Founding Partner of Craftwork. Craftwork partners with multifamily owners to reimagine the lobby and enhance the resident experience. 

Think of a superb hotel experience — one that makes you smile because of the intention and skill involved. For example, I will be a lifetime customer of the hotel where I proposed to my wife. The way the staff cared for the moment made it personal for me! 

It is not as common to hear a resident rave about the experience of living in an apartment. Contrary to hotel guests, residents rarely know the name of their apartment owner or operator. This has always bothered me. It is also about to change. To understand why, it’s helpful to understand hotels relative to other real estate classes. 

A key distinction is most hotels have a business-to-customer (B2C) brand. These brands are almost always separate entities from the owner of the asset. As a baseline, brands ensure a customer experience that is trusted. In the best case, they drive alpha because of differentiated experience.

Why is this? The end-user guest is highly empowered with information and flexibility. Buying decisions are made based on expected experience. In a 1998 article titled “Welcome to the Experience Economy,” B. Joseph Pine and James H. Gilmore detail the progression of economic value from commodity to product to service to experience. Competitive differentiation occurs over this progression. Hotels by necessity compete in the experience economy where good design and location are table stakes. Hotels must focus on the end-user experience or risk obsolescence.

The same demand dynamics are now occurring in the multifamily industry. Residents have increased optionality of where they can live and access to greater information about every option. Like hotels, apartment owners now need to focus on end-user experience or face becoming commoditized. To better understand this, let’s look at the apartment industry’s progression of economic value in the experience economy. 

Product: The Amenities Arms Race 

There are currently 21.9 million units of apartments in the United States. New supply is growing at an average of about 340,000 units a year. Competition is fierce. Outside of location and accessibility, apartment owners’ strategy to create alpha has been through product differentiation. This has led to the greater allocation of capital toward physical resident amenities, creating what is now known as the “amenities arms race.”

Competing through amenities can create economic value, particularly on the front-end leasing decision. However, this type of differentiation had a limited impact differentiation. Most competing assets tend to have the same set of amenities and the living experience for the end-user was not improved dramatically. When differentiation of product became commoditized, the focus shifted to resident service through operations.  

Service: Innovation In Property Operations

In a 2019 survey, 92% of property managers said creating excellence in resident service was critical to their success, however, only 38% believe they were equipped to deliver this type of service. The existing operating model was not providing the level of service customers were demanding. This created opportunities for innovative prop-tech companies to fill in different parts of the service value chain. Companies like Hello Alfred and Spruce created resident software to deliver in-home support and services like cleaning, pet care and laundry. These services have been part of the “hotelification” trend in multifamily, using technology to serve residents more like hotel guests.  

Common’s solution was to reimagine the entire operating model from the ground up. Common leveraged operations built to serve a co-living end-user and integrated consumer technologies like seamless lease renewals and smart ticket routing and resolution. The aim of both strategies is to create a property operating model that is able to provide a differentiated service. This creates more economic value, but improved services also become commoditized as most owners can adopt the same set of services. This forces the progression focus to the creation of a differentiated resident experience. 

Experience: Personalized Connection 

Cortland is one of the largest multifamily owner-operators and a client of ours. In 2018, the company hired Mike Gomes who is a former executive at Walt Disney Parks and Resorts as the industry’s first chief experience officer. As Mike put it, “the goal is to get residents to say, ‘This is different. This feels different. I not only don’t want to go anywhere else, I want to tell friends and family.’”

For example, Craftwork provides food and beverage and hospitality services by placing our bar and bar host in an apartment lobby. One of the services we love the most is personalizing a free drink with a handwritten note to a resident on their birthday. These are surprise and delight moments that make a resident feel “generously seen” in the place they live. Gestures like this create an emotional connection between the resident and the place they live. This is a small component of a comprehensive focus that owners should take to create a differentiated living experience.

Buildings That Shape Us

I think back to the hotel where I proposed to my wife. The staff seemed to enjoy making this experience personalized and memorable. It was apparent that this was a customer service company that just happened to be a hotel. 

Winston Churchill said, “We shape our buildings, and afterward our buildings shape us.” Apartments are places where residents are profoundly shaped. Right now, the places we live are not shaping us in good ways. People are increasingly isolated (three in five Americans reported feeling lonely in 2020, according to Cigna). Creating apartments as products with services alone does not create places where people experience personalization that leads to an emotional connection. The good news is that with apartments entering the experience economy, apartment owners and operators are now forced to focus on resident experience. More residents will rave about their experience of living in their apartments. This will not only create greater economic value but will also improve the lives of countless people.

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