What will work for your communities?
Property owners have choices to make when working with Service Providers (of Television, Internet and Phone services) on their apartment communities. On a simple level, property owners need to choose from having Service Providers serve their communities on a retail basis or on a bulk basis.
In a retail scenario, your residents can choose to subscribe (or not to subscribe) to one or more Service Providers available at your community.
On the other hand, in a bulk scenario, services are purchased in bulk by the property owner to provide one or more services to all units at the property (regardless of occupancy). Bulk arrangements are where we will focus in this post.
Bulk arrangements are not new, in fact Service Providers have been offering bulk agreements for decades. Initially the arrangements included only Television. Later on Internet was added as an option together with Television or on a standalone basis.
You may find yourself hearing a lot about bulk services from Service Providers. While there are many benefits with bulk services, Service Providers can paint a rosy picture that only speaks to those benefits, including increased/improved amenities, streamlined resident connection process and added revenue (to name just a few). You may also find yourself seeing bulk services in some of your community’s comps.
So when does it make sense for owners or property managers to pursue or renew bulk services?
We can shed some light on that. Beginning with an in-depth knowledge of the multifamily housing market, RealtyCom conducts research into use cases and consumer trends in order to determine options that meet our client’s needs. For example, we know that bulk services works well in student housing, senior housing, corporate or flex housing but can also work well in conventional housing when the Property Management team has a full commitment to the bulk services program and the program is designed to enhance the resident experience as well as assist or coexist with owner’s long term IoT deployments – essentially where the motivator is not only improved ancillary income.
If these describe your community, then most signs point to yes, but there is more to know about bulk arrangements. Other things you should focus on are:
- Term – generally shorter terms provide the property owner more flexibility
- Price escalators – reasonable caps should be in place to prevent out of hand increases that can erode most or in some cases all income the property owner is making from selling this service to the residents
- Television subscriptions are generally declining – being aware of consumer trends can prevent you from bundling in a service for all units that less than half of your residents find value in
- New Developments – on newly built properties, generally no other providers will come and serve your community if you choose bulk services from one provider. Partnering with a well-capitalized provider with quality services and prices is key
RealtyCom has been asked many times by clients to review bulk agreements that are in place as well as to include bulk options when going out to bid with Service Providers. We have provided some short case studies below to illustrate where bulk services agreements worked well and where they didn’t.
Case Study #1
In the case of a large portfolio with long-standing bulk agreements, we uncovered that:
- over the years, the bulk services expenses had grown to $1M annually (most of which was not being recouped) – an expense that would have allowed them to buy a new iPhone for every resident every year and still have money left over!
- the owners had lost any leasing benefit or resident retention incentive; and at some properties that had bundled services, residents were upset with having to pay for a cable TV service that they wouldn’t have otherwise purchased.
On behalf of the owners, RealtyCom worked with the Service Providers to negotiate new agreements, transition off the bulk services over a period of months and create new revenue for the properties that far exceeded the small amount the properties were able to collect for the resale of the bulk service.
Case Study #2
In another instance, RealtyCom examined the purchase of a property that had an existing bulk bundle of Television and Internet in place. At a first glance at the P&L, the resale of the bulk service appeared to be creating a substantial amount of revenue for the property. Upon further review, it was discovered that the bulk services were actually creating bad will between the residents and the management company. Our due diligence during the acquisition period found that
- the Internet service included in the bulk amount was of a substantially slow speed that required most residents to “upgrade” (and receive another bill directly from the Provider)
- residents were upset for having to make two purchases to get what they needed and felt duped by the subpar offering that they “were forced to take.”
In this instance, RealtyCom renegotiated an agreement that increased Internet speeds at a reasonable cost and reduced the term of the bulk service so that the client would have the opportunity to step out of the bulk provision before the expense could surpass a reasonable resale rate. While it may have slimmed the margin that the property was receiving from reselling the services, it greatly enhanced the new owners’ relationship with the resident base.
Case Study #3
In another instance, a client asked RealtyCom to solicit and negotiate bulk service offerings for a student housing property where residents currently had a choice of two providers to choose from in a typical retail arrangement. With the more frequent turnover associated with a student focused property, having to wait 3-5 days for installation of services put the property at a competitive disadvantage compared to its comps. RealtyCom went out to bid with both existing franchised providers as well as a range of other national competitive providers. Ultimately the property owner chose a managed Wi-Fi option coupled with Television for this property. Not only was the pricing competitive, but the managed Wi-Fi provided an instant-on resident experience as well as the ability for residents to use Wi-Fi throughout the property without having to ask their neighbors or the leasing staff for new credentials.
We will leave you with some final thoughts as you weigh your options regarding bulk services.
- Are you ready to be in between your residents and the Service Provider, or be seen as “the” Service Provider? If service goes down, the resident will be calling the leasing office, not the Service Provider. Especially if owners “resell” any technology service at market rate; residents will see them as a Service Provider and expect them to fix any issues and be on the hook for any problems or outages. This can put a lot of pressure on the property management, who will be in the front line of community dissatisfaction.
- Your residents are changing. If you’ve read anything about the money concerns of Millennials, you’ll understand how they might feel about paying for a service they wouldn’t otherwise buy. And if they were interested in the services, they would most likely like to see a choice of providers. Bulk can effectively eliminate “choice” – especially in new developments.
- Since it’s your choice, choose wisely. It’s important to not only partner with the right Service Provider but also to consider the per unit price (including taxes and fees), the compounding nature of annual rate increases and your ability to sustain a margin in reselling these services three, five or seven years from now! Choose bulk because its right for your community, not just for what looks like an immediate revenue boost.
As a property owner, you have a lot of big-ticket items that are critical to managing a property and realizing a healthy NOI. Bulk services could be a great amenity for your community, but they are also tangential to your main business and may be very daunting to review. If you’re considering if bulk services is the right choice for your community, don’t hesitate to reach out to RealtyCom, because this is our expertise. We’re happy to help.
Author: Annie Manfredi