Lavanda Property Manager becomes a technology provider
Lavanda, once a property management company, realises that the technology they build for themselves could help scale up other companies. They identify that large landlords could improve their yield by entering the short-term rental market and decide to offer them access to property managers that could operate their units, plus the technology to support operations. You can watch the full interview on YouTube or listen to it on Apple Podcast, Spotify, Google Podcast (US only). More stations: https://anchor.fm/secretsaucepodcast
|N of properties connected||+10,000|
|Headquarter Location||London, UK|
|Tech Used||Rentals United + API|
Get multiple properties listed efficiently and accurately on all booking websites
Maintain competitive nightly rates with real-time update across all listing sites
Automate operations to concentrate resources on business growth
We want to be effectively on as many channels as possible to increase the number of eyeballs across every unit.
According to the CEO of Lavanda, there's a large fragmentation of audiences and a lot of very interesting innovation taking place. With many players coming up in the corporate space, in the medium term let space and in the classic short term space, Lavanda needs channel manager partners that can allow their different customers to advertise on all the platforms they're interested in.
3 Pillarsgrowth, scale, distribution
Full Interview of Fred Lerche-Lerchenborg CEO of Lavanda
Vanessa: Please tell us briefly what you were doing before Lavanda and about your current position at Lavanda.
Fred: I’m the CEO of Lavanda for 1 year and previously I was the COO of Lavanda for about three years, since the founding of the company. I used to be in finance. I spent 10 years in Investment Banking and asset management where I helped build up a three billion pound global equity income fund. Then in M&A we focused on tech and telecoms. I was originally a PA investor in Lavanda and then decided to join the journey. As an investor become management, then COO, and now CEO.
Vanessa: So the CEO went into the chairman position?
Fred: Yes, that’s right Guy Westlake, the founder, has moved into a Chairman role, building the business outside globally as we expand.
Vanessa: How big is the team today?
Fred: We are 30 people, of which the majority are based in London and about half the team are tech. We have about 15 in the software team, product & engineering.
PIVOTING TO B2B TECH ECOSYSTEM
Vanessa: Please tell me a little bit about the Lavanda brand for those that don’t know it.
Fred: So we’ve been on quite a journey! We were a property management company based in the UK and had about 500 single-family home properties with full operations as a B2C brand. And in that journey we realized that there was the opportunity for someone to tackle large institutional developers who were starting to get involved in this and build a software toolkit that could unlock those units in a global massively scalable manner.
So last year we pivoted and we’re now a solely B2B brand. We speak to large investment funds on the residential side of the business, for example Aberdeen Asset Management, LaSalle and a number of big U.S. institutional owners.
They tend to own what we call multifamily, so large residential blocks up to a 1000 units, but typically two to three hundred units of build-to-rent stock. Also large PBSA built for student blocks and a range of different customers on that side.
On the other half of our ecosystem we have property managers who use our system and these are smaller Airbnb managers but increasingly larger ones as well. We then balance this ecosystem between unlocking large scale inventory from our residential partners who are interested in short and medium term lets and balancing that against our marketplace of fantastic operators.
FILLING IN EMPTY UNITS FOR LARGE ASSET OWNERS
Vanessa: Wow that’s incredible and you build this in a year?
Fred: No, so this has been going on for a while. Actually in the end we build this ourselves because we found that we’ve partnered with a lot of different people and there’s lots of great technology out there but once we got beyond about 100 units ourselves we found that the current technology was not allowing us to scale.
So for example, automated check-ins and task allocation across a multi-city expansion plan. One of the latest features we’ve launched is an integrated CRM into our platform. Leads come in via different websites, from one of our customers’ websites, we evaluate it based upon lots of data-rich resources that we have access to, then it goes through the CRM built into the platform and can then be operated by a local partner.
Property managers will find many problems as they go on that property scaling journey from 5-10 units to multi-hunderds.
So we built all this fantastic technology for ourselves primarily, but then we realized at some point that actually this was really interesting for lots of other partners out there and so we decided to shed our operations business. We passed that out to seed our ecosystem and then we signed up lots of partners. So we currently have 35 operating partners using our platform as their core PMS.
We have a very large number of multifamily asset owners who are signing up onto our platform. Through that their units are being enabled for short-term and medium-term lets. Reasons they want to do this include the lease-up of new buildings: there’s obviously lots of empty units and those can be monetized for large asset owners. For portfolios you tend to have voids which can be between 2% and 5%. Voids dependent on where you are but if you’re in certain overbuilt geographies it could be a lot higher.
Our platform eliminates 72% of all voids across these portfolios.
There’s more exciting innovative things that we’re doing. Like for example, our concept of “Resident hosting” where we actually amend the leases for residents in large residential blocks. So they can actually legally do Airbnb, Booking.com, Homeaway etc.. So effectively creates a framework for multi-family asset owners to engage in the sharing economy in a way that they haven’t really been able to do before. You know, it’s not their bread and butter.
PICK A CONNECTED MANAGER OR RUN YOUR OWN OPERATIONS
Vanessa: So if I understood it correctly, you are a middleman between great properties that may be empty and property managers that would want to run these properties, you provide the tech to run these properties and also help with the legal aspect.
Fred: Exactly and it’s all enabled via our platform. So if you imagine you’re an institutional landlord with 10,000 units across all of Europe, each of your different schemes will have very different needs and interests. Some of them might have serviced apartments incorporated into them. Some of them might just be new buildings with lots of empty space. Our platform can help you monetize the short and medium term potential in those assets via a tech platform that solves end-to-end the whole provision of the service, from marketing channels, through pricing, through to operations.
Interestingly, and I think this is unique to us, the operator can also choose to operate their own assets using our PMS. So one trend that I’m sure you’ll be familiar with, is that some of the very large operators may have a service department in their block so they’re interested in staffing themselves with their own housekeepers and local operators because they’re already there.
But how do they do the technology? Because classic long term property management systems don’t cater for this new world that we are a part of. So we integrate with larger platforms and we basically, allow all of that to happen and create a built-in PMS for those services. So large asset owners could say: “Hey look I’ve got this 500 unit block in London and I’ve got a service department and I want to run that myself but for my scheme in Helsinki or Dubai I’d actually rather outsource the operations because that’s not what I want to focus on”. Then depending on where the scheme is and we can use one of our local partners or they can use the PMS built in.
SELLING LEGAL IP & TECH IP TO LARGE PLAYERS
Vanessa: Amazing, and so how many properties are you managing that way today?
Fred: Across the world we have now 10,000 units enrolled into the Lavanda program. Now it will obviously vary when they’re actually enabled or not because the key for us is that this is all about legal and legitimate homestays across the whole platform with really big pioneers. For our blue chip clients, of course, there’s all sorts of regulations.
So for example in London you have 90 days. Denmark you have 70 days. You’ve all sorts of different and rules and different situations. But we’re expanding with large-scale partners, we just recently completed a series A fundraise with the VC Wing of Henley Investment management. They are in the private equity business have another 10,000 units across UK and the US. So there are some very large players around particularly coming from the US who are super interest in this.
But across Europe too we are increasingly seeing institutional capital rolling up residential blocks as yields get under pressure, so they’re really interested in the short and medium term strategies to increase yield and make schemes more relevant and build more stock etc…
Vanessa: So how do you scale? How do you manage to find these large partners? I mean are they popping up everywhere? Is it somewhat of a cherry-picking?
Fred: So we have a whole B2B team who effectively do large bits of consultancy work for blue-chip asset owners. These are very long sales cycles, they take a lot of investment. We’ve built a custom insurance product with one of our partners to deal with gaps in residential insurance. We’ve done a deep dive into legal structure of leases in order to create the product that amends leases for long term tenants to be able to do short term. So there’s a lot of a mix of legal IP / tech IP that all comes together in this platform.
We originally started in stealth mode with one of our first partners which were JLL, Aberdeen Asset Management and Europa Capital. For about 18 months we worked with them on a couple of schemes, just testing the product, understanding how it all worked, how it could speak to those types of customers and how we could integrate them into the entire ecosystem.
Since about December 2018 we’ve started rolling this out globally. In the end, the money markets is a relatively small world. But once you can prove to a fund manager with 10,000 units that you can increase the yields by even just a couple of basis points or X percentage, it becomes a massively important part of their toolkit. As well as the fact, they’re all really interested in tech innovation.
And we’re doing a lot in terms of booking web sites direct customer-facing portals, still, under the B2B relationship. It’s not our brand speaking to the customers, but it’s about enabling others to have a fantastic brand that’s relevant for short and medium-term lets. So for them it’s both about increasing the yields but also having a tech partner who can take them from that journey of 5 – 10 years from now. As you say, vacation rentals was a completely different business, whereas now it’s merged really and they don’t have don’t have the choice of ignoring it, because at the end of the day people have Airbnb illegally in their blocks.
Maybe some people are trying to mandate the host management companies within their blocks and they don’t know what’s going on, and they have lots of security issues. So ignoring it, is no longer an option for these large residential owners. But finding a global partner who can scale with them and give them a tech solution that integrates is actually pretty tricky for them. So that’s why we focus purely on B2B and purely on this segment.
On the property management side, we’re always looking for new partners who are fantastic operators in their local area. Because for us it’s really important that we are working with the best in the industry. So as the ecosystem grows up and there’s more and more property managers in different segments who are doing a great job and becoming more vocal and more notable, we can start to find the best ones in each region.
I was just out in the Middle East for a week, meeting all sorts of different local property managers and there’s a number of partners there we’re hoping to work with who are just fantastic. They’ve got great staff in Dubai and great operations and that kind of excellence and professionalism is what we want to champion. So that the mainstream doesn’t see this as a problem or a concern anymore. That it’s legitimized and has a good framework for being blended into the communities.
SELECTING QUALITY PROPERTY MANAGERS
Vanessa: So if I am property manager today I would apply and I’m ready to take care of these properties.
Frank: Exactly, and we have quite a straight vetting process. We meet them, we go through their platform, they tend to also be interested in using our PMS because they’re at that point where they’re scaling up and are interested in growth. So they tend to approach us because they’re like “Hey, look I’m at 200 units I’d really like to get to a thousand, how do I do that? I want to get into these markets, I know you have partners who are in those markets. How can we work together?” And as they work on our platform, we can obviously see who’s good operator in what market and help scale their growth.
So, we can effectively build their business directly by giving them inventory at a no-cost of acquisition. But also, help them actually actually manage those inventory because getting another couple hundred units when you’re 200 is a significant challenge.
Vanessa: Is branding and consistency of branding something that you look at when you get these applications? It is important in today’s world to have a brand as a property manager?
Fred: I think so yeah, in my view, and I guess you know everybody has different views on this, I think it’s important for the property manager who is sort of tech enabled which I think all of them have to become tech-enabled really. And by that I mean either partnering with the best-in-class out there or partnering and building a bit. And they need a really good operational brand. We’re starting to see rollouts out there with some really fantastic players. So there’s larger ones like Altido, who I know it’s been on this podcast before and who are fantastic operator, even with multiple jurisdictions.
But also locally in each city or country we’re starting to see two or three names who are really putting the head above the parapet in terms of quality of operations. The way they treat their guests, all of these things that are really important. And then I think there will be a divergence between then the providers of technology for those people. One of the reasons we pivoted and focused on B2B plus technologies is that we realize we couldn’t do everything. We couldn’t be the world’s biggest operator and be the best tech provider and be B2B and everything else. So I think, technology and operations will start to sort of diversify.
And our brand is now much more of a tech brand, it’s about being an innovator, it’s about being a provider of really fantastic technology for all our partners and for our blue-chip customers. It’s about providing this ecosystem to them where Aberdeen Asset Management can say “hey look I have these six or seven schemes. I know that Lavanda overall platform will unlock fantastic operators for me or unlock fantastic technology that I can deploy into.”
BUILDING MODULAR TECH AND WORKING WITH REAL ESTATE AGENTS
Vanessa: Great so, let’s talk a little bit about tech. You said you created automatic check-in, you talked about the website, you talked about CRM. It takes a lot of investment right? A lot of programmers, etc… But, tell me how do you prioritize one aspect of tech over another? How did that process work?
Fred: Yeah so, you’re right it does cost a lot of money and I we’ve raised over 10 million dollars and invested it into primarily the technology. We have a team of 15 engineers which we’re hoping to grow to over 30 by the year ends, so pretty quick.
The way we prioritize is that we initially began with finding that there were problems and situations that our tech partners couldn’t solve. So as an example we were using one provider for our website and one provider for our CRM, and they didn’t really speak that well to our core PMS. Then the whole setup didn’t work well with the onboarding process which is an incredibly delicate moment when you’re trying to get property from that first excited inbound or outbound communication (which you’ve probably paid quite a little money for!) and must ensure that it goes live.
We realized that by stitching the whole onboarding process together it would create a seamless experience: owners would be able to fill in the details and get an instant data-rich valuation in terms of earnings of their property. They could then submit it and then the property manager could write notes, log calls and follow up. Then eventually all of that information gets pulled straight through into the PMS and populates it with all the different quirks that you’ve picked up during the sales process. Therefore, there’s no risk of human error.
So you get this really seamless experience, but that’s just one example of something that we’ve spent a lot of time tweaking and playing with. And so, initially, it was about the pain points that we found. Now of course, we have a full kind of roadmap with the whole ton of different things that work for both residential partners and our property managers. We build in a modular fashion, so everything sits as a module in our business and then gets deployed to either customer group depending on the relevance. For example, the CRM that I mentioned is also deployed to estate agents.
We work with a number of significant real estate agents, including “Savills”, “JLL” and others so they can offer short-term lets to their homeowners.
So imagine an estate agent selling your home and it might be on the market for ten months. You could ask these real estate agents to sell your house for you but they could also effectively monetize it on the short-term market since it will be empty for a period time. But that lead needs to be captured in a way that the estate agent can understand that it’s incorporated. There’s commission rates, there’s a whole ton of back-end. They need to be updated on it by the property manager to ensure that it’s all tied together in one fantastic experience. You as a home seller are like “oh that was great I sold my house and my seller’s fees were paid for by this fantastic local short-term management company that partnered with Savills” for example.
At the end of the day, we have effectively three pillars of our platform. The first is growth, we grow the ecosystem by literally creating new units out of thin air and growing them for our local partners. Scaling, so the pain of scaling, so whether that’s automation in their business, whether that’s filling in gaps like the onboarding flows and all that stuff. And then the final one is distribution – it’s so important to get deep in terms of reach, customers, occupancy, pricing etc…
FRAGMENTATION OF CHANNELS & SEMI-OFFLINE CHANNELS
Vanessa: Exactly where I wanted to go to, to marketing. So your inventory goes through a channel manager, us right? So how do you choose the channels that you want to work with? Is there a strategy behind it?
Fred: We see that there’s a large fragmentation of audiences out there and there’s a lot of very interesting innovation going on. So there’s a number of players who are coming up in the corporate space, who are coming up in the medium term let space and also certain brand positioning within the obviously the classic short term space. Different customers are interested in different ways to advertise their units and on different platforms.
So, of course, they are the big ones and obviously, they’re very important to have deep integrations with. And to really understand everything from pricing to projecting the inventory and all of this. But we think there’ll be an increasing fragmentation of channels and we want to be effectively on as many channels as possible to increase the number of eyeballs across every unit. And we’re also working on a number of proprietary channels which come through our network.
So for example, the estate agents, the multifamily world, there’s a whole world of semi-offline channels which give extremely high-value bookings that we are building into the channel manager system. So we work with a number of different channel managers and partners and platforms. If somebody develops some fantastic new angle that unlocks some new channel of guests we would like all our partners to benefit from that.
Vanessa: I’m actually creating a new Who’s Who but channel edition. So I’m going out there and gathering all the channels that could make sense for our customers and getting all the lowdown so you don’t have to do it. So, as soon as that’s ready I’ll send that over. So how’s the relationship with Rentals United, are you happy?
Fred: Yeah very happy, we think that Rentals United has a pretty unique position in terms of access and depth it gives across a huge range of channels. So we are a very happy customer and we look forward to working with you in the future.
THOUGHT-LEADER IN SOLVING HOUSING ISSUES
Vanessa: Where are you going to be in three years time?
Fred: So right now we are we’ve effectively creating beachheads in number of different locations. But in three years time we hope to be in every major country globally. So effectively we are a global product and we can sell globally. We want to the first leading market partner with all multifamily operators, PBSA and all these different customer segments.
So we want to be a force for good in terms of unlocking inventory but also helping to drive best practice and compliance across all of these areas. We have been a really significant thought leader in pushing short-term rentals rather than being something on the fringe, something the media’s cautious or concerned. Something that even councils and government can feel like there’s a framework for managing this, that there is a good balance in communities between the short-term, medium-term and long-term housing and be a force for good while actually increasing the returns and assets of people are building. So we want to help solve all sorts of different housing problems that would be our main goal.
CONSOLIDATION FOR SOME AND A BINARY YEAR FOR OTHERS
Vanessa: So what are your thoughts on what’s gonna happen to the industry? I mean will multifamily take over the moms and pops Property Management process business?
Fred: I don’t think so, I think there’ll be a fragmentation. I think that the master leases bubble (if I can call it that which admittedly maybe bit contentious) will continue to grow next year. There’s clearly a lot of capital going into that and there’s a lot of growth going into that. We think there are potentially question marks over the sustainability of the financial model there, but undoubtedly that will grow.
We see that the multifamily and estate agencies and maybe also more old-school residential operators and owners will be heading very heavily into this area because I think it’s a really interesting way for them to innovate. And platforms like ourselves start to make it feasible and possible for them to do that.
I think they will run larger schemes themselves and I think they will start to run serviced apartments themselves within blocks. In some circumstances that’s super attractive and it means that they can do it under their cohesive brand across their estate. But also think there’s a massive space for medium and small and large operators.
I think there’ll be quite a bit of consolidation next year. We’ve already seen the first wave of that, but I think I think it’ll be a tale of two stories. I think there’ll be the profitable, well-run names who will start to go on a kind of virtuous circle where they start to buy other well-run companies as well and start to go on a positive run. And unfortunately, I also think there will be some relatively large unprofitable operators who may have gone for growth over sustainable business, who could get caught out if regulation tightens or if something happens, you know if the funding market dries up for them. So I think it would be quite a binary year for those scale-ups, but it would be really interesting.
The only other thing I think that will be interesting is regulation. As Airbnb comes towards their IPO I think there will be some grand bargain struck across the world that will have important effects as they want to legitimize in different cities. That may cause some people to fully follow that. I think people need to be really on top of this and be careful they’re not building their companies on sand. It’s really important to be on the right side of regulation and build sustainable business models.
Vanessa: Thanks so much, it was a pleasure talking to you. I learned a lot myself about the multifamily world.
Fred: That’s great. Thanks so much.