Transcript
Speaker: Today's podcast is about how a company has harvested and used data to create a powerful competitive instrument in the rental housing business and how it's coping in a time of lockdown with the COVID -19 pandemic. Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Ohio State University Fisher College of Business. We're the nation's leading research group studying the mid -sized companies that account for a third of private sector employment and GDP, and for 10 years, the lion's share of economic growth. It is the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and Chubb.
Speaker: I have two special guests with me today. Rudy Mui is the chief executive officer of Apartment Data, a Houston -based company that has built a business, as the name implies, collecting and analyzing data about apartments and rentals. With Rudy Mui is John Severance, who was the founder of the company in 1986, served as the CEO until 2014. When Rudy came aboard, John Severance today is the company's chief technical officer. Rudy, John, welcome.
Speaker: Good morning, Tom. Good morning. Thank you for having us. So you two in the company have a fascinating story to tell, creating a market, filling it, transitioning with technological change multiple times in the company's history, and about your own leadership transition, and about digital transformation, about what's going on right now in the middle of the pandemic. But start out first, just a nickel tour. Tell us what the company does.
Speaker: Well, Tom, as apartment data name implies, we collect a comprehensive set of current and historical information on the apartment industry. Information such as apartment amenities, rental rates, occupancy, specials, policies, pictures, and floor plans. We then make this available by subscription to property managers, apartment communities, investors, brokers, vendors to the industry,
Speaker: and apartment locators who can then access all of this information over the internet. We currently collect over 17 ,000 properties in six states, which represents 12 markets for us and around 4 .5 million units. And our goal always has been to keep the technology affordable enough for every customer that would like to subscribe to our service.
Speaker: So if I then own an apartment or manage an apartment, your data will tell me, will give me sort of a view of everybody else in town and perhaps comparable neighborhoods and comparable cities so I can understand better how to position myself, what the market is bearing, what are the issues that other people are facing. Is that it? I'd say in a nutshell, that's exactly it. So John, as you started the company in 1986,
Speaker: It's a long time ago. I mean, that's five years after the first time, the first PC. And I vividly remember that it was 1992 when I first saw an email address on a business card. I remember because it was at an event called Collaboration 92. So I know the year. So six years after, just six years after you founded the company, what did you see back then in the days of COBOL? How did you spot this market?
Speaker: I spotted the market by being a potential renter in the market. Houston, very large city. I was freshly out of college. My background is engineering. I studied computers and specifically PCs, which were brand new at the time. Database management, all these things were kind of flowing in my head. But at that time I was looking for an apartment, went to an apartment locator to help us find the right apartment for us.
Speaker: sat down with this agent, her name was Marilyn, and she began to start asking me questions about what I was looking for, and she pulled out this three -ring binder that looks like it's been in her family for a couple generations, where each page basically represented an apartment somewhere nearby, perhaps the south side of Houston, certainly not all the apartments in Houston, and it was about as accurate as the last time she may have made a phone call to that property, which could have been
Speaker: last week or perhaps two years ago. She starts asking me questions and as she hears my answer she's thumbing through the pages to try to kind of do a physical sort and search. Halfway through our conversation her phone rings and it's an apartment agent on site trying to promote their property to the apartment locators in Houston and she gave her all the information about some hot rental special they might be having and
Speaker: Please send us your traffic. And she wrote it down on a little yellow sticky note, found that particular page in her binder, stuck it on that page, hung up the phone, closed the book back to where I was renting, and went on about talking to me about what I was interested in. And when I saw that unfold, I stopped being a customer at that moment. I was just kind of looking at what just happened.
Speaker: from that apartment point of view, that phone call came in to an office that had perhaps 10 agents in it. They got that one agent on the phone and that one agent wrote that down, put it in her book and pretty much forgot all about it. And more importantly, the other nine agents in that office never even heard that information and certainly never got a copy of that little yellow sticky note and put it in their book. So right there I knew
Speaker: transferring information between the apartments and these apartment locator real estate agents was something that could use a little oil and a little organization. And so from that, we started deciding, okay, how big is this market? How many agents are there? And what can we do to help this all flow better? And as much as computers I'd love to have applied to it,
Speaker: not one agent owned a computer at the time. So our first product was actually a printed book to replicate and replace the books that they were used to using. You know, I think you're reminding me of a story back from the early days of a company that I knew called, still called CFax. And CFax was a company that came together to create, to gather together credit information
Speaker: an enormous amount of information that was on paper in people's heads that could be organized much more effectively. And at that point, with the sophisticated technology of the fax machine to get it together. And you realize, wow, we've come a long way from that there. And now you've got like 30 years of this data. So I can see that you can see immediately the value of aggregation, but talk to me about the value of trending data for 30 years. You've got you've got all of that background. What do you do with that?
Speaker: about people who buy seafood.
Speaker: Well, the first thing that 30 years gets you is a great relationship with the folks that we call to get that information. Our backbone procedure here is physically calling individual apartments, asking them very detailed questions and motivating them to actually want to stay on the phone and give us the answers to those questions. 30 years times at least once a month gives you a lot of contact with these folks. And these folks stay in the industry for a lifetime.
Speaker: So what we've got is highly detailed, accurate information to the depths that most companies could never hope to get. And with that, what we do is now the engineering side comes out, we start analyzing, look for trends, look for things that the big data can tell us. You find your customers typically want data, but they're not really sure what to do with it. They're folks that deal with renters, fixing toilets in Unit 7,
Speaker: They have lots of problems and trying to understand data though they know they need it. They're not really tuned in to how to do that. So you're getting relationships and you're getting, and those are personal, right? You're on the phone with them to some extent. Absolutely. And you're also then getting insights to help them say, this is what these data tell you about that will help you with apartment seven or whatever it is.
Speaker: That's correct. Yeah. So building those relationships to help people understand and trust the data that they're looking at and kind of guiding them on how to make decisions based on that data. That's what they've invited us into their organization because we've been here so long that they feel comfortable. We're not a fly by night, somebody trying to sell them something. And that really puts us in places that
Speaker: probably no other vendors to these management companies are ever invited into. So what's the next level of digital? I mean, you think about this, you think, I mean, we started this in the days when PCs were new and none of your clients had computers or that they had those books, right? Rudy, partly as I understand it, you came into a few years ago to take the company to that next level of digital transformation. What does that mean?
Speaker: Well, I think the first thing we had to do, and John created so many tools here, was to focus on our core competence and to outsource a lot of the other things that didn't necessarily contribute to that. So in the beginning, we've outsourced things like just payroll and HR. We outsourced accounting. We outsourced the accounting system. So we don't even have experts
Speaker: within the office that manage that without source marketing and marketing automation systems. And even part of the front end development and really just kept our knowledge of the customer, our techniques of collecting data, our ability to mine this data, aggregate the data and all the backend that's necessary in order to analyze it and apply a lot of the modern things of
Speaker: you know, cloud technology, machine learning, and other things to present a package that is very unique to the industry. And I've got to assume also that real estate being about the most local thing that you can imagine, that while there are these things that you can take to the cloud and these back office things that you can do, that customer and local knowledge is also one of those areas of core competence that computers can help you with, but you still got to walk the streets. Yeah, and in fact,
Speaker: Computers do help us, but in many cases where a city we really don't have a physical presence in, with the amount of analysis and studying that we do, John and our president Bruce basically are residents of that city. They know the sub -markets, they know what the locals call it, they know where the bars are located, where the apartments are located, and pretty much we provide that local feel
Speaker: to anybody who uses our data in any of the metros that we cover. So John, earlier, when you were talking about the guy fixing the toilet in Unit 7, you were talking about the customer there. Let me sort of flip the question from the customer's point of view or ask it this way. Who's your favorite kind of customer? When you think about the customer that uses you best,
Speaker: I mean, you're a digitally advanced organization. I'm a guy with an apartment unit or with an apartment building or maybe a bunch of them, but what would make me a superior user of this kind of sophisticated information? All right, so our ideal customer is someone who appreciates the knowledge of knowing they need information, knowing that they can't commit their
Speaker: significant amount of time to understanding it and allowing us to come in, show them how the data can be used, help them apply their local knowledge to our data, and help them make better decisions. Again, when they invite us in and they kind of turn over to us the responsibility of paying attention to the information of the market while they are fixing the toilet in Unit 7, we team up.
Speaker: And we kind of free them up from the worry and the time necessary that they would have spent before trying to come up with market surveys and reports that go out to the ownership side of their apartment. And it's a good combination. We're kind of partners with them.
Speaker: They do all the hard work and we get the easy part of. I'm also thinking that there's a sort of a low level use right like tell me what what what a one bedroom apartment is the going rate for a one bedroom apartment with a with that with that you know with the swimming pool in the building is in this part of town sort of a low level so what's what's the price kind of thing and there might be also higher level
Speaker: uses of your data that a really sophisticated company might move to a much higher level of analysis and partnership with you. Absolutely. In fact, that hits on one of our new products that we have coming out actually is the sophisticated companies with a big budget can afford to bring in consultants and data that they try to analyze. Their goal is to
Speaker: have the data kind of help them set their prices to almost remove the human factor of knowing what's going on on the street and let a consultant with some data try to figure it out. And that's a very expensive thing that's available and really not perfected yet in the industry. So what we've got coming out is something that the data itself will provide you direction, guidance toward price setting, plus your local knowledge
Speaker: should allow you to decide, do I raise my unit seven price by $25 or do I need to lower it? There are so many factors in the competing world out there, rental concessions. We're really the only company that gathers up rental concessions and factors them into the effect of what is the renter actually paying for rent versus what's on the brochure that they say they're asking for rent. When you factor all that in together, that's what the cashflow of the apartment is really made up of.
Speaker: So I'm thinking right now, as we're looking at pandemics, sheltering in place, and then coming back to what's going to be a pretty rough economic stretch, that that kind of information about the market is going to be
Speaker: even more important, particularly because, you know, prices may be going down in some areas or, and up and others. I mean, talk to me a little bit about how the pandemic has affected your business. Well, I think we're, as you know, you've gathered from us so far, we're a very proactive company. We analyze the data and we try to adjust ourselves to the data. And so about three weeks ahead of the pandemic,
Speaker: we identified the possibility of shelter at home in Houston. And as you know, living in New York City, we had seen other places go shelter in place, New York, San Francisco, Washington state. And so we mobilized to make sure that our workers were safe and we could effectively work from home by putting in place all the systems and acquiring all the equipment we needed for them to do so. So currently about 80 to 90 % of our workers
Speaker: work at home. We probably could get 100 % working at home if we chose to. They're all productive, perhaps even more productive than they're in the office with the added distraction here. And it hasn't really materially affected our data collection, our sales, our customer service, our software development, or our billing and collections for our business. Now on the revenue side, it's been a little bit more challenging because
Speaker: our customers, our customers, we had to manage some cancellations and service downgrades. But from the operational point of view, we're running about as well as we could expect to be. I've got to think that the rental market, the apartment rental market like housing starts and other things would be sort of
Speaker: Economic indicators, uh, we know that housing starts are an economic indicator, but, and I assume that, that, that there is a, some sort of a correlation and maybe a leading correlation between rental activity and other economic activities. You look at those, what, as, as you look at the data that David, you're coming in, uh,
Speaker: What does your crystal ball tell you about how we're doing? It's now May of 2020. How are we doing as an economy? What kind of recovery might you see? Have you got any insights in that? Yeah. One of the big unknowns in the rental market is, are the renters going to pay their rent? And no one's figured that out totally yet. Everyone's trying to pay. And I think it was a bit overblown
Speaker: with the assumption that half the rents won't be paid, but that has not actually been the case. But apartment management companies are very hypersensitive to that new question that they probably never really asked themselves. Your typical non -collected rent might be one or 2%. Now you're thinking, wow, it could be 20 or 30 or 40%. But as each new month comes and goes, they realize that number's not as distorted and fearful as initially discussed. What we've looked at here is the
Speaker: the February, March, April, May time period that we just went through compared to previous years. And what's the difference? Because certainly COVID -19 is a big game changer. And the things that we've looked at specifically are typically during that time period, rental rates have been up about 2%. That's the beginning of the growth period for the apartment market for sure.
Speaker: And instead, what we've seen is rents are kind of down about 2%. At the same time, the absorption of units is usually getting to be quite strong starting here and then going through about July is the real absorption time. And those absorptions are down about 30%. They're still positive, but they're not as strong as they generally are. And facing all of that, you've got this new construction that's about to come on the market.
Speaker: and try to, all of a sudden, new units needing more absorption. All those things are playing in. And the leading indicator that we see might be that the proposed departments, they haven't started moving the dirt yet, but they're still in the, I think I'm gonna build an apartment here, I've got this land, I'm ready to get my contractors moving. Some of those have been stepping back their start dates and they're waiting to kinda see what's gonna happen.
Speaker: You know, the crystal ball is like, there's a lot of guesses going on and maybe nobody's right, but certainly everybody's not right. You know, they're going to probably be in a wait and see to keep the proposals becoming new construction projects. And these management companies are, they're doing all sorts of rent concessions and really aggressively using their marketing to try to hit apartment locators and anyone that can provide
Speaker: renters through their front door because the typical casual shopper that used to just drive by and walk in is not happening. So they're needing help in other
Speaker: directions to try to get rental traffic in that front door. So channels change with that as with so many other things. People are stepping back. I got to assume also that with unemployment growing, some people may be shifting down in apartments, maybe not. But others, people won't be moving for new work, right? I mean, right, because they're not being hired right now. So there may be some slowdowns and all that.
Speaker: Rudy, John, this has been an extraordinary conversation, and I want to see if I can sort of wrap it up a little bit. One of the things that I think is so fascinating, and comment on this as we go, is the realization of the power of
Speaker: data and the power of digital in a very traditional industry and how it has transformed that industry and actually probably made the market more efficient for both sellers and buyers on the one hand. So efficiency is one, and two,
Speaker: has also for the sophisticated company, the sophisticated apartment manager and owner has given them a window to opportunities. These are the upgrades I might make. These are my ways in which I can get more out of that physical asset of the apartment that I'm renting. So both efficiency and sort of opportunity to understand and invent new initiatives and new ideas.
Speaker: all because of this very clever and long -term and highly analyzed use of data in the digital transformation of an industry that involves hundreds or tens of millions of Americans and their families. Very well said. Yeah, very well.
Speaker: Well, it's a fascinating story and I love the fact that it's a long running story from the first PCs to the most sophisticated stuff that we've got. And I wanna thank you so much, Rudy Moy and John Severance from Apartment Data. If you wanna learn more about their company, you can check out their website, it's apartmentdata .com. And if you wanna learn more about us, you can check out the National Center for the Middle Market at our website, middlemarketcenter .org.
Speaker: Thank you all for listening to The Market That Moves America. Never miss a new episode. You can subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts can be found. Or you can subscribe and learn more about us at our website, as I said, middlemarketcenter .org. Thank you very much and stay safe.
