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1 2022 © AppFolio, Inc. Confidential
Rethinking
residential real estate:
2023 and beyond
We’ll get
started soon
2 2022 © AppFolio, Inc. Confidential
December 6th, 2022
Rethinking
residential real estate:
2023 and beyond
3 2022 © AppFolio, Inc. Confidential
As an attendee:
● Lines are muted, but your participation via chat is encouraged!
● Please ask questions via the chat or Q&A module
● Stick around for a bonus Q&A session at the end of the hour
● Let us know how we did via the post-webinar survey
● The recording and slides will be sent to you
4 2022 © AppFolio, Inc. Confidential
Author of Rethinking Real Estate, an award-winning book that predicted the
current reshuffle of offices, homes, and cities.
His insights have been featured in The New York Times, Wall Street Journal,
Financial Times, NBC, Bloomberg, and beyond
Trusted advisor to the world's largest financial institutions, technology firms,
and property owners including UBS, Bank of America, HSBC, BCG,
AvalonBay, CBRE, Hines, Cushman & Wakefield and others.
Economic Historian
Dror Poleg
Presenter
Rethinking Residential
2023 and Beyond
Dror Poleg • AppFolio Webinar • December 2022 DrorPoleg.com
Who is this?
A YouTube prank…
1,000 locations in less than a year
Location Relationship
Over the next hour…
1. What’s going on?
2. What does it mean for housing?
3. How can you make the most of it?
Drop your
questions in
the chat
What’s going on?
The good news: A shortage of 3.8 million housing units
Source: Freddie Mac
Lodging & Housing are converging: Airbnb in 2021…
Source: Yahoo Finance
24% 100,000
Bookings of 28-days or longer Booked for 3-months or longer
“Airbnb is launching a listing service for rental
apartments with some of the biggest landlords and
property managers in the country, a bid to expand its
business in multifamily buildings"
We thought Airbnb was disrupting hotels…
“Startup” brands are moving upmarket
Even Adam Neumann is back…
What did office landlords learn from Neumann?
(higher OpEx, lower-quality leases, “unreasonable” market)
iBuyers have grown — and faltered — and evolved…
Inspiring a wave of multifamily iBuyers?
(not yet… but tech is democratizing access to market data and capital)
Tech also enables big players move into smaller assets
Technology is changing demand patterns
(people are getting old, but they’re not moving out…)
Source: IPUMS Current Population Survey / NYT
Technology is changing demand patterns
(people are growing up, but they aren’t forming new households)
Source: Pew Research
And supply patterns…
The conversation around zoning and ADU is heating up
Remote/hybrid working is reshuffling the world
Source: NY Federal Reserve / Liberty Street Economics
…but offices are in trouble.
Source: Placer.ai
40% of software jobs now offer “remote”
Source: Indeed.com
“Software Developers” are not just tech’s problem
Many in-person services are no longer tied to location
Source: McKinsey & Co.
Even public education is going online
Source: WSJ / Rand Corp. | New York Times
"Roughly 26% of the 291
(school) districts were offering
remote lessons as a full-time
option last year, compared with
3% before the pandemic."
This has an effect on where people choose to live
Source: Brookings / Census Bureau
… and on rents
Source: Bloom & Ramani / Zillow
…and on where housing can be built
Source: Federal Reserve Bank of KC
Meanwhile, everyone’s “solution” is everyone’s problem
With direct consequences for housing…
28,000 new apartments “converted” in 2020-2021
Source: New York Times / Rent Cafe
And more than 50,000 on the way by 2025
Source: CBRE
Institutional investors are running away from offices
Source:WSJ / NCREIF
Some landlords are starting to face the music…
“It’s a huge market. Our acquisition group is
solely focused on this right now.”
— Marty Burger, CEO, Silverstein Properties
Most office landlords are stuck in The 5 Stages of RE Grief
🙈 Denial 2020: “It’s just temporary, everyone will come back…”
😾 Anger 2021: “Employees must come to the office!”
🥺 Bargaining 2022: “How about 3 days a week?! Free childcare?!”
😿 Depression 2023: “Sell it while you can…”
󰠺 Acceptance 2024: “OK, let’s try something else…”
All these changes will continue…
Is it enough to make a difference?
E-Commerce Sales as % of Total (U.S.)
How will the office “apocalypse” affects housing?
More institutional
investment demand
for multifamily
New, unpredictable
supply
More space for
housing-adjacent
services (storage,
cloud kitchens,
laundry, healthcare,
education) More competition
More opportunity to
reposition locations
More opportunity
for community and
meaning outside
the office
What makes real estate valuable?
Location Visibility Accessibility Information Capital Regulation
● Location: Not scarce, no longer the main anchor
● Visibility: What it looks like online vs. what it looks like offline
● Accessibility: The journey begins online
● Information: No longer exclusive to insiders
● Capital: No longer exclusive, new sources available to anyone
● Regulation: No longer makes the world “predictable”
What does it all mean?
47 2022 © AppFolio, Inc. Confidential 47
Question
Break
What does it all mean?
The Bottom Line
Strong demand for
apartments — as a
product and as an
investment asset
More competition,
along new dimensions,
more flexibility, less
certainty
Doing the same things better
Doing different things
What makes a good strategy?
Unique Value Proposition
Unique Activities
Clear Trade-Offs
Interdependent Activities
Implemented
Continuously
Exhibit 1: Common Living
Exhibit 1: Common Living
Unique Value Proposition Affordable, furnished room in a serviced apartment + flexible terms
Unique Activities Online platform, design, legal, services,
Clear Trade-Offs Not for everyone…
Interdependent Activities Can’t lease by-the-room without all the other activities
Implemented Continuously Yes
Exhibit 2: Kanso by AvalonBay
Exhibit 2: Kanso by AvalonBay
Unique Value Proposition Affordable urban living
Unique Activities Tech, site visits, design
Clear Trade-Offs No staff, no elevators, no leasing office, no parking
Interdependent Activities Design, systems, marketing, operations
Implemented Continuously Recently started…
Exhibit 3: Sonder
Exhibit 3: Sonder
Unique Value Proposition “Airbnb authenticity with hotel-quality service”
Unique Activities Assets, design, app, marketing, support services
Clear Trade-Offs
No standard product, smaller assets, no lobby, no restaurant, no
on-site staff
Interdependent Activities Yes
Implemented Continuously So far… publicly listed company
Exhibit 4: CitizenM
Exhibit 4: CitizenM
Unique Value Proposition Affordable luxury in a great location
Unique Activities
Proprietary hardware and software, modular construction, membership
club
Clear Trade-Offs
Tiny rooms, smaller buildings / floor plates, no restaurants, no room
service, limited amenities
Interdependent Activities Can’t achieve pricing and experience without integration
Implemented Continuously 14 years… recently backed by GIC, APG
Exhibit 5: Airbnb
Exhibit 5: Airbnb
Unique Value Proposition Short-term stay in a local apartment
Unique Activities
Online platform, insurance, safety response team, photographers,
identity verification, online marketing, community management
Clear Trade-Offs Lack of standardized supply, limited control over customer experience
Interdependent Activities
You can’t convince someone to stay at a stranger’s apartment without
all the above…
Implemented Continuously 14 years, $63b market cap
What if they fail?
(that’s part of the game)
66 2022 © AppFolio, Inc. Confidential 66
Question
Break
Keep an eye on low-end customers and non-customers
Traditional Mainstream Product (improves over time)
Disruptive Competitor
Features
/
Quality
Time
high end
low end
mainstream
Based on the work of Clayton M. Christensen
Beware the “Innovator’s Dilemma”
➔ Listening to your best customers?
➔ Chasing attractive margins?
➔ Outsourcing low value activities?
➔ Focusing on fixed and sunk costs?
➔ Focusing on largest markets?
➔ Making decisions based on clear data?
➔ Trying to avoid failure?
Focus on “Jobs to be Done”
(your customer’s circumstances and specific goal)
Keep an eye on informal behaviors
Designed
Path
Desired Path
Source: Point Forward
Profit
/
Value
Add
Value Chain Activities
Keep an eye on low-value activities & points of friction
Sales & Marketing
Development /
Ownership
Branding Customer Support
User Interface
Concept & Design
Components
How do you choose when all options are “good enough”?
Buildings
Profit
/
Value
Add
Value Chain Activities
The Smiling Curve: Value flows away from the asset/owner
Unique Components
Marketing
Development /
Ownership
Branding Customer Support
Unique Relationship
Concept & Design
😊
Address barriers to innovation
(structure, incentives, time horizon)
University
Endowment
Pension Fund Family Office
REIT
Partner
PE Fund
Property Mgr.
Cleaning Co. Security Co. Maintenance Co.
Mortgage Provider
Private Debt
Fund
Stay close to your customers!
Thank you.
Keep in touch.
@drorpoleg Dror Poleg
DrorPoleg.com
Ask us anything.
77
Questions?
78 2022 © AppFolio, Inc. Confidential
78
Clarity to focus
on what matters
79 2022 © AppFolio, Inc. Confidential
Would you like a customized demo
of AppFolio Property Manager?
79
Poll
80 2022 © AppFolio, Inc. Confidential
What’s one thing you can do today after this
webinar to put yourself on a path towards better
strategy in 2023?
Taking Action
81 2022 © AppFolio, Inc. Confidential
Listen to Dror Poleg's interview
on The Top Floor podcast
coming in January 2023.
Subscribe now at appfolio.com/the-top-floor
82 2022 © AppFolio, Inc. Confidential
Thank you
83 2022 © AppFolio, Inc. Confidential
Ask us anything.
83
Extra Time
84 2022 © AppFolio, Inc. Confidential
Thank you

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Rethinking Residential Real Estate: 2023 and Beyond

  • 1. 1 2022 © AppFolio, Inc. Confidential Rethinking residential real estate: 2023 and beyond We’ll get started soon
  • 2. 2 2022 © AppFolio, Inc. Confidential December 6th, 2022 Rethinking residential real estate: 2023 and beyond
  • 3. 3 2022 © AppFolio, Inc. Confidential As an attendee: ● Lines are muted, but your participation via chat is encouraged! ● Please ask questions via the chat or Q&A module ● Stick around for a bonus Q&A session at the end of the hour ● Let us know how we did via the post-webinar survey ● The recording and slides will be sent to you
  • 4. 4 2022 © AppFolio, Inc. Confidential Author of Rethinking Real Estate, an award-winning book that predicted the current reshuffle of offices, homes, and cities. His insights have been featured in The New York Times, Wall Street Journal, Financial Times, NBC, Bloomberg, and beyond Trusted advisor to the world's largest financial institutions, technology firms, and property owners including UBS, Bank of America, HSBC, BCG, AvalonBay, CBRE, Hines, Cushman & Wakefield and others. Economic Historian Dror Poleg Presenter
  • 5. Rethinking Residential 2023 and Beyond Dror Poleg • AppFolio Webinar • December 2022 DrorPoleg.com
  • 8. 1,000 locations in less than a year
  • 10. Over the next hour… 1. What’s going on? 2. What does it mean for housing? 3. How can you make the most of it? Drop your questions in the chat
  • 12. The good news: A shortage of 3.8 million housing units Source: Freddie Mac
  • 13.
  • 14. Lodging & Housing are converging: Airbnb in 2021… Source: Yahoo Finance 24% 100,000 Bookings of 28-days or longer Booked for 3-months or longer
  • 15. “Airbnb is launching a listing service for rental apartments with some of the biggest landlords and property managers in the country, a bid to expand its business in multifamily buildings"
  • 16. We thought Airbnb was disrupting hotels…
  • 17. “Startup” brands are moving upmarket
  • 18. Even Adam Neumann is back…
  • 19. What did office landlords learn from Neumann? (higher OpEx, lower-quality leases, “unreasonable” market)
  • 20. iBuyers have grown — and faltered — and evolved…
  • 21. Inspiring a wave of multifamily iBuyers? (not yet… but tech is democratizing access to market data and capital)
  • 22. Tech also enables big players move into smaller assets
  • 23. Technology is changing demand patterns (people are getting old, but they’re not moving out…) Source: IPUMS Current Population Survey / NYT
  • 24. Technology is changing demand patterns (people are growing up, but they aren’t forming new households) Source: Pew Research
  • 25. And supply patterns… The conversation around zoning and ADU is heating up
  • 26. Remote/hybrid working is reshuffling the world Source: NY Federal Reserve / Liberty Street Economics
  • 27. …but offices are in trouble. Source: Placer.ai
  • 28. 40% of software jobs now offer “remote” Source: Indeed.com
  • 29. “Software Developers” are not just tech’s problem
  • 30. Many in-person services are no longer tied to location Source: McKinsey & Co.
  • 31. Even public education is going online Source: WSJ / Rand Corp. | New York Times "Roughly 26% of the 291 (school) districts were offering remote lessons as a full-time option last year, compared with 3% before the pandemic."
  • 32. This has an effect on where people choose to live Source: Brookings / Census Bureau
  • 33. … and on rents Source: Bloom & Ramani / Zillow
  • 34. …and on where housing can be built Source: Federal Reserve Bank of KC
  • 35. Meanwhile, everyone’s “solution” is everyone’s problem
  • 36. With direct consequences for housing… 28,000 new apartments “converted” in 2020-2021 Source: New York Times / Rent Cafe
  • 37. And more than 50,000 on the way by 2025 Source: CBRE
  • 38. Institutional investors are running away from offices Source:WSJ / NCREIF
  • 39. Some landlords are starting to face the music…
  • 40. “It’s a huge market. Our acquisition group is solely focused on this right now.” — Marty Burger, CEO, Silverstein Properties
  • 41. Most office landlords are stuck in The 5 Stages of RE Grief 🙈 Denial 2020: “It’s just temporary, everyone will come back…” 😾 Anger 2021: “Employees must come to the office!” 🥺 Bargaining 2022: “How about 3 days a week?! Free childcare?!” 😿 Depression 2023: “Sell it while you can…” 󰠺 Acceptance 2024: “OK, let’s try something else…”
  • 42. All these changes will continue…
  • 43. Is it enough to make a difference? E-Commerce Sales as % of Total (U.S.)
  • 44. How will the office “apocalypse” affects housing? More institutional investment demand for multifamily New, unpredictable supply More space for housing-adjacent services (storage, cloud kitchens, laundry, healthcare, education) More competition More opportunity to reposition locations More opportunity for community and meaning outside the office
  • 45. What makes real estate valuable? Location Visibility Accessibility Information Capital Regulation ● Location: Not scarce, no longer the main anchor ● Visibility: What it looks like online vs. what it looks like offline ● Accessibility: The journey begins online ● Information: No longer exclusive to insiders ● Capital: No longer exclusive, new sources available to anyone ● Regulation: No longer makes the world “predictable”
  • 46. What does it all mean?
  • 47. 47 2022 © AppFolio, Inc. Confidential 47 Question Break
  • 48. What does it all mean?
  • 49. The Bottom Line Strong demand for apartments — as a product and as an investment asset More competition, along new dimensions, more flexibility, less certainty
  • 50.
  • 51.
  • 52. Doing the same things better
  • 54. What makes a good strategy? Unique Value Proposition Unique Activities Clear Trade-Offs Interdependent Activities Implemented Continuously
  • 56. Exhibit 1: Common Living Unique Value Proposition Affordable, furnished room in a serviced apartment + flexible terms Unique Activities Online platform, design, legal, services, Clear Trade-Offs Not for everyone… Interdependent Activities Can’t lease by-the-room without all the other activities Implemented Continuously Yes
  • 57. Exhibit 2: Kanso by AvalonBay
  • 58. Exhibit 2: Kanso by AvalonBay Unique Value Proposition Affordable urban living Unique Activities Tech, site visits, design Clear Trade-Offs No staff, no elevators, no leasing office, no parking Interdependent Activities Design, systems, marketing, operations Implemented Continuously Recently started…
  • 60. Exhibit 3: Sonder Unique Value Proposition “Airbnb authenticity with hotel-quality service” Unique Activities Assets, design, app, marketing, support services Clear Trade-Offs No standard product, smaller assets, no lobby, no restaurant, no on-site staff Interdependent Activities Yes Implemented Continuously So far… publicly listed company
  • 62. Exhibit 4: CitizenM Unique Value Proposition Affordable luxury in a great location Unique Activities Proprietary hardware and software, modular construction, membership club Clear Trade-Offs Tiny rooms, smaller buildings / floor plates, no restaurants, no room service, limited amenities Interdependent Activities Can’t achieve pricing and experience without integration Implemented Continuously 14 years… recently backed by GIC, APG
  • 64. Exhibit 5: Airbnb Unique Value Proposition Short-term stay in a local apartment Unique Activities Online platform, insurance, safety response team, photographers, identity verification, online marketing, community management Clear Trade-Offs Lack of standardized supply, limited control over customer experience Interdependent Activities You can’t convince someone to stay at a stranger’s apartment without all the above… Implemented Continuously 14 years, $63b market cap
  • 65. What if they fail? (that’s part of the game)
  • 66. 66 2022 © AppFolio, Inc. Confidential 66 Question Break
  • 67. Keep an eye on low-end customers and non-customers Traditional Mainstream Product (improves over time) Disruptive Competitor Features / Quality Time high end low end mainstream Based on the work of Clayton M. Christensen
  • 68. Beware the “Innovator’s Dilemma” ➔ Listening to your best customers? ➔ Chasing attractive margins? ➔ Outsourcing low value activities? ➔ Focusing on fixed and sunk costs? ➔ Focusing on largest markets? ➔ Making decisions based on clear data? ➔ Trying to avoid failure?
  • 69. Focus on “Jobs to be Done” (your customer’s circumstances and specific goal)
  • 70. Keep an eye on informal behaviors Designed Path Desired Path Source: Point Forward
  • 71. Profit / Value Add Value Chain Activities Keep an eye on low-value activities & points of friction Sales & Marketing Development / Ownership Branding Customer Support User Interface Concept & Design Components
  • 72. How do you choose when all options are “good enough”? Buildings
  • 73. Profit / Value Add Value Chain Activities The Smiling Curve: Value flows away from the asset/owner Unique Components Marketing Development / Ownership Branding Customer Support Unique Relationship Concept & Design 😊
  • 74. Address barriers to innovation (structure, incentives, time horizon) University Endowment Pension Fund Family Office REIT Partner PE Fund Property Mgr. Cleaning Co. Security Co. Maintenance Co. Mortgage Provider Private Debt Fund
  • 75. Stay close to your customers!
  • 76. Thank you. Keep in touch. @drorpoleg Dror Poleg DrorPoleg.com
  • 78. 78 2022 © AppFolio, Inc. Confidential 78 Clarity to focus on what matters
  • 79. 79 2022 © AppFolio, Inc. Confidential Would you like a customized demo of AppFolio Property Manager? 79 Poll
  • 80. 80 2022 © AppFolio, Inc. Confidential What’s one thing you can do today after this webinar to put yourself on a path towards better strategy in 2023? Taking Action
  • 81. 81 2022 © AppFolio, Inc. Confidential Listen to Dror Poleg's interview on The Top Floor podcast coming in January 2023. Subscribe now at appfolio.com/the-top-floor
  • 82. 82 2022 © AppFolio, Inc. Confidential Thank you
  • 83. 83 2022 © AppFolio, Inc. Confidential Ask us anything. 83 Extra Time
  • 84. 84 2022 © AppFolio, Inc. Confidential Thank you