JF1853: How Can Apartment Owners Leverage Smart Technology? With Mike Rovito
Mike is on the show today to tell us how he’s helping apartment owners save money in the long run by investing in smart technology. He’s also been around real estate for the majority of his career so he understands how owners and managers think about their investments. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“You need a partner” – Mike Rovito
Mike Rovito Real Estate Background:
- CEO of Dwelo (dwell-oh)
- Dwelo provides smart apartments to the owners and managers of multifamily communities
- They have about 40,000 units on their platform
- Based in San Francisco, CA
- Say hi to him at https://www.dwelo.com
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Mike Rovito. How are you doing, Mike?
Mike Rovito: Good, how are you doing?
Joe Fairless: I am doing good as well, and looking forward to our conversation. A little bit about Mike – he is the CEO of Dwelo. Dwelo provides smart apartments to the owners and managers of multifamily communities. They’ve got about 40,000 units on their platform. His company is based in San Francisco, California. With that being said, Mike, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Mike Rovito: Sure. The current focus at Dwelo is to help the owners and managers of mid to large-sized apartments leverage the benefits of smart technology. We’re thinking smart thermostats, smart locks, smart light switches etc. Both so that they can provide it as an amenity to the residents, increasing the quality of their assets, but also to help them operate their properties more efficiently. We are a technology provider and a service provider to support that.
My background in real estate actually begins in the energy efficiency space, which is my entre to real estate at large. I was working in a consulting company called ERS, helping large real estate owners in New York City save money by reducing their energy spend… Working on projects like code generation, battery storage, smart thermostats, and even working with large industrial process. That kind of opened up my eyes to the world of real estate, understanding how owners and managers think about cap ex and op ex, and where they direct that spend, and how they’re trying to optimize the NOI of their assets.
That experience showed me what enormous opportunities there were in real estate, and also got me into the smart technology realm. While I was there, we launched a platform called InfiSense, which was a measurement platform leveraging IoT devices. Previously something that had been done manually, slapping some monitors on these huge – we’re talking massive mechanical rooms in high rises and industrial process plants… Slapping some monitors on those, making that automated, and to the cloud. It taught me a lot about technology, and that was sort of how I ended up getting into Dwelo.
Joe Fairless: I’d love to – and we will – dig into Dwelo… You mentioned the energy efficiency space, and then you mentioned four or so things for reducing energy costs. Will you just mention those again? The first one was code generation, but what were the other things you mentioned?
Mike Rovito: Battery storage, smart thermostats, industrial process efficiency… We kind of ran the gamut there. There’s obviously more standard things, like improving your lighting efficiency… It really depended on who the client was. What makes sense for a commercial office owner, versus an apartment owner, versus Steinway Piano Manufacturing in Queens, New York is gonna be different.
Joe Fairless: Let’s just talk about that for a little bit… Office versus apartment owner. What are the different directions you would typically go with those owners?
Mike Rovito: In the office realm the people who are actually occupying that space often don’t have control, and the operating hours are fairly fixed, and they’re fairly long. If you look up at the New York Skyline into the evening on a winter night, the lights are on, and the heat is running, all these sorts of things. So mostly you’re working to improve the fundamental operating efficiency of that equipment – changing out old fluorescent lights to be LEDs; some of these aging boiler plants or chiller plants that are running the HVAC systems, the heating and cooling – getting them up to modern standards. Those can just run more efficiently, and it has nothing to do with scheduling or reducing waste in the sense of “We’re not gonna heat it when nobody’s there”, because those patterns are too fixed and it’s difficult.
In apartments you have much more of an opportunity to do demand-based stuff. Obviously, you wanna have efficient equipment, but then using smart technology with sensors, or just basic automation and scheduling, you can reduce that use. And I think there’s a split in terms of who the benefit flows to in apartments. You have your residents, your managers or the operators of the assets… And in most apartments your residents are paying for their own bills, so they don’t really care what happens when it’s occupied, except in so much as a resident perceives that they will save money and therefore they will pay more for that apartment… Which is a real thing, and there’s supporting documentation from Nest and folks like that, that you can save energy, that you can provide to your prospective residents, to help them see that benefit and value that in the asset.
But then for the operators it’s really about vacant unit settings… And there’s actually a pretty big opportunity for energy savings in vacant units at apartments, bigger than you might think. The average community – professionally-managed community – we’re talking like 200 units, it spends about $100,000/year on the energy in those units and common areas, just in the vacants… And by turning those off when nobody is there – we did an analysis in cooperation with Conservice, the multifamily utility billing provider, that there’s a long tail of just a subset of units that are using about half, and it’s all waste. The long tail is called by a vendor or a maintenance worker who goes in — think of a painter… They go in, they paint the room, they open up the windows, they turn the A/C on, and then it just runs and nobody checks on it for days and days… So the typical pattern that an operator will see in vacant units is a $20 bill, $20 bill, $20 bill… And a $180 bill automation can cut that out.
Joe Fairless: That’s wonderful information. Now segueing into Dwelo – how does Dwelo help with that part of the process? I know it’s much more than that, but how are you involved with that part of the process specifically?
Mike Rovito: Zooming out briefly to help answer that question… So we’re a technology and service provider that enables owners to take advantage of smart technology, which includes smart thermostats, smart light switches… And we provide the infrastructure that enables owners to take advantage of that particular value proposition that I’ve just described.
We will help them put in smart thermostats, smart light switches, and the [unintelligible [00:08:42].15] connectivity to get that in a place where it can be automated, so that you basically at the end of the day can just have that stuff turned off every day, if it’s vacant. We know if it’s vacant, and we can turn it off when it’s vacant. It’s pretty simple in theory; anything that can run on a schedule can be automated, can know when the unit is occupied and vacant… It’s not all that complicated. But actually getting that stuff to work at scale is sort of where we come in, and the value that we provide.
Also – not to maybe segue into a new topic, but also tying that in… Because that’s not the only value proposition. Building a technology platform that doubles that same piece of hardware as a resident amenity as well; not just a commercial solution, but also a consumer solution as well.
Joe Fairless: How is it a resident amenity?
Mike Rovito: A smart home is a really fast-growing category. For the residents, especially younger residents, but you’d be surprised – the demographic interest is pretty broad… The first commercial at the last Super Bowl was for Google Home. So this stuff is really coming. I think voice controllers like Amazon Echo and Google Home have really accelerated the interest in this.
The residents – we’ve shown empirically – are willing to pay more for tech-enabled apartments. Now, that can mean a lot of different things, but as a core, it’s a smart lock, a smart thermostat, a set of smart light switches. Maybe some outlets. But mostly just those things, that get you the core value proposition. What that is gonna enable the resident to do – we speak first to the thermostat – they’re gonna be able to control their comfort settings. There’s a convenience factor and a comfort factor that comes with that. If they’re coming home from work on a hot summer’s day, they can cool that apartment without having wasted energy all day by running the air conditioning while they’re gone. They can save energy in the same ways that the owners do by configuring automations that go to their schedule, or to their occupancy pattern as well.
For the locks it’s maybe a slightly different set of value propositions. It’s the convenience of being able to let a friend in to walk your dog while you’re on vacation, or somebody who’s coming to visit, giving them digital access to that lock. You don’t need to make a copy of the key or hand off a key. You might be at work that first day when they’re coming to visit, and you wanna let them in – you can either remotely open it, or you can actually give them a digital credential in the form of a thing on the phone that they can swipe, or a PIN code that works on that lock. So it gives them the freedom to control access remotely, while at the same time giving them comfort that they know “Did I lock my door or not?” They can see all those things.
As a bundle, those things add up to — at least on a perception basis… Different people are gonna use it different amounts. The value people get from that is gonna be subject to how they use it, but there’s definitely 100% perception in the marketing benefit for the owner of that asset, who can then position that asset in a different way, as a more progressive, forward-looking, technologically-enabled asset, as part of community aesthetic, and so forth.
Joe Fairless: And what’s the value proposition for the light switches?
Mike Rovito: There’s an energy component, for sure. It’s actually the most used component, I think. The value of the lock and the thermostat is clear and more obvious when you actually get into the apartment and you are able to control lights with your voice… You become extremely lazy. It’s actually a lot of fun; it’s the most magical component. You push a button and the lights just turn on and off. So it’s somewhat novelty, but there’s also a genuine convenience. I personally turn my lights off from bed every single night, using my voice. I haven’t touched a light switch in days.
Joe Fairless: So walk us through, please, the user experience for Dwelo. Is it apartment owners of 100+ units the user, or are the residents of those apartments the user, or is it both?
Mike Rovito: Both. I actually sort of divide it — it’s obviously a little bit grey, owner versus manager, and so forth… But I usually divide it stakeholder-wise. The owner is the buyer, and both the manager and the residents are users. There’s a web app for the managers, that enables them to sort of run the whole building. They’re blocked out from seeing what’s happening in occupied units for privacy reasons, but that’s gonna be their switchboard where they’re getting access to units, to vendors, and maintenance, and so forth; if it’s a vacant unit, that’s how they’re controlling the energy spend in those units, or preparing a model unit or a vacant unit for a showing by “Let’s get the lights on and the heat on before we show up, so it’s at the right level.” They’re not having to walk — especially at some of these large communities, there’s material time-savings that come from that.
Our managers self-purported about – for an average 200-unit community – 200 man-hours of time-savings from not having to deal with physical keys as they’re moving up at the property. So if you go out to show the one-bedroom and you’re no now on the third floor in the West Wing, and the resident says “Actually, I would be interested in seeing that second one”, they’re running through the halls, going back to the key track machine… They’re not doing that anymore with Dwelo. They have digital credentials and they can just [unintelligible [00:13:48].28] to that new unit. So there is a web portal that enables them to manage all of that, for the managers.
For the residents, it’s actually the most seamless experience you can have with home automation in general, because it’s pre-installed. When you move in, your account is already set up because the manager either manually added your email to the system, and it kicks off an invitation in your email inbox, and 30 seconds from there you’re able to have an account and control your unit… Or we have integrations with Yardi and RealPage that help with that, if you have those systems on-site for that property.
So the residents moves in, the stuff is already installed, and they get an account from the management system, and within 30 seconds they can be in the app, controlling all of it just as they would any other type of smart home system.
On top of that, we’re not trying to compete with Google and Amazon, we’re partners with them. We’re selling Google and Amazon hardware. Many of our apartments have Nest in them. We don’t make the hardware, we’re just reselling it and piecing it together on this platform… So they can take their account and attach it to their Amazon or Google account and have it show up in their preferred interface. So if they’re a Google family and they love the Google Home and they wanna connect it to their calendar and this and that, you can connect the Dwelo account there, and then the resident would never have to even use the Dwelo app if they don’t want to. That’s their choice.
Joe Fairless: What’s the cost?
Mike Rovito: It’s about $600 upfront to get started with a lock, a thermostat and two light switches. That’s gonna cover you for your average configuration. You can go up and down – we have a variety of locks and different aesthetics, different types of locks and thermostats and so forth. We’ve seen people push that to a thousand or more. We’ve seen people really scrimp and cut it to $400, but you’re probably in that $500 to $750 range for most units upfront. And then there’s the subscription, and this is gonna be subject to scale, and payment terms, and all other sorts of things… But to give a rough ballpark, think of it as starting at around $10 per the more typical [unintelligible [00:15:52].08] terms and configurations.
Joe Fairless: $10/unit?
Mike Rovito: Yeah.
Joe Fairless: Cool. When you think about the number one objection an owner gives you for not doing this after you speak to him or her, what is that objection?
Mike Rovito: I think they see this coming, they’re just not sure if now’s the exact moment to do it. I think there’s a fear factor, and [unintelligible [00:16:12].10] number one objection started to go away… The objection being “Is this truly gonna work? Am I really gonna see the benefits, or am I gonna introduce headaches for my management team?” And I think on the benefits side of it — so it’s just sort of a general skepticism.
On the benefit side of it we’ve empirically been able to show 1% to 3% rent premiums. We’ve been able to show time savings for the team, we’ve been able to show energy savings that dropped to the bottom line… So we’re building a pretty good — I mean, we’ve had tens of thousands of units at this point, we’ve been at this for four years, or actually longer… So we’ve got pretty good evidence at this point. The best evidence is when the competing product down the street puts us in.
And in terms of “Is it gonna work?”, I think we’ve got good customer references to support that. And it is a legitimate challenge, and that’s why we exist as a business; you need a partner, you need some help.
Joe Fairless: Anything else that we haven’t talked about as it relates to Dwelo and smart apartments that you think we should?
Mike Rovito: No, we’ve covered a lot of ground.
Joe Fairless: Cool. Well, that’s because of you, and I appreciate it. Mike, thank you for talking about Dwelo, the services that your company provides, as well as getting into the specifics of energy savings, as well as what generally is referred to as a smart home – having a lock, thermostat, light switches… And the value proposition for each of those, as well as the costs associated to it.
We should have mentioned at the beginning of our conversations – Best Ever listeners, this is a Skillset Sunday episode, so I hope you’re having a best ever weekend, and Mike thank you for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Mike Rovito: Thanks, Joe. I appreciate it.