Lucas Haldeman: I think we we'll look back on this pandemic not just in real estate but throughout business as a catalyst for digital transformation, and we're certainly benefiting from that in real estate. I have been in the apartment industry for 25 years and I've never seen this sort of rapid adaption ever before, and we probably will never see it again of people being open to change and willing to change. [MUSIC]
Deidre Woollard: You are listening to the Millionacres Podcast. Our mission at Millionacres is to educate and empower investors to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out, to season pros with decades of experience. At Millionacres we work everyday to help you demystify real estate investing and build real wealth. [MUSIC]
Deidre Woollard: Hello I'm Deidre Woollard, an editor of Millionacres, and today I'm excited to talk all things real estate technology with Lucas Haldeman, Founder and CEO of SmartRent. Lucas has had a fascinating career in a wide variety of real estate disciplines. I believe that what he has to share with us today will be of interest to anyone who manages property or is wondering about where the future real estate technology is headed. Welcome Lucas, and to start off, can you explain exactly what SmartRent does?
Lucas Haldeman: Hey Deidre, thanks for having me. I'm really excited to be here. Yes, we started SmartRent three-years ago with the idea of bringing enterprise IoT or Enterprise Home Automation to rental real estate, whether it's single-family, multi-family, even vacation rental. The problem that we identified that we saw is there was no good scalable enterprise software out there that really, smart homes were really designed for you to put that device in your house, for me to put a device in my house, but we hadn't contemplated hundreds of thousands of devices on one platform. That route, that's what we built at SmartRent.
Deidre Woollard: Awesome. I'm assuming that in the wake of the COVID-19 pandemic, you've probably had more interest in your services in things like keyless entry.
Lucas Haldeman: Yes, absolutely. It's been amazing. I think we will look back on this pandemic not just in real estate but throughout business, as a catalyst for digital transformation, and we're certainly benefiting from that in real estate. I have been in the apartment industry for 25 years and I have never seen this sort of rapid adaption ever before and we probably will never see it again of people being open to change and willing to change. Our platform plays nicely in that. We do have a lot of elements that take out human interaction and bring digital transformation to that. We've seen a huge increase in demand for a lot of our products.
Deidre Woollard: It makes sense to me. One of the things I've always heard about people in real estate technology is that agents and other people involved in real estate don't change until they need to change. Certainly that's something that we've seen. Just to talk a little bit more about that as it mostly keyless entry or what sort of products were people particularly interested in specifically during this time period.
Lucas Haldeman: The number one product, part of our platform is for self-guided tours, which allows a prospective customer to pre-qualify themselves and then go to an apartment community or a rental home on their own and look around. You can imagine, this was great before the pandemic because it helps with your operations costs, helps you expand your leasing hours. There were tremendous benefits, but now when you actually were closed and couldn't have people in close proximity. It allowed a lot of owners to stay open. That's the most interest in that. But in general, our platform is designed around remotely understanding what's going on with your property and remotely controlling a property without having a human present. So there's lots of other aspects of it, but the point of the spear is that, that's self-guided tour's a piece of it.
Deidre Woollard: Totally makes sense. I have seen a lot of signs at apartment buildings and near me with directing people to self-guided tours and saying just trying to promote that. I wanted to talk a little bit about your career in real estate just because I think a lot of people will find it interesting. I found it interesting because you've managed properties for other people, and I want to delve into that and talk about the lessons you learned through that.
Lucas Haldeman: Yes. It's funny you look back and serendimpitously, I took the perfect path to get to where I was of blending technology and actual real estate operations. It was not an intentional strategy but it worked out. I started my career in real estate technology and marketing, and then after that, I went in and became an owner of properties myself. I bought a small portfolio of properties and started then also managing for others where I recall being a fee manager and build that business up. Then I came back around the tech when the single-family rental industry started out of the foreclosure crisis. There was a void of people who understood technology and rentals and actually get operations experienced. A lot of private equity guys who didn't actually know how to manage a portfolio of properties, and so I came back. Left my business. Sold my business and came back to being on the operation side, but at scales, sort of public company. We had 44,000 single-family home units when I left that company called Colony Starwood Homes, and if you look back and like I've been on the tech side and on the marketing side, but also a small owner, an owner for others and then a part of a big owner. I've seen and been exposed to all aspects of the rental business, single-family, multi-family, big and small. I think that's been a real advantage when you start to bring a tech products to real estate. A lot of people want to talk about how backwards real estate is and you get a lot of things out of San Francisco that are going to revolutionize real estate, and people to understand real estate is not backwards, it's actually if you've been in it, you totally understand why those decisions were made and why we are where we are, and I think our product tells nicely with that.
Deidre Woollard: When you were doing those single-family home technology platforms, what did you notice were some of the barriers to adoption? What were some of the blockers that you came up against?
Lucas Haldeman: The single-family rental industry was an interesting thing to be a part of and actually you can look at, a lot of innovative real estate companies, people have their roots in single-family rentals. A lot of other people who are doing it have now gone on to innovate, and I think it's because you had to be sort of an entrepreneur to even go that way. Even the idea of managing thousands of homes that weren't anywhere near each other was sort of a pretty big leap of faith that it could even be done, and we were forced to innovate. So things like, self-guided tours that we say that's great for multi-family, there is a lot of benefits, it's the only way to operate if you're going to stamp touch each other and you don't have an office. I think it was a great freedom to say, we're not constrained by the past and this is how we've always done it, so we should always do it, it was a totally new frontier and we could say, what is the right way to do it? There was a tremendous amount of innovation and learning that we now can bring back. I think you're even seeing it now. Single-family rentals as institutional ownership is still relatively small compared to the overall single-family rental market, but a lot of the mom-and-pop landlords, a lot of people have a house or two houses that they've used as an investment property, they can now actually take a page out of our playbook and put all these things in place and act more like an institution owner. I think it's been great for the entire rental industry to have this segment become institutionalized.
Deidre Woollard: Well, I definitely think that's true that those smaller landlords are starting to adopt technology more just because they have to and because they have seen the benefits in cost-savings and things like that. I'm wondering, in scaling up from single-family homes to apartment complex is a whole different thing. As part of building SmartRent, what things did you come up against? What things were different between going from single-family to these larger complexes?
Lucas Haldeman: What we've seen is actually, there's a lot of similarities when you're talking about the unit. An apartment unit and a single-family home, basically identical. They don't happen to touch each other. That's the one nuance, but they're similar. But then there is a hierarchy, which is an apartment have more layers on top. There's office stores, there's common areas, there's gyms, there's parking lots. There's more things that need managed. What was interesting is we started starting with the unit, and then now we've broadened out to have a real platform to service multi-family. Unit versus home are similar, but then we have a parking solution to use IoT, the managed parking lots. That's not something you need when you just have a driveway in the garage for a single-family home. Then the whole concept of a lot of owners are doing almost hotel-like roll-outs, where there may be a top floor where only certain residents who pay can even get into a clubhouse up there. There's a lot of nuance and complexity around access control. Package delivery, one of our big thesis is, is how are we going to solve this package delivery problem that we're all starting with the multi-family? That's not an issue in single-family because again, it's just that one unit. We have these packaged lockers that cost millions of dollars and are non-rentable space that are just burning on our balance sheet, and at the same time, they only handle about 20 percent of the capacity we need for packages. Now, post-COVID, some people are saying it's down 10 percent or less because so many people are getting more and more deliveries. I think that's one of the big things we're going to bring to this industry, to multi-family, is helping solve that package delivery process and getting packages and deliveries into units, which is where they need to go.
Deidre Woollard: That is a huge problem. I know in my apartment building, the package area is always overcapacity. We're always getting notes from people about you have to pick up your package in 24 hours. I think that's a huge issue to try and solve. Is the way you try to solve that is getting things out of those storage lockers and towards individual units?
Lucas Halderman: Yes, that's exactly right. This is not a we're going to solve this in the fourth quarter of this year problem. This is a big problem to go solve, but that's part of why Amazon invested in our B Round and our C Round and part of what attracted us other than of course, Amazon's a great name. But they were also committed to saying that they want solve this too and for obvious reasons. They don't like packages being left out or packages going missing. It costs them money to replace those. They have a real fiduciary reason to help out with this. Yes, that's exactly right. Our long-term goal is to start getting packages into units. I think once you have a smart lock, it's now easy to remotely lock and unlock that, so it gives you the ability to do that. Then we're also big fans of the video doorbell and I think what we've seen is people in single-family homes, as well as in apartments become more comfortable with someone serve quickly open their door and putting a package inside if they can see what's going on, and they can interact and they have the video, and they have the audio, and they can talk to the person. In conjunction with Amazon, we're working on bringing that out. Walmart has an innovative and cool, they call it in-fridge deliveries. You can actually order groceries and the person will come in and deliver them into your fridge. It's something they've been focusing on for single-family owners. But with our product that we're rolling out, some pilots with them, where apartment dwellers can now get this benefit and take advantage of these things. That's another one of our theses, is trying to bring all these modern conveniences that have been developed, whether it's home security or whether it's in-home delivery, they're really developed with single-family owners in mind, but we want to open that up to apartment renters as well and let them participate in those new models.
Deidre Woollard: Well, that's fascinating too. I'm wondering if that could also be an add-on services for some of those landlords to offer people to help boost revenues too.
Lucas Halderman: Yes, it is. It's an incredibly competitive rental environment right now and so owners are definitely trying to innovate and say, "How can we stand out? How can we offer more services?" It's a good time to bring those. In that vein, another thing that we're looking at and another macro trend that we find interesting is how do you offer high-quality, high-speed Internet to every resident? Which was a nice to have before because you wanted to stream Netflix. But with all this rush to work from home and because of the pandemic, our view is we don't see that going back quickly that everyone's going into the office. How do you have really at home work environments that are stable? That can be another competitive difference as an owner that you can offer and you will see that not only in attracting new residents, but in muting your turnover or lowering your turnover, that people are less likely to leave if they're getting all of their needs met by the product.
Deidre Woollard: That's a good point. I think another thing that I've noticed too with the COVID-19 pandemic is, in the past few years, there's been that amenities race to make sure that there are all these pools, and gyms, and common areas, all that shared amenities. Now, because those things were closed for so long, they're perceived to have less value for people. People are more interested in space in their apartments. I think that puts landlords on the hook to have other types of value-add for their tenants.
Lucas Halderman: I totally agree. We've seen some owners starting to take those common areas and actually put in office spaces, almost like a WeWork type of thing in the common areas and say that's a better way to utilize. I know one owner in California where they're doing conference room so that you could actually have a virtual company where you didn't have an office, but you could come together for company meetings and stuff in this conference room that you can lease. I agree. I think owners have to be thinking, "How do we innovate? How do we change our product? It's not just about having the biggest gym or having the Peloton anymore. You got really think creatively about how we attract and retain our residents.
Deidre Woollard: Great, thank you. We're about halfway through our time so I wanted to take quick break and remind our listeners that they can always find some excellent free resources on millionacres.com. Our investment guidance section in particular is a great place to start if you are looking for answers to all of your questions about investing in rental properties. Check out the show notes for the link. In our next segment, I want to delve into technology and where you, Lucas, see things headed.
Deidre Woollard: Start off with what our today's tenants most interested in having in their apartments technology wise.
Lucas Halderman: What we've seen is what people want in their apartments, what we see advertised to us all over the Internet, and all over Lowe's, and all over Home Depot, they want smart apartments. It breaks down to, that's a wider range of things that are table stakes categories and then really interesting stuff. Table stakes is they want a smart lock that they control remotely, that they can let people in and out of their apartment and give guests codes and things like that too, and they want to control their utilities. Those are the two biggest ones, I'd say. These are technology that's been around a long time. They're very common. They're not cutting-edge, but they're cutting-edge in apartments. Residents are saying, "Why don't we already have this?" After that, what we see, rather than flocking too, is outlet control, plug control, so you control your lights. The important thing that I think that a lot of people have missed and this is part of why we went and and started this, is residents want an all-in-one interface. It's not just about the cool hardware and the cool gadgets, if you have nine smart home devices and nine apps to control those devices, it doesn't feel smart anymore. It feels dumb. The ability to have scenes, and run automations, and have multiple things happen. You say, "Hey, I'm home," and the lock unlocks, and the thermostat adjusts, and the lights turn on, that's where we see residents being delighted by the technology.
Deidre Woollard: Well, I think that delight and surprise is definitely important because it is a sales experience. You want people to be happy and to renew. But from the landlord side, what are some of the benefits that landlords can realize from this? Is there utility savings? What are some of the other benefits?
Lucas Halderman: Yes. For the landlord or for the owner, there's three buckets of opportunity for ROI. One is the operational savings, and we touched a little bit on it, like self-guided tour, being a more efficient company. That can be harder to quantify, but not impossible, and it's real. The second bucket is asset protection and savings. That's where you're just saying there is utility savings to be had. Putting a smart thermostat in a gym. We're seeing people saving 20 to 30 percent year-over-year on their utility costs, as an owner, that they're paying for the vacant utilities and the common areas. The other piece of that is one of the core pieces that we install are water sensors, leak detection sensors, and 70 percent of the damage in multi-family insurance claims stem from water. Hundreds of millions of dollars a year of damage and premiums are skyrocketing for multi-family deductibles. A lot of the deductibles are now above $100,000 so owners are spending a tremendous amount of money. We can eliminate the bulk of those claims. Then the third bucket is we've kind of already touched on, but residents will pay you more rent, for smart apartment. It is a modern apartment. It's a modern amenity. We're seeing owners get anywhere from 25 to $100 per month in additional rent, just by having that smart apartment there.
Deidre Woollard: Nice. One of the hardest things, I think for, especially if you're up owning a multi-family, is transitioning tenants, moving them in, moving them out, obviously, that's always a problem. With this technology, what does the transfer process like?
Lucas Halderman: Yes. It's a great question and it is a real friction point and one of the not often mentioned. I'm glad you brought up because of our platform totally solves that which is there is no move-in process when you have a smart apartment, that there's no handing over the key. There is no meeting the leasing agent. It's all done digitally. We deeply integrate our platform with property management systems, and our belief in this sort for my background that you've touched on as operator is that, for it actually be used in the field it has to be seamless. It has to be integrated. If you're using RealPage or Yardi or one of the other big property management systems. We integrate with that, so that when you do the move in over there, you're doing your regular work for you've done for years, everything on the SmartRent platform happens automatically. You as the new resident will be sent an email, and you are invited to download the app, which has your code to get in and you can lock and unlock your door, and you get control of it. It happens that the moment you are lease goes live. Same thing when you move out. You're automatically decredentialed from all that. There's no sort of risk of staying over and having control of what's now someone else's unit. We've solve that with that integration. It's a really elegant sort of seamless process that makes the move in frictionless, and does not have to happen in person anymore, which is important.
Deidre Woollard: In terms of cybersecurity, are there concerns there? Are there protections you have to take in order to make sure that all of the technology isn't vulnerable?
Deidre Woollard: Nice. Thank you. I love what you said earlier about thinking about parking lots, and I think that's one of the things that in buildings, especially in larger buildings, garages and parking is always a friction point and always an issue that the tenants complain about. I love that smart vendors take [inaudible 00:20:31] . I'm wondering too, what you think about the potential in the future for autonomous vehicles and things like that. I've read a lot of studies about what could happen if we end up kind of unlocking that space and being able to use it for other things, or being able to have smaller amounts of parking if there are fewer vehicles. What are you thinking about that?
Lucas Halderman: Yes. This is where we think real estate's slow but zoning laws or even slower to adapt and change.
Deidre Woollard: True.
Lucas Halderman: We do have this problem. We have not changed and most municipalities have not changed the zoning. You're going to build an apartment building, it does have X number of parking spaces. Even though we've seen a significant decrease in demand, because of not just the autonomous, but because of ride-sharing, Uber and Lyft, and that's where we've developed this product to not only manage leased parking, parking that your residents need, but also manage our guest parking, Actually we see the future of it, if there's autonomous vehicles, they now have a place to park at night because you have all these spots for them. I like what you said because we think of it the same way, which is let's unlock those parking. If you think about parking and we're mainly talking urban here. [inaudible 00:21:40] Downtown San Francisco, there's a huge premium on parking spots, where they've sort of been locked away, no one could get to them, because you had to live at this building to even have access to it. We're opening that up to say this can be used for anyone. For guest parking, just parked for the day. Autonomous vehicles to park at night. We're starting to put in battery raise and charging stations for electric vehicles as well. I think it's just opening it up to the general public, which benefits the owner. They're now are able to lease that separately from leasing an apartment, but it's the leasable space at still found revenue for them. I'm really excited. It's a new product, we launched that this year, but it has incredible traction, and it is a ripe environment for us to go help solve that problem.
Deidre Woollard: I think that's really great for landlords. Any time you could always that you can get revenue from something you weren't getting revenue from before is always exciting.
Lucas Halderman: Absolutely. Yes. That's sort of our internal motto. Help unlock, more revenue. Yes, you're totally right. There's no owner ever says, I don't want more revenue. We're constantly trying to increase that.
Deidre Woollard: Where do you see SmartRent in five years? Is there anything that you're sort of thinking about what the future obviously technology is changing so fast, but is there anything sort of that's out there for you that you really are hoping to get to?
Lucas Halderman: Yes. I mean, for us, we've been incredibly fortunate to have some great partners and we've installed more than 100,000 units, and we actually go do the installs physically over 100,000 units but we're on that march to a million. It's not going to take us five years. I'd like to be there in a couple of years, but I think that's sort of a great milestone internally. I've talked about that for two years to our team. Our first roadmap milestone is a million units. Whence we want to get there and then aside from that sort of a unit goal but on the other side of it is, is we love being this bridge between technology and real estate. You're right, technology is changing and changing fast and we want to keep adding to our platform and keep growing the products that we have. I touched on a little bit getting into installing solar, and installing battery arrays, and installing electric vehicle chargers across the spectrum of technology, not just sort of IoT, but we want to play in that sandbox.
Deidre Woollard: Nice. When you have this much data coming in, are you able to make recommendations to buildings and to owners and landlords based on what you are seeing, trend-wise as a whole, or is it just really the data from the individual building always acting individually?
Lucas Haldeman: No, we are able to make trends and look at the data broadly. We anonymize all that data. We said we're not bringing any privacy of either the owner or the resident, but we can use that to action on it. When we go and do the installs, we actually take a lot more data than you might imagine. We take like the type of HVAC system that's installed and the type of water gear installed, and if it has a serial number, we take that and figure out the age, and so now we're starting to look at when these things are feeling or when they're starting to work too hard. We have that data from the run time data, we can start putting into different brands in different categories. Now, we're too early to have a vast array of that data to share, but it's something we're warehousing. We've been warehousing since day one, and we get some interesting trend data. Then the other side of it is just looking at sharing the consumer behavior. One of the the things that we found, Sunday is the number one day for people to do self-guided tours. That was true in single-family rentals too. It's also a day that a lot of traditional apartment leasing has closed. You're literally closed for business when your customers want to shop for your products, and so we can point out those trends as well.
Deidre Woollard: I like that. One of the things that I've studied recently is the idea of digital twins for buildings, and I think that's something that's definitely in its infancy, but it's certainly growing.
Lucas Haldeman: Yes, I think we're right on the cusp, there's a very beginning of even having this data and be bill action off of it. To me as if you sort of look into the crystal ball 5-years out, building management and understanding Building Systems is going to revolution, to be completely revolutionize to the next five years, and it's a really exciting time to be doing that.
Deidre Woollard: We talked about autonomous vehicles. We've talked a little bit about different types of technologies, are there any other technology out there that you're fascinated by, like virtual reality, is there anything else that really is interesting you?
Lucas Haldeman: Yes. One of the really cool things that I see also coming out of this COVID pandemic, and ultimately, being positive is this concept of smart spaces. We have smart parking lots and smart buildings and smart homes, but there's a really cool movement to have smart spaces, where actually smaller real estates as say an 800 square foot apartment, it can be a home office and it can be a bedroom. Because it actually transforms. There's really cool companies out there doing that. I think that is really exciting. If I ever was going to do another project, let's go build these new smart units from the ground up with all this technology. That's another new trend that I think is going to be really exciting, and even if that could accommodate common areas where you can say, hey, there's going be an office and a movie theater, and it could be a multipurpose space. But actually, having the space transformers is something new and exciting that I think is coming.
Deidre Woollard: I totally agree with that. I especially think that's true because we have so many people that we need to house right now, and so there's been a lot of talk about micro units and things like that. I feel like having apartments that are convertible, I've seen some of those really cool products where it transforms from bedroom to living areas, and there's movable walls and things like that. I definitely agree with that it's really exciting to see what might come from the future of robotics and things like that.
Lucas Haldeman: Yes, it'll be fun to see on that growth, and we're exploring that pretty actively, so it's exciting.
Deidre Woollard: Do you see a home for your products and technology in the world of short-term rentals and hotels?
Lucas Haldeman: Absolutely, in short-term rentals. We're actively pursuing that space. In some ways, it's almost more important for short-term rentals. We have some cool features that we built into some of our hardware that we build like noise meters and things like that to help with short-term rentals and mine. Absolutely into short-term rentals, hotels as well. The problem with hotels is they're actually much farther along than rentals are. It's an opportunity that the hotel started looking at this 15-20 years ago when it started coming out, and have pretty good systems in place. There are some new hotels that are being built that have our systems in it. They're ground up and its owners that own multi-family end hotels. But in large part, it's not a space. That's not a space we are actively chasing, but short-term rentals. Absolutely, and is a vital component of doing a successful short-term rental
Deidre Woollard: Interesting. I've noticed that in the past, Airbnb was partnering on some apartments that were purpose-built for short-term rentals. Something like that seems like it would be a perfect fit.
Lucas Haldeman: Yes, it is, and the challenge, short-term rentals, if you think about, the move-in, move-out is something that happens so much more frequently, and so having that be frictionless, our solution that has that frictionless process is vital to making that a smooth operation.
Deidre Woollard: You've been a real estate investor in the past, so I always like to ask people, what's your one tip for real estate investors?
Lucas Haldeman: Yes. I think the best tip for real estate investors and something we don't spend enough time talking about is that we're used to putting in systems in real estate, and paying upfront one time. I put in granite counter tops. That's 15 years I have those granite counter-tops, and so what I like to always tell every investor whether small, mom-and-pop greed is, don't forget that technology is a recurring budget item. You want to have it. You want your apartment, you want your rentals to be modern. It's not spend it once and leaving it alone. I encourage everyone to make technology a recurring expense and you will reap outsized rewards on your investment if you do that.
Deidre Woollard: That is really good advice, that such a good point. Excellent, great. Well, that's all the questions I had. Thank you very much for your time.
Lucas Haldeman: Thank you for having me. This is a lot of fun. I really appreciate it.
Deidre Woollard: [MUSIC] Thank you for tuning into the Millionacres Podcast. I hope you like today show. If you enjoyed this episode, please consider subscribing to your favorite podcast provider. If you have any questions, please feel free to drop off the line at firstname.lastname@example.org. Stay well and stay invested. [MUSIC] People on this program may have an interest in the deals, offerings, or services they discussed. A Millionacres or The Motley Fool may have a formal recommendation for or against. Always consult to certify tax professional before acting on tax advice, and do not buy or sell assets based solely on what you hear. [MUSIC]