There is a seemingly infinite amount of capital pouring into US multi-family real estate. More players than ever are in the value-add space, which is putting significant pressure on pricing. Multi-family buyers are feeling the squeeze to make aggressive assumptions in order to justify today’s prices or they risk losing out.


I believe we have entered a new era of relatively low cap rates and we will now see the industry focus more time and attention on streamlining property operations.


In this new era, being great at sourcing deals and capital isn’t enough. The lay-up value-add deals (buying right, $5-15k/ unit renovations, and increasing rents $100-250) are few and far between these days. Identifying new opportunities to increase revenue and efficiently controlling operating expenses are the areas where we will see differentiation and competitive advantages as we move into the downslope of the cycle.

Occasionally, I’ve seen this sentiment shared by multi-family executives who acknowledge this trend. I read a great piece the other day where Joe Lubeck of Electra America summarized some of these ideas in a nice nutshell quote:

Now, the field is far more competitive, and technology, amenities, and finishes keep improving, raising expectations even further… Our business model isn’t about cap-rate compression; it’s about NOI growth.

There are really two areas owners and managers should be focusing on to boost NOI: increasing ancillary revenue and streamlining operations. Streamlining operations is not a new concept - this is a basic business fundamental that applies to any well-run organization’s income equation. Reduce operating expenses -> increase income. This is often accomplished at multi-family properties by leveraging technology to make on-site staff more efficient, pushing on-site work to the corporate office, and using economies of scale across your portfolio for better vendor pricing. Generating ancillary revenue, on the other hand, while not a new concept, is much more complex with a less well-defined recipe for success.

There are many ways to generate ancillary revenue by offering additional services: cable, internet, electricity (in deregulated energy markets), carports, technology packages, renters insurance, amenity rentals, valet trash, washer/ dryer, storage, furniture rental, pest control, cleaning, etc... These ancillary services are separate and distinct from the various more traditional fee options out there such as late fees, notice delivery fees, pet fees, package fees, move-in/out fees, short term premiums, paper check payment fee, unregistered pet fee, early termination, etc.

So what are some tangible steps that can be taken to boost ancillary revenue? Here are a couple ideas I’ve discussed with owners/managers and things I look for in the deals I invest in:

  • Utilizing technology. If you don’t already have someone, find someone to add to your team who understands the technology landscape and who can manage your organization’s technology stack, both internally as well as what is used at your properties. Some of the newer tools that should be on your radar for property level operations are automated package lockers, AI leasing assistance, smart home technology, and digital amenities (disclaimer - I am also the one of the founders and CEO of Zego).
  • Ancillary revenue. Develop ancillary revenue specific KPIs and metrics that are visible and monitored by someone at the organization. Don’t just wing it. If you can’t see the success and/or failure of each revenue stream, you can’t figure out how to optimize it. Make sure there is clear accountability. Some companies even have a dedicated ancillary revenue person or team.
  • Empower your on-site manager and leasing agents to continue selling after the lease is signed. We see the industry moving to a more hospitality-style culture where on-site staff act more like a concierge, facilitating the use of various amenities (both digital and physical) and services like dog-walking, apartment cleaning, garbage valet, etc, versus spending a large portion of their time collecting rent and managing packages and maintenance requests.

Of all of the above concepts, I think the last is the most exciting and potentially disruptive. As technology begins to permeate throughout the property and reduce the amount of time and energy wasted on non-revenue related activities like rent collection, packages, and maintenance requests, on-site staff are being freed to focus on the one thing that everyone can agree is important - generating revenue.

The key is developing and implementing the platforms and processes that enable these behaviors. If you don’t feel comfortable vetting and implementing technology, hire someone who can. Choose either a consultant or someone in house you feel can provide long-term value to your organization.

Also, make it a priority to create a resident opt-in technology package that you can solidify and offer portfolio wide. Don’t delegate these decisions to property-level staff. These are decisions that should be made and understood at the corporate and even executive level. Then, establish ownership for these new technology initiatives within the organization and task that person or team with responsibilities regarding onboarding, training, support, vendor management, etc, so that they can be driven top-down throughout the portfolio in an organized manner. A good example of a technology package can be found with one of our partners, S2 Residential. For $25/mo, they offer residents a smart home package that includes smart lights, locks, thermostats, and more, and offer this package across their portfolio of 12,000 units.

Zego was borne out of the realization that today’s resident facing technology landscape is disjointed and, frankly, just not very good. It’s not unheard of for properties to utilize 3-5 different mobile apps that residents are expected to engage with. This is cumbersome for both staff and residents.

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