SPECIAL FOCUS: TECHNOLOGY AND THE BOTTOM LINE

APARTMENT FINANCE TODAY • MAY 2008

Wired for the Next Generation

Internet cafés, video-gaming rooms, and iPod docks rise in popularity—even BBQ areas are going high-tech—to appeal to the coming wave of young renters.

By Jerry Ascierto

An Internet cafe at the Archstone Westbury, a 21-building luxury apartment community in Westbury, N.Y.

The iPod generation has arrived: Will you answer the text message?

Tomorrow’s wave of renters, the echo boom and millennial generations, are already having a big impact on the technology amenities offered by apartment communities.

The standard business center is morphing into an Internet café, and many clubhouses now include wireless access, flat-panel televisions, and iPod docks. Some communities are starting to offer video-gaming rooms, an amenity that grew out of the student housing industry. And even barbecue areas are getting a tech makeover.

Technology amenities are a great attraction and retention tool, and they can boost rents in accordance with their sophistication. A 2007 study by the National Multi Housing Council (NMHC) shows that factors such as the reliability of high-speed Internet service and the availability of wireless connectivity are important to younger residents when choosing where to live.

“They’re really the laptop generation,” said David Cardwell, NMHC’s vice president of technology. “Renters already expect high-speed Internet to be there, but today they want to have mobility in their Internet access.”

More than half of the 1,000 survey respondents were less than 34 years old, suggesting that technology amenities will grow in importance over the foreseeable future. These younger renters are more likely to play online games, download large amounts of data, and watch streaming video. “Today’s college students are tomorrow’s bandwidth hogs,” Cardwell said.

And apartment owners are responding in kind, giving the most tried-andtrue amenities a tech makeover to capture and retain this demographic.

Internet cafés

The term in community planning is “the third place,” a space distinct from work and home that offers an informal, social setting. These community “anchors” are characterized by being highly accessible, offering free or inexpensive food and drink, and fostering interaction.

“The third-place aspect of living for that generation is really a big deal,” said Art Lomenick, managing director of developer High Street Residential. “So Internet cafés are pretty much a standard feature now.”

In acquisition deals, turning a business center into an Internet café involves more than just a facelift. The Laramar Group, which specializes in acquisition-rehabilitation deals, has made Internet cafés a priority over the last two years in all of its new acquisitions.

“It’s a complete transformation,” said Stuart Price, Laramar’s vice president of information technology. “It’s usually the old business center plus the room next to it, because you’re really trying to open up that space and turn it into a social area.”

Laramar often makes such spaces true cafés by including coffee machines and snacks, couches and pub tables, and positioning the room to overlook a pool or common area. The company also puts televisions in its Internet cafés, sometimes building a “television mosaic,” composed of one large TV with three smaller TVs on top of it. The larger TV is the focal point, with the smaller ones running sports or cable news channels with bottom-line tickers, like CNN or ESPNews.

Social interaction is only one aspect of the Internet café. The latest wave of these venues is designed to cater more to laptops and productivity.

“More people have laptops now, so there are fewer computer terminals and more access points or Wi-Fi in that room,” said Mike Whaling, vice president of business development at InfiniSys Electronic Architects, a technology consulting firm for the multifamily industry. “And there’s more focus on productivity—a multipurpose scanner/ copier/printer and basic video conferencing equipment are more common.”

High Street Residential is building an Internet café at Midtown Commons at Crestview Station, the first phase of a mixed-use transit-oriented development in Austin.

The company envisions Crestview’s Internet café as offering wireless Internet access, with some dedicated terminals loaded with expensive software programs, such as high-end graphics and video editing software, which residents may not want to purchase themselves.

The standard clubhouse and theater rooms are technologically evolving as well. Flat-screen televisions with DVD players are fine, but residents are demanding more sophisticated features out of their clubhouses.

“The most popular thing we’re doing right now is the gaming room,” said Whaling. Gaming rooms, dedicated spaces for video-gamers, grew out of student housing and naturally evolved to multifamily communities as those students aged. InfiniSys has also installed more esoteric forms of entertainment: a virtual golf simulator at one cold-weather community and a podcasting studio at a complex near a liberal arts college.

Laramar is building its first dedicated video-gaming room at Cypress Lake at Stone Briar in Frisco, Texas, a suburb north of Dallas. The company is installing four large flat-panel televisions, one with Nintendo Wii, two with Xboxes, and one with a PlayStation 3 gaming console, into a room with furniture and decorations geared toward the young adult.

“It’s the big kids’ room,” said Price.

Whole home audio

Many luxury apartment communities now offer pre-wired surround-sound systems, with speakers built into the wall of the living area. All a resident has to do is plug in a TV and stereo to a wall jack, and they’ve got a home theater system.

But that’s just the tip of the iceberg. The next wave of in-unit audio is the distributed audio system, also called “whole home audio,” where units are wired with speakers in the walls of every room, allowing residents to connect a music source, like an iPod or standard stereo, to the network and play music in any part of the apartment they wish.

The cost for a distributed audio system is prohibitive for many owners today—starting at about $1,000 a unit— but is coming down.

iPod docking stations are becoming typical features of common areas and soon may be a common feature of each unit. The iPod docks themselves are relatively affordable. An iPod dock for a basic distributed audio system, where the speakers are built into the walls of one room, cost about $150 per unit for a typical 300-unit community.

“Almost every project we do today has iPod docks in the fitness room, clubhouse, and leasing center,” said Whaling. “A distributed audio system that has a zone in the fitness center, a zone in the lounge, and a zone by the pool is pretty common.”

Laramar Properties has followed this trend, installing distributed audio systems with iPod docks and an XM satellite radio receiver at Internet cafés, around a property’s pool, and other common areas. But an important tip: Laramar puts volume restrictions on the iPod docks—a lesson the company learned the hard way after some residents complained.

Wi-Fi trials

While high-speed Internet connectivity has become as essential as the plumbing to many renters, free in-unit wireless connectivity is more problematic. Almost every project that InfiniSys does includes wireless access in the common areas, but the company often recommends against providing wireless access in every unit, both because of the up-front costs and the ensuing logistical problems.

Developers continue to struggle with the issue of reliability. “When you offer it as a free amenity in every unit, you have a lot of unknowns with respect to reliability and capacity—but people will expect it to work seamlessly,” said Price. “For those who telecommute, the Internet is their livelihood.”

One family can have a child playing with an Xbox in “live” mode online, another child streaming video over a computer system, while somebody else in the unit downloads videos, for instance. That’s a lot of bandwidth being used by just one family, and all of that activity could slow down the network for other renters.

The up-front cost for installing the technology is coming down. On a 330- unit, 23-building community, the capital outlay would be about $98,000. Installing the system is the easy part: Ensuring reliability is difficult.

As more users sign up to use the service, the ability to scale the system’s bandwidth capacity has to grow as well. Building redundancy into the network is critical: If one antenna were to go down, another antenna needs to automatically pick up the slack without any disruption of services.

“You’ve also got to control it and have security to protect against viruses,” Price said. “It’s an expensive venture—if you can’t get 30 percent of your population signed up, you’re losing money with the overall program.”

A more common solution is to provide the wired access and let residents buy their own wireless routers. But this can be a chaotic solution. Go to any multifamily development today, open up your laptop, and search for wireless access points. In the six-floor condo development where Whaling lives, he can see 36 access points from his laptop. The danger for residents is in running an unsecured access point, leaving them vulnerable to hackers.

Shifting fitness

Fitness centers are also technologically evolving, catering more to an individual’s preferences. Less emphasis is placed on piped-in music or blaring televisions and more focus at the equipment level—iPod docks are becoming more common on individual pieces of equipment, as are TV screens.

Many owners already put televisions on the walls of their fitness centers, but are now loading the fitness equipment with wireless receivers so that tenants can plug wireless headphones right into the treadmill, for instance, and control the TV or switch to radio.

And the next generation of fitness equipment will be wired to the Internet. Some equipment tracks your performance— how much you’re lifting or running— and e-mails you the performance stats. The Nike Plus system, a collaboration between Apple and Nike, will link a runner’s shoes with an iPod to track running performance, for instance.

BBQs: The next generation

To some, the next great tech amenity may be in the great outdoors. Barbecue areas with stone countertops are being complemented with iPod docks and speakers, and some even feature outdoor televisions.

Companies such as SunBriteTV are manufacturing flat-panel, outdoor televisions that work in direct sunlight, rain, and hot or cold weather. The televisions are extremely bright and feature built-in air conditioners and heaters to keep them running at peak performance.

Laramar is installing two SunBrite televisions in the barbecue area at another Dallas location, called 4343. The barbecue area will feature iPod docks, XM satellite radio, six speakers, and a master control panel in the kitchen area of the barbecue space, which also features a microwave oven and stove.

“Our Internet café of 2009 is the barbecue area,” Price said.

IPTV

Where is all of this connectivity heading? Many believe that Internet Protocol-based television (IPTV), an integration of voice, video, and data services, is the wave of the future.

IPTV allows residents to order pizzas from the local pizzeria, surf the Web, make phone calls through voice-over Internet protocol services, and even pay the rent.

IPTV may be the first step in the television becoming an all-in-one appliance that combines the functionality of a personal computer with telephone and video services.

“This is going to be comparable to where we were 10 years ago with regard to moving to a Web environment,” said the NMHC’s Cardwell. “People will use their remote control as their keyboard, ordering pizzas, movies, and paying their rent.”

The technology has gained traction in Europe and Asia, and frequent hotel visitors have no doubt noticed rudimentary versions that allow them to check out through the TVs in their rooms.

RealPage is actively exploring the technology, believing that IPTV will ultimately integrate with its property management software systems. The company has struck partnerships with several IPTV software providers and is expected to roll out an IPTV service later this year.

Stay tuned.