Apartment Builders Are Rapidly Adopting Managed WiFi, Reaping Profits Along The Way
The pandemic has forced challenges on multifamily developers in a variety of ways, but perhaps none more so than the supercharged need for connectivity in their properties.
Surveys by major groups like the National Multifamily Housing Council have found that fast, reliable broadband is one of the top priorities for tenants in markets across the country, and few building managers today would disagree.
“Our members rightly acknowledge that connectivity is no longer an amenity,” said Kevin Donnelly, vice president of government affairs at NMHC. “In such a competitive market, if Building A on one side of the street has gigabit, always-on service, and the building across the street has slower speed … the competitive advantage is pretty clear.”
Managed WiFi, a technology that was once quietly expanding into multifamily from the hospitality and student housing sector, has quickly become the hottest new service on the market, combining a new revenue stream for cash-strapped building owners with a frictionless experience for tenants who can afford to live in the Class-A, luxury multifamily buildings where it’s been most successful.
“I really do think it's global,” said Melissa Morales, vice president of operations at WhiteSky Communications, a managed WiFi provider founded in 2005 and owned by RealPage. “This early on adoption has been in Class-A, [but] I think you're going to see it across all markets and all housing sectors.”
As multifamily building owners and operators look to provide sorely needed broadband capacity for their residents, many are racing to convert to a managed WiFi service offered in-house throughout their buildings. Interest in managed high-speed internet among apartment builders grew from 5% of new luxury developments in 2018 to 80% in early 2021, according to research from consumer technology research firm Parks Associates.
During the pandemic, renters have been using their apartment’s WiFi to do an increasing number of tasks once done in person or on different infrastructure. The NMHC/Grace Hill 2022 Renter Preferences Survey found that 65% of renters said they use their internet for phone calls, 39% said they used their internet for work teleconferencing and 34% say they use the internet for telehealth services “several times a year.”
The need for more reliable, higher-speed internet goes beyond teleworking — the pandemic compelled owners and property managers to include more touchless access technology in addition to other in-vogue smart home items, all of which require a central building network to work at maximum efficiency.
"Suddenly, we had a lot of needs," said Henry Pye, the vice president of resident technology services at RealPage. "And it was clear that trying to address them individually was going to break the bank."
Making The Economics Work
Managed or bulk WiFi got its start in applications like student housing and military bases, but they have become more popular in multifamily settings as installing them has become cheaper. Pye said the cost of routing fiber to each unit in a building for gigabit ethernet speeds has dropped to a quarter of what it was just since 2018.
The bitter pill of increased upfront costs in today’s construction environment, which has seen shortages and large price increases for materials and labor, can be balanced out by a key selling point: Landlords can buy internet in bulk at their properties at far lower rates than individual users and charge a premium that still offers their tenants a discount to the consumer market.
“It’s a decent upfront cost, but it provides incredible reliability and durability for the tenant and it actually provides profit, is profitable, for developer,” Andrew VanHorn, the president and chief development officer at D.C.-based multifamily firm Dweck Properties, said in November at Bisnow’s annual multifamily conference.
Judd Ullom, the director of development at Foulger-Pratt, said that while the initial cost is high when installing a managed WiFi system — on a $150M, 320-to-400-unit project, Ullom expects to spend $300 to $400K — that can be made up in the revenue buildings earn when they charge tenants for their WiFi.
“Costs aren’t going down, rents aren’t rising as quickly as they used to, and so it gets more and more difficult to underwrite these projects,” Ullom said. “So any additional revenue source you can get has become really attractive from a developer perspective.”
But despite the offerings’ potential to give owners a huge leap in accessibility and affordability, thorny cable contracts are slowing adoption of the bulk WiFi model. Donnelly said the biggest problem he's seen in adoption of managed WiFi in slightly older Class-A or Class-B buildings is because they are locked into a deal preventing them from matching the level of service managed WiFi can provide.
"The level of connectivity is increasingly tied to the NOI of a property," Donnelly said. "Investors increasingly want to know about the tech posture of a property, so they are not taking this lightly."
Causing A Ruckus In The Multifamily Space
To find affordable solutions for better broadband, many multifamily operators have been looking to the hospitality and other industries as inspiration for the move to managed WiFi. Across the landscape of managed WiFi systems, one offering looms larger than any other: Ruckus.
"Basically, the carriers have been getting away with murder," said Sandy Jack, the global multifamily lead at CommScope, which owns Ruckus. "We’re trying to give the owners back control."
Ruckus, essentially a system of wireless access points, has been installed in everything from AT&T Stadium, home of the Dallas Cowboys, to public schools to Marriotts and other hotels around the country. Ruckus, which was owned by Arris before CommScope bought the parent company in 2018, is well-regarded for its ability to work seamlessly across buildings while playing nice with smart home technologies like Bluetooth and Zigbee.
RealPage, which consults with apartment owners on technology, awards “a few hundred” high-speed internet deals a year, Pye said, and in every one for the last three years, it has used Ruckus. That kind of market share has earned Jack some perspective on Ruckus' growth in the sector.
"How quickly are they adopting it? Faster than we can make stuff, for sure," Jack said.
Jack said managed WiFi networks are still in the early adoption phase among multifamily buildings, but she is anticipating continued growth as internet providers find new ways to make managed WiFi affordable for existing multifamily buildings in addition to new builds.
"2020 proved more than ever that connectivity is the most important thing that we have," Jack said. "Now all of these building owners and operators are like, ‘Whatever I need to do.' That’s becoming the No. 1 priority, is getting my building connected.’"
Jack said the biggest competition she faces right now is traditional cable and internet providers. Initially skeptical of the trend, which ate into the bulk internet and cable packages that were popular until the rise of cord-cutters, major ISPs like Comcast, Verizon and Cox have begun offering managed WiFi and similar options of their own in order to meet the overwhelming demand.
Quick Connect, a form of pre-enabled broadband offered by Cox since 2019, has grown 300% over the last few years and is deployed in 25% of Cox’s multifamily customer base, Cox Communities Vice President Vickie Rodgers said.
Rodgers said she has heard property owners ask for more of the kinds of functionalities that managed WiFi can provide since the pandemic began, and the legacy telecom company has invested in property IoT startups in order to expand their offerings.
Though interest has expanded, Rodgers said full managed WiFi networks account for about 5% of Cox's business in the multifamily sector. She said part of the reason it isn’t more popular yet is that major internet providers that own and maintain their own regional fiber-optic networks can ensure greater redundancy, and therefore more consistent service to the end user.
“If you think about Covid, as more and more people went to work from home, school at home, etc., network data grew five years in six months,” Rodgers said. “And so if you're not a network provider and you're not putting major capital on the backbone of the network, you could find yourself in an interesting situation.”
Those fears aren’t slowing down adoption yet — Ruckus’ Jack said that in some cases, she has seen building owners build out their own managed network while still operating under an agreement with a traditional ISP. They then let that agreement expire and gradually shift their residents over to the in-house managed network.
Jack said the strategy works better amid a generational shift among renters as Generation Z enters the workforce; they and millennials have less brand loyalty toward internet service than they used to with cable.
"Everything is streaming now. It’s not like, 'Oh, I need to get my Dish so I can get football,'" Jack said. "The days of cable, that’s what’s dead. That’s what the carriers are fighting against."