Are Your Consultants’ Interests Aligned with Yours?
Technology services that you offer to your residents—specifically voice, video, and high-speed Internet access—can dramatically affect the net operating income of your properties. Often, these services can be a great source of revenue for property owners in the apartment and rental industry.
Additionally, providing high-quality, reliable technology services to your residents improves the marketability of your community, especially in student housing where these services are provided as part of the rent.
That’s why it’s extremely important to consider both service levels and revenue stream when negotiating with your service providers. If a community provides substandard service, resident satisfaction can quickly disappear. And if you don’t negotiate a contract that protects your interests as well as your revenue stream, you could be leaving money on the table.
Because of the complexity of service provider contracts, property management companies often turn to third-party consultants to help them during negotiation. As in any contract situation, it’s best to make sure that your consultant is negotiating with your interests in mind.
Michael Greene, senior director of business operations for Greystar, recommends to his property management clients a long-term approach in negotiating resident technology services contracts. Sometimes owners put too much emphasis on capturing upfront revenue in exchange for a long-term contract to the vendor. However, this can backfire if the vendor is not held accountable for service quality in the long run.
“It’s more important to ensure your property maintains a competitive position over time,” said Greene. “You want to ensure the services are provided reliably and that the vendor who provides them is accountable and adheres to performance standards.”
Providing good, reliable, valued services to your residents is the number one priority, while the revenue share is the second most important factor. And with a consultant who has your long-term interests in mind, you can achieve both goals.
Some consultants, knowing that upfront revenue is a hot button for many owners, will offer services on a contingency basis to share in any revenue they are able to generate in negotiations with the vendors. They may not be as motivated to negotiate good long-term benefits for the owner. If revenue is the sole focus, owners might get trade-offs that are not immediately apparent.
For example, a vendor might pass on the ongoing maintenance expenses to the owner in exchange for giving up some of the upfront revenue. Owners could be giving up long-term performance guarantees on the part of the vendor. By taking on the responsibility for maintaining the quality of the systems, the owner could be putting the ongoing competitiveness of his properties in jeopardy.
An alternative is to hire a consultant who operates on a flat-fee basis. This way, the consultant can negotiate a contract with the owner’s long-term interests in mind.
With the right consultant, you can achieve both goals: providing high-quality services to residents and generating long-term revenue. The key is to secure contract provisions that include performance guarantees, competitiveness provisions, and a generous revenue share.