Episode 129: Increasing NOI by negotiations with utilities companies with Kevin Gardner - Apartments Operators Podcast

Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Apartments Operators podcast, and today we have a special guest, Kevin Gardner.

Kevin is not a multi-family operative, but his company helps multi-family operators in subjects that are not very commonly known, so we thought we’ll bring him on the show and let a lot of operators here about this service. Welcome to the show, Kevin. Thanks, Joseph. I appreciate the opportunity to speak with you.

This. Awesome. So usually we let the guests introduce their self. Take 30 seconds, tell everybody who you are, what’s your background, and then we’ll get into the conversation. Excellent. Yeah. Thank you very much. Yeah, so multi-Family Utility Solutions is really exactly that. We help operators focus on their utilities and their operations, their contracts, and the reason we got into this space is I used to work for Comcast, one of the largest cable operators in the US cable and internet, and so I gained a lot of experience.

In a former life, I was actually on the opposite side of the negotiating table, negotiating with property owners to get Comcast the right to be on their property. So when I left Comcast, it was just natural to stay in that space, but work for the operators and have them the benefit of my previous experience.

Awesome. So everybody know as operators, we care a lot about the N O I, right? So we do a lot of income increasing activities, but the other side of the N O I, and it’s just as important, is reducing expenses. And this is where you guys come in sometimes, and sometimes you come in in increasing income. So let’s talk a little bit, your company says utility solutions, right?

What does that mean? What kind of utilities and how does that work exactly? Yeah, exactly. Like you mentioned, usually on the cable and the internet contracts, we have the opportunity to bring in an increased revenue, right? So a lot of people don’t realize that even if they’re resident, Are paying for cable service or internet service directly to the provider, there’s still an opportunity for you to get some revenue sharing or some access fees.

So that’s revenue that goes right to your bottom line. So let’s take a step back. So when it comes to cable and internet, we have what I’ve seen, and correct me if there’s more, but I’ve seen two types of properties. There’s the properties. Don’t have anything to do with that. It’s like they, we tell our residents, get whatever you want.

You want at and t, you want satellite, you want dh, do do whatever you want. And that’s their responsibility. And there’s properties that have what we call a master agreement, which is a single company. The tenant can only get from that company. When you describe those things, what are we talking about?

We’re talking about the first or the second. We’re talking about all solutions because what we like to do before we make any recommendations is talk to the owners. Understand what are your priorities? What are your, are you in this for the long haul? Are you trying to create generational wealth or are you trying to take a B class property and turn it into an A-class property and, and sell it and pay back your investors?

In three to five years. So a lot of those factors will impact what recommendations and what type of contract they’ll wanna do. The other thing is what’s existing currently, right? The first one you mentioned where the residents pay for them for their own service and they have a choice, is just call an right of entry agreement or an access.

And, but you, they, the, those companies you mentioned at and t, whether it’s Comcast, spectrum, whoever it is, they still need to have an agreement in place to allow them to be on your personal property. And we do a lot of work in like Dallas, in Spectrum and at and t are both in Dallas. The city of Dallas has granted a non-exclusive agreement for both of those companies to operate, but that just gives ’em the right to be in the public easement.

It doesn’t give ’em the right to be on anybody’s personal property. So whether you as a homeowner grant them permission to be on your property bride service, or you as the multi-family property owner, grant them the right to be on your property so that they can serve your residence, there still has to be some agreement in place that allows them the right to be on your personal property.

So that’s an access agreement, and in those cases, We negotiate if there’s no agreement in place or if there’s an expired agreement. There’s always something. They didn’t just come in there without an agreement, but oftentimes, depending on how old the property is, it could have been something that was never recorded.

It could have been lost in the shuffle from her to owner, so they did come in there, but if there’s no current agreement, With term, any significant term left on it. It gives us a window of opportunity to negotiate with them and get compensation for you, the owner, for just simply letting them on your property to pro, continue to provide service.

The other one, basically, if at and t wants to serve our residents, they need permission for their technician to come in. They need permission to get their infrastructure lined up into our communication hubs and so on. Correct. And that’s what they’re willing to pay for and that has value obviously. Cuz without that permission, they don’t get to provide service and generate revenue.

So that’s the, so what kind of, we’ll get into the other type of agreement in a second. What kind of revenue are we talking about? What kind of an agreement have you been able to secure in the past? Are we looking at price per unit? Are we looking at, okay, here’s $5,000 goes away, go away? What kind.

Agreements have you seen out there that those utilities companies are willing to pay? There are two types of compensation most often, and sometimes they, there is one and not the other. Other times we’re able to get both. The first one is what’s called a signing bonus or a door fee. , and that’s usually a lump sum fee that’s paid within 90 days of execution of the agreement.

And these agreements are typically 10 years long and you are granting them certain rights. You may help them with marketing. You may say that the wire that they’re already using, nobody else can use, things like that. So we, we have to decide what those terms are and what you’re willing to do. But there’s a lump sum.

So if you’ve got a hundred units, And they give you a hundred dollars per unit. They’re gonna issue you a check for $10,000 within 90 days of signing the agreement. The other type of compensation is what’s called revenue share, which is really a commission. So in exchange for helping them market their services, right, and when somebody new moves in, I move in, you say, Hey Kevin, here’s, we recommend at and t here.

They’ve got the best internet service, and here’s how you get ahold of them. What you would get then is on a quarterly basis, a percentage of the revenue. Okay. And the natural follow up question is, does that impact the residents? And the answer is no. Your residents aren’t paying a higher rate cause of this agreement.

That’s, they can’t do that. They’re not allowed to do that. It. But what t and t or Comcast Spectrum, whoever’s getting out of that is help marketing their services. So in theory, they’re what? Paying for the percentage of revenue. , but they’re getting more customers as a result. So it’s a trade off. So those are the two types of compensation most frequently associated with what’s calling the right of entry or access agreement.

Gotcha. So we’ll have, um, a second type is we’ll basically have pamphlets in the office. And when a resident comes in and they’re asking, maybe we’ll have the welcome packet that will have that pamphlet in there of whatever company we have. They agree. Correct, correct. Now, that doesn’t mean that they, that you can’t have another provider as well.

It’s just that, and you may have an agreement with the other provider, but it’s just, which one are you gonna put a priority to those rights? You can grant, you can say, I’m gonna exclusively market you, but you can’t say you’re gonna be the only provider in this. Gotcha. And yeah, and we’ve seen those types of companies reach out a lot.

We’ve done multiple like property events right before Covid, like pool party or stuff like that. And then at and t or Comcast or one of these guys would come and sponsor and give us a little bit of money so they can put a booth in that area when everybody’s partying. So I know they are very interested in the apartment world in getting into as many apartments as.

Yes, absolutely. And that’s what’s is an exclusive marketing arrangement and they’re your marketing partner. And we’ve had some owners, and they can’t put this into an agreement, but we’ve had some owners go as far as saying, look, I’m not allowing any satellite dishes on my property. It’s your property.

You have the right to do that, but nobody can tell. You have to do. as part of a contract cuz it’s anti-competitive, right? So they can’t say, look, we want you to disallow satellite dishes, but you as the owner have that because you don’t want the liability, right? People are putting them on their roof and creating leaks and liabilities for you.

You as the owner can make a business decision and certainly helps as well because then you’re encouraging people to take the services that aren’t seeing something to your roofs and things like, That’s a side note. Regardless of having an agreement or not having an agreement with a service provider, we don’t allow those satellite dishes for the exact same reason you mentioned.

It’s a damage to the property. It’s damaged to the roof. Cuz those installers, they don’t care. They’ll just come in and they’ll just drill in whatever they can drill in order to secure that dish. So we told our residents, At most, we allow them on the ground where it’s not an eyesore at. If you’re a second floor, then you can have a, like a Home Depot five gallon bucket and fill it up with cement and stick a pole in it.

But we do not allow permanent attachment to the building, and that has to be a separate issue. It can’t be associated with, it can’t be a condition of, it’s gotta be up to you as the owner to make that decision. Okay, so the other kind we’re talking about was an exclusive agreement. How does that work? See it, it can’t be an exclusive agreement.

The exclusive to, to provide service. You can’t have it so that I’m gonna sign an agreement with this company and they’re the only ones that can provide service. We can, here’s the, we may be saying the same thing, but differently. Okay. So what I think you’re referring to is what’s called a bulk agreement.

And a bulk agreement is where you buy service and basically provide it as an amenity and include it in your rent or as a add-on. But you’re buying it in bulk so the, you’re not saying that they’re the only ones, but by default, They really are, because who’s gonna wanna provide service if you’ve already bought service from one provider?

If I’m a second provider, I’m gonna look at that and say, I really don’t wanna come in there because I don’t really have any upside, because you’re already providing that service, but you’re not doing it on a contractual, exclusive basis. It’s really what’s considered a bulk agreement, and that’s why the cable and the internet companies love those because it’s by default.

An exclusive right to provide because nobody else is gonna want to come in there and compete with you when you already are serving all the customers. So it’s a little bit of a technicality, but it’s not considered an exclusive agreement. It’s considered a bulk bill or master pay agreement. Yeah. In those arrangements for the listeners, have pros and cons.

Right? So on the upside, is we the, the owners of the apartment building. We pay a much, much lower price per door. So we’ll pay, let’s say 30 or $40 for per unit for an internet and cable basic cable service. The, the cable provider, they’re happy because they just sold the entire complex regardless of occupancy, regardless of what the other people are.

They know if I have a hundred unit, they just sold a hundred accounts and they also get upsells. So we provide internet and basic cable. But if somebody wants a dvr, If somebody wants a D V R or somebody wants a, I don’t know, a sports cable package or an H B O package, those are all upsales in the internet company or the service.

The cable provider gets the upside. The residents are also happy with that because if we pay 30, 40 and we turn around and we charge the resident, let’s say 60, we make that little difference and that adds to our N O I. But honestly today, go find an internet and cable package for $60 that doesn’t exist out there.

So the residents usually are happy to get that package because it’s cheaper than going out and getting internet and cable separately and bundle in everything. Now with the world of Hulu net, Netflix and all that, it still works not. Good for the resident as it might be because it’s still cable and and internet.

But if you wanna stream Netflix and Hulu, you still need internet. So either way, the very basic package of internet was like, 65, $70 last time I was looking at, so it’s still a good win for everybody else. Now, the downside of these things is if your property is not fully occupied, you’re still paying for all those units.

So if you, are you buying a distressed property, let’s say 50, 60% occupancy, you’re still paying for a hundred percent of the. So that becomes a little bit of a challenging expense and a burden as you getting that property up to occupancy. But if you’re in full occupancy, 90 plus, then this is a very definitely a money producing agreement to have in place.

Did I get it right? Yeah, I would add a couple of things. The reason the cables or internet companies like this is, like you said, they get to count a hundred percent of the units. Even if you only have 50 out of a hundred, they’re reporting that they have a hundred units, even though there’s nobody in those units, so their customer count.

It helps with that. , they also pass on the discount because they’re not going out there and connecting and disconnecting people all the time. So there’s savings that they’re realizing and they’re passing it on to you in the form of that discount. I will make an another comment about this, and I, in all my years, have never seen a cable company or internet company where there’s a master build or bulk agreement in place allowed the owner.

To get out of that agreement before the term is up. Okay. Because that’s their favorite agreement. They want you to be in bulk, so they’re not gonna allow you to go from bulk to individually build. So if you are trying to sell this property, and the new buyers may not want to deal with that, or maybe they don’t believe in it, because I’ve got both types of owners, that could be a limitation.

That’s something they’re not interested in. If you’re under a access agreement and you want to go bulk, even if there’s term left on that agreement, I have always seen that they will allow you out of the term for an access agreement to go bulk because that’s what they prefer. So just a few little things, and this is why I think earlier you said, we started talking about what type of agreement, and this all comes down to what is that owner’s goals, what do they wanna do, what are they comfortable with?

If they’ve just bought this property and they’re re-roofing and reaving and doing all these other things, do they really want to get involved in? Because it’s about a one year process to go from non. To bulk because most oftentimes it’s you add that ex that that fee with the renewal of the lease, and that takes 12 months and they work with you on that to allow you a stair step.

But it’s one more thing if you just bought a property that’s got maintenance and things like that. Do you really want to be dealing with that as. Right now, some people don’t. So my job is to point out all the pros and cons so that my owners, my clients are aware of everything that can happen and everything to consider, and then it’s ultimately their decision.

But my job is to educate them on all those pros and cons of each of the different options. Sounds good. So what other kind of utilities are you guys helping? Yeah, we, we can help with in, in certain areas where you have larger properties and maybe together we can look at trash removal rates and different types of services depending on the market.

That’s very dependent on the number of. Units you have and the market. If you’re out in some of the rural areas where there’s not as much competition or anything like that, you have fewer, fewer units and they’re further apart, it’s gonna be harder to save anything there. The other thing is electric and gas, but that really comes down to the reason we talk about cable and internet most is because we can do that almost anywhere in the country with electric and gas.

It has to be a deregulated market or a deregulated. For example, I live in Ohio. We are deregulated. The rates are determined by the competitors that are in the marketplace. Conversely, I’ve got a lot of clients in Tennessee, the Tennessee Valley Authority, the state regulates the rates. There is no competition there.

So there is no opportunity to do that. Also with electricity, it really comes down to usage. So if you’ve got a smaller property, you have no, let’s say no laundry room, you don’t pay for the resident’s electricity. , you don’t have inside common areas or workout facilities or swimming pools where you’re not using a lot of electricity, you’re not, your account’s not gonna be that attractive because you have minimal usage.

Yeah. You have a larger property with common areas. Workout facilities, the laundry rooms where you’ve got a lot of, of usage of electricity, then those are gonna, and it’s in a deregulated market, then that’s gonna be more of the opportunity. But the great news on all these things is we do free as assessments.

All we need is a little bit of information from you and we’ll do a free assessment for you and tell you what we think we can do to help you either save or generate. So you basically would come in and review all the utilities and say, okay, I can help you with this or that. I was thinking while you were saying all these things, all bills paid properties would also be very beneficial for them to look at electricity and gas.

The deregulated can help, but Yeah, but not always. So we had properties in Lubbock, Texas, which is a secondary. , and then doesn’t matter if you want it or not, there’s one gas company, right? And there’s one electric company. So Deregulate state, Texas is deregulated, but that area only had one option. And when you have one option, there’s not a lot of negotiation power.

Right? States can be deregulated, but markets within those states can not be. Yeah. Okay. Yeah. And tra you mentioned trash. Trash is also something that we highly recommend. All the operators to pay close attention to, because one, they tend to demand really long contract, three, five years at least, and that kind of locks you in.

And I don’t know about you, but every waste removal contract I’ve seen in my experience, had a kind of clause that says we can change the rate whenever we want based on whatever we want. So you might think you’re going in with one rate, but. Fuel surcharge or I don’t know, I want to charge, and all of a sudden you go from X to Y and your N no, I gets impacted without any control.

So these are very. Dangerous contract to work with. I know for a fact that we had the opportunity to do a switch at a certain point in our waste management, and we literally cut for the same service. We cut the cost by half. And that is massive for your No, I, if you’re able to take an expense line at ’em and cut it in half, and it was just like, Lynn, why are they so expensive?

I don’t know. Same market, same service. They came up half, uh, just basically cuz they wanted to take over the contract. It’s, it comes down to new customers. It’s no different than if you’re in, let’s say I, let’s say I’ve been living somewhere in the same house for three years and you move in next to me and you’re a brand new customer.

You might get a promotional offer to be a brand new customer and you may be paying half of what I’m paying for cable and. Because my promotional offer was three years ago, and now I’m an existing customer and my rates have gone up to the rate card, and you’re the new customer that they’re trying to lure in there.

The same thing happens with multi-family property service providers. So is all, is that also part of your service? So if I’m in a deregulating market and you came and you helped me with my electricity or with my, is that something you come back and you review every year to say, okay, let me help you. Just like shopping for insurance or shopping for a new phone plan.

Yeah, we, uh, we look at the length of the contract, so we maintain a database and whenever contracts are coming up for renewal, we will always then step back in renegotiate those. And in, in cases like the, let’s say you did a 10 year access agreement with Spectrum, when that agreement’s almost done, that 10 year term, we don’t allow it to go into an auto-renew period.

Of one year. One year. One year, we go back and we renegotiate another 10 year agreement, and by doing that, we secure another upfront Doy payment and then the revenue share just keeps on, on, on moving along. Great. Any other tips or advice, horror stories you’ve seen in in the past? We pride ourselves for being the pro, a podcast that doesn’t sugarcoat anything.

Anything you can share with our audience. I think the biggest thing is a lot of people say, when do I engage you? And I would say it’s never too early. So let us look into things. Even if you’re just, you’ve signed a letter of intent and you’ve got some due diligent papers and you want us to take a look at things because you’re putting together your proforma on what’s this gonna look like if, if we do buy this, what can I get in the next three years?

Let us engage us early. We do that all the time. And see, the one thing for us is we work on commission. So we will advise you all day long. There’s no retainer, there’s no hourly charts, there’s none of that. We’ll look into all this. If after we’ve given you the free assessment, you wanna move forward with it and you get pay or you get savings, we get a percentage of what we’re able to get.

So we, our goals and yours are a hundred percent aligned. We wanna improve your o I and in exchange for that, we receive a percentage of that. Yeah, and it sounds just like the tax pro protest process every year in the states where you know you can protest your tax taxes. We engage the team that does that every single year and they get a percentage of what they save us.

Like you said, the interest of the vendor and the owner aligned. Exactly. Awesome. Yeah. Win-win. Yeah. So great. Thanks for all that information. That was very educational, Kevin. And if our audience wants to reach out and get ahold of you, engage your services, how can they find you? I’m at kevin@multifamilyutilitysolutions.com.

That’s our website and my phone. (248) 930-4768. They can call me and, uh, yeah, we’d love to. Well, like I said, we give out advice all the time. We educate people on their exact portfolio and then let them make the decision if they wanna move forward. Perfect. Thank you so much, and we’ll put all that in the show notes as well, your website and your email and your phone number.

And for you, the listeners, thank you for listening to our podcast. If you wanna hear more, just subscribe wherever you do consumer podcast, iTunes features, SoundCloud, Amazon, and so on. And if you can leave us a review, that would be great. Kevin, thank you so much for being on the show and we’ll see you soon.

Thank you, Joseph. I Appreciate. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.