Landlords Nationwide Make a Flat-Out Effort to Wire Their Apartments

Some people choose apartment complexes for their location, their rent or their swimming pool. Frank Suwalski chose his for the high-speed Internet connection.

Suwalski, owner of an executive search company, works by day in his Costa Mesa office. Yet his most productive hours are in the evening, when he does research in his Tustin home using an Internet connection that is up to 40 times faster than most modems.

“As a renter, I am getting spoiled,” said Suwalski, who moved into a unit owned by Irvine Apartment Communities three months ago with his wife, Deanna, and their four children.

Suwalski is among the early beneficiaries of a national trend to bring high-speed Internet access to apartment buildings and offer renters power comparable to institutional grade connections. Typically, landlords will bundle the Internet service with cable television and telephone service as part of a menu of telecommunications services for apartment residents.

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For landlords, these services are both a marketing gimmick and an additional source of income above basic rent. (The Suwalskis paid $160 in installation charges, plus $45 monthly, for their Internet service.) On a national level, these services could someday represent as much as $4 billion to landlords annually, according to telecommunications consultant David Lerten, chairman of G&NT; of Irving, Texas.

With 20 million units nationally, the apartment market is becoming the beachhead for a wave of telecommunications services. A number of the nation’s largest telecom companies, including GTE, AT&T; and major cable companies such as Cox Communications, have targeted the multiple-unit residential market as a means to sell communications services on a mass scale.

In many areas of the country, in fact, apartment renters will get high-speed Internet sooner than the owners of single-family homes, according to Lerten.

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The biggest, and hence most sought-after, customers are the real estate investment trusts that own thousands of apartment units. As public companies, the REITs need to show earnings for investors, and such value-added services as high-speed Internet allow landlords to drum up additional revenue above basic rents. Sometimes landlords create their own telephone and communications companies. More often, apartment owners form partnerships with telephone or cable companies to provide the service and split the fee with the landlords.

Landlords may also use the Internet in other ways to generate revenue, Lerten said. Merchants, such as pizza parlors or rental-car agencies, can buy advertising on landlords’ Web sites--in some cases covering thousands of apartment units in several states. Landlords might then receive a small fee for each pizza sold or car rented.

For consumers, high-speed Internet connections are still new enough to represent a marketing advantage for owners and managers who are first in their local markets to offer such telecom services.

“These services sell themselves,” said Greg O’Berry, senior vice president of AMLI Residential Properties, a Chicago-based REIT that owns and manages 18,000 apartment units in seven markets. AMLI touts its high-speed Internet connection in print advertising and in all of its leasing presentations.

Irvine Apartment Communities, a public company spun off from the Irvine Co., appears committed to its goal of converting all of its Orange County assets into “smart apartments.” In the last six months, the company has upgraded 10 apartment complexes, containing about 3,000 apartment units, and plans to convert the remaining 12,000 units within the next year, said treasurer Scott Newnam.

For the time being, high-speed Internet and other communications services are about marketing first and about ancillary income second, Newnam said. “The real goal is to provide extra value for the consumer,” he added. “If we provide [consumers] with a better service, we will hold them for a longer period of time.”

Just as cable became a must-have item in apartment complexes 20 years ago, so high-speed Internet and other telecom services promise to become indispensable in the near future. The service may appeal particularly to young professionals who work in Orange County’s many technology companies and for whom Internet access is a professional necessity.

The meeting of real estate and technology is likely to have a lasting effect on the way buildings are designed and built. Apartment architects now routinely include extra underground channels and additional conduits in walls to accommodate the electronic “pipes” that bring Internet, cable and other telecom services to apartment residents.

The intersection of real estate and technology suggests that apartment managers must not only contend with maintenance issues like clogged toilets and leaking roofs, but must also contend with failed Internet connections, poor cable-TV reception and other slip faults of the technology landscape.

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One apartment manager who is dissatisfied with technology service is Sue Ansel, vice president of Gables Residential Trust, a Texas-based REIT with 40,000 units under management throughout the Southwest. By her estimation, the company’s cable and telephone provider, which she declined to name, fell short in both response time for repairs and in accuracy of billings.

“It is real important for property owners not to get caught up in the glamour of the offerings and overlook the very, very basic issue of customer service,” said Lyn Larsen, director of resident services for Avalon Properties, a REIT that manages 22,000 units in the mid-Atlantic region.

“If there has to be a service call,” she added, “will the [Internet service provider] commit to coming within two hours, or will it be some time tomorrow?”

Such issues, she adds, are “the kind of things that can drive residents nuts.”

Indeed, some East Coast apartment buildings have suffered an exodus of tenants because telephone and cable service provided by the landlord was so poor, according to Lerten. “When a building goes from 93% occupied to 88%, you know what has happened,” he said.

Beyond service, landlords must also accept the fact that any telecommunications technology has a short life expectancy, said Dick Mehrer, chief information officer of Bay Apartment Communities of San Jose.

“Remember,” Mehrer told a group of apartment owners and managers last spring in Newport Beach, “all this technology is only good for the moment that you put it in.”