Energy Efficiency the Multi-family Business Strategy Sean McGuire

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Energy Efficiency the Multi-family Business Strategy Sean McGuire

  1. 1. FREEMAN WEBB COMPANIES ENERGY EFFICIENCY: THE MULTIFAMILY BUSINESS STRATEGY JULY 30th, 2013
  2. 2. FREEMAN WEBB COMPANIES  Founded in 1979 with one multifamily property and 1 employee  Currently Freeman Webb has over 450 employees and owns/manages a long-term portfolio of income producing properties comprised of 16,000 apartment units under ownership/management as well as 1,000,000 sf of office and retail space  Annual Rent Collections of $100 Million  Properties owned are primarily in Tennessee, but previously the company owned multifamily properties in Alabama, Indiana, Ohio, Missouri, Mississippi and Texas  Freeman Webb Companies is comprised of the following divisions:  Acquisitions & Investments  Property Management  Construction Services  Mortgage Services  Residential Real Estate Brokerage
  3. 3. FREEMAN WEBB: Acquisitions & Investments  Focuses on the acquisition of multifamily properties for our investor clients  Historically have acquired 1970’s and 1980’s vintage assets  Perform large-scale rehabs, reposition and stabilize assets for long-term holds  Through asset management, Freeman Webb looks to maximize investor yields by many methods including reduction of individual property operations, namely reducing property operating expenses  Business strategy has helped the company to grow by 50% in the last three years
  4. 4. FREEMAN WEBB: Property Management  Management company provides property management services for Freeman Webb-owned multifamily and commercial properties  Also provides property management services for clients; has roughly 6,600 apartment units and over 500,000 sf of commercial space in our management portfolio  Named the 2010 National Property Management Company of the Year by the National Association of Home Builders
  5. 5. FREEMAN WEBB: Construction Services  Manages large-scale rehabs of new acquisitions and/or current assets that are looking to be repositioned  Typically has over $20,000,000 worth of rehab in process at any given time  Based on rehab scope and property needs, rehabs will include full interior and exterior renovations
  6. 6. FREEMAN WEBB: Construction Services Whispering Oaks – Before Rehab
  7. 7. FREEMAN WEBB: Construction Services Whispering Oaks – After Rehab
  8. 8. Whispering Oaks – Before & After
  9. 9. Whispering Oaks – Before & After
  10. 10. FREEMAN WEBB: Construction Services  Interior Unit rehabs include cabinet replacement, counter top replacement installation of new flooring, among other items  There are also a number of opportunities for installation of energy efficient appliances, windows and doors  Repositioning of properties through extensive interior & exterior rehabs provides more quality housing opportunities for individuals and families while also extending the useful life of the asset
  11. 11. DEMAND FOR MULTIFAMILY HOUSING  Multifamily properties (5+ units) make up approximately 20% of the nation’s housing supply but that percentage will increase  Apartment demand is at an all-time high for several reasons: I. Demographics II. Shift in Psychology III. Declining Homeownership Rates IV. Difficulty in Getting a Mortgage V. Pent-up Renter Demand
  12. 12. M U LT I F A M I LY D E M A N D I. DEMOGRAPHICS Number of People Turning 30 Years Old vs. Homeownership Rate
  13. 13. M U LT I F A M I LY D E M A N D II. A SHIFT IN PSYCHOLOGY  Young peoples’ attitudes towards homeownership have changed  One reason is they are seeing people trapped by “underwater” mortgages and millions of foreclosures  They believe that a home is no longer the biggest investment of a person’s life, but rather that they can rent and still live how they want  They are free to pick up and move if they get a job opportunity in another city Source: “Renter Nation”, Gene Epstein, Barron’s Magazine
  14. 14. M U LT I F A M I LY D E M A N D III. DECLINING HOMEOWNERSHIP RATES  The homeownership rate has fallen to 65% from its peak of 69% in 2004  It is likely to fall below 64% by 2015, if not sooner  Conversely, it is anticipated that the national rental rate will rise to 36% by 2015  Every percentage point increase in the rental rate = 1.3 million households joining the renter pool  Average household size is greater than two people, so analysts estimate 10 million extra renters could be moving into the market over the next five years  Apartment supply being delivered is, in most estimates, less than half of what is necessary to meet the expected demand (Marcus & Millichap, 2012 Apartment Outlook) Source: “Renter Nation”, Gene Epstein, Barron’s Magazine
  15. 15. M U LT I F A M I LY D E M A N D III. DECLINING HOMEOWNERSHIP RATES (continued)
  16. 16. M U LT I F A M I LY D E M A N D IV. LESS LIKELY TO PURCHASE A HOME  First-time home buyers (the bulk of which are under 35 years of age) now account for roughly 30% of home sales, down from as high as 50% in 2009  The question becomes “how many renters can actually qualify for a mortgage?”  Many in this generation have gone back to school for more education and have taken on large student debt obligations  Stricter mortgage underwriting standards, which were much needed, are also making it more difficult for many in the younger generation to qualify for a mortgage
  17. 17. M U LT I F A M I LY D E M A N D V. A GENERATION LIVING AT HOME % % % % Source: “The Boomerang Generation: Feeling OK about Living with Mom and Dad”, Pew Research Center Report (March 15, 2012 Put into Perspective: the highest the young adult rate has ever been was in the 1940’s when it was 27.7%. At its low point in the 1980’s, this rate was right at 11%.
  18. 18. MULTIFAMILY DEMAND LEADS TO DEMAND FOR ENERGY EFFICIENCY Freeman Webb and firms like it are examples of multifamily investors who are looking to retrofit properties with energy efficient technologies  Multifamily investors are hoping for want to utilize and implement public and/or private programs that will provide assistance in that effort  Other programs, such as Low-Income Housing Tax Credit programs, can provide equity to incorporate energy efficiency in property rehabs  Demand for multifamily units is at record levels, so the need for these programs is greater than ever before  In the wake of the Great Recession, apartment renters are much more price-sensitive than ever and more mindful of their monthly expenses  Younger generations are more mindful of the environment in general and desire to see energy efficiency and eco-friendly properties
  19. 19. BUSINESS STRATEGY: Combating Implementation Challenges  Ignorance of available programs and how to access/implement them on the part of owners: educational events like today are essential  Some programs, like those that offer energy tax credits, are difficult to qualify for or are cost-prohibitive  Owner’s need convincing of the merit of spending money on energy efficient upgrades as opposed to other property upgrades or general maintenance  Problem of Renter Perspective:  utility reductions are not yet realized by prospective renter which makes it difficult to use as sales tool  Prospective renter’s are largely drawn by property condition (curb appeal), property amenities (pool, playground, etc.), and condition of unit  Owner’s reluctant to make upgrades where returns may not be realized for years to come
  20. 20. BUSINESS STRATEGY: Conclusion  Demand for multifamily units is at an all-time high  Multifamily owners currently have opportunities to incorporate energy efficiency into their properties for new development but also in property rehabs  Energy efficiency can reduce operating costs for properties which typically lead to higher property cash flows and higher investor yields  Data shows that the economic benefit for energy efficiency can be substantially and it can be attained with the help of existing programs  Energy efficiency can be an effective marketing tool with respect to the leasing of multifamily units  Energy efficiency, aside from being the right thing to do, is simply good business

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