As adoption spreads in multifamily, so do potential pitfalls, according to Pam Rothenberg and Kyle Kessler of Womble Bond Dickinson LLP.
Since the 2022 release of ChatGPT, generative artificial intelligence has been expanding its reach into countless aspects of business and the multifamily industry is no exception. Many believe that GenAI will be the next disruptive force in commercial real estate, offering unparalleled opportunities and presenting significant challenges.
While the utilization of GenAI is still in its early stages, multifamily companies are already leveraging it in several innovative ways.
GenAI tools are also enhancing investment decisions. They support predictive analytics, facilitating more informed investment choices. By analyzing historical data and market trends, these tools can forecast property values, rental income potential, and other factors influencing investment choices. Moreover, GenAI identifies emerging market opportunities by predicting shifts in demand, recognizing up-and-coming neighborhoods, and understanding buyer preferences. Additionally, GenAI can generate virtual property tours and virtual reality experiences, transforming how multifamily developments are marketed to prospective investors.
GenAI-powered systems are streamlining various property management functions. For example, they handle routine tasks such as rent collection, maintenance scheduling, and resident communications. Additionally, they enable predictive maintenance tools to identify equipment issues before they lead to costly repairs. These systems also improve resident experiences by providing personalized services and quicker responses to routine inquiries. Furthermore, GenAI can automate lease reviews and the preparation of lease abstracts, significantly reducing the time required to complete these administrative tasks.
Integrating GenAI-driven tools into operation and investment decisions requires multifamily companies to sign a variety of contracts.
One routine agreement involving GenAI is the Property Management Software Agreement, which automates tenant screening processes. Through these contracts, GenAI-powered tools can analyze applicant data, including credit history and criminal records, to facilitate more efficient and accurate tenant selection. Another increasingly common contract is the Virtual Assistant Contract, aimed at developing virtual assistant chatbots. These chatbots are designed to respond to tenant inquiries, schedule property tours, and provide general information about properties, thereby enhancing tenant engagement and operational efficiency.
AI Development Contracts are required for the production of virtual reality and augmented reality tours. These technologies allow potential tenants and investors to explore properties virtually, eliminating the need for physical visits to the locations. Leasing Management Contracts are also pivotal, as they enable GenAI platforms to automate lease generation and management tasks. These platforms can analyze lease terms and identify opportunities for renegotiation, thereby streamlining leasing processes. Lastly, Data Analytics Contracts play a crucial role by offering data analytics, market research and predictive pricing algorithms. These tools empower multifamily companies to consider factors such as market trends and property features, enabling them to determine optimal rental rates or selling prices with greater accuracy.
GenAI in Action
Before signing contracts that involve GenAI technologies, multifamily companies should consider the many risks they present. Here are some common issues arising in the GenAI space and high-level suggestions about how to manage them to protect multifamily companies:
Data Privacy and Security—GenAI systems often require access to large amounts of data, and this raises concerns about data privacy and security. To ensure that the data used by the GenAI technologies aligns with privacy regulations and with the multifamily company's disclosed use of personal information, contracts should define what data will be collected, for what purpose and prohibit excess data gathering. Additionally, how this data will be collected, stored, processed, and protected by the GenAI firm should be outlined and the contract should address the GenAI firm's responsibilities for issues such as data breaches and unauthorized access.
Confidentiality—Standard GenAI contracts tend to lack or inadequately address confidentiality obligations. Contracts should contain explicit protections of the multifamily company's confidential information, which should include all input and output generated by the GenAI tool.
Performance and reliability—GenAI systems are not infallible and can make mistakes. They “hallucinate” and generate “slop”. Contracts should establish service level standards for the GenAI company outlining the expected level of performance, functionality and reliability of the GenAI technology (including acceptable error rates and response times).
Liability and responsibility—Contracts should clearly define the responsibilities of each party specifically relating to the GenAI systems. The GenAI firm should be liable for any errors, damages or losses caused by the GenAI system and multifamily owners should try to eliminate where possible any liability limitation provisions in favor of the GenAI firm.
Termination and transition—GenAI agreements should provide termination rights in favor of the multifamily company permitting it to exit from the arrangement without cause and to avoid “vendor lock-in” with one GenAI firm, including a clear plan for the multifamily company to transition to an alternative solution with cooperation from the GenAI.
Intellectual property rights—Multifamily companies should maintain ownership of all of the data used or generated by the GenAI system and all other intellectual property rights associated with the outputs of the GenAI technology and systems, including all modifications or improvements made during the contract term.
Ethical and legal compliance—Contracts should require the GenAI firm and its technology to comply with ethical guidelines and legal requirements, including federal, state and local data protection laws, privacy laws, antitrust laws and those relating to discrimination and bias. Since GenAI laws are evolving, provisions should be included that obligate the parties to adapt to changes in regulations that could impact the use of AI technology.
Transparency and explainability—To protect against biases and ethical dilemmas presented by the AI output, contracts should require transparency and explainability mechanisms, including an open disclosure by GenAI providers of their systems' design, operations and data – and specifically how the algorithms process data – all in an understandable “for all” format.
Scalability and adaptability—If the GenAI technology needs to be scaled or adapted in the future, contracts should outline how such changes will be managed by the GenAI firm and any associated costs.
Training and maintenance—Contracts should outline the GenAI firm's responsibilities for maintaining and updating the GenAI system, including regular AI model training to ensure the system remains accurate and effective.
Unintended consequences—Contracts should address the potential unintended consequences of GenAI technology, such as biased decisions or negative impacts on certain protected groups, clarifying who will bear the responsibility for these issues, including to audit, monitor and rectify them.
The regulatory frameworks applicable to GenAI are emerging and quickly evolving. By proactively addressing the risks in GenAI agreements, multifamily companies can avoid potential disputes and achieve a clear understanding of their rights and responsibilities with the GenAI technology being developed or utilized.
Originally published by Multi-Housing News
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