Host Akash Jain is joined by Kevin Gardner to discuss how Multifamily Utility Solutions (MUS) has helped property owners and their management companies optimize and increase their NOI through assistance with their utilities. With utilities being the largest controllable expense for property owners, Kevin shares information on how MUS has generated revenue for these owners through lucrative internet & cable agreements. This episode is a must see, as it was uniquely recorded as the solar eclipse was passing over Kevin’s home in NE Ohio!
00:00:00 – 00:01:51
Introduction to Kevin Gardner and NOI optimization
00:00:00 – 00:01:51
Akash Jan from Multifamily Legacy Partners introduces Kevin Gardner, president of Multifamily Utility Solutions. Kevin explains that his company has been operating for 12 years, assisting multifamily property owners and management companies nationwide in improving their net operating income (NOI) by optimizing utility expenses. The discussion highlights that while insurance and property taxes are uncontrollable expenses, utilities represent one of the largest controllable costs for property owners.
00:01:13 – 00:02:53
Types of utilities optimized for multifamily
00:01:13 – 00:02:53
The discussion focuses on the utilities optimization services provided to multifamily operators, primarily dealing with cable and internet access agreements. There are different types of agreements depending on whether the service is offered as an amenity. A common trend, especially in class properties in certain markets, is including internet in the rent. The service helps negotiate internet rates so operators can mark up the cost and increase rent, generating monthly revenue from the internet amenity. Alternatively, if operators prefer not to absorb the cost, the service can negotiate marketing agreements where the operator receives payments.
00:02:19 – 00:04:15
Revenue generation via cable and internet agreements
00:02:19 – 00:04:15
The discussion explains how property owners with over 20 units can increase revenue by partnering with cable and internet providers like Spectrum, AT&T, or Comcast. They receive an upfront incentive for signing agreements and ongoing commissions or revenue shares. Larger properties with more units typically earn higher payments. Additionally, on the expense side, a utility broker can help reduce gas and electric costs by finding better rates, but this service is only available in about 14 deregulated states.
00:03:36 – 00:05:20
Energy savings in deregulated states
00:03:36 – 00:05:20
The discussion focuses on energy savings opportunities for property owners. Small properties with minimal amenities and no shared utilities are less likely to benefit. Larger properties with facilities such as workout rooms, pools, and laundry areas have greater potential for savings, especially if they are in deregulated energy markets where competitive rates are available. In regulated states with fixed rates set by the government, there is no opportunity to choose alternative providers and thus no savings potential.
00:04:43 – 00:07:25
Major internet and TV service providers
00:04:43 – 00:06:26
The discussion focuses on internet and TV service providers, highlighting major incumbent companies like AT&T, Spectrum, Cox, Comcast, Frontier, Bright Speed, and Quantum Fiber. These providers have already invested in infrastructure, often resulting in better deals compared to smaller independent providers who would need to invest capital to install facilities. The choice of provider depends on the property’s location, existing contracts, and market conditions.
00:05:50 – 00:07:25
A free assessment is conducted to evaluate the property’s location, size, existing contracts, and goals for providing internet and TV services. Property owners must consider whether they want to offer these services as an amenity or accept the fixed monthly costs involved. While these expenses can be offset by higher rent, there is a financial risk due to the ongoing fixed costs.
00:06:53 – 00:09:19
Bulk vs marketing agreements explained
00:06:53 – 00:09:19
The discussion explains two common types of agreements with communication service providers: bulk agreements and marketing agreements. A bulk agreement involves paying a fixed expense for services in bulk, allowing providers to mark up costs and potentially earn more revenue, but it carries the risk of liability if tenants cannot pay during uncertain times like the COVID pandemic. In contrast, a marketing agreement offers lower risk with no fixed liabilities, resulting in lower but more stable revenue. Both agreements can help increase revenue and improve the net operating income (NOI) of a property.
00:08:38 – 00:13:36
Door fees and incentives overview
00:08:38 – 00:10:40
The discussion explains the concept of a door fee (Dy) included in both bulk and marketing agreements between property managers and service providers. The door fee is a one-time incentive paid to property owners or managers based on the number of units (doors) in the property, for example, $100 times 100 doors equals $10,000. Along with this upfront fee, there are ongoing revenue shares, commissions, or markups involved in these agreements.
00:10:03 – 00:11:59
In a marketing agreement, typically lasting 10 years, property managers receive an upfront door fee and ongoing revenue shares paid monthly or quarterly, while the communication provider handles tenant billing. The marketing agreement involves the provider building the residence’s service infrastructure, and the property manager is not involved in billing. The segment also touches on technical difficulties but confirms the conversation continues smoothly.
00:11:20 – 00:13:04
An exclusive marketing agreement means property managers provide leasing agents with materials to promote a preferred provider to new residents, although residents can choose any provider available on the property. Property owners control which providers operate on their property but typically maintain existing providers to avoid disruption. In bulk agreements, the service is included as a rent amenity, so other providers on the property may have limited business since residents are already paying through rent.
00:12:31 – 00:13:36
The bulk agreement also includes a one-time per-door fee similar to the marketing agreement. These agreements usually last three to five years, with the bulk agreement often set at five years. The segment clarifies the duration and incentive structure in bulk agreements, reinforcing that upfront incentives are common in both types of contracts.
00:13:02 – 00:17:56
Bulk agreement details and considerations
00:13:02 – 00:15:00
The discussion explains that service providers have a rate card filed with local municipalities, which sets the maximum chargeable amount for services. Property owners can mark up the service cost they pay but cannot exceed the provider’s rate card prices. For bulk internet services in properties with over 100 units, typically one free account is provided for a common area, but not for the office since that requires a business-level service. Managed WiFi can cover common areas, but bulk services usually only cover individual units.
00:14:21 – 00:16:16
The speaker emphasizes the importance of understanding property owners’ goals when choosing between service types, such as coverage for cameras, pools, or just resident units. Regarding payment, bulk service contracts can start immediately or have a ramp-up period. This is because leases typically last 12 months, and internet service costs are incorporated as leases renew, allowing a gradual rollout of the service to residents.
00:15:37 – 00:17:56
Bulk contracts require payment for all units after the ramp-up period, regardless of whether a resident uses the service or if the unit is vacant. This inflexibility exists because providers cannot adjust billing monthly by unit, which would require extensive management. Typically, bulk contracts include an upfront door fee (e.g., $100 per unit) paid to the property owner, and a one-year ramp-up period to implement and bill the service across all units.
00:17:19 – 00:19:26
Financial risks and benefits of bulk agreements
00:17:19 – 00:19:26
The discussion explains how property owners can offer internet or TV services to residents by opting into bulk service agreements with communication providers. For example, a 100-unit complex paying $3,500 monthly for a $35 per unit bulk rate can charge residents higher rates, potentially earning $5,000 to $6,000 in revenue after costs. However, the owner assumes the risk if not all residents subscribe. The speaker emphasizes understanding the property’s investment strategy—whether held for generational wealth or short-term improvements—as this affects the suitability of bulk services. Additionally, providers favor bulk agreements over exclusive marketing because they are operationally more efficient, and properties can switch from exclusive marketing to bulk, but not vice versa.
00:18:56 – 00:21:35
Contract transfer and property sale impact
00:18:56 – 00:20:28
The speaker explains the differences between marketing agreements and bulk agreements in property sales. If you have a marketing agreement and want to switch to bulk, it’s usually allowed, but switching out of a bulk agreement is generally not permitted. This can affect a property’s appeal to buyers, as many owners prefer not to take on bulk agreements due to liability concerns. The discussion highlights the importance of understanding these agreements when selling a property, as each property is unique and buyers’ willingness to assume agreements varies.
00:19:58 – 00:21:35
The conversation continues with clarification that contracts, including bulk agreements, stay with the property through an assignability clause. Buying out a bulk agreement typically requires paying for nearly the entire remaining term, which can be costly. Transitioning from exclusive marketing to bulk is easier than the reverse, as new owners can opt for bulk agreements without issue. This information helps property owners and buyers make informed decisions about agreements tied to properties.
