How an Over Reliance on Proptech has Broken Mutlifamily Management

Multifamily Management has Broken

Over the last 15 years, billions of dollars and countless hours have been invested into developing Proptech tools and by the property management companies who have adopted them. Despite numerous promises of transformation and efficiency, few have been fulfilled.

The Promises of Proptech

"Our software will transform your resident experience."

Property retention (~50% annually) and resident dissatisfaction with management (~20%-30% annually) remain unchanged. Though some top-market properties show improvement, most struggle with maintenance and overall satisfaction, particularly older assets with outdated staffing ratios.

"Our software will transform your employee experience."

Employee retention, poor in 2010, has worsened, fluctuating around 35% and spiking to nearly 50% during the pandemic before settling at 40%. The expanded tech stack requires extensive software training, consuming over 50% of scheduled training time. This reduces time for essential property management skills, leaving employees stressed and ill-equipped.

On-site teams frequently request more training. When employees leave due to feeling ill-equipped to be successful, it's a leadership failure, not an individual one.

"Our software will transform your management company."

This promise materialized differently than expected. Software has added costs, training needs, and complexity to an already challenging job. Multifamily management, a low-margin business, requires substantial scale for sufficient revenue to support a comprehensive back-office. For companies outside the NMHC Top 50 (82% of the market), it is a constant struggle.

I wonder how operating margins have changed for the 40 companies consistently in the NMHC Top 50 over the last decade. Have they grown thanks to technology adoption or stayed about the same?

“Our software will make your properties more profitable”

But has it? I’m skeptical. A high-demand, supply-constrained market kept occupancies high and rents rising regardless of management quality, narrowing the performance gap between good and bad operators.

In today’s challenging market, many management teams and properties are struggling or failing. Their software stack isn't saving them, and the people involved have not been given the skills needed to overcome the challenges they face.

How Did It Break?

Acknowledging that multifamily management is broken is the first step to fixing it. The next step is understanding how it broke.

It’s our fault.

As industry leaders, we bear the blame. We outsourced management, believing software was a solution when it was just a tool. Like a basketball in my hands (five ruptured ligaments and three surgeries) versus LeBron James’ (billions of dollars), software is only as good as its user.

We outsourced pricing.

This has left us with a workforce that acts but does not think when it comes to pricing. We’ve seen or heard of dozens of examples where renewals are being handled poorly, trying to increase an existing resident's rent in a gain-to-lease environment. Teams don't understand how to truly evaluate a market and appropriately adjust rents dynamically without the assistance of software.

We outsourced marketing.

This primarily went to Internet Listing Services, relying on them to generate our traffic. That reliance had the second-order impact of flooding our properties with leads from prospects who often had never seen or expressed direct interest in our communities, creating the need for new software systems to manage this volume. Now, many teams are unprepared to generate their own traffic when ILSs are either too expensive or not generating the traffic volumes they did previously.

We're actively virtualizing our sales pipelines.

We implemented complex CRM systems without teaching their value, resulting in "garbage in, garbage out." Today, many teams are implementing 'self-tour' systems as 'self-sell' systems or AI chatbots, entrusting the key factor of a property's financial health—maintaining (or increasing) the value of the rent roll through leasing—to unproven and imperfect systems at a time when leasing matters more than ever.

People don't lease apartments; they lease the lifestyle that comes with that community. We are ignoring the lessons of OpenDoor and Zillow when it comes to selling, or in our case renting, housing.

We outsourced resident satisfaction.

This partially went to survey companies and gig-work service providers, but in many cases, we stopped caring and valued new leases over retaining existing residents.

We’ve digitized training or outsourced it completely.

Today, at most companies, this is an exercise in checking a box instead of truly teaching, developing, and investing in a workforce. You cannot learn sales in a class. We don't teach pricing. We don't teach the value of the decisions on-site teams make every day.

What is a $4 average rent increase at a 250-unit property worth to an owner who needs to refinance or sell? Every PM and RM should be able to answer that question, and I'm guessing less than 5% could do so accurately.

The Path Forward

It is common among those who've been in management for any meaningful period to say, "it is a people business." While they say the words, I am often unsure if they truly understand what that means. My mentor, Angelique Goodnough, taught me early in my career that our product, as property managers, is our people. At its simplest, the job of every management company is to rent capable people to the owners and investors of apartment communities.

Over the past decade, our choices have degraded the quality of our product—the people we rent to properties. This is the fault of industry leadership, blinded by the success of a bull market, who undervalued investing in our people and teaching them industry best practices and the processes that lead to success, not the on-site staff.

We don’t teach people their actual jobs. We don’t equip them with the knowledge they need to make decisions in a high-stress, distraction-rich environment. And yet, we are surprised or blame them when they don’t make the decisions we expect when facing challenges they've not encountered before.

As we sit on the precipice of a new, AI-powered toolset coming to our industry, I worry that we risk making these same mistakes again.

But we don't have to. We can choose a new path, fix the mistakes of the last fifteen years, and position this industry for incredible success.

We have an obligation to choose a new path because while we rent people to our customers (property owners), we have the responsibility at our communities of providing homes to tens of millions of Americans, and we've failed a large percentage of those people consistently over the last decade.

Actionable Steps for Industry Leaders

Teach the Full Sales Process

Leasing is sales. Train teams on the entire process, including market dynamics and strategy adaptation. This should not be an entry-level position, nor should it be outsourced to temp workers.

Educate on Market Operations

Property managers should be well-versed in how markets work. This includes identifying reasons for low leasing velocity and effectively managing rental pricing strategies. We have to get away from the assumption that pricing is our primary dial to influence traffic volumes. Bonus points for having revenue managers tour every property and its comps annually to provide context for advising on rents.

Highlight the Value of Retention

Train teams on the importance of resident retention and how it impacts the bottom line. This includes personalized communication and proactive service to keep residents satisfied and reduce turnover. We've allowed KPIs that were measures to become targets, which means they can no longer be good measures. Lease trade-outs and top-line rents are not how we are judged—it is Net Operating Income (NOI). Saving a lease will almost always accrue more value to NOI than leasing to a new resident.

Align Decisions with Ownership Goals

Ensure that property managers understand the goals of property owners and how it influences daily decision-making. This includes clear communication of financial targets and investment strategies. A common complaint among owners who use third-party management is that the management company is primarily focused on growing the management company, not the success of their investment. This is heard from groups using small local operators and NMHC Top 5 companies. Make no mistake, the owners and investors of these properties are our customers, and we have to do a better job being customer-centric.

Deepen Financial Literacy

Property managers and regional managers should understand financial concepts like debt, cap rates, and investment value to make informed decisions aligned with business objectives.

Conclusion

Having been in this industry for nearly twenty years, I consider it a privilege and also a great responsibility to provide so many people with their homes. I love it and consider it one of the great passions of my life. I know there are hundreds, if not thousands, of other passionate, dedicated and talented professionals in this industry who share my desire to see it be improved for the benefit of everyone involved. Many of those I know personally today find themselves in leadership roles at companies of all sizes - and it is up to us, and our peers at companies across the country, to make the difficult decisions and necessary changes to affect real change in our industry.

The multifamily industry's reliance on technology as a silver bullet has been a misstep. As leaders, we must refocus on what truly drives long-term success: our people. By investing in human capital, simplifying our tech landscape, and fostering continuous improvement, we can build a more resilient and thriving industry. Let’s embrace technology as a tool, not a crutch or a cure-all, and pave the way for a brighter future.