting to cut down owners’ options again because if they only go with those companies who put money on the table, it eliminates a lot of the market,” says Richard Holtz, CEO of Daytona Beach, Fla.-based technology infrastructure firm InfiniSys. “That’s inevitably going to affect residents, and the choices they’ll be able to expect.”The trend raises an interesting possibility that was unthinkable a year ago: Communities coming out of the ground today, when finished, could actually have less technology than existing properties. “It’s back to the future for our industry,” Phillips says. “We are back to building rental apartments, not palaces of choice.”

Holtz understands price sensitivity may be a guiding force now but thinks the strategy could be short-sighted considering the future cost implications of such decisions. Developers will spend two to three times as much to retrofit technology after the fact, and residents aren’t going to stop asking for it. “But the response I hear is, ‘I can’t worry about that; I’m not holding the property anyway,’” Holtz says. “It’s that or people say their only other choice is not building at all.”Staying the Course

Of course, not all developers are disinvesting from tech. At Cleveland-based Forest City Residential, which owns nearly 47,000 conventional and military units, director of building technology services Chris Acker still puts in the same technology he did a year ago. But he admits those areas get more scrutiny when he goes into budget meetings today.

“We’re sticking with our traditional infrastructure to accommodate choices for voice, video, and data,” Acker says. “But we do have to sit down on an ongoing basis and reiterate why we are doing it.”

And at Short Hills, N.J.-based Roseland Property Co., which has 11 projects underway in its home state, vice president of development Debra Tantleff says the firm even continues to put iPod docks into some—though not all—new units. “There are some markets where less is required, and you have more flexibility in terms of value engineering,” Tantleff says.

Other developers are trying to keep technology and chuck other items that are less important to residents. “We might cut out a kitchen island and use that space for a technology nook instead,” says Carey Levy, president of Irvine, Calif.-based Passco Cos. Development, which owns 12,000 multifamily units. “You have to make some trade-offs.”

As developers increasingly look to shave costs, one thing is clear: Nothing is sacred, not even technology. For many, the hope is this era of tight financing and the resulting squeeze on technology is short lived. Because buildings last for decades—far beyond the market’s latest development and economic cycle—the decisions owners make today could be felt for years to come.

Joe Bousquin is a freelance writer based in Sacramento, Calif.