Part 1 of this series explained how offering fiber internet to multifamily property owners or builders could dramatically improve net operating income (NOI). This blog spells out what a bulk fiber contract is, how it benefits you, and how to secure one that maximizes your NOI.
If you’re hoping to boost your net operating income (NOI) by offering high-speed broadband to your community or residents, you could benefit from a bulk fiber contract with a leading internet provider.
Broadband is an increasingly critical factor for consumers deciding to purchase or rent in a multifamily building. Research by Parks Associates found that 40 percent of these renters in U.S. broadband households want bulk broadband internet bundled with their rent.
More significantly, over three-fourths (77 percent) are willing to pay higher rent for high-speed internet.
Builders and owners of multifamily communities are well aware of this. The Parks Associates study also found that 65 percent of multifamily property builders have business models that rely on built-in connectivity to distinguish their communities from their competitors.
These developers and operators depend on bulk fiber to boost their NOI. But what is bulk fiber?
Bulk fiber contracts: the basics
A bulk internet contract is an agreement between an internet provider and a homeowners’ association, property owner, or multifamily builder. The provider agrees to sell the buyer a multi-year bundle of internet services at a monthly rate—enough to service buildings or communities for years.
And like anything purchased in bulk, there are advantages to the buyer (you), primarily, an exceedingly competitive price.
Why go with bulk fiber? You can profit either by increasing monthly rental rates or adjusting your amenity fee.
That amenity fee or rent increase you charge may be higher than what you pay—but lower than what residents could get on their own in the retail market. It is important not to charge excessive rates or fees that make internet service at your property appear to be more expensive than the going market rate. Since bulk fiber can cost as much as 50 percent less than retail price, you’re able to pass along some of the savings to your residents while increasing both tangible (NOI) and intangible value at your multifamily property. And that can make everyone happy (read Part 1).
“The number one attraction to bulk fiber is revenue generation,” says Kyle Burrows, manager of multifamily development for Quantum Fiber. “In fact, there is no other internet agreement type that has a greater revenue opportunity for developers than bulk internet today.”
For example, Burrows points out that the average price for gigabit fiber service today is around $85 a month. “Under bulk fiber contracts, a lot of developers are getting it for potentially as low as $35. That represents a lot of profit to be made while still offering your residents a deal,” he says. For some calculations on how much you can make with bulk fiber (read Part 1).
How bulk fiber works
Your first step would be to sit down with your chosen provider (ideally before construction begins) to discuss your property site plans and specific needs. Leading providers will offer very flexible options for deploying bulk fiber based on your revenue objectives.
Some of the points you should discuss:
The length of the contract
Typically, a bulk agreement term is ten years, but can be more or less, depending on the provider’s and your preferences.
The price
You will negotiate a fixed rate (or one with small scheduled fee increases) that is significantly lower than the going market rate for equivalent services.
How deployment and ownership works
Now things get interesting. The provider can bring fiber directly to each home or living unit, to a “rack” inside the building, or a hub outside. The provider will manage the fiber wiring and equipment installs. As a developer or HOA, your duties can range from nothing (if the provider brings fiber to the unit), to needing to hire contractors to complete the wiring for either of the other options.
“Most builders prefer the former,” says Burrows, “because then it’s a hands-off experience where we come in and do it all for you. We don’t request anything from you except to provide the usual scope of work. That’s the white glove experience we’re going for.”
Who gains?
In effect, the provider makes a capital investment in your community, which can improve its value and your overall NOI. In addition, at the end of the contract, both parties have a vested interest in negotiating a renewal or a revised win-win contract. This process can determine whether the property stays in a bulk service agreement, keeps the same speed tier, or changes to something else.
Whether you accept a “door fee”
A door fee is an incentive providers offer that gives you an up-front, per-unit, lump-sum cash infusion. It then “bakes” a higher price into the internet services provided. Many builders today don’t choose the door fee—preferring to offer their residents lower rates instead. However, with material and labor costs hitting all-time highs, implementing a door fee can allow you to add facility or amenity “nice-to-haves” back into your construction plans. You could also funnel the door fee into capital improvements or use it to bolster cash flow since your multifamily property may not be generating as much revenue when it first opens or reopens.
Other key benefits of bulk agreements include:
1. The ability to offer tiered packages
Although most providers enable you to offer everyone in your community the same package at the same price, leading providers allow you to offer “tiers” so your residents can choose basic, enhanced, or premium services at appropriately priced rates.
2. Gratis services for model homes or leasing office/common areas
Leading providers will include free internet service lines to on-site model homes or leasing offices as part of bulk agreements. Builders appreciate getting a no-fee, hardwired line with WiFi to their office, pool, gym or other common area. Such a line might ordinarily cost around $400 a month, adding up to tens of thousands of dollars per property over the contract term.
3. Simple bulk billing
Some providers will bill you monthly for each unit, making for an accounting nightmare. Choose a provider that will send you a single bill every month for all services provided to your entire community. This can simplify your financial processes considerably.
4. Scalable and future-ready
The reality is that your residents’ online needs are constantly changing. The good news is that fiber is future-ready, fast, and simple. By 2030, each of us is expected to own 15 smart-connected devices. And those gadgets (count on it) will be much more sophisticated and require more bandwidth than today’s devices.
Before deciding to sign any internet agreement, here are some insightful articles with additional factors for you to consider.
- Eight considerations for selecting the right multifamily internet provider – Part 1
- Eight considerations for selecting the right multifamily internet provider – Part 2
Quantum Fiber delivers the whole connected world with ease
For apartments, townhomes, garden homes, and single-family home communities, Quantum Fiber provides future-ready fiber internet and optimal service to all residents, giving multifamily properties an edge over their competition, and giving families a place they want to call home.
Check out these related resources:
Contact a Quantum Fiber Connected Communities expert to learn about connectivity solutions tailored to your multifamily community
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