Welcome to the Real Estate wealth podcast, where we explore real estate as the most proven way to financial freedom.

Join us for insights with leading experts and discover how vibrant health and an abundance mindset are the keys to true wealth.

Today I have the privilege of speaking with Jeff Adler.

Jeff is an esteemed industry veteran, currently vice president at Yardi matrix.

With over 30 years in the real estate industry, Jeff has been instrumental in providing market intelligence across various asset classes, including multifamily and the build to rent sectors.

His extensive experience and leadership roles have positioned him as a thought leader in the field.

Jeff holds degrees from Yale as well as the Wharton School, and is a board member of the National Multifamily Housing Council, as well as chair of the Urban Land Institute Multifamily Silver Council.

Jeff is also a lecturer at Harvard University.

Jeff, welcome to the Real Estate wealth podcast.

Thank you very much.

Glad to be here.

Did I miss anything?

Okay, very good.

Well, listen, we're going to have a discussion today about workforce housing, which is near and dear to my heart and I think yours as well.

Absolutely.

And I appreciate everything you guys do at Yardy Matrix.

By the way.

I think I told you when I saw you at that conference recently, I'm guilty of using your stuff a lot for my newsletters, investor reports, and it's really helpful and great data.

So I do appreciate everything you do over there.

But let's talk about workforce housing today.

Or I guess, attainable housing.

Is that the new kind of buzzword?

Whatever.

Are we getting away from workforce?

I don't know.

There's too many acronyms.

That's true.

But it's a crucial asset class, as you know, especially as affordability issues are cropping up across the country more and more depending on where you live.

So let's talk about kind of the landscape of where you see workforce housing today and kind of compared to.

You've been doing this for a long time and where do you think we are today?

Well, look, it really is grounded fundamentally in a shortage of housing writ large in the United States.

Right.

Coming out of the GFC.

And really, honestly, since the end of the 1986 tax credit deduction for the creation of housing, we've seen a reduction in the production of multifamily housing down to around the 300,000 unit level for a very long time.

Right.

In addition, there is the amount of new supply that can enter the market, and the price point at which that new supply can enter has been just ramped up because of inherent difficulties in the zoning and approval process for New projects pushing up the cost of what can be delivered to these sort of very ultra high price point.

Okay.

And it takes massive amounts of new supply, as we're seeing in a few markets right now, sort of compress that, but it's really episodic and will pass.

But the fundamental problem is the US and again, it's happened at different cities at different points, has not been producing enough housing at the right price point.

And that's what we've seen sort of the general uptick in rents relative to incomes.

And that is creating problems of affordability, which is why, you know, kind of workforce attainable housing is really that kind of like B and C asset type with a tremendous amount of need and an inability because of government regulation, I have to be honest with you, to respond to that need gradually over time.

So now we've built up this deficit and then it's been turbocharged because of COVID and its after effects.

That really is the problem now as an investor.

This is an amazingly insulated asset subtype which is occasionally exposed, occasionally to very large supply floods, which we're seeing in a few markets.

But that really is the exception and not the norm.

And to be honest with you, once this supply surge passes and it's not being really replaced, the sort of normal sort of reality of the inability to expand housing supply will hit you square in the face.

And by the way, there's some great work we support.

Up for Growth just produced a housing report on its housing underproduction.

There's tremendous.

I think there was just a council, a bipartisan council on a housing task force.

I just released a general report and all of them conclude writ large that it is a function of local impediments to the addition of supply and the increase in the cost of that supply, which is driving us now.

It's built up over 40 years.

It's really hard to unpack.

We estimate you need something like 400 to 450,000 units of multifamily produced a year for 10 years solid to resolve the housing shortage, and that is just not going to happen.

Yeah.

Is that the number, Jeff?

Because I hear anywhere from sort of like 2 million to 7 million units.

When you think about it.

Again.

Yeah, it's about that.

Okay, it could be 2 to 4 million units.

Again, there's various different estimates, but we also said, well, how many units would you have to produce to not only keep up with household formation and eat into this deficit over one period of time and about 450,000 units a year over 10 years would be necessary.

Now we're going to have.

We have a supply surge going on right now in about 20 cities.

But when you.

Again, when you get past that, you're down to 300,000 units, which is not doing it.

And it's just.

So you have a structural problem.

Right.

And that's really where things are at.

If you like, what is.

What is driving us.

That's it.

Okay.

You can strip.

And now I can.

We can layer in.

You and I bur in this all the time.

We can layer in other things that sort of either ameliorate it or make it worse.

There's different nuances that we can go over.

Migration, reindustrialization.

There's other things happening in the economy, all right.

In terms of both immigration and all that.

But we have an underlying problem which is structural in nature, which is not easy to resolve because it's local in nature.

Okay.

And that issue is what drives it at its core.

And then there's other things that got layered on top.

Right.

So in essence, what you're saying is between the onerous permitting and of course, depending if you're in California or wherever, it could be more or less onerous, but it's bad everywhere.

Right?

Right.

Between onerous permitting timeframes, cost of land, et cetera, the only new supply that's being built is really class A.

Class A plus.

Right, Right.

In the free market, rents needed.

Yes.

You kind of have a.

So let's say California, you have a.

Basically a barbell.

Right.

If you're in the free market, you can only build very, very high end because of permitting, zoning, delays, uncertainty, plus just the cost of doing stuff.

Right.

And the.

And the extra requirements added on or it's heavily subsidized, you know, kind of light tech income restricted.

Right.

That's it.

Nothing in the middle.

Right?

Nothing in the middle, yeah.

So in the middle would be attainable or workforce housing, which is why it's a great investment.

But to your point, you know, even we're feeling it now, Jeff.

In some markets we're in just because of the oversupply of new where then it becomes very concession heavy and you'll lose residents that sort of move upstream.

Right?

Yeah.

And that will happen.

Cs go to the Bs, the Bs go to the A's and gets diluted.

Let's say if we were talking about Austin or Charlotte or Raleigh.

Yes.

You will experience that until this supply wave subsides.

And if you want to go back to like, well, why did the supply wave happen in the first place?

Well, rents grew, you know, in Covid, rents grew 40% in all of these markets.

Okay.

And just to all be clear, right, the people who moved into them in the first year, in 2020 and 2021, they improved their lives.

They took San Francisco or LA or New York or Chicago wages.

They were able to move into these other cities.

And even if rents went up, they were better off.

Now, where the consumer pain happened was in 2022 when the renewal increases flowed through.

That's when the consumer pain happened and renewals came up to market rates.

And by the way, it's taken this long to get them to get that gap to close.

And even in those markets where rents are going down for new lease trade outs, renewals are still going up.

Not by much, but they're still going up between 1 and 4%.

Yeah, yeah.

The demand, I think resiliency has been the story here.

That's amazing, right?

Again, if you look at again, almost.

Keeping pace with the crazy new supply we've had.

Well, in fact, in fact, when I look at absorption numbers again in these 20 markets that are the high supply markets in the southeast, Texas and the Mountain west, the units are getting absorbed.

They are getting absorbed like a 1.1 ratio, which is really quite good.

Why are they getting absorbed?

Because move outs are way down.

Why are movements way down?

The increase in interest rates and the fact that most people in the single family business is single family world refi at 3% or 2.75%.

They're not moving, say home, single family homes as a percent of stock.

That, that ratio is way down compared to what it was, you know, in pre Covid, there was a surge of sales obviously in 21 and 22.

And then as interest rates went up.

So you don't have the movement of people out and therefore there's less supply in stabilized properties.

So that's how that new new supply is getting absorbed.

Not necessarily at prices that people would prefer they get.

They get, you know, they're, they are driving down rents.

There are, there is concessions among those, those units, but they are getting filled.

They are getting filled.

Right.

And to be honest with you, you know who's actually hurting in Austin?

Believe it or not, it's the light tech deals.

The light tech deals.

That's really interesting, the light tech deals.

Because you can get a class B minus asset that's actually priced less than the max net rents on a, on a LIHTC deal with a lot less paperwork.

And by the way, I mean I service the affordable housing world too.

And they're feeling that again, it's a temporary pain.

They didn't feel that pain in 2021.

They're feeling the pain now.

And again it will subside.

These things are somewhat transitory.

Right.

So it's a cyclical phenomena in 2025 markets.

But structurally, you and I know we're under supply by 4 million whatever units.

Yes.

Again, there's different estimates of that.

It's not getting better.

Right.

And it's not getting better.

It's fundamentally not on a path to resolution, let's put it that way.

Okay, nicely put.

Nicely put.

So, okay, so that's kind of where we are today with workforce housing.

Right.

Let's talk a little bit about, you know, as we saw, the peak was probably, you know, better than I do.

Maybe.

Was it Q4, 21, Q1 22 somewhere?

Q1, 2022, yeah.

Early 20, probably the peak.

Right.

And so values are arguably down, depending on the market, 20 to 30%.

I would say a multifamily, you know.

I've seen, I would say nationally they were down about 20%, but they've kind of picked back up.

So that values again, on a national basis are probably 13 to 15% below peak.

Okay.

And we are seeing transaction activity recover.

Yeah.

Mostly driven by folks who need a liquidity need and they need to execute some kind of.

They have a liquidity need, the funds end of life or they need a limited partner needs to go.

So every deal that's getting done has a story as to what or developer.

Who maybe isn't leased up enough to get takeout financing.

Yeah.

And again, there's very select stress.

It is very select and very kind of targeted.

But yeah, you've got somebody who's got a refi.

They bought at the peak.

There was variable rate debt.

And so there's slivers of stress.

And I've seen it sort of most evident in Atlanta, quite frankly, and in like Houston, people who Uber syndicators bought at the peak, they're having some trouble.

They're hitting a refi.

They were variable rate debt.

But again, it's a sliver.

It's real.

But one shouldn't take it out of context.

Anyway, so when we talk about values, I would say that they may be under more pressure in certain markets that are very high levels of supply in the short term.

So if you happen again to be in Charlotte, Raleigh, Austin.

Right.

Someplace that is going through a high supply, where you have variable rate debt, you have a loan maturity or you have a construction loan that's maturing.

Yeah, there is some problems, but most folks quite frankly just said if I don't have to sell, I'll just wait.

But I would say again, maybe we'll get to sort of valuations and interest rates in a second.

Right.

We have to consider like what a normal interest rate looks like.

Right.

And then therefore back into what is a normal effective cap rate at some level of stability and it's not what it was now.

So there is some, there is some.

I mean, I think the entry points now are amazing.

And remember, Outside of these 20 markets, rents are growing 3 to 5% in the Midwest, in the Northeast, in other markets in the west that aren't sort of heavily supply rents are.

Everything's going up 3 to 5%.

Okay.

So it really is depending upon where you look in terms of select situations.

But I know one of your reports, I think you mentioned, I want to say I read 150 billion of multifamily debt maturities and by the end of 2025.

That's right.

Seems like a pretty big number.

That's right.

And so we've been talking and I started the company in 2008, just so you know.

So I built this company on a distressed platform.

Right, right.

And so we were looking in when Covid hit and then the peak values and you know, a lot of syndicators like you mentioned that over leverage, short term variable rate debt are definitely in trouble.

And with the new supply, operationally in some of these markets, they're not hitting their performance or anywhere.

That's right.

That's right.

I mean there, there are, I mean again, we've laid out in, within our service, like here, here's how you find the situations that are most likely to get into trouble.

And then I also did a little bit of a retrospective where we took the deals that have gone bad and said what were the conditions under which those deals went bad?

And it was very, very similar.

Right.

They were bought late in the cycle.

They're variable rate debt.

They're in places that, where the fundamentals are declining primarily due to new supply and, or they have a construction loan that's coming due and they're upside down.

And there's about, oh, 5 to 7,000 of those properties that are potential candidates out of a stock of, let's call it 122,000 total properties.

So yeah, so there is a subset.

There's a subset, right, yeah.

But having said that, I guess starting the company 2008 when there was just a Bloodbath of lender foreclosures.

We're not seeing that at all.

Even this, the subset of distress that you're talking about.

Because now the lenders, for whatever reason, we could talk about it, they're really, they really seem to be sort of kicking the can down the road.

Right?

Well, in the.

I mean, I'm willing to foreclose like they were.

I've had a lot of conversations with folks in the lender community.

Okay.

And there are, it kind of depends upon the lender type.

There are some lenders, particularly some debt funds that while they did debt, they actually have an equity pool standing behind them and they're just waiting to take the property.

They're like, hey, this is cool, we'll just take it.

Okay.

So there's a couple of syndicators, when I looked at the debt funds they were with, then I talked to people, the debt funds are like, this is cool.

Like, okay.

We just viewed as a different entry point.

Great.

Okay.

So that's not your traditional lender.

Okay.

Because they're really.

So a low known sort of lender kind of.

Right.

So that's one group, the ones who are the folks who really do need liquidity, the commercial banks.

And remember there's usually about two years of extension on the construction loans.

Right.

And then yeah, they really kind of want off the loan.

They really want off the loan.

So they are kind of pushing for a resolution and there are, there are takeouts happening there.

Either of the bank at par.

The bank's like, hey, look, you can take the equity guy out.

We're not taking a cut, we're just not going to do it.

Okay, we've heard that too.

Yeah, we don't need to.

We're not going to.

We think that there's value eventually.

So I'm happy to recycle our capital, but I'm not going to take an impairment go pound sand.

Okay?

But they would like to do it because they see the lending opportunity right now too and they really want to recycle their capital.

So they'd like to do that.

But the other folks who maybe sort of like are having a.

There's a bit of a sizing problem.

There's plenty of preferred equity waiting out there to fill those gaps.

So again, the lender is willing to say, hey, solve your problem, you know, I don't want it.

I'm not going to take a hit, quite frankly, because they're saving their dry powder for office.

You got to understand it.

Okay?

There is a real structural problem in Class B office.

And the banks are reserving and putting up their reserves against that exposure.

They know that's the way they're going to have to take the hits.

They don't think multifamily is a place that they're going to have to fundamentally take a write down.

Okay.

So they're happy to sell the loan at par.

They're happy to sort of close out the equity.

They don't care about that.

There are some that have deep relationships and are happy to work with the, with the borrower, with the sponsor to recapitalize the deal.

So there is, you know, private equity, excuse me, preferred equity out there to solve that sizing problem.

But they don't see a need for bloodbath in multifamily.

In multifamily.

I want to be clear about that.

Not and different story.

Yes, answer your point, Jeff.

I mean if nationally now we're only sort of 15% below peak, the commercial lenders are above water in almost every case in that regard.

Right, right.

As opposed to some of the debt funds or the arbors of the world, maybe that got aggressive in an 80, 85.

That's right, right.

Maybe there's some impairment there.

But we're not even seeing those guys.

Right.

They're all doing modifications, workouts, kicking the can in my opinion.

Right, right.

But it's interesting on the commercial bank side because I have heard that.

Right.

They know like, okay, multifamily, it's a bit of a temporary issue, but we have this looming giant.

My office portfolio is going to be remarked at $0.40 or whatever the number is.

Right.

No, it's particularly if you got class B office.

Yep.

Yeah, yeah.

They're going to be impaired and they know it and they've been reserving against it.

And so for them it's just a question of have I built up my reserves enough over time to take the hit.

Right.

It's not a systemic bank risk.

Okay.

A systemic bank risk is when there's so much blood in the water that like, you know, the bank's reserves are at, are at, you know, at risk.

That's not the case.

But do you think the banks are accurately marking those assets right now?

Oh yeah, because I've been seeing and I'm sure you have some unbelievable valuations on some deals that have traded in like urban metropolitan.

The St.

Louis is of the world, the Minneapolis is.

You know, some of these class B office buildings are trading for 10 cents, 20 cents.

Right.

Just they will have already, they've already reserved against the Loss.

You got to understand, for them, it's all about if they already built up the reserve, then it's like time to get it off your books.

They will delay it until they've built up the reserves to a sufficient level where they don't have to take an earnings hit or a capitalization hit.

And so they say, okay, you know, here's a set of loans that are going to be bad.

Hey, we need to, we need to build up our reserves against it over time.

They would do that because, you know, there was a spread in the rates and so they've been building up their reserves against that.

And then they decide, okay, it's time to sort of draw down that reserve and take that hit, get it off the balance sheet.

So they're being quite thoughtful as to how they're doing this so as not to create a systemic banking risk, you know, systemic capital risk to the finance.

Like we saw in 08, which I don't think, I don't think we're anywhere near.

They're not, remember, because they're not being required to mark to market.

Right.

Which is what got things in trouble.

They're not even having to book their treasury portfolio to market.

They book, which is a whole nother.

Correct.

Right.

So, I mean, so you know what took the banks down in 23 when we had those failures was they were having to book their treasury portfolio to market and then the Fed just basically wiped it away and said, we'll redeem it at par.

Right.

Then you violate all your covenants and you're done.

Right.

So if you can redeem your treasury portfolio at par, you don't have a liquidity crisis, which is what drove Silicon Valley Bank.

Yep, exactly.

New York Community bank there, they got screwed because they loaned money against rent stabilized properties.

That rent control has destroyed the value.

That was a secular issue.

There was no coming back from that one.

Right.

And those are mostly small buildings in New York City.

Right, Small buildings in New York City, where the whole, I'm from New York, if you couldn't tell.

And that whole business system was based upon rent stabilization.

10% a year, turns marking, doing a value add, marking it to mark, you know, basically putting it up to market.

It was a beautiful business system, kind of grunded zone.

It had its issues, Right.

Because of, you know, of regulation and the problem with the housing market.

The 2019 rent control bill killed it, killed that trade completely.

It just takes six, seven years for that problem to emerge.

And those market, those buildings are down 40% in value and they Are not coming back.

Yeah.

No time soon, that's for sure.

And again, until the laws change.

Right.

Hey, Jeff, let's shift gears here and talk a little bit about Build a Rent.

One of my favorite.

One of my favorite.

I love that.

Okay, good.

And I know you guys have been tracking it recently.

I saw you're kind of starting to track it separately now and analyze.

Well, we've been tracking it separately since 2021.

Oh, have you?

Okay.

Because I thought I saw a report recently where.

Well, we do.

We do.

We do kind of update market reports on SFR BTR as a separate segment, but we've been tracking it separately as a segment of multifamily housing since 2021.

So.

Yeah.

And we've looked at some of these BTR deals recently.

I think they're very interesting for a lot of reasons.

I kind of wanted to chat with you about it and see what your take is, how you think they would affect traditional multifamily assets.

You know, like we talked about, affordability is a huge issue to buy a home.

No one's selling a home because 60%, I think, of homeowners have a mortgage rate at 4% or less.

Me too.

Me too.

I refinanced the first month of COVID There you go.

Right for it.

Yep.

Yeah.

So there.

So you know, there's.

There's going to be more and more of a renter demand, I think, going forward.

I think that's the argument.

And I think I've also heard, you know, does owning a single family home become almost like a luxury asset?

Unfortunately for a lot of people.

Like it is in many countries around the world.

Yeah.

I mean, we'll talk about that maybe separately, but let's just talk about SFR btr.

That is single family rentals in built to rent communities.

Okay.

And I want to.

Just before we even go into that.

Absolutely.

Segment, you know, differentiated that between single family rentals, basically called scattered site.

Okay.

So scattered site rentals are your existing single family homes that are purchased as purchased and turned into rentals.

They tend to be clustered.

And again, there's.

I was in that business too, on a separate platform.

It's a great business.

There's organizations that are now learning how to run that thing at scale, but it generally appeals to people who already are.

Have families and are placing and renting a home because they want to be in a certain school district or that's the best school district they can afford to be in.

Okay.

For their kids.

The SFR BTR world.

Okay.

Is because of its nature.

And there's three or four different subtypes within that because you can have attached, you can have detached, you can have cottages.

But the bottom.

So there's, there's different subtypes that are still emerging.

We're tracking about 2500 properties and 300,000 units.

And that' stuff that, that asset type is growing quite rapidly.

It was very, very little, it was maybe 100,000 units right around the pre Covid timeframe.

There were a few innovators in Phoenix, in Texas, in the Midwest.

There are like three companies, three, four companies that really had pioneered this asset type.

And it is kind of blown out.

And so where is it being built?

It's being built at the edge of metropolitan areas because the land has to be cheaper than in, you know, near term.

So it benefits from the spreading of the population.

And in metropolitan areas that have more hybrid work arrangements, that works out well.

Yes.

So it's at the fringes.

It's, it's, it's in emerging school districts so that you are not getting people who have a school age children, you're getting people who have pets.

They are couples, they retirees, they want some more space, but they don't need a school district, at least not yet.

Okay, so these are free, these are, these are couples for kids or after.

Yeah, exactly, exactly, exactly.

And that was a, like I had to like pound it, you know, to my clients is like, hey, this is not, you know, this is not scattered site sfr, it's not school district.

That's not what the people are doing.

They're, they want more space.

It competes directly with two bedroom suburban product.

And you can look at the relationship and it moves very, very much in sync with two bedroom product now more of the three bedroom product is now being built, less of the one, more the two.

And then we track that, how much, what the unit mix is and we're seeing more of a drift to three bedroom and higher of the new projects being built now.

And it's really for folks who want more space.

They want more space than a two bedroom and they're willing to drive further out or be further away from shopping or commercial districts or downtown in order to accomplish that.

And their lifestyles enable that.

And that is much more true, you know, kind of post Covid.

So it's a, it's an adjacent multifamily asset class.

It's adjacent of course to single family homes and it fits that.

Again, there's a clear consumer need for it.

It's a new asset type.

It's growing rapidly, but it's very, very small.

I mean again in the larger scheme of things.

So it is a niche.

It's a niche product.

I happen to love it because you can see there's a clear need for it.

It's very clear.

But there is a range of different kind of product.

Many of them are like communities.

They've got amenities, centralized amenities, they have services.

It's great.

Some are sort of town homes that are not detached.

So there's attached and detached product there.

I'd say in some certain places in the southeast they're truly single family homes where there's no amenities.

It's just.

It's a neighborhood for rent.

That's it.

Okay.

Right.

So there.

And the different.

The builders are coming at it from different perspectives and different heritages.

So it's still a product type that's in flux in experimentation.

And I think Fanny just put out a research note on the SFR BTR segment using some of our data.

And again, it's a niche.

I love it.

It basically fills a need that needed, I think is quite durable.

Over time the school districts will build up in those areas.

So it will become more appropriate for families with school age children.

But this first wave of residences and residents aren't that, but it will be give 10 years.

Then these areas will have built up schools, districts and then they'll appeal to a different customer segment.

Okay.

So you think it has legs to run for a long time and it's just going to carry sort of the younger couple to now a couple with little kids who are in the school district and they're going to stay.

I mean if they don't stay, then they'll attract new residents who do.

Yes.

Okay.

And it does seem to have the same turnover relationships like single family rentals on a scattered site where the turnover rate is about 30%.

The cost per turn is higher on a sort of a turn adjusted on the P and L, it's about the same kind of turn costs of multifamily because you have fewer turns.

But the term, the cost per turn is higher.

So it kind of again, the economics kind of work out, you know, so.

The economics flush out.

But I mean if you're at 30, that's half of sort of a traditional multifamily turnover.

Yeah.

Though we have seen traditional multifamily in this segment.

Okay.

This last, you know, couple of years, this year or two where the retention or turnover has come down significantly because they can't afford the move out.

Right.

To buy a home.

But this is a good halfway house, right?

Again, if you, if your lifestyle enables you to be further afield, work from home, or at least work from home more often, let's put it that way, yes.

Then you can make it work for.

A hybrid work from home model.

I think it's perfect for that.

And again, that may drift you if you.

I've been tracking hybrid work and work from home right out of the gate from COVID and I.

I haven't been surprised, but a lot of people have been surprised.

Like I could tell right away due to demographics and the aging of the population that work from home and hybrid was going to have huge legs.

And it really has broken out the way I kind of thought it would break out, which is again, let's just look at office using employees.

Okay.

A third and really totally breaks out by industry and by function.

Okay.

Okay.

So there isn't a one size fits all thing here.

It's really industry and function.

And therefore the industry mix and the functional mix then have a different differential impacts on different metro areas.

Okay.

So that's why the different metro areas are impacted by different ways.

You have about a third of the workforce that is back in the office four to five days a week.

They are primarily early stage tech finance and sort of like illegal, but deal legal, you know, deal teams, not your general contracts.

That's about a third of the workforce, 35% of the workforce.

And by the way, there's a great data source here called the Flex Index, which is free.

The company's up for sale that have been producing this Data on about 6 to 7,000 U.S.

companies.

Best data set I've seen in this area at all, bar none.

Best thing ever.

Okay.

What's it called?

Called the Flex Index.

These guys are great.

I've spoken to the guy who runs the company.

Super, super guy, really nice guy.

Great data.

Okay.

Just amazing.

So a third is in.

Is in the office all the time.

20% ish.

Call that 20.

20% ish.

Are now fully remote.

These are specialized workers now.

That's up from 5%.

Okay.

From 5 to 20.

And these guys are fully remote.

They're specialized skills.

They're just, they're just completely remote.

And they are everywhere.

Okay.

They're in small towns, they're in mountain towns, they're in beach towns.

They were in Lisbon and they've come back, but they're everywhere.

They're just everywhere.

And that's what's feeding a lot of the small town growth, the mountain town growth, the beach kind of growth.

But not expensive.

Not retirees, but this sort of less expensive world.

And then you have the rest of the population is hybrid at about two and a half days a week.

Okay.

Okay.

Particularly.

And again, when I'm talking about office using employees, these are people who are moving information.

Okay.

That's what they're doing.

They're moving information.

And most of the people who are hybrid are executing stable processes.

Right.

If a, if a job function is chaotic, they're in the office.

Can't.

There's too much going on.

Can't figure it out.

That's why the real estate deal teams never left the office.

They were gone for a month.

They'd been in the office ever since.

But most people who were sitting in an office, it really was an information factory.

They were executing a stable process.

Those people are most inclined to be.

They fit with hybrid and they spread all over the place.

And that's where we've had movement of companies into the southeast, right.

From California, from New York, from Chicago, right into the southeastern cities.

And then those companies, when they settled, yes, they got an office probably smaller than the one they left.

Okay.

And that their employees are hybrid.

And so those folks are spreading over the entire metro area.

So for example, we spread.

We've expanded our coverage areas in major metros because of the spreading of this population.

All the southern metros, we've picked up all the surrounding counties because people are scattered in search of lower cost housing because they could.

All right, the phenomena of zoom calls and work from home and Covid, again, it's very durable.

It's very durable.

In the United States.

It's hybrid ish to call two and a half days a week.

And please don't get distracted by some of the tech companies saying, hey, five days a week you gotta come back to the office.

I mean, look, I love the folks who are office leasing, but you know, like, honestly, that's a back ended layoff that has got nothing to do.

That has nothing to do with the sort of core of work productivity that is a way to fire people without having to go through a formal layoff and deal with the market, blow out of that.

Right.

It's like, oh, you five don't want to come back.

Okay, sorry, Gone, right?

Yeah, gone.

And by the way, if you're that important, I'll make an exception for you.

Yeah.

Although I think Jamie Dimon's been saying you got to get back to the office for a couple of years now.

But I want to differentiate finance from tech.

But I still don't think it's even happening at his firm.

Yeah, it's happening more four days a week maybe.

It kind of depends on whether you're doing a deal, executing a stable process.

Right.

Different function, different dynamics.

Look, I will also say, just to be honest, I run a business which is basically executing a lot of the research we do has a lot of stable processes.

Right.

We are a largely hybrid organization.

My division, personally, and our turnover has gone down by two thirds because we are able to access and retain people, build their skills because we're giving them workforce flexibility.

Now we can measure productivity very tightly.

So we are getting as good or better productivity with much better retention and much better skillset.

Because again, it just so happens that my business has the characteristics that lend itself to that kind of working environment.

Yeah.

As long as you're able to measure and track and have accountability, it's perfect.

That's right.

Right.

And there is a role for the office and there is a role for training, for socialization, for skill building, you know, but it's not five days a week, it's a day or two.

Okay.

And my company, we have, as we've been rolling our leases, we've cut our footprint by 55%.

Wow.

Yeah.

And I've been hearing that across the board.

Right.

Major law firms, they're all cutting back 20, 30%.

Again, it very much depends.

This is what I'm saying is.

So do I think the, I think the overall reduction in office is.

Footprint's probably 20% overall.

Right.

It's not like, you know, because I'm not everybody and.

But for our business, for what we're doing, that works for us.

So we now have, I run, I run three offices within Yardy's network of 40 offices.

And we have a schedule where all the teams have a schedule as to when they can come in the office because we couldn't accommodate everybody if they all came in at the same day.

But everyone's on a schedule.

It works.

Everyone seems to be happy with it.

Some people are on Tuesday, some Wednesday, some Thursday, and nobody likes to come in on Monday and Friday.

That's when I go in when no one's around.

Perfect.

But.

But it works anyway.

Yeah.

Let's talk more.

So.

Right.

So for some, so for these reasons and others, like I was going to ask you, still staying on, sort of, the build to rent product is a great sustainable, long term, great product.

Absolutely.

You know, we're also seeing or hearing about either, to your point, both demographics, the younger sort of millennial Gen Z pre kids who maybe well, either can't afford to buy a home because of the affordability issues or choose not to because they want flexibility.

And same for sort of the older baby boomer retirees who are like, you know what, we're going to sell our house in Phoenix.

We got a nice little nest egg.

We just want to rent from here on out.

We're going to take Winnebago and tour the countryside.

Beautiful.

Beautiful.

And, and so I think, I think for all those reasons, it is a product type that's very interesting.

Yes.

Let's talk a little bit about operational efficiency technologies.

Some of the stuff you're doing at Yardy Matrix with your business intelligence and how that might help customers manage costs or increase some of their efficiencies.

What are you guys seeing on that?

Yeah, so I'm going to separate this in sort of Yardy Systems, you know, because I'm a division of Yardy Systems.

Yardi Systems is one of the largest property management software companies.

Software and services that help support people who own and manage commercial real estate.

And then I can talk about Matrix as a division of the company.

We're a relatively small division of the company.

But on the software side, the fact of the matter is that the requirement to reduce cost on an ongoing basis is critical.

Costs are, expenses have been increasing significantly, we hope and we do think that they're beginning to come down.

The rate of growth is beginning to come down.

But labor costs are up 20%.

Materials costs and supply costs are up.

Obviously, you know, insurance costs are up, taxes are still rising.

So, you know, we track the expenses.

So expense expenses have still been going up.

So what happens when you want to provide a better customer experience that's less intrusive and you have expense pressures all over the place.

Well, you do adopt technology, technology, you do that.

And so we have 40 modules that basically comprise every component of operating a multifamily property where you can basically you have a foundation in the property management of record itself.

And then there's all these different modules that plug in from marketing to utility management to procurement to insurance compliance and vendor management.

There's a gazillion of them, but all of which is driving the expense down, providing still very positive customer experience and focusing your labor on things that are uniquely consumer facing.

That's the issue is if you're going to have people focus them on actually having an impact, not on basically back end.

Yeah, that has no value fundamentally to the customer experience.

And so a lot of the customer acquisition, lease management, even a lot of the maintenance Activity is being the back end of that is all being automated, driving down costs.

Now also inside of those, the new development of artificial intelligence is basically being just driven into those existing products.

So when it comes to procurement, there's like an AI bot that basically helps you buy stuff.

There's a big, big move on the customer acquisition side where or the thing we call chat iq, which is really a chat bot that has replaced a lot of the initial call center costs and yielded to the leasing professionals a high likelihood leasing person who actually needs to see somebody.

So you can basically digitize the entire transaction for people who just don't want to see somebody and are willing to lease completely.

And we can verify their identity, we can take payments, you can do a virtual tour, you can do all the infrastructure, but there are people who actually want to see it and you can support them and that now you can increase the productivity of those leasing consultants and have fewer of them and have them more productive.

So that's a big deal.

And it also enables, I would say, some marginal marketing sources that otherwise wouldn't be cost effective to suddenly become cost effective, which is helping on the sort of general.

What you mean by that?

Well, look, there may be, let's say some websites, right?

So there's a range of SEO, ppc, and there's a whole range of these different sort of marketing channels.

So you may have a marketing channel which traditionally would have generated a lot of activity but very little yield, right?

And you'd say, look, I'm not going to advertise on that particular.

I may get an incremental one or two leases, but like all the crap I have to deal with to get to those one or two leases, the economics don't work, right?

But if the chatbot's dealing with all of that sort of sorting through and now you're only seeing the few people on site that actually will lease, suddenly that marketing source, that marketing channel becomes economically viable where before it wasn't.

So you're accessing more incremental demand because you're not paying the cost associated with the labor cost of clogging your pipeline to get to get to the leases that you actually need and that it's rippling through every aspect of all the products, right?

Utility management, procurement and marketing and also moving all the payments so it's recurring revenue that's automated, that's already know done this.

All that stuff is you really have to drive the cost down.

But just, you know, Fred Smith at FedEx said this 40 years ago and there's Nothing new under the sun.

You automate the routine, you humanize the exception.

That's what this is all about.

I like it.

So when there is a problem, you get to a real person who can solve it.

Be empathetic, provide great service provider.

But all the routine stuff should all be automated away.

And remember also it's harder to hire people in this labor market.

Harder to hire, harder to train.

You gotta have a better technology backbone.

And the way the world works now is it's variable priced.

Okay.

So back in my day when I was running deals, we had large fixed cost systems.

Now they're all variable costs, variable cost systems.

Right.

So it moves up and down with your scale as an, as an entity.

So because basically yardi is the back end infrastructure as bearing the sort of like fixed cost to keep the infrastructure up in place.

So you as an owner, operator or as a manager, you're only paying on a variable cost basis tied to your revenue stream.

It's a much better, much better sort of model.

We always joke, the yardy, let me guess, $2.50 per unit, whatever.

Right, right, right, right.

But it's a very good model and it works.

And we.

Module after module.

Yes, it adds a lot of value.

Yeah.

And again Yardy matrix is the market intel module of Yardy.

And so we are also working on AI initiatives in our, you know, in our organization that are separate from what's going on elsewhere.

Right.

But again my whole system, my whole purpose for being is to save our clients time, help them make better decisions more quickly by doing a lot of the monotonous labor intensive work so that you in the investor are only focused on the things where you add value and a lot of the routine stuff is basically done for you.

And that's why fundamentally you trade money in order to get back time.

It's a basic trade and it only works because I'm at scale and I can do things at scale and then I can basically, you know, make an economic trade, you know, for my labor cost is less than your labor cost.

And that, that's how the economics work.

Yeah.

Now makes perfect sense.

Yeah.

Most things do if they work.

Yeah.

Let's talk a little bit about speaking of investors, about the investor side and capital flows into the business.

You bet.

Because you know, we've been hearing for a long time that there's so much capital for multifamily on the sidelines.

Right.

Sitting on the side of the side.

Yeah.

I mean, are you seeing, because you mentioned earlier, and we're seeing it ourselves, you Know, more movement.

Right.

More deals coming into play, starting to come in.

Yeah, yeah.

Like for example, Jeff, we looked at a deal in Vegas a couple of weeks ago.

They had 30 offers on this deal.

30 offers, which I'm like, wow, exactly 15.

Best and final, by the way.

Okay.

Well, there's a fair amount of interest out there.

So there's a fair amount of that was in Las Vegas.

Right.

So I'm wondering what you're seeing, you know, is money.

Obviously there's a lot of money sitting on the sidelines still.

What's it going to take for that money to move?

You know, and kind of, where do you see that?

Where do you see the, the investment demand?

I mean, we know workforce housing is a great niche within the world of multifamily.

You know, where do you see investor interest there?

And kind of where do you think we are at this point?

So I'll call it.

The fundamental, fundamental conundrum is this.

Okay.

It's very hard for people to buy below their debt cost.

Right.

Because you actually then have to.

You've got negative leverage and you got to believe that you're going to get rent growth to get you out of that.

And again, the short rate is five.

Okay.

Tech that.

So really you're talking about eight.

Okay.

Or seven or eight.

The long rate is now 4.3.

Pick 4.5 this morning.

Four, five.

So hey, put 100 at three and a half.

It all worked.

Okay.

At four, four, four, five.

It doesn't quite work.

Okay.

Because you put 175 basis points to 200 basis points on that for a commercial mortgage.

Right?

Yes.

Remember, the residential mortgage is probably another 100 basis points on top of that for residential mortgages.

That's right.

So when you look at that, residential.

Homeowners aren't buying a cap rate, so that's less important.

True, true.

But they still have their own financing issues.

So when you, when you look at that now, you're like, it's really hard to make the deals work unless you're getting an assumable loan.

Okay.

Because they're still out there.

Okay.

And then you can basically close the bid ask spread.

Okay.

So that's, that's an opportunity.

You like a market in the Midwest.

Get a loan that still has eight years to run on it and it was at 3%.

Okay.

Right.

You could make that typically is going to require a lot more equity.

Right.

There's equity in there.

There could be also some other fees and assumption fees.

So again, it's got its own issues or you have to have such level of conviction or your capital cost has to be low enough that you can tolerate that negative leverage and hope to basically earn your way out of it.

And you've got to project some kind of rent pop probably in 26, 27, back in the 20 in order to sort of like make it all work.

Okay.

Yes.

Or somebody's got to take a haircut.

Right.

In order to make this thing work.

Right.

Somebody.

Something's got to work here.

Okay.

And so the reason you don't see transactions like supercharged is like, it's really hard to line up all of those unless, you know.

So the deals that are getting done tend to be somebody who's got a liquidity issue that they've got to resolve.

Okay.

And they'll sell at the market price today that.

Right.

In order to.

Which is essentially a cap rate that's going to equal the 10 year plus the spread.

Right.

I mean, it's a math problem.

Right.

Like.

Yes.

So, so, so you know, yes.

You're getting transactions because, you know, somebody's got an issue that they have to resolve and they're willing to basically take the haircut.

It's easier if they bought the thing in 25, 2015, 2016.

They had a big run up in value and they say, ah, well, you know what, I didn't make as much money off the peak, but hail, we hit our numbers, things worked out okay.

And we live to fight another day.

Boom.

Yeah.

And now I can buy something at a more sane value going forward and.

Exactly.

So I'm not saying that that's why our deal is getting done.

Sure.

But the back of the matter is the peak of 2022 is not going to happen.

The numbers don't line up there.

You haven't had enough rent growth since 2022 to negate the sort of reduction in values on the other side.

Okay, so, so I would say that's what I'm saying is like there's a stress play of those deals bought at the peak.

We're like, I don't know how it's gonna.

I don't know how that's gonna get resolved.

Okay.

So somebody's got to take a haircut again.

Deals bought earlier or pre Covid, they won't make as much money as they could have, but okay, they'll do.

Okay.

All right.

And so those deals will sort of move forward.

Look, there's plenty of capital that would like to come off the sidelines, but obviously there's a return expectation and it is reset at the new cost of capital.

Well.

And the buyer now is going to have to make assumptions to your point on rent growth to probably make it work.

Right.

And, or you know, what's my exit cap rate which I'm hearing guys are exiting at the going in or less.

Okay.

In the old days.

Yeah, yeah.

Going in we were adding 10 basis points a year for hold.

Right.

If we held something seven years, we'd add 70 bips to what we were going in.

And that was our exit.

That's right.

But now you do that today it doesn't work.

That's right.

So you have to buy anything.

You have to buy anything.

So you have to sort of like play around with someone's assumptions.

But you also have to retain the essence of reality.

Right.

You can't, otherwise you're buying into a new problem.

Correct.

That doesn't work.

And when I think about long term, I just don't see a ten year anywhere below three and a half.

Like I just don't see it.

I don't see how you get.

So then I don't see, therefore I don't see a mortgage rate on a ten year, anything below five and a quarter ever.

Like Again, for a number of periods of time.

I just don't see that happening.

Which historically that's probably right.

In the last 30 years that's where it's been.

Well, again let's say you get 2% ish inflation.

Right.

And then 100 basis points of real yield on the 10 year.

Okay.

It sort of works.

And you need to get the short rate down to about two and a half with a three and a half to sort of get.

Have an upward sloping yield curve where we're sort of like that's, that's normal.

Ish.

Okay, now we're not there.

And we were getting close.

We were at a 3, 6 for a moment, for a hot minute and then it ran away.

Okay.

Yeah.

And that's really based upon.

Okay, you know, the election, by the way, interest rates started to move before the election, but it was based upon an understanding that neither candidate was going to do anything about the deficit and the amount of debt that's out there.

And that debt has to get either monetized or it has to have a higher yield.

Right.

And anything I'm seeing on inflation, inflation does look like it's coming into that 2, 2.5% handle where it can work.

And we are seeing that in a reduction in the quits rate, a movement lower in the eci, which is the employment cost index.

So all these numbers are sort of lining up.

We're seeing some level of productivity increases, unit labor costs being 2ish, maybe sub 2%.

So all that, you know, from an inflation standpoint, I can see two to two and a half percent because we have some deglobalization going on, reconfiguration of supply chains.

That's kind of inflationary.

But we are seeing out of China goods deflation like crazy.

So that's helping the task move a little easier.

Okay.

Anyway, like, so when we talk about rates, that's, this is the conundrum of like trying to get all this stuff to line out again.

Special situations, yes.

Broad based, you know, happy days are here again, it's hard to see that sort of work its way out.

But again, you look forward past the supply surge, right.

You do see the ability to have consistent rent growth at 4 to 5%, 3 to 5%.

Again, historically, by the way, if you got one point over inflation on rents and expenses grew at 2, 3%.

Everything worked, all the numbers worked.

Right.

And that is the historic norm, one point over inflation.

That's where I learned for Renko.

I learned to the knee of Terry Considine, a great investor.

He taught me everything I know about multifamily real estate.

He said that's the way the world works.

You just have to like.

And if you get anything above that, you are blessed.

And we got well above it for many years.

Right.

So anything above a 3, you're, you're, you're in fact city.

Okay.

You know, that's amazing.

And again, you got to keep your expenses so that your noi, you get operating leverage.

So you get a 5% NOI increase and then you lever that up at 65% leverage, you're at a 15 ROE.

Boom.

Everything works.

And if cap rates compress, then it's really a home run home.

Right.

You go from everything works to a home run.

Right.

And so that's.

But even if cap rates don't compress, if you hit those numbers, you're still going to do fine.

Yeah, it'll be historically the way it was meant to be.

You operate a property, right, and you've done very well.

Right.

You get rich slowly.

I mean, remember, multifamily real estate was not designed to get rich quick.

No.

It was to get rich slowly.

I call this business my get rich slow scheme.

That's what.

Right.

I want to write a book called the Get Rich Slow Scheme.

It's just no one will lie because everyone wants to get rich quick.

Right.

These market conditions have been ahistoric.

Okay.

Both in terms of capital market costs coming down as well as rent growth that has been outside of the historic norms.

Yes, no question.

But to your earlier statements, you still think sort of in spite of some of these, we're kind of in between in many ways, right?

What you're saying?

Yes.

But in spite of that, you feel like now is a good time to buy, even though there's a little bit of pain in some of these markets with oversupply.

Yeah, rent's flattening, maybe rent's going down.

I mean, I think you just have, I think you have to underwrite reality and say, look, yes, if I'm going to buy in Charlotte and Raleigh, Atlanta, you know, Dallas, these are great economies, business friendly economies.

They're going to grow.

They've been dynamic.

I actually did the data back 50 years, okay.

Just to look at population growth and supply response.

And they are more cyclical in nature, but the cyclical is with an upward trend.

Okay.

It's just that this particular cycle, the rent pop was big, the supply pop was big, and now the downside's big.

But they've always, always had had supply responses that come in waves.

Just the ways haven't been that big, but they've always done well because the economies and the public policy consensus around growth have been solid.

Those cities have grown, they've expanded.

Right.

Heck, Dallas is like up to the white, up to the Oklahoma border now.

Okay.

And quite frankly a little bit beyond it.

So.

And they have consistent public policy consensus around growth.

They're making infrastructure investments in their areas.

They can handle the population growth.

The thing, the key thing that I look for, and we've done analysis around it, is when the public policy consensus on growth breaks and when the infrastructure investment stops, then you can see that within 10 years that city is going to blow up.

Right?

Because it can't handle.

And then everything's going to be about allocating scarcity as opposed to facilitating abundance flat out.

And so those are the, those are the.

Again, growth requires a public policy and private market consensus, right.

That the community wants to grow.

Once it decides that it doesn't want to grow, then it's allocating scarcity.

And that usually is not a good place for multifamily investors over the long run for a short period of time, sure, it's great.

But I have seen again and again and again is while you can make money in a society community that allocates scarcity, okay.

At some point in time the community is going to revolt, particularly around housing and say we don't think it's appropriate from a public policy consensus for people to make money on housing, forgetting that housing facilitates growth and is a piece of infrastructure.

That's why it works.

That's why the US is the largest and best and most liquid housing asset class in the world, which is why it attracts a tremendous amount of foreign capital.

I deal with folks from Europe, Canada, South America, Asia.

They're investing in the US multifamily because it is a deep asset type.

And you can't invest in this kind of asset type in many places around.

The world and especially with the kind of financing you can get, this is.

Not available at scale to allocate the kind of capital that can be allocated, which is where you have Australian money, you have Korean money, you have Japanese money.

For a time, you had Chinese money, you have European capital, you have Middle Eastern capital, you have an amazing amount of Canadian capital, all focused on U.S.

multifamily in addition to the normal amount of U.S.

domestic capital.

It is a very deep capital market.

And the GSEs provide such a stable source of financing that no other countries really have.

Yes.

And the GSEs have chosen to use it wisely.

Now, I will tell you, just to be honest, between you and me and the fence post, the thing that gave me the biggest scare, the biggest scare was the proposals that were floating around, which we worked on and combated, was to basically attach rent control to GSE financing.

It was that close.

Don't kid yourself.

Well, and depending on the administration who won last night, it could have been even closer.

It was that close.

The current.

When we were.

When they.

And we knew.

I knew in 20, mid 23, all the RFIs started coming out for the administration from the White House, from the fhfa.

They were all pushing to basically do something where they could run on fixing quote, unquote housing.

Yes.

And they could use the lever of the GSEs, which is a big one.

Because 60% of multifamily, to the ever living credit of the NMHC and NAA, they were able to basically beat that back.

And there was some acceptance on fee structures and disclosure, which was fine.

Right.

You know, of all the things that could have happened, the actual proposals that came out of the administration were the least bad thing.

And if you recall, Harris and Biden talked about rent control and they tied it to depreciation.

That really was a gar.

That was a.

That was.

That was not a serious proposal.

That honestly, that was a press release and everybody knew it.

And they knew it.

The stake through the heart.

And they did not need a law to do it was to tie rent control to GSE financing.

There's nothing that prevents that from happening.

Yeah.

Well, and having said that, they set the precedent during COVID as you know, by start starting to encroach and saying, okay, now you have to offer an additional 30 days before you evict and.

Right.

So.

And that never went away.

Right.

By the way, that's still in play because I'm a big user of Jesse Capital.

So it does scare me because they have a lot of power and leverage and with a swipe of a pen.

Right.

Can instantly.

Yeah.

So my point is, public policy does matter in multifamily.

So you are.

So you have a modicum of exposure.

It is a modicum.

It could be a lot worse other ways.

But that was a close call.

That was a close call.

And it's bad public policy.

It's bad for the renters.

It's bad long term.

It's just every possible way you can imagine.

It's just horrible.

Yes, I know you're preaching on fire.

And so thank you for working and beating back that initiative.

I had a very small role to play.

Mostly was the NMHC and na.

They did an amazing job.

If you're members of those organizations, your contributions were well spent.

Yeah, no, they always do.

By the way, I didn't hear what happened to Prop 33 in California.

I haven't checked that.

It got defeated by a lot.

Wow.

The last count was about 60.

40.

Yes.

Wow.

Well, what do you know?

Sanity.

So that means.

Correct.

Sanity in California, which is an insane place, as you know.

Okay.

And a bipartisan sanity.

Right.

So that means a lot of renters themselves realized that was not bad public policy.

It's bad again.

It's a.

It's a supply.

It fundamentally is adding supply.

That's.

That's really the issue.

And I'm thrilled that.

That the voters of California.

Yeah.

Now, as am I.

Because, you know, as California goes, some of the crazy ideas spread.

Yeah.

And so I don't own anything here by choice other than the office building I'm sitting in.

Yes.

But I know other city states were looking at Prop 33.

Yeah.

Let's see if it passes.

All horrible.

Okay.

Yeah.

So it's all good.

So listen, Jeff, we're bumping up on just over an hour here, so I think we probably need to wrap.

But I guess one.

One sort of final question.

If you could sort of look in your crystal ball in the multifamily industry and specifically, you know, kind of workforce housing.

Now that we've had really a historic President Trump getting elected last night, again, it was an unprecedented event.

I mean, where do you kind of see, where do you see the industry playing out if you had a crystal ball over the next say five or ten years?

Well, fundamentally I love multifamily.

I've been around it 20 years.

I've seen it, how it grows.

I'm very optimistic about it as both for meeting a consumer need and as an investable class.

There's not a, it's a false trade off to say you can't do both.

I do believe that you have to look, you have to really look past the next year, year and a half of new supply being delivered.

Okay.

So let's, let's look past that because there will be short term pain in these 20 markets as this stuff gets absorbed.

There's no question.

But let's look beyond that.

Right?

Most folks are looking into a five to ten year horizon.

Okay.

There we still haven't resolved the housing shortage hasn't been resolved.

If interest rates stay as they are, then it's unlikely you're going to have a boon of single family sales, which means that retention in multifamily will still tend to be pretty good.

Okay.

So all and again, going past 27, a lot of deals don't work in terms of development.

Okay.

Now to the extent that there is a true radical change in local zoning permitting and requirements, and that could happen.

Okay.

But that will take time.

I continue to see the ability to have rent growth in excess of inflation, 1 to 3% in excess of inflation.

It's rather durable.

Right.

Remember, if housing costs are 30ish percent or 35% of incomes, if you have modest 3% wage growth, you can easily have 3,4% rent growth and not crowd out the rest of the consumer budget.

So I view that as absolutely sustainable and we've seen it before.

So the economics of the fundamentals all work in terms of it being an investable class, where both the revenue and the expense structure on an operating basis can work, where unless there's a radical change in planning and zoning policy, and even if it did, it would take five to seven years to work its way through the development cycle.

Yes.

So I continue to think that this is a, you can continue to see rent growth.

I do believe in dynamic economies that have a consensus for growth.

I believe in a lot of smaller markets.

I believe in the Midwest.

I'm looking at demographic changes, deglobalization really the build out of the energy infrastructure all along the Gulf coast and the growth of the petrochemical industry and manufacturing.

They won't be as labor intensive as maybe some people would hope.

But there's a radical amount of reindustrialization that's going to occur.

It starts with the oil and gas industry, goes into this petrochemicals, goes into plastics and kind of follows from there.

So fundamentally I believe in kind of the Southeast Texas, the Mountain west and to a certain extent smaller cities in those areas because they will continue to grow at the margin among the major kind of global centers we call our core cities.

That will depend upon the level of commitment that they have to re energize and growth in their metropolitan areas.

They're going to have to get control of their public safety issues first.

Security always comes first.

Then they're going to have to sort of actually encourage business to be there.

I think New York has a bit of a leg up in that regard.

Boston's not so bad, Chicago's.

I think San Francisco and Oakland need a little help in that regard.

And that really is just are there enough.

I grew up in New York in the 70s and things got really bad before there was a public policy consensus around that growth was desirable.

I don't think maybe California is beginning down that road and there may be some great opportunities to buy because remember fortunes were made in New York City right around the late 70s, early 80s when the public policy consensus turned.

Now I can't tell you whether that condition is the same in California or in Seattle or in Portland, Oregon.

But I can tell you is local investors who are clued into their local economies and can see that inflection point and then can invest into it will have legendary wealth opportunities.

But it really same thing with Minneapolis.

Will these cities fundamentally hit that inflection point where they want to grow again and are willing to do the things necessary to grow?

I don't know that.

I can't tell you that.

But someone who is local and is close could do incredibly well in that investment strategy if they can pick that inflection point.

And that's where I'll leave with.

I'm optimistic about multifamily as an asset class and housing as an asset class.

It's got tremendous opportunities, it's imbued with the public interest.

So I think it's good for society, I think it's good for the investor.

And at the best run organizations provide great services to their clients, create value.

And we've seen this again and again.

And again and again, that government run housing doesn't work.

Doesn't work.

That the private sector has to be engaged and activated in order to provide housing for Americans.

And that's what I would argue with.

Which is why what makes, you know, what we do, what I call affordable with a small, a compelling and great business.

Yes, yes.

And providing high quality, at low cost to provide clean, basic quality housing.

Right.

Keep the community safe, have high resident quality standards, expect people to pay their rent because it raises the standards within the community that people will meet their obligations and their responsibilities.

And it's incumbent upon the owner of the property to provide a safe, clean and stable housing environment.

At AIMCO, I operated 100,000 workforce housing units.

And that was in my mind, the moral foundation of what we did.

Okay.

And we were able to energize our entire operations team around that mission.

Okay.

That we provide something positive for the world.

We expect our residents to meet their commitments and we commit ourselves to providing a great living environment for them to reach their potential.

And I'm very proud of what we did, what my team did at aimco, to provide that kind of housing.

And I think our industry can feel very proud about what it does and again, imbued with the public interest and, you know, a great public service and a great revenue and wealth opportunity as well.

Yes.

Amen, Jeff.

Very well said.

So I want to, I want to thank you for joining me on the show today.

I think there are some great insights you provided in what we know is a very compelling asset class.

Even though there's some short term oversupply issues.

Right.

It is not systemic at all.

And I like you, I'm convinced that workforce housing not only holds an important spot in overall affordability landscape.

Right.

To provide housing in that realm, but should deliver outstanding long term results for investors as well.

So thanks again, Jeff.

Appreciate your time.

Thank you.

Bye.

Bye.

You're welcome back anytime, my friend.

My pleasure.

I hope today's show inspired you just a little bit and I would like to thank my guests once again.

I'm excited to bring you more episodes with interesting and informative experts to help you navigate your way to wealth and health.

Thanks for listening to the Real Estate Wealth Podcast.

The Real Estate Wealth Podcast is produced by Truth Work Media.

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I'm your host Ed Alloy.

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