It ain’t about Amazon package updates. It’s about cap rates.
The bells and whistles of connected-home technology grab the headlines, but to Lucas Haldeman, it’s the fundamental shifts they can bring about in multifamily ownership, operation and experience that are far more interesting.
“Owners are saying, ‘I want to keep buying — I have a long-term thesis, and I can whittle away at the edges, but if I could apply technology, I can actually change my cap rate,’” said the founder and CEO of SmartRent. “So if I traditionally am underwriting at a 4 percent cap rate, I may be at 4.5 percent with technology. A lot of our customers are winning more deals and buying more units than others because they have this inside knowledge.”
The Scottsdale, Arizona-based smart-home firm — which went public in one of proptech’s biggest SPAC deals this summer, a $2.2 billion merger with a Fifth Wall-sponsored blank-check firm — disclosed that as of June 30, it had over 200,000 units on its platform, for major landlords and builders including Starwood Capital, Lennar, Invitation Homes and Blackstone Group. All four are also investors in the startup, which is now eyeing an international expansion and acquisitions even as it scrambles to fulfill domestic demand.
In an extended conversation with The Real Deal, Haldeman discussed how tech can further institutionalize the residential market, what the next iteration of a connected home could look like, and the environmental, health and quality of life implications of smart home technology.
How does tech play into the growing institutionalization of the residential market?
I was with Colony Starwood Homes — now part of Invitation Homes — and as the CTO, I saw that you can’t make [single-family homes] an institutional asset class without embracing technology. The costs are too high. You can’t solve it with human power. The big discovery is that we can bring those same savings to multifamily. Look at the build-to-rent space that Lennar is getting into. They’re a customer of ours as well as an investor. So are some of the iBuyers. The transaction doesn’t really matter. It could be a lease, it could be a sale, but facilitating the access and monitoring and protecting the asset is vital to all those business models.
You talked about getting in with the iBuyers. What does that look like?
We use the sales process. Whether that’s a prospect looking for a lease or a home for sale, we can facilitate that access. We can get prospects into a home and we have a self-guided tour platform that you can use — that’s the hook. And then part of the pitch is, “Don’t you want to live in a smart home and it’s all installed and ready to go for you?” And so we can be there for the sales process and help them be efficient on their business model. But then we benefit from that by remaining in the home.
How hard of a sell was your product in the early days?
We had the vision to say, “this is a service that’s needed in this industry, and it’s not there.” We knew that if we went out and built this, we’d have a huge embedded customer base, because we haven’t had to sell the benefits of this. Owners are saying, “I know the benefits. I’ve just been figuring out how I actually roll this out.” And owners were frustrated. They wanted to embrace smart homes. They wanted to embrace smart technology. They wanted to better protect their assets, but you can’t have nine different devices with nine different logins in one home. We’re running downhill taking these large institutional platforms and converting the entire portfolio to smart communities.
You’re saying you can switch this on across thousands of units over a compressed period of time.
Once the owner realizes they’re going to increase their revenue and they’re going to decrease their expenses, then you want to do that to every unit that you own. This problem that we solved is a problem for everyone. And you want to use it everywhere, whether it’s market-rate in Jacksonville or luxury in New York.
Talk to me about the market-rate in Jacksonville. I can see the use case in one of those glitzy West Side buildings in Manhattan — to let in the dog walker, for example. But what’s the less glamorous use case?
It’s actually more impactful in low-income or market-rate housing than it is in luxury. I was still doing some of the installations in the early days. And saving someone $50 a month on their utility bill has a meaningful impact on their life. I had people come up to me and say, “I used to go out with my wife once a month and now we get to go out twice a month because of your system.” When your kid gets home from school, you’re notified at work. Those are the edge cases. It’s not glamorous, but it’s meaningful.
Homeownership may be off the table for a lot of Americans for a long time, and that’s exciting for multifamily investors. What interesting things are you seeing in that sector?
We’re finally seeing multifamily, as a direct result of Covid, embrace the idea of a self-guided tour. This is something we pioneered in single-family rentals because you couldn’t have a thousand homes for rent and a thousand people standing outside of them. And multifamily early adopters were starting to do that and seeing the benefits they could have, but then Covid hit and it was a reason for everyone to try. It allows flexibility for tours, which we haven’t had before. The number one time slot that people want a tour is 7 to 8 a.m. This is before any leasing office is open. So now you’re able to sell your product in a more flexible way.
I had [Digital Bridge’s] Marc Ganzi walk me through the dream scenario for the connected office. Could you do the same thing for me in residential?
We’re closer to the starting line than the finish, but things that we take as a given, like physical credentials and access control, are all going to be gone. It’s all going to be biometric — you can’t leave your thumbprint behind at work like you can leave your keys. And then, the environment adapting to our patterns. Humans are more pattern driven than we realize. As you start to apply AI to IoT [Internet of Things], you can start to create a seamless living experience where we know what shows you watch at the gym, what music you’ll want when you come home. Your environment adapts around you. I am also excited by some of these startups working on how the home itself can transform. Through automation, an office can become a bedroom. That’s another way we can solve the problem of density, if we don’t need as much space to live in.
“You can’t leave your thumbprint behind at work like you can leave your keys.”
The third piece is the environmental effect. Today, we’re still heating and cooling empty spaces and wasting a tremendous amount of utilities. By having this AI-driven building experience, we can bring down our carbon footprint. If every apartment in the U.S that’s institutionally managed had the SmartRent system on it, we could have a 4 percent decrease in utility consumption — that means no peaker plants. That is more exciting and more important than letting the dog walker in. There’s a bigger game afoot.
Speaking of dog walkers. You can set very tight windows for entry and exit.
Absolutely. We have all kinds of flexibility around time-based access and event-based access. You can be at work and, and say, “Hey, I just unlocked my door. Can you throw my package?” People love the security of saying, “I have a dog walker, and that code only works from 9 to 10a.m., Monday, Wednesday, and Friday.” If they come on Saturday night, not only will it not work, but you’ll be alerted.
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With devices that rely entirely on tech, like keyless cars that only open with apps, things can go wrong.
It’s something we actually think a lot about and focus on making sure we have redundancy in the products that we support. A lot of owners will still roll out a smart lock with a backup key. Others will have an iPad with a code, so you can always use your code to get in. In U.S. multifamily, we have a lot of building codes that prevent us from doing things like sliding bathroom doors. Our platform is hardware-agnostic, it’s an open platform, but we’re careful to think about what we are putting on it. Being open doesn’t mean everything can go on.
It would have been an interesting journey, traipsing through apartment communities in middle America and understanding the different codes and policies.
Anyone who’s been an operator knows that the only thing you can say about two apartment communities is they’re not the same. We’re going into apartments from the ‘40s, ‘50s, ‘60s. Before we even give an owner a proposal, we have to have someone go walk the property and take thermostats off, look at the wiring, look at the doors and then come back and say, “Here’s what we can do here.” If you show up with something that’s not compatible, the job slows down. One of our core competencies is this great installation team we have, that’s a competitive moat. It was hard to build that, and it’s hard to rebuild that.
I’m also thinking about the cultural differences between complexes — think of the classic Brooklyn scene of stoop-sitting. How can technology account for those cultural nuances?
It’s hundreds of different products and thousands of different potential products. You can get a sense, a vibe, of what’s important here. Having a thermostat that can measure humidity is vital in the Southeast and not so much in the Northwest. There are nuances to the platform that we’re able to embrace. We were the first smart home app to have a Sabbath mode, so that people of the Jewish faith that aren’t supposed to use electronic locks during the Sabbath could turn off that feature and just use a key lock. Instead of making people fit the technology, we make the technology fit the people.
Do you ever use your clients as Petri dishes to try new products out?
It actually is the inverse. We launched a smart parking solution that’s getting a lot of traction. Two of our clients came to us with the idea and said, “we think you should build this.” And I said, “If I build a prototype and try it at one of your communities? And they said, “Of course.” That is the amazing thing about having the cap table that we have and having some of our largest customers be investors. They’re totally open to that. And if it works, then we can take it out to the masses.
On a personal level: As the head of a public company, there are a lot of new responsibilities. What’s it been like to go from founder mode to CEO mode?
It is more of a migration. [Because of the] hypergrowth, you quickly move out of founder mode and into strategic vision mode. This was fast-forwarding that. I love it because when you start, that’s what you want to do. You want to think about big ideas and vision, and then you go, “Enough of that. I got to get back to finishing the accounting, doing payroll, and then I got to go install some units.” This is what I personally craved. The idea is that you get to a point where you’ve proven yourself and you’re given the opportunity to really go make your mark.
But are you living and dying by the quarter? There are not-so-fun parts of being public.
That’s for sure. Even here, when I have to say, “as of June 30th,” you have to be very careful in your communication. It’s less conversational and less fun. But it’s a small price to pay for the opportunity.
I’m interested in how connected-home technology could play a role in preventive health, with things such as continuous glucose monitoring, sleep monitoring and home dialysis.
You’re not going to see any near-term press releases, but I think it’s really an interesting piece of the vision going forward. Part of what we’re seeing is all these different stacks of IoT devices are just little silos of data. So you have a continuous blood glucose monitor, if that reading goes too high, I know how to alert your doctor.
“Owners are saying, ‘I want to keep buying. I have a long-term thesis, and I can whittle away at the edges, but if I could apply technology, I can actually change my cap rate.’”
It’s not very far from our view to say, whether it’s a thermostat or an air quality sensor or a heart rate monitor, that that could become part of our platform. What makes this transformational as opposed to just sort of cool tech and cool gadgets is all of that working together. As you look at other segments of the population, like senior housing, that becomes even more vital. We’ve looked at it like an inverse of security, which is to say, “alert someone if you don’t see motion in the kitchen.” There’s a lot of really interesting ways this goes.
This interview has been condensed and edited for clarity.