In cities like San Francisco, New York and Boston, 60% of the residents are renters. And across the U.S., there has been unprecedented growth in rental demand. Nine million more households have become renters over the last 10 years – the largest gain in housing history. Today, roughly 45 million families and households are tenants.
Investors have noticed these rental trends, and billions of dollars have been invested in the rental property market. Just in Feb. 2017, Blackstone’s Invitation Homes raised over $1.5 billion in an IPO. The company has spent about $10 billion on its 50,000 rental properties portfolio across several cities, ranging from Los Angeles to Chicago to Orlando.
The growth in rental demand has resulted in strong demand for property management services, and the property management industry has grown to $73 billion a year. However, property management continues to be fraught with inefficiencies, and the industry has generally lagged behind the times in terms of technology.
But there is a wave of innovation that is making property management much easier. There is also an increasing amount of capital that is being invested in these technology-led property management solutions. VTS, a New York company that helps with commercial properties, raised $84 million and recently merged with Hightower in a $300 million deal.
In addition to publicly listed companies, such as AppFolio – which helps mid-to-large traditional property managers, went public in 2015 and whose stock has more than doubled since the IPO, and RealPage (over $2.5 billion market capitalization) — there are a number of other companies, such as Buildium and Rentalutions, that are offering software products to the smaller traditional property managers to help them improve their internal operations.
The property owner and tenant experience is also being reinvented. Zenplace, out of Silicon Valley, provides full-service, national property management services to property owners, institutional property portfolios and property managers. Zenplace uses technologies such as AI and machine learning to provide a proactive approach to property management.
For example, it may give a heads-up to owners that, based on usage and life cycle, the property’s water heater could start leaking in 3-6 months, and suggests potential options to mitigate the issue before it occurs. Zenplace also features an AI-powered service that works using chatbots and through devices like Amazon Alexa and Google Home, which makes it effortless and convenient for tenants to pay rent easily, extend their lease and report issues with the property 24/7.
According to Zach Aarons, co-founder and partner at MetaProp NYC, “Property managers have been using software to assist with managing their properties for years, including platforms like Yardi, MRI and RealPage. AI apps will just be a natural extension of this wave of adoption. In my opinion, they won’t replace current software solutions, they will complement them. For example, an AI bot can take data straight from Yardi and convert that into an actionable email to an existing tenant. At the end of the day, we are still dealing with physical assets, so 100% of it won’t be able to be automated. The work that property managers do at their desks, however, can eventually become fully automated.”
Not only are property owners, REITS and property management companies taking notice of the ongoing evolution in the industry, other interested sectors are getting involved, as well. Insurance companies and banks are looking to get involved with this new wave of innovative players, since real estate represents 13% of the country’s GDP. As an example, American Family Insurance, a Fortune 500 property & casualty insurer, recently led a $8.5 million dollar round in Cozy, which focuses on do-it-yourself property owners who manage their own properties.
Other companies are also working to improve specific components of the property management cycle. Happy Inspector, owned by HappyCo and based in Australia, has developed mobile apps that help with property inspections and recently raised $7.5 million to expand into other markets.
Despite the large size of the professionally managed global real estate investment market ($7 trillion), the sector has lagged behind in technology. With these innovative companies making property management easier, property owners can increase returns, reduce costs, better maintain their properties, improve the tenant experience and have peace of mind.
According to Rahul Mewawalla, CEO of Zenplace and former head of the U.S.’s first technology program in Silicon Valley with the White House, “We’re innovating every day. Property management and the owner and tenant experience is already 3x better today than it was some years ago, and in another 5 years will be 10x easier and better than today.”
That should certainly bode well for property owners, tenants and the overall real estate industry looking ahead.