The real estate sector hasn't seen a ton of innovation in the past several decades, but it appears that could be about to change. In this Fool Live video clip, recorded on March 8, Fool.com contributor Matt Frankel, CFP, asks Luke Schoenfelder, CEO of property technology company Latch, what is motivating real estate developers and landlords to invest in technological upgrades to their properties.
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Matt Frankel: I read a statistic that your product is being installed on about 1 in 10 new apartment buildings in the U.S., if I'm quoting that correctly.
Luke Schoenfelder: It's one in 10 apartments, which is actually a bigger number, so one in 10 apartment units. But yes, you read that correctly.
Frankel: What is the big incentive for builders to make that investment?
Schoenfelder: Yeah. It's two things. Well, actually, it's one thing. Real estate owners, they build their projects to generate a financial return. The way they measure that return is that operating income, they get a multiple on that operating income. Latch allows them to increase their revenue and also reduce their expenses, which both have the effect of increasing their net operating income. If you think about a building, and every building is different, a building in Manhattan, their operational costs with rekeying and revamping an apartment when somebody moves in and moves out, ridiculously high. Super expensive, because of labor rates and other things like that. If you look at a building in Kansas, you don't have the same labor rates, you don't have those same expenses, but the buildings are really spread out, and so sending maintenance staff on a 45-minute drive to change a light bulb, super inefficient. You have these different LatchOS is just, in many ways, like an operating system for computer, where people can use it to make presentations. They can use it to sell models, they can use it to play games. It's really flexible to meet the needs of specific building and a specific context.
Frankel: In other words, even though they're paying subscription revenue to you, I read that your average contract is about six years.
Schoenfelder: Yeah.
Frankel: That's actually cheaper than the alternatives in a lot of cases.
Schoenfelder: It is. That's right. Every great product you get more value out of it than what you pay for it. That's how any great business but also any subscription product works. We've seen landlords and developers be super excited about the value that we're offering them.
