Show Notes
Summary
Chris Moreno - Primary Venture Partners
Special mentions
Company: NMHC, IPA, Marcus & Millichap, CBRE, Cushman & Wakefield, UDR, WOOD Partners, Greystar, Fordham University, KKR.
People: Jay Parsons, Scott Wesson, Caren Maio, Brad Hargreaves, Ravi Bhatia, Stephanie Fuhrman, Karen Hollinger, Peter H. Diamandis.
Transcript
(Disclaimer: Please be advised that this transcript may contain unintentionally confusing, inaccurate, and/or amusing transcription errors.)
[00:00:00]
Matt Knight: Hey guys, Matt here, another quick chat today with Chris Moreno. And this one it's actually from a couple of weeks ago, back when this was fresh, but I think it's all still very relevant because he just gotten back from New York and from NMHC event in San Diego. So we talked about trends and interest rates and centralization and a few other things you can hear for yourself, but it's another, just quick chat with he and I, and I'm sorry, that's taken me a couple of weeks to get it out.
I had to get the accelerator thing and a couple other things published first, but this should be a fun little jaunt down what's going on in multifamily tech, and I hope you enjoy it.
Matt Knight: All right, Chris. Glad to have you here, man. Round three. I think today we are talking about events in PropTech, right?
Chris Moreno: Yeah. Yeah, I just got back from New York this [00:01:00] week and from San Diego and NMHC yeah, happy to catch up on some of what transpired as well as some of the upcoming events.
Matt Knight: So NMHC has always been a little perplexing to me because it strikes me as almost like the ULI fall meeting where it's a bunch of owners and acquisitions crew doing deals, right?
But then when I got people pinging me saying, Are you going to San Diego? It was 90 percent startups. So I love to hear sort of, I think most people know what Optech is and Optech is where I spend most of my time. But what is this conference and how is it different?
Chris Moreno: Yeah, so NMHC, which stands for, and people really mess it up a lot but it stands for National Multifamily Housing Council, for those who don't know, and that's their advocacy group, right, that focuses on developers owners, and management companies, as well as supplier partners for the apartment industry in the US, and this event is what's called their annual meetings. It's broken up into three events. They have the women's event, On Monday, they [00:02:00] have the apartment strategies on Tuesday with speakers. And then on Tuesday night, Wednesday and Thursday, they have broader meetings and sessions. So there are no booths at this event.
There are no suppliers per se selling at you at a booth or whatnot. It's more focused on, I think, number one is advocacy. So political activity with topics like rent control REMS, Insurance law, things like that, development laws. And then you have secondarily a lot of focus on deals getting done to your point, right?
It's the brokers, you know, you have the IPA, the Marcus & Millichap, the CBREs the Cushmans, everyone coming together to make deals happen. So you have a lot of owners. Partnering with other owners and the brokers trying to make those deals happen in an environment like this. Thirdly, you do have suppliers and leaders because you have management companies.
And at this show, a lot of times it's the management companies connecting with each other. I think 1 of things we can talk about. There was. There's a decent amount of M&A happening. So that was [00:03:00] interesting to see among the management companies and people. You know, where are they going to focus their energy moving forward?
I think there was a lot of collaboration. And then there's a lot fewer actual like PropTech companies per se, because they're not actively selling, they're more there to support, more to have meetings with each other where it strategically makes sense. And I'll say there's a fourth audience, Matt, that shows up for this one, which are some of the PropTech funds.
So many of the PropTech funds raising capital and or seeing some of their LPs and or their companies will also host meetings or host session. So that's kind of a breakdown high level. And I'm happy to go a little bit deeper.
Matt Knight: Yeah, I don't think we need to dig more into attendees or the content.
I'm curious if you have any takeaways or sort of big themes you heard this year while you were there, because I didn't go and you did.
Chris Moreno: I think there's definitely a few things. So number one was around interest rates, right? Interest rates essentially guide , purchasing power. They guide [00:04:00] developments and new starts. And so there was a lot of optimism. I think we use that word cautious optimism, but much more optimism from last year. What people are looking for, in real estate is consistency. So the biggest discussion was around, can we get interest rates away from increasing or decreasing, 500, 750 basis points to just smaller, 25%, you know, or 250 basis points that helps people to plan the future.
And then a big piece on the supply. So people were talking about areas, Arizona, where you live, as a good example, where there was this, feeling of too much too many new not just housing starts, but too many units coming on the market, right, over the last year, year and a half, two years.
Whereas now, people who completely exited the market that I spoke to are now looking to get back in the market. Because what happened is, you know, the cycles. Is that the units get absorbed pretty rapidly, but when the minute [00:05:00] people see too many units coming on the market, the insiders stop developing there and they move to other markets.
Well, that just creates a chain reaction. So that was another topic that, the people like Jay Parsons and many other people who are economists who break down these markets daily, we're sharing on stage that everything's cyclical. So the minute there's too many developments, they move to other markets and then there's a massive need a year or 2 down the road.
So even though interest rates have scared away a lot of developers. They're seeing 2025 2026 as going to be years where there's going to be a massive shortage of housing and we'll see rents increasing. Prognostics or the crystal balls say that rents will be increasing dramatically in those years.
There were a lot of people trying to sell off assets at this event, and I think you're seeing buyers and sellers coming together closer. So, hearing some of where people are making deals happen at the show. That was really good to see. And I saw some deals come across my desk. I think 1 of the other things that was a [00:06:00] hot topic was AI.
And the technology effect. So one of the big things that stood out like Scott Wesson at UDR spoke about, centralization. And is centralization actually a thing? Absolutely. And AI is really making an impact there. So the people who choose to start using AI and technology are going to become more profitable.
And they're going to outperform those who don't or who think it's just a fad. So, he shared an example. I think he's moved 40 of his properties away from having leasing staff on site, which is pretty incredible and is saving the company tens of millions of dollars a year. So that that helps him be more profitable.
Whereas other people are doubling down on hospitality, but just in different ways. So a lot of removal of certain tasks. And I think things that didn't people are sharing things that didn't make sense 2 years ago are now really starting to make sense today.
Matt Knight: define centralization in this context, just to make sure people are on the same page what he's talking about.
Chris Moreno: Absolutely. So, I think there's many ways to think about it, [00:07:00] but generally centralization can be viewed as taking any of the tasks of an on site staff, whether it's answering phone calls, responding to emails, scheduling, maintenance inquiries to accounting right and monthly accounts payable.
All of these services that staff whether it was the manager, the leasing teams etcetera we're doing can now be handled at a central office or regional office. So the staff on site essentially can actually be much more focused on Tending to the residents needs and prospects needs being more responsive and then having fewer employees on site.
So that essentially is it in a mouthful.
Matt Knight: What's funny about interest rates because everybody's talking about AI, but on the real estate side, interest rates. One thing it's asked me a lot is. How has this environment or economy affected PropTech, right? And I have my canned answer, because really they're talking about interest rates.
And I'm curious what your answer is to that, if people say, [00:08:00] It's been a tough market to buy and sell real estate for a couple years. How has that affected you? What do you think about the broader PropTech ecosystem when people ask you that?
Chris Moreno: Yeah, I think so. A couple of things. Number one is it comes down to money, right?
So the interest rates are, like you said, affects profitability and their future outlook. And so when interest rates were low, people were excited and they were putting money towards technology. They were putting money towards experimenting with new things to figure out how to make additional capital.
When interest rates go high, they shift their dollars around, right? So now they can find alpha and find returns. So they Shift away from those risks and into things that are certain because interest rates are paying them money. So that was a hot topic. And that's essentially a challenge for some technology companies.
Right? And the concern in real estate is real estate doesn't move quickly. It moves very slow. It moves very consistent. They're actually oftentimes, right, trying to remove the risk, right? And fraud was a hot topic in [00:09:00] risk. They're seeing fraud as a major problem. I think a statistic, Matt I think it was 93 percent of multifamily operators experienced fraud.
Of some kind in the last year 71 percent of operators reported an increase in fraudulent applications. So there are specific areas like fraud detection on leasing the leasing experience, and then also insurance premiums are skyrocketing. So as it relates to technology. Any kinds of companies that can help with these must haves and needs versus the nice to have amenities, right?
The nice to haves are kind of out and people consistently talked about that. It's the, what can you help me with right now that helps me solve this pain point and helps me become more profitable. And in insurance, people are talking about insurance premiums going up in some markets, 30 to 50 percent. And I'm just seeing more information in the last week, you know, when I was in New York, people talking about insurance continuing to climb in many of these markets, especially [00:10:00] Texas and in Florida, so there's massive opportunities for these PropTech companies to solve that.
Matt Knight: Yeah. The word you use that I use this shift is, is If you ask me how interest rates being higher affects PropTech, to me, it doesn't really affect it. It'll affect the PropTech company, right? One company who's highly dependent upon discretionary income, that's excess balance sheet capacity for an owner operator.
Yeah, you're in trouble, right? But if you're, if you're solving fraud or lower insurance or property taxes, just something that is consistently a problem regardless of the cycle and you can save the owner money. Those guys are not, in my world, those guys are not struggling at all from what I can tell.
Chris Moreno: Mm hmm.
I agree. And what you're seeing, you know, people say there's less capital going to start to, well, they're moving earlier. Number one. Number two the public markets aren't there. I think that for technology, the public markets, M&A is hot. M&A is hot this year. You know, Wood Partners was acquired by Greystar.
You're seeing a lot of these PropTech companies even be acquired [00:11:00] right now. I think I, there were 2 acquisitions this week that I heard about. I'll keep them off the record. But yeah, absolutely. And I think the other challenge that Matt is, if you think about, Yeah, absolutely. The interest rates. The other big thing that determines profitability and certainty is government regulation.
So whether it's 42 percent 41/42 percent of the expensive developing a building comes from government cost permitting, time spent in regulatory, local, county, state and federal expenses. But the next one is rent control. And so they talked about 26 states introduced some kind of policy around rent control.
And the biggest quote that I took down was rent control policies are oftentimes much, you know, very misinformed, and they end up actually scaring away the development that's needed. To actually help with the housing supply and help renters have an ease on their increased [00:12:00] rent. So they shared an example of Minneapolis and Saint Paul were like rents in the rent control area actually are going up faster and higher than they are in the non rent controlled area because all the developers are stopped building because they're afraid of what could happen.
So, again , How can we help developers to build that's, supply and demand. But the government impact has a major, you know, whether it's interest rates or government laws and legislation is always also going to affect the industry.
Matt Knight: Well, and you mentioned New York, what happened in New York last week that you were alluding to?
Chris Moreno: Yeah, so there was a great discussion with some folks in the PTAG group. But we had Caren Maio put together a great discussion among some great leaders in real estate development, AI technology. You had Brad Hargraves, You had gosh, a few different folks. You had from Brad, you also had Ravi Bhatia from Fordham.
You had Stephanie Furman who used to be a Greystars now at Entrada. And then you had Karen Hollinger from KKR, and they were talking about the real impact of [00:13:00] AI and what it's having on real estate. And I think one of the things that stood out to me that was very similar to NMHC, Is that the most people in real estate tend to come from a financial background.
They don't tend to start with the technology background. And so something that was very apparent from Caren, Brad, Stephanie and the speakers was that those who now come into the industry who have strong data backgrounds or the ability to integrate information together from a technology focus are going to have a leg up.
And could potentially outperform those who've been in the industry for a long time. So those who are embracing AI can. I think Brad mentioned , AI will help to reduce human errors by over 95 percent of human errors. Right? So it was really interesting to hear them and hearing g the ways that you can impact your profitability in your real estate and in your planning, and I think something else that [00:14:00] stood out from that event in New York was the how you look at the data subsets. So, all you're really doing is taking data in 1 bucket and analyzing it to make decisions into another bucket. So, a lot of times people don't even have enough data.
You know, I think, as Brad or Karen may have said, like you need millions of data points to be able to make really strong decisions. And at the end of the day, if you have bad data, you're going to make bad decisions. And much of this data is oftentimes proprietary. So there's still a lot of challenges, but I thought this was a great discussion around the good ways AI can help and where it's helping the most and where there's still a lot of challenges.
Matt Knight: Cool. like everybody you mentioned there. We're out of time for today, but maybe next time as a teaser for what we talk about next is when you mentioned NMHC. We got RETCON coming up in April. There's a bunch of conferences. And I think a lot of people are planning their budget for this year.
I'd love to spend some time next time talking about the can't miss conferences and maybe the way to [00:15:00] frame it is. Conferences you go to on a 2021 budget versus conferences you go to on a 2024 budget, because I think they're different, right? There's when cash is free flowing and we can go to every marketing thing in the world, it's 'A', right? But now we're being a little tighter with our purse strings so it's 'B'. So maybe we talk about that next time.
Chris Moreno: Love that, and one other thing, Matt, I'll leave you with is Peter Diamantis came at NMHC I think to your point, you know, we can talk about these, some of these events, but when you bring outsiders. Who view the industry and then bring their knowledge of other industries.
That's I think what's really helpful. So happy to share more, more about what Peter shared about the multifamily industry.
Matt Knight: That'd be great.
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