Lefkovits: Multifamily Innovators Improving Living Experience In Ways Never Imagined
For today’s blog, we present an interview with Steve Lefkovits, executive producer at the Joshua Tree Conference Group, which runs the Multifamily Innovation Conference – Atlanta.
Steve is a multifamily veteran who has had a front-row seat to the industry’s evolution and progress through the years. He is also a Principal of Joshua Tree Consulting and an Executive Vice President at RealtyCom Partners. He also has served as a Senior Vice President for Technology Initiatives for BRE Properties and as a Vice President for Finance and Technology of the National Multi Housing Council. While at NMHC, Steve created the NMHC Technology Forum.
In this Q&A, we get Steve’s take on the current state of innovation in multifamily and how MICA will help those looking to implement cutting-edge technologies and processes.
The apartment industry has long been stigmatized as being behind the times when it comes to technology and innovation. What is your general assessment of where the industry stands in terms of its appetite for and emphasis on innovation?
Steve: For the past 25 years, most innovation has been focused at the physical properties. Today's innovators are primarily focused on improving the customer living experience in ways that the previous generation couldn't imagine. The industry is quick to adopt these newer technologies that differentiate the living experience and make it easier to interact with residents, and that make it more convenient to individualize life in a big community.
Physical technology is hard to implement, has an installation cost and has to be maintained. It's a commitment. The industry's reticence around technology is well-documented and probably mostly appropriate. A big exception to this is in solving real problems that emerge like package delivery. E-commerce has shifted to where packages get delivered in ways that are only accelerating. It's probably not possible to spend enough on package management over the next five years as more and more consumers shift to the convenience of having packages shipped home.
Currently the industry has a healthy appetite for certain types of innovation that make operations easier while reducing expenses. These include process automation (online leasing, mobile-first customer experiences, marketing automation) and experience creation (personal services and pet services). They also include building automation (smart homes and buildings). Water-leak sensors and smart thermostats and locks are a big hit.
What are some of the ways in which you’ve seen owners and operators innovate in recent years?
Steve: Owners and operators have been innovating in many ways in recent years. One of the most interesting set of innovations revolves around short-term rentals. Something like more than 60 percent of the flexible rental inventory in the U.S. exists in apartment communities.
Like it or not, renters figured out a long time ago that they want the additional income from re-renting their places on weekends when they're not home. I've been fascinated by the number of owners who are trying to capture some of that revenue, along with facilitating the convenience for their renters.
Another huge innovation has been owners making investments in technology venture funds dedicated to the multifamily industry like RETV, or more general proptech funds that work in a few different areas. Seeing owners make personal and corporate investments in tech funds, and then using their deeper knowledge to buy the products the fund has invested in, is definitely a new twist that clearly benefits the tech companies, the owners and the funds.
Looking ahead, what kinds of innovations do you feel are on the horizon for the industry?
Steve: There are new online technologies for raising investment equity that are lowering the initial required investment for an investor, like Fundrise. And there’s blockchain-based technology for managing a cap table and facilitating sponsor-approved equity transactions that will change the clubby nature of raising money to buy apartment buildings and increase competition to the institutional investors for product.
Technology is breaking down a big wall that keeps the little guy from getting the high yield and favorable tax benefits of commercial real estate investing. I see this as a fundamental change that is going to put more people in business and drive up demand for buying assets.
What are some of the common obstacles to innovation in the apartment industry?
Steve: Some of our biggest impediments to innovation lie in the lack of resources in a headquarters office. Few real estate companies keep project managers, tech due diligence execs and financial analysts on hand to do their own structured thinking and process management around innovation. The vendors with the most complete service packages with full-service offerings and a deep knowledge of the typical internal process really have an advantage in selling tech.
Another obstacle to innovation is figuring out who's going to pay for it upfront. Tight property budgets at separately capitalized properties means there's no pool of corporate money lying fallow that can be used to test investments. (REITs are different of course.)
I've proposed to some of my friends that as general partners of private equity real estate shops, they should set up and document loan facilities with their personal funds so that they can lend $25,000 to $100,000 to a property if there's an opportunity to buy a technology or product that has a short payback period and can meaningfully change NOI.
Most property budgets are extremely tight, with quarterly distribution expectations that make it impossible to find the money to make an incremental investment in something new after the property has been purchased. Same goes for vendors. Vendors that arrange financing for their innovations may find it much easier to roll out than those that rely on properties budgeting for it.
One more key obstacle is figuring out that residents will pay for – or at least genuinely appreciate and use – a particular technology. The density of the industry has attracted all kinds of businesses that salivate at the prospect of mass audiences that they can target demographically. But residents are the full rainbow of diversity of interests and tastes and technological capability.
I know that in my own house, there are three different comfort levels with technology or even using a mobile phone. I think consumers are much harder to reach than we generally imagine in a business where we provide for the most basic of needs – shelter.
We often think of innovation in terms of how it impacts the resident experience. But tell us about the financial benefits innovation can offer owners and operators.
Steve: The best way for innovation to create value is unlocking new revenue line items. Smart home technology, when well-implemented, can produce incremental income from amenity fees that account for the costs, as well as incredible time savings from being able to share access to your home without being there. Home-sharing and flexible rentals have produced tens of millions in new revenue from new customers using the same asset.
I think that tech is going to continue to enable us to use multifamily properties more efficiently to generate new revenue. Electric car charging stations come to mind.
Well-coordinated amenities that are visible in a nice app send the right signal to high-income renters that a community is worth paying top-of-market rates for. Self-guided tours and self-leasing reduce the friction of leasing, which should drive new revenue. I also think that automated leasing products like effective AI chatbots are going to start showing their revenue value.
Even in a high-margin business, a dollar saved is still valuable. The time and energy being saved by automation is astonishing, and it’s going to extend the ability to do more with fewer people. And I'm personally waiting to see AI bookkeeping and accounting hit the multifamily back office. Every dollar saved in overhead has a huge impact on the sponsors of most multifamily companies.
Give us a quick summary of how the upcoming MICA conference will serve as a boost to those looking to improve and enhance their multifamily portfolios through new technologies and new offerings.
Steve: MICA is an executive learning conference for asset managers, operations executives and technology innovators in the multifamily industry. Attendees are developers, COOs, VPs of Operations and Marketing and CTOs. All are concerned with sourcing and implementing complex infrastructure and consumer technologies. This event reveals best practices in the hard work of making technology work to drive incremental income to multifamily owners.
The conference is interactive in parts – with lots of opportunity for group discussion. And it’s directly educational, with presentations from experts who’ve graciously offered to share and engage.
Our keynote session this year is an in-depth interview with the Chief Experience Officer and Chief Technology Officer of Cortland. We’ll focus on their process for investing in technology, project managing implementation and what they experience as strategic investors with a large portfolio that have to activate their business beliefs in an industry that resists change.
Key themes of the conference will include housing affordability, evolving short-term rental programs and deep implementation dives into smart home and Saas platforms.