Property Management Of The Future
Can we talk about the cadence? Because it has been a gruelling year. I should’ve invested in heat pump companies.
WA: That’s how I met Brendan, because when they released the Healthy Home Standards, I put something on LinkedIn that said, ‘This is a great time to invest in power companies. How the hell are they going to measure temperature?’ And then Brendan responded and said, ‘I’ve got just the solution.’ Cut a long story short, here we are today.
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To go to your point about friction, has that cadence forced this innovation that you’re talking about?
BVB: It forced me to make the decision to innovate around it, just because I saw the problem that there was within the industry. Will highlighted it to me, but every property manager I’ve spoken to has voiced their concerns around the implementation of the Healthy Homes Guarantee Act, how they’re going to administer it.
The law is actually quite complex when you start to delve into the building science of it and working out exactly what size heat pump you need for a given living room, for example. These aren’t things that the average mom-and-pop DIY landlord can do, or the average property manager could do. These are calculations reserved for building scientists and individuals that have essentially built the code.
That friction and itself allowed me to go, how can we build a tool that can automate it? That can make it much easier? That can give the power back to DIY landlords or property managers, where they can use a tool to understand how their rental property complies against the letter of the law, without having to try and upsell a heat pump or upsell ventilation in bathrooms.
I’ve got some of my own personal examples of family members that have had properties under management, not with Property Brokers, who’ve been given a free Healthy Homes Check and then sold fixes between $3,500 and $6,000 for things they didn’t need because the compliance company wasn’t trying to give them free inspections out of goodwill, they’re trying to sell products.
This is the problem you end up with, like in the meth testing industry. You end up with this cowboy type stuff, because no one’s been able to solve the problem properly. Instead of solving the problem and finding the solution that doesn’t try to gouge, you get all these cowboys that come up and sell products and services that are at exorbitant prices.
To answer your question, that friction that was added has definitely allowed, at least Tether, to create a product that now solves a very particular problem. It’s not Tethers pedigree. Will alluded to measurement previously.
Our company actually was burst in the monitoring space; monitoring environmental quality and energy usages of buildings for a number of different reasons. What we felt is that if the goal was to be able to maintain 18 degrees in a living room as per the legislation, what the legislation says is you need the ability to heat to 18 degrees Celsius, which is why you have to scope a heat pump. What we were saying was, is it 18 degrees Celsius? Why have a heat pump at all if you’ve actually got data to back up that that living room hasn’t dipped below 18 degrees, or it’s only dipped below 18 degrees for 5% of the total time spent in the habitable zone?
So rather than just going with a one stroke solution, you actually have an evidence-based solution. That’s where we started with the Tether solution, at least within the property management space. We quickly realised that that can be solved, absolutely, but the bigger problem is, everyone has to comply whether we like it or not.
Compliance is not something you can dodge, either you’re in the confines of the law, or you’re outside the confines of the law. Either you’re going to go to the tenancy tribunal for something that you’re in breach of, or you’re not. We needed to then solve a problem around the compliance piece and still obviously have all the other stuff.
WA: It’s a perception thing. What they don’t read about is the fact that you are living like a student, you are going all in to fund a dream, or whatever your strategy is. You’re making sacrifices to achieve a goal. They don’t read about that. They don’t consider the fact that you’re making sacrifices to build a portfolio, but at the same time, you’re also providing accommodation for people that don’t have the means to necessarily do that.
The cadence of change has been exhausting. You’ve got everything that’s happened within the industry, but then you’ve got the broader spectrum of the LVR ratios, you’ve got overseas investors. When they changed that, in the auction room in Barfoot & Thompson, where I used to work, literally overnight you would see a crowded auction room, to not a crowded auction room once that tap turned off.
That change in that and that marker was significant. Then you’ve got the bright line test of five years; you have to hold a property for five years, otherwise you are taxed. Then on top of that, you’ve had smoke alarms, you’ve had methamphetamine, you’ve had insulation regulations and now the Healthy Homes Standards.
The exhausting part is when they introduced methamphetamine, the regulation said that anything over 1.5 micrograms per 100 centimetres squared was considered to be contaminated and over the years, I’ve witnessed landlords spending hundreds of thousands of dollars decontaminating a property and wiping some people out. Some people would have had to do this and then sell the property. It’s been significant.
Then the Gluckman report came out, which was a scientist that actually approached it from a scientific perspective and said that 1.5 is ridiculously low. It actually should be 15. Although it’s not in legislation yet, it still says 1.5, but now in the tribunal, the adjudicators are working to 15. That is hugely damaging. That whole time all those poor people that have spent hundreds of thousands of dollars, and tenants as well that have been fined significantly to remedy contamination levels that probably were in the property for a long time.
Then you’ve got the insulation stuff. When we bought out the installation regulations, the ceiling, for example, had to be 70 millimetres or more. We spent three years from 2016 to 2019 working to get every single property under management up to spec. Then they brought out the Healthy Homes Standards and said, ‘Hold on a minute, it’s actually not 70. It needs to be 120.’
So we did all that work; we had all these insulation companies go into the ceilings, disrupting tenants, getting owners to pay, and then they moved the goalposts. Now we have to retrospectively go back through most of these properties and top them up to 120 millimetres.
That’s the exhausting part, they bring out these changes and fundamentally they are for the good. No one disagrees with what they’re trying to achieve. I don’t know the process that they follow, I’m not part of the select committee that makes these decisions, but history has shown us that the goalposts move and that is why Property Brokers have partnered with Tether, to take back a bit more control and to not outsource the assessment of these properties.
They’re probably going to move the goalposts and change stuff and we should, as an agency and as an industry, get to an ability where we understand Healthy Homes Standards and we don’t have to outsource this stuff.
As Property Managers, we can go through a property, use Tether’s app, assess it, look at the five areas and provide a certificate or a report of things that need to be done. It’s been an interesting journey, but you learn and to have people like Brendan come into the market, it’s a gutsy decision to do it, but history has taught us a lot and I think it’s the right thing to do.
Why is it a gutsy decision?
Because I’m asking our property managers to do more work. We’re going through properties every three months to do routine inspections. 99 percent of insurance providers require quarterly inspections.
We’re going there anyway, why would we not tack on the assessment while we’re going there to do it? Basically 50 percent of the working week for any agency is inspecting properties. What I’ve asked them to do is, while you’re there anyway, do the assessment, which is adding 20 to 40 minutes, depending on the size of the property. It’s a time thing.
It’s just adding a little bit more pressure. It’s asking people to up-skill. We’re doing a lot of internal training, becoming experts on the five areas of healthy homes. That’s the challenge, that’s the risk. There is no risk as a company because the Healthy Homes Standards in the legislation does not require a professional to assess it.
My property managers know every property in their portfolio far better than any assessor. That’s the risk. Property managers are stretched because of all these changes over the last five years. They’re tired from all the change, now to ask them to do the healthy homes inspections as well, it’s just stretching that elastic a little bit, but it’s the right thing to do.
Can you talk about what Property Brokers do to go above and beyond?
For a long time, what’s happened is without technology like Tether, we’ve become administrators and if you take away inspecting properties and placing tenants, what we’re doing is just processing, administering, invoice payments, all that kind of thing. We stopped managing properties, we were employing people that could administer and we’re very good at it.
A property manager by definition, in my mind, means that we can walk into a property, we’re not builders, but we can see what needs work. What we’re trying to do is bring that back. We’re trying to be New Zealand’s best team and to be New Zealand’s best team, you’ve got to push the boundaries, you’ve got to try new things. You can’t continue to do what you’ve always done, because nothing will change.
We’re trying to be good at property management to advise our clients, to assess the properties, to understand all the components of the Healthy Homes Standards. You go and ask a hundred thousand property managers in this country to name the five areas of the Healthy Homes Standards and what you need to do to get each area done, 90% of them would look at you blankly because they outsource it.
All our tenancy agreements now are drafted and done for us, you don’t think about anything anymore. It’s just become this process. I want to manage properties, I want us to be really good at adding value. If you go to a good accountant, their fee is offset because they will save you that amount of money. If you come to a good property manager, a management fee should be offset for that year because we’ve helped you to make good decisions. That’s the goal.
What was the catalyst for you to get into the technology game, Brandon?
BVB: How far back do you want to go? My background is systems engineering, so building server farms and instructing operating systems. I used to work for a company called CCL, Computer Concepts Limited. I was a senior systems engineer and then moved into pre-sales technical consulting and then worked at a software development business doing a similar type of thing, but my skill set has always been engineering.
Building stuff, not so much on code, but more on administering systems and putting things together. But also, I’ve always been an entrepreneur. For me, I’ve been starting businesses since I was literally eight years old. I’ve had a whole string of really random businesses, from tuck shops to dance and movement studios, to a whole bunch of different stuff.
I’m a South African immigrant, I immigrated here 11 years ago. My first entrepreneurial venture in New Zealand was in blockchain, where myself and a couple of my mates built the first ever Bitcoin payment gateway in New Zealand in 2013, a company called Cryptics.
We were integrated into point of sale systems and we created this awesome user experience for spending Bitcoin at point of sale. But it sucked because no one was spending Bitcoin. The system worked really well and we had lots of vendors on board because we were charging no transaction fees and we’re paying them 24 hours later. We were making money on the spread.
So that worked well from that perspective, but we didn’t have anyone actually spending it because Bitcoing was going up and down, up and down. Your coffee today cost you $5, and the next day $2.50, and the next day $100, depending on the value. Because it wasn’t stable, in terms of its valuation, people were worried about spending it today because it could be worth a hundred dollars tomorrow.
What we formed during Cryptics was this phenomenal development team that consisted of software developers, electronics engineers, myself and others. So when Cryptics wound down, we wanted to find something else to build. We didn’t really know what else to build, so we started another company called Nylo.
The idea of Nylo was we would go into SME businesses and figure out what software they wanted to build that they didn’t have any upfront capital for and there was no SAS product that they could leverage. We would ascertain whether there was value in the idea and then we would future-sign a SAS product going forward, once the product was built. Then the IP belongs to us, because we actually took all of our own time and money in building this thing. We’ll do it all on our own backs, but you just agree to pay when it’s done.
We also then have a customer whose problem we’re solving onboard with us throughout their entire problem, which is the issue that we had with Cryptics, who never actually had a customer, whose problem we thought we were solving, we just believed in the tech. We thought it was awesome tech, but we didn’t realise that there wasn’t any customer to actually sell it to.
One of the first companies that took us up on this idea was the New Zealand Green Building Council. We proposed to build a platform that would automate the Homestar process, when Homestar was proposed to be included into the Auckland Unitary Plan.
Homestar went from being a misunderstood and very small piece of the New Zealand mental space, at least from a housing point of view, to all of a sudden being catapulted into notoriety, as it got proposed to be put into the Unitary Plan and had this flood of applications coming into the company and no way to scale. They were doing things with spreadsheets and clipboards; it was a very, very slow and arduous process.
We proposed to build a platform that automated the whole thing for them, but of course we can’t sell that to anybody. It’s very specific to the NZGBC, so how we decided to capitalise on that is we would just clip the ticket on every application that came through from here on out until the end of time.
When we did a revenue projection, we looked at how many applications are coming through. If it makes it into the Unitary Plan, you’ll have around 10,000 applications coming through every single year as houses start to roll in. We did some numbers and decided that it’s a really good revenue model. Then we did six months worth of R & D on it, only for Homestar to be ripped out of the Unitary Plan and their CEO to move on.
Andrew Eagles and Sam Archer got brought on and we sat down with them and said, ‘Look at what we’ve done, are you interested in taking this up?’ And because Homestar wasn’t in the Unitary Plan, they said, ‘We’re new on the block, we’ll take 12-24 months and come back to you.’ But I thought, ‘Bugger that, I’m not going to sit on my hands and do nothing for that time.’
So what we’d figured out during those six months was at least how the NZGBC saw a healthy home, from a design or modelling perspective, but we also saw some problems with it. We saw problems in the fact that it was all just predicated on a model and it had no evidence to back the model up. This was therefore validated from us through a number of building scientists and passive house scientists that we’ve been working with throughout the prototype period.
What came out was the modelling that Homestar does, or that any healthy home certification does is great, but what you actually need is a post-occupancy evaluation method that takes what the model thinks it does and backs it up with evidence and wraps it back into the model to continuously improve it.
What’s required from a data perspective is monitoring around environmental quality, energy usage, consumption. Once you put people in a house, what can you monitor to show how that home responds to that occupant behavior, take all that data, put it back into the model to improve the model, so the next one you build is a better home. Warmer, drier, healthier, more energy efficient, more sustainable.
Unless you do that, you’re always building houses on a model that’s unvalidated. The problem with the validation model is that it was always predicated on very, very antiquated systems. They weren’t cloud-based, the monitoring equipment had reliance on the buildings utilities, you have to plug them in, it’s connecting to wifi, there were data issues; it was a nightmare. So those architects or designers that decided to do post-occupancy evaluation were building the solutions themselves, using Arduino boards and some kits and all sorts of stuff.
Because they were data geeks, they would do this, but it wasn’t a scalable solution. So then we went, ‘How do we make it scalable? What can we do? How do we take this concept and what we’ve done and build a scalable solution that can be accessible to anybody?’
We came up with some prototypes; we built a low-power, wide area IT-connected environmental quality sensor that was battery operated for long periods of time – three years on six AA batteries – monitoring all these different things that plugged back into the model to validate it. But we weren’t going to do the same thing as Cryptics, we weren’t going to spend hundreds of thousand of dollars building this thing unless we actually had a customer that wanted to buy it.
We’d gone through this whole process, built the prototypes and then went, ‘Who’s the customer?’ It’s not a business to consumer product, you’re not going to go down to Noel Leeming and buy a Tether product because it works on an IOT network, so there’s a subscription basis because it’s not Wifi, so you’re having to pay the network operator a monthly fee to have the data access. Consumers can’t wrap their heads around that kind of thing.
They want to know from a value proposition perspective, this solution is ready for large scale property management or development organisations that have that financial and social responsibility for the healthiness of the asset and the people inside it. That’s state housing, it’s aged care facilities, it’s schools, it’s daycare centres where you’ve got hundreds of thousands of dollars or hundreds of millions of dollars in maintenance costs. It’s all around how a home is performing.
So that gave us targets like, who do we go sell to? In December 2017 we ended up winning a pilot project with Housing New Zealand called Smart Homes Pilot, which looked at monitoring 178 houses in Palmerston North and Lower Hutt for an 18 month contract and we had to build a thousand production sensors within five months and we had nothing. That was how Tether started. We won this contract, I quit my job, put all my money into Tether. We’re not VC backed or anything, it’s all my money and some friends and family money that’s in the business.
We built Tether. It started from a monitoring perspective and now the whole monitoring side of the business has scaled massively. Now we do energy monitoring, environmental quality monitoring across government sectors and schools, and a whole bunch of other stuff. That modelling piece that we built was, how do you make the monitoring data meaningful? You have to apply context to the monitoring data, which means you need spatial information, all of that stuff makes the monitoring data meaningful at scale. So there was that modelling engine that helped us build the compliance app, which is where we are now.
We’ve got this modelling engine, what can we do with it? The property management industry has got this issue because the sensing business didn’t work in the property management industry. Why? Because landlords don’t give a toss. They don’t care about the environmental quality or energy usage in their houses. They’re more interested in compliance and return on investment.
Tether could never win in the property management vertical, it’d be very difficult without a core proposition of monitoring. But when we found out that there was this massive problem with compliance and understanding how to automate it and make it simple, we went well, ‘We’ve got this modelling engine that we built for our monitoring business.
We can actually edit and create value out of the modelling engine to create a compliance-based workflow that property managers can now, with our app, go through a rental property and run through the whole compliance process end to end. They don’t have to understand the complex math. The app will just walk them through the process end to end.
