The most interesting projects for anyone trying to develop a deep understanding of business trends are the ones that allow a viewpoint to develop over time. Nowhere is that more obvious than in the multifamily trend toward centralization.
In our industry, trends seldom progress in lockstep. Multifamily is unusually fragmented, with many thousands of companies that are unusually different from one another. "Best practice" is elusive, or maybe non-existent, given the unique context that explains each company's decisions.
Centralization is all about context. What works for one operator, portfolio or community may or may not work for others. However, much of the conversation in the industry press and at conferences retells the story of centralization established by REITs a few years ago. Few companies operate like REITs—as I have written extensively for the last couple of years, most of the industry is third-party managed.
That creates a set of circumstances (described in a recent 20for20 research paper) that should be central to any assessment of this industry trend. The key is understanding how third-party operators can progress toward a more centralized operating model.
It is fortunate, then, that two industry conferences (taking place at beautiful California resorts) in the next few weeks are planning to explore this topic in detail.
First, a little more data
Conveniently enough for this article, NMHC released their annual Top 50 lists of owners and operators last week. The lists are invaluable research that helps us to understand what is changing about the structure and the actors defining our industry.
It will come as no surprise to regular readers of this blog that the latest numbers show a continuation of the trend toward third-party management that has been consistent for more than a decade. The chart below shows the divergent trends in the NMHC Top 50 owner and manager lists since 2013. While the average ownership portfolio is down by about 15%, the size of management portfolios has increased by almost 80% over the same period.
That is a big structural change. To understand centralization, we must understand how it works for operators that manage on behalf of other companies. The paper that was published earlier this year sets a baseline for that understanding. The next month holds some exciting opportunities to develop the story through further in-person discussions with experts.
The Golden State Beckons
Two upcoming events are tackling this topic head-on, with dedicated sessions on centralization for third-party management. Each features a deep dive with leaders of third-party management firms with direct experience of their companies' centralization programs.
The Forum by Funnel takes place at Terranea (near Los Angeles) next week and will feature a half-day workshop on the topic. The session will start with the core ideas from the recent research paper and update them based on the shared experience of participants, who represent a different set of companies from those featured in the research.
Next up, the annual AIM Conference, which takes place in Huntington Beach at the beginning of May, will feature another session with some operations leaders. That session will follow a Q&A structure and will explore the operators' first-hand experiences of changing their operating models and engaging their owners in the project. Incidentally, I will also be running a round table on renewal retention rates (another big story in this year's 20for20) at AIM.
Each centralization conversation will focus on the specific things that make centralization challenging for third-party operators. Those are the things being missed by most industry panels and articles, and they are big omissions, given the importance of the third-party model.
I see each discussion as a way to understand an evolving situation. As companies attempt to change their operating models, they are constantly learning new and often unexpected things. A good outcome from these sessions will be to discover things that have changed since the original research, carried out during the second half of last year.
I will, of course, share in these pages the insights from these and all other sessions I take part in as the spring and early summer conference season ramps up. Following the excellent experience last year running a half-day workshop with attendees at the first-ever Forum, I feel certain that this year's will be an even deeper and more engaging learning experience for everyone involved.
There may still be time to clear the waitlist for the Forum, and there is still time to sign up for AIM. I hope I'll see you at one of these excellent events. And watch this space to learn what I learn over the next few weeks!
Photo by Juan Samudio on Pexels