BULK SERVICE EVALUATION
The Work: RealtyCom was asked to help our client’s management team determine if the on-going expense was creating a commensurate amount of value for the asset by attracting residents, improving the resident experience, or contributing to operations. In addition, we were asked to evaluate the free cable service to determine if there were possible savings or enhancement which should be made.
First, RealtyCom reviewed all of the past telecom contracts for the asset, noting the services offered and previous service providers. RealtyCom collected customer usage data from the Service Provider at the asset and compared that to usage levels elsewhere in our portfolio of revenue managed assets. Finally, we had in-depth conversations with the Property Management team and Service Provider about the local market and their experience with customer needs.
RealtyCom determined that the free service was not a true marketing advantage, and an afterthought to the leasing effort. Market analysis suggested that comparable properties were not providing free cable services or marketing a similar amenity. In addition, the review of the past telecom agreements suggested that the services were originally designed as a part of a corporate housing program which formerly consisted of nearly 75% of the asset’s customer base. Moreover, RealtyCom’s customer use-analytics revealed that over 70% of the property residents, similar to those in the market area, were strong users of High Speed Internet, and were in fact choosing Internet over cable service by a factor of 3 to 2. This led us to believe that the property would not be best served by simply trying to resell the cable service to residents. The results suggested that the property was spending approximately $668 annually per apartment unit to provide cable – for residents who would otherwise be subscribing to service on their own (even more than it would cost to offer a new iPad to every new resident as a leasing promotion).
The Results: After reviewing RealtyCom’s analysis, the Owner and Management team agreed that the money spent on the service could be applied elsewhere, or even eliminated from their operating expense. Since the Property Management team had the foresight to remove the free cable language from the leases when they took over the management of the asset, RealtyCom was able to work with the Service Provider to craft a new agreement and operating structure that would allow the asset to remove units off the free service in the vacant units and where new leases had been executed (omitting the free service), as well as in lease renewals. This created an immediate reduction in expenses for the asset. Additionally, the new contract provided for a subscriber-based revenue share for all of the products the Service Provider offers.
The result of RealtyCom’s work eliminated the expense of the free service, transitioned the property off the free service in a manageable way and created on-going revenue which, combined, assuming a 6% cap, created additional asset value of $3.2M for our client.