Thriving On Repairs: How Elevator Contracts Take Advantage Of Property Owners With Ashleigh Wilson

Elevator contracts can be tricky to understand, and they're often hidden in the fine print, and they usually cost more than you would expect. This video explains what elevator contracts are and how they work.

AuditMate is the first-ever SaaS company to help property managers get more from their elevator contracts. When you sign up with AuditMate, you'll get the clarity you need to save money, time, and headaches.

For More Information Visit https://auditmate.com/

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Thriving On Repairs: How Elevator Contracts Take Advantage Of Property Owners With Ashleigh Wilson

You've got this fulfilling circle here. Our self-fulfilling circle here, where you've got these elevator companies not coming out frequently enough, so the elevator breaks. The elevator breaks, so they get to bill for unnecessary repairs and services. Sometimes sell new or unneeded equipment or upgrades that aren’t even covered by the maintenance contract. This continues and continues, and that frustration led you to build Auditmate.

I believe that customers do not need to be elevator experts. They need transparent and honest information. Our clients are the best person at making decisions for their own building but they don't want to deal with any of the details and the heavy lifting that comes with managing an elevator contract. It's frustrating. The back and forth, the manipulation, and the contracts. Babysitting, for lack of better terms. I built software to babysit for us.

It's not just that the maintenance contracts are one-sided to the detriment of the client. It's also that these things break, and when they break, you gave a statistic there. What was it? $10,000 per hour that the elevator isn't working for one of your clients. It's 2% to 5% of the building operating costs but it ranked in the top three pain points.

When we did our due diligence before we invested in Auditmate, we owned hotels throughout the US. We talked to people that also in a lot of real estate, especially commercial. Elevators are a pain point. For some industries like you are a hospital. You cannot afford for your elevator not to be operating properly. You've got elderly people who need to access a certain floor in the hospital. What are you supposed to do? Have them walk up and down the stairs?

Your surgery cars. Your emergency room cars. That's true. What was staggering for me, we have been monitoring for contract completion prior to Auditmate. On average, it's around 50%. Clients are only receiving 50% of what they are paying for. This includes the hospitals that we manage. That, to me, is insane. You would think the hospitals would be better, and it goes back to the human element. What if that was your grandmother in that elevator going up to where she needed to be?

Customers do not need to be elevator experts. They need transparent and honest information.

This is the frustration and the danger with PropTech or real estate. PropTech is a solution to the problems in real estate. We are dealing with real buildings here. When you do real buildings and something logistically heavy like vertical transport, things can break. When they break, there is a real cost to the human beings inside that building. Lack of maintenance can cause some serious issues.

We've had buildings falling down due to bad natural weather disasters. You've got roof's leaking. You've got elevators not working. You've got AC and HVAC. The problem with real estate is that you are dealing with hardware that can break but you are also dealing with systems. By systems, I don't mean the hardware. I mean, companies. You are dealing with systems that thrive on the fact that there will always be maintenance and repairs needed. One correlates inversely to the other. The less maintenance, the more repairs. The more, “Why do I need it?”

There's a danger with PropTech and real estate generally. PropTech can help if it's done well. PropTech can be a problem in the case of these elevator companies selling solutions that are closed. They cannot work with anyone else. I'm sure that's in the elevator industry. I know that's the case with census throughout other companies where you can't touch that hardware. It carries a proprietary system. It makes sense. If you are a large company, how are you going to build a moat? Why don't you have proprietary hardware that can only be serviced by your team that requires special software?

Isn't that different when it's an oligopoly? Shouldn't that be different? If you look at like destination dispatch equipment. It's the new elevators. It's the fanciest tech that's out there now. You move people quicker through the building but no one else can work on that equipment. You think about when a building gets built, it's the contractor, the architect, and the development team that purchases the elevators. The owner or the property manager is the one that has to deal with that for the next 30 years.

PTVC 31 | Elevator Contracts

This developer buys an elevator that's completely proprietary, and now, the owner is married to that elevator company for the next, hopefully, 30 years. Maybe shorter if their elevators aren't being maintained but they can't go to another company. They often have a hard time getting a good maintenance contract because the contractor or the elevator company knows they can't go anywhere else. They pay more forever. They get vague contracts the entire time. At the end of that time, they must modernize their equipment to leave that elevator company.

When it comes to the maintenance side, are you seeing a shortage of labor for maintenance? We are seeing a shortage of maintenance tech staff, at least when it comes to real estate in many regions throughout the US. It’s very difficult these days to find a competent, qualified maintenance tech worker to deal with a lot of the building repairs and issues. Is that problem being repeated in the elevator industry? Is that why it's so difficult for these elevator companies to comply with the maintenance schedules that the client expects? When in reality, they are only getting 50%.

In some cases, with you, some people are getting way worse, especially if they are in a market. We talked to a group in Vegas. They were a medical building in Vegas. They were saying that if you are not in a casino, you are not going to get the best treatment because casinos are lucrative there. The maintenance staff are focusing on the casinos and not as much on the medical buildings. That's an interesting insight. Why do we have the shortage? Tell me. It’s not a shortage but a lack of compliance. Why aren't the elevator companies going out?

There's no awareness. The industry is so niche even from property managers and facilities managers. Less than 2% of the educational content has anything to do with vertical transportation. Even within the industry itself, it's riddled with nepotism. Every mechanic has an uncle, a brother, or even me, like being a woman in the industry. They are like, “Who's your dad?” Without even knowing who I am because the odds are, my dad is in the industry. He is but to find a woman, especially a young woman in the industry that isn't related to someone, is difficult.

The elevator industry represents everything that's wrong with real estate.

The shortage is understanding and awareness of the industry. There is a lack of qualified people but that's due to awareness of the industry. Like feeding into the workforce. I feel like that's often an excuse. There is a shortage but is the shortage as a whole, versus being in the maintenance side of the house, versus putting all of the people on a new installation, modernization or things of that nature?

It sounds like the elevator industry represents everything that's wrong with real estate. I can say that too because I invested in the company. I felt strongly about this investment but the lack of diversity. You are talking here as a female leader within the industry. As you've described, quite sexist. Those weren't your words but that's pretty much what you are saying. An industry that thrives on information symmetry to the detriment of the customer and the benefit of the shareholder.

The question that I have been asking myself for years is like, “How are customers not mad because I'm mad? How are folks not rioting in the streets about losing so much money, millions of dollars?” My stepdad told me the story of the strike in the early ‘90s in New York City. The elevator companies lost a ton of money.

At that time, elevators were serviced monthly. The contracts read the same this periodic but elevators, in most instances, were serviced monthly. The elevator companies needed to recoup what they had lost. Each of the big four was figuring out what they were going to do. They dropped the number of times that they went from monthly to quarterly or every other month, and no one noticed. Customers didn't say anything. Since then, it has been like the boiling frog theory.

PTVC 31 | Elevator Contracts

It dwindled and dwindled, and it takes so long for that equipment to feel the weight of that. That by the time it gets to the cycle of things breaking down, you can't pin it back. Several years ago, you would start doing less maintenance, and this is what caused the breakdown. I've continued to ask like, “How are people not mad?” The general feeling is most clients don't trust elevator companies but most don't have another way out.

Third, it has never been a place on the P&L where you could save money, ever. I paid the bill. My dad paid the bill. My grandpa paid the bill. When you talk to building owners or folks that have been in the industry for a long time, it's what you do. You have to have vertical transportation. You can't service it in-house. You pay the bill.

In some earlier episodes, I talked about my philosophy of investing in PropTech. Part of that philosophy comes down to looking at the operational costs of running the real estate, looking at the line by line. There, you can try to figure out what PropTech solutions can help you cut costs because ultimately, if you can't cost, you benefit your client. If you are the real estate owner, you hit the home run because if you can operate that building at a lower cost, your net operating income increases. You can then trade at a very nice valuation, which is a function of cap rates sometimes.

Ultimately, you can get better financing or sell the property for much more. This is an example of that thesis and action here. An example where people don't even realize this is an element you can save on. It ranks in the top three but it seems to be something people always complain about in the industry. It's a running joke. I have been in conversations where we've looked at some construction opportunities. Everyone strongly recommends against elevators but you still need an elevator. Everybody is like, “They are going to break down eventually.” You figured out why they break down eventually. They shouldn't break down eventually. If they are maintained well, they should last.

I don't think the problem is that they break down. Clients expect that. As you said, everyone expects that they are going to break down. Where I find the hesitancy is in the interactions with elevator companies. They are emotionally draining. It's so difficult. Clients will be like, “I reached out ten times to get a certificate of insurance. My elevator has been down for five days. No one has come out. I can't get this invoice corrected.”

It's the smallest thing that ended up tanking someone's week. They no call, no show. It's this arrogance of, “You need me. I don't need you.” It's so difficult for clients to deal with. When we started Auditmate, we expected clients to want to drive this online portal to see what was happening with their invoicing and proposals. I kept being told, “I don't care. Do it.” That's where our enterprise model came from, where I was like, “Give it to me. We will do it for you. We will manage all aspects,” because they don't even want to look at it anymore. It's like buying cars on a used car lot. They are like, “I'm done.”

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About Zain Jaffer

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as “Forbes 30 Under 30,” “Inc. Magazine’s 35 Under 35,” and the “SF Business Times Tech & Innovation Award.” He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.