Multifamily Unpacked, Season 1, BONUS EPISODE — Tyler’s Take – Three myths about the new operating model
Learn how you can improve efficiencies and leverage AI to make your people happier and your renters ecstatic. Take the guesswork out of the new operating model.
This week we did something a little differently than we usually do — we go deep on a short topic on the podcast.
Our podcast host, and Funnel CEO, Tyler Christiansen debunks three of the most common myths about the new operating model.
The three myths are:
#1. The new operating model is only for companies with geographic density
#2. The new operating model isn’t for third-party operators
#3. The new operating model is too hard.
Change takes work and we’re glad to share best practices we’ve learned from multifamily pioneers.
The new multifamily operating model is garnering results including:
- 50% increase in compensation
- 35% task time saved
- $4-5 million in savings annually
- Leasing teams get Sundays off (without a performance drop)
Tyler Christiansen, Funnel Leasing
Welcome back to Season One of Multifamily Unpacked this week, we’re going to try something new. Instead of bringing on a really smart, insightful guest, you’re just going to hear my voice. But on this topic, I have a lot of passion and a lot to talk about. So we decided to dive into my favorite concept, centralization. But instead of talking about all the reasons why we started to dig into some of the myths about why not. First of all, you may have heard that it only works if you have geographic density. Let’s talk about it. Second, you may say, ‘Well, I’m a third-party operator.’ Well, we’ve got an opinion there, too. And lastly, the big reason the new operating model is just too hard. Let’s dig into that one as well. As we discussed the changing environment of multifamily and the new operating model. I hope this short Tyler’s Take-style podcast gives you some insight into the journey you can take and why it’s worth it.
Tyler Christiansen, Funnel Leasing
Today, I’d like to talk a little bit about some of the reasons that we hear folks still pushing back on the need to move to a new operating model. You know, there’s a number of reasons, but there’s three primary ones, that for those that are the holdouts still they still think this is optional. What are those reasons? And again, I think that they’re valid reasons. But let’s talk about those. The first is that, well, centralization, shared services really only applies to me if I have geographic density. And I think that that makes sense that you would start there, because a lot of the early examples of centralization started with operators who had tremendous geographic density, meaning that properties were close, right. And yes, that makes total sense that if you have properties that are within a short drive, naturally, you would expect a certain amount of traffic lead volume to be shared across those properties. And so it makes sense that often we associate centralization with cross-selling. However, it would be wrong to assume and I can tell you it is wrong, in reality, that centralization and cross-selling are not one in the same, they overlap, but they’re not the same thing. And I think the way that we could articulate that is that one of the steps in the journey that our partners take along this path is centralization. And there really is no endpoint, because it’s a journey. And even our partners that have had the best results, they’re doing more, they still see more opportunities. But one of the first steps they all take is to get a whiteboard out. And maybe it’s the proverbial Zoom whiteboard. But in some capacity, they are listing out all their ideas of what goes on on site today, right? What are the things that take time? What are the things that contribute to our traditional one employee for every 100 units, and when you list all those things out, maybe it’s, you know, 50, in one organization and seventy in another. You circle the ones that really do require you being on site, right, those items, you know, maybe providing support for a tour, certainly maintenance. And depending on the operator, you may want a resident ambassador on site, who is there to do in person renewal interviews, whatever your decision is, it’s your secret sauce. But in all cases, the minority of tasks are going to require somebody being boots on the ground. And so let’s start with that concept. If you’re holding out on centralization, or perhaps you’re earlier in your career and think that, ‘Hey, that only applies to other companies.’ I want you to think about the tasks that you do today, and could you do those tasks from home? And the reality is the majority of tasks that happen on site, and have historically happened on site, don’t need to be done on site. And so, that begins to immediately remove this barrier of, well, then what could be centralized? Right. So let’s take for instance, renewals or move ins, while maybe physically handing someone keys is a requirement. Although many operators are using IoT technology to eliminate that need. The actual steps between lease signing and move in are pretty administrative and can be done off site. And the reality is, when they’re done off site, it allows you to do those with the right technology, across multiple sites, to do it well, to do it consistently, to do it quickly. And all a sudden, the barrier of geo density limiting your centralization no longer exists, right? You could have a community — I’m based in Tampa, Florida — you could have a community in Ocala, and a community in Sarasota and one in Orlando. And I can be doing move ins across all those properties. There are probably four or five more sitting here in Tampa, Florida. I don’t need to be visiting the property every single day. So number one, I don’t believe geographic density is a real true reason to limit your move to centralization to embrace it. Again, if you’re earlier in your career, I think this is just going to be a part of doing your job, just like AI is gonna be a part of doing your job. That being said, I do think if you have any sort of geographic density, you should absolutely be looking at cross-selling, and looking at ‘Hey, how often are we naturally seeing consumers intersect between our properties?’ When we turn Funnel on, we often find that it’s probably one out of every five times that within five miles, you’re going to have shared traffic. So that’s reason number one, people don’t do it, and kind of picked apart why I think that might not be the case, and why we’ve seen it’s not the case.
Tyler Christiansen, Funnel Leasing
The second one, this is the big one, this is the controversial one in our industry. And that is the idea that, ‘Hey, I am a third party Manager,’ (Which, you know, kind of embarrassed to admit, but it took me many years in this industry to retrain myself to say, third party manager, I think on the vendor side, sometimes we say fee manager, and I can see why if somebody called me a fee vendor, I take offense to that. So I do my best to think, you know, these are third-party partners that are managing the property on behalf of an asset manager.) And that on behalf of is really the key here that is often positioned as a reason why, you know, ‘Hey, we’re a large medium or small third-party management company. And we can’t go down this path because our owners won’t allow it.’ Now, I do think it’s an incredibly fair argument. Because in particular, often there is a relationship with the owner where they have a veto right to say, ‘No, you can’t do that.’ And the most common pushback we hear from people is, ‘Well, they’re not going to want to share leads across multiple properties.’ And I think that logic has held out for decades in our industry, we have assumed it to be true. But I want to point out two things. The first is that most of the institutional capital that owns multifamily assets, also happens to own other real estate verticals, where that is not the case whatsoever. So let’s use hotels as an easy example. You know, Blackstone is a very large investment organization, they have money in hotels, they have money in multifamily. In the world of hotels, we are very comfortable with the idea that a lead and the lead data is going to be shared across multiple operators, right, because that apartment that’s owned by Marriott isn’t actually managed by Marriott but is managed by a management company you’ve never heard of. But Marriott as a brand is sharing the lead data across multiple properties. So first and foremost, I want to dispel the idea that, ‘Oh, the asset manager is religiously opposed to the idea of sharing data,’ that’s just not the case. Now, certainly, asset managers have a propensity or a habit to not do so; however, that is changing. And why that is changing, is that as is often the case in our industry, the bleeding edge of technology happens with the REITs and with the large owner-managers. And that’s because they have the shortest path to ROI, because they can get all the decision-makers in one room say, ‘Hey, we’re going all in on self-guided tours, they’re going all in on cross selling.’ And in a very short period of time they can achieve the results. And those results go straight to the market cap, right go straight to the share price. So we often see innovation come through the REITs. But the reality is, being publicly traded companies, they talk about those results. And if you’re not familiar, just Google ‘Camden earnings calls’ or ‘Essex earnings calls.’ Read through those, I guarantee your asset managers are. And when they look at what’s happening with these companies, they’ll say ‘Wait a minute, Essex said that they have improved their employee-to-unit ratio. That’s interesting. I wonder how? Camden saved $4 million a year by moving to this nest model?’ (Nest is their term for centralization.) The results that these companies have achieved, especially in a macroeconomic environment in which there is downward pressure on pricing, an upward pressure on the cost of capital as well as still a short labor supply has created an increased demand for the types of results REITs are achieving but for third party managed properties. Just anecdotally, within our own data, the number of leads coming from third-party managers has exponentially increased over the last year. We have partners like RKW Residential, who have achieved fantastic results and are now marketing. They’re going out and as part of their sales pitch. And you can see this on LinkedIn saying, ‘Hey, you know what, centralization is for third-party managers. And if you pick us we’ve got the technology to do it.’ We’ve got other really innovative partners that are hybrid owner-managers, they own half their assets and third-party managed the other half, like BH Management, a very innovative company. They’ve put their whole rebrand built on the concept of shared services. And so these excuse this, this pushback the opposition to ‘Well, third party managers just don’t centralize.’ As is the case often with new technology? That’s true today. But the excuses are, they’re being picked apart because the results absolutely transfer and results matter to owners. So whether it’s an owner-manager, or an asset manager who is having the property managed, they still want the efficiencies. Now lastly, what’s the third reason? So the first reason is geographic density, we kind of picked that apart. Second is the third-party managers aren’t going to be interested and evidence is that they are and just, you know, take it a step further. And you’re going to hear a lot more in the industry about large third-party management companies really leaning into this soon, so I think there’ll be a lot more news on that front.
Tyler Christiansen, Funnel Leasing
But third, the main reason we hear people not doing this is that ‘It’s just so hard.’ We had a conversation recently with a very sharp head of operations, what I would consider a mid-market operator in the Midwest. And she said, ‘You know what, this is the perfect vision, we were having a conversation about a shared services model, role specialization. And her first comment was, ‘I just don’t know where to begin.’ And that makes total sense. Any transformation requires a massive amount of resources, both the energy, the time and the capital to make it happen. What I would counter with that is, get out of your head that this is a race, get out of your head that this is a project, it is not a project, it is a transformation, just like we used to do leasing. On paper binders, we used to advertise in paper catalogs, you know, there was not one day that all of a sudden you built a website, and you were a digital. That’s not how it happened. We went digital and we are still going digital over decades, right? It is a process to become more and more modern. And the operating model if you are not doing cross-property operations, cross-selling roles specialization, you’re on the old model, and that’s okay, the majority of people are, but the idea that it’s too hard or this project, we don’t have time, we don’t have the resources. You know, that is the innovators’ dilemma. And if you don’t take time to disrupt yourself into embrace the new operating model — and this goes for large C suite executives and this goes for you know, the entry-level leasing agent who’s working a property for the first time — embrace this technology, look for opportunities to prove that you can do role specialization and shared services. It’s not done. And so it’s similar to any diet, any effort you take on, it’s going to be hard, but you don’t get in shape going to the gym. Once you get in shape by making good small decisions day after day. There are a lot of opportunities, a lot of low-hanging fruit to be able to move on this path. So we’re here to support you in that we think this is a really really cool initiative. And you know, if you’re interested, we’d love to talk to you about it. But more importantly, our partners we can connect with one of them to share their results.
Tyler Christiansen, Funnel Leasing
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