JAK Capital Team8
 

JAK Capital Team8

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JAK Capital Team8 JAK Capital Team8 Presentation Transcript

  • James Hsieh Alan Chen Krista Sande-Kerback JAK Capital: Distressed Real Estate Acquisition & Turnaround Day 5: Final Presentation New Interviews: 12 Total Interviews: 45 Survey Respondents: 39 1
  • Buy side: • Capital partners • Real estate brokers • Real estate agents • Bank mortgage portfolio managers • Bankruptcy law firms • Short sale specialists Design/ build/ implementation: • A/E/C consultants • LEED consultants • Automation/consulta nts/ general contracts • Government expeditor Sell side: • Real estate agents Value driving cost structure (creating max. value through value prop) Fixed cost: consultant fees (min. legal, accounting, corp governance etc.) Variable: consultants, brokerage/agent’s fee, purchasing price $/sf. Economic of scale: construction materials, labor costs, agent’s fee % economic of scope: construction trades combo 2 Production: • Customized automation system • Product sourcing • Consultant sourcing Human: • REI/Design/Architecture/Cons truction/Finance/PE Capital Finance: • Self Funding/LLC partners • GP/LP: HNW/UHNW, RE Developers, Alternatives: • Banks: CoC (10%), PE (CoC + fees) • Newness/Performance/Co nvenience-userability: home automation – iPad/tablet control module lighting, heating/cooling, appliances, doors, TV, audio, emergency, shut offs etc. • Performance/cost reduction: LEED certified – energy efficient building envelope and HVAC System, self sufficient power supply • VOC free materials: allergic free materials, toxic free, biodegradable • Design: modern, Scandinavian style, packaged customization interior (all built in, all inclusive), including cabinetry, furniture, audio/visual system • Price: $MM lifestyle @ $600k to $800k (20% + off) • Premium quality and design provider (community) • Strong warranty period service • Automation efficiency and user ability • Cost: managed • Real estate • Broker/agents • Bank mortgage • Portfolio manager • Marketing/ sales/ BD team building • Nich Market: • Ago:25 to 55 • Income: $110k - $120k min./yr/person • Credit Score: 730 + • Location: metropolitan, freeway access, convenience, lifestyle, safety  Professional/ active  Up to family of 4 or 5  Young family, single, couple  Frequent travelers  Environmentally consciously  Premium design/ differentiation • Model A (Rehab via REO/SS) asset sale, dynamic pricing via real time market • Model B (Rehab via regular sale) asset sale, dynamic pricing via RTM and Nego • Model C (brown field development-MF/MU) asset sale, fix pricing • Model D (green field development-MF/MU) asset sale, fixed pricing • Model E (rehab/brown/green) renting/leasing • Model F (management) – sub. Fee based, automation, prop, magt,. Serviced-model Day 1
  • Interviews • Real estate agents: bullish on green+ automation combo MF units; if able to list at between $500k to $800k, can promise to sell all units with asking price (or above w/ multiple offers) • Real estate brokers: showed strong interest in listing such product types; want to be seen as “green partners” • Mortgage brokers: recommending HUD and FHA green building MF loan programs and Fannie and Freddie green building loan programs; showed strong interest in offering “Special Green Loan Package” for such project • Potential home buyers: - Afraid of rapid rising home costs - Willing to live in smaller homes or MF units - Want bright, open, and modern design and floor plan - Green + automation combo is desired, but won’t pay more than $20k - $30k for such investment; want break-even no more than 3 to 5 yrs - Toxic-free building materials highly desired - Concerned with down payments, broker fees, tradeoffs based on budget 3
  • What We Thought – Day 1 4 • Our business was about turning around distressed real estate assets and adding green and home automation features, with premium pricing • One member of the team came in with extensive real estate experience • Our value proposition was all over the map – We had a general sense of whom our customers would be – We wanted to push our product without really thinking about our customer – we were confident that the value- added features would be desirable – We listed our partners on the business model canvas before we had acquired them
  • Buy side: • Capital partners • Real estate brokers • Real estate agents • Bank mortgage portfolio managers • Bankruptcy law firms • Short sale specialists Design/ build/ implementation: • A/E/C consultants • LEED consultants • Automation/consulta nts/ general contracts • Government expeditor Sell side: • Real estate agents Value driven cost structure (creating maximum value through value prop) Fixed costs: consultant fees (legal, accounting, corporate governance etc.) Variable: consultants, brokerage/agent’s fee, purchasing price $/sf. Economies of scale: construction materials, labor costs, agent’s fee % Economies of scope: construction trades combo 5 Production: • Customized automation system • Product sourcing • Consultant sourcing • Distressed assets acquisition • Rehabilitation/moder nization • Sell property Human: • REI/Design/Architecture/Construction/F inance/PE Capital Finance: • Self Funding/LLC partners • GP/LP: HNW/UHNW, RE Developers, Alternatives: • Banks: CoC (10%), PE (CoC + fees) • Capital • Expertise (home automation & green building) • Newness/Performance/Convenience- userability: home automation – iPad/tablet control module lighting, heating/cooling, appliances, doors, TV, audio, emergency, shut offs etc. • Performance/cost reduction: LEED certified – energy efficient building envelope and HVAC System, self sufficient power supply • VOC free materials: allergic free materials, toxic free, biodegradable • Design: modern, Scandinavian style, packaged customization interior (all built in, all inclusive), including cabinetry, furniture, audio/visual system • Price: $MM lifestyle @ $600k to $800k (20% + off) • Improving the quality of the customers’ living environment through green building, modern design, and home automation • Premium quality and design provider (community) • Strong Comprehensive warranty program • Automated efficiency and user ability home systems • Cost: managed Relative affordability • Real estate broker/agents • Bank mortgage • Portfolio manager • Marketing/ sales/ BD team building - Advertisements - Customer database - News media • Niche Market • Age: 25 to 55 • Income: $110k - $120k+/yr./person • Credit Score: 730+ • Metropolitan location • Professional/ active  Up to family of 4 or 5  Young family, single, couple  Frequent travelers  Environmentally conscious • Lifestyle considerations: - Convenience - Use of space - Green/ healthy living • Budget  Premium design/ differentiation • Model A (Rehab via REO/SS) asset sale, dynamic pricing via real time market • Model B (Rehab via regular sale) asset sale, dynamic pricing via RTM and Nego • Model C (brown field development-MF/MU) asset sale, fix pricing • Model D (green field development-MF/MU) asset sale, fixed pricing • Model E (rehab/brown/green) renting/leasing • Model F (management) – sub. Fee based, automation, prop, magt,. Serviced- model • Dynamic Pricing - Negotiation - Real time market Day 2
  • Multi-Family Housing Market Size Total Available Market* • 1.1M units /year in U.S. • Ave. National MF price: $149k • 300k units /year in SoCal • Ave. SoCal MF price: $368k** • Average 3 developments/year/SoCal • Average 18 units/development • Average price/unit: $680k • Total annual revenue: $36.72M Sources: *U.S. Census Bureau http://www.census.gov/housing/ahs/data/metro.html ** National Association of Home Builders http://www.nahb.org/fileUpload_details.aspx?contentTypeID= 3&contentID=149100&subContentID=354371 Total U.S. Market Size: $1.64T Total SoCal Mkt Size: $110B Our Opportunity: $36.72M 6
  • What We Learned – Day 2 7 • We revamped and simplified our business model canvas • We identified a $36.72M opportunity in the market • We began testing our hypothesis with prospective customers through a survey and interviews – Survey results validated that the features we were offering were of interest to customers – Interviews revealed that the biggest pain points for customers were around cost issues – Unclear whether customers would pay for green features
  • • Capital partners • Real estate brokers • Real estate agents • Bank mortgage portfolio managers • Bankruptcy law firms • Short sale specialists • A/E/C consultants • LEED consultants • Automation/consulta nts/ general contracts • Government expeditor Value driven Fixed costs: consultant fees (legal, accounting, corporate governance etc.) Variable: consultants, brokerage/agent’s fee, purchasing price $/sf. Economies of scale: construction materials, labor costs, agent’s fee % Economies of scope: construction trades combo • Distressed assets acquisition • Rehabilitation/moder nization • Sell property • Capital • Expertise (home automation & green building) • Improving the quality of the customers’ living environment and saving annual home operation costs through green building, modern design, and home automation at no additional cost • Premium quality and design • Comprehensive warranty program • Automated home systems • Relative affordability • Real estate broker/agents • Marketing/ sales/ BD team building - Advertisements - Customer database - News media • Niche Market • Age: 25 to 55 • Income: $110k - $120k+/yr./person • $600K-$800K affordability • Credit Score: 730+ • Metropolitan location • Professional • Lifestyle considerations: - Convenience - Use of space - Green/ healthy living • Budget • Dynamic Pricing - Negotiation - Real time market 8 Day 3
  • Customer Segments *Potential customer segment for future exploration: younger, active retirees Meg • Single professional • Early 30’s • Lawyer • Lives in Torrance, CA • FICO score: 730 • Concerned about tradeoffs with space vs. amenities • Wants to purchase real estate as investment • Travels frequently • Interested in healthy living Kelly & Nick • Married couple • In their 40’s • Film industry • Live in Van Nuys, CA • FICO score: 790 • Two working adults • Have two young children • Want to move to complex with more space • Looking for safe, quiet place • Want VOC-free home Leigh & John • Married couple • In their 50’s • Business owners • Live in Anaheim, CA • FICO score: 810 • Empty nesters / buy-down market • Needed less space; downsized 4K sq ft to 1.8K sq ft 9
  • Value Proposition Our value proposition: Improving the quality of the customers’ living environment and saving annual home operation costs through green building, modern design, and home automation at no additional cost 10 Rank Pain Gain 1 Suffering from allergies/health issues Reducing health risks 2 Fire, burglary, other risks Providing home safety and security 3 High utility bills Reducing utility bills 4 Inconvenience of non-automated systems Reducing hassles
  • What We Learned – Day 3 • Some misalignment: people interested in these types of amenities typically prefer single-family homes • Real estate agents indicated that they could sell all units from $600K-$800K – 2 real estate brokers showed strong interest in being seen as “green partners” • Mortgage brokers showed strong interest in offering mortgages with preferred rates for green buildings • Concerns from classmates – Business might not be very scalable – Green messaging in our marketing campaign – Need to look further into competitive landscape 11
  • • Capital partners • Real estate brokers • Real estate agents • Bank mortgage portfolio managers • Bankruptcy law firms • Short sale specialists • A/E/C consultants • LEED consultants • Automation consultants/ general contracts • Government expeditor Value driven Fixed costs: consultant fees (legal, accounting, corporate governance etc.) Variable: consultants, brokerage/agent’s fee, purchasing price $/sf. Economies of scale: construction materials, labor costs, agent’s fee % Economies of scope: construction trades combo • Distressed assets acquisition • Rehabilitation/moder nization • Sell property • Capital • Expertise (home automation & green building) • Improving the quality of the customers’ living environment and saving annual home operation costs through green building, modern design, and home automation at no additional cost • Premium quality and design • Comprehensive warranty program • Automated home systems • Relative affordability • Marketing/ sales/ BD team building - Advertisements - Customer database - News media • Niche Market • Age: 25 to 55 • Income: $110k - $120k+/yr./person • $600K-$800K affordability • Credit Score: 730+ • Metropolitan location • Professional • Lifestyle considerations: - Convenience - Use of space - Green/ healthy living • Budget • Dynamic Pricing - Negotiation - Real time market 12 • MLS/Zillow/Trulia/Redfi n/Realtor.com listings • Owner’s loyalty program • Loan officers • Media marketing Day 4
  • 13 FOR SALE Fully Automated Eco-Friendly Condo 1500 SF 3 bedrooms 2.5 bath Asking $675k RE Agents RE Brokers Direct Sales Force Digital Marketing News Media Budget:$600k to $700k FICO: Ave. 776 Ready-to-Buy Target purchase: MF/PUD/1,500-1,800sf Product Sales Channels Market
  • Get Customers • Take out a quarter page of advertising in LA Times • Build Facebook business page and Twitter handle; start social media conversations with prospective customers • Mail 5,000 (per zip code) direct mail advertisements through USPS in LA County Keep Customers • Offer a homeowners’ loyalty and retention program • Follow-up with an email survey regarding customer satisfaction • Conduct customer check-in phone calls to make sure needs are being met • Communicate building updates via email Grow Customers • Offer a cash-back program for referrals • Offer incentives for upgrade from existing unit • Cross sell green home with hybrid car dealerships 14 Get, Keep, and Grow Customers
  • Revenue Model Distressed Acquisitions @$200/SF $16M Total Design/Buil d Turnaround @$110/SF $8.9M General Conditions @$3/SF $0.25M Total Cost: $25.15M* 15 Fed Green Bldg. Rebate $36k State Green Bldg. Rebate $55k Annual One-Time Rebate $91k 3 Complex, 54 units, 1500- 1800 SF/Unit, Asking $450/SF ~ $36.72M TOTAL GROSS REVENUE EBITDA: $11.7M USD *Acquisition capital Under current mgmt
  • What We Learned – Day 4 • Beyond green building / automation, customers still really care about the basics over all – location, kitchen design, etc. • Industry typically relies on traditional marketing, but real estate becoming more competitive and our particular customers are heavy users of digital marketing, so this should be a major strategy for us – There is a branding opportunity – still early movers in this space • Concerns from classmates – Cost of capital – Want more clarity on Get, Keep, Grow strategies 16
  • • Capital partners • Real estate brokers • Real estate agents • Bank mortgage portfolio managers • Bankruptcy law firms • Short sale specialists • LEED consultants • Automation consultants • Value driven • Fixed costs: consultant fees (legal, accounting, corporate governance etc.) • Variable: consultants, brokerage/agent’s fee, purchasing price $/sf. • Economies of scale: construction materials, labor costs, agent’s fee % • Economies of scope: construction trades combo • Distressed assets acquisition • Rehabilitation/moder nization • Sell property • Capital • Expertise (MF design home automation & green building) • Improving the quality of the customers’ living environment and saving annual home operation costs through green building, modern design, and home automation at no additional cost • Premium quality and design • Loyalty and retention program • Customer follow up calls and email • Social media campaign • Direct mail campaign • Newspaper ad campaign • MLS/Zillow/Trulia/Redfin/Realtor. com listings • Owner’s loyalty program • Loan officers • Media marketing • RE Agents • RE Broker • Direct sales force • Digital media • News media • Niche Market • Age: 25 to 55 • Income: $110k - $120k+/yr./person • $600K-$800K affordability • Credit Score: 730+ • Metropolitan location • Professional • Lifestyle considerations: - Convenience - Use of space - Green/ healthy living • Dynamic Pricing - Negotiation - Real time market 17 Day 5
  • Where We Ended – Day 5 18 • What we learned – Alignment between value proposition and customer segment is extremely important –> “go out of the building!” – Ask the right questions during customer discovery – Be strategic with pricing – don’t price on cost – Tie pass/fail metrics to the revenue model • Next steps – Interview 100+ highly targeted customers in Southern CA – Design new survey and collect data from 1,000 people in the next 120 days – Test hypothesis that we can collect down payments from potential customers (0.5% of asking price) – Continue exploring alternative capital structures (i.e. REIT Index Fund) for scalability – Engage with current and potential capital investors
  • Appendix 19
  • Green Building = Cost More?? • Are green buildings more expensive to construct and operate? • Perhaps surprisingly, good green buildings often cost only a few percentage points or no more to build than conventional designs. Integrated design processes that identify the most efficient, holistic approaches to building green can reduce these initial costs. For example, in some cases, when buildings are carefully designed to be energy efficient, heating/ventilation/air conditioning (HVAC) equipment can be downsized for significant savings. There are also many green products and materials that cost the same or even less than conventional ones. Source: www.usgbc.org and http://www.epa.gov/greenbuilding/pubs/faqs.htm#14d 20
  • Annual Home Operating Cost Comparisons 21 Annual Home Operating Costs (MF Unit: 1500sf, $600k purchase price) 600000 Standard MF Units Green MF Units Property Tax (1% ~) 6,000.00$ -$ (CA Property Tax Incentives - 100% system value w/ Accerlated Depreciation) Insurance (structure + interior) 1,200.00$ 1,080.00$ (10% green building discount) Utilities: Electricity 3,000.00$ 1,350.00$ (based on CA T24 + 40% energy saving) Water 1,800.00$ 1,080.00$ (based on CA T24 + 25% water saving) Gas 2,160.00$ 972.00$ (based on CA T24 + 40% energy saving) Maintenance 1,000.00$ 1,000.00$ HOA($500/mon.) 6,000.00$ 6,000.00$ Total Costs: 21,160.00$ 11,482.00$ Annual $Savings: 9,678.00$ Annual Savings by %: 46% Additional One Time Savings Federal Energy-Saving Tax Credit (18 units total - $200/unit) 36000 State Bldg Permit Fee Waived 25000 CA Solar/PV Incentives ($97.5/unit) 1764 CES-New Solar Home Partership (100% max load/unit) 24300 CA Advanced Home Incentives ($200/unit) 3600 Total One-Time Development Savings: 90,664.00$
  • Residential Trends • The Top 10 Features Home Buyers Want* • Open Concept Homes -- …high ceilings that older houses don't provide. • Smaller Homes -- ……the size just right for you. • Outdoor Living Spaces - (for move-up buyers only) • Neutral Decor - …..modern neutral hues. • Modern Kitchens -- The heart of every home. • Smart Growth -…water common areas with reclaimed water. • Going Green -- Low Home Energy Rating System (HERS typical new home is 30 percent more energy efficient than a typical resale house. • Linen Closets & Smart Storage Options • Energy-Efficient Fixtures & Appliances - Compare a typical new home built today to a 10-20 year old home? Game over! • Double Car Garage with Organized Work/Storage Space *Source: www.newhomesource.com 22
  • National Assn. of Homebuilders’ Trend Report* • “The survey from NAHB, “What Home Buyers Really Want,” unveils top concerns and priorities among homebuyers today, one of which is the desire to have energy- efficient homes. This is partly due to the fact these homes have permanently lower utility bills” • “Home-automation technology can help by providing homebuyers with controls to better monitor and manage energy consumption. These days, homebuilders are more often including technology in homes to meet the desires of homebuyers” • “One of the top five is the desire to have wireless home security systems and whole-house electronics features offering entertainment, ease, and enjoyment” • “As more homebuyers want green features in homes, home-automation technology will inevitably find its way into more residences as a way to provide owners with controls to manage energy consumption throughout the home” *source: www.nahb.org 23
  • Success Story (55% Energy Saving) Project Name: Cherokee Studios City: Los Angeles, CA Building Type: Multi-family; Low-rise (Less than 4 stories) Building Efficiency: Title 24 + 40% Green Building Features: Roof garden with drought resistant landscaping, cool roof, 20kW solar electric array, electric car charging for every unit, high efficiency tankless water heaters, efficient lighting including strategic use of LED lighting, dual flush toilets, ENERGY STAR® appliances, formaldehyde-free cabinets and flooring, Forest Stewardship Council certified wood, low/zero VOC paints and finishes, extensive bike storage. http://www.californiaadvancedhomes.com/success- stories/cherokee-studios 24
  • Success Story (86% Energy Saving) Project Name: Fallbrook Pueblo City: Fallbrook, CA Building Type: Single-family; Custom Home Building Efficiency: T24 + 71% Green Building Features: Perform Wall (lightweight structural insulated concrete form alternative wall assembly made with 85% recycled expanded polystyrene beads), no air- conditioning, radiant barrier roof sheathing, cool roof, reclaimed lumber, radiant floor heating, Low-e windows, solar electric (photovoltaic) and solar hot water systems. Source: http://www.californiaadvancedhomes.com/success- stories/fallbrook-pueblo 25