The past 18 months have been a boom to the home automation industry, trending in the multifamily sector. Many of those in this space have also noticed an enormous amount of noise from numerous new companies offering smart home technology solutions at both new and old properties. This encompasses both hardware and software innovations for both the resident and the property manager. Installations are happening at a rapid clip and IOTAS is at the forefront. But in the end, bottom line ROI, property value benefits and property type rule the game.
So, where are we now? According to recent Zion Market Research, the market for smart home automation is expected to grow worldwide at a compound annual growth rate of 14.5% between 2017 and 2022. The market revenue for smart homes in 2016 was $24B and expected to hit $40B in 2018. The largest share of the smart home market worldwide is in North America. Nearly 68% of renters are Millennials, according to Forbes. Within that generation, and certainly in the generation to follow, technology and automation will be ubiquitous with breathing. According to a survey from Rent.com, 78% of Millennials have no plans to stop renting. To efficiently target this huge section of the rental market, automation and new technology is a necessity.
With 13+ Million apartments in communities over 50 units and 300,000+ units in development each year to reach demand, there is enormous opportunity to provide value across asset classes.
What’s been interesting is observing how developers and ownership groups analyze and position themselves amongst three distinct categories with smart apartment technology adoption. This encompasses new construction, renovation projects, and retrofits. But how are those adopting this technology measuring value, training their teams and deciding which properties to roll smart technology out with?
At IOTAS, we have seen retrofit properties encompass 45% of our installations. We define retrofits as existing properties where the only property change would be installing the smart home technology platform and devices. This differs from renovations where smart technology may be one of many updates for the property.
“Hunt has installed IOTAS as a value-add program in a 1990’s 8 foot ceiling, garden apartment product in a middle market. The ROI was so solid we are now installing the system instead of a full or partial cosmetic unit renovation program.” Jim Dobbie, Executive Vice President of Hunt Investment Management continued, “We have also added the system to an asset with fully renovated units. We obtained a rent bump with a ROI well above 20%. Clearly the residents want it and are willing to pay for it. The ROI on retrofits is quick and simple to achieve, even an occupied unit can be upgraded without disruption to the resident.”
More and more, Class B multifamily assets can offer residents the look of luxury without the cost while optimizing returns to investors and providing more opportunity for rent growth. Retrofit opportunity lives in this arena when provided proper investment analysis.
Typically retrofits can be handled on turn or lease renewals. Eventually neighbors want this technology as well. “Providing this opportunity on resident turn is an ideal way for us to finance the project on demand, while allowing the on-site teams the ability to perfect the sale and measure the outbound marketing strategy promoting this new aspect of our communities,” said Johnny Gregorio, Asset Manager at GoldOller Real Estate Investments.
Properties that have been targeted for acquisition and renovation have also been popular and provide a very streamlined integration and capitalization of the technology. We define renovations as those properties that are massively updating the apartments from countertops to flooring to smart home technology, where the technology itself will be part of the overall renovation and not a one-off addition. Thus, one of the difficulties is understanding how the true value of the technology upgrade is equated to the overall ROI of the renovated property.
“For us, it was a simple choice to begin rolling out the smart tech as we renovate all 304 units at our Oak Creek @ Polaris property. As we were already budgeting for improvements, this capital expense was nominal for our return. Installation went smoothly and the installer app is an amazing platform to allow for scalability as we roll out through this property and others in the future. Our onsite project managers & property managers continue to be impressed with the product IOTAS has provided our communities. This technology is an invaluable selling point for our residents & prospects in an increasingly competitive market,” said David Hatcher, Chief Construction Officer at Champion Construction Management.
Many other developers and ownership groups see new construction as the ideal situation for smart technology investment as one can build the costs into the formula. The long-time horizon, installation during the construction process and engaging the smart technology team throughout the construction process can provide incredible insights and strategic capitalization. The benefits are numerous, especially as the property begins pre-leasing and the outbound brand and marketing strategy goes into effect.
Jonathan Evans, Asset Manager with MBK Rental Living shared that, “The best time to start the discussion of smart technology within a multifamily project is during due diligence of acquiring the land and/or asset. This is when plans are created, budgets are being developed, revenue assumptions made, and market research done for who the future resident will be. MBK Rental Living understands that in the near future (2-3 years out) smart units will become a standard in new development and retrofits. MBK is looking to be ahead of the curve by implementing smart tech now.”
Other developers shared that instead of testing on a floor or in a few units, confusion of future tenants and leasing agents was removed when all the apartments were already smart upon move-in. This created a seamless process and allowed leasing agents to rent the units quicker.
Paula Larsen, Marketing Director of Oaks Properties added, “with the all new Oaks Union Depot offering the first Smart Apartments in the Twin Cities, it has created the WOW factor! Prospects love the in-person tour demonstrations and we are able to offer a unique feature that our competition doesn’t have.”
One of the decision-making difficulties of new construction integration is the desire to have this technology while the industry is actively evolving and plans need to be set 2-5 years ahead. This makes it incredibly difficult to scope actual devices or services. Interoperability of devices today will be different than those in just a few months. Ideally, understanding the platform, team, and experience desired for the property will allow owners that have typically been focused on individual devices to budget for the desired platform and fill in the specific devices at the latest date possible. Flexibility in the platform is how you defend against obsolescence and ensure hardware device selection and software future proofing per your desired needs.
“We’re making a bet that providing our tenants with IOTAS’ home automation solutions will not only capture a prospective tenant’s attention in a lease-up phase, but also improve tenant retention by providing the conveniences they will grow dependent on,” said Lars Olsen, Director of Innovation at Rockwell Partners.
In order to future-proof, a platform is needed where an interface gives a property the ability to create and remove profiles for residents and staff as well as manage automated inventory, vacant units and resident turn. You also need an efficient way to provide tech support for your residents, automatically update software, and integrate new devices and technology to your property. All this creates more labor efficiency for staff. Upon installing permanent smart hardware, the value of a property as whole will increase, which should increase the value of the entire portfolio with proper deployment at scale.
“Quite frankly, IOTAS is giving us an edge on our competition throughout our portfolio. There are few amenities that offer such a profound improvement to the user experience with such small capital requirements,” said Johnny Gregorio of GoldOller. Cody Connor of Oakwood Worldwide adds that he believes “home automation is quickly spreading across the multi family dwelling market. In the near future, it will be required in order to remain competitive.”
The benefits are being proven out with each retrofit, renovation project and new construction property going vertical. However, understanding the options and solutions for your properties’ specific requirements are incredibly important for your team to diligently scope out the right solution. The demand is not just here…it is only expected to grow. And from what we’ve observed with IOTAS clients, future buildings and current installations, it’s being adopted in all markets, across all property types and most asset classes. It should be interesting to see exactly where the market will be a year from today.