NEW YORK (Reuters) - A producer of “smart home” software that helps landlords cut operating costs such as shuttling keys to waiting maintenance workers or guiding tours for prospective tenants has raised $32 million from Bain Capital Ventures and the owners of nearly 1 million U.S. apartments.
Bain led the Series B fundraising round with $25 million on Wednesday for SmartRent, which is up against Latchable Inc and Google Nest for a foothold in the market for technology that helps property owners boost profit margins and generate new revenue streams through add-on services for tenants.
The remaining funds came from RET Ventures, a venture capital fund of 18 U.S. and Canadian property management or investment companies, including five real estate investment trusts. Apartment owners Essex Property Trust Inc and UDR Inc, along with Starwood Capital, the investment arm of billionaire property mogul Barry Sternlicht, also made separate investments in addition to their stakes in RET Ventures.
The companies declined to comment on what valuation the funding round places on SmartRent. Among other services, the Scottsdale, Arizona, startup allows owners to set up self-guided tours for prospective residents and give maintenance and others access to homes with a door lock code.
Investors are betting smart home technology such as remote access to cooling and heating systems and water leak detection will become standard at apartments. These functions will reduce operating costs, including insurance premiums to cover water damage, which can run to more than $10,000 per occurrence.
Access through a mobile device or a numerical lock already has saved Denver-based UDR money, kept residents happy and reduced the hassle of losing or forgetting a key, often late at night, said Jerry Davis, president and chief operating officer.
“We’ve experienced a reduction in lock-outs, so that increases resident satisfaction. It also means our guys aren’t getting called out in the middle of the night and being paid overtime,” he said.
At the REITweek conference earlier this month, UDR said it has generated a 25% to 30% return in a pilot program involving 13,300 of its 49,795 apartment units and expects to have SmartRent installed in 20,000 units by the end of summer.
SmartRent’s cost, including installing door locks, water sensors and other hardware, ranges from $900 to $1,000 a unit, Davis said. UDR expects residents to pay a $20 to $25 monthly fee, with the program’s cost paid off in three to four years and a unit’s life estimated at six to seven years, he said.
There are about two dozen connected home or remote-access providers in the market, such as Latchable, maker of the Latch digital lock system, and Alphabet Inc’s Google Nest. Last year, Latchable raised $70 million, much of it from real estate heavyweight Brookfield Asset Management Inc, which valued it at $250 million.
SmartRent Chief Executive Lucas Haldeman is a former chief technology officer of Colony American Homes, now Invitation Homes. UDR’s Davis said Haldeman impressed RETV members with his knowledge of the apartment market and its needs.
There are about 23 million U.S. apartment units and if each delivers $1,000 in revenue, the market is north of $20 billion, said Matt Harris, a New York-based partner at Bain.
Bain believes smart apartments will become ubiquitous as the technology is rolled out over the next five to 10 years. But apartment owners who get in early will be able to charge for the service, an opportunity that eventually will pass.
Remote access is increasingly an essential feature as package and food deliveries proliferate and baby sitters, dogwalkers and maintenance personnel require access while residents are away, said Yishai Lerner, co-chief executive of JLL Spark, the venture capital fund of Jones Lang LaSalle Inc.
“The adoption curve has gotten from nice to have to must have,” said Lerner.
Reporting by Herbert Lash; Editing by Dan Burns