Deep Dive: Proper

Technology is changing the property management industry in ways that are both obvious and understated. Specifically, centralization and automation are giving multifamily managers true economies of scale for the first time, opening the door for new business models and approaches.

At the same time, private equity-backed rollups have never been more popular. Per S&P Global, PE firms are sitting on $2.6 trillion in dry powder, much of it allocated for M&A activity. And services have been a hot category, with everything from landscaping companies to veterinary clinics to IT services as prime targets for rollups.

So it was inevitable that the rollup model found its way into multifamily property management, an industry that offers a tantalizing combination of scale and fragmentation for PE buyers. Today’s letter will explore this trend through one company tackling it head-on: Proper, a management firm launched by a team with experience at the intersection of multifamily and technology and backed by a firm fresh off a 130,000-unit European property management rollup. We’ll tackle:

• The rise of the tech-enabled real estate services rollup;
• The Proper story and plan;
• Brand, technology, and their roles in third-party management;
• The future of small property management firms.

The Rise of the Tech-Enabled Rollup

Real estate has not been immune to the proliferation of tech-enabled services rollups. Many high-margin services businesses, after all, serve real estate clients. Landscaping, accounting, janitorial, and trades such as HVAC and plumbing are all plum targets for rollup strategies, and stories abound of Harvard MBAs spending their first day on-site at the plumbing contractor they now run.

Large real estate services businesses have also done their fair share of M&A. Cushman & Wakefield, for instance, completed a number of TPG-backed acquisitions of commercial brokerage and services firms prior to its IPO in 2018. And Compass pursued an aggressive, venture-backed rollup of residential brokerages paired with a proprietary technology stack ahead of its 2021 IPO.

Similarly, residential property management has been well within private equity’s crosshairs: several of today’s largest multifamily managers have been built through PE-fueled rollups. Asset Living, for example, rapidly scaled to more than 450,000 units under management nationwide in recent years, making it the second-largest operator in the country after Greystar. And Greystar itself has been fairly acquisitive, buying rival Alliance (and its 130,000 managed units) for a rumored $200 million in 2020.

Venture-backed companies have also entered the fray; Alfred – backed by NEA and Adam Neumann, among others—purchased property management firm RKW in 2022 and merged with Quarterra last year, growing to 52,000 units under management. And venture-backed SFR manager Mynd grew to tens of thousands of units under management through acquisitions before selling to Roofstock in 2022.

Now, a team of multifamily and tech veterans is taking a somewhat different approach, looking to build upon—and learn from—the rollup stories of the past decade.

The Proper Story

Proper co-founders Alex Samoylovich and Brian Duggan are no strangers to the multifamily world. I got to know Samoylovich while he was building Cedar Street—the developer behind Chicago’s millennial-focused Flats apartment brand—about seven years ago. Flats had a unique aesthetic and built some of the most interesting Chicago apartment buildings of the time, and I looked at them as a close comp for what we aimed to build at Common.

But Duggan and Samoylovich are perhaps best known as the founders of resident experience app Livly, which has scaled to hundreds of thousands of units nationwide. So it’s no surprise that their next venture, Proper, aims to combine their experience in both technology and operations to fuel a new model of property management rollup.

The idea for Proper came, in part, not from the founders themselves but from a private equity firm they met while raising capital for Livly. TriSpan, an investment firm with more than $1.2 billion in capital, had recently completed a similar rollup strategy in Europe, aggregating 130,000 units over three years under DHV Plus. “While talking, they figured out we owned our own property management companies, not just Livly,” explains Duggan. “Eventually, they convinced us to launch a rollup starting with our own management businesses.”

Starting with Samoylovich’s Flats (8,000 units), Duggan’s Guardian (4,000 units), and two other small acquisitions, Proper has quickly scaled to approximately 20,000 units under management across 13 states, with thousands of units in the closing process. And they’ve added experienced executives such as COO Khushbu Sikaria, a veteran of Bozzuto and LPC, and VP of Portfolio Operations, Zach Mitchell, a veteran of Asset Living.

Of course, it’s impossible to discuss services rollups without bringing AI into the story. While we’ll discuss the role technology is playing in management economics in more detail later on, it’s fair to say that the two-headed monster of centralization and automation is upending the traditional property management model in fundamental ways. 

Specifically, the shift away from pass-through salaries and toward per-unit “central services” fees has given the property management business economies of scale in a way it has never had in the past—making it all the more appealing to aggregate property management businesses.

Samoylovich and Duggan are leaning into this, providing centralized back-office services to acquired firms. “Agentic AI is transforming the property management business,” says Duggan. “From established products like EliseAI to accounting automations and maintenance dispatch, we’re seeing the merging of operational management and asset management into a new, more efficient unified discipline.”

“At 4,000 units, Guardian didn’t have the scale to justify significant investment in AI-driven innovation, which ultimately led us to join the Proper platform,” explains Duggan. “Many vertically-integrated operators we speak with are increasingly concerned about their ability to compete long term. They’re not sure how to invest in the future.” 

The idea of small operators joining forces to reach the scale needed to invest in technology is not new. In private equity, however, this strategy has typically been applied to third-party service providers, not captive management companies that exist solely to operate an owner’s own assets. But given the operational constraints facing owner-operators like Flats and Guardian, Samoylovich and Duggan broke from rollup convention, targeting captive property management platforms alongside traditional third-party managers.

The Captive Approach

Buying businesses with significant customer and geographic concentration risk flies in the face of private equity rollup conventional wisdom. But for Proper, buying captives is a big part of the strategy and differentiation.

“Historically, captive property management companies haven’t really had independent value,” explains Samoylovich. “If you’re your own client, is your property management company really worth anything?” For most investors, the answer is effectively no – a company with 100% client concentration is more subsidiary than an independent business. “Typically, there is no buyer for captives.”

But by combining captives, Samoylovich reasoned, value could be created out of nothing. “Once they come together, they no longer have client or geographic concentration.”

Of course, purchasing captive property managers is not for the faint of heart. “Third party managers are easier to buy, as they have better processes and controls,” says Duggan. “But we offer a unique value proposition for owner-operators, and Proper has the technology, systems, and processes to bring the operational efficiencies necessary to scale these businesses. As a result, our partners can focus on growing their investment business while Proper handles the back-office management.”

Seeing the opportunity requires understanding why multifamily owners choose to self-manage in the first place. For most of them, it has little to do with the fees and a lot to do with control and reputation. “There’s a large segment of owner-operators who are disinterested in doing their own property management but do it out of necessity due to a lack of influence with third-party managers,” notes Duggan. “Large operators have enough scale to exert real influence over their third party managers. But if you’re the average owner, you can’t get that influence.”

“By bringing them together and adopting an owner’s mentality, we can get them the best of both worlds—strong influence but no day-to-day responsibility.” 

But buying captives isn’t just about aligning financial incentives. It also requires a very different approach to brand and technology than the traditional rollup playbook.

The Brand Angle

Earlier this month, I expressed my skepticism about the idea of brands in multifamily. While many in the industry believe in the idea of a multifamily brand conceptually, there is little data that it adds any business value in terms of rents, occupancy, or stickiness. Renters simply value other things, like price and location.

It is somewhat odd, then, that most property management rollups immediately consolidate newly acquired companies under the parent brand despite the downsides. Winding down a brand can be tough on employees, clients, and certainly prior owners who just sold their business and are supporting the transition. Sunsetting a brand, particularly one with a strong local reputation, can destroy value.

For Proper, however, sunsetting acquired brands from day one simply isn’t an option. For many vertically-integrated owner-operators, sharing a brand with their management company is a key part of their identity—to employees, to residents, and to their investors. So successfully buying captives requires some flexibility on the brand side and a willingness to maintain acquired brands indefinitely, effectively running Proper as a white-label operation.

“Maintaining the brands allows owners to continue to market as vertically integrated operators, while benefitting from our institutional backing and the critical mass of a larger platform,” explains Duggan. “We want our partners to retain their unique culture, and that requires keeping the brand and local identity.”

From Proper’s perspective, maintaining acquired brands is synonymous with retaining local human capital and experience. “Asset Living and Greystar have scale, but smaller regional managers often have a better understanding of the local market. They have a culture that’s different region by region. Preserving the brand preserves that culture and understanding.”

On Dinosaurs and Small Property Managers

Late last year, we asked a simple question: would AI drive property management fees to zero over time? While the question was intentionally provocative, the substance was not exactly bearish on the property management business. As centralization replaces on-site roles and pass-through salaries with back-office functions and central services fees, property managers have an opportunity to use AI and automation to turn central back offices into a profit center.

In the past, third-party management had little in the way of economies of scale. Sure, a manager with 50,000 units could probably command lower prices on some materials and vendor contracts than a manager with 5,000 units, but the main expense—people—was no less costly as a management company scaled.

Technology changes that. Larger managers can invest in the technology that will automate and scale their centralized teams, giving them a material cost advantage over smaller, less tech-forward competitors.

Which begs the question: in the future, is there a place for small property managers?

For Alex Samoylovich, the answer is no. “If you’re a small operator, how do you compete with the big boys in operations or technology? How are you able to recruit great talent in critical senior roles?”

In the past, owners weighed the pros and cons of roughly equal-cost alternatives. Sure, the large property management firm looking to win the business had national reach and fancier executives, but the smaller, local firm better understood the market and had a strong reputation in the area. And since the large firm had few economies of scale, the alternatives didn’t differ in price.

But from a cost perspective, that equation is likely changing. And given the growing role of technology in everything from fraud detection to delinquency to renewals, there’s a good chance the large manager will have better results, too.

Which leaves local expertise as the last line of defense of the small property manager. And if Proper is able to craft a rollup model that preserves that knowledge—while getting the best of both worlds in technology and back-office scale—the writing may be on the wall for the small property manager.

—Brad Hargreaves