Smart home technology is an alluring proposition for the apartment industry: Provide renters with a home that integrates with and responds to their lifestyle, and increase rents, save on energy, and collect useful resident population data in return.

That’s the idea, at least, and a property owner in Portland, Ore., is betting it can make it happen. Almost two years ago, IOTAS, a start-up tech firm, partnered with local developer Capstone Partners to install smart home technology as a pilot program at the latter’s then-new property Grant Park Village. The program outfitted about half of the 210 apartments with wireless connected outlets; lights; locks; and water, motion, and temperature sensors.

Neil Stevens

When residents enter their apartment for the first time, they’re given a “hub”—a smart home remote controller—that comes pre programmed with a handful of functions and modes to introduce them to the system. The settings coordinate the lights, thermostat, and locks. So, in night mode, for example, the thermostat automatically turns down, the door locks, and the lights go off.

The IOTAS system can either “learn” residents’ habits, or residents can program their own functions as they become comfortable using the technology. IOTAS even hopes that, in the future, users can share their functions with others if they have a clever setup idea.

Greystar, the property manager at Grant Park Village, has been working with IOTAS from the beginning to help test the technology and determine its viability across the market. “The local operations team brought it to us,” says Stephanie Fuhrman, managing director of technology services at Greystar. “So we started working with IOTAS to evaluate the technology in relation to other technologies available in the industry.”

It’s not just Capstone diving into the smart apartment trend. Fuhrman says she’s seeing numerous owners in Greystar’s property management portfolio start to test smart technologies in a handful of apartments.

It’s easy to see why. Millennials currently make up the largest single cohort of renters, and according to a new study from Bailey Brand Consulting, 74% of them believe technology makes their lives easier. And with the glut of Class A projects coming on line in the next few years, apartment owners and managers could find themselves fighting for these renters. And 10 years from now, they’ll be fighting for the cohort coming behind the millennials, who are even more tech-hungry.

So smart apartments have the potential to be a smart investment that can pay off for years down the road. Some owners, in fact, are ­already realizing benefits today. But there are still a number of hurdles to clear before smart technology is widely adopted.

Early Benefits

The first two technologies most companies have on their radar are locks and thermostats, because they have the best potential for a fast payoff. “What we’re seeing—and what surprised us—is that access management is the No. 1 area where clients are seeing a quick return on investment. A majority are seeing the return in under three years,” says Felicite Moorman, CEO of STRATIS, a Philadelphia-based smart apartment provider.

Smart locks have lower up-front costs compared with smart thermostats, and they help owners reduce the cost of rekeying units during turnover. Right now, smart locks cost from $100 to $150 more than standard locks, but instead of forcing landlords to spend $20 to $50 to rekey a door, most smart locks available now allow managers to push a button to implement a new key code for each resident. The locks can also provide a temporary key code for maintenance staff, which also provides more oversight on when exactly maintenance workers enter and leave a unit.

Washington, D.C.–based WC Smith is currently installing smart locks at various properties, says Holli Beckman, the firm’s vice president of marketing and leasing operations. And with the advent of wearables like Google Glass or the Apple Watch, she’s looking forward to the day a resident’s smart watch can sync with their apartment lock for easier entry when their hands are full.

Smart thermostats pose a much higher up-front cost than smart locks. A majority of smart thermostats cost roughly $200 more than their standard counterparts. And owners don’t benefit from a direct return because utility costs are largely passed down to the residents.

In properties that cover all the utilities, however, the payoff is much greater. For example, at a handful of its student housing properties Memphis, Tenn.–based EdR implemented a smart energy system from Energex. The system uses infrared detection to determine whether anyone is in the unit. With that information, the thermostat lowers or raises the temperature to reduce costs and prevent frozen pipes.

“The first project we installed this at, we saw a 10% reduction in our energy costs, which was about $4,000 a month,” says Scott Casey, chief technology officer at EdR. “The other component is, it’s reducing the wear and tear on the [HVAC] system itself. And, theoretically, it should cut down on the number of times we have to replace the air filters.”

Casey says EdR is seeing a return on its investment in less than two years with its smart energy system. Though the thermostats themselves don’t have any app-connected features that students can control, EdR and Energex hope to roll out that functionality in the coming year. Regardless of whether the owners or the residents pay the utilities, smart thermostats offer the added benefit of controlling costs in vacant units, too.

Dan Daugherty, CEO of Remotely, a smart apartment provider, says a lot of his clients put the smart home technology in vacant units so leasing agents can ensure the apartment was locked up, the lights were turned off, and the thermostat was turned down after scheduled maintenance or a tour. Once the unit is rented out, the incoming renters simply take control of the technology as an occupied unit and continue to maximize the energy savings for their own benefit.

Layers of savings

The amount and variety of data that smart technologies can provide about the habits of a property’s resident population is often overlooked as a direct benefit, perhaps because it doesn’t obviously affect the bottom line. Providers don’t allow managers to see data use per unit; they just permit information across the property to be aggregated, which is still useful. For example, with water sensors, managers can see when a majority of the hot water is being used throughout the day, which could allow them to turn off one of their hot-water heaters for a few hours if it’s not being utilized. With smart locks, managers can see when a majority of residents come home during the week, so they know when the best time is to schedule a resident event or send out a maintenance e-mail. Eventually, this kind of detail could lead to better services that are adapted to residents’ needs.

Software Hurdles

Despite success with thermostats and locks, there’s still more ground to cover before the industry sees a fully integrated smart apartment.

According to Gartner, an information technology research firm, there will be 6.4 billion Internet-connected devices in 2016 and 21 billion by 2020. While competition between the multiple hardware players in the smart home space has helped advance various offerings, it’s also caused a large differentiation in software from company to company.

Some of the hardware is running on Z-Wave, while others rely on Bluetooth or even Wi-Fi connections, meaning you’d have to use separate apps to control your thermostat, your lights, and your door if they’re not on the same system. And if you do choose one set of products that can communicate together, then you run the risk of choosing a system that could fade away in a few years. (Remember floppy disks?)

“Because the technology is changing so fast, people are wondering which one is the right technology to implement,” says Fuhrman.

Neil Stevens

Software companies have caught on to this problem, offering hardware-agnostic systems using a centrally connected hub to communicate with all of the hundreds (if not thousands) of smart products out there, regardless of Wi-Fi, Bluetooth, or Z-Wave software. The hub effectively puts all your devices on a single mobile app for easy control.

But it’s not that easy for apartments: If your apartment community doesn’t have sitewide Internet connectivity, the hubs are rendered useless in a vacant unit when the resident leaves and takes their Internet router with them. And, it’s not just renters who will need an app to control their unit—managers need different accessibility to control every unit on the property.

Although it’s critical to the success of this technology, Fuhrman says she has yet to see the adoption of a central management dashboard that controls all the units in a property, though in its current pilot with IOTAS, Greystar is providing feedback regarding multiple features a site manager would need.

Integration Options

Software firms such as Remotely and STRATIS try to provide similar solutions. They advise owners on what hardware would fit their needs, work with the manufacturers to purchase the hardware, and then provide management software and maintenance for a monthly fee.

For some apartment executives, though, the additional provider is just an extra hassle. They already have property management software that helps management control the rest of the building.

“A lot of the technologies, when they stand alone and you see them individually, they can be quite impressive, but integrating them into what you already do is another barrier,” says John Kuppens, executive vice president at Boston-based WinnResidential.

WC Smith’s Beckman agrees, saying her company is waiting for a technology provider that will integrate fully with the property management software they already have in place and offer 100% support so her management team isn’t taking on the role of tech expert.

RealPage, a property management software provider based in Carrollton, Texas, has suggested it would like to integrate smart technology controls into its software. Kobi Bensimon, vice president of ActiveBuilding, RealPage’s resident portal, says the company has been considering how to add products like smart locks to its system and is identifying a few properties where the provider can start a test program. In the future, Bensimon suggests, RealPage will seek to incorporate smart thermostats and even utility meters.

Yardi, a property management software provider headquartered in Santa Barbara, Calif., has also expressed interest in the space but hasn’t commented on any concrete steps in that direction.

Some smart apartment providers are quoting up-front costs between $500 and $650 per unit for a basic hardware package including thermostats, lights, and locks. The monthly service fee is usually $10 per unit.

Assuming properties can charge at least an additional $50 a month in rent, the investment could pay off, though some managers are finding the smart apartment living experience is more of a market differentiator that could benefit occupancy or retention rates, instead of directly boosting revenue.

“There might be enhancement in the resident experience that can indirectly produce ROI, but for some of these devices it’s going to be hard to make a direct correlation,” says Kuppens.

Fuhrman agrees, noting most of the adoptions she’s seeing are in cities with a young, tech-savvy demographic. With too few case studies out, it’s hard to determine whether smart technology leads to an increase in revenue.

While Casey has seen great returns on the Energex system, he says that, beyond that, there isn’t much else he’d consider. “There just isn’t a good-enough return or reason to do a lot of these things yet. They’re certainly on our radar, but the pricing and the return on the investment would take forever—if we’d ever achieve a return at all,” he adds.

Future Preparation

Even if apartment owners aren’t sold on adding these technologies now, they’re at least upgrading their properties’ infrastructure with site-wide Internet connectivity and excess wiring. At EdR, Casey says the student housing developer has laid additional wiring throughout its buildings, particularly in common areas and entrances, to prepare for the onslaught of connected devices to hit the market.

It may seem excessive to install it now, but if this smart home technology trend hits and a property isn’t equipped to handle the update, owners could be losing out to the competition across the street.

“No one has a crystal ball,” says Casey. “We’re just preparing for anything that comes down the road.”

If proper technologies and procedures are implemented, the smart apartment has the capability of fulfilling those dreams of increased revenue, cost savings, data collection, and enhanced resident experiences.

Some companies are starting to figure out what exactly that could look like, and others are simply waiting for someone else to get it right first. But everyone knows it’s going to happen.