Multifamily

Mordechai Katzman: Saving $$ on your Largest Real Estate Expense

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When considering your largest real estate expense, most people think of utility charges, insurance costs, H.R. fees paying for your employees administration and a slew of others. But would it surprise you if in fact property tax is your largest expense? In 2017 in the US alone over five hundred and thirty billion dollars was paid in property tax and upwards of 300 billion was paid by owners and multi-property portfolios businesses organizations.


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Mordechai Katzman, President & Co-Founder, ReThink Solutions

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VIDEO TRANSCRIPT:

Hi Everyone. 

My name is Mordecai Katzman and I'm the President and Co-Founder of a company called Rethink Solutions. Today I'm gonna talk to you about your largest or at least one of your largest real estate expenses that really any typical occupier owner and manager of a multi property portfolio is going to encounter.

When we talk about real estate expenses what comes to mind?

I think typically most people think of utility charges. Insurance costs you know H.R. fees paying for your employees administration and a slew of others. But would it surprise you if I told you that in fact property tax is your largest expense? In 2017 in the US alone over five hundred and thirty billion dollars was paid in property tax and three hundred billion dollars out of that or  upwards of 300 billion was paid by owners and multi property portfolios businesses organizations 

What I still find interesting is when I'm speaking to multi property owners and I ask them what they pay in property taxes, I'll still get answers that are really in the form of ranges oh anywhere from two hundred to five hundred million dollars. at least for me three hundred million dollars is still quite a significant range for one of your largest expenses. I think that's because it's tax and people look at tax a little bit differently. Frankly as soon as I mentioned property tax people's eyes typically glaze over and I think it's because no one has patients for tax or even property tax. 

They see it as a tax that simply needs to be paid and I'm here today to tell you that property tax is really unlike the other taxes. I think it would be fair if you're talking about income taxes or corporate taxes or even sales and use tax that are very fact based. You're providing the individual taxing jurisdictions information about your sales your profits your income and as a result they're taxing you. But for property taxes individual jurisdictions are telling you what the value of your property is and hence based on your value this is the tax you're going to pay. 

Property tax is different, as I mentioned it's really very subjective because you're getting values from the individual jurisdictions and I should point out that there's over 17,000 different taxing jurisdictions in the US, so when you talk about transparency and standardization it's all over the place. All the more reason that this needs to be managed and can be controlled because there is tremendous opportunities for savings. Just to stress on that point for a moment there was a study done by an international organization that measured all the various jurisdictions both in the U.S. and globally that found the average U.S. jurisdiction just got a grade from a C to a D when it came to transparency and standardization. Again tremendous tremendous opportunities here. 

I was recently talking to one of our clients the senior property tax manager for this particular portfolio and he had told me that the CFO now recognizes that they exist and that it's a good thing and a bad thing. I proceeded to ask, OK so where's this going. What's good what's bad. So firstly it's a good thing because he says now that you're such a significant line item on our balance sheet and income statements we need to be paying more attention. So whatever tools resources you need to mitigate and control this expense and cost, we're all for it whatever you need you let us know so that frankly sounds pretty good. 

So what's the bad thing. Well he said, Now the CFO knows that we exist, which means there's tremendous pressure on this department to do something about controlling this vast and wide expense property taxes are also rising and our research has shown that even when values are staying constant, meaning your values aren't going up, the taxes are still going up because those local jurisdictions, their fees aren't going down and they need to pay for their local improvements. 

Another interesting thing about property tax is that it's going to impact your organization in a number of different ways across all sorts of different departments. It would be very typical or traditional to find one or two people within a property tax department sitting somewhere in the office again which department they belong to is usually questionable as well but sitting there doing their thing managing their values managing their taxes and submitting some information to accounting but as you can see the entire property tax management process is very complex and it really touches on all sorts of different departments. 

So yes once you verified your payments you'll send it off to accounting but you've got your finance department doing their forecasts and budgets and isolation in a silo using their own data their own spreadsheets to determine what they think property tax is going to look like. You'll have acquisitions going about acquiring more properties for your portfolio. Sometimes doing their own work up or not even inquiring with property tax as to what the tax impact is going to be. And what I'm happy to see that that more recently this is now becoming a requirement. Certain companies aren't letting their acquisitions team acquire without having sort of a suggestion or a report from property tax. 

And the list goes on. It affects operations it affects your leasing in terms of setting your rents or even recovering tax from those individual portfolios. So again it affects the entire department. And today it's all done in silos. Each with their own.

That sets of data without one talking to one another so that's so we're where we come so far. So we've noticed that the property tax itself is going to be one of your largest expenses. We know that there are significant opportunities for savings there. And we know that up until now it's been fairly mismanaged as we've seen it's all done in silos all over the place. And there's a lot of data involved in the process itself. In fact from a data perspective because again you're getting data from so many individual jurisdictions. It's not uncommon for an individual property to have at least one hundred pieces of individual data on an annual basis. 

Again extrapolate this to a portfolio of two three hundred properties you're easily dealing with 30000 pieces of data every year. So that's a concern. 

So what do we do?

Well we have to rethink the way we manage your property taxes and that's frankly where we come in our solution lets you manage and optimize the entire process and bring everyone together on a common platform and what that's going to achieve and that's going to allow you to empower your users to make smarter better decisions when it comes to every aspect of your operation that that addresses or includes property tax and these aren't just buzzwords anymore. It's very important. Again all these technologies exist today and they fit quite naturally and very well within property tax the ability to collaborate with those other departments the ability to automate some of your workflow. So as soon as you get a new value forecast and Budget has that so they know exactly they can alter and adjust in real time you can integrate with other systems you can apply a eye to help you determine where the values are out of sync maybe certain values certain properties. This is what we should be looking at to appeal to further drive savings.

At the end of the day I think we're all trying to achieve the same goal. The goal is to maximize portfolio value. And what I'm here to tell you today is that rather than you know addressing the revenue side which a lot of systems and usually some of the easy pickings to be able to you know acquire better properties to make sure they're fully rented out to drive and maximize the revenue from individual locations. That's obviously a way to drive value and revenues. But another way to do it is also by looking at your expense side and being able to control the costs especially something as large as the property tax is going to have a significant impact on the bottom line value so quite a bit so far.

So just as a quick recap if there's one message I can leave you with is that don't ignore your property tax. As I said there's tremendous savings opportunities there. If they control all tax again you just need the right tools information and data available so that you can properly address it make well-informed decisions that will impact not just the tax side but all the other departments within your organization. Thank you very much. 


Michiel Hofman: Bloomframe - Designing For Human Intuition

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Michiel Hoffman is an architect by trade and the CEO of Bloomframe. His philosophy of architecture is based on human values, pushing the boundaries of how space can serve people.  


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Michiel Hofman, Partner, HofmanDujardin / Bloomframe

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VIDEO TRANSCRIPT:

Good morning everybody. My name is Michiel Hofman and am one of the architect Founders of HofmanDujardin, an architecture firm based in Amsterdam. Today I will speak about the two things. One is our design philosophy which is based on the human intuition and the second, we designed a product which is related to this philosophy which might be very interesting for New York.

This is our office. We're based in Amsterdam. We have approximately 40 architects and this is our design philosophy. It is called shaping intuition. So what we say when we create architecture, urban design, interior design it's always related to the intuitive values of human beings. We call it shaping intuition and what it’s based on actually four elements which are very relevant. If we think about architecture it is spaciousness, groundedness, expression and connection and actually each human being requires these elements. So if you work on urban planning architecture or interior design we say these elements are required. So spaciousness is about lightness, brightness and can you breathe in this space. Groundedness if you feel protected and do you feel safe in the environment. Expression is something what what is very attractive and what is triggering us. And the fourth element is the connection which is the relation between people the relation between spaces and the relation between inside and the outside. And what do we actually say while here you can see the elements based on the natural values but the sentiments you have of these values, the spaciousness when you're on top of the dunes. This is in the Netherlands. Groundedness if you're in the forest, you even have this also in Central Park. Expression these are the flower fields in the Netherlands the tulip fields and the right bottom is that connection, the total flow of space. And what we actually say is that human being requires a balance of these elements.

I don't know if you had this already in school once that if you look into were red dots and you look away you see a green dot. This means that your body creates complementary experiences and we say the same happens in architecture with these four elements so if you create one, you also create the other ones around it so people can be in balance in the space. And we have a quite a nice test. So please have a look at this picture of the Paris Eiffel Tower it's black and white. So if you have a look at this image more or less 10 to 15 seconds I can show you what's going to happen with your intuition. So if I go back to the black and white picture you see the coloring of the image which is quite astonishing because you're looking at the black and white picture. You're creating the opposite colours of what you see here. You see the green grass you see the blue sky. So when we say the same happens in architecture and there are also examples in nature for example. So if you would walk in the forest or in Central Park and it's dark you have the trees around you and people would take a break. What will they do, they will go to the open space. It's about the complimentary experiences of architecture and the opposite happens if you walk in the open fields and then you take a break. People will look for the groundedness and they will sit under a tree. So with this philosophy we create architecture and we design different things so this is more the introduction of the office.

So we do a housing project in Amsterdam with a swimming pool crossing over. We built a residential tower in Beirut which was reported that the CTBUH Awards 2016. This is a funerary centre in Netherlands. This is a proposal for the ING Bank in the Netherlands in Amsterdam. And this is a distribution center in Rotterdam. The booking headquarter, we collaborate with you in studio and this design is in the center of Amsterdam. Seventy five thousand square metre. And we also do interior design. This is for a booking and this is for the American company Indeed. Also in the Netherlands.

So this is these are the designs we're doing with this same philosophy shaping intuition and what we show you now is the bloom frame design. It comes from the same design philosophy but it's a product which can be integrated in the facades. That's actually what brought us here to New York. And what we see is that there are many apartments in Amsterdam also in New York which are very much closed off. There are no relations from inside to outside. So we investigated what can we do? What can windows contributes to the wellbeing in apartments in small apartments. And here you can see pito people sitting inside the windows actually looking for outdoor space the light to breathe. There's an example from Amsterdam so people would like to go outside. So we started sketching what are the possibilities if we can transform the façade and that the facade window becomes a balcony. First we started with the Lego models to say okay how can we transform this façade, how can the lower panel can open up and become a balcony? We made scale models and actually led to this prototype.

So you have a lower window and you have an upper window and within 55 seconds it can open up automatically and become a balcony. So this gives huge opportunities to the real estate market because suddenly you can add three square meter of your facade to the surface of your apartment and we can create responsive architecture transforming facades. Here are the sizes, so the deepness is one meter ten which is three point six foot large and this is ten foot. And here are the examples. So we project that the first project in New York evidently. So you have to close the facade. You can open it up. And which can become this kind of architecture. From the inside, you have this view. The lower panel then becomes a balcony and you can step outside, breathe, have additional light to the apartment. And we made a movie. So the product has been developed completely and. It's now certified as a window certified machine and it's certified as a balcony in Europe.

The Bloomframe has produced by Kawneer France based in Montpellier, France. It's actually an iconic company, an American company, and what I now want to show you is actually the first project where we launched the product this is in Amsterdam. It's a housing project and we have some images of the wait has been installed. These were the visualizations.

So it's at the canal, has a very beautiful view. This is the way it opens up.

And so these were this was the launch of the first product they installed and it was quite amazing. It's very simple. It arrives in a box at the building site. You just lift it in the correct position. You pull it towards the facade and you fix it, and that takes actually say two hours and it's done. This is the owner of the apartment and actually the scaffolding is now out. The it has been completely produced. And this is the site with the French engineer also part of the team. This is the view on the canal.

So it is the first one they installed and they actually were quite ready now to come to New York and say we see a huge opportunity in the city to transform the facades, create responsive architecture, and to make micro apartments slightly bigger to create outdoor air space. Thank you very much.

David Sullivan: Solving Rental Evictions

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David Sullivan, CEO of Till illustrates why tenant evictions occur and the myth of landlord “late-fee revenue.”


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David Sullivan, CEO, Till

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VIDEO TRANSCRIPT:

My name's David Sullivan, I'm the CEO and Founder of Till. I'm here to talk today about why evictions suck. The underlying problem that creates eviction risk on our portfolios and how we can use innovative financial products to improve both the residents lives and ability to pay rent but also your portfolio's performance.

So each year 900,000 evictions occur. Many more occur in the shadows and we as landlords use different tax to get residents out of our portfolios who aren't paying rent. So why do evictions occur? Well the Rent Is too damn high, we've all heard that story and that's true. Affordability challenges are affecting all of us as landlords in finding residents who have the right ability to pay rent. We have serial skippers and professional residents who squat. We've all faced in battle those. But more importantly I believe that the cash flow challenges within our resident base. Drive almost all of the evictions and default we see in our portfolios and place eviction risk on an even broader set of residents.

So let's go down another level. Why do our residents face eviction challenges and cash flow risk? Well we have median household income of about forty five thousand dollars and that is really representative of stats that we all know. We've had stagnant wage growth with rising costs rent being the primary cost that we replace on the resident base. In a similar demographic, half of Americans see 25 percent month to month income volatility. Our resident bases are working multiple jobs, they're paid hourly, they're part of the gig economy. This makes their ability to budget and to pay rent challenging.

Most people in the country also have limited savings. Half of the country has less than four hundred dollars in accessible savings to actually weather a financial event Then finally we as landlords are placing a constraint on the resident base ourselves. We're putting a cash timing constraint by charging rent on the first of the month which makes it hard for the resident who is having to pay 30 to 50 percent of their income to us as landlords on that day.

So okay if a resident can't pay rent, what do they do? What current options exist? We have the family bank, family and friends, asking mom and dad or cousins or relatives for help. That works but people are embarrassed to do it and the capital base is inherently limited. We have banks real banks. The reality is many of our residents, especially in the workforce housing space, are under banked. They have limited access to the right capital and credit solutions that can stabilize their financial ability and means to pay rent on time.

We have new online peer to peer banks popping up, these are offering more personalized lending solutions that can help solve this problem but many have principal requirements that are above what the resident actually needs. We have payday and title lenders. These are real. Many of our residents are using payday and title loans to finance rent payday and title loans are giving their residents two to four weeks to pay them back and charging them three to 700 percent APR’s. As a side note, there are three times as many payday lenders sitting in our rental communities as there are McDonald's in the country. So they are a very real capital source for our resident base. And what's what the worst part is about are residents using them as a credit solution is that they are increasing the long term default risk on the resident base. The average payday loan will be refinanced eight times. And once that borrower is hitting that eighth borrowing cycle they are likely in default to both the payday lender and to use the landlord.

Finally, I want to highlight the landlord us. We are landlords. We as landlords offer credit to our consumer base our residents but it is not a effective credit. We do this in two ways. We have payment plans. We have a good resident they'd been with us for a few years and they hit a cash timing problem. We give them a payment plan because we don't want to lose them and we understand the cost of the eviction.

But more prevalent is the second form of financing we're offering them. We're giving residents a form of financing called a late fee. The late fee in most jurisdictions is 5 to 10 percent of rent for that month and we usually give them two weeks to pay. So what happens if they don't pay? We then file eviction and charge them eviction fees and them if they don't pay that we put them on the street. So let's just look at the initially late fee. The initial late fee is let's say 10 percent and we give them two weeks. That is a over 200 percent APR and we are not giving the resident any adequate time to solve the problem that they're facing.

Fair housing makes custom rental payment solutions challenging. And we as landlords are under resourced to deliver this type of credit. We are not re underwriting them. We can't read underwrite them. We don't actually know what the residents credit risk is at this point of need.

So I want to dispel a myth that I hear all the time from our landlord partners and people that we work with. So I talked all the time to landlords and they say well, we like our late fee revenue. I want to challenge that. Late fee revenue is a lost center. At best, it is a breakeven value proposition. I want to quickly talk you through why I believe that and why we as landlords are really bad at delivering credit.

We as landlords look at our income statements and there is an explicit line that says late fee revenue that makes us feel good. I ran a portfolio that had 1 million dollars in annual leave fee revenue that made me feel good. Well some residents might not pay but we made a million dollars. That is not true. We pulled it apart and the challenge in understanding late fee revenue is understanding the costs that drive and are associated with the doing quinsy and the collection effort. I challenge you to go look at your portfolios and actually pull apart these costs to see whether you're making money. And I would hands down bet that you are not. The challenge is we have five different items sitting in three different sections of our income statement. They create a loss center. We have bad debt that's easily tracked it sits in revenue. We have excess vacancy due to longer turnover for an eviction than a regular turnover. That also sits in revenue but it's harder to understand. We have our collection teams costs we have an eviction filing cost hidden in property management expenses. We then have materials and labor to turn a turn over. We all know our evictions cost us more. We have materials and labor to turn on eviction. Turnover beyond a normal turnover that are hidden somewhere. Ideally we shove them into Cap X but are also hidden in turnover and maintenance costs. The portfolio I was running I did this exercise a million dollars in annual revenue off late fees. We were spending one point four million dollars on those items we were losing 400,000 dollars a year charging our residents over 200 percent APR is giving them two weeks to pay us back and still evicting many of them.

The worst part is the resident is the biggest loser in this equation.

So even if they aren't evicted they face the stress of eviction month to month. But the ones that are evicted we are damaging their confidence, we are destroying their credit scores and we're destroying their ability to find housing in the future. Many families who are evicted are forced into transitional housing with family or friends homeless shelters or hotels, children are ripped out of schools and there's just an overall loss of community. Parents who are the breadwinners of these families who face the cash instability or the cash uncertainty, are then distanced from their job opportunities making it harder for them to actually earn income to rent a home from us again.

I want to talk about two solutions. We have a suite of financial products that we're delivering into and specifically designed for the multifamily and single family rental housing industries. We have a core rental loan that is meant to weather a financial emergency. It is a three to six month loan. We underwrite the resident on their ability to pay. We want to make sure that they have the ability to pay us back and the ability to pay you as a landlord in the future. We partner with landlords to deliver this product is a B2B to see model. This is another tool that the onsite property managers have to offer their residents who are struggling to pay rent. We underwrite them. We take the entire default risk away from the landlord and we pay you the landlord directly on time and in full. Every resident's balance that borrows from us goes to zero when we pay you. We also have a short term rental loan that is meant to solve intra month cash timing issues. So as I said earlier 30 to 50 percent. of our residents income is spent on rent.

We have designed as landlords a very inflexible system allowing our residents to pay rent when they have a challenge and we use sticks with late fees to hurt them to get them to pay on time. The short term loan allows us to pay you as landlords every single month on time and it gives the resident ultimate flexibility over that month's time period to pay us back. They can pay us back on their pay cycles, they can pay us back weekly, they can pay us back daily whatever improves their ability to pay you rent to lower their ultimate default risk and costs you as a landlord.

So I am very passionate about addressing the affordability challenge with innovative financial solutions. I believe that alternative credit specifically designed for the rental industry can do good and do well, that we can improve the financial stability of your resident base while improving your portfolio's performance. Thank you.

Britt Zaffir: The Real Estate Business Case For Co-Living

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Britt Zaffir, Director of Real Estate for co-living company Common discusses the concept around their shared homes. The basis for this model is derived from a changing housing landscape and the need to design housing for the roommate generation.  


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Britt Zaffir, Director of Real Estate, Common

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VIDEO TRANSCRIPT:

Hi everyone, I'm super excited to be here today. My name is Britt Zaffir and I run real estate acquisitions at Common. For those of you who don't know who Common is we are a residential operator of modern living focused primarily on the management of both traditional and co-living units. So I'll talk a little bit about who we are how we got here and where we're going, but first let me dive into a little bit of the background. So to give a little bit of a lay of the land, the way that people are living has fundamentally shifted and cities and property managers are not really prepared to keep up with these societal shifts. Around the world we see that cities do not have adequate or affordable housing for their young working professionals. So why is this happening? One of the reasons is that people are delaying getting married.

So, in 1960 the average age of a bride was 20. The average age of a groom was 23. Fast forward to today and the average age of both the bride and groom is just shy of 30 years old. So we've seen marriage be delayed by almost a decade. We see that people are living with roommates. More people are living with roommates and for longer into their lives. So according to Pew Research data seventy eight million Americans live with someone that they are not married or related to. This is definitely largely driven by the millennial generation though as you can see on the slide this is driven by older generations as well. But you know the fundamental reality is that the two parent, two child dog nuclear family is just not the way that things are trending anymore.

You see that real wages have stagnated and particularly in the last 15 years they've declined. While rents have done nothing but increase and so the gap between what people can and should pay on rent and what they actually are spending on rent has significantly widened. And lastly our cities are comprised of mostly single people so this is 2011 data. New York City we see that more than 50 percent of people are either single and living alone or single living with someone that they are not married or not related to. This is obviously New York data but we see this similar trend in sort of many cities in the United States and across the globe. So that's sort of where Common comes in, and what we're doing is designing and operating housing for the roommate generation. I think the main thing sort of to consider here is that this isn't anything new or different people have been living with roommates for you know tens of years and you know even for centuries. What Common is doing is really just making the process of finding and living with roommates better and easier than in the past.

So how are we making it better and easier? Three main ways: The first is convenience. The second is community and the third is flexibility. So in terms of convenience we're remove removing a lot of the annoyances of living with roommates. So we furnished the units we have weekly cleaners who come through the apartments. We pay all the bills. So really trying to strip away the pain points of living with other people so that we could focus on the good part which is the community. So we provide and program community spaces that really allow organic communities to generate from the ground up from within the units. And we also provide flexibility. So while most of our members are on 12 month leases and just a quick side note we call our tenants our members so when I use the word members it just means a tenant. Most of our members are on 12 month leases. However we provide the flexibility to transfer from any home in the common portfolio to any other home seamlessly and easily so when we say flexibility that's sort of what we mean.

So this is just sort of you know a typical common home. This one is in New York. I think the the key takeaways here is that these really are beautiful elevated homes. And another side note we call our properties, our buildings, homes. And that's really because we're trying to inspire a feeling of home. So some examples: every member has their own bedroom, there's no bunk beds there's no Murphy beds. Every unit has its own living rooms so this is a typical living room as I said. This is an actual property in New York. We have a vertically integrated team which includes an in-house design and construction team that spends their entire day thinking about how to optimize space for roommates and how to make the homes really feel like home. I think this really two ways one it really helps with lease up so people come and they see the beautiful spaces and you know they realize that you know for the price point it's quite frankly much nicer than whatever else they would be able to afford and I'll get into price point a little bit later. But it also helps with retention because you know people really feel attracted to these spaces and get really comfortable and so end up staying.

This is a home in D.C., Common Bowman, again just to show you high quality furniture lots of windows lots of lights so really inspiring a feeling of home. This is a typical bedroom. This is in a separate home in D.C.. As you can see the bedrooms are are quite minimalist and quite basic and this is done intentionally. We really want to provide members the ability to have a blank canvas with which they can express themselves. So all the furniture and the mattress is provided by Common. The walls are left intentionally blank. You could see in the top right corner there's a little hook that we provide for people to be able to personalize the space themselves.

So our story, we were founded three years ago almost exactly. We just had our three year anniversary by a gentleman named Brad Hargraves who previously was co-founder at a company called General Assembly, if any of you are familiar with General Assembly. We started with a 19 bedroom brownstone in Brooklyn. And fast forward three years and we're at 700 members in six cities in the U.S. So the six cities that we're in are New York, D.C., Chicago, San Francisco, Seattle and Los Angeles. What have we seen in the last three years? We've seen really really strong demand. So we have less than 3 percent vacancy across our entire portfolio. We have 80 percent of our members that are on one year leases. So again, we don't do any month to month leases and we do some six month leases but the majority of members really are on regular 12 month leases and we have 70 percent renewal rate on those 12 month leases. So this is a number that's typically pretty staggering to real estate developers because in traditional multifamily your retention rate is closer to 50 percent. So we see people really you know as I said loving the spaces and loving the living solution and really staying. We get 1300 applications a week, so we could fill our entire existing portfolio of 700 bedrooms in literally half of a week based on current demand.

So why is the demand so strong? You know what's in it for the member. I think there's a lot of things I think there's the community, the convenience, the flexibility that I talked about earlier but I think another big one is certainly the affordability so members will save anywhere from 20 to 30 percent a month by choosing to live in Common rather than living in their own studio so this is sort of New York pricing. We have a bedroom available for $2,200 a month that would include all your furniture your utilities your Wi-Fi a weekly cleaner all your shared goods pots pans salt pepper olive oil all of that stuff. And so if you were to do that yourself, and live in your own studio, the comparable pricing would be about $2,200 dollars a month or more. So definitely significant cost savings for individual members. This is what a typical common suite looks like. They typically range from three to six bedrooms. This is a five bedroom three bathroom apartment. What you could see is there's lots of storage. There's built in closets in every individual bedroom. There's a shoe and coat storage closet up front. There is in unit washer dryer. So again trying to inspire that feeling of home and of comfort elevated living. And then there's you know very regularly sized living rooms dining rooms kitchens so the only difference here is really that you're sharing your unit with more people that you otherwise would in a more traditional multi-family apartment. Otherwise the apartment really looks and feels the same. So that five bedroom suite is down below, that's what I just walked through it's 1370 square feet. If a traditional developer were to try and create bedroom rentals for five people that would be about 3000 square feet. So more than doubled the amount of space. And so the result of that is about 100 to 200 basis points in terms of annual yield for real estate developers and that sort of driven through a combination of the efficiency that I just talked about as well as the common brand which is really due to our proprietary technology, our hands on management, and our creative design. So not only sort of does it make sense for the member but from the real estate perspective it's certainly an interesting alternative as well.

Where are we going? This is our sort of existing portfolio in New York as well as our pipeline of what's to come. Right now we have 320 beds that we operate in New York they're all located in Brooklyn but we are expanding to Newark, New Jersey, midtown Manhattan and Harlem as well with hundreds of more beds in our portfolio under construction and sort of looking to be in all five boroughs and beyond. So definitely actively growing. I wanted to just highlight this slide quickly it's one of our upcoming projects that's being delivered in the third quarter of 2019 in Newark, New Jersey. It's interesting for a couple reasons. The first is the blended price point. So a member will be able to live at this home Common Sussex for $1250 a month and it will be a 20 minute train ride from Penn Station. So that's a pretty staggering price point with all sort of you know services and amenities that I mentioned earlier included. Secondly this one's interesting because it's an adaptive reuse of the former St. Mike's hospital. So I think you know a really creative use of space in a really creative you know repurposing of a real estate asset. And third the financing is interesting. It is both located in an opportunity zone and it was financed using a new market and historic tax credits. So we think a couple of different elements on this one that were worth highlighting.

I'm obviously happy to talk about anything else sort of in our portfolio or anything else that's that's coming up, but if there's one thing I want to leave with everyone here today is that co-living is not really a new fad it's something that's been around for tens and hundreds of years and it's it's not only is it here to stay, but it's here to grow. We started with 1 19 bedroom brownstone in Brooklyn and just yesterday we signed a upcoming site for 600 bedrooms. So co-living is real and I'm looking forward to sharing and all of that with all of you.

Thank you.

Guy Zipori: Artificial Intelligence & Real Estate Investment

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Guy Zipori, CEO of Skyline AI walks us through the history of artificial intelligence and how it’s evening the playing field of real estate investment for development firms of all sizes.


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Guy Zipori, CEO, Skyline AI

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VIDEO TRANSCRIPT:

Over the past 10 years the main ingredient for success in real estate investing is investing in real estate. Some have done better than others. But the market was on a steady incline and we all know that the next 10 years will probably look different. I'm Guy Zipori, I'm the co-founder and CEO of Skyline AI and I'm going to speak to you today about the meeting point between artificial intelligence and real estate. Personally I'm coming from a technology background, not from real estate background in fact, it took a team of four to get me into this suit.

In artificial intelligence we hear this all the time, it's changing the way we work, the way we do business, the way we discover and vet new information. But it also comes with fears. Many people are speaking about how AI’s coming for jobs. Hearing about driverless cars and other things makes people fear and no wonder. Hollywood has done a wonderful job terrifying us about new technology. It turns out that a story about how technology and AI will take over the world sells a little bit more tickets than how AI helps us improve our company's revenue. By the way Skynet from from the Terminator has nothing to do with Skyline AI, just clarifying this, and the fears that people experience today are pretty similar to the fears that people felt back then in the industrial revolution. Hearing that machines will come and take over their jobs. But eventually the industrial revolution created new jobs, new opportunities and transformed economies for the best. Of course it's much easier to look at innovation when looking retrospectively and now it's time for a change.

Real estate is at all time high with dry powder of about 280 billion dollars that is sitting there un-deployed just this June, and AI technology is very advanced. Computers today can find anomalies much better than humans. Looking at the history of AI, there's always the one theme, men versus the machine. Whether it's Deep Junior or defeating Gary Kasparov in chess, or Watson beating trivia at Jeopardy. By the way Shay Bushinsky, the creator of Deep Junior who was responsible for defeating Gary Kasparov is our Chief Data Scientist. But this is not how real life implementation of AI looks like. Men together with the machines work in many ways in a very powerful force. For example, using A.I. and the CIA to capture bin Laden or predicting flooding in India to save lives. The combination of human and machine is powerful. If you take the best out of both of them keeping the machines doing the repetitive tasks, such as data crunching, and leaving the humans for creativity and strategy and other things that we still do much better than machines. AI is not replacing lawyers in court but is helping them review contracts finding mistakes and helping doctors with X-ray scanning allowing them, helping them to identify cancer.

Do you know how much time out of a 16 hour flight from New York to Tokyo is manually flown by a pilot? Only 8 minutes. So we trust AI today with our lives. But what about our investments. This is Tom. He's 14, my nephew and shockingly he's even geekier than I was at his age. Today he sells Superhero Toys on Amazon. And this is Jennifer. I admit I don't know her personally but I do know for sure that even though she's managing billions of dollars of our pension funds, she has less technology than my nephew. And this shouldn't be the case. Computing power today is much more powerful than it was in the past. Computers that were once a luxury for only companies with supercomputers or seven digit budgets, is now in our hands in every handheld device and more data is available. Take Planet Data for instance. This company has 21 satellites and they are taking one point five million photos every day covering about two hundred twenty million square miles.

Advanced technology computing power and data enable us to sequence the DNA of Real Estate Investing. For example, instead of looking at comparable assets by looking at vintage or location or other static characteristics, we can today use data such as internet browsing data, where people are, what people are looking for online to better understand and analyze what assets really are comparable. Skyline AI is a commercial real estate asset management technology company. We partner with top commercial real estate players to establish investment vehicles augmented by AI. Today were connected to more than 130 different data sources. We try to put our hands on every piece of information that may affect real estate value. We then use our artificial intelligence technology to extract insights and generate predictions based on this data. And together with our partners it helps us making better real estate investment decisions and achieving better results than the industry benchmarks.

Our technology is impacting the lifecycle, the entire lifecycle of real estate investing. Whether it’s deal sourcing, allowing us to find the best opportunities available no matter where they are hidden, or analyzing those opportunities much faster in seconds instead of weeks and with hyper accuracy. Or during the ownership period, understanding the situation in our asset and compare it constantly to competing assets surrounding us. So we put our technology to a test. We took a portfolio of one of the top real estate investors here in New York and we allowed our technology to determine which asset we would participate if we would support this this firm. So we have two portfolios. One is their portfolio that is managed only by the human and the second is a subset of this portfolio only with the asset that the technology would recommend to acquire. And the result were groundbreaking. The technology together coupled with the human perform 21.87% IRR compared to just 15.6% IRR for the real estate investment firm alone. That’s 40% higher returns. The AI revolution has started. So what part of this history are you going to be on?

Thank you.

Shane Eten: What If Water Pipes Could Talk?

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What if your water pipes could talk? Shane Eten, CEO of Lotik discusses how water prices in NYC have tripled over the last few years and how water intelligences is saving residential developers millions of dollars each year.


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Shane Eten, Co-Founder & CEO, Lōtik

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VIDEO TRANSCRIPT:

My name is Shane Eden I'm the Co-Founder of Lotik. I'm a plumber in residence so I'm in training to listen to how pipes do talk so if we can hear them, we would understand a whole lot more. We believe that there's the ability to drive water efficiency in multifamily buildings. We believe that you could save around 40 to 50 percent on water costs in a multifamily building. But there is a lot of different reasons why this is possible and why it's important and when you first look at what the real liability is here it's not only just water cost it's water damage and there's a lot of things going on. It's amazing that we know more about the data that we use on our cell phone than we do about how much water we use. So for a multifamily building owner, surprisingly, water is their number one utility cost. This is a study done in 2005 in Minnesota. So I'm going to get to that number the 305 for water per apartment a little bit later. It's also the highest maintenance costs for a multifamily building.

In New York City, water costs have tripled since 2000. So that graph you saw earlier for the 308 water costs have now tripled which is around nine hundred dollars per apartment and none of the other costs have gone up.

We saw the same thing happening with electricity prices in the late 1970s. You see this curve right there, electrical sub metering started in 1985. So a lot of this is happening. We believe that water sub-metering is going to start to happen in New York City and it already is. It's not only expensive now but it's going to get a lot more expensive. So it's not just the water that we're using, we have quite a bit of water in New York City, but we have to then treat it. So if water is used inefficiently it then goes to a wastewater treatment system the taxpayer dollars are paying for it. We talked to a lot of building owners and they basically just think it's a tax. And what's fascinating about the building is you have a 600 unit building and you have one main meter and you have no other information. So when your water costs go up there's nothing you can do about it.

Surprisingly in California most of the water is used by farmers in New York City most of the water is used by multifamily buildings. So how do we apply something like this? We would argue that it's a lot easier to install a water submeter or do something new when it's for a new building, but 100 percent of the market right now is the buildings that already exist and the older buildings are what used the most amount of water. So what's difficult about water sub metering is that these buildings are built on stacked risers. So unlike electricity where there's one place or one panel that you can actually put a sub meter, you'd have to put it in six different locations on six different pipes so you can't just install one meter to understand what's going on. If you could understand what was happening at the fixture level, so tell me what's happening with the toilet or with the shower, you understand if there was a leak you would then drastically reduce the amount of insurance claims for a building and therefore insurance costs. And you would drastically reduce the amount of water that was actually being used.

With no transparency at all. The bar is set very low.

So how do we do this? It's almost like imagine if you could create a FitBit for a pipe.

So typically a toilet is sold to last for 20 years. What if you could embed an operating system into toilets so that you could upgrade the toilet? You could actually understand what was happening and a toilet is very easy to understand if you just listen to it. So what if you could create a Fitbit for a pipe? I spend a lot of years doing this. We've been working on it for four years.

We've been financed by Samsung and we found some very interesting findings here. Most of the time it's installed closer to the toilet so it's on the supply line. We have an accelerometer in there it's battery operated.

The key here is when you go into someone's apartment you want to make sure that you don't have to go back in and you want to make sure you're not there for a very long time. That's something that we learned over time but a leaky toilets very easy to identify.

All we're doing is tracking the amount of water that's being filled in a toilet so, when is toilet filling? And it doesn't matter how the leak occurred as long as it's basically an activity tracker and if you have an entire building you have 600 units and you know you have a leaky toilet. The research says that one in five toilets is leaking, we found that usually like two and five toilets is leaking. So just identify the places where when a pipe is talking and it's talking a lot, that's when you should definitely listen.

In the future we see embedding this stuff into every single picture. So imagine installing a building you commission the plumbing system for the first time and you have all green lights a lot of the insurance cost associated with water damage happens really really early on when a plumbing system is first installed.

So what did we learn doing this? Doing wireless in this type of environment is very very tough especially when you're in a bathroom. So a bathroom has glass, it has porcelain, and it has cabinets, so you go underneath the sink. You put a wireless system in there. You then closed the cabinet door you then closed the bathroom door. We need to figure out a way and everyone does need to figure out a way how to train how to send data a really long way in these places. We also realize that you can't have a gateway or a hub and connected the Internet in every single apartment. This has to be like to call it the silent censor. Had the building owner install it very very quickly but have a gateway that can be installed anywhere in the building. So instead of a gateway to every apartment we can now send data to twenty five floors. We did this by doing machine learning.

So in order to get data to listen to pipes we have customers but you don't want to necessarily go in there when you don't have a solution that works well. But I would suggest for a lot of building owners, letting new technology companies come in and actually collect data in the building is very important. So we looked at the numbers and Airbnb’s are very cheap so we would rent an Airbnb and sit there and hang out next to the plumbing systems which allowed us to collect all the data and then build the machine learning model on the actual sensor so that we're only sending the data that we need to and we can send it a lot further and a lot of times in certain industries. It's the language that we're talking about. So when I first started to dive into this as plumber and residence, I still do not know what a cubic foot is. I think a gallon is even hard to understand.

So instead of saying cubic feet, why is this not about time the tenant can't control how how often or or how much volume is coming out of their shower or their toilet. They can control how many times they flush and how long they turn the shower on for.

So we believe that in the future it will be based on time and so that you can actually comprehend it so someone can actually change their habits if they knew if they took a five minute less shower. And most importantly is that data when you can capture this and you can actually listen to the pipes you start to see a cadence of the buildings so you can tell when people are waking up, you can turn your heat on a little bit later. So this data is not just a real physical act. Someone has to go to the fixture and turn something on. And if someone is not there and there's water flowing we should know about it so we can stop it. Thank you very much.

Elena Ashkinazy: Building And Selling A Smart Apartment

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Time Equities Director of Sustainability, Elena Ashkinazy walks us through her smart apartment case study showcasing each component and sharing the amazing returns she garners.


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Elena Ashkinazy, Director of Sustainability, Time Equities

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VIDEO TRANSCRIPT:

Just imagine, thirty nine million people already have Amazon Alexa or Google Home in their apartments. Real estate companies can take advantage of it and start to create value for the customers of new generation who want to just move in to their apartment, plug in their Alexa and be able to control everything with their voice or with their phone. At Time Equities we always strive to be technologically up to date and innovative. So last year, we successfully completed the first smart apartment on the Upper East Side of Manhattan. So we did it in pre-war apartment and when you think about pre-war buildings, a pre-war apartment you would probably never expect to see anything smart, but we did it. The project was so successful it was featured in The New York Times. This apartment was scheduled for renovation so we still have to buy switches, bulbs, kitchen appliances. Now we spent an extra $10,000, however we were able to sell this apartment for $120,000 above similar apartments just one flight down. So in this slide you can see green screen from Zillow.com two apartments, one is in the second floor and smart apartment on the third floor. And the difference in the prices was about 10 percent and the first apartment was on the market a couple of months before our smart apartment. So we sell it quicker and for a higher price. And today I'm going to tell you about all devices we installed and their features and benefits for residents.

One of the main challenge and actually it's become our value proposition for the customers was that old devices can be controlled through one application so the customers don't have to hassle between different apps. Of course we'll also estimated that the smart apartments can be super Energy-Efficient so customers can save up to 20-30 percent on their electric bills. And of course it's all about convenience. You can control everything with your voice. You can say what you want and you get it. And all with your phone. The first thing we installed was smart door lock. So you still can use your traditional keys, however, you don't need to. You can open and close your door from anywhere anytime. So imagine you're standing in a traffic and your guest came early. So now you can just open the door from anywhere. You can see when the door was opened, was closed and you can give access to your housekeeper, dog walker. So people love it, it's so convenient. We’ll also install smart lighting systems throughout the apartment. And before I started to work on this project I actually bought a lot of stuff for my place and I have to tell you it's amazing. I don't touch my switch anymore. Especially when you're tired. You lay down in bed and before my husband told me, “Elena, can you go around and turn off the lights?” And now I just said Alexa turn off all lights and she's like OK your wish is my command. So people definitely love this convenience.

We also install smart color lighting so you can pick any color you want. So for example we have open house for this apartment and a couple came and the lady was pregnant. So we ask, “do you know what's going to be, boy or girl? She's like it's going to be a girl. And we like Alexa make all lights pink, and of course she did it. And that just create this wow factor that you can also use even when you just show an apartment to potential clients. We also install smart shades in the bedroom so first you can open and close them with your voice but you also can schedule and automate them. So if you want, for example, you wanted them to be open Monday through Friday at 6:00 a.m. when you wake up and on the weekend youu want them to stay close until 12:00 p.m..

We also install smart kitchen appliances. So this is a smart refrigerator. This is what a game changer for the customers. First you can see what is inside of your refrigerator while you do shopping. Also your refrigerator will start to track expiration dates. You know we all have some stuff in our refrigerator. We have no idea how long it was there. So now your refrigerator will take care of it and will send you a notification when the milk is about to expire. Also it has a big screen on the door. So instead of putting stickers like we used to, now you can send pictures, voice messages, just messages to your family straight on the fridge door. You also can mirror a TV, play music and even do food shopping from your door. Other kitchen appliances are smart too.

So we have smart range. It's a gas range. So for safety reasons you have to start to cook while you in an apartment and set up a timer. But then again control it remotely. So you can change the temperature where you can turn off range completely. Also you can check the status so if you're worried that you forgot to turn out the gas you always can go on the app and check of that everything is OK. And we have smart dishwasher that sends you a notification when the cycle is over or when there's not enough dish soap. We installed smart outlet. So any appliance you plug into that outlet becomes smart automatically. So in this apartment we know we bought kettle and we teach Alexa when we say Alexa good morning, she started to boil your water tells you the latest news, the weather outside, the traffic situation on your way to work.

We also put that motion sensors in this apartment. So motion sensors can help you to create different scenarios. So for example, you have a scenario like the late snack time at night. So if you want to go after 12 p.m. to get a snack, you don't want to be blind with all these bright lights so you can schedule if some someone enters the room after 12:00 p.m. the lights will be dimmed maybe blue. We also brought some technologies to the bathroom. So we have this shower head with LED lights . So now you don't have to wait to try water and see if it's hot, you just can see if the water is hot, it becomes red, if it's cold, it becomes blue. And especially it's nice when it's a hot summer, you can get blue shower and when it's cold winter you can get a warm red shower. Also kids will appreciate it and love it.

Of course people love to control climate. So this is must have to have a smart thermostat and smart AC. Of course we will see a lot of benefits and opportunities to incorporate smart technologies in multi-family sector. First, it's a great competitive advantage. It's a great marketing tool for you. Also statistics show that you can increase either its rent price or sales price on average by 5 percent. And it's also energy efficient. So if you’re a building owner who’s paying for heating costs you will benefit from this as well. So what I want you to do, what I recommend you to do think where you can start. So for example, renovation is the best time to incorporate smart technologies or if you have a vacant unit so you can pilot. You can see feedback and then scale and roll out across your portfolio. Thank you so much. It was great to speak to this audience and if you have any questions I'm always open. Thank you.

Marshall Cox: Intelligent Residential Heating

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Marshall Cox, CEO of Radiator Labs discusses the problems with steam heat. He explains how using heat data can solve for comfort and lower cost.  


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Marshall Cox, CEO, Radiator Labs

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My name is Marshall Cox, the Founder and CEO of Radiator Labs and I’m going to tell you about steam heat which is always a super exciting topic. So first of all steam has a lot of problems. We all know this we we've lived in an apartment or a house in New York City in particular. And the problem isn’t with steam. Steam is actually a pretty awesome technology that has been in these building since they were built often a hundred years ago, decades at least and they’re super overheated. The problem is that it's very hard to control where steam flows from that building and you can try to do that and they were really well balanced when they were built. But then the biggest change that we've we've seen is that we've invented nearly universally retrofit, windows with a double pane insulating glass and that completely changed the balance of our buildings. And now you have apartments that are cold and need a lot of heat and people who are super hot and open the windows as a result.

Obviously people are really uncomfortable because of this so it's a problem for tenants. It's a problem for maintenance staff because these things are hard to maintain. But it's an enormous financial and ecological disaster about seven billion dollars is wasted every year in the 10 percent of the U.S. residential housing market that uses steam as a primary source of heat. in New York City alone it's one point two billion dollars and you can imagine literally taking one point two billion dollars of fuel and burning it in the streets that's essentially what we're doing every year.

I want to get some perspective on this problem so steam has been around for a long time. It's been around for a approximately the same time as the phones. This is Alexander Graham Bell invented the harmonic telegram which is here. And think about how many changes have gone through that technology in the past hundred years. We all have supercomputers in our pockets now. The amount of change is dramatic and contrast that with steam, it's not necessarily a fair comparison. We have new better heating technologies but the radiators that have been in these buildings haven't really seen anything happen in the last 100 years and this is particularly relevant here because this Alexander Graham Bell standing next to a radiator and I can guarantee you that that building is probably still here and that radiators are probably still there. These things have been stalled for literally a century sometimes more than a century and they still work which is amazing but they have a lot of issues. So I got my P.H.D. at Columbia University. I invented this technology there. My research had nothing to do with steam or radiators but I lived in a unmitigated hellhole apartment. I was super hot. The technology worked really well. We went to compete at the MIT Clean Energy Prize, won that which was amazing and was essentially the beginning of our company. We developed a full building system and iterated over the past few years and most recently NYSERDA has supported an evaluation of that technology in a bunch of buildings and I'll talk about the results later. It was very good and we were really excited about what we're doing.

Briefly, what are the things you can do to solve this problem and overheating and buildings? Most people have tried to address this from a plumbing perspective but steam is a hundred degrees Celsius gas. It's a very caustic when it condenses into water and you're talking about a two phase distribution problem that's really hard to control that kind of distribution system with a valve or other kinds of plumbing solutions doesn't really work. We've approached it from a different direction. We actually control the area around a radiator and thermodynamically manipulate the steam flow within a building by doing that. Has the benefit of being easily installed you don't have to have any contact with plumbing is especially nice not to have to mess with 100 year old pipes and it works really well. Every one of these systems says a wireless radio we communicate data in real time to the cloud that lets us learn how buildings heat up and cool down and optimize that heat generation on a building by building basis. It also lets us connect this data to people's cell phones so they can control their temperatures even setting setbacks and different time based things you can do with a normal thermostat. This is a level of control that these buildings have never had in their entire history. So it's a pretty big deal for the people who live in these buildings.

These are those results I told you about from NYSERDA. Seven buildings of the past five years. We found 25 percent average savings maximum savings was forty five percent. And I just want to point out the minimum savings over there 15 percent. That building is a LeFrak building out in Brooklyn. It is now the most efficient single pipe building in all of New York. So even in buildings that start out very efficient we can still save a lot of energy. There's a lot of waste here. To put into perspective for income for for a portfolio, if you can save 30 percent of your heating costs that translates into a net operating income increase of 10 percent because 30 percent operating costs are often in heating the building itself. So that's a big deal for for portfolios.

Now I want to transition to talk about data. The first thing, the most obvious thing is what can you do with data in real time in a room? We take temperatures and we obviously feedback that temperature into our system is pushing down to a room when it's needed that allows us to do away with the drastic overheating under heating that you get in these kinds of buildings. This is real data. You basically turn an apartment into a flat lined temperature at your set point. It's a very important and nice change. My apartment obviously has these installed.

You can get a little deeper into the data as well. So in most bigger buildings you have what's called the two pipes steam system, and every radiator has a steam trap at that point and when we installed in buildings we typically find that about 25 percent the steam traps are blown and malfunctioning which means that steam is flowing into the that line being wasted. Every broken steam trap wastes about 200 to 400 dollars a year. So you can see how this adds up very very quickly. We can use the data that we're gathering to analyze steam trap health in real time and you can imagine that maintenance programs and buildings. It's hard to measure this stuff because it's in someone's home. We can just do it in real time remotely and tell people when things break and they need be fix which increases dramatically the maintenance efficiency of portfolios.

Very quickly looking dig digging deeper into the data there are some really interesting things here. If you can look at this and the left is these are two buildings top and bottom on the left is before we installed an app on the right is after we installed each one little block in these graphs shows a apartment that's been categorized by temperature. So the red blocks are apartments that are Saunas above 80 degrees. The blue blocks are apartments that are freezing below 62 degrees and you can see that before we retrofit is a pretty even distribution of very hot apartments and very cold apartments where you'd imagine sitting in a building. After retrofit if you could see the screen here, we've dramatically increased the number of green building the green apartments. So most of the apartments now are comfortable. Of course there's still outliers on the hot side. So this is on first level to point out that our technology is awesome, it works really well but this is a very rich data set. Of the apartments that are still hot. Why are they still hot?

It turns out that we can do some some interesting cluster analysis and apply algorithms to this data to figure out what characteristics those apartments share. So maybe they're on the top floor and the roof is uninsulated maybe on the bottom floor and there's infiltration problems but they're all on on the north side and don't get sun. You can essentially figure out what's wrong with these buildings. Then no one even knew existed. And that's interesting because you can take that data. We control the boiler we know how much fuel you'll save additionally if you fix that problem. And then if you know how much that problem cost to fix you can calculate a pretty efficient pretty accurate return on investment. And that basically will unlock a significant amount of capital. People want to fix their buildings. But the capital to do so is not really available because no one knows how long they're gonna take to pay back. No one knows how much it’s going to cost to fix. No one even knows what the problems are. So what we're trying to do here is take the data that we're gathering to figure out what those problems are to go how much going to cost to save and unlock that capital to fix the big problems in our infrastructure which is primarily located in our older buildings that no one has the time or money to evaluate properly. We have a big grant from the National Science Foundation to do this. So we're pretty excited about we're doing. Thank you so much.

Landon Tucker: The Future of Residential Connectivity

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Landon Tucker, CEO of Honest Networks helps us navigate the current state of multifamily connectivity. He touches on how 5G is changing the connectivity game and the notion of connectivity being as ubiquitous a utility as water and electricity.


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Landon Tucker, Co-Founder & CEO, Honest Networks

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My name is Matt and tucker with honest networks and I'm here to discuss the future of residential connectivity. Really exciting time for connectivity because we are at the epicenter of two trends. The first is accelerating shifts in consumer behavior, how consumers are consuming content and we are also in the midst of the very early stages of 5G technology. The ability to use wireless technology that's becoming very efficient to effectively recreate and build on the incumbent business models and do it in a much more efficient and friendly way.

For real estate owners and managers the key is not only will there be new service providers that have a lot more new innovative business models, but what we're also going to see is a real opportunity for differentiation in terms of residential connectivity. What we're seeing is that property owners and managers are looking to use connectivity to drive relative positioning with the new and and existing tenants are using connectivity to really differentiate their product and drive pricing and value. They're also using it to improve tenant satisfaction. In terms of consumer behavior, what we're seeing is that there's an accelerating shift in terms of cord cutting that we have. More and more Millennials and Gen Xers are getting rid of cable. In fact, 94% of 18 to 29 year olds are primarily streaming and they're not doing it for price. They're doing it because they see less perceived need for a cable television package. And what's really interesting about that is when you have this massive cord cutting you see a transition in connectivity. Internet is no longer complementary to a cable television package.

It's actually a utility in and of itself for building owners. It's as ubiquitous and as important as water and electricity. So what's actually happening though is that consumers aren't really happy with what they have now. They are being pushed to bundle product. They're being trained to have an internet solution in their building that's built on promotional offers. And because these companies in your buildings today, the larger cable companies and the telcos, they haven't had to build a really great customer service culture because they've been effectively monopolies. What's really exciting is this is about to change in a dramatic fashion. And what we're able to do now with the combination of fiber optics and 5G technology is to effectively build and improve upon and recreate what the cable companies and the telcos have done in building out a new great Internet network over the air and in the streets. And if you deploy internet networks in this way, it's a massive improvement in terms of efficiency. It's an incredibly capital efficient way to build out networks and it's also a very timely way to add connectivity to your building.

You can be installing new internet networks in days or weeks not months or years. You all have internet in your buildings. So the question you might be asking is, Is this better or is this the same or worse than what I already have in my building? Let's go back to what we said before which is if internet is becoming a utility how do we think about valuing the utility of a utility. We think about the speed.

This is Honest Networks we're the fastest residential internet provider in the country. We offer only gigabit. One to ten gigs of capacity, fastest speeds in the world. Ultralight connectivity for fifty dollars a month or less than half of the cost of the incumbent providers. And because of the way we architected our network at ultra low latency which means there's essentially no delay in which tenants request service and then receive it. And so we're becoming an alternative option in multi-family properties and seeing amazing customer transactions and uptake in the buildings. If you see here tenants have been really excited by having an alternative choice in the building effectively saying they are blown away by the service, the price, the quality of the network they're getting. And when you have a product it's becoming utility. As a real estate owner or manager, how can you take advantage of this? How are you going to use this innovation and connectivity to differentiate your buildings? The number one differentiation opportunity we see, and this is from mom and pops with with smaller multifamily buildings all the way up to the largest developers in all of Manhattan, is performance. People want to say you come into this building and you have the fastest residential internet in the entire country because we have Honest Networks.

Imagine you have a 300 unit building. You're seeing about 140 of those units turnover every year. Take out seasonally adjusting you're looking at 12 different conversations you're having with the existing tenants who are thinking about moving out and going to a competitor. You have 12 conversations with new residents that are looking at a wide variety of buildings. If just a few of those say oh you have the fastest Internet in the entire country and you're able to convert them into your building and drive occupancy and drive rate, that's a homerun for you considering that we're actually free for building owners were just another option in the building. Another great opportunity for differentiation is on Wi-Fi. We see a massive gap between ubiquitous Wi-Fi which we believe Millennials and Gen Xers are looking for. There's a massive opportunity for instance when we bring in ubiquitous Wi-Fi into common areas, into fitness centers, rooftops because all of that is complimentary service. Because our goal was to improve tenant satisfaction in the building. Working with a new innovative provider you can have it such that internet is on. It's like water when the tenant shows up. It really drives the tenant experience having unprecedented connectivity visibility in your building could be great in terms of dealing with tenant issues.

We have a connectivity dashboard where we have API integration with all of our connectivity data so that you can know over the past 24 hours or even 24 months the speed reliability and performance of each one of the buildings in your portfolio. And then finally on the left side if you want to give your residents more choice more affordability they can often save a lot of money every month by switching to an Internet product and streaming versus sticking with the incumbent bundled product. And then some final considerations for real estate professionals are future proofing your building when you can for instance at honest we bring fiber into the vertical riser into every building we go into that future proofs the building in terms of giving you outstanding capacity and performance. But it also improves the resident experience when you have great infrastructure in the building and it increases the value of the building to you. So if you can do that and you're thinking about bringing another provider, ask about how they're wiring up their building because you want to make sure that when you're working with a new provider they're future proofing your building and really adding value to it if you're giving them the opportunity to sell into the residence. Second is aesthetics make sure you understand what equipment is going into your building. All providers have a wide variety of equipment they use and there is really great small form factor aesthetically pleasing installations that can be done now where the resident doesn't even really notice the equipment. That's something that we'd be happy to touch on more. And then finally I.T. and security.

Increasingly I know many of you are looking to get more data out of your buildings so you're looking to use IoT BMF system security systems. If you're backing that information up to a public cloud computing provider or you're using the public internet, often times if you work with a provider you can get secure, direct cloud connectivity access which prevents any risks of a security threat to your building. If you have any other questions feel free to reach out to myself or any other member of our team.

Thank you.