Untangling Telecom: Making the Right Decisions for Your Multifamily Properties
One of the more enlightening panels at the November 2016 NMHC OpTech conference focused on telecom at multifamily properties, a subject that grows increasingly complex as new services and vendors enter the marketplace. Today the issue is more important than ever as broadband has become the most desired amenity among renters, and many owners are turning to advisors such as RealPage’s Resident Technology Services to avoid making costly mistakes.
Which vendors and services should you offer at your properties? What infrastructure might you need, and what costs will you incur? What sorts of contracts should you enter into – or stay away from? These and other subjects were tackled by the panelists, including Steve Sadler of RealPage; Chris Acker of Lennar Multifamily; Kathleen Austin of Equity Residential; and Greg McDonald of Greystar.
With so many telecom vendors competing for your residents, the first decision to make is which one you’ll do business with. There are four types of agreement:
- Exclusive – where a single vendor has a contract to offer telecom services at the property.
- Non-exclusive – multiple vendors can offer services and you market all of them.
- Bulk – you buy services in bulk at a per-unit cost, and pass savings on to the residents. This is most often done at student or senior properties where residents have tighter budgets and choice is less important.
- Access – you don’t market the services, nor do you share in the revenues. You simply provide access to vendors.
In 2009, the SEC struck down exclusive deals, except for small private operators providing high-speed Internet or cable who can still make arrangements keeping competitors out.
Depending on your market, you may have a very limited choice of vendors or more than you need. To some extent the property type will help drive your vendor decisions. For instance, there’s little incentive to offer expensive services at Class C properties, but every reason to offer them at luxury communities (along with more choice) because that’s what residents will expect. Another example: AT&T tends to demand a relatively large up-front deposit, which will significantly reduce sign-ups at a budget property.
It’s important to watch out for the small print in your contracts: you do not want to find yourself in default of an exclusive agreement.
California has passed an ordinance that requires multifamily operators to allow any and all telecom providers access to their properties. Whether this is a trend is yet to be seen, but the multifamily industry isn’t happy about it: while residents might enjoy broader choices, the properties are forced to pay for infrastructure to support all comers.
Despite what residents and even some regulators would prefer, it’s just not practical to offer a choice of every possible provider at a property. Not only does this require cost-prohibitive infrastructure, it also usually diminishes the revenue of the property offering the broader choice. Providers don’t like competition, and in general, the more providers at a community the lower percentage each will pay out as revenue to the property. A few offer flat rev shares, but most don’t. Often providers will refuse to offer their services at a property if there will be more than two providers; the potential revenues just don’t justify their costs.
Whether you’re developing a new project or own an existing community, there are significant costs associated with putting the infrastructure in place that allows telecom vendors to deliver their services. There are conduits for all that wiring, from the street, to the telecom closets, to the units. There are power considerations. And there are the closets themselves, which occupy otherwise rentable square footage. Companies often underestimate what’s involved in installing modern telecom infrastructure. Residents can be disturbed by all the activity, and hidden costs often pop up that aren’t covered by the providers.
Most contractors have limited knowledge of telecom infrastructure requirements, so it’s important to bring in experts who know what’s needed. Providers often have different and changing requirements in various markets, and making the wrong decisions can lead to tearing out sheetrock later to add wiring or change conduit size.
There are other issues experts will advise you about as well. For example, letting providers install the FTTU (Fiber to the User) might save you money up-front, but they’ll own the fiber, and you may find your ability to contract with other providers is limited by your contract.
While it rarely if ever kills a deal, the telecom infrastructure in existing multifamily properties is a consideration when purchasing them. Inadequate infrastructure will mean additional capital expenses.
Infrastructure costs can be significant, but the good news is that they’re not rising rapidly. Part of the reason lies in the phasing out of wall plates, phone jacks and in-unit wiring, offsetting the costs of the increased conduit necessary to accommodate multiple providers and more expensive microduct (for fiber).
Though it might seem practical to build in extra capacity in case of future additions, it’s generally not economical to do so. Providing capacity for future providers can easily cost from $200 to $500 per unit, and that’s just for the pathways and a little extra power. You’ve also got the additional loss of rentable space to consider.
Wi-Fi and Cellular
Most communities these days are offering Wi-Fi calling in apartment common areas, but cellular coverage is still an issue at some properties. DAS cellular systems – localized cellular networks with a head-in for each provider – can mitigate coverage problems, but can easily run half a million dollars. Still, some multifamily properties are installing “shadow” conduit in case they are forced to install a DAS system at a later date. Steve Sadler, Director of Resident Technology Services Operations at RealPage, says he has a hunch that cell carrier technology will ultimately overcome the coverage issues.
It’s anybody’s guess what the next big thing in telecom will be, and how it will affect the multifamily industry. Learn more about how multifamily resident technology services open new revenue streams.