If you missed it, the well-known silicon valley venture firm, Andreessen Horowitz, recently invested $350 million into Flow, a new multi-family company by ex-WeWork Founder/CEO, Adam Neumann.
Yes, the same Adam Neumann that was forced out of WeWork for allegedly creating the definition of frat-bro culture – think everything from hard partying to drugs to sexual harassment to operational and financial mismanagement.
And yes, the same Adam Neumann profiled in the Apple TV miniseries, WeCrashed, which chronicled how WeWork grew from a single coworking space into a global brand worth $47 billion in less than a decade before immediately plummeting in value to less than $4 billion today.
And yup, the same Adam Neumann that, despite all the above, walked away from WeWork with literally the best golden parachute ever granted to anyone… a 1+ billion dollar exit package.
And despite all of Neumann’s prior actions, Andreessen Horowitz, the most prestigious venture capital firm in the world, wrote Neumann the largest initial investment check it’s ever written…like ever…AND at an outstanding valuation of 1 billion dollars.
If your immediate reaction is W…T…F…you’re not alone (P.S.- if you’re also wondering WTF is Flamingo, check out this handy video.)
The announcement was immediately greeted with everything from ridicule from multi-family real estate operators and investors to frustration from under-represented founders struggling to get seed investment to genuine shock from those wondering just how much can one lucky motherf*&*%$ “fail up” in their life.
All the above reactions are valid and there is something to them. But…there is always a “but” isn’t there…?
What many people are missing or not recognizing is that:
- The apartment industry has thousands of management companies and owners, but so far, none of them have created a global brand or even a national brand.
- Adam Neumann turned WeWork into a global brand in less than a decade.
- WeWork was and is going to be successful.
- Andreessen Horowitz is managed by smart capitalists with a strong track record and LPs they are accountable to.
- The hotel industry has proven the value of brands…and the apartment industry usually copies the hotel industry.
In Part 1 of this essay, I’ll break the above points into more detail and explain why they are important. Why the investment makes sense. Why the apartment space is finally about to be disrupted. And why apartment owners and operators should be nervous.
In Part 2, I’ll explain, in detail, the 9 precise things that Flow will do to build the first apartment brand.
Before getting into that, the central argument I’ll make in this long piece (thanks for reading BTW) is that Andreessen Horowitz invested in Adam Neumman because Flow is going to be the first apartment brand. And a brand is the ultimate shortcut to get customers cheaper while charging more – i.e. the much sought-after brand premium.
Being the first apartment brand will allow Flow to quickly grow its third-party management business and portfolio, and could potentially leapfrog giants like Greystar or Lincoln in not only units owned or managed but also in average effective rent.
If this sounds like smoke or you think I’m wrong, come meet me in the ring, bro (ง’̀-‘́)ง…I mean, keep reading.
Before going into how Neumann is going to turn Flow into the first apartment brand and potentially leapfrog the NMHC Top 50 Largest Apartment Owners and operators, let’s first go into details about the previous five points on what everyone is missing about Andreessen Horowitz’s $350 million bet on Adam Neumann’s Flow.
Part 1: Why it Makes Sense for Andreessen Horowitz to Invest $350 million in Adam Neumann’s Flow
The apartment Industry has thousands of management companies and owners, but so far, none of them have created a global brand or even a national brand.
You might ask, what about companies like Greystar, Bozzuto, AvalonBay, Cortland, Lincoln etc.?
Sure, they all have logos, brand colors, and slogans. Some even name all their buildings similarly. But those are far from what makes a brand.
A brand is made of the intangibles that convey what you stand for, help people feel a specific way about your product, and most importantly, remember you.
If I asked the average consumer to name a soda brand – Coke, Pepsi, or Sprite would come up.
If I asked the average consumer to name a hotel brand – Marriott, Hilton, or Ritz-Carlton would come up.
If I asked the average consumer to name a car brand – BMW, Lexus, or Toyota would come up.
If I asked the average consumer to name apartment brands…crickets would be heard…
I did indeed do this. I walked around Chicago’s Wicker Park and asked random strangers to name various brands. Most could name soda, hotel, and car brands. None could name apartment brands.
If you’re an apartment executive or marketer, try this test yourself to see if your company actually has a brand…
A second way to test if a company has a consumer brand is the TV test.
The TV show Mad Men featured Jaguar, Hilton, and many other brands. I can’t count how many times I’ve heard AirBnB mentioned on a random TV show. But so far, I’ve never heard a TV show mention an apartment brand. Have you?
A third, but not final, brand test is the premium charge test. With all else being equal, there are zero apartment companies that are able to charge a premium to renters by slapping their name on the side of the building. But brands like Starbucks have achieved this holy grail.
With all the benefits that come with having a brand, why haven’t any apartment owners and operators built one? The likely answer is that operators and owners don’t know what constitutes a brand, don’t appreciate the benefits of having a real brand, don’t have the know-how to build a brand, and most importantly, are not willing to do what it takes to build a brand.
Building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
Which takes me to my next point.
Adam Neumann turned WeWork into a global brand in less than a decade.
Newman grew WeWork from a single coworking space in 2010 into a GLOBAL brand in less than 10 years. Neumann turned WeWork not just into a NATIONAL Brand, but a GLOBAL brand.
And remember what I said? Building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
WeWork checks all the boxes of what defines a brand:
- Does the average consumer know WeWork? Absolutely!
- Is WeWork mentioned on TV shows and in the common vernacular? Yup! And for better or worse, they do also have their own drama series on Apple TV.
- Does WeWork charge a premium? Yes…kinda. The average cost of one person per month among 12 surveyed co-working spaces is $355. The average for WeWork is $450. Of course, there are several confounding factors that go into this.
I have many friends who are research or data scientists, and I know many of them will criticize the above measures as too “soft”. If the above seem like “soft” measures of a brand for you as well, let’s get even more quantitative by turning to Google and Ahrefs. Google and Ahrefs let you look at various metrics related to internet search volume, which is one fast and quantitative way to measure brand presence. Or a way to crush your ego if you’re the founder of a startup that you thought at least had a mini brand…*cough*… Flamingo.
With Ahrefs and Google, we are able to see some pretty interesting numbers that let us compare WeWork to other multi-family and office brands. The measures of brand that we used are:
Total Search Volume by Brand Keyword: This shows how many times, on average, people are searching for that company’s name.
Total Keyword Variations: This refers to how many different topics about the brand that people are searching for. Higher keyword variations mean people are interested in multiple things related to the brand.
Domain Rating (DR): This is a scale by Ahrefs from zero to 100 that rates a website’s backlinks relative to all other websites. A backlink is when one website links to your website. Think of this as a measure of how many people are talking about you. The higher your DR, the more brand presence you have.
Ahrefs Rank (AR): This is another scale by Ahrefs that looks primarily at the quality of backlinks. Think of this as a measure of the quality of people talking about your brand. A backlink from www.nytimes.com is worth much more than a backlink from www.JoesBlog.com. The lower this number, the better your brand. For context, Facebook has an AR of one. Instagram has an AR of two. Twitter has an AR of four.
Specifically, we can take a look at data showing Total Search Volume by Brand Keyword, Total Keyword Variations, Domain Rating (DR), and Ahrefs Rank (AR) for the Top 50 USA Apartment Owners/ Managers compared to WeWork and the Top 10 Office Management Companies compared to WeWork.
The data shows a couple of things:
- Multi-family Comparison: WeWork outright dominates the Top 50 multi-family owners and managers in all the measures of brand listed above, coming in at number one in all but two of them. WeWork was only beaten by J.P Morgan and UBS Realty for Domain Rank and Ahrefs Rank. In each case, WeWork came in at number three. What is more impressive is that the only companies (J.P Morgan and UBS Realty) that beat WeWork in these two metrics have each been around for 140+ years longer than WeWork.
- Location-Based Searches: Search volume for terms like “Wework New York” are high, with about 1400 per month – signaling WeWork’s strong brand. But there was barely any volume for this type of search for apartments. For example, “Greystar New York” only had a search volume of 10.
- Office Comparison: WeWork completely dominated commercial property managers in every single measure of brand.
And remember what I said? Building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
Neumann did all this in less than a decade. The icing on the cake? While doing all this, he created his own personal brand on top of the WeWork brand.
How WeWork’s Brand Compares to the Top 50 Multifamily Property Management Companies and Owners
| Company | DR | AR | Management Rank | Managed Units | Brand Keyword(s) | Total Search Volume Brand Keyword | Total Search Volume Across Variations | Total Keyword Variations |
|---|---|---|---|---|---|---|---|---|
| WeWork | 83 | 6,778 | 00 | WeWork | 337,000 | 847,000 | 32,835 | |
| Greystar Real Estate Partners | 80 | 12,861 | 01 | 698,257 | Greystar | 34,000 | 96,000 | 8,031 |
| Lincoln Property Company | 72 | 74,380 | 02 | 210,086 | Lincoln Property Management | 2,000 | 6,000 | 1,595 |
| Cushman & Wakefield | 69 | 116,773 | 03 | 172,145 | Cushman and Wakefield, Cushman & Wakefield, Cushman Wakefield | 60,300 | 86,000 | 11,804 |
| Asset Living | 67 | 142,433 | 04 | 159,352 | Asset LIving | 4,800 | 5,800 | 345 |
| FPI Management | 67 | 144,279 | 05 | 140,271 | Fpi Management, fpi property management, fpi management inc | 10,600 | 14,000 | 640 |
| Apartment Management Consultants, LLC | 55 | 430,192 | 06 | 113,728 | Apartment Management Consultants, apartment management consultants llc | 1,700 | 1,800 | 119 |
| RPM Living | 64 | 188,075 | 07 | 112,872 | RPM LIving | 4,400 | 4,600 | 40 |
| BH | 54 | 467,863 | 08 | 106,353 | BH Management | 5,600 | 14,000 | 876 |
| WinnCompanies | 69 | 123,157 | 09 | 103,064 | Winn Companies | 800 | 900 | 174 |
| MAA | 60 | 274,117 | 10 | 100,002 | maa apartments | 8,200 | 169,700 | 79 |
| Morgan Properties | 23 | 8,131,703 | 11 | 96,107 | Morgan Properties | 26,000 | 36,000 | 1,544 |
| Avenue5 Residential LLC | 54 | 477,539 | 12 | 86,958 | Avenue5 Residential | 1,300 | 1,700 | 136 |
| Bozzuto | 69 | 117,618 | 13 | 83,324 | Bozzuto | 14,000 | 34,000 | 3,451 |
| AvalonBay Communities, Inc. | 65 | 170,511 | 14 | 80,573 | AvalonBay, Avalon Bay | 14,100 | 16,000 | 1,487 |
| Highmark Residential | 62 | 218,583 | 15 | 79,050 | Highmark Residential | 5,400 | 6,200 | 58 |
| Equity Residential | 66 | 150,152 | 16 | 77,357 | Equity Residential | 17,000 | 27,000 | 2,147 |
| RangeWater Real Estate | 60 | 270,123 | 17 | 74,163 | RangeWater Real Estate | 3,400 | 3,500 | 9 |
| Bell Partners | 63 | 210,633 | 18 | 68,855 | Bell Partners | 4,200 | 8,300 | 951 |
| Edward Rose Building Enterprise | 52 | 560,618 | 19 | 68,379 | Edward Rose Apartments | 600 | 990 | 169 |
| Monarch Investment & Management Group | 49 | 776,838 | 20 | 66,898 | monarch investment and management group, monarch investment | 3,100 | 3,600 | 259 |
| The Related Companies, LP | 70 | 112,196 | 21 | 65,728 | the related companies | 1,800 | 2,200 | 366 |
| The Irvine Company | 65 | 173,019 | 22 | 63,356 | The Irvine Company | 1,900 | 2,800 | 649 |
| Hunt/Envolve Communities | 55 | 441,355 | 23 | 63,047 | Hunt/Envolve Communities | 0 | 0 | 0 |
| Essex Property Trust, Inc. | 55 | 412,043 | 24 | 61,911 | essex property trust | 3,300 | 4,600 | 394 |
| Weidner Apartment Homes | 45 | 1,028,121 | 25 | 61,280 | Weidner Apartment Homes | 4,800 | 5,200 | 219 |
| The Michaels Organization | 60 | 277,472 | 26 | 61,274 | The Michaels Organization | 3,200 | 3,700 | 140 |
| ZRS Management, LLC | 59 | 280,537 | 27 | 60,193 | zrs management | 4,200 | 5,300 | 264 |
| Harbor Group International | 35 | 2,453,487 | 28 | 59,433 | Harbor Group International | 1,300 | 1,300 | 90 |
| Camden Property Trust | 60 | 268,618 | 29 | 58,300 | Camden Property Trust | 3,100 | 4,300 | 428 |
| UDR, Inc. | 64 | 178,714 | 30 | 56,325 | udr inc | 1,000 | 1,400 | 126 |
| First Communities | 49 | 742,203 | 31 | 52,147 | First Communities | 4,400 | 8,800 | 1,152 |
| RAM Partners LLC | 52 | 564,419 | 32 | 51,926 | ram partners llc | 1,600 | 1,800 | 104 |
| ConAm Management Corp. | 66 | 156,232 | 33 | 51,743 | conam management | 2,100 | 2,900 | 177 |
| Bridge Investment Group | 57 | 365,851 | 34 | 49,755 | Bridge Investment Group | 6,400 | 7,800 | 267 |
| Balfour Beatty Communities | 54 | 484,584 | 35 | 48,150 | Balfour Beatty Communities | 1,900 | 2,500 | 203 |
| American Campus Communities | 64 | 179,674 | 36 | 45,754 | American Campus Communities | 9,200 | 1,300 | 955 |
| Pegasus Residential | 57 | 348,093 | 37 | 44,208 | Pegasus Residential | 3,000 | 3,300 | 282 |
| Village Green | 54 | 477,825 | 38 | 43,400 | village green apartments | 21,000 | 207,000 | 29,153 |
| FPA Multifamily | 26 | 6,647,979 | 39 | 42,355 | FPA Multifamily | 800 | 800 | 27 |
| Hawthorne Residential Partners | 42 | 1,337,551 | 40 | 40,698 | Hawthorne Residential Partners | 2,800 | 3,200 | 211 |
| GoldOller Real Estate Investments, LLC | 53 | 492,451 | 41 | 40,679 | goldoller real estate | 10 | 10 | 24 |
| Fairfield Residential Company LLC | 59 | 305,462 | 42 | 40,297 | Fairfield Residential | 3,400 | 4,600 | 785 |
| GID | 53 | 518,060 | 43 | 39,733 | GID | 0 | 0 | 0 |
| Cardinal Group Management | 51 | 613,645 | 44 | 39,570 | cardinal group management, cardinal group, cardinal management group | 4,800 | 7,900 | 1,024 |
| Drucker + Falk | 41 | 1,464,363 | 45 | 37,710 | drucker and falk | 2,400 | 3,400 | 381 |
| Dominium | 51 | 620,795 | 46 | 37,631 | Dominium | 3,300 | 11,000 | 1,765 |
| Beztak Companies | 54 | 456,668 | 47 | 36,945 | beztak | 2,000 | 3,000 | 224 |
| Independence Realty Trust | 46 | 983,943 | 48 | 36,119 | Independence Realty Trust | 1,000 | 1,400 | 71 |
| United Apartment Group | 62 | 217,623 | 49 | 35,440 | United Apartment Group | 1,600 | 1,800 | 93 |
| The John Stewart Company | 45 | 1,046,584 | 50 | 34,402 | The John Stewart Company | 900 | 970 | 67 |
How WeWork’s Brand Compares to Top 10 Commercial Management Companies and Owners
| Company | DR | AR | Management Rank | Brand Keyword(s) | Total Search Volume Brand Keyword | Total Search Volume Across Variations | Total Keyword Variations |
|---|---|---|---|---|---|---|---|
| WeWork | 83 | 6,778 | -- | WeWork | 337,000 | 847,000 | 32,835 |
| CBRE Group Inc. | 81 | 10246 | 1 | CBRE | 113000 | 300,000 | 21,943 |
| Colliers International | 81 | 10012 | 2 | colliers international | 20,000 | 28,000 | 2,784 |
| JLL* | 82 | 9293 | 3 | JLL | 51,000 | 200,000 | 20,307 |
| Newmark Knight Frank | 73 | 56704 | 4 | Newmark Knight Frank | 5600 | 9,700 | 1,626 |
| Avison Young | 61 | 253123 | 5 | Avison Young | 9400 | 18,000 | 1,839 |
| Cushman & Wakefield | 69 | 116773 | 6 | Cushman and Wakefield, Cushman & Wakefield, Cushman Wakefield | 60,300 | 86,000 | 11,804 |
| Hines | 73 | 57336 | 7 | hines property management | 500 | 770 | 229 |
| Stream Realty Partners | 64 | 183137 | 8 | Stream Realty Partners | 1700 | 1,800 | 112 |
| The RMR Group | 52 | 586765 | 9 | The RMR Group | 2200 | 2,200 | 100 |
| Kidder Mathews | 71 | 95020 | 10 | Kidder Mathews | 3700 | 5,600 | 731 |
WeWork was and is going to be successful.
Despite its valuation plummeting from $47 billion to $4 billion, WeWork was successful and is going to be successful.
WeWork’s valuation plummeted because it was valued as a technology company instead of as a real estate company. Investors typically assign valuations by adding a multiple to current revenue. Tech companies typically get a higher multiple of revenue than non-tech companies because tech companies are scalable, meaning that once the technology is built, it doesn’t add a lot more cost to serve 10 customers as it does with 10 million customers. So if you have a non-tech and tech company, both with $1 million in revenue, the non-tech might get a 2X to 3X revenue multiple while the tech company gets a 10X to 20X revenue multiple. Meaning the non-tech company is valued at $1 million x 3 = $3 million while the tech is valued at $1 million x 20 = $20 million.
WeWork somehow convinced itself and its initial investors that WeWork was a tech company, and those investors fell for it. But when it was time to IPO, the public market quickly debunked that and said nope, you are a real estate company, not a tech company.
But the fundamentals of WeWork’s model are sound:
WeWork takes a long-term office lease from a landlord in an attractive area. Modernizes the interior with everything from Wifi to snack stations to shared conference rooms to shared desks to micro-offices. Then rents them out to everyone from freelancers looking for community to entrepreneurs tired of working in coffee shops to large enterprise companies wanting to have a second HQ for their workforce.
By focusing on the Member Experience – a tenant engagement app, lots of amenity spaces, lots of events, lots of snacks, and at one time, lots of beer, WeWork is able to charge more per square foot than traditional offices or other co-working spaces.
What is brilliant about WeWork’s model is that not only can you rent a dedicated space from as small as a desk to as large as a full floor, WeWork also sells an All Access membership for $299/month that allows you to use any WeWork worldwide. With so many people working remotely and looking to travel, this brilliant piece allows WeWork to monetize even more. And guess what? It sold 45,000 All Access memberships in Q4 of 2021, an increase of 41% quarter-over-quarter.
As WeWork continues to add locations, the value of the All Access Membership becomes even more valuable. This is known as a network effect, where the more growth a company experiences, the more value its members get from being a part of that company.
WeWork also has extremely low member turnover each month, which shows a quality product.
On top of that, average Google reviews for WeWork locations are 4.5/5.0, while multi-family apartments average 3.9/5.0.
Finally, the pandemic and the various emergent post-pandemic trends are a net positive for WeWork: more remote workers as large companies move to decentralized offices.
A look at WeWork’s 4th Quarter and Fiscal Year 2021 Financial Results shows a company making steady progress. Not to mention, having a global brand to push it forward even faster.
WeWork didn’t get a $47 billion valuation by accident. Yes, it was way over-valued by investors, but that is because investors got overly excited and forgot the fundamentals. They have since come back down to reality.
And so we come to the last part of what everyone is missing about the $350 million invested into Flow.
Andreessen Horowitz is managed by smart capitalists with a strong track record and LPs they are accountable to.
Andreessen Horowitz is not just a prominent Silicon Valley venture capital firm, it is the most prestigious venture firm in the world, ranking number one on Forbes’ The Midas List: 2022. Basically, everything it touches turns to gold.
Andreessen Horowitz’s track record of notable investments includes Skype, Okta, Facebook, Groupon, Twitter, Airbnb, Stripe, Lyft, Oculus VR, Pinterest, and Slack.
These are companies that have reached $100s of millions to $10s of billions in revenue.
When Andreessen Horowitz invested $80 million in Twitter in 2011, Andreessen Horowitz became the first venture capital firm to have stock in all four of the highest-valued and privately held social media companies at that time: Facebook, Groupon, Twitter, and Zynga.
A lot of the criticism about this investment revolves around how Andreessen Horowitz could ignore the questionable ethics Neumann displayed while at WeWork. The simple and unfortunate answer is that Andreessen Horowitz, like most firms, is run by capitalists wanting to make money for themselves and their LPs. They are going to go with the option they believe has the maximum upside.
Andreessen Horowitz nicely summarizes its thesis and rationale for investing in Flow on its website:
“It’s often underappreciated that only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann.”
“Adam is a visionary leader who revolutionized the second largest asset class in the world — commercial real estate — by bringing community and brand to an industry in which neither existed before.”
“We understand how difficult it is to build something like this and we love seeing repeat-founders build on past successes by growing from lessons learned. For Adam, the successes and lessons are plenty and we are excited to go on this journey with him and his colleagues building the future of living.”
“Only through a seismic shift in the way industry relationships are structured and the mechanisms through which value is delivered can we hope to address the underlying problems of the current system and build the solution. Doing this requires combining community-driven, experience-centric service with the latest technology in a way that has never been done before to create a system where renters receive the benefits of owners.”
Andreessen Horowitz understands what happens when you disrupt an industry that hasn’t innovated – there is a f*&k ton of money to be made.
And the apartment industry is definitely an industry ripe for disruption:
- Multi-family is extremely fragmented – Greystar is the largest player but only manages 3% of the units in the USA.
- Multi-family is extremely behind on technology – this creates amazing opportunities for ROI driven by automation and technology adoption.
- Multi-family is managed by an old-school, risk-averse mentality – this means new entrants with a better way of operating will quickly gain scale.
- Multi-family has not invested in the user experience – this means renters will quickly gravitate towards new entrants who provide a better experience.
The taxi industry operated the same way as the apartment industry for years – fragmented, behind on technology, managed by old-school thinking, and no investment in user experience. Lyft and Uber came in and quickly disrupted the industry. And the change was immediate – places like Chicago went from thousands of yellow taxis roaming the streets to none in what seemed like one night.
The taxi user experience used to be waiting in the rain to order a smelly cab and being berated when you tried to pay with a credit card. It changed to one where you use an app in the comfort of your home, know exactly when your car arrived, and are greeted by a driver who offers you water and gum. Employee travel reimbursement data shows just how quickly Uber and Lyft took over the market.
With no dominant brands, resident experiences that are mediocre at best, and an industry-wide fear of technology and innovation, Andreessen Horowitz’s investment in Adam Neumann’s Flow is for him to do to multifamily what he did for commercial real estate and what Lyft and Uber did to the taxi industry.
Many apartment operators reading this are probably saying that the multi-family industry is nothing like other industries – how you can’t build a consumer apartment brand, or renters only care about cost so you can’t charge renters more even if you did build a brand, or that the apartment space can’t be disrupted.
The structure of the hotel industry nullifies all those arguments. So let’s dig into why hotels have brands and what this means for the future of multi-family.
The hotel industry has proven the value of brands…and the apartment industry usually copies the hotel industry.
Want to know where apartments are going to be 15 years from now? All you have to do is look at where hotels are today. The apartment industry is slowly but surely following the hotel industry’s lead.
When it comes to innovation or business models in real estate, hotels have traditionally been the most innovative, followed by multi-family and then single-family.
Hotels are forced to adopt technology much faster than apartments because hotels face more competitive and operational pressures. Hotels are essentially apartments on steroids. Every problem apartments face, hotels face those same problems by 1000%.
Apartments have to turn over 50% of their units every YEAR. Hotels have to turn over 50% of their rooms every few DAYS. Therefore, hotels implemented self-service check-in, turn management software, and staff scheduling software decades ago. Most apartments use an excel spreadsheet or physical board to manage turn. Most apartments do not have an automated move-in, renewal, or move-out software. But some apartments are now slowly introducing this technology.
Hotels started implementing keyless entry more than four decades ago in the 1970s. It wasn’t until the last few years that apartments started to implement the same technology.
Hotels have had concierge services like house cleaning for decades. It wasn’t until recently that a few apartments have started to implement these types of services.
Hotels implemented branded scents in their lobbies decades ago. It wasn’t until recently that a few apartment companies like Bozzuto and Pinnacle have started doing the same.
Hotels implemented revenue management software decades ago to help them optimize what they charge per night – automatically updating room rates on multiple booking sites every minute. Apartments are now just starting to implement revenue management software to set rent rates.
In the same way that apartments have copied self-service check-ins, keyless entry, and revenue management software from the hotel industry, brand creation is the next thing that will be copied.
As of 2018, 54% of hotels were affiliated with a global brand or regional chain. In the USA, this number changes to 70%. And the top five hotel brands account for 25% of the market share. In the apartment industry, the top five apartment owners/managers only account for 6% of the market share.
A hotel brand study looking at data from 2000 to 2019 and totaling 45,000 property-years shows that branded hotels have significantly higher Occupancy and Revenue Per Available Room (RevPAR) compared to non-brand hotels.
But the study also shows that overall profit is only slightly higher (about 1.4% to 5% higher EBITDAPAR) for branded hotels since they have to pay brand or franchise fees. However, branded hotels still do come out on top because they experience fewer year-over-year fluctuations in Occupancy and Gross Operating Profit Per Available Room (GOPPAR).
Additionally, while NOI is similar between branded and non-branded hotels during expansionary periods, NOI is higher for branded hotels during a recession.
The opportunity to lower risk during down cycles and gain market share is what led to the creation of iconic hotel brands – Hilton, Marriott, Ritz, etc. And like clockwork, smart apartment operators are going to copy this…eventually.
And remember what I said? Building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
Andreessen Horowitz’s $350 million bet on Adam Neumann’s Flow happened exactly because Neumann has already proven that he can build a brand.
Being the first apartment brand will allow Flow to quickly grow its third-party management business and portfolio and quickly leapfrog giants like Greystar or Lincoln in not only units owned or managed but also in average effective rent.
The question then, is, how exactly is Neumann going to create the first global apartment brand?
Strap in, because part two is the blueprint and strategy that Neumann is going to use.
Part 2: WeWork CEO Adam Neumann’s Flow Will Create the First Global Apartment Brand Using These Nine Strategies
I’ve repeated this a few times now, but I’ll say it again. Building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
Which is partly why no current apartment operators have built a brand. Flow’s central strategy to dominate the apartment space will be brand-building using a similar playbook to the one Neumann established at WeWork.
Additionally, Flow is actually a re-work (pun definitely intended) of a short-lived branch of WeWork called WeLive. WeWork was coworking. WeLive was co-living. WeLive was sold to Common as part of WeWork’s post-valuation crash house cleaning efforts to focus only on their core business.
The core idea behind WeLive was – what if you really knew your neighbors?
This meant a highly amenitized apartment building, pre-furnished, with flexible lease terms, and fully packaged with everything from monthly house cleaning to pots and pans to toilet paper. And of course, ample social activities, including fitness classes.
The two WeLive locations averaged 4.1/5 in Google reviews, indicating a product that consumers liked.
WeLive is Flow Version 1.0. Adam Neumann is simply going to take all the lessons from WeLive and WeWork to make Flow the first apartment brand.
Here is the playbook Adam Neumann will use to turn Flow into the first apartment Brand:
1) Flow will Pursue an Asset-Light Model by Focusing Primarily on 3rd-Party Management
Apartment operators typically pursue one of three business models:
- 100% 3rd-Party Fee Management: Companies pursuing this business model manage apartments on behalf of the individuals or institutions that own these buildings. The 3rd-party management company is responsible for the day-to-day operations of the apartment, including staffing, rent collection, maintenance, customer service, etc. For rendering these services, the owners pay the 3rd-party manager two to 3% of rents collected.
- 100% Owner-Managed: Companies pursuing this strategy own all their building assets and also do the day-to-day management of those assets.
- Blend of Fee Management and Owner-Managed: Companies pursuing this strategy pursue a mix where they own and manage their own assets while also doing the day-to-day management of assets owned by a different company.
Owning or developing buildings is an asset-heavy model that requires raising billions of dollars to purchase or develop new buildings. So Flow will focus primarily on 3rd-party management because it’s an asset-light model.
An asset-light model allows for faster scale because they only have to grow their staffing network, create their brand differentiator, and win management contracts. The faster Flow can scale up, the more it benefits from network effects.
This is similar to the approach Neumann used for WeWork, except in the case of WeWork, it did long-term leases from owners and then rented the spaces out.
It’s also the same playbook used by companies like Lyft, Uber, or AirBnB that disrupted their respective spaces. Uber and Lyft didn’t purchase taxis. AirBnB didn’t purchase hotels. They all took advantage of existing supply – people’s cars or extra rooms – and simply recruited the staff – drivers and hosts – to manage them using technology (a two-sided marketplace accessible from a mobile phone.)
WeWork has 4,400 employees globally. So Neumann has already proven that he can quickly grow an onsite property management staff, and not just in the USA but globally. And as everyone knows, talent is the majority of the battle for almost every company – especially for 3rd-party property management companies whose main selling point to owners is that the 3rd-party management company has a talent pool of associates in each market with expertise in each of those markets.
Focusing on 3rd-party management would help Flow to scale up quickly, allowing it to enjoy all the benefits that come with a large enterprise, including better pricing, network effects, mindshare, and ultimately, brand awareness.
And within a few years, it will gobble up and buy smaller companies and begin the process of consolidating the industry.
2) Flow will Invest Real Dollars into Resident Events & Engagement to Build Community, Loyalty, and Brand Awareness
Almost every single apartment operator and manager would say resident engagement is important to them. But unfortunately, very few actually invest anything substantial for resident engagement. Flamingo’s 2022 State of Resident Events Report revealed the shocking fact that the average resident event budget is $870 per month, which for an average community of 300 units means apartment operators invest less than $3 per resident per month for resident engagement. Said another way, if you live in a luxury apartment and pay $2000+ per month in rent, management has budgeted the equivalent of a cup of coffee each month to engage you – and not even Starbucks coffee, but more like McDonald’s coffee.
Outside of investing very little into resident events, most apartment operators and onsite teams treat resident events like an afterthought – there is no regular event schedule; most events are thrown together last minute; most teams do events rather than experiences; few onsite teams track any type of event analytics, and worst of all, there is no real strategy behind resident events outside of simply doing events.
Flow is going to put real dollars into resident events and resident engagement. Unlike most apartments that do one event per MONTH, Flow will do multiple events per WEEK. This was exactly the case for WeWork and WeLive. WeWork averaged about 15+ events per month and this included all sorts of events, from social events to educational events to professional development events. Similarly, averaging eight to 10 events per month, WeLive excelled at events. And their online reviews show a real professionalism and focus not just on basic events, but real experiences.
Beyond simply doing resident events, Flow will incorporate real strategy and tactics to use events for community, loyalty, and brand awareness.
Here are some of those tactics:
- Flow will focus on experiences rather than events: While the average apartment does a Breakfast Grab and Go event, Flow will do a Rooftop Yoga, DJ & Brunch experience. While the average apartment does a Happy Hour, Flow will do a Cocktail Making Class. While the average apartment does a Pizza Party, Flow will do a Pizza Making Class. By focusing on meaningful experiences, Flow is able to create much more engagement and community.
- Flow will provide the tools that allow members to create their own events: One of the secrets to how WeWork is able to put on dozens of events per week is that some of these events are member-driven. The WeWork app and the onsite team make it super easy and encourage members to put on their own events. By encouraging resident-initiated events, Flow will have dozens of events each month.
- Flow will partner with 3rd Parties for Brand Activations: Recognizing that it has a valuable and captive audience, Flow will partner with major brands looking to get in front of Flow residents. This is exactly what WeWork does – charging brands $25K+ for brand partnerships and events that includes advertising at WeWork locations, brand pop-up events, or exclusive offers to WeWork members.
- Flow will hire real event experts: Instead of relying on leasing agents to figure out what events to do, Flow will centralize event planning by hiring real event experts to work with the onsite teams to to put together amazing experiences across the portfolio. At present, a WeWork event manager is required to have five to seven years of events experience.
- Flow will use a resident engagement app to complement resident events: For most apartment operators, residents only connect with each other at events. But Flow will incorporate a resident engagement app that lets residents connect with each other 24/7. Flamingo’s research shows that a resident event leads to about 60 resident-to-resident interactions but a resident engagement app leads to 538 resident-to-resident interactions per month.
- Most of Flow’s events will be open to prospects and the general public: Inviting prospects to events is a great way to increase conversion. Inviting the general public to your events is an amazing way to increase brand awareness. I first knew about WeWork because of an event it invited me to. Multiply this weekly across hundreds of locations and it becomes obvious how WeWork was able to grow into a global brand in less than a decade.
Keeping events open to the public means residents will want to invite their friends. When those friends become residents, turnover goes down because they are living in the same building as their friends.
Let’s see what this might look like for a portfolio with 200 buildings with each building doing 24 events per year with 12 of those open to the public.
- 12 events per building open to the public
- Each event brings in 10 non-residents
- 12 events X 10 non-residents X 200 building portfolio = 24,000 new brand impressions per year
- Assuming a 5% conversion rate for those 24,000 impression = 1,200 new leases
This exact strategy worked on yours truly. After attending a WeWork event, I “somehow” ended up on their email list, and when Flamingo needed its first office, guess where I went? That’s right. Their investment of $10 for me to attend an event turned into a 24-month lease where we happily paid them a lot of money – $1750 per month.
By investing real dollars into resident events and engagement, Flow will be able to build community, loyalty, and ultimately brand awareness.
3) Flow will Invest Real Dollars into its Resident Experience Using Technology, all Centered Around a Branded One-App Resident Journey
WeWork was one of the first, if not the first, real estate brands to have its own branded Wework app. WeWork members use the WeWork app for everything from reserving spaces to sending documents to print to registering guests to connecting with other WeWork members and RSVPing for events. It’s the digital center of life for all WeWork members globally – connecting WeWork members in Chicago to WeWork members as far away as India.
Just the android version of the WeWork app has 500K+ downloads.
Additionally, all WeWork locations heavily utilize technology to offer their members a seamless experience – from keyless entry to digital lobby screens.
Flow will adopt this same philosophy with a Flow Living app that allows residents to do everything in one place – rent payment, maintenance requests, keyless entry, event RSVPs, connecting with neighbors, loyalty/rewards, lease renewal, messaging management, etc.
This will only make resident connections easier- Flamingo’s research shows that a resident event leads to about 60 resident-to-resident interactions but a resident engagement app leads to 538 resident-to-resident interactions per month.
Most apartment operators make residents download dozens of apps, all with the names of other companies. These apartment operators fail to understand the power of having your brand front and center. For Flow residents, all they will have to download is the Flow Living app – keeping the Flow brand always front and center – while encouraging residents that need to move to seek out another Flow building.
One genius thing Flow will do is allow residents in one building to see and connect with residents at any of its other buildings, thus creating a strong sense of community and brand.
The second genius thing Flow will do is provide enough value within the app that it can charge non-residents for access to the app. More on this later.
4) Flow will Monetize Residents Beyond Rent
For most apartments, the majority of revenue comes from rent. And this makes sense. Apartment operators rent apartments to residents and residents pay them rent. So it’s no surprise that the majority of an apartment operator’s revenue is going to come from…well…rent.
But what you see in mature, innovative, and tech-driven industries, is that a relatively significant portion of revenue comes from something besides the primary revenue line.
Sure, in the apartment industry, operators get revenue from things besides rent – application fees, parking fees, storage fees, amenity fees, etc. But these hardly move the revenue needle. Not to mention that these are mostly “fees” and not really something that residents are amped to pay. Frankly, most residents hate paying these fees.
Innovative companies take a completely different approach to ancillary revenue by making it as important as the primary revenue source.
Take Uber, for example. Uber started off as and is known as a ride-hailing company. But Uber’s revenue breakdown shows something a little different. In 2018, the majority of Uber’s revenue came from mobility, i.e. its ride hailing business. In 2021, Uber generated revenue of $17.4 billion, but less than half of that revenue ($7.5 billion) was from ride-hailing. $8.3 billion was from delivery, $2.1 billion from freight, and $0.4 billion from other income. Diversifying its revenue sources proved a lifesaver during the pandemic when ride-share revenue dropped significantly.
Companies like Uber realize that when you have a captive audience, you can sell more stuff to them. Not just the initial product they came to you for.
As competition for 3rd-party contracts have gotten fiercer over the last few years, 3rd-party property management companies are forced to drop their management fees significantly to stay competitive.
Flow will recognize this instantly and focus on monetizing its captive audience of hundreds of thousands to potentially millions of residents and members beyond monthly rent.
5) Flow will Earn Ancillary Revenue, Increase Brand Reach, and Build Brand Loyalty with a Non-Resident Flow Membership Plan
What is brilliant about WeWork’s model is that not only can you rent a dedicated space as small as a desk to a space as large as a full floor, WeWork also sells an All Access Membership for $299/month that allows you to use any WeWork worldwide. With so many people working remotely and looking to travel, this brilliant piece allows WeWork to monetize even more. And guess what? They sold 45,000 All Access memberships in Q4 of 2021, an increase of 41% quarter-over-quarter.
Flow will utilize the same strategy by offering non-residents the opportunity to purchase a Flow All-Access Membership where non-residents pay a monthly fee to enjoy various benefits including:
- Access to the Flow Living App: The app will come loaded with everything from on-demand fitness classes to local perks and rewards.
- Access to Amenities: Very few apartment amenities are utilized fully. Giving limited access to non-residents will increase amenity utilization while helping Flow earn more revenue.
- Access to the Flow Perks Program: Flow will partner with local and national brands with pre-negotiated discounts that residents and non-residents can take advantage of.
- Access to Resident Events: Non-residents would be able to attend a limited number of resident events at Flow buildings.
The revenue potential for this is huge: assuming the average building is 300 units and every 300 units means you can sell up to 50 memberships for $50 per month, a portfolio with 200 buildings could earn up to $6,000,000 more per year.
Ancillary revenue is great, but the most significant element of offering a non-resident membership would be how it helps Flow quickly build its brand, with hundreds of thousands of members engaging with the Flow brand beyond just residents.
Secondly, many of these members are great lead sources who might eventually become full-time residents.
Finally, with most apartments losing 50% of residents each year, Flow will have an easy way to keep these residents engaged even after they move out since many would opt to sign up for the non-resident membership after moving out. This is exactly what happened with Flamingo – even after we moved out of WeWork, we opted into the WeWork All-Access Membership.
Flow’s All-Access Membership would allow it to have a built-in network with thousands of current, former, and future residents – a nice captive audience that can be monetized, used to get data, get continuous feedback, and most importantly, build top-of-mind brand awareness.
This will give Flow a distinct advantage in winning 3rd-party management contracts because Flow could tell owners – “We have a member network of 5M prospective residents that can fill beds quickly without added cost to you.”
6) Flow will Invest Heavily in a Lifestyle-focused Master Brand Strategy Rather than Marketing Individual Properties
Good brands sell you a product. Legendary brands sell you an emotion.
Check out these ads by Coke, Nike, and Apple.
What do you notice? These ads barely show or mention the product.
Coke sells you happiness. Nike sells you greatness, motivation, and belief in yourself. Apple sells you simplicity.
Flow will sell you a lifestyle by focusing on the overall Flow brand rather than on individual properties.
The majority of apartment operators market their apartment communities individually, including having separate websites for each apartment community. This dilutes their brand equity, resulting in most apartment operators relying almost entirely on Internet Listing Service (ILS) providers like Apartments.Com for leads.
Flow will employ a master-brand strategy where the Flow brand is front and center in all marketing campaigns rather than individual communities.
The typical argument in the apartment industry for not pursuing a master-brand strategy is the reputation risk of a negative incident with one apartment community impacting the whole portfolio. This is legitimate, but the fact remains that the benefits far outweigh any risks. And the hotel industry has largely proven that this risk is mostly nonexistent.
One of the few apartment operators that has begun a real brand-building process is CARROLL with their ARIUM Living brand. By including “ARIUM” in all their property names and simply consolidating all of them into a single ARIUMLiving.com domain, they increased their domain authority by 43%, which means more traffic without spending more on ILSs. Running a single master-brand campaign helped CARROLL reach more than 6 million potential renters in the USA.
Many large consumer brands like Coca-Cola, Hersey, and even STARZ all switched to a master-brand strategy in the last decade. In the example of Coca-Cola, Coke, Diet Coke, and Coke Zero all had different brand images before 2016. But this changed in 2016 when all of these fell under one unified brand – with the same colors, straplines, and messaging.
Flow will combine the emotional marketing employed by Coke, Nike, and Apple with a master brand strategy employed by these same and other consumer-brand companies.
Here are the keys things that Flow will do to successfully execute its marketing strategy:
- Single Website for all Flow Apartments: Instead of having separate websites for all its apartments, Flow will have one website that houses all its apartments. This will help it drastically increase its domain ranking and traffic while reducing how much is spent on ILSs like Apartments.Com. A single website for all communities will also help reinforce the Flow brand to consumers and increase the impact of ILS traffic. For example, when a prospect is redirected to the Flow website from an ILS, the prospect is able to see all the other Flow communities available rather than bouncing because the initial one doesn’t meet their needs. We saw how CARROLL used this single website strategy to increase its domain authority by 43% with its ARIUM Living apartment brand.
- Branded Buildings: Each building will have the Flow name. This means each community will be named “Flow X” – e.g. “Flow River North”, “Flow Beverly Hills”, “Flow Central Park”, etc. Portfolio branding will help Flow quickly create a strong brand identity, making it more likely that residents stay within the Flow apartment family no matter what new cities or countries they move to.
- All Flow Buildings will Have the Flow Logo: Marketers spend billions of dollars each year on billboards. Many apartments could house a billboard, but surprisingly, less than 1% of high-rise apartments have their names listed externally. Flow will add its name onto each apartment building, helping it build brand awareness and foot traffic.
- Emotional Lifestyle Marketing: Most apartments focus their marketing on features – i.e.. focus their differentiator on things like their fitness center, pool, yoga room, golf simulator, etc. Unfortunately, when a prospect is reviewing apartment websites, they all blend together. But as we saw above, legendary brands like Coke, Nike, and Apple focus on emotions. Apple’s marketing is never about features – when the iPod came out, Apple didn’t say “100 gigabytes of storage”, it said “1000 Songs in Your Pocket.” Flow Apartments’ marketing will focus completely on lifestyle and benefits. Rather than listing “Fitness Center”, Flow’s marketing would say ‘Work out without leaving the building.” The closest apartment operator to this is once again CARROLL’s ARIUM Living with ads that attempt to market an emotion.
- Highlight its Brand Differentiators: Much of this emotional lifestyle messaging will focus on its brand differentiators – flexible leases, resident experience, lifestyle, network, and not its apartments or amenities. What do you think is going to resonate with a millennial? An ad about Flow’s great amenities or an ad about how with Flow, you have the freedom to live in New York in the fall, Denver in the winter, DC in the spring, and Chicago in the summer?
- Flow will Invest in TV Ads: You can’t be a consumer brand if no one knows who you are. More specifically, being a consumer brand means the average Joe knows who you are. And the average Joe watches television…a lot of it. Coke and Nike both spend about $4 billion per year on advertising. Apple spends about $2 billion. Bringing it closer to home, Apartments.Com recently increased its ad spend to $250 million. For Apartments.Com, this has also meant the ultimate measure of a consumer brand, which is an ad during the Super Bowl. Spending all this money has helped Apartments.Com become a consumer brand – capturing the majority of search traffic for apartments, with their revenue coming from charging apartment operators for the leads Apartments.Com is capturing. Flow will advertise on TV and streaming services, and even go as far as a Super Bowl ad to build its own brand so that prospective renters are directly searching for Flow rather than only discovering Flow through ILSs like Apartments.Com.
Dominant consumer brands all use a similar approach: 1) dominant brands market A LOT, and usually on TV, 2) dominant brands market a feeling, not features, and 3) dominant brands market what makes them different, not what makes them like everything else.
Apartment marketers currently fall into a few brand-killing mistakes: 1) apartment marketers market individual buildings rather than their brand, 2) apartment marketers focus on features rather than benefits, and 3) apartment marketers avoid the holy grail of brand building – television.
If car dealerships or pizza joints can advertise on television, so can a 5000+ unit regional apartment brand.
Going against the usual apartment marketer playbook and focusing on a lifestyle-focused master-brand strategy will help Flow dramatically and quickly build its brand presence and awareness, increase its online search volume, and enjoy cheaper leads.
7) Flow will Reinforce its Brand by Using Rigorous Brand Standards to Create a Consistent Resident Experience Across its Portfolio
Most apartment operators utilize some type of 3rd-party secret shopper program in combination with regular visits from the regional property manager to keep track of operations. But hardly any apartment operators utilize brand standards and brand guidelines to the extent that is done in the hotel industry. And almost no apartment operators or managers reinforce the same brand standards portfolio to create a consistent resident experience.
Hotels, on the other hand, have very rigorous brand standard programs that each individual hotel must follow. Corporate review teams regularly visit each hotel with brand standard checklists to audit how each hotel is adhering to brand standards. Any hotel in violation of established brand standards is penalized and could potentially lose its brand license.
Hotel brands are typically broken down into two categories:
- Physical & Design Standards: From the prototype of keys to the required number of bathroom fixtures to the required guest amenities, physical brand standards define the look and feel of a hotel.
- Operating & Experiential Standards: From providing in-room dining days per week to Hilton’s Chocolate Chip cookie that’s available to all guests to the Ritz-Carlton requirement that staff use guests’ names to Marriott’s lobby music selection, operating brand standards are the heart and soul of a hotel’s daily operations and the guest experience.
Hotel brands develop and reinforce these standards because without this focus on consistency and guest experience, brands like the Ritz-Carlton would be just another chain differentiating itself by its amenities rather than with something that truly moves a guest to come back again and again.
Flow will take the hotel industry approach by defining, documenting, reinforcing, and constantly auditing its brand standards to ensure a consistent resident experience across its entire portfolio.
This is a similar strategy to what Adam Neumann did for WeWork. While WeWork locations are different in certain ways, they all give off the same vibe and all have standard physical and operational similarities – whether it is beer on tap or numerous monthly events or motivational quotes on the wall – you can quickly tell a WeWork from a standard office.
Flow will quickly create brand standards that create a consistent resident experience and reinforce its brand, including:
- Brand standard external logo signage
- Brand standard lobby set-up
- Brand standard lobby scent
- Brand standard move-in experience
- Brand standard resident lifecycle touchpoints
- Brand standard fitness programming
- Brand standard resident event programming
- And so on…
Brand standards will allow Flow to create memorable, but personalized, experiences consistently for all its residents, helping it build brand loyalty. A Flow resident that needs to transfer cities would search for Flow apartments in the new city because they would know exactly what to expect.
8) Flow will use a Resident Loyalty Program to Achieve 75%+ Renewal Rates Portfolio-Wide
From small mom-and-pop shops to large airlines and hotels, many businesses have long since realized the value of a loyalty program. Loyalty programs are an effective tactic for increasing revenue and inspiring customer loyalty. Retaining customers costs a lot less than acquiring new customers.
One of the biggest shockers during the Covid-19 pandemic was just how much loyalty programs are worth.
To receive loans as revenue dried up because of canceled flights, airlines had to put up collateral. This meant opening up their financials, which revealed a little-known fact – based on market cap, the value of the loyalty programs for airlines like United, Delta, and American are much higher than the market cap for the actual airlines themselves. Market capitalization is what investors believe a company is worth. So in essence, airline loyalty programs are worth more than the airlines themselves.
Airlines and hotels are a little different than apartments, but the idea remains – a loyalty program is not only beneficial in keeping customers loyal but can also be turned into a pretty significant revenue engine.
And many studies have shown just how much a loyalty program can drive customer retention. One study found that passengers are willing to pay up to 5% more for a flight that awards them points in their preferred loyalty program instead of purchasing a cheaper flight that doesn’t contribute to those rewards.
With most apartments averaging 50% retention rates, Flow will surpass these numbers by offering a premium apartment loyalty program with ample rewards to keep residents renewing at the same property or transferring within the Flow portfolio.
Here are some elements that Flow will incorporate into its Resident Loyalty Program for residents that have achieved certain renewal milestones:
- Free Monthly House Cleaning: Loyal residents receive free house cleaning weekly, monthly, or quarterly.
- Free Daily or Weekly Turndown Service: Daily service where their linens are replaced.
- Free Guest Suite Stays When Traveling: Loyal residents can stay at other Flow apartment guest suites a certain number of nights per year.
- Free Guest Suite Nights in the Building: Loyal residents receive a certain number of free guest suite nights at their building that they can offer to out-of-town guests.
- Access to Exclusive Events: access to events not available to the general resident population.
- Discounts or Free Amenity Use: Loyal residents get discounts or free access to amenities that are generally paid.
- Discounted or Free Parking: Loyal residents get discounted or free parking if this is generally a paid feature.
- Discounted or Free Storage Units: Loyal residents get discounted or free storage if this is generally a paid feature.
- Flexible Rent Payment: Loyal residents can pay rent in two to three sums rather than paying everything upfront on the 1st of the month.
- Waived Late Rent Fees: Late fees are waived on rent.
- Higher Referral Fees: Loyal residents earn a higher referral fee than general residents.
- Higher Rewards: Loyal residents earn more resident rewards than the general resident population. E.g., if residents are rewarded for completing monthly resident surveys, loyal residents might earn 2X what the general resident population earns for completing the same survey. These rewards can be redeemed at retailers.
- Access to Local Perks and Discounts: Loyal residents get discounts at local restaurants, retailers, and other shops.
- Access to Airport Lounges: Loyal residents can get a certain number of free airport lounge visits per year.
- Exclusive Monthly Dinners: monthly catered dinners just for loyal residents.
Loyalty programs are effective when they are well thought-out, compelling, creative, and generous. For Flow, such a program will make sense as long as the cost of the loyalty program per resident is less than the cost to acquire a new resident.
One such apartment operator that has implemented a pretty robust resident loyalty program is Lindy Communities. Its Lindy Gold Key and Lindy Passport Program is helping it achieve an industry leading 75% renewal rate.
Part of how Lindy has achieved such high retention is by making it easy and attractive for residents to transfer within the Lindy portfolio. Flow will do the same thing. Which brings us to our final point.
9) Flow will Offer Flexible Lease Arrangements to Grow Loyalty, Increase Brand Awareness, and Highlight its Differentiation
A 12-month lease with Flow would give residents the freedom to transfer to different Flow apartments during that 12-month period. With each apartment pre or lightly furnished.
This means you could live at a Flow apartment in New York for three months in the summer. Then you could transfer to a different Flow Apartment in San Francisco for another three months to enjoy a Bay Area fall. Then transfer to another Flow apartment in Denver for another three months to ski the winter away. And then finish your lease by transferring to another Flow apartment in DC to enjoy an east coast spring.
The pandemic showed employers that their employees can be trusted to work from anywhere. And many employees have taken full advantage by becoming digital nomads – hopping from AirBnB to AirBnB and from city to city.
Of course, lease transfers between communities can be complicated, especially when you’re a third-party manager for multiple different owners. But tag on a 25% to 30% rent premium for the flexible lease option and those challenges don’t seem as insurmountable as most apartment operators would initially think they are.
Paying a few hundred dollars more per month in rent for this premium lease pass would allow residents to enjoy the digital nomad lifestyle while helping Flow increase NOI, resident loyalty, and brand awareness.
Providing flexible lease arrangements so that residents can move from apartment to apartment or city to city with ease will provide Flow one more benefit – network effects.
A network effect is the phenomenon where the more users or customers a company gains, the more valuable the company is for current members. It is why it’s almost impossible for competitors to unseat companies like Facebook or Uber. Each person that joins Facebook makes the platform better and stickier for current users – if none of your friends were on Facebook, you’d never log on. But since most of your friends are on Facebook, you will probably keep using Facebook into the indefinite future. Same thing for Uber – the more drivers are on Uber, the more riders want to use Uber. And the more rides requested, the more other drivers want to join Uber.
For Flow, the more its 3rd-party business grows, the more prospective residents will want to be a Flow member since it means hundreds of potential locations to transfer back and forth between. The more Flow’s member base of renters grows, the more owners want Flow managing their assets since Flow’s large base of members means lower marketing cost to acquire new residents.
And of course, as Flow’s 3rd-party business and member base grows exponentially, the faster its brand spreads, making it a household name for both consumers and apartment owners.
Conclusion: Adam Neumann’s Flow will be the 1st Apartment Brand
Going to Apartments.com to search for an apartment in Chicago shows that there are 26,379 apartments available.
In a world filled with way too many choices, deafening noise, and constant distraction – brands bring clarity on what to choose.
Apartment brands are the next phase of multi-family evolution because the industry is extremely fragmented, lacks innovation, fears technology, and nothing apartment operators have done so far has allowed them to differentiate or charge premium prices in a scalable way.
The taxi industry was exactly the same way before Lyft and Uber arrived with their venture capital money. Lyft and Uber quickly dominated the market and overnight, yellow taxis disappeared off the street.
Hotels are where apartments are going to be in 20 to 30 years. And as of 2018, 54% of hotels were affiliated with a global brand or regional chain. In the USA, this number changes to 70%.
Building a brand requires automation, consistency, great resident experiences, and great online presence.
And again, building a brand is crazy hard. It’s f$%king expensive. And it takes multiple decades to do.
Adam Neumman turned WeWork into a brand in less than a decade.
Andreessen Horowitz is the most prestigious venture capital firm in the world and its bet is that Adam Neumann’s Flow is going to disrupt the apartment industry the same way that Lyft and Uber disrupted the taxi industry.
What does this mean for apartment managers and operators? It means being very nervous. Get your act together. Don’t get caught off guard. Don’t make the mistake the taxi industry made. Disruption happens much faster than you think.
