As Build-To-Rent Stakes Intensify, Predictability Is Scarce
The context is war. Russia's invasion of Ukraine, and the war's harm to people and its rough-handed spread of impacts on resources they depend on, and its harsh indefinite and known effects on broader economics and culture, together solidify the contours of a defining moment. In a business – U.S. residential real estate and construction – where the ability to excel and improve requires exceptional skills that run at right angles, context and its current fault lines are critical. Even that which might be domestic or "insulated" is only so within this context and its recognized and unknown fault lines.
Humanity – and its subset here of the community people who commit to, plan, design, invest in, engineer, build, and offer to the market homes and neighborhoods – has a true north in such a context and at such a moment. Here's something of its magnetic core.
- Heightened determination and resolve, come what may
- A deepened flow of purpose that unifies people intention and effort
- Intensified focus on what counts the most, children and their ability to prosper.
Every private sector organization in every industry sector under the sun – whether it's a business-to-business firm or a business to consumer enterprise – needs to devote its full commitment and focus to that single true north at a time of such screeching volatility. If you're going to be good at something, now's the instant to be very good at seeing, and reading, and moving people together toward an endgame they believe in and value.
That's a powerful conscious and unconscious context, and it belongs in the framing of every day-to-day story on the business of residential real estate and construction, because that business exists within a defining force-field of that context.
Even before COVID-19 and certainly before Russia's assault on Ukraine what was going on sharpened clarity around two conditions for success in 2020s building and real estate.
- Companies that make strides on the construction front without also notching excellence or progress on the right-angle axis of real estate gamesmanship are apt to struggle.
- Likewise – minus these two convulsive, globally-felt shocks – firms with expert real estate chops on the one hand, but weakness on the build cycle value chain per se were finding it difficult to model a sustainably profitable pro forma.
It comes down to a simple need to be exceptionally skilled – and always improving – at both constructability and trading for land and its use for a business to work in the past, the present, and the future. Yet these skills – building and land use – are regarded as orthogonal – flowing at right angles to one another. At times, they can even conflict with one another – a value stream in one can potentially mute or diminish the value cycle of the other. To excel at both means having to recognize both the forest and the trees as essential.
This is the reason that context – especially when volatility, whose very meaning is the real possibility of big wins or big losses – ratchets up in importance.
Let's accept that the snowball-turned-avalanche of investment, business planning, operational ramp-up, and activation of resources – not to mention, growing housing preference adoption among households – in single-family built to rent reflects a fundamental sea-change business opportunity area based on an unmet need for more new homes and communities of this type.
Most of business model assumption inputs pencil consistently, manageable variable costs on constructability blended with a cash yield and Cap Rate calculus on the orthogonal axis that figures in rent increase power to some X factor, plus a valuation on the property's ability to sell that validates the land investment.
From GlobeSt.com on the heels of one of the recent single-family-rental business and investment conferences that seem to happen every other week these days, writer Erik Sherman outlines "5 Major Build-to-Rent Trends," and sets up the story this way.
Build-to-rent has become an attractive option for investors and developers, outperforming multifamily over the last five years and becoming more important to institutional investors. That makes sense, given the ongoing shortfall in building homes and high prices pushing people who might otherwise buy and who still want more amenities into rental markets. BTR offers an alternative to locating and obtaining single-family houses in a tight market.
CoreVest American Finance Lender, in a larger document on BTR investment, listed five developing trends in the space that investors should consider. That changes are happening shouldn’t be a surprise, as last year the mix of supply chain and labor issues as well as uncertainty around a return to the office showed that BTR strategy needed more consideration going forward.
Sherman's GlobeSt.com piece and its five-major trends in BTR underline the hidden-in-plain-sight actuality that for any particular investment to succeed – as many may well do, but by a long-stretch, many will certainly not – it has to be that those working to execute on the pro forma have a shot at reducing the right angle relationship between constructability and the real estate acquisition, planning, approval, development, and use value cycles.
Know-how and technology, both in the physical internet of things and the data and machine learning meta universe of everything, have begun to emerge – accelerated by our current pandemic-era and war-defined context of vertiginous commodities prices, broken supply chains, disrupted trade schedules, and indefinitely elongated construction build cycles.
When a new platform surfaces that offers a proven, consistent, predictively repeatable "technology as a service" to operators that benefit most by focusing what they're best at – serving end-user buyer or renter residents – it's like found money. Such a platform – like Mosaic's new "pre-development in a box" array of services for builders and developers in the built-to-rent space – allow both the developers and builders to double-down on consumer- and stakeholder-facing value creation, even as they lock in capability for that real-world messy juncture between constructability and land acquisition, entitlement, planning and use.
With the additional resources, builders, developers, and investors looking to build BTR communities get access to a highly skilled team of forward planners and construction experts who manage the critical pre-development workflow. Mosaic’s services include:
- Site selection analysis and reporting;
- Conceptual design and land planning;
- Pre-development project management;
- Initial construction budgeting / scheduling;
- Constructability analysis / value engineering; and
- Final construction budgeting / scheduling and trade subcontracting
Fused together here in a way that can close the 90-degree relationship between constructability and land buying, planning, zoning, and use, Mosaic puts both deep, tried-and-tested know-how together with enabling technology and machine learning t0 empower its "constructability as a service" platform.
Here's one build-to-rent developer, attesting to his firm's ability to focus its strengths while it activates Mosaic's building-life-cycle as a service capability:
We’ve been looking for a partner with significant build-to-rent expertise, a full range of pre-development and construction services, and a highly-skilled team,” said Ed Gorman, President of MODUS Development. “With Mosaic, we’re getting all of that plus the transparency and predictability of working with a tech-enabled team. We’re excited to kick off our partnership with Mosaic in the Southwest and look forward to working on more projects with them in the future.”
In a context whose turbulent forces blur transparency and disrupt predictability – a defining context of war and its evident and potential ramifications – capability like that Mosaic brings to a fast-unfolding, high-stakes investment, planning, and operational enterprise such as single-family-built-to-rent value creation syncs up with that abiding need to excel on both axes to remain headed to true north.