The story is the customer. Read how Bainbridge and our peers in the multi-family industry are adapting to the ever-changing demands of our residents:
At first, it was just a property here and there, but then at several Pinnacle locations, leasing prospects were finishing community tours with the same refrain. “They’d all comment on what a shame it was that Elise wasn’t there,” says Pinnacle senior vice president Jennifer Staciokas. “Then they’d talk about what a great experience they had chatting with Elise online, getting property information and setting up a tour, and how they were looking forward to meeting her.”
Ultimately, Pinnacle property managers would artfully dodge the comment, or perhaps say that Elise had the day off, or simply tell prospects the honest truth: Elise isn’t a living, breathing, property manager at all. She’s a chatbot—an artificial intelligence (AI) program beta tested by Pinnacle last year to provide back-end leasing office assistance to agents and property managers as the company, at 150,000 units under management nationally, looks to adopt technologies and innovations for maintaining an advantage in increasingly competitive rental markets.
“AI is definitely blowing up at this point in time and we’re working with providers on pilots and starting to build the library of content that can be used to communicate with both prospects and residents,” Staciokas says. “Elise helps us set appointments 24/7 and has been so successful that people really don’t know that she’s a robot. The communication is seamless, it’s proven itself out in beta, is integrated with Yardi, and we expect a much larger roll-out in 2019. It’s been a great find that has been easy to implement and take the load off of on-site team members.”
Pinnacle isn’t alone in its exploration of tech innovations and customer service novelty to streamline operations and compete for prospects. While average rents trended upward in 2018, tightening is expected this year as development slows and absorption takes renters off the market. Although hardly on a downward trajectory, overall confidence in the multifamily business market for 2019 is best described as cautiously optimistic, and against a backdrop of steady to slightly slowing fundamentals, multifamily owners and managers are digging in and fortifying their positions with investments geared toward prospect conversion and renter loyalty.
Heidi Jehlicka is the senior vice president of marketing for Wellington, Fla.–based Bainbridge Cos., a developer and owner–manager of 17,486 units across 53 assets up and down the East Coast, including 16 properties in development or lease-up in Florida alone.
“We continue to be in a growth mode with a goal to be the best, most-efficient operators and bring the rental prospect traffic in,” Jehlicka says. “To do that, we’re increasingly keeping an eye outside of the industry from an innovation standpoint. In retail, hospitality, and automotive, we see success with email nurturing in particular, and we’re exploring how to bring that process into our business to communicate with prospects and quickly provide them with the content they’re looking for.”
Increasingly, such conversion-friendly content involves detailed information not just about physical amenities, floor plans, and prices but social opportunities, events, and lifestyle, as well. “The renter is definitely looking for a sense of community,” Jehlicka says. “For a while, it was, ‘Leave me alone; don’t knock on my door,’ but our residents have become much more socially [active] people than they have been in the past, and we still see lots of people looking for quality product in good locations with quality amenities.”
The Year of the Place
Indeed, 2019 is shaping up to be the year of the place, and as progressive players look to come out as winners over their local comps and regional peers, having a well-located community with a highly curated suite of both physical and programmatic amenities is becoming more important than ever. According to the National Association of Home Builders (NAHB), multifamily development starts are expected to fall from their 2018 levels to roughly 350,000 units this year—still a healthy volume compared with an annual production average of 331,000 units from 1995 to 2003.
Emblematic of that trend, Atlanta-based Cortland has 2,350 apartments under development and expects to both start and deliver a similar amount of year-over-year volume. “We’re staying the course with roughly $600 million under construction and another $400 million in the pipeline that’s waiting for a shovel or a permit,” says Cortland CEO Steven DeFrancis. “That said, it’s hard to characterize 2019 development volume as a function of where the market is today, as those starts were initiated several years ago, but we’ve been pleasantly surprised with absorption and job growth. In our business, if you develop good ideas and have good execution and good locations, you can deliver even when the market is down, and eventually the deal will work.”
Making deals work out has changed significantly since Cortland started developing apartments, in the early 2000s. Last year, the company rebranded from Cortland Partners to simply Cortland and hired former Atlanta Falcons and Walt Disney executive Mike Gomes as the firm’s chief experience officer, with charge over product design, architecture and interiors, finish products, sales, marketing, and the entire resident experience.
“We needed someone to drive the voice of our customer alongside the voice of our capital,” DeFrancis says. “From the ’60s to the early 2000s, our industry sold a commodity, but as the echo boomers have aged into multifamily, we’ve morphed from a consumer product into a consumer service, where residents are looking for an outstanding experience as much as they’re looking for a great place to live. Whether that’s physical amenities, customer service, events, or maintenance, they’re looking for an experience, and hiring Mike Gomes as the CEO of our customer was the culmination of that recognition.”
Cortland’s strategy in that regard has most recently manifested itself in the acquisition of The Battery at Atlanta, a 531-unit community adjacent to the Atlanta Braves’ SunTrust Stadium purchased from Braves Development Co. and Pollack Shores in October 2018 for $156 million. Integrated into a mixed-use development of office, entertainment, and retail, the community’s three buildings are co-located with nine restaurants, four retail stores, and a music venue and have enjoyed some of the highest rent growth in the Atlanta submarket, with an additional office tower in 2019 expected to bring in 1,000 new jobs.
Mixed-use placemaking is also bringing new real estate players into the competitive multifamily arena for 2019. Long considered a shopping center REIT, Rockville, Md.–based Federal Realty Investment Trust has steadily become guardian of some 2,000 apartment units by virtue of residential units being incorporated into premium high-end retail developments such as Santana Row in California’s Silicon Valley and Pike & Rose in Bethesda, Md. In all, multifamily has come to represent $1 billion—or nearly 10%—of the REIT’s enterprise value.
“From a holistic view, we’re always looking for high-barrier-to-entry markets with high household incomes and high-density populations,” says Federal Realty vice president of residential Mike Ennes. “But we’re in first-tier suburbs—we’re not downtown—and find a lot of value by bringing the urban to the suburban and creating places where we control the residential and the retail and really everything around the resident experience, versus someone who has a one-block core investment in a downtown location.”
Regularly one of the top five multifamily developers in the nation, Phoenix-based Alliance Residential is likewise eyeing a strategic move away from urban core toward more purpose-built suburban assets. According to Alliance’s Southeast managing director, Todd Oglesby, two projects will close this year in his market within a half mile of growing suburban town centers.
“We’ve definitely seen a pick-up in the amount of suburban product we’re looking to develop,” Oglesby says. “It’s a place where we’re seeing some strong exits and seeing existing product trade with some interesting underwriting as residents look for that urban lifestyle in a more suburban setting, but at a slightly higher density than your traditional walk-up garden.”
Using Tech in Tight Markets
While recent interest-rate increases have put a damper on new-home sales, buoying the size of the national renter pool, rent growth is still expected to be anemic for the next two years. According to the Urban Land Institute, rental-rate growth was negative in 2017 for the first time since 2009, and although poised for a comeback, it’s expected to see only moderate growth, at 1.5% in 2018 and 2.0% in 2019 and 2020.
Meanwhile, rapid development hasn’t yet saturated the market. Despite increasing the number of U.S. apartments by 9.1% in the past five years, developers have largely kept pace with absorption, and the dip in home purchasing will only serve to further tighten markets. Real estate brokerage firm Marcus & Millichap (M&M) expects builders to add another 1.8% to the apartment inventory in 2019, but despite the supply, the firm pegs vacancy at a national average of only 4.5%, with even lower vacancies across classes B and C.
While apartment marketing and leasing associates will continue to play a lead role in competing for 2019 renters, many operators will use the year to evaluate virtual-leasing technologies and systems designed to streamline operations and processes while allowing prospects to experience a community and engage in the leasing process on-demand (see sidebar, “People Power”).
“From an operating-platform perspective, the one thing we’re really looking at and want to test in 2019 is unattended and virtual-leasing tours,” says Waterton Residential executive vice president of operations Lela Cirjakovic, who describes how prospects can tour a property with an iPad while a geolocation app provides them access to common areas and model units without the need for a key or a human escort. “You can open up the property to guests when it’s convenient to them, versus having the leasing office open from 9:00 to 5:00.”
As package delivery continues to evolve in multifamily, Waterton is also looking beyond built-in locker and storage systems to concierge-esque delivery services.
“It’s really just the next iteration of package management to have a company simply supervise parcels and deliver them at a time that’s convenient to the resident,” Cirjakovic says. “Then, that becomes the next iteration that’s improved upon. In that way, none of the operational innovations we see and adopt are ever finalized. I think it’s ever-evolving.”
Cortland’s DeFrancis agrees and says the industry is slowly evolving from an era of adoption obsolescence, where technologies become out-of-date the moment they’re purchased, to a period where robust tech is available to handle growth and other business opportunities.
To that end, Cortland has invested in Park City, Utah–based Real Estate Tech Ventures, a multifamily tech advisory start-up launched by former M&M CFO John Helm that promises Cortland and other investors greater visibility into what’s coming without having to devote internal resources for tracking and evaluating new systems.
“Perpetual implementation of new ideas takes a lot of effort for the organization, and everything we do needs to drive efficiency or experience,” DeFrancis says. “If I could pick one message for 2019, it’s really about a fanatical focus on the resident experience and where we can bring forward-thinking multifamily ideas and the great things they’ve been doing in consumer products forever. Either way, the story is the customer.”