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Print Edition StoriesMonday, September 16, 2002
Property management is ripe for technology
By Mark E. White
When the words "technology" and "real estate" are paired, typically it's in reference to an office building in a technology plaza. It may call to mind technology hotbeds - Silicon Valley, Denver Tech Center, Route 128 outside Boston, Research Triangle Park and our own Dulles Tech Corridor. You're not likely to think of enterprise software or the similarities between the management of your organization and the management of the apartment complexes throughout your city.
Unless you're an investor in the real estate market, you may be surprised to learn that the U.S. multifamily real estate industry includes 25 million apartment homes, housing nearly 25 percent of the population. The asset base of the U.S. market exceeds $1.3 trillion and consists of approximately 150,000 separate apartment communities. In total, these communities generate $200 billion in annual rental revenue and approximately $54 billion in direct operating costs.
Every penny counts
Today's apartment owners and operators are engaged in a capital-intensive industry, but face ongoing demands for improved yields. Sub-optimization of investments from lost revenue and manually intensive operating processes are critical industry problems. Real Estate Investment Trusts (REITs) have the same accountability to shareholders and are under the same scrutiny as other public companies - and their property management priorities may sound familiar:
Improved operational workflow - optimizing rates, reducing costs and providing operating efficiencies and productivity.
Efficient management of critical assets - and streamlined day-to-day operations.
Revenue management - elimination of lost revenue from transitional vacancy (down-time between leases), uncollected month-to-month premiums, unenforced rent escalations at lease termination and enhanced concession management.
The legacy challenge
The day-to-day management of a property is no easy undertaking - a typical day may include registering and qualifying applicants, preparing vacancies for occupation, managing tenant maintenance requests and managing the rental of other assets such as parking spaces and storage units. Multiply this across an entire portfolio - which can exceed 100,000 units in a large portfolio - and the operational management challenges are those common to any Fortune 1000 company.
One of the industry's greatest challenges is that its existing legacy technologies consist of decentralized, DOS-based solutions. These legacy products were written for tenant billing and collections on one property at a time - they do not scale, are not networked and cannot link to the Internet.
There are also "bridge" products that are Windows-based and, by taking advantage of more recent technology, are accessible via the Internet. They are networked but do not typically scale well nor do they represent the sophisticated relationships among bricks-and-mortar assets, leases, customers and operational policies.
Enterprise solutions
During the last two years, enterprise solutions have emerged for the multifamily industry. These systems are designed to manage an individual property and an entire portfolio by utilizing their ability to scale and network, integrate and consolidate information, and provide access throughout the wide geographic distribution of locations in a portfolio. The operational and management benefits include:
Site productivity improvements Significant revenue recovery Increased customer retention Increased corporate productivity Revenue management improvements
These solutions can be more expensive compared with the legacy stand-alone PC products, but for companies willing to spend the money, the return on investment is compelling. We recently audited a property that had 200 storage units. Of those, 94 were locked and in use, yet only 20 were being invoiced on a monthly basis - and this is not uncommon. At $40 a month per storage unit, significant revenue was being left on the table. When rolled up by property to the portfolio level, the revenue recovery opportunity could equal millions of dollars of recurring revenue.
This example is a symptom not of poor property management, but of inadequate property management tools. Few properties are able to capitalize on such opportunities because they don't have the systems in place to account for inventory and automatically tie the leases of additional nonresidential revenue sources to a resident's monthly rent.
The adoption of new systems is not always a priority for an industry that has been successful and profitable with the current limited tools, but as the apartment industry continues to compete, property managers are under more pressure than ever to maintain profitability and manage growth. It seems that now is the time to migrate to an enterprise solution.
Assessing solutions
If you are in the process of evaluating a property management solution, you may want to consider the following as you make your selection:
Enterprise property management solutions take advantage of technology and are enabled by it. Be sure to consider your current resources and technologies. Your IT department will need to support the solution and manage its interaction with other systems. Your employees will need to be trained - they need to understand how to use the solution and, in some cases, the technology. Balance the opportunities for business process improvements with existing data quality and availability and the capabilities of the application software. Look for a solution that is easy to use and install.
Carefully assess operational needs and concerns. Are you looking to simply upgrade your current system, address a specific need or concern, consolidate information and management, and/or streamline operations?
Balance the cost of the solution against your expected return on investment. Are you willing to "spend more to get more," or do you prefer to keep expenditures low? Is budget more important than benefit? In the current economy, either answer is appropriate.
A new frontier
At a time when it seems as if there are few truly new frontiers, real estate is a fully mature financial and operational industry sector that is coming to light as an emerging technology market. Shortly, full-scale adoption of enterprise solutions will allow residential property owners and renters to create a rental leasing network for the industry, including content, services, procurement and transaction processing with deep integration into the back office systems. And before long, when the words technology and real estate are paired, you just might think "software."
Mark E. White is CTO and chief strategist of Alexandria, Va.-based Realeum Inc., an industry-founded company formed to provide property management software for the multifamily real estate marketplace. He can be reached at mwhite@realeum.com.
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