When I think about the biggest opportunities for technology in the multifamily space, I immediately think about smart apartments. From mobile access, to temperature controls, to integrations with smart hubs (Alexa, Google Home, Apple Home), we are in the early innings of this massive opportunity. Smart apartments are marketed as a way to increase resident delight, but the value extends way past added convenience. Smart apartments can have a significant positive impact on the operations of a building, and most importantly on NOI (and not just from higher rents).
When an apartment is vacant it can be difficult to recognize issues that are taking place within the unit. For example, a leaky pipe can go days or weeks without anyone noticing, until water makes its way into the apartment below creating costly damage. It is also common that heat or AC are left set to levels unnecessary for a vacant apartment, which wastes energy and ultimately costs the owner money. When technology integrates the property management software, access control solution, smart thermostats, and leak sensors, the moment a resident vacates their unit, the temperature can automatically be adjusted, the lights turned off, and the management team can be notified at the first sign of a leak. Even the leasing process can be streamlined with technology by activating self-guided tours so that interested parties can visit apartments at their convenience without the need for building management to be present. Doormen can be replaced by video intercoms, and security guards reduced with AI-powered remote video guarding. Additionally, parking garages can be equipped with EV changing stations and automatized parking solutions.
Smart apartments are a major focus for our team at Kastle:
Smart Apartments are a major focus for our team at Kastle
Smart apartments have gained a lot of momentum over the past 12 months, and companies in this space have raised eye-popping levels of capital. However, smart apartments are only one piece of the technology advancements that the multifamily industry is experiencing. We are starting to see the convergence between PropTech and Fintech which is creating a completely new category often referred to as ‘RentTech’. These solutions cover the entire lifecycle of residential buildings, including how the building is financed and built, the marketing & leasing of each unit, how tenants can use alternative means to fund security deposits and pay rent, and how the building is eventually sold. RentTech has the possibility of unlocking enormous value for owners and managers while reshaping the entire experience for residents.
VC firms have been funding innovative startups in this space for some time now, and the velocity of investments really started to accelerate in 2021. I recently had the opportunity to meet with a venture firm that focuses their entire investment strategy around RentTech. I was fortunate to have the chance to sit down with the team at RET Ventures to learn more about this growing industry. Below is our conversation.
What exactly is RentTech (and how big is the TAM)?
“We define RentTech broadly as technology bringing innovation to and solving pain points in the rental real estate ecosystem including institutional and ‘long tail’ owners, operators and developers, as well as the residents who live in these properties. From an operational perspective this includes areas as broad as real estate underwriting and acquisitions, construction technology, data-driven asset management, marketing, leasing, maintenance, operations, payments and amenities.
This is a huge segment of the North American real estate economy with over 45 million renter households, and over $500B in asset value represented in the RET Strategic investor base. We see the opportunity to back and help build and scale private and public companies in the space.”
Why is RET Ventures so bullish on this segment of the market?
“We think the segment is unique in that rental real estate is attracting significant capital (witness the rapid growth of single family rental portfolios), and is also viewed as a defensive, less cyclical end market, with many large integrated owner/operators who are looking forward to investing in technology to transform their operations. We think this presents a tremendous opportunity for us and the entrepreneurs we back.”
What does RET Ventures anticipate the industry will look like over the next few years?
“We think technology is already reshaping many aspects of the industry, from virtual touring and self-guided-touring, to online mobile-first leasing processes, pervasive smart home / smart building / IoT and ubiquitous high speed connectivity deployment, as well as resident engagement and amenity platforms driven by the hotelification of the experience at high end properties. Additionally, it includes payments / resident finance innovations like rental deposit alternatives, and rewards programs. Also, we will see more flexible models like short- and medium-term rentals (which require different revenue management approaches), furniture rental, etc.”
What are some of the challenges or technical hurdles that the industry faces? As an example: Are retrofits too expensive compared to new construction?
“Absolutely. We see solutions that are great for new construction but are not feasible for retrofit into stabilized properties. We saw this firsthand with investments that we have made in the access control / smart home space. We will see a lot of this in the ESG space where some deployments have very challenging financial ROI balanced against the non financial impact.”
Where are the biggest opportunities for technology in residential real estate?
“Everywhere. We are engaged across the spectrum from construction tech (Juno), to analytics & decision making (Markerr), to leasing (Funnel), to connectivity (GiGStreem), to maintenance & operations (SightPlan). We think there are huge opportunities for data-driven asset management (Engrain), and moving from Smart Homes to Smart Buildings (Passive Logic).”
Are customers willing to pay a premium for smart-apartments/smart-homes? If so, can this be quantified?
“Absolutely. Many of our Strategic LPs have seen residents excited to upgrade to a smart apartment package including access, thermostat and IoT in the home. Many of our LPs are implementing ubiquitous wifi high speed to provide an upgrade from legacy cable or DSL internet.”
RET Ventures is an extremely well respected player in the PropTech space, and they continue to invest in startups that are reshaping the industry. To learn more about the exciting companies that they are investing in, please check out their portfolio here.
The Modern-Day Handshake
I was recently asked to contribute to a whitepaper on the value of trust in the CRE deal process. The white paper was authored by Steven Jaffe, CEO of Propdocs and includes commentary from leading industry experts. I had a chance to read through the final version which was recently published, and I found it to be incredibly well written and full of value. Below is a brief description from Jaffe, along with a link to white paper.
“My obsession with improving efficiency in commercial real estate deals led me down a fascinating, and valuable, rabbit hole about how trust is intertwined with efficiency. I’ve found that oftentimes when deals fall apart there is a false sense of trust. In the end, less trust means deals will take longer, and ultimately cost us money. What does it mean for trust that the handshake is being disintermediated?”
Here is a link to Whitepaper