Multifamily IT Teams Polarized by Cloud Computing

As multifamily IT execs jump into the fall budgeting season, they’ve got one question to answer: Will I even be here next year? A number of major industry technology shops, particularly in the property management sector, have recently been dismantled in favor of the cloud-computing model, which has many pondering the necessity of in-house IT tacticians (and their value to the ongoing corporate strategy of apartment builders, owners, and operators). The debate is having an increasingly polarizing effect in the multifamily technology community.

“It’s a subject that is on everyone’s mind,” says Scott Pechersky, vice president of technology at Phoenix-based Alliance Residential Co., which celebrated its 10th anniversary in September with its technology team intact. Pechersky isn’t immune to the fact that IT is often looked at as simply a “necessary evil” and “just a cost center” by many company executives, but he characterizes Alliance’s technology strategy as a hybrid model that allows the firm to outsource “non-glamorous” duties and functions. That decision will, in turn, allow for better efficiency on site. Without the administrative focus on commodity technologies such as e-mail and data warehousing, IT executives in multifamily can focus on new initiatives, Pechersky says.

Dallas-based multifamily property management firm Riverstone Residential Group didn’t buy into that model. In July, company executives elected to transfer the vast majority of IT operations over to the cloud-computing division of Carrollton, Texas-based multifamily tech services provider RealPage. And along with all the servers and data went the firm’s IT personnel. Just months after launching an integrated online leasing system, the Riverstone IT department—including CIO Ty Brewer—became full-time associates of RealPage. “It was difficult to make that decision,” says Riverstone Residential Group chief administrative officer Pal Ottesen, “but it is one that every firm that is considering outsourcing is going to face at one point or another, and eventually you have to come to terms with losing that internal expertise.”

The trade-off, of course, is scale of operations, which makes cloud computing most appealing to third-party managers looking for increased efficiencies and reduced operations costs in an ever-competitive environment. “The fact is, as pure fee managers, our welfare relies on the health of our owners and renters,” says Scott McCurdy, vice president of IT for Dallas-based Pinnacle, an AMS Co.—the industry’s largest property management firm—which followed Riverstone into the RealPage cloud in August, though it chose to retain its core IT executive staff. “We are being stressed to reduce rents and reduce fees, and that has affected IT as well as the rest of the company. Budgets are very tight.”

Uncertain Skeptics

Despite the silver-lining fanfare surrounding cloud computing, plenty of multifamily tech pundits question the long-term cost versus value (and savings) gained by adopting a fully outsourced IT model. “Whether you do it yourself or it is hosted in the cloud, there is still a cost for it,” points out AMLI Residential acting CIO Steve Small. “Since the major multifamily companies have already invested in server capacity, I don’t think any of the big companies are running towards cloud computing.” Small adds that Chicago-based AMLI has no plans to move any financial platforms, data warehouse environments, or e-mail hosting services into a cloud or external environment. Its reasoning? Security concerns regarding access to the information as well as a competitive value the company sees in self-hosting and systems development.

Irvine, Calif.-based Western National Group, which operates a vertical multifamily platform including property management, operating, and development divisions, likewise is opting to keep capital funneling into internal IT, despite recognizing some of the shorter-term cost alleviation associated with Software as a Service (SaaS) applications and cloud-computing solutions.

“I certainly don’t think that cloud computing reduces the multifamily CIO into irrelevancy, but I do have some reservations as to [its] long-term viability,” says Western National Group vice president of IT Ken Hodges. “I’m not sure I agree with the ‘all of your eggs in one basket’ approach to outsourcing both equipment and talent critical to the enterprise into the hands of a third party. Over the long term, I see that approach as hurting a company’s ability to innovate and leverage technology in a way that sets it apart from the competition.”

Another concern often voiced is whether or not true “cloud” solutions are yet available from RealPage; Santa Barbara, Calif.-based Yardi Systems; and other multifamily software providers. “The RealPage play is really a managed services play, not a true cloud play,” says Jay Kenney, CIO for Dallas-based Lincoln Property Management. “The true cloud plays are services like Google Apps and Salesforce.com, which are multi-tenant applications.”

Indeed, cloud-computing services as currently offered by RealPage include customized data warehousing, network management, hardware support, help desk functions, and the hosting of property management software. While these could be described as “private cloud” technologies, they are not a single software that multi-tenant clients tap into.

Regardless, Kenney agrees that the outsource option, be it full cloud, private cloud, or managed services, allows the multifamily IT executive to concentrate more time, effort, and resources on strategic and revenue-producing initiatives. That’s how Lincoln, which already outsources hosting of its property management software to Yardi, its website to Property Solutions, and its e-mail to Google, has been able to shift its technology focus to more strategic front-end initiatives.

“Now we are looking at some efficiencies by leveraging OpsTechnology for better procurement and payables; investing in check scanning; focusing on SEO initiatives; and continuing to roll out revenue management,” Kenney says. “Those initiatives are the kind of front-end stuff that helps us in terms of competitive advantage and also has a demonstrable ROI to prove out your processes.”

Indeed, customer-facing business innovations, and, in particular, mobile search apps are at the top of the strategy list for most multifamily IT executives who are unburdening the tech cost center by outsourcing and taking advantage of cloud services. Like Lincoln, REIT Camden Property Trust has optimized its web platform for iPhone and Blackberry users, offering deeper marketing content including videos, floor plans, and GPS-enabled search functionality. Houston-based Camden has also maintained its investment in Rentwiki.com, an ILS and social networking hybrid that is probing the boundaries of online apartment marketing, particularly to Gen Y renters.

“We have strategically begun to cloud certain technologies where there is a clear business justification, including placing our SPAM filtering into the Gmail/Postini cloud and our property management software into the RPI cloud,” says Camden senior vice president of strategic services Kristy Simonette. “We think those efforts position us with an IT infrastructure that fully affords Camden the opportunity to evaluate strategic technology initiatives in the industry for the next two to three years.”

Certain Eventuality

At the end of the day, no one doubts the outsourcing trend. With RealPage coming off a $1 billion IPO, enhancements to the firm’s cloud-computing services could be forthcoming, as well as news of additional entrants into the RealPage “cloud,” which would ostensibly reduce the platform’s operating costs and ultimately lower the dollar barrier-to-entry for smaller enterprises that could best make use of an outsourced IT platform model.

“I think a managed services play has immediate relevance in the management business,” Kenney says. “For smaller players, it lowers the barriers to entry by eliminating large upfront costs for IT investments, and in theory, as the business is scaled, it will drive IT costs down.”

Market watchers say the key for cloud computing success will be the ability of service providers to staff clouds appropriately. While multifamily IT veterans bring a wealth of expertise and experience operating enterprise platforms, they might not be as adept in a customer service, capital-driven environment.

“If the core of this new business is ex-Riverstone [and other IT] employees, they are going to have to do the same job with less resources and deal with a changing culture, from being employees of a company to being employees of a service provider in a competitive environment,” Kenney says. “I, for one, will be closely watching RealPage’s ability to execute.”