Last modified on December 22nd, 2020
By Megan Eales Monroe

What will 2021 bring? To better understand where the real estate industry is headed, we reached out to top thought leaders from residential property management, community associations management, and investment management to learn more about their experiences in 2020 and what they are doing to prepare for the year ahead. 

In addition to these thought leaders, we also sat down with experts from AppFolio’s team. Here are some of the topics you’ll learn about in this episode:

• How the pandemic has affected each segment of the real estate market 
• Ways day-to-day tasks and workflows have adapted
• Emerging industry trends and technologies 
• What to expect in 2021 and beyond

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Episode Transcript: 

Sean: You’re listening to The Top Floor, a podcast featuring critical conversations around property management, community associations, and real estate investing. I’m your host, Sean Forster, an industry trend researcher at AppFolio.  

Megan: And I’m Megan Eales Monroe, lead content creator at AppFolio.

Sean: Every other week on The Top Floor, we discuss change, innovation and opportunities for the future. With help from thought leaders and change-makers, we give you inside access to our world at the height of industry disruption. 

Megan: This week, we’re going to be doing things a little differently.

Sean: To close out 2020, we’ve prepared a special episode that’s fitting of a year which has been unlike any other. Instead of focusing on one topic, we’ve invited experts from across different disciplines. 

Megan: It would be an understatement to say that this year has been full of changes and new challenges for the real estate industry.

Sean: Which is why we’re focusing this episode on what industry leaders have learned.

Megan: What trends they’re anticipating in 2021, and what they’re doing to prepare for upcoming challenges.

Sean: We’ll be bringing in some more voices from the AppFolio team to help us explore the top takeaways of 2020 and market trends for 2021. 

Megan: And on that note, we’re kicking things off with a pair of experts, including Sean, who will take us through residential property management. 

Without further ado, let’s dive right in. Sean, take it away.

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Residential Property Management

 

Sean: Twenty-twenty has been unlike any year in recent memory, and when we look at it from a residential property management perspective, the inflection point that I’m going to remember is the change to our work environments. How we work has fundamentally shifted for many Americans, and the rise of remote work is really affecting property managers in two distinct ways.

Sean: First, I’d call out that the connection between where people work and where they need to live has loosened, and it changes the requirements prospective residents use when selecting their housing … Many companies are now considering a permanent future of remote or hybrid work models, where employees are in the office two-to-three days a week. This is going to mean that residents are more willing to make trade-offs between their commute for lifestyle benefits or lower costs.

Narrator: Here is James Scott, the lead researcher at MIT’s Real Estate Innovation Lab, speaking about the effects of social distancing guidelines.

James: What has taken place has been really, essentially the greatest social experiment in the history of mankind. We’ve literally taken everybody out of the city and sent them home. 

How does that affect office environments and multi-family units around large cities, especially in the inner city or city areas or the downtown areas of major cities? What do people think? How is it all going to pan out? I don’t think anybody missed their commute. 

Sean: This change is disrupting established housing patterns and fueling migration between and within markets from higher cost and denser areas towards lower costs or roomier options.

James: The big question is, I think I’ve said this before a few times, is the amenity space with a lot of multi-family units, was anybody really getting the benefit out of multi-family or the amenity space, the shared kitchen or the shared media room or the large area you could have parties? Yes, they were lovely and they’re fantastic.

James: Were they really getting utilized the way that people thought they were? The question is now what about maybe changing those spaces and converting them into more like a … Not coworking, but small office space environments so that people have their unit within their house upstairs, but then they could just go downstairs and they have a private sanctuary to be able to work and utilize really, really well without having to commute, and so for three days a week that they have that space so it’s like having your own private office space within your building.

Sean: Second, for the property management businesses themselves, the tasks that we thought had to occur in office or in person – think of things like processing invoices, dispatching maintenance, or touring units – those can actually happen from anywhere, provided that the right technology solutions are in place.

Sean: This shift towards a remote work environment has long been predicted, but we expect to see this transition accelerate and solidify much more quickly because when you think about it, there really are some tangible benefits to how we’ve been working this year. 

Employees appreciate the added flexibility in their days. I think of a cost-saving element for businesses, and crucially … we’ve learned that it adds resilience to your operations for any future shocks we may encounter.

Sean: We’ve been fortunate that so far, we’ve largely avoided the worst case scenarios we feared back in April, but we also now know that we’re in for a prolonged period of recovery. 

And so looking ahead to 2021, as the industry navigates through the pandemic and the economic impacts it’s bringing, the word that comes to my mind is uneven. The scope of the challenges and opportunities property managers face, they’re going to vary depending on the specific composition of their portfolio property classes and unit mix, and the market conditions that they’re facing – namely the recovery of the predominant labor sectors in their area.

Sean: Some combinations will bounce back quickly. Others may experience a bit of a long grind, and most are going to find themselves somewhere in the middle. 

So my mind goes to how teams can focus their time on those high-value activities that will help them be adaptable and responsive through uncertain times. And that’s why I think we’re now seeing momentum around artificial intelligence and its ability to automate manual tasks.

James: We’re touching on the – I don’t want to say the sixty-four-million-dollar question – but it’s the sixty-four-trillion-dollar question in real estate right now – is how is this all going to pan out? Has Covid let the cat out of the bag a little bit with working from home and in different aspects? It’s going to be really interesting to see how the next few years change how cities evolve from what has happened over the last year.

James: The world within real estate, be it the brokers or the property managers or the construction teams that are in it, they can generally be a little bit slow to adapt because they’ve seen an awful lot of new technologies come and go and not really make an impact. I don’t want to say they’ve got burned in the past, but they’re a little bit wary and they take a little bit of a wait and see approach.

James: What people have started to realize, within this new adoption period, because of Covid, is that there are huge amounts of inefficiencies within their business, and its inefficiencies within specific tasks – not their job. The fear that people had sometimes when they hear these words like automation, AI, machine learning, they sometimes get a fear, “Here’s a machine taking my job.” What they’re starting to realize now is, “No. Actually, there’s technologies out there that can make my job easier and I can be far more productive within my job. 

Sean: A recent study from [National Multifamily Housing Council] and eleven advisers found that AI and machine learning is the top technology trend to embrace for property managers up to ten-thousand units. It’s going to take them away from things like manual data entry, responding to incoming inquiries about available apartments, and really let them focus on providing high levels of customer service to their residents, to their owners that they work with.

Sean: And that makes perfect sense because one of the key learnings from the past year is that efficiency is what allows property managers to minimize vacancies and achieve NOI targets during uncertain times. 

So as teams tackle new challenges and reimagine their operations over the course of the next year, I really see these AI-based solutions becoming a vital part of their infrastructure.

Narrator: Many thanks to Sean and James for their insights into what’s in store for Residential Property Management heading into the New Year.

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Community Association Management

Narrator: Now, let’s talk about Community Association Management. We’ll hear from AppFolio’s Cassandra Becker, a product marketing manager who focuses on bringing innovation to the community association market. And we’ll hear from Wendy Taylor, General Manager of the Homeowner’s Association of South Riding in Virginia.

 

Cass: Well, we’ve seen numerous shifts in the industry this past year, such as the rapid increase of tech adoption, which we all knew was coming, but 2020 put tech adoption on the fast track in order to stay afloat. The industry has been forced to adapt quicker than ever anticipated, really.

Cass: Moving to remote work increased the need for automation and efficiency tactics to stay on top of all the operations and communication that need to take place in the community.

Cass: Management companies and boards are now operating remotely or semi-remotely, or they’re completely back in the office with things looking a little different. Regardless, there are new policies and rules in place that make operations more difficult.

Cass: Associations are really intended to be close and connected and the only way they can achieve providing a connected community is by being more advanced in their technology to navigate contactless management.

Cass: We’ve definitely been seeing an uptick in management company consolidation since Covid struck. Covid immediately put many management companies at risk due to uncertainty around how to strategically pivot their businesses and manage the dramatic influx of delinquencies that they’re facing now, compared to in the past. For other management companies, it’s posed as a growth opportunity to acquire or merge with smaller or even some struggling management companies.

Cass: There’s a very notable shift in delinquency and collections. Failure to collect assessments eliminates the only revenue source of an association, which you know, results in assessments to skyrocket in the future, deferred maintenance and even dilapidated common areas resulting in a decline in property values.

Narrator: When the pandemic arrived, so many of us were pushed from public spaces – not just spaces such as retail stores, restaurants and movie theaters, but spaces that are specific to community associations. Adjusting has been a challenge, one that Wendy Taylor and her team at the Homeowner’s Association of South Riding met head on.

Wendy: Well, what I’ve said to everyone here is we’re going to plan it out as if things are going to be okay, or going to be back to our new normal. But we’re going to be ready to pivot at any time, and if the vaccine doesn’t work or the numbers go crazy and we’re all ordered home again, then we’re just going to have to pivot and come up with some new creative ways to address things.

Wendy: The general wisdom of the world is that Zoom is here to stay and remote meetings. Though, I will tell you that my board is very anxious to get back to face-to-face because they’re missing the connectivity.

Cass: The new norm consists of what I’m calling contactless communities, which speaks to the four shifts in the community that have taken place because of Covid. What communities look like have changed. They were already really regulated, but have additional rules and policies in place to ensure the safety of their membership and to reduce risk and liability.

Cass: To paint a picture, pools may have waivers and no pool furniture with a maximum number of people allowed in the pool area at a single time. Gyms may be open, but now there may be a schedule. Sanitization rules and social distancing rules.

Wendy: Certainly, the pool operations, the amenity operations, were very challenging, trying to reorganize, and get our pools open along the new COVID guidelines, realizing that every state has different criteria. 

We’re very event-driven here, we did come up with a way to do movies as a drive-in, then we took our fields and drew circles for concerts that we were able to continue over the Summer.

Wendy: My biggest concern here is that, because interest rates were so low for mortgages, and home values are so inflated right now, thousands of our residents have refinanced. Every day we’re dealing with refinancing and they’re taking equity out of their homes, some to do improvements, which is great, and others to literally feed their families. The concern is that there’s going to be a large wave of bankruptcies once the stays on foreclosures or evictions expire. That is a concern because if you declare bankruptcy, a Homeowners’ Association in our state doesn’t have priority liens, so we may not ever be made whole of the only income we get except for events, which is down hundreds of thousands of dollars this year, because we couldn’t do very many of our big events.

Narrator: Both our experts note how being cooped up can lead to contentious relationships between residents.

Cass: Tensions have risen a tremendous amount due to the rollercoaster that 2020 has been and has even resulted in a surge of restraining orders and requests, cease and desist notices and even revamped anti-harassment policies. 

Cass: There’s a magnified importance around conflict resolution and self-governance at a new scale, which is a dotted line to the increased need around advanced and streamlined communication.

Wendy: We have a lot of federal workers here, and many of them are going to be permanently – except for one day a week – stay working out of their homes. So that is going to change what we’re dealing with because they’re looking out their windows, literally, watching their grass grow in the Summer, and watching our grass grow and be cut or not cut. So there’s a lot more opportunity for conflict with the neighbors that are home, and some are really in distressed situations and then others haven’t taken any kind of financial help whatsoever. So we’re kind of having two worlds here.

Cass: We are very likely going into the next wave of Covid. And with that on the horizon, there’s continued need around ensuring that the market can withstand new or consistent challenges that they might face. Technology is essential to their success. If using the right tech, it serves as a reliable foundation so that management companies can weather the storm and still achieve their goals that they’ve had in place.

Narrator: Something as simple as snapping a photo can be hugely beneficial for a team. 

Wendy: And if they can take a picture of work they’ve done, that’s amazingly helpful. And I see it across the board, not just with my ops staff, but vendors that might be doing work on my house when it’s finished, they take a picture and they send it, and so you’re quick to pay.

Cass: I’m really interested in understanding how associations and management companies and boards are operating and working together. I see a lot of areas for improvement to make this industry advance to that next level where it isn’t going to be a 24-hour job and take them away from their families and really prove to be inefficient through the manual processes that they currently have in place. 

Cass: Technology is the foundation that really allows management companies to be efficient. This means replacing those manual operations that are currently in place. We’ve seen that these manual processes and the outdated technology that a lot of management companies are using today that they have not been truly impactful and helpful for community associations. And that’s proven by the struggles that we’ve seen. There’s been a lot of pain in this market because of their outdated technology or their manual processes that they have in place.

Cass: The most impactful technology is going to be the technology that does it all. … When piecing together multiple solutions that is not truly helping a business. Those are pieced together experiences, pieced together operations that will not be successful when challenges arise like Covid and they are now remote. You need a solution that is innovating within to bring more to the table. 

Narrator: Just to recap: in many ways, 2020 has pushed community associations to experiment with new technology, improve the efficiency of their processes and find new ways to keep communities connected. Thank you, Cass and Wendy, for giving us an inside peek into these changes.

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Investment Management

Narrator: Finally, let’s take a deep dive into Investment Management. And for that, we turn to AppFolio’s Mike Sebastian, as well as Morris Groberman who’s the founder of Seattle-based Northwest Commercial Real Estate Investments. 

 

Mike: All right. My name is Mike Sebastian. I am the industry principal for AppFolio investment management. And so I’ve been in the industry for about 15 years selling software to property managers and investment managers ranging from residential to commercial construction, across all verticals. 

Mike: So there’s a couple of things that we’ve seen that’s happened. … You can break this out into how are we dealing with our investments and how are we dealing with our investors? … So for the sponsors that have active investments there has been a differing impact depending on the type of assets

Mike: And so if you had say garden-style apartments, or maybe even luxury type apartments in cities that have a lot of industry that isn’t really tied to types of jobs that would have been impacted by shutdowns, then they’re doing pretty good. The rents have been paid, they’re able to, you know, collect those rents and then they’re able to either do distributions or say, “Hey, you know what, we’re going to hold back and see what’s going to happen.” But they’re doing pretty good in terms of not having a major impact. 

Now, retail has been impacted. Retail was impacted before COVID-19. But it’s been wildly impacted since then, but even there you’ve seen stratifications. If your properties are like grocery anchored with a target, you’re doing pretty good. Cause they’re essential stores. In fact, they’re doing better. But if they had other types of investments, other types of stores that were getting shut down, you’re doing pretty bad because those tenants aren’t paying rent office is kind of a mixed bag … We haven’t really seen distress there.

Morris: Fun times, but we’ve been through this before.  

Narrator: And here’s Morris. Just a bit of background: Northwest Commercial Real Estate Investments operates around 80 projects, including apartments, retail and commercial spaces.

Morris: I’ve been through a number of these recessions. Candidly, I think this now is probably worse than it was for us in Seattle, worse off than 2002, 2004 and 2009 through ’10. So we’re really dealing with it. And candidly, we were buying buildings in 2009 and ’10 when the rents were going down, it’s interesting. Now we’re not seeing any deals to buy and if we are seeing them, they’re still priced 2019 levels. And I think people are just holding on right now, people waiting for the market to turn and we expect it to turn probably mid to end of next year. So there is light at the end of the tunnel.

Morris: So it’s just very interesting. It’s very politically driven. A lot of people have money. They want to put it in real estate. They know real estate is a good play because we all know we’re going to have some inflation in the next few years as this money gets through the whole – how do I say – economy. And we know the Fed’s going to hold down interest rates. So that’s just going to create more inflation. So everyone wants to be in real estate as the inflation hedge. It’s just where are we going to put our dollars?

Narrator: At a time when so many may feel a little too connected to their devices, this increased connectivity has been a huge asset for investment managers.

Mike: So that’s on the side now on the investor side. And this is really where we see the advantage of having a digital tool like at fully investment management is they need to a lot of this information to their investors and they need to do it pretty quickly because what we were seeing – especially early on in March – is that our clients who are investment managers, their sponsors, they’re saying, “Oh my gosh I’m getting questions. I’m getting tons of emails, calls from my investors. I need a way to communicate with them. And so we provide that platform where now you can, especially if you’re vertically integrated, meaning that you manage the properties and you sponsor them. So you’re going and getting money from investors, and then you’re investing into properties and managing it yourself. So when you have the whole system together, it makes it very, very easy and very quick and streamlined to get that information from the property, analyze it, and then get information back out to your investors very quickly.

Morris: And I think you need to be transparent. I think you need to report to your investors on a monthly basis and provide quarterly updates as well. I mean, if you really want to do it right, yes, it takes more work. But look at this as marketing. And if you can stay in front of your investors and provide them the information that they’re looking for, they’re more likely to give you money on your next investment. So it’s that simple and basically what you’re doing is, you’re just staying in your market niche and telling them what you’re going to do to help them in this market niche.

The one interesting thing I’ve found though, it’s very interesting. I don’t know how to explain this, is that I’m getting a lot more referrals from my current investor base, invest and telling their friends about what we do and then sharing what we’re doing with these new people who I normally then go meet for coffee or lunch, but instead we’re doing Zoom calls or other calls, et cetera, but that’s been very interesting to me to see.

Mike: The more information – good or bad – that may be because investors know they’re taking risks, but if you’re a sponsor and you have a well-performing property, you want to let your investors know that if you have a property that’s not performing well for whatever reason, you also want to let them know that and provide as much information and let them know how you’re dealing with it and how you’re adjusting your plan … 

More information we find is better because even if that investment turns out to go bad, it builds that trust and maintains that trust with the investors. And so our platform allows for that and it’s designed for that. And so that’s really kind of the trend we’ve seen. 

Narrator: At Morris’ office, they accomplish this by hosting regular virtual meetings with investors.

Morris: And I would say maybe seven-percent took us up on this week-long Zoom calls … And we talk about the market, what we’re seeing, et cetera because there was a lot of concerns about all these mandates the government was putting on apartment owners and how that would impact us. We didn’t even know what was going to happen. Now, we’ve seen it come through and for our properties, for example, we have pretty much everyone paying their rent.

The one complaint that I hear from our investors about others is that they don’t hear from them … I’ve always been since the nineties, mailing monthly statements and analysis to our investors and we mailed them. And now we use the Appfolio investor portal, and we notify our investors. And then they can read the statements and memos at their leisure online. And we give them market updates through that. It’s been very, very helpful. Transparency is critical in what we do, and that’s why we have so many repeat investors. 

Mike: What we see is an acceleration of the trend to adopt what we would call an investor portal. And again, there’s many different kinds of investor portals in the market … So we talked about how … in terms of getting information out to investors for existing assets, what we haven’t talked about was raising capital for future fundraisers. And so there are platforms in the market that allow you to get digital signatures or go through the entire process of evaluating an investment you know, indicating your interest, speaking with the sponsor and then ultimately signing the documents electronically all online so that it does a way with the in-person meetings to a degree. 

Morris: And the other thing that’s really cool that my investors like, and that we’ve been able to provide them in the last year with the Appfolio investor portal is what their net equity is in our projects. So they invest 100,000 bucks. What is a 100,000 dollars worth today? And then, after 10 years, what does $100,000 worth, after we do a [refinance]?

Before they just didn’t know and I didn’t know. I’d have to spend an hour to figure out what their investment’s worth and now they can just look. And it’s really been again, helping with my transparency to everyone. That’s really a big help.

Mike: So what we’re hearing … is that the pandemic is – especially across many different asset classes – has made it more difficult to do what they call price discovery. And what that means is what the heck is this property worth? So you can imagine, for example pre-pandemic, you know, there were pretty well-respected assumptions. And when we say assumptions, we mean when I’m going to put together a model for what I think this property is worth and what I want to buy it for I’m going to assume certain growth rates and rent. I’m going to assume certain expenses. I’m going to make assumptions that really fall into line and inform as to what the value of the property is worth of any kind. And when the pandemic happened and people stopped paying rent, or there’s the big question for months on end is: are people going to pay rent or are they going to continue to be able to pay rent?

And what is this PPP plan going to do? So it kind of threw out all the assumptions. And so that made price discovery very difficult. But unlike in 2008, where you had a financial crisis, that was based on financial fragility, if you will this financial crisis really is self-imposed by the government. And so there’s this, there’s this sort of understanding that eventually it’s gonna come to an end. We just don’t know when, so, but there’s a vaccine out now. So what you’re seeing, the reason I’ve mentioned these things is because what you’re seeing is the, the sellers of the properties are sticking still to those current valuations that they had pre pandemic. They are, we’re not really seeing a mass market. I’m sure it is happening in places, but just mass market. We’re not seeing major price drops. And so, but at the same time, you have people who want to buy the properties are the sponsors, and they’re saying well, but we don’t think your assumptions are the same as before.

So maybe it is worth a little less. And so there’s this give and take, and it hasn’t really yet broken one way or the other in a big way. 

Morris: But the one thing we are seeing is residents now looking for opportunities, new opportunities to rent apartments, and they’re finding them in the new buildings that they couldn’t afford before. And they’re going there now because the new buildings are really offering some great opportunities. So that’s interesting for us to see.

Mike: And I think there are certain types of properties … you will see that where do we see that it would be, apartments in a big suburban or what they call gateway cities like New York City, LA, where people are leaving. Or San Francisco is gonna be a good one where people are leaving and they’re going to suburbs and basically it’s shifting asset classes. So there’s that possibility as businesses start to open back up, if they start requiring employees back in the office then you probably won’t see as much price dislocation in those types of investments. 

Now, on the opposite end, you have industrial, which is just going crazy. It was accelerating before COVID, it has continued to accelerate even greater with COVID because everyone has to buy things online for the most part. And so that means that you’re going to get big investments in industrial warehouses that companies like Walmart and Amazon and Target can all gobble up and put their stuff in.

Mike: So … there’s creative things that they’re doing all over the place in different parts of the business and we’ve hit on, I think all of them for the most part, but we can kind of tie tight together and say that, you know, on the property acquisition or disposition side they are getting a little creative or having to get creative with their assumptions on how to value the property. And so that’s one way on the side of dealing with investors, we’ve talked about how they’re getting creative with technology to allow them to raise capital and, and attract investors digitally through different platforms and get signatures signed online. So that’s, that’s you know, we’re seeing an acceleration of that trend. And then, you know, with respect to getting people back into buildings and leasing up things like on the office side, on the retail side, there’s a lot of different creative solutions and technologies that are going into that space to you know, track, are people sick? Are they not sick? Where are they going? Where’s the foot traffic, you know, so there’s a lot of things going on in that space, too.

I think in my opinion, in 2021, we’re going to start to see things get back to closer to what we called normal before that the virus we’re going to start to see people getting out more, once people are starting to get mass vaccinated travel will occur more. So you’re going to see things get a little bit closer to what we called normal. Will it get all the way back to the normal next year? We don’t know, but you know, if I have to guess, I’m thinking that, you know, the, the big emerging technology winners are going to be the trends that were already starting before the virus and, and for me, that’s AI. And what does that mean? Because AI is this blanket word community thing. Well, AI in our context means that we’re going to deploy a variety of solutions that make … investment managers more efficient at what they do. We’ll be a little bit easier perhaps to spot properties and potential investments that will be valuable. So the tools that to help with that it will be automating, you know processes that they have to do now that they’ve been doing for a long time that are very time-consuming and costly. So it’ll be automating some of those things maybe on the accounting side or maybe on reporting or something to that effect. So that’s, that’s my impression of what we’ll see.

Narrator: What’s the best way to summarize 2020? So much has happened – and we’ve only scratched the surface. And heading into 2021, across every aspect of real estate, we’ll expect to see the influences of new and exciting technology; a radically altered work landscape; a reimagined approach to community life; and so much more. 

This is our last episode of 2020, but we’ll see you on the other side. A big thank you to everyone who contributed to this episode. And a big thank you to you, our listeners. We’ll see you in 2021.