Smart apartment discussions are permeating the thoughts and minds of most groups inside and around the Multifamily space. Yet, many questions abound. Quite frankly, there is lack of cohesion in the messaging from those offering the services to the ownership groups and developers. What is a smart apartment? Is it merely a lock and a thermostat? Is it building access control? Is it package delivery automation? Why do I need a hub (what is a hub)? Would this only work in high-end Class A urban high rises? The spectrum of answers varies as wide as our DC political rhetoric these days. Lack of proper messaging breeds confusion.
The result is constant doubt about what the ROI will be for each disparate property. Can you charge rental premiums, rent units faster, curb energy costs, cut labor costs, increase property valuation, have marketing differentiation, enhance lease retention, future-proof the property? Ideally, you would check the “Yes” box for each. But it’s not that simple. No two properties are alike…most are as unique as you and I. Class, street, amenities, city, urban, suburban, size, floor plans, views, high rise, garden style – all play a role.
The most consistent comments brought to my attention in meetings percolate around, “this seems useful for us to integrate into Class A luxury properties.” While we agree there, we also believe that Smart Apartment technology should not be looked upon as solely a “luxury” offering, especially when justifying the purchase around charging or baking in additional rental premiums.
The amounts of amenity-laden communities in urban Class A properties are immense. The rents that those residents pay reflect this. You’re already at the top of the market so can you realistically charge more? The data isn’t there quite yet to reflect that with confidence. You’ll most likely win the market differentiator race, and hope for greater lease retention. Smart technology will and should be a staple in Class A properties moving forward as residents that pay these rents have great expectations.
However, we believe and have seen that Class B properties pose the greatest opportunity for increased NOI with the addition to smart technology. This was a shock to us but we’re seeing $25-125/month in additional rental premiums in value-add suburban communities all around the country. So, why Class B? Lower costs, lower expectations, lower installation costs, but lower pre-existing rent. There is substantial runway to increase rent without blowback. According to Jim Dobbie with Hunt Investment Group, “We are seeing $40 pop on the smart apartment value add feature with IOTAS in our Beaverton, Oregon property. Mid level income people have time constraints and IOTAS is a convenience for them they are willing to pay for.” Residents are not expecting this technology in their price range. The brand strategy and marketing implementation for these properties are key as you’re targeting about 60% of the renter population. You’re offering something they simply don’t have access to anywhere else!
Home automation has been around for decades with a somewhat high barrier to entry considering costs, homeowner focus, confusion, and disparate devices that don’t communicate with each other. This has limited the scope of adoption to a small fraction of the population. Focusing on the high rent Class A property residents cuts out all those who value access to services and not ownership…many people want these technologies but the feeling is they are out of reach. However, they are typically first to get the new iPhone.
Thinking about your property with today’s technology while being pitched tomorrow’s technology is incredibly difficult for even the brightest minds in technology to completely understand and appreciate. I feel for the ownership groups and developers trying to wade through this chaos.
Education is key for the real estate world. What you want versus what you need versus what you believe versus what is reality. A true smart apartment is not about the flashiest hardware. It’s about the software, interoperability of the devices and the data the properties will be able to monetize in the future. We’re also not saying to avoid the Luxury Class A communities with this type of integration…quite frankly, your resident will expect it. But those who have Class B communities shouldn’t sell themselves short. You’re going to miss a huge windfall of found revenues.