Feel the Power One of the most cutting-edge technologies being targeted as an ancillary revenue stream is powerline broadband or powerline Internet, which uses the electricity infrastructure to provide Internet access. Whatever you call it, the technology’s underlying concept is simple: It allows a user to plug a computer into any outlet that’s “powerline” enabled to access the Internet.
KSI is strongly considering offering powerline services to tenants this year, says Murray. “The best economic model is to put it in a high-rise because you’d only need to buy and install one ‘box,’” or hardware device, Murray explains, at a cost of $7,000 to $9,000 per device.
Murray contends that once renters become familiar and comfortable with the powerline concept, they’ll realize its advantages. While most broadband services cost about $40 per month, Murray says, KSI expects to appeal to renters by undercutting that cost by $5 to $10 per month to offer Internet service to its residents for $30 to $35 monthly. It’s a price savings for residents that still turns a profit for the company.
Powerline technology also is significantly less expensive than rewiring a building with the cable required for broadband access and is a viable alternative to wireless. NMHC estimates it can cost $150 to $350 per unit to rewire an existing building, a factor that is causing more companies to look at powerline, says Cardwell.
Ring, Ring If companies such as KSI are able to blaze the trail of developing powerline as a strong revenue source, that may replace the fees from telephone or cable companies for high-speed Internet access. But using the approach that KSI plans, a multifamily company would be able to ensure the revenue stream continues indefinitely, rather than relying on the cable companies to supply those extra dollars.
For those firms that rely on telephone and cable companies in their ancillary income programs, there are encouraging signs: Telecom providers are becoming increasingly receptive—and creative—when it comes to structuring compensation for apartment property owners. “There is a much greater willingness than a few years ago on behalf of telecom providers, particularly the cable companies, to share some a mount of revenue with the owner/manager to assist in marketing their services to residents,” notes Christopher Hanback, partner at Holland & Knight, a Washington, D.C.-based law firm that represents multifamily owners, developers, and managers. “The franchise providers worry that another carrier will get in a building and reduce penetration,” Hanback explains.
Like many apartment firms, AIMCO, a Denver-based REIT with roughly 275,000 units, strikes marketing relationships with telecom providers to market their services. Typically, there is an ongoing revenue-sharing arrangement based on the number of residents that subscribe, explains Don Baumann, a vice president at AIMCO. While some arrangements are flat rate and some are structured with incentives (i.e., higher fees for higher sign-up rates), revenue sharing starts at a low of 6 percent and ranges as high as 12 percent to 14 percent, he adds. AIMCO realized $20 million in ancillary income in 2004, Baumann adds, and expects that figure to grow in 2005.
When it comes to cable companies, there are some similarities in the relationships, Baumann says, though cable providers will sweeten the pot for property owners that invest in the cable infrastructure in their buildings so that the cable companies themselves don’t need to incur those costs. In AIMCO’s case, however, the company typically looks to the cable companies to shoulder that infrastructure investment.
As the lines between cable and telecom companies increasingly blur, renters are beginning to prefer providers who offer many services—and the appeal of writing just one check for cable, phone, and Internet access. And apartment firms can’t overlook that preference. “Single-product providers aren’t really producing [revenue] for us,” says Chris Acker, manager of ancillary services at Forest City Residential Management, a Cleveland-based firm with more than 30,000 apartment units. “They want a single provider and a single bill,” Acker says. Ancillary revenue represents slightly more than $1 million per year at Forest City.