Apartments aren’t known as first adopters for new technologies, but the wave of venture capital (VC) targeting the multifamily sector may change that in short order. Two years ago, there was $400 million in VC funding dedicated to commercial real estate. Today there is $2.5 billion.
That means there is a lot of disruption headed our way. Think machine learning, virtual reality, blockchain and much more. According to participants at the Innovation Town Hall at the 2017 NMHC OPTECH Conference & Exposition, “watch out” sums up the operating environment for the next 18 to 24 months.
As Eric Potter, director of applied innovation of Waterton, noted, “We’ve been under the radar, but not anymore. There is a concentration of capital and a lot of smart people who will be bringing new business models to our industry. If you don’t recognize them, you’re going to be left behind.”
Darren Wesemann, EVP and chief innovation officer at Berkadia, concurred, adding that “VCs are looking at us because we are 10 to 15 years behind in a lot of areas. There is clear opportunity for them as an investment thesis, but that means apartment firms are going to have a lot of noise and hype to get through to pick the solutions that will drive better resident and employee satisfaction.”
Another reason VC capital is looking at multifamily is because customer-facing companies see it as an opportunity to use our properties as incubators to gain access to our residents, said Stephanie Fuhrman, managing director of technology services at Greystar. Think Amazon Lockers.
To help member firms navigate this changing new world and cut through the hype, NMHC has formed a new Organizational Innovation Committee chaired by Potter and Karen Hollinger, vice president of corporate initiatives at AvalonBay Communities. The committee’s charge is to help accelerate innovation and simplify the customer experience in the apartment sector. Customers, in this context can be residents as well as employees.
So what’s an apartment firm to do to get ready for this wave of innovation? Panelists at the Town Hall shared some best practices:
- Don’t think that embracing innovation means you have to find the next “unicorn.” If you brand innovation as disruption, you are setting yourself up to fail. As one speaker said, “Don’t try to boil an ocean.”
- Put incremental process innovation and disruptive innovation in different buckets with different timeframes.
- A lot of innovation is incremental change that delivers results tomorrow versus something that has to be incubated for years to produce results.
- Start small, show results and build momentum.
- Define the problems you are trying to solve instead of being distracted by the shiny new objects.
- Don’t be afraid to fail, but fail fast and move on.
- Focus on how you can drive change by eliminating obstacles to get to yes faster.
- Innovation isn’t just the responsibility of the research and development department. It has to it top down and bottom up. The C-suite should set strategic objectives, but the best ideas come from your employees. Ask the entire organization a challenge question and empower people to give you good ideas. But also let them know that senior leadership is engaged and willing to pursue it.
- Don’t ask broad questions. They are difficult and if you ask but don’t implement change, people will disengage. Instead, focus your challenges so you show success.
- Create accountability. If innovation is important to your firm, make people accountable for it. Set goals for how much revenue must be from new innovations.
- Look at what other organizations are doing that you can adopt, namely hospitality.
- Partner, partner, partner. Reach out to local university computer science programs and others.
- Understand that organizations tend to be incremental. If you truly do get a disruptive idea, consider spinning it out or invest in a third party to pursue it.
Ultimately all of the Town Hall panelists and participants in the inaugural Innovation Committee meeting agreed that the key behind embracing innovation is to identify an idea and act quicker than you would with the traditional business process. And even though it’s tough to do, know when it’s time to kill an idea, regardless of sunk costs.