Lukas Krause Sees Opportunity for Real Property Management System to Influence a Fledgling Industry Niche and Establish a High Standard of Service.
Property Management Business Solutions, North America’s largest property management company and franchisor of Real Property Management, promoted Lukas Krause from COO to CEO this past March. Think Realty recently asked him about the direction of his company and industry trends. As told to Susan Thomas Springer, edited for brevity.
Think Realty Magazine: What have you focused on in your first few months as CEO?
Lukas Krause: Realigning the executive team to be aimed at accomplishing the objectives we have—because we have some pretty ambitious goals and targets that we want to get knocked out in the next 36 months.
What’s on the horizon for your company?
Our goal is ultimately to elevate the standard of the industry as a whole—it’s a very fragmented space. The barrier to entry to be a property manager is low, so there are a lot of great professionals out there, but there are also folks who are not as sophisticated and at times muddy up the water or give the industry not a great reputation. So we want to be the driving force in elevating those standards.
We believe we can do that through leveraging different technology and systematizing how we operate. So by having a much more standard and consistent platform and creating visibility at the task level, we think that we can provide a much more consistent product to the customer, ensuring that we communicate more effectively, things don’t fall through the cracks and we deliver a far superior product.
How can you influence the industry?
We believe in training and educating the consumer, so there’s different things—blogs and communications—that we’re putting out there and training platforms we’re exploring.
I think it’s educating not only the homeowner who’s looking to outsource their property management needs to a professional property manager. Additionally, it’s educating tenants. There’s a lot of opportunities on both sides of the equation to create greater awareness because most folks aren’t as informed on their rights. It’s just not a mature industry. It hasn’t evolved like other segments where technology has done a great job of creating greater awareness and knowledge.
Obviously, it’s going to take time, given it’s such a large segment, but we think we can play a big role.
What do you think sets you apart and has helped you garner industry awards?
I think a couple things. If you look at our core values and our mission, it is to really be the most respected property management company out there. We have the strength of 280-plus offices, all pushing in the same direction, sharing best practices, really innovating and driving the process forward.
So, you have the collective strength of one of the most powerful collections of property management professionals on the planet. That becomes a very powerful force. I’ve been around a lot of different franchise concepts, and this is a very open and generous group who’s willing to share ideas.
It’s really core to who we are—trying to raise the standards and also to innovate and push forward. I see myself as one of the custodians of the brand to continue to deliver those platforms for that to occur.
You’ve mentioned innovation a couple of times—can you give an example?
Probably a multitude of things as we look at philosophically how we approach the onboarding of a new homeowner or a tenant. Additionally, we have from a technology standpoint really shaped our software platforms. We migrated over to a new software platform, and we help reconfigure what the owner and the tenant portal looks like.
The improved portal is more convenient for both the renter and the landlord?
Yes, it just didn’t have some of the functionality needed. Now information is easier to access and in real time. There were enhancements that made it a lot easier for the owner or the tenant to access their information and not have to get on the phone for a clarification. It’s more self-guided, so they don’t have to rely on the human element.
You’ve said you want to revolutionize the customer experience. How will you do that?
This industry is so fragmented. We’re the largest in the country, and we only make up probably 0.2 percent of market share, so it’s very insignificant in the grand scheme of things. But what we’re trying to do is be more uniform in our approach. We’re looking at being much more consistent on how each of our offices executes, so there’s calibration of service delivery.
We’re going to be pushing toward trying to be a world-class data organization to measure, monitor and track everything to really calibrate and refine how service is delivered and, in turn, deliver superior results to the customer.
How has technology changed your industry?
Technology has played a huge role. If you look even 10 years ago at lead generation, there was so much done by networking referrals with Realtors. Now finding tenants has gone online. Technology allows you to do remote showings without a leasing agent present. There are so many different things creating flexibility and the freedom to access greater amounts of territory without having to have a physical presence. There’s always going to be a need, but it’s helping to streamline a lot of the more cumbersome things.
To the customer, if they’re able to use their credit card, scan into a lock box and access a property, they can do it off-hours. It’s more convenient for them, so they’re not having to sneak out during their lunch break and coordinate with their spouse to go see this home. We’ve seen things like that help reduce the cycle time when it comes to placing a tenant in a vacant property. And there’s definitely safeguard measures with appropriate levels of insurance to protect against unwanted situations.
What economic or industry issues should landlords be tracking this year?
As you’ve seen home values and rents continue to rise, one thing we get concerned with is will home prices and rental rates grow faster than wages? Are we going to get to a point where that will correct? Most indications are that would occur.
Additionally, we’re looking at the supply-demand equation. We’ve become more of a nation of renters. Back in 2006, it was a little over 69 percent for homeownership rates, and today it’s 63.2 or 63.3 percent. You have new construction not recovering as quickly, so will they be able to ramp up quickly enough to create enough new housing to keep pace with this demand? Because household formations are on the rise, so it’s a great place to be, from an investor standpoint.
You’ve just got to be really dialed in to how that plays into your local market. In markets like Denver that are at all-time highs, is that sustainable? Is there eventually going to be some sort of correction? They’re investing heavily into lots of multifamily complexes in metro Denver that’ll help add supply there. There’s so many things at a local micro level that come into play even though I’m talking more on macro trends.
What demographic trends are you keeping an eye on?
Millennials obviously are in everything you read about changing behavior—and home ownership rates for 20- to 34-year-olds has dramatically dropped. But if you look over the last five years, the fastest growing segment in new renters is over 50.
Those individuals are probably used to having a single-family home and are trying to simplify their lives and not have as big a house or yard. But they’re going to want some of the common luxuries that come with a single-family home without the headaches of a big lawn or a yard to maintain.
How can you select markets where property owners are likely to be profitable?
It’s obviously knowing your cap rates and being well-informed on the local market and what trends are going on. I think there are always areas that will drive higher rental demand. For example, is it near a teaching hospital where there are professionals who are typically renters? Is it near a military base? Those obviously would generate more of a rental turnover over a couple of years. So, those are always easy, bankable kind of markets to look for.
It’s hard to single out each market because, quite frankly, it seems like there’s almost little sub-niches within each market that have opportunities. Ten percent of the homes on average are rentals. So if you talk about a Phoenix market, where the population is several million, you can almost create your own sub-niche within that.
Obviously, school districts play a very heavy role. Typically, for people looking for single-family homes, education is usually at the top of the list. I would look at ideal guidelines rather than single out a market because we see strength in every market we’re in. It’s hard to say if there’s any market where we’re going, “Oh. This one’s really outpacing it.” They all have their own unique elements.
What’s your best advice for being a great property manager?
Education. It’s not only buying well and understanding the market dynamic because if you have an asset, you get educated very quickly. There’s a lot of risk if you do this poorly.
You can expose yourself on a lot of different fronts if you’re not complying with local municipal regulations. You could be incurring fines for not doing things correctly. You could put yourself at risk by being sued by your tenant for not complying with fair housing. There are so many exposure points, and so it’s kind of “proceed with caution” if you’re going to manage your own assets.
The consequences could be high without the proper know-how.
Correct. That’s where we look at legislation and things that don’t show up on the radar as much to individuals. It’s almost “ignorance is bliss” until there’s a big problem. Look at the percentage of people who sell their own home. It’s very small because it’s pretty complex, has some liability, and that deters people from doing it. But the liability on property management, I’d say, pales in comparison because mistakes can be compounded on a daily basis and become astronomical.
So, I find it interesting that people who do “For Sale By Owner” is a small percentage, but in our space, (self-management is) a higher percentage when the risk is even higher. So that ties back to elevating the standards. I don’t think a lot of people even know that there’s a viable option out there or that there are companies who will manage your assets for you.
We want to elevate standards for our tenants, giving them a superior experience and a well-managed home. Additionally, with owners and investors, we want to keep them safe and protect their asset. In most cases, that’s their biggest investment, and we take that quite seriously and want to make sure we do that with the utmost care.
Before joining RPM five years ago, you had great experience in financial services and telecom. What did you gain from Quiznos?
Quiznos was really my introduction into franchising, and so I was fortunate there, while they were going through their rapid growth, to wear a lot of different hats. I grew up in my father’s restaurant and just have a great deal of passion to help the small business owner.
What makes you want to go to work in the morning?
There’s a couple things. I love the four-wall economics of this model because growing up in restaurants and even being in franchise restaurant concepts, the margin for error is very lean. This one is a very friendly, forgiving model, because it’s a service-based business. You’re not sitting on inventory—so I find that quite attractive. I look at a space that was just ripe for innovation. It’s been very fragmented, traditionally really driven by mom-and-pops.
Multifamily is much more mature because that’s where the big dollars went—so there was a level of sophistication. Here, there’s a chance to shape an industry and elevate the experience of our customers. And there’s not a lot of opportunities out there to do that. So, that’s what helps me get up at [4:30] in the morning with energy because we really have a chance to change an industry—and also deliver a great product and raise the standards of what customers should expect.