← The Rent Roll with Jay Parsons
The Rent Roll with Jay Parsons
EP#54 JPI Executive Leadership Team | Is Now The Time To Build Again?
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Foreign welcome. It's episode number 54 of the podcast 54. A great number by the way. Some of the best defensive players, NFL history, war number 54. Perhaps none better than Randy White, legendary Dallas Cowboy turned BBQ pit master and little non rental housing trivia for you. Randy and I share something in common, something very little. But we both graduated from the University of Maryland and then moved to Dallas. So the only real difference is he was a nine time All Pro super bowl champion who made the hall of Fame. Just a few details. All right, so enough of that. Let's get into construction today. Is it time to build again? We're going to lay out the case for it today. We got the latest data on apartment supply starts and future completions. We'll also talk about an interesting wrinkle in today's market that could, could, and I hope this isn't hyperbole, but I think it could permanently shift the composition of apartment development. Specifically, I mean this larger developers are taking a larger share of the starts. They're not doing more, but taking a larger share because smaller players that dominate most of the market in terms of starts are doing less. So is today's environment of high rates, high cost of capital, soft rents, is that making it harder for smaller developers to stay active? I mean it. Honestly it's hard for everyone, even for large developers. But, but I think it's especially hard for those groups who do one or two projects a year, which is the majority of the market, and therefore don't have the efficiency of scale to squeeze enough juice out of the lemon to make deals. Pencil out. In today's environment, historically something like 3/4 of all apartment starts come from small local developers. So are we at a moment like we saw the home builders go through during and after the great financial crisis, where bigger players gained market share, Survival of the fittest. Well, I don't want to overstate this of course, because there's always going to be exceptions and some of you probably listening, you're probably doing some great things as smaller developers to stay active as well. There's going to be exceptions. There's very smart, very good, innovative smaller developers out there who may have access to steady sources of capital, but I think that's going to be more the exception than the rule. I think we'll see larger developers continue to gain more market share. I'll show you some data on this in a moment. Not necessarily again, a lot more projects, but a larger share of a smaller number of total apartment and build to rent starts. And this is going to tie in today's interview as well. We've got a special one today. It is our first ever interview on the rent roll in front of a live audience. And this was really cool. A lot of fun, a lot of energy. At an event with JPI at the Hotel drover in the Fort Worth stockyards, I sat down with JPI's CEO, CIO, CFO and the Chief of construction and design and we talked about this topic. Specifically, what's JPI doing to drive efficiencies in an industry construction that has notoriously seen very little efficiency gains over the last few decades? I'm sure all of you have seen those stats and stories about how construction has been the one industry to see very little in terms of productivity and efficiency gains in recent decades or you and but now, you know, what are we seeing? It's starting to change. So what are groups like JPI doing to drive efficiencies in construction using new technologies to reduce the timelines, reduced waste and therefore reduce costs and make deals pencil out that might otherwise not pencil out in today's environment. So that's going to be fun. So stick with us for that conversation. And also just a really quick programming note. Next week we'll be doing our Q3 apartment market update and Outlook. Got the latest and greatest data available. And we'll give some thoughts on what it all means for that rebound that everyone is anxiously awaiting. All right, so let's before we get into it, let's give a shout out to our sponsors. First, a shout out to Madera Residential, a leading apartment owner and operator in Texas expanding into the Southeast as well. Check them out. Maderaresidential.com and also, of course, to JPI. JPI was gracious enough to host and record the live taping of the interview this week at the Fort Worth Stockyards. And JPI is of course a leading developer with a stated purpose to transform building, enhance communities and improve lives. All right, as always, we kick it off with here's a chart and we got a few of them for you. So we're going to talk about the case for construction and just to keep it simple, we're not going to assume any kind of big rate cut and let's not also assume a material change in construction costs. In fact, this is an interesting stat for you. The most recent NMHC survey of builders and developers just came out a couple weeks ago. It shows less than 30% of builders and developers expect construction costs to rise in the next three to six months. It's less than 30%. And it's just about the same percent that expect costs to decrease while the balance say costs should be unchanged. So it's pretty crazy given the narrative on tariffs and, and labor. And we'll dive into that topic more in today's interview. We're going to ask JPI's head of construction about that. And we've talked about this with other developers on this podcast as well. So if you're a longtime listener, you probably know where that one's going. But it's interesting because it, it, the story hasn't changed and that gets us. Okay, so it's, it's, it's not so much about maybe expect. Well, let's, again, let's, let's assume that rates aren't materially changed. Maybe you get a couple more cuts. It's not going to materially change the math. We're not going to materially change the math through construction costs. And that takes us to fundamentals, to noi, to rents. And that's important because according to that same NMHC survey of research, NMHC survey of builders and developers, excuse me, the number one reason, by far the number one reason for construction delays is project is not economically feasible. So if a project is not economically feasible, that means the developer doesn't think there's enough demand for apartments at the rent levels needed to justify the market cost. The market's not going to bear that. Even if people are going to afford it, they have other options that are comparable at a, better at a, at a, at a lower rent than what a new project needs to pencil out. 83% of developers said this was the number one hurdle to construction and other 61% blamed, quote, economic uncertainty, which is of course a related problem. So here's an illustration of this issue. Let's look at effective rents for apartments built in this cycle since 2020. In the 2000 and 20s, the average rent for an apartment unit built in this decade is nationally is $2,236 as of September 2025. That's basically where it was three years ago. If you can see the chart in my screen, if those of you who are looking at the video version, you can see it's been a pretty straight line these last three years. In a lot of markets, your brand. What this really means is that in a lot of markets your average brand new lease up is commanding about the same rents as a brand new property did three years ago back in 2022. And yet we talked about construction costs earlier. Obviously construction costs are up since 2022. So something being built today was likely more expensive than something built three years ago. And so that creates some tough math. And, and, and so it's, it's tough to build when, you know, rents haven't moved in three years, but costs have. So just to quickly recap, this is kind of an illustration of why this is so tough. A couple months ago when I covered the last round of REITs earnings calls, we touched on this topic. MAA, the largest REIT by unit count. They said development returns would have to improve 10 to 20% for more projects to be feasible for most merchant builders. Now of course, MAA is not a merchant builder, they're a build to own. So they have different math. It's a little bit easier for them. Lower cost of capital, but, but most developers are merchant builders with a higher cost of capital. And by the way, MAA is still building. And part of why they're building in Avalon Bay and Camden and others is because they see a favorable moment. They're building because they see how little is down the pike and they have the scale, the capital to make deals work that might not work for your average merchant builder, particularly a smaller one. Now of course, that's everyone's thesis, right? There's going to be less to complete in 26 and 27, maybe 28 as well. So it makes sense to deliver at a time when others can't. And REITs like those guys, they're putting their money where their mouth is. But why build instead of buy? And we'll talk about this in our review today too, but I'll say it quickly because on paper it may seem cheaper to buy than build. In reality, it's not that easy to do so, at least not on any scale. For newer, vintage, well located apartments, that's the stuff everybody wants to buy, particularly institutional capital. That's what they want. So there's a lot of competition for that. Cap rates back in the fours, as I'm sure everybody knows, and not a lot of product that even hits the market. So if you're going to deploy real capital into newer, vintage, well located apartments, it's going to be tough to buy to buy your way into that, unless you're buying a sizable portfolio of assets and then all of a sudden, you know, development might look better. So that gets us to a point I made in the opening then. This is an environment where it's just going to be tougher for smaller developers to compete. And by the way, I'm rooting for them. You know, I Want. I like that we have a very broad, diverse market. But it's tough. And it's been tough. It's been tough. It was tough even last year for smaller developers to keep active. So here's some key context for you to illustrate how smaller developers play such a crucial role in apartment construction. Let me give you some numbers. Last year in the US we completed 2,801 market rate apartment projects across the country. Those 200 projects came from 1,536 different developers. That means most developers are doing one project a year, maybe one or two. And on that note, related stat. Here's a good one from NMHC's top developers list. Largest Most active developers traditionally the top 25 developers, they start about 20 to 25% of all new multifamily units nationally. But last year in 2024, the NMHC top 25 largest developers represented 32% of all US department starts. And that was the highest on record, which goes back more than 10 years. And I think that share is going to grow further here in 2025 before it's all said and done. So again, that doesn't mean large developers are building more. Most are actually building less than they did at the peak, but their market share is up because most smaller developers are doing even less. A lot of them are sidelined. Okay, so what does this all translate to? Okay, starts are the lowest level since 2013, back when we were rebounding out of the GFC. But it does appear the starts have bottomed and likely are leveling off around 250,000 units per year on an annualized basis. So we've been around that mark for most of this year, around that 250 number. And that may sound like a decent total on the surface, but just for some comparison, again, it's the lowest since 2013, but also the peak in 2022 was 600,000, so we're less than half of that today. So in terms of completions, we had 586,000 last year. This year we have an estimated 515,000 scheduled to complete. That's a big drop off from 2024, but you know, 415 is still a lot. Aside from 2024, it's the biggest year since the mid-1980s. You want to talk about this more next week on the Q3 update and outlook, But I think that's why a lot of folks got ahead of their skis a little bit when they're thinking 2025 would be a big supply slowdown. Yeah, it's down a Lot, but the total number is still a lot. Plus you have all the 2024 completions. They're still working through lease up. So the real slowdown starts in 2026. We have about 300,000 scheduled to complete. And then we could see less than 250 in 2027 and maybe even 2028 at this point. Last thing before we move on, let's look at the supply slowdown by market. When we when do we get below not the peak supply, but below pre Covid normal supply levels. And so I looked at scheduled completions compared to what was the average prior to Covid? Well, we already, we're already there in a bunch of spots. We're back below pre Covid levels in a bunch of spots. And most chronic, most of these are chronically low supply markets. But there are some other key spots in this group like Houston, Seattle, West Palm Beach, Washington, D.C. kansas City, Chicago, as well as San Francisco and Orange County. And then by year end, Nashville is going to be in that group too, particularly suburban Nashville. Still a lot go through downtown. Indianapolis will be in that camp as well. Then Dallas after the calendar turns to 2026. In the beginning of the year, they're going to be at supply levels below pre Covid average. And in the by the first half of 2026, we're going to see numbers drop below those marks in Austin, Salt Lake, Jacksonville, Denver, San Antonio, Orlando, Atlanta and Boston as some examples. Then in the second half of the year, we'll get there in Raleigh and Charlotte, Columbus and Philly. And some are going to take longer than that, maybe 2027 before supply drops below pre Covid norms. And that includes Phoenix, Fort Worth, Tampa, Richmond, Miami, Northern New Jersey, among others. And that's going to take us right into today's rental housing trivia. All right, so just talking about scheduled completions and how much is left versus the pre pandemic norm. So that, that, that's going to be what today's question is about. Current construction is below pre pandemic norms in most major MSAs, but there are some exceptions. So which MSA still tops its pre Covid average by the highest margin in terms of total number of apartments under construction, Is it A, Austin, B, Columbus, C, Phoenix, D, Raleigh or E, Tampa? So give that some thought and we will answer it in a moment. But first in the news. All right, in the news we cover some headlines touching on topics related to SFR and multifamily and other topics in rental housing and renters. So this first one here's A good study to support apartment development, which of course is our topic today. Let me read from this. It says, it's from, from Pew, Pew Research and Pew Charitable Trust that says modern multifamily buildings provide the most fire protection. Rate of death is in Most modern apartments is 1:6 the rate of single family homes and in older apartment buildings. All right, so it says. A large body of research has demonstrated that apartment buildings, other types of multifamily housing can provide many benefits to a community, especially in built in high demand areas where housing is badly needed. Ultimately, housing can boost economic opportunity and foster growth while improving affordability by increasing the availability of housing, your job, stores and transportation. It can reduce commute times, traffic, energy consumption and water usage. The United States is experiencing both a nationwide housing shortage and a record levels of homelessness. More multifamily housing could help address both problems. So there you go. Good. Pretty good research. Pew's been out some putting out some good stuff of late on housing and this is another good one. Next one comes from Bloomberg's City Lab division and the headline is with rental registries, cities seek to close the data gap with landlords. Cities like Pittsburgh, Oakland and Rochester have passed ordinances to track property ownership and mandate inspections for rental housing. But landlords often resist. So you notice those cities, Pittsburgh, Oakland, Rochester, they're not exactly institutional markets. They're heavily mom and pop. And that's going to be important as we dive into this because let me read more things in the article. It says supporters of rental registries, including city officials and tenant groups, see them as a necessary tool to address critical information gaps and protect public health. With many US Cities having already enacted similar programs to proactively enforce housing codes and track landlord compliance. So I want you to think about this for a moment. You know, public rental registry. You know, I'm sure it sounds good like a lot of ideas, but think about who this impacts the most. It's really not going to be institutional groups or even sub institutional groups with, you know, on site property management teams and have, you know, a company website and a property website. You know those groups, they have contact information very easily accessible. A public registry is far more problematic for small non pop landlords who dominate some of the cities we just talked about because they're providing their personal contact info and address. So you know, let me state the obvious. Obviously having units in disrepair is good for no one, but contact info should be on a lease and if their issue is unresolved and there's a code violation reported, it shouldn't be that hard to track them down. There's still public records on who owns these properties. All right, next headline comes to the Wall Street Journal. It says rise of accidental landlords is bad news for investors who bet on rentals. Problems in the for sale housing market are starting to infect the rental business. All right, so I've been talking about this for a while. Glad the Wall Street Journal, I think the New York Times picked out a bunch of groups, a bunch of media outlets picked up on this. So some report came out of batch data on this topic. And I'll tell you what, I'm glad to see we're finally starting to acknowledge that a weak home sale market does not equal a boom in the rental market, even sfr. Okay. But also as you read in this article, what's really interesting is that no one wants to say it, but I'm going to go ahead and say it. It's, it's what it's showing us that's not institutional investors gobbling up homes off the MLS and keeping home prices high. It's more likely to be would be individual sellers choosing to hold on to homes as rental. So as a rental. So right now it's a bad market to sell if you don't have to. In most markets, if you do need to move, you have cash and the debt to income ratio to buy another house, it might make sense to hold on to your old home as an investment. And those quote, accidental landlords are far less concerned about yield on cost or operating margins as a sideline. Larger investor would be and they're more concerned maybe with long term value appreciation and just the perception that they're not selling at a good time, they want to wait. But that gets us to that point here is that individuals with families, individuals and families with one to five homes, they have 90% market share in SFR according to our data from batch data that was reported by Resi Club last week. And, and then the institutional investors, they have a, according to batch data, they have a, wait for it, 1.6% of the market. And as you know, there's no other industry in the planet where there is so much angst about 1.6% market share. 1.6% does not move the market. Okay. Anyway, the accidental landlord topic is an interesting one to watch. I'm sure a lot of them are going to find out that, you know, quote, passive income isn't always so passive when it comes to owning and managing a single family rental. All right, let's jump over to Los Angeles and this is the LA Times, it says almost no one is building new apartments in Los Angeles. Here's why. All right, interesting story. You know, we've been talking about this on the Ren Roll for you know, I think almost a year now. And obviously I'm not the only one. It's not a secret. And so I don't the reads, I'm talking about the earnings calls. I realize I said I'm giving myself too much credit. This is a widely known issue. Right. So let me read some of this article. It says developers say they can't raise the money they need to build as many of their to build as many of their biggest backers think pension funds, insurance companies, other institutions looking for long term investments don't want to park their money in LA because the rapidly changing rules make it impossible to predict profits. The year since COVID 19 have demonstrated how tangled regulation of the industry can get in la. And so they're taking their money to other cities. And there's a quote from a developer who says LA has been redlined by the majority of the investment community. And I've said it before, I'll say it again, you know it's, it's great to see a growing movement supporting more development, making easier to build. We've seen this in California with SQL form and some other things are doing there. Those are all, all positives but we can't just celebrate investors and they build housing and then demonize them once the construction completes and they start operating the housing. That does not work. If you can't execute a business plan, you can't build housing. And you know, right after this article came out is of right on cue there's another news article that came out about a rent strike in some properties owned by Equity Residential. And I read through the article and guess where it starts. Where, where is it starting from Los Angeles. And of course you know, ironically we know Equity Residential, you know they operate class A plus properties catering to renters with very high incomes. Not likely affordability issues there. But there's a group withholding rent, trying to win some various building improvements and hey, why not? You know, rent payment seems to be essentially optional in L A and so stuff like that is why no one wants to invest know nine figures to build new apartments in the city of Los Angeles. Now other parts of SoCal I think still could be very solid. The city of LA and parts of the county of la, you know they, they, they, they, they don't seem to really want to build housing anyway. Hopefully LA finds its way and with some common sense reforms, but not hold my breath. All right, speaking of reforms, here's an article from Biz now in Washington D.C. as our last headline of the week, it says D.C. housing Industry Awaits Swell of Investment with TOPA Reform. And you know, so, okay, so TOPA reform I talked about, I've talked about this a few times, most recently related to the Avalon Bay sale of I believe was four properties in the District of Columbia. And TOPA is, gives the residents of the property a first right of refusal to purchase it. So you get a, you get a binding offer from a, from a potential buyer. Now you got to give the residents a chance to raise 100 million plus dollars as if they have any chance to do so, but in reality ends up being a stall tactic. And so there's been a lot of push to reform that. And so this article is anticipating that reform. Now this DC Is passed this reform, but is it nearly enough to bring a swell of investment into DC Apartments? You know, I know my friends in DC are hoping that's the case and maybe they're right, maybe I'm wrong, but I think this reform was really watered down by the city council. Okay, so the big reform, if you want to call it that, is a 15 year exemption for new construction. But here's the problem with that. Investors can read a calendar. So the thing to remember is that every buyer needs an exit plan. So a 15 year exemption, that's going to help the merchant builder building the property, but it doesn't really help their buyer because the first buyer can be fine with a 15 year window, but when it's time to sell, the next buyer may find that problematic because now they're likely inheriting that risk. And there have been some real horror stories of long delays, deals essentially held hostage through TOPA rules. And again, in most cases the residents have no chance of buying the property, but they're using it as leverage to gain concessions on rents or amenities or building upgrades from the next buyer. And that could take months and months and months and, and delay a deal. And that's, that's very complicated. I mean that, that, that's, that's a significant challenge for investors. You want to have some certainty around the close. So we'll see. But I just have a hard time seeing how a 15 year exemption could invite a quote, swell unquote of investment. Probably some, I'm sure some will, but a swell, I think that's a stretch. All right, let's get back to this week's rental housing trivia question. The question was current construction is below pre pandemic norms and most major MSAs. But there are some exceptions which MSA still tops its pre Covid average by the highest margin. And I gave you five choices. Austin, Columbus, Phoenix, Raleigh or Tampa. And the answer is Phoenix. Construction in Phoenix at the end of Q3 was still 12,000 units above its pre Covid average as measured by the average construction total between 2017 and 2019. So that's a big margin. Now, I guess in fairness to Phoenix, it didn't. Phoenix didn't build a ton prior to Covid, so that, you know, that helped spur the big, big the big initial boom we saw in rents in the early Covid recovery period and then construction really ramped up after that and rents tapered back quickly. So still a ton to work through today. More than 27,000 units in total under construction. And it's especially concentrated some of the western submarkets, places like Goodyear and Avondale, etc. All right, next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelle leasing.com okay, so today we have a special treat. I mentioned this earlier, at least specially to me. Anyway, hopefully it is to you as well. It's our first podcast recording in front of a live audience. We had the opportunity to record a group interview with JPI's leadership team CEO Peyton Mays, CFO/CIO Molly Fadoul, and Chief Construction Design Officer Kylie Harvey. And we just record this event. We just recorded this, this interview, I should say, at an event at the Hotel Drover in Fort Worth inside their barn hall, which is quite the venue, if not seen it right at the Fort Worth stockyards. Strong Texas feel to it. You know, it's fun. People always come to, you know, Texas event, been here and they see Dallas like this. Looks nothing like what I expected, like Dallas, the TV show for those who are of that generation. And you get to the forward stockyards and that's kind of what you were expecting. And this is a really nice hotel that maintains that Texas traditional feel. So, you know, anyway, usually these interviews are online or a tiny little studio by ourselves. So having a live audience, that was a treat. Lots of energy in the room. So big thank you to everyone who participated and to the JPI team for inviting me to record there at the investor event. Had a lot of fun doing this live and something I hope we can replicate in the future at other venues. So anyway, we're going to talk to Peyton, Molly and Kylie about JPI strategy, the case for new construction, expansion into new markets, and also about a big push to use technology and innovation to drive efficiencies needed to get deals to pencil out. And I'm sure other large developers may be able to drive efficiency of scale too. But when you hear some of the things that JPI is talking about, and again, I'm sure there's always exceptions, there's always going to be exceptions. But I was really left with, and I usually think about this as well, is if 75% of starts come from small developers doing one or two projects a year, how can those smaller groups keep up with that? The type of things that you're going to hear about today and I, by the way, I hope they do. I'm not rooting against you for those of you there, but I think it's going to be tough. So we got to find more ways to keep it going. So we'll see. Anyway, without further ado, let's jump in. Here we go to the Fort Worth Stockyards for today's interview. All right, so ladies and gentlemen, we.
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Have the first ever live podcast of the Rent Bowl. So thank you so much for being here. All right, we are in the beautiful Hotel Drover in Fort Worth, Texas, and.
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A
We are talking about construction trends.
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And Peyton, before we get into some of the details, JPI, we had an ownership change, what, two years ago now?
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It will be two, it will be two years in November 30th.
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Yeah. So I'm curious to ask, I'm sure you get asked this a lot. How has the strategy or maybe just the ability to execute changed since the change of ownership?
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Yeah, so I would say the strategy really hasn't changed. You know, just some background. A lot of the folks know this, but JPI, we, we had our 36th birthday this July. So JPI has got a long term track record, have been in the business a long time. After the GFC with, you know, with limited working capital, the company made a strategic decision to really focus their efforts in Texas and Southern California. So, you know, deeper and fewer markets. And that strategy, I think has paid off. In Dallas, Fort Worth, we've been the largest developer since 2016, usually bigger than 2, 3 and 4 combined. And so, and what that means for us is, you know, our, you know, kind of, that's our prototype. We look at the land Chase team looks at roughly 650 land size. And at the end of the day when we final down, we try to start the best 10 projects. So that's been JPI strategy again, developer and GC. When, when we, when we did the deal with Sumitomo Forestry, who we were very fortunate to, to have a relationship with, I met them back in 2014. They started investing with us at the project level in 2019 so we could get to know each other better and just, you know, see how we work together. And when we decided to, when the previous owners decided that they wanted to, you know, they wanted to make sure that JPI lived well past their lifetime. And Sumo Tomo Sumitomo Fortune was an amazing partner. They were founded, I say, you know, more than 330 years ago. So it's even, it's hard to think about that. The US will celebrate our 250th birthday next summer. Sumitomo Forestry was 80 years old at that time. So it's, it's, it's hard to fathom. So they think in the terms of decades and not quarters. And it's been, especially in this environment where it's been, you know, capital markets environment's been a little bit more choppy. It's been very, very, we're very, very blessed to have a partner that thinks long term, you know, we're not building, you know, we're looking at 10 years out, not 12 months out and so grateful to have them. One of the things that I think from a strategy perspective, they have been very, very supportive of the, of the, the changes that we made on the leadership team that I know Molly and Kylie will talk more about. But yeah, just grateful to have them and our business is built to scale and so, and I know we'll talk more about that later.
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So Peyton, one of the questions I know you get asked a lot question I get asked a lot of different events that I go to. It's the 100 million dollar question, which is it seems like maybe now it's cheaper to buy something and build something and so why should I want to build? And so you get asked that and of course I have my own thoughts. But you're at the front lines of this. Why does it make sense to build now?
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Yeah, it's a great question. We do get that asset question a lot and I think there's certainly opportunities in the market today to, you know, quote unquote, buy below replacement cost. But there's been a lot of capital raised for that and You've seen very few transactions actually transact. I think why is that? Most sellers, if they have a capital structure that will allow them to hang on, they're. Most of them are choosing to hang on because they feel like that now's not a great time to sell if you don't really need to. And there's always, you know, reasons that could be unrelated that people are transacting. But even when you do that, you know, there's, you know, you'll hire a great broker and they'll do a nice package and send it out, but there's only one buyer that gets. At the end of the day, there's a lot of capital below that. That's not, you know, that's number two, three, four, five. And the bidding that's not getting anything. And so if people want to be invested in multifamily, there's not a lot of stuff that's actually selling. We also think really long term. And so, you know, now there's obviously we're at a moment in time where supply has been Greco than, you know, we're at kind of historic high of supply. You talk about this a lot, Jay. That's. Supply is one of the easiest things to forecast because, you know, we know what's going to happen in 18 to 24 months. And so supply is definitely coming down. If we can put a shovel on the ground today on a project, then we know that it will be delivering at a time when there's less competition. And we're still, you know, our, the US is still structurally, you know, we have a shortage of housing in the markets that people want to live and so, so say that. The other thing is, is we've spent a lot of time over the past, you know, several years working on, you know, expanding our developments to some more affordable workforce housing and that include public private partnerships with municipalities. And those municipalities, they want quality new housing. There's some, there's, you know, there's a lot of what we talk about convergence, taking stuff off the tax rolls and, and making it affordable. What they like to do is add new housing, which we know. I've heard you say this a lot, which some certainly agree with. New supply is the only thing that's going to solve our forward one housing issue. So that's another thing is a lot of our, you know, pipeline is. Is. Has some sort of public private partnership to it.
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Yeah, absolutely. I think, you know. Well, one thing I think is. Is important this conversation is that I think new construction is a win, win for, for Communities and for investors when we do it, and I'll add one other thing, you know, Peyton, is that I've seen a lot of groups you have as well these last few years have raised a lot of capital for distress acquisitions. Thinking I'm going to get all these great, you know, new construction and great locations, these great discounts, replacement costs. And a lot of that capital has not been able to deploy because what they're finding is a mismatch of opportunities where first of all, if you want newer construction, it's going to be in a market that a lot of capitalists want to be in for some important reasons like Los Angeles, because the city issues going on related to regulatory risk in a market like that or if you're here in Texas, it's probably going to be, you know, 30, 40 year old apartment properties in some markets, neighborhoods that you institutional capital really doesn't want to be in. So, so I think in terms of one thing, I think we're becoming clearer and clearer is if you really want to get in some kind of scale and newer construction, desirable locations kind of to build.
- [34:11]
C
Kind of to build. And I think, you know, it's one thing I think sometimes multifamily has a, you know, bad name. And you know, I've been to even folks in my hometown or not my hometown, the place where I live in today, it's anti multifamily.
- [34:25]
A
Yeah.
- [34:26]
C
And you know, I talked to them, I was like, when's the last time that you've actually gone and visited a quality, new class a multifamily, you know, development. And a lot of times it's never. I mean we walk into some of these places today and it's like the Four Seasons Hotel. You know, my son, we live in a pretty nice house and my son says, you know, we were visiting a project out in California not too long ago. He's like, dad, I want to move to that project. And so the. Yeah, I think it's a good point. The quality of housing that's built today is much, much, much different than what it was 20 or 30 years ago.
- [34:58]
B
Yeah, no, I joke all the time. I tell people like when I, when I graduated college 20 something years ago that I want to move out of my apartment the day after I moved in. Because in that era, like they just, you know, they're kind of generic sort of, you know, just, you know, just the thin walls, everything else. And now it's like, it's. These are really nice places and good locations and they're better kind of Overall experiences for everybody. And to your point, I wish, I wish more of our policymakers and some of the homeowners who oppose multifamily would understand, would take.
- [35:27]
C
Actually come look, come visit. Yeah. So if people are out, you know, listening to the podcast, we would love to have you visit one of our communities at jpi.
- [35:35]
B
Absolutely. And by, I also want to say too, I mentioned Los Angeles. It's the city of Los Angeles is notoriously challenging. Obviously we're, you know, you're seeing, you know, better environments in other parts of Southern California where JPI is active. Speaking of parts of the country, you know, jpi, you, you mentioned this obviously have significant advantages of scale in Texas and in Southern California. How do you or can you take those advantages of scale? And we'll talk to Molly more about kind of how we look for new markets. But can you take those advantages of scale into these new markets as JPI grows geographically?
- [36:09]
C
Yeah, I think one thing to note is as we have expanded into some additional markets outside Texas and Southern California, JPI is re entering these markets. Right. JPI again, I mentioned 36 years. I think we've developed 120,000 units. We're all, by the end of the year, Lord willing, we'll be at 400 communities that we've put a shovel ground on. So JPI has been in a lot of these markets before. It's interesting. I'll go to a conference and have Peyton a jpi and it's the JPI alumni network out there is huge. And so one of the first things is how do we do it? Well, we hire amazing talent. And you're a great example, Jay, of we were so fortunate and blessed to, you know, get someone like you that chose to spend some of your time with jpi. I always like to talk about, you know, I'd be remiss if I didn't talk about Scott Turner as well. Scott had a number of different opportunities to spend his time. And, you know, Scott, for those of you don't know, is our new Secretary of Housing and Urban Development. And Scott chose to spend his time at JPI before he did that. We've got some amazing talent on the team and I think folks in these markets that we're reentering are super excited about, you know, joining JPI just because of the, of the, of the, you know, I think the name, the track record. But when they hear about some of the things that Kylie and the construction team are working on, they're even more excited. And so that's one thing starts with hiring great talent. We've also got amazing talent that's been with JPI for a while. That's, that's helped us build this operating system and playbook that we can redeploy that talent and team them up with folks in these other markets. And then also some of the, what we're doing that again, Kylie will talk about of centralizing a lot of the oversight and planning, etc. We don't have to be in some of these markets. We can pair that up in a lot of other industries. We've kind of taken some playbooks from other industries that again, will help us plan and do better. So materials, you know, that's a great example of something that, you know, we can get when we're buying, you know, doors and hardware, we can do that. We can get bulk savings. Not just in Texas. It doesn't matter where you are.
- [38:28]
B
Well, speaking of leadership, you also, the one person you didn't mention is somebody who used to be a CEO at a international, what, Fortune 500 international company?
- [38:36]
C
Yeah, four. I think it's Fortune 50. So, yeah, Paul, yeah. Paul Kipsgard, you know, is an amazing, amazing, amazing talent. You know, I thank the Lord every day, but not often enough that he's with us partnering at jpi because, and again, you know, Paul was, it's public information. You can look it up. You know, Paul was making, you know, $20 million a year plus at Schlumberger. And I remember having the conversation with Paul, I said, paul, you know, that's going to kind of bust our budget. We don't have, we don't have that. And Paul's like, 19 million will do. And, but, but all that, you know, all that to say is that Paul, again, amazing, world class talent. You know, there's very few people that have, you know, sat across the room from Putin and negotiated deals and just he's an operational genius. And you've spent time with mj, you know this. And the, the perspective that he brings to the business about looking at it through a different lens has been super, super helpful. Again, I think if we're attracting talent, I think my number one job is to attract, grow and retain the best talent. And I think if folks can, we've got some amazing people that have decided to join us. And it's a lot easier to attract great talent when you have great talent on the team.
- [39:50]
B
Yeah. One of the things I want to get him on the podcast, I want to ask him, is it easier to negotiate with Putin or the mayor of some city that said, they're going to bite all this traffic and crime. More kids in their schools.
- [40:04]
C
Yeah, he's got, I'm sure he'll have a perspective.
- [40:07]
B
I'm very curious. And by the way, I also want to give you mentioned Scott Turner, for those of you who don't know, it's good trivia you take home with you. Scott is the very first ever Secretary of Housing, Urban Development, who actually has an experience in the private sector building housing, thanks to his role at jpi. I think that's really significant to have that background.
- [40:25]
C
Yeah.
- [40:26]
B
All right, Molly, let's turn to your side. Chief Investment Officer, Chief Financial Officer. You know, one of the things you and I had a conversation last week, I thought I wanted to bring here to this, this, to this format. We're in a, I think, a bit of a changing environment where historically something like 75, 80% of apartment development comes from small local builders, maybe do one, two projects at most in their given markets in a year. Those groups are particularly challenged right now to get the efficiency to scale. We'll talk to Kylie about and certainly higher cost of capital. And we're seeing a lot of them are just completely sidelined. And so I'm curious to ask you, do you think we're. Am I right? Are we in a pivotal moment where we're more dependent on companies like JPI to build? And is it going to look kind of like what we saw coming out of the great financial crisis where on the single family side we saw the larger home builders became bigger and a lot of smaller groups kind of disappeared?
- [41:25]
D
Yeah, we absolutely see that trend happening now. And similar to what we saw right after the GFC with consolidation. Among the top home builders, about the top 10 single family home builders build about 70% of the supply and as you mentioned, about 75 to 80% of the multifamily starts are small developers doing 1, 2, 3 deals a year. So the top 10 multifamily builders really only account for between 10 and 15% of market share. And so it's our view that in this capital markets environment in particular, there is an advantage to scale, particularly with an integrated business like JPI's, where we do have design that we've brought in house, we are an integrated GC and we've further integrated, which Kylie can talk about on some of the trades side of the business. And we believe that that's giving us an advantage in a more difficult capital markets environment to be able to find ways to still get projects built when return requirements remain the same. And capital continues to be expensive. It's also difficult in today's environment when lending standards have gotten much more strict than they were in the lower interest rate environment period, to have banks supporting some of those smaller groups. And so we do think that's also an advant manage with scale to have those capital relationships that are still continuing to lend to or invest with folks that have large scale business and are able to find competitive advantages through that. So we do think that that is a trend that will continue. And as we look forward towards the next five and 10 years in the markets that we're targeting, we're really looking to be that large market share provider. In the markets that we go in, we look at data on a regular basis. And part of the data that we look at is, you know, if we're taking, you know, 10 or 15% market share, what does that mean? Who are the other developers in the market? You know, how do we look at that opportunity? Because if we are going into a market, we think it's important to have that size and scale to have a sustained competitive advantage.
- [43:36]
B
Yeah, that's a great point. And I think, I think for, for those who are in the multi only investment space, I think it's really important to understand that just because you see groups like JPI still able to build and start new projects, it doesn't mean there's this big, the market's like just storming back, the floodgates are not reopening because again, three fourths of the market are smaller groups that, you know, most of them have a hard time doing much at all unless it's, you know, a tax subsidized project and stuff like that. So it's, you know, groups like JPI I think play a very important role in providing an essential good which is housing. Right. So let me speaking of development, you know, one of the things that if those of you don't know, multifamily still as you know, the preferred asset class in commercial real estate, it's the, the number one in terms of sales dollars invested in a commercialist in the US earlier this year I saw a survey from international investors and they identified, you know, it was in some ways assuring because of all the, you know, we all see headlines, we feel the craziness of being, you know, in the US on a daily basis, everything that goes on. But international investors still see the US as the safest place to place capital. And then this survey from a group called a FIRE International, I forget the acronym, it's International Real Estate Investment Group association, their number one real estate class that they want to invest in within the US Is multifamily. And we've seen this in surveys of domestic investors as well. That very bullish on a lot of there's recently a survey from CRE Daily and John Burns showing that majority of them want to increase their allocations to multifamily. And so Molly, my question to you is, as you're talking to different groups, institutional investors, large family offices, individual investors, like, you know, there's obviously appetite for multifamily. But what trends are you seeing in terms of what's changing? How is it shifting from the prior cycle in terms of what they're looking to do?
- [45:29]
D
Yeah, I think we're definitely feeling like there is backlog in terms of investment dollars on the sideline looking to get into multifamily. As Peyton mentioned, there's a lot of folks looking to buy below replacement costs, but yet not a lot of volume of transactions taking place. And you know, it is very difficult today to attract capital to multifamily development, but there's a lot of folks out there that have money for multifamily development. And I think what we're seeing in terms of some of the trends is that we're hearing groups that are saying we want to go direct to sponsor. So larger family offices, institutional investors that are not necessarily set up to invest direct are starting to look more going to rather than aggregators of capital or funds that are more diversified, saying, hey, how do I find the top multifamily developer, industrial whatever it is, and partner with them for programmatic investment of capital. And so that is something that, that we're seeing and we think we'll benefit from. We're also seeing a lot of these large groups that have so much capital that looking at one deal isn't interesting. And so, you know, they're talking to us about, hey, you know, we want to be able to deploy multi millions of dollars of capital rather than looking at, you know, one deal and investing really setting up a program where you're looking at three, five or more transactions at a time. And so that's also a trend that we've been. That doesn't mean that it's easy to get three deals capitalized at once. Let me be very clear, it is very hard to capitalize multifamily development deals today, which is one of the reasons why we think it's a great time to invest. But those are a couple of the trends that we're seeing. And I think as Rates do come down, we're already starting to feel a little bit of thawing in the market and more interest in development, particularly as that cash that you've been talking about that's been set aside for allocation to multifamily hasn't been deployed into acquisitions.
- [47:28]
B
Yeah, and on that note, I'll tell you, like, early on in my career, one of the things I was really struck by is how larger institutional groups, they like to write big checks. And so the opportunity to work with one group and they see that as a much more efficient use of capital than cutting a bunch of small checks. And so to your point, being able to have more programmatic relationships seems to be another reason why we're probably going to see larger developers take a larger share of future development and why JPI is well positioned. So, Molly, part of future development plan for JPI is obviously expansion into new markets. And I had the privilege of working you a little bit on this project, but talk to us a little bit about what goes into the process of identifying where JPI wants to be and then prioritizing where to start building first.
- [48:14]
D
Yeah, absolutely. So thanks to your help on the data side and pulling together a number of different data sources, We've used about 40 pieces of data and information, some's public and some's private. Through a scoring system where we take the top 50 MSAs, run that through a model with updated forecasts. We'll look 10 years forward in terms of some indicators and weigh different demographic data, income information, education levels, regulatory or developer friendliness type rankings, and then spits out a ranking of top, you know, really we focus on 20 MSAs throughout the country that we think are attractive for multifamily investment and meet the criteria where we can be a large market share builder in the markets, which means we want to be doing, you know, three, four or up to, you know, in Dallas, we're doing about 10 projects a year. And so that data is refreshed on a semi annual basis. Most of the cities that have been in the top 20 are pretty much still there. There's been a couple shifts and changes as some new supply or some, you know, rent control may be on the ballot. And we take a pretty rigorous approach to looking at that data and information. We're constantly trying to improve it, but that's how we set the model. And then once we have those cities that we want to be in, we look at who the competitors are, what type of market share they have, then we get into the submarket level data and you know, as Peyton mentioned, we've centralized a lot of our functions, and the kind of JPI playbook is something that we've documented at a very detailed and granular level, and we use that to expand into markets. So over the last few years, we have expanded into the Seattle market. Phoenix, North Carolina. From there, we're covering Nashville, and we're also expanding into Florida.
- [50:13]
B
Yeah, and I appreciate the chef. We also probably get some credit economy of a lot of the real layers, so. Nice job, Connor. And so are any projects underway yet in any of these expansion markets?
- [50:25]
D
Yep. We did break ground on a project in Redmond, right by the Microsoft campus in King county, which is Seattle, in May of this year. We're excited to get that out of the ground. And then we also have sites under control in all of those other markets I mentioned outside of Florida, which were just in the early stages of entering.
- [50:46]
B
Yeah, that's great. And, you know, Seattle's a good example of, you know, that's such a good sub market. There's been some challenges in the city, but obviously in terms of regulatory risk. But the, you know, Seattle always strikes me as odd. It's like it's the city that wants to go to war with its major employers, which I don't fully understand the logic of that. But, you know, Redmond's a very, very strong submarket. And. And I think. I think, too, just so you all know that the. What I. What I think is important about any time you look at markets is you want to be where people want to be and where capital wants to be. And those, I think, are two variables. Where you really have to place outsized importance as a developer is because, number one, you want to make sure there's demand for it, number two, from the renters, and number two, that, you know, there's investor demand for those as well. And I think that that's.
- [51:30]
E
That.
- [51:31]
B
That's really what that top 20 list is, is they're. They're markets that are highly liquid, but also markets that are going to be in high demand over the next couple of cycles.
- [51:40]
D
Yeah, absolutely. And we want to be building up and down the income spectrum in all the markets that we're in. So we have a number of different ways in which we can structure and finance transactions. So, you know, it's great to be able to go into a market like that, where affordable housing is such a challenge and try to find a structure to be able to deliver more of that.
- [51:58]
B
Oh, that's a good point. So it's not. So maybe you could Expand that the online. So it's as JPAD's going these new markets you're still looking to do workforce affordable and class A. Yeah, all these. Yeah, there are the is the is is that obviously in Texas we have our own unique structures and is it is. Is that somewhat of a challenge is getting each state having its own kind of structure for how these things work?
- [52:22]
D
Yeah, it can be. The public private partnerships are more prolific in some markets and not as much in others. But there absolutely is opportunity across all the markets that we're in to build up and down the income spectrum. It's just the structure of it changes.
- [52:37]
B
Yeah, that's great. All right, so Kylie, let's shift over to our chief construction and design officer. And you've been really busy and this is part of what really impressed me about what JPI is doing is some of the innovations, as I kind of joked earlier, is I think, I think everybody knows that there's been so little innovation and efficiency gains in the construction business. Not just multi panel but all types of construction. We've seen a lot of increased use of technology and innovation across a lot of other industries, but not so much in construction until recently. So I want to get into that. We've talked a little about the efficiencies of scale. Let's dive into this in the details. You know, it's time environment to build. So for projects to work, I know you're really challenged to find ways to either cut costs or reduce the timelines for these projects to be more likely to pencil out. So how are you doing that?
- [53:25]
E
Sure. Well, I'd go back and just say it's worth repeating what you just stated in that we work in an industry that has not evolved nearly as rapidly or proficiently as many other market segments. Anything in manufacturing has. They've gained productivity, they've lowered their cost over the years. Construction has absolutely remained stagnant, siloed, fragmented, you name it. Low barrier to entry. All the hallmark problems are there of that stagnated industry. You know, at jpi we are looking to other industries. We're looking to Henry Ford, to Toyota. And we want to do for construction what they did for the automobile manufacturing business. I don't think you can look inwardly and solve that problem. If you want different results, you have to do things a little differently. As you guys mentioned, we have the great fortune of having Paul Kipsgaard with us who brings a wealth of experience from the oil field. They went through a similar transformation 30 years ago and so we've gleaned a lot of that knowledge into what we do every day. You know, I think that from centrally running support services out to our field teams to taking on a real manufacturing mindset, you know, we know we don't have a thing that moves down an assembly line, but we have people who can move around the thing. All of those lean thoughts and principles that went to make manufacturing what it is today can be applied to construction. And we worked really hard to do that. You know, another thing that the oil field has taught us is the fragmentation can be solved. We have integrated some of the trades businesses into what we do every day. That allows us to dictate pace, it allows us to ensure quality and allows a better product to be returned to our investors and our tenants. You know, on our very first fully supported deal, we're already seeing the results. We are about 30% faster to first units in that very first deal. So, you know, our systems are built for improvement. And so we expect we'll get better and better every time we start a.
- [55:57]
B
New project, 30% faster. So, I mean, yeah, and time is money, right? So that's gotta be really impactful. What about technology? Again, we've talked about. Again, there's not been a lot of innovation, but I'm sure some of you have probably seen on YouTube now some of the really cool technology around construction and robots and whatnot. Talk to us about what kind of new technologies JPI is using, what benefits you're seeing from that. Sure.
- [56:23]
E
So technology for us starts at the very beginning. My favorite saying in our business is we. We don't have a finishing problem, we have a starting problem. And so for us, it all starts with a model. Lots of people talk about their utilization of BIM or trade name Revit, and the fact that they model. And lots of people do. But they don't use those models to construct. They don't mine data from them. They just use them simply to deliver 2D versions of what they've been drawing for the last 50 years. We take a little different approach. We build our models to be used in the field. So the level of accuracy and the serviceability of that thing as a construction tool are important to us. With that, you'll see guys on our sites wearing augmented reality glasses, swiping at the air, looking at the model overlaid onto the site, looking at a structure that will be there, or looking at a piece that's missing and what it's supposed to play out like. We have a little. A little robot that looks like a Roomba that runs around Printing lines on the slab they're trying out right now, one that looks like a dog, although it does have wheels on the feet. That's not very fortunate. But, you know, it. It's used for quality control and checking things, checking the accuracy against the model. And so all of these tools offer us the ability to put work in place, to catch any errors early and to avoid rework. And for us, as you said earlier, the time is money when we can avoid rework. It saves the project and saves our investors and all involved.
- [58:13]
B
Yeah, so I imagine that's going to be a really big deal because, I mean, can you give us an example? Like, if something. If someone's drawing a line or where some plumbing needs to go and it's off and you realize that later, like, how many. How much. How many kind of domino effect problems does that cause downstream?
- [58:31]
E
Yeah. You know, a plumbing line is a great example because it could be buried under a slab. A slab could get poured, it could run up a building, and you could. You could have significant problems. You could have to break out the slab and start over again. Or, you know, God forbid, you build your slab into an easement, which has happened not to us, but to others, where, you know, I know of a project here in Fort Worth that was built in an easement. And so again, the avoidance of rework could be days, weeks, and, you know, seven figures of cost to. To resolve.
- [59:16]
B
Yeah, that's wild. So definitely, it's just amazing. I mean, you're talking robots, dogs, drones, the helmet camera things, I think are really interesting, you know, that the project. Was it the goggles that you could see the plans versus what's actually there. Am I saying that right?
- [59:32]
E
Right. Right. So, you know, we actually have two versions of that virtual reality, which we use on the front end before we ever start to build, that allows us to coordinate the various portions of the model and then augmented reality, which happens once we're in the field. And those are the guys you see with the glasses viewing the pieces and parts of the model superimposed over the site.
- [59:58]
B
Yeah, that's amazing. So, yeah, it's just the old hard hat is much more. There's much more going on now. Yeah, there used to be. All right, so, Haley, we can't talk about construction these days without talking about tariffs and immigration policy. Right. You know, it's. That's the. One of the biggest questions that I. That gets talked about at industry events and conferences. Investors, media, everybody wants to know. And so I'm curious to ask you, how. How are Those policies impacting jpi.
- [60:25]
E
Sure. I would say that that is the single most asked question I get. You know, in the, in the recent past look, I think that, you know, around Covid, we saw lots of supply chain issues that really pushed the localize supply chain. And so for us, there are really actually very few things that come to us from overseas. Appliances do, although their appliances made in the U.S. there are some trinkets within electrical systems and mechanical systems that certainly do. To this point. We have had really. No. There's really been no impact on our projects related to tariffs. You know, I think that the green building codes also have assisted with that over time because they value locally sourced material. So our supply chains have shifted from afar to near. And that's really helped us out in this case on the immigration front.
- [61:31]
B
Let me pause there for a minute. So I think that's important people understand it's like a lot of these changes. I mean, first of all, we had tariff issues in 2018, I think. Yes. And so in many ways you and I'm sure some other builders out there, because some of the big homebuilders are saying the same thing. And I think a lot of the public and a lot of investors aren't fully aware. Like this is a kind of a theme, at least maybe it's for those with scale. You've already, you. You were in some ways prepared for this because this isn't. It's not like the terror conversation was new. Right.
- [61:57]
E
That's. That's absolutely true. We've all been through it before. You know, I think that I'll give one example that is sort of a copycat tariff. The first round of this one appliance company I will not name went to the government and lobbied for a tariff against appliances because they were left out. The government accepted it and said, yeah, you make them locally, we'll put the tariff in place. Well, the next day they raised their prices just equally with the tariffs. And so I think there's always risk. Right. Of cost increase. If you drive the commodity cost up, we could see fluctuation. But all in all, it's just not no single components that large of a piece, you know, of the overall to have a tremendous impact.
- [62:44]
B
Especially if you use American lumber. Right, that. Absolutely.
- [62:47]
E
Which we do.
- [62:48]
A
Yeah.
- [62:48]
E
Yes.
- [62:49]
A
All right.
- [62:49]
B
So sorry, I interrupted you. Immigration policy.
- [62:51]
E
Sure.
- [62:52]
B
And obviously that's a big issue as well.
- [62:55]
E
Sure. Just like the tariffs. We've been through this before, probably a little before 2018 in this case. At this point, none of our jobs have been affected and we haven't had similar circum. You know, the last time we experienced it, I think it was maybe a little more invasive than it has been this time. And we've not really had any impacts to our projects. Yeah.
- [63:23]
B
Is it, does it help too, that there's, at least among your competitors, smaller builders, there's just fewer jobs starting right now.
- [63:31]
E
That is absolutely true. You know, I would say that it, it certainly seems like in the construction side of the business, some point nine months to a year ago, the spigot just shut off. And, you know, there's a burn off in our business where, you know, a job starts, takes a couple years to finish it.
- [63:54]
B
Right.
- [63:54]
E
And so we have over the last eight months or so, seen the quantity of bidders increase on our bid list and hear the murmurs in the marketplace, you know, that the volumes are reducing.
- [64:10]
B
Yeah. Well, Kyrie, Kylie, Molly, Peyton, thank you so much for letting me take the Rent Roll on the road here. And thanks for being part of this discussion. It's been fun.
- [64:19]
E
Matt, thank you. Thanks, Jay.
- [64:22]
B
All right, well, thank you all for being part of me.
- [64:46]
A
All right, well, that was fun. Big thank you to JPI for hosting the Rent Roll Live this week. Thank you also to Madera Residential and to Funnel for supporting this podcast as well. And thank you to all of you for spending part of your day with us. We'll see you next time.