The total cost of housing is determined by the alignment of financial interests across highly fragmented real estate and financial markets. In the United States alone, there are over 1.3 million companies employing over 14 million people that make their own interdependent decisions which impact costs and performance outcomes.
While many real estate investors, developers and builders profess to have solutions for the affordable housing crisis, very few companies invest in the breadth and depth of capabilities required to sustainably transform this fragmented value chain to produce more affordable outcomes.
In order to service the demand for affordable housing, a new and sustainable supply chain for affordable housing must be created. The US Census data below illustrates that over 570,000 companies employ more than 3.9 million people that are directly involved in the Housing Construction and related Contractors industries nationally. These companies produce almost $800 Billion in annual Revenues. So many companies and people are involved in these trades due to broad market needs and significant financial opportunity. As each stakeholder seeks to maximize their own market volume position and financial gain, there is little incentive to reduce costs or margins to provide a more affordable product for home buyers.
Key Value Chain Stakeholders:
Capital Sponsors/Funds/REITS – The investment mandate for growth rate and financial returns shapes the culture and behavior of the real estate value chain stakeholders. The thesis behind this new Fund is to establish clear up-front mandate for affordable housing and home ownership outcomes from the outset. Our fund mandate is differentiated from other institutionally funded platforms that seek to maximize financial returns through rental portfolios at the expense of affordability and local home ownership.
Developers/Builders - Just as with the institutional capital sponsors, established real estate developers and new home builders opportunistically seek to maximize financial outcomes. As the housing market recovered from the financial crisis and the inventory of “distressed assets” available at discounts to market dwindled, REIT acquisitions of new homes became the next target. New home builders have been able to sell any excess inventory of homes and buildable lots to the large REITS in bulk and at a discount. These new homes are then marketed at a premium rent due to new condition vs. their other older renovated homes. An entirely new channel of business called “Build to Rent” has evolved for existing home builders to supply the REITS. The larger REITS are now setting up their own operating subsidiaries focused on real estate development and home building specifically for their own rental portfolios – giving them greater control of their own performance outcomes. Our new CAPC fund is similarly being set up with a tightly aligned and integrated supply chain to assure that we have greater control of our own performance outcomes.
Local Investors - Until the US financial crisis of 2007-2009, single family residential rentals were typically owned by local “mom & pop” landlords rather than institutional funds. These local investors typically owned only a few homes in their own local markets and they generally were unsophisticated in leasing and property management and were not nearly as aggressive in maximizing their financial outcomes vs. their tenants. Nationally there are about 12 million single family residential homes for rent and less than 2% are currently owned by institution investors/landlords – but this trend is evolving, and local investors are learning to “keep up’ with their new competition or sell out to them.
Homebuyers/Owners and Renters – these are the people in the general public who ultimately must pay whatever cost has been established and made available to them by the housing supply chain stakeholders above.
Our Program’s Stakeholder Incentives are Aligned for Affordable Outcomes
The real estate investment thesis behind our Funds is that an affordable housing supply outcome must be an upfront mandate of the capital sponsor/developer that’s operating the Fund. In order to be sustainable and scalable, the economics of this mandate must provide sound financial results for the companies involved in delivering the solution. The operating, technology and financial models for this program have been designed through extensive real-world experience to bring cost and margin transparency that align expectations and synchronize stakeholder performance. These results can be achieved with aligned suppliers using wood, block, concrete and/or steel construction materials – multiple building methods are expected based upon regional and local market factors.
For more information about our programs or to discuss collaboration opportunities, please contact Thom Liggett at 704-408-9730.