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Foreign welcome. It's episode number 66 of the Rent Roll, your podcast on all things rental housing, apartments build to rent and single family rentals. I know some of you are just getting back into the mix of things after the holiday break. Hope you had a great one. Welcome back. If you did miss it, last week's episode we shared our top 15 predictions for apartments and SFR in 2026. We had the great John Burns sharing his outlook as well. So check that out if you missed it. For this week's conversation, we're going to dive deeper into SFR and btr with our Q1 update and outlook. Why aren't we seeing that big pop in leasing activity and rent growth given that big discount to rent versus Own that we all hear about? That's been the big talk. Is that big discount, why is that not translating to a pop in leasing and rent rents? We're going to get into that today. That's the big question. And it's an interesting story. It's a nuanced one, but ultimately it comes down to the good old laws of supply and demand. So we'll talk about that and what it might mean going forward. And then next week we'll give our Q1 update and outlook for apartments as well. And so for multi family friends, we'll have a lot next week, but you don't have to wait that long. There's still some good stuff for you today as well. Lots of data and conversation on btr, which of course operates as kind of a hybrid between apartments and traditional scattered site sfr. And then also some some some headlines touching on apartments. We'll get to today in the news section and then also today's conversation, our interviews portion. It's going to be a good one. We've got with us Josh Hartman, the CEO of Next Metro. Josh, many of you may know Josh's story. If not, he's a former home builder who became one of the early pioneers of the build to rent movement in the Sun Belt. Next Metro was I think the first, or if not the the first and one of the first to start building BTR communities in Arizona, which of course became the epicenter of the BTR boom. And originally Next Metro thought it was just might be a cyclical play during the GFC period given the foreclosure crisis when people were obviously struggling to buy homes. But I think you'll really enjoy Josh's story today where he shares that their original thinking and hypothesis being that it was a cyclical play that turned out to be wrong it was actually a turned out to be a real business, as we all know now, in part because they learned that their renter demographic wasn't who they thought it'd be. And so I think you'll enjoy hearing that story and maybe do some myth busting as well, which I always like to do. Now, of course, next Metro has a substantial presence across not only Arizona, but also Colorado, Texas, Georgia and Florida. So stick with us for Josh's story and also get his take on where the BTR business is today and where it might be beheaded. All right, before we move on, I want to give a big shout out and thank you to our big headline sponsors. First and foremost to jpi, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com also a big thank you to Madera Residential, a leading apartment owner and operator based in Texas and expanding into the Southeast. Check them out@madera residential.com all right, before I move on, I want to interrupt my own program with a special interruption here. So just as we wrapped up production on AN Episode number 66, President Trump posted on social media that he plans to work with Congress to, quote, ban large institutional investors from buying more single family homes. All right, so given this very big announcement, I want to make the unprecedented move to jump into a already scheduled and recorded podcast episode and add some quick thoughts here because obviously this is going to be top of mind for a lot of people in the SFR space. And I'll be writing more about this on my newsletter@jparsons.com if you want to get more detail. But a few quick thoughts. All right, just for right now, number one, I know some people may look at this as a big surprise, but it's really not. I want to remind you that this is something I talked about leading up to the election last year when we compared the housing policy plans between the Trump campaign and the Harris campaign. And what I noted for was that while Trump himself has not talked about single family rentals, his VP candidate, now VP had JD Vance, has been one of the most vocal Republicans opposing investors buying single family homes. And so, so there. So this is not a total surprise in that sense. Second point, this is an idea that's going to gain traction and already has gained traction among both parties. You know, I mention this all the time. One of the things I like about housing is it doesn't follow the traditional party lines like we see in a lot of issues. You have people who are pro development, anti development and both Republicans, Democrats are pro Yimby, and you have YIMBYs and NIMBYs in both parties and the same thing on issues like this, we're going to see more of a populist support among the populist wings of the Republican and Democratic parties. And that's happening because there really is a root issue, a root problem here. Right. So I want to downplay that. In fact, if anything, I want to upplay that actual root issue. This. So it's very easy for all of us to kind of think, oh, man, like this. It's just a bunch of misinformation. And yeah, a lot of that is. But it's stemming from a real problem, which is a shortage of housing combined with significant affordability problems for those families wanting to be able to buy homes. And obviously that's gotten more challenging given higher rates and high home prices. That's the root issue. And whenever there's a problem, people want someone to blame. You want to be able to finger point somewhere. And so we create this boogeyman. And so institutional investors make for a convenient target for people across both party lines or both political parties. But obviously, perception is not reality. And this is one of those topics. I've talked about this a lot, but this is one of those topics where perception is just so far distance from reality. And I'm gonna give you an example. I remember a couple of years ago, I read a paper from a HUD researcher, and it was about declining homeownership in Atlanta. But not once in this article about declining homeownership did the author mention that homeownership in Atlanta was actually going up. And it had been going up since the mid 2010s. And that type of alt reality nonsense leads into bad headlines, which leads into public perception, which then leads to bad policy ideas like this one. All right, so let's quickly just kind of recap the facts. So everybody kind of has this in front of you. What are the facts? Not the hot air, the actual data, the actual facts. Number one, institutional investors comprise about 0.5% of the single family stock in the U.S. that's a fact. Even in places like Atlanta, it's in the single digits. And people always say, well, you don't look at the national data. You got to look at places like Atlanta. Well, there you go. Number two, the vast, vast, vast, vast majority of single filet rentals are owned by small mom and pops that own a couple of properties on the side. And that is the biggest piece of the market. Those are also much More active buyers and institutional investors are in terms of who's buying. And so for the SFR market, even as a whole, institutional investors, about 3% of the market. And that's just, that's just the reality. Number three, contrary to conventional wisdom, like I mentioned, Atlanta also nationally, homeowners has been going up since the mid 2010s. It's about 2016. And it was going up, up until last year when mortgage rates shot up and affordability worsened, which, by the way, sidelined a lot of investors as well. But here's the fourth point. Here's the thing that I think a lot of people just don't fully understand. Even in the industry, I don't think people have this data in front of them enough to really point to this absolute fact from government data. Okay, so from 2015 and 2023, we added twice as many homeowners as we added for sale homes. 12 million net new homeowners, only 6 million for sale homes built. Now, how is that even possible? Because millions of rental homes, almost all of which were single family houses, have converted to owner occupied homes. And so that means, contrary to false narratives, individual homebuyers have actually been out muscling investors for market share. Again, that's not. JAY Parsons, Data Industry. That's, that's from the U.S. census. Okay, last thing I'll point out, most institutions in recent years have shifted from buying to building, and there's a lot of questions about how far this legislation can go. But they've been much more focused on new construction because frankly, there's a better opportunity there, there's better yields there. And when they're buying individual homes, they're looking for bargains. Those bargains were there in the early 2010s coming out of the affordability crisis, sorry, the foreclosure crisis, when home home buyers were largely sidelined. Those deals aren't really there as much today. And so, and remember too, an investor is looking at a cap rate. Individual home buyers are not, which is why they generally are going to win out on a competitive bid, contrary to the narratives we hear about. Okay, now it's worth noting that any proposal is going to require congressional, my understanding will require congressional approval. President Trump indicated the same in his post, and that's not necessarily a sure thing. There have been previous attempts at similar legislation, including as, as recently as a couple of years ago, and that failed even when the Senate and the White House were controlled by the Democratic Party. So we will see where this goes Again, I'll be sharing more of my newsletter@jparsons.com I'm sure we talking about more on here on the rent roll as well. But again, thanks for me. Interrupt. Now back to our regularly scheduled programming. All right, so as always, kick it off a little section we like to call Here's a chart. And we got a bunch of charts today. This segment is being brought to you by our newest sponsor, Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as FHA Construction Loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. So check out Mason Joseph. All right, so let's start this section on an upbeat note before we dive in and get to some of the nuances. Maybe the more maybe call it bad news for lack of better term. Here's a chart that I mentioned this earlier. Everyone loves to show. This one for sfr. It's the cost of buying versus renting. The all in monthly costs as measured by our friends at John Burns Research and Consulting. And I'm sure everyone's seen some version of this chart and it's something John Burns himself mentioned on this podcast last week when he was our guest. Here's the latest numbers. It's $1,042 more per month to be a new home buyer of a starter home, not even any home, a starter home versus to rent a single family rental home. So that's obviously a big gap. It amounts to a premium of 41%, which is, which is pretty wild. Even you know that number is going to be big. I mean, 41 still hits pretty hard by comparison. The historical norm is about 16%. And so obviously, you know, easy math or about, you know, two and a half times that. So that gap is obviously a big long term tailwind for rental housing. But it doesn't necessarily equate to a boom times for SFR as we're seeing right now. All right, this next chart we're gonna see that in the latest SFR leasing indices from John Burns Research and Consulting, giving us a little bigger pulse, a little better pulse, I should say. On SFR Leasing, these indices are on a scale of 0 to 100 where a rating below 50 signals are contracting market. Anything above 50 is a growing market. All three of these indices are at or below 50 right now and they've declined versus 2024 levels. The first one is on leasing activity versus seasonal norms. The most recent one covers Q3 and the scores at 43 compared to 47 last year and 49 two years ago. So that means leasing activity is not great. It's not horrendous by any means, but it's certainly below normal for this time of year. And even with those sluggish home sales, again, people think a weak home buyer market is going to be a boon to sfr, but it's not. It never has been. SFR is much more stable in the home buying market, so we have a higher floor. But by no means is it boom times either. I talk about all the time. Second index, we're going to show you expected leasing activity over the next six months. And it's basically the same story. It's a score of 50 down from 52 last year and 52 two years ago. And so the SFR operators in the survey, they're basically saying, hey, we expect more of the same over the short term. And then the third index, I want to show you, this one's really critical. It's also the one that's most negative and it summarizes, I think, today's issues very well. It's the SFR Vacant Property Index. Time on market versus seasonal norms. How long are home sitting vacant between leases? And this score came in at just a 36 compared to 41 last year, 37 two years ago. So that means there's more inventory and it's taking longer than normal to lease out a vacant home. And remember, of course, a vacant unit generates no income while of course the costs continue and that puts pressure on operators. And then, you know, just real high level regionally. No real surprise, all three of these indices, they are weaker in the Sun Belt than other parts of the country. So they've got a lot of the population growth, the migration, the relatively speaking, more jobs and demand, but also a lot more supply than other parts of the country. Not only new construction from BTR and for apartments, but also growth. And this is a category we don't talk about as much, not just new construction, but also growth in new SFR listings or additional listings of homes that are available. And so on that note, here's a chart showing the number of SFR listings just among the nation's largest 15 SFR operators, again tracked by John Burns. They collectively saw an increase of listings measuring 14% year over year. Now. 14%, that's a big number, you know, particularly knowing that most of them probably did not expand their, their housing stock, their, their, their inventory nearly that much. Their portfolios, I should say. And while we've all talked about, we've all talked a lot about the impact of new construction as I mentioned earlier, in terms of, you know, newly built units. This is also part of the additional supply story. It's a really important point that we don't talk about as much. The new supply isn't just construction. It's also these additional listings, additional availability through. In this case it's, it's usually units that are vacant now taking longer to lease. Or it could also be those so called accidental landlords talk about sometimes. So those homes that may have been intended to be for sale, but for various reasons the owner has chosen to move on and to rent out that home instead. So we see that too. Bottom line though, more supply of any type, whether BTR or apartments or additional SFR listings, that's putting more downward pressure on rents. So here's another. This all relates to, I think an interesting survey question that the Burns team asked SFR operators. And this one I thought was, was, was really interesting. The question was what are your top concerns related to supply? And the reason that I, I thought this was interesting is the number one answer was not actually about SFR or btr. It was apartments. And this question went to SFR operators, not apartment property managers. 50% of them said apartment supply was a top concern. And of course we all know apartment supply has been at 50 year highs. And so of course apartment demographics, your typical renter, it tends to be a different profile than your typical SFR renter. You know, usually your apartment renders a little bit younger, less likely to be married, less likely to have kids. SFR likely skews a little bit older, more likely to have a family. But SFR operators clearly do see apartment supply as a competitive factor. So that's interesting. And then just under 50%, 47% said BTR supply was a, was a, was a big concern. And 33% blamed the rising number of SFR listings or listings that were shifting, I should say from for sale to for rent. And that was especially a big factor among operators in California and Texas, two obviously very different markets, but both seeing the same trend there. Now on the plus side, we do know new supply as in those newly built housing units that is going to drop off substantially both for apartments and for SFR. Burns data shows BTR dropping off below 10,000 units this year. That compares to 25,000 units at the peak. And then they show BTR units, BTR supply leveling off around 10,000 units in 2027. So we'll talk more about this trend in today's conversation with Josh Hartman at Next Metro. All right, Another thing on the plus side, we continue to see turnover, renter turnover as a tailwind. This has been a theme for the last really five years. Turnover remains very low and that hasn't changed much at all. The Burns team tabulated data from the SFR REITs and their annualized turnover rate is just 25%, which is very low. And that's a bit lower than last year. And last year was also very low. And it's been in that low to mid 20% range since 2020, and it's been in that. So that means it's been in that range even when homes were actually selling in 21 and 22. It's still been in the low to mid 20% range. So it's really not that correlated with home sales. Everybody always wants to say, hey, low turnovers because of lack of home purchases. It's really not that simple. Sure, it's contributing incrementally, but I always tell people this all the time, if a renter isn't happy where they are and they can't buy a house, they're just going to move to another rental for the most part. And so we just see fewer moves. And really this trend goes back not even five years. We've seen this gradually going back 10 years and really accelerated during the pandemic period. And so again, I do think the lack of home sales plays a role, but it's not a clear correlation between. There's no clear correlation between home sales and turnover. It's not as simple as people want to make it. So I think there's other factors at play here too, including people just waiting longer in life to get married and have kids and buy houses for reasons beyond just finances. As well as I think the other factor mentions all the time said this on this podcast, another factor is simply better management of rental homes. I think that plays a role too. A better experience is going to create a stickier experience. And so again, I think that's why turnover is just structurally going to be lower in this cycle than we've seen in the past. And by the way, first of all, one last comment there, I mean, think about Too is the 2010 is really a decade of figuring things out. And I think after now a decade plus of the business model, we've seen operators just get better at it. All right, so let's put all those demand drivers, headwinds and tailwinds together. Here's where we are with rents. Burns data shows SFR rents are on pace for their slowest growth in 12 years, right around 2%. Right now, Burns is forecasting less than 2%. Actually 1.8% for 2026. And again, they point to supply. I want to read this quote from the last report, which by the way, they put out great reports. If you're not getting those, here's what they wrote. We are watching rising for sale inventory in most markets, which we believe will increase SFR supply and continue to soften SFR new lease asking rent growth. Okay, so more for sale inventory equals more for rent inventory in their view, either via builders who are selling off homes to SFR operators or individual owners choosing to rent out their old homes instead of trying to sell them. By the way, the on the build to rent side, those rents have been even softer. They're down 10 bips year over year in the most recent data. So that's tracking a little more closely with apartments departments. And of course, you know, when every time I talk about national data, it does vary a lot by parts of the country, by different regions of the country, we still have quite a few, quite a handful of number, quite a number of markets that are still seeing strong rent growth for SFR and are likely positioned for more of the Same here in 2026. Among the markets topping 5% rent growth for SFR, that list includes Knoxville, Visalia, Chicago, Long Island, Chattanooga, Baltimore, Milwaukee, Richmond, St. Louis, Lexington, Kentucky, Columbia, South Carolina, and among larger markets, the Midwest. Just like with the apartment data, the Midwest stands out. Not only Chicago, which we mentioned earlier, but also Cincinnati, Columbus, Indianapolis, Minneapolis, Cleveland and Detroit, among others. And then of course, we get to the list of where the rents are falling. And just like with the apartment sector, SFR rents are falling in the higher supplied markets. For the most part, rents are down more than 3% in Austin as well as much of southwest Florida. Also seeing rent cuts in places like Dallas, San Antonio, Phoenix, Orlando, Tampa and Raleigh, among others. And then, you know, one observation here, the supply trends, both for sale and for rent, they tend to align and correlate with home prices. So where there's more supply, that means there's more inventory. And that puts downward pressure on prices as well as rents. And so SFR rents are actually broadly correlating with home prices as well. SFR rents are falling where home prices have fallen predominantly across the higher supplied Sun Belt. SFR rents are increasing in the Midwest where home prices are increasing. So it's yet another reminder that again, a rising tide boosts all ships, a receding tide pulls back all ships. I know this. I mentioned this again, I mentioned this a lot of times I mentioned it again is that SFR tends to do better when homes are selling and home prices are increasing. There's more move outs to purchase. Yeah, but typically that's because there's more household formation and so you're going to back for those units faster and often at a higher rent. I'm going to keep saying it till more people believe it. All right, one more thing on rents before I move on. Just like with apartments, here's the silver lining on the weak rent trends that we've seen. Wage growth has exceeded rent growth for now three straight years, about 36 months and counting. And I think we're going to see the same thing here in 2026, barring some epic collapse in wage growth or some epic surge in rents. The most recent data shows wages up 4.1% compared to SFR rent growth of 2.1%, BTR rent contraction of 0.1% and apartment rent cuts of negative 0.7%. So over the longer term, improved affordability does help widen the demand funnel. But in the shorter term, a heightened supply is a stronger counterbalancing factor right now, putting downward pressure on rents. All right, as we wrap this up, let's quickly touch on SFR sales, acquisitions as well as capital markets. First, one of our favorite misunderstood topics are large investors buying up all the homes. Well, obviously the reality has never been anywhere near the narrative, and it's more of the same. In the most recent data, large investors bought fewer than 12,000 homes across the country over the last 12 months, amounting to just 0.5% of home sales. And that's just, you know, among acquisitions, it doesn't even count for dispositions, some true, true net flows. So again, contrary to narratives, they continue to be a rounding error in home sales even more now than a few years ago. And for larger investors, we've mentioned this a lot, so I won't belabor the point here. There's been more interest in BTR as well as portfolio acquisitions, but even those categories have been limited. Primarily challenges around the cost of capital and the disconnect between buyers and would be sellers. So BTR sales remain muted about 1.1 billion nationally. That's through most of Q3 of 2025. So you don't have the Q4 data yet. But barring a big surge in that Q4 in those Q4 numbers, it's unlikely we're going to match the 2.7 billion in BTR that traded in 2024. And we're way below the peak of 4.1 billion set in 2021. And that data comes from Yardi and Burns. Cap rates, though, haven't changed much as much as would be. Buyers would like to see more cap rate expansion. That's just not happening. BTR cap rate's still in the low five, so while it's up from the the cheap debt era in the early 2000 and twenties, it's low fives is similar to where we've been in these last few years. All right, that's going to wrap up our Q1 update. Now let's now let's jump into rental housing trivia. All right, now let's transition to rental housing trivia. Today's trivia is presented by landing a full service furnished housing partner, helping operators drive incremental noi. Simply landing turns vacant units into revenue. Learn more@hello landing.com partner and do put that SL partner in there for me. Goodbye vacancy, hello landing. All right, so today's question we stick in our BTR topics today and here for our for the for the trivia question it is which BTR product type added the most newly built units in 2025 and is likely to lead again in 2026? I'm giving you four categories here. Is it A cottages or slash horizontal apartments? So people call it different things. B detached single family homes, C single level row homes or D townhomes. So again, which of those we add the most of in 2025 and are scheduled to add the most of again in 2026? Now I do want to add one important caveat here, which is that we're measuring units specifically within BTR communities. And so we are excluding that, you know, so called excess homebuilder inventory. They're selling off, you know, kind of scattered site newly built houses in a for sale subdivision that a home builder is selling off to an SFR operator. So we're excluding that. We're looking at BTR communities. Which product type are we growing fastest? All right, next up in the news. All right, in the news this week is sponsored by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and marketing audit. They'll dig into your pipeline, your leasing funnel and comps and tell you exactly where things are breaking down, plus strategies on how to fix it. Listeners of the pod get 50% off. So head to authentic ff.com click on the banner to learn more and claim the offer. All Right. So we've got three headlines for you. The first one comes from the Wall Street Journal. It says the condo market hasn't been this bad in over a decade. Condo prices this fall posted their biggest decline since 2012, hit by rising homeowner association dues and weaker demand. All right, so condos, you know, they kind of hit a sweet spot between a multifamily and single family because we have obviously condos bought by investors that are rented out as well. So that could be shadow market rental competition. And of course, we've also had in the past more so in the past than today, developers who do both multifamily rental and for sale. But that's changed for a lot of reasons, you know, so as I read this article, it reminded me, I just think condos today are tough for so many reasons. You know, for, for the prospective condo buyer. You know, what's happened is now you have the down payment, which is now obviously higher, and the mortgage payments, I'm sorry, the down payment plus the mortgage is obviously higher as well. And on top of that, though, you have increasingly rent, like HOA dues, and now you have kind of iffy liquidity. And the other thing I don't think talk about enough is you have, in the last 10, 15 years, we built so many condo quality apartments that now there's comparable alternatives to rent instead of buying a condo. And I think that makes it tougher to then sell that condo as well. And so unless you're in Miami or Manhattan or other places like that, or in your, in some kind of resort vacation town, it just seems like a tougher bet today. And then of course, from the developer standpoint, you got these, all these big issues around builders, liability risk being liable, increasingly liable for the building long after you sell off the units. And that's just a big hurdle to overcome. So I do think condos can play an important role in the housing market. They may fill a gap, but yeah, it's just a, it's just a tough market until we solve for some of those issues. All right, next one. This comes from a paper by the American Enterprise Institute. I'm sorry, aei. The headline is America's Housing Crunch has the wrong villain. All right, this is a good read and does a good job showing data to dismantle those dumb myths around the role of institutional investors in the single family housing market, particularly their impact on supply and prices. Worth the read. Some good data hit in this. This is a blog that kind of summarizes some of the key things from Their study. I particularly appreciate how the author pokes holes in the arguments among those. Say, hey, you know, I hear this whole time, the national stats don't matter. You know that 0.5% of institutional, of home sales going institutional investors, that doesn't matter. What matters is you have to look at individual places like Atlanta, right? And so the author of this piece, they hear that same criticism and they. And check out what he says. He writes this, no county exceeds a 10% ownership share, meaning that no, the institutions represent less than 10% everywhere. Even in frequently cited metros such as Atlanta and Houston, institutional ownership sits in the low single digits. Most zip codes are far below even those levels. And that's a really important point. And again, he's talking about total ownership share. So sometimes you look at, okay, just institutional owners versus all SFR owners. That's not the full story. If you look at the impact of the housing market, look at all what share they control of the entire single family universe in these areas. And it's again, no county exceeds even 10%. So that's not. That still makes them a small piece of the piece. And it goes on to say this. If institutional investors were the prime driver of prices, the hard causality pattern would be hard to miss. But not so much in reality. Since 2012, national home prices have risen roughly 150%. Yet some of the fastest growing markets for prices, including San Jose, Bend and Providence, have virtually no institutional presence. Several metros with higher inventory shares, I'm sorry, higher investor shares, have seen below average price growth. Econ 101. Scarcity, not financialization, does the heavy lifting here. So very well said. It's all about supply and demand. It ain't that complicated. All right, our last headline today, it's another one from the Wall Street Journal that says Dallas is booming except for its downtown. Texas City's central business district faces a crisis as companies look for snazzy suburban alternatives to aging office towers. All right, so this article came out right before the big news. One of Downtown's biggest employers AT&T is relocating its headquarters to the legacy area of Plano, which is already home to a lot of major employers right near the intersection of 121 and the Dallas North Tollway, which is quickly becoming the urban core or central hub of the booming DFW suburbs. Feels like everything's doing there these days. So what's going on downtown? You know, I'll tell you a funny story. So I moved to Dallas in, I think it was 2004, 2005, and even back then, I remember occasionally I'd work downtown. And if you were there on a Saturday, I remember having to like drive in my car out of downtown just to go to lunch. And then we finally, I shared the story recently on social media. But I remember when we finally added a Subway restaurant, the sandwich stop near our office. That was a huge deal because we finally had something to eat nearby. Like, they're just not a lot of options, especially in certain parts of downtown, unless you're in kind of the right spot. So it's gotten a little better since then. But downtown still has a ways to go and there's been some stops and starts since then as well. Downtown's lost a lot of to in terms of, you know, jobs and people and restaurants and amenities to next door uptown, just, just north of downtown. And then uptown's really become the urban heartbeat of Dallas. A lot of employers have gone there, as I mentioned earlier. That's where a lot of apartment construction's gone. Restaurants and retailers have followed. And so, and I think even more than that, you know, downtown has never really recovered from the SNL crisis of the 1980s. Now you've got a lot of, most of it was built prior to that, honestly. I mean, very different from other parts of Dallas. To have any major part of Dallas that where most of its buildings predate that period. Now you have a lot of aging office towers in downtown and they need a lot of work. Another big employer, bank of America, they've been occupying the biggest tower downtown, the one, the big lights on it. If those of you know the downtown skyline, they announced, they, they've been there for decades and they announced plans to relocate, but also just to next door uptown. So they're staying in the city of Dallas, but going uptown, you also hear issues with crime and quality of life downtown. So downtown does have its work cut out for them. I think over the very long term they'll probably figure it out. Some of you Dallas people remember that uptown. Dallas was left for dead back in the 80s and early 90s and now it's the place to be. So it could happen for downtown too, but it's probably going to take a while. All right, let's get back to today's rental housing trivia question. The question was which BTR product type added the most newly built units in 2025 and likely to lead again in 2026? Is it cottages, detached single family homes, single family row homes or townhomes? And the correct answer is D townhomes. According to the Burns data, we've added nearly 4,000 BTR townhome units in 2025. Scheduled to add around 2,200 in 2026. Sorry, that's a lot of 2020 numbers to read off. And that is just above the numbers for the second place category which is detached single family homes. And again, we're looking specifically at units within BTR communities. 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 funnelleleasing.com okay, our guest today, he's one of the early pioneers the build to rent movement in the Sun Belt. He's a former home builder who jumped into BTR in the early 2000 and tens before it was the cool place to be. Josh Hartman, the CEO of NEXT Metro, based in Phoenix and building cottage style BTR communities across the Sun Belt. Let's jump in.
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Foreign.
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Welcome to the interview portion of today's podcast and I am honored to welcome in the CEO of NEXT Metro and one of the real early pioneers in the BTR building spree, Josh Hartman. So Josh, thank you so much for being here.
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Hey Jake, great to see you. Happy New Year.
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Happy New Year too as well. So Josh, before we get into I know all the, all the fun stuff, let's I'd like to hear more about, you know, you. For those of you who don't know your story, tell us how kind of your background and how you ended up at Next Metro.
- [36:17]
B
Yeah, I'll try and keep it brief. I've been in the business for about 30 years so I've got a, it's a long history but there's a few highlights. So I grew up in Wisconsin, left there, went to University of Wisconsin Madison. My degree is in civil engineering and left Wisconsin for Arizona for the Sunshine back in 1998 after I graduated college with my wife to make a life here. I worked in kind of construction slash civil engineering consulting for the first two or three years. Didn't really love it. Kind of was like I thought I wanted to be an environmental engineer and save the world. I worked on super, super fun sites and things like that but it didn't, wasn't that exciting and I had one of my mentors approach me who was working at that time for Del Webb before Del Webb was acquired by Pulte and said hey, you know, you should Come over and do real estate development. You'd love it. It's right up your alley. You should come over and work for me. And so I didn't actually go to work at Del Webb because that was right when the takeover was happening. But he, this person left and went to a group called Sunbelt holdings. And he brought me on to work on Bastancia, which is a 7,000 acre master plan in northwest Phoenix, in Peoria. And so I was there from about a year before the project started groundbreaking, all the way through phase two. So I was able to, you know, it was amazing. I mean, you know, I'm a young engineer. I love construction, I love development. I'm out in the field every day, crack of dawn or before dawn, overseeing, you know, major excavation equipment and all this kind of stuff. And so I was, you know, built a golf course with Gary pancks, did a 45,000 square foot rec center with, with Shea Homes, all these roadways, built a wastewater plant, water plant, obviously all part of the. As part of the team. And I was just like, this is amazing, right? I always say when I did environmental work, I can never explain to my dad what I did when I got into real estate development. I'd get him in the car and drive him out and say, like, hey, Dad, I did this. You know, check this out. And he thought it was so cool. So worked on that project until about phase two. And then I was recruited by National Homebuilder to do essentially the same thing. And that was around 2005, 2004. And then I worked for about four years. I had a 4,000 acre master plan that had just been acquired or just put an escrow, worked on getting that all designed and approved, all that kind of stuff. And then I remember in 2000, it was January 2007, I got my 404 permit, which was very controversial because that time, at that time, 404 programs were super controversial. There's lawsuits going on and, and we got that approved and we had a big steak dinner. And the next month we got the call from corporate and they said, shut it down. We're not building that project. The market has turned. And that was the beginning of the GFC for me. And that project never has been built, actually got sold. And that's, I like to call it the greatest project that was never built, but ended up not being constructed. And then, you know, 2008 through 20, I would say 11, that, you know, what I kind of consider the core GFC years. I went from managing one project that wasn't even under construction to overseeing all of the development in Arizona as Next Metro Consolidated, or I'm sorry, Next Metro as Pultegroup Consolidated. And then in around 2012, I was looking for a new product for the Dell website, kind of a lock and leap product. And one of my planners came to me and said, hey, there's a cool product that's being designed in Tucson. They're doing it as a rental, but, but you could do it as a lock and leave for Pulte. And I checked it out and I said, you know, that's, it's really cool, but I, I won't, we would never do it at that time, of course, as you know, all the builders were trying to reduce the number of floor plans they had, et cetera. And I said, that's, that's interesting, but we're not going to do that. And serendipitously, about three months later, I got a phone call from this group of guys in Tucson who were building this cool company, cool product, and that's where the Next Metro story started.
- [40:14]
A
Wow. Yeah. So tell us more about that back story of Next Metro, how it got started and then just fast forwarding to today and how much you've built, how much you're still managing, what market you're in and any other kind of key details about the company.
- [40:28]
B
Sure. It's a, it's a classic entrepreneurial startup company. So without getting too far in the back in the, in the weeds. So in 2010, 2009, 2010, the guy named Roger Carver, he's, he's been in Tucson forever developing a multi family. He saw a product down in Tucson that was being built by Tucson Rental Homes, I believe was the name of the company. And they had built a couple of projects down there that were these little single story detached homes, smaller footprints. And he thought, you know, this is a point in time where this would be a great product for people who have lost their homes and looking to get. They're kind of on the sidelines and they want to wait out there, you know, having to give back their homes until they can get back in the housing market. And so he went around and was looking for people to develop it and he started raising capital and that's where the rest of my partners started coming in. So a partner of mine named Jaggy financed the first project with Roger and they became partners. But they thought, hey, we're going to have people who have kind of bad credit. They have okay incomes, families, going to be a lot of kids, et cetera. And they built the first project and it completely wasn't that. It was people who were young professionals, had never owned a home, weren't sure if they wanted to own a home. Great incomes, very good tenants. And so they, they by that time put a couple more projects in escrow and they started building those projects and of course need more equity. So now you're passing the hat a little bit wider circle. That brought in my other partners. And then in 2012 they said, you know what, we actually think we might be able to build a company around this, not just a couple of projects, because originally it was just, we're going to build some projects and you know, and then we'll move on to something else after the market changes. And and so they did the research. Kind of one of the cornerstones of Next Metro is using data to understand what the market opportunity is. And so we did that. And you know, not surprisingly, the market study said, yeah, you could, you could build these all across the southern U.S. it'd be a great, could be a great product. Doesn't really exist. No one's building anything like it. And so that's when Next Metro formed. My partners went looking for someone who had kind of more of a scale experience. You know, I had managed a lot of projects, built a lot of scale with, with when I was a pulte and, and so they brought me on as kind of the junior partner. So I'm the youngest, I'm the, I'm the young guy in the group by, by a few years. But the plan has always been the same, which is we've got these one, two and three bedroom floor plans. We're building these neighborhoods of 100 at that time, 125 to 150. That's they've gotten bigger of homes. That kind of is a hybrid between single family and multifamily. And we wanted to be geographically diverse. We wanted to be, you know, kind of. We said, hey, let's start in Phoenix. But then we moved quickly into Dallas and then into Denver, et cetera, et cetera. So fast forward to today. We've done 63 projects as next Metro. That doesn't include kind of those initial beta tests in Tucson. It's about 11,000 homes completed or under development today. We've sold 15 projects so far. And that was our original strategy, was merchant build. Just build and sell, build and sell. But in 20, late 2019, early 2020, we did our first recap with our, with eight projects that we had completed with our existing investors. And we just recapped and said to our investors, do you want to. And all of our investors are individuals, high net worth individuals, family offices, they're all friends. I hate to call them retail. Some people call them retail. I hate to use that term.
- [43:47]
A
Yeah, friends sounds better.
- [43:48]
B
But we said yeah, yeah, friends. They're friends. They all know, they all have my phone number. So we did that recap and we weren't sure what our investors would do but 96 of them said yeah, we'll roll into the new investment to recap for another 10 year hold. And we're like light bulb moment for us is well maybe we aren't going to be merchant build. Maybe we'll start building a portfolio with some of these assets and have mailbox money. So that was kind of a pivot point. So the sales that we had early on we kind of had to prove out the thesis because what, what cap rate are these going to trade at? Who's going to buy these assets? No one was building them. So it took us a little while to get that, prove that out. And as it turns out, you know, we sell for same, same cap rates as class A, garden style multi, maybe a little bit of compression due to scarcity. So that's, that's kind of. Those 15 projects were really kind of the beta test also, you know, every once in a while you want to sell in 20, 20, 21, 2022 if cap rates get below 4%. Again, you know, I'm also a seller in that market. Sure. But for the most part we're kind of trying to hold on to them. And then right now We've got about 15 projects under development and then we always have a pipeline in front of us, of course. Oh, and we're in seven markets.
- [45:02]
A
Okay, so Arizona, Colorado, Texas. Any other states?
- [45:09]
B
Atlanta and Florida.
- [45:10]
A
Atlanta.
- [45:11]
B
I'm sorry, Georgia and Florida.
- [45:13]
A
Yeah, Georgia and Florida. Absolutely. I miss those. All right, so before I get more of the next Metro story, I want to ask you a little about Phoenix. I think everybody who tangentially follows the build to rent movement knows that Phoenix is the epicenter of btr. Not only the number of units that are built there, but also a lot of the biggest BTR firms are based in Phoenix. And so what was it about Phoenix that made it become the epicenter of btr?
- [45:40]
B
Yeah, that's. It's a good question. And, and I, I often ask myself the same thing of why, why if someone wants to build this kind of product, why do they do it in Phoenix where everybody else is. Right. But I think that, you know, that the, the saying of imitation is a sincerest form of flattery is appropriate in this case. So, you know, we started building projects in, in Phoenix in 2014. And, and this is, it's a funny story, Jay, but so it's 2014, we start our first project. 2015, we're starting to lease, and I get a call from, from one of our leasing agents, and they're like, hey, there's somebody in our models and they've got a tape measure and they're like, measuring the model. What should I do? And I said, well, I asked them politely to leave. And, and it happened actually a couple of times. And that, that person was a guy named Greg Hancock. And Greg is. He's a, you know, legend in the Arizona real estate market. He's been around. I actually know Greg from back in my homebuilding days. We had some joint ventures that Hancock Builders, which is his company, was involved with. So he's out there doing that. Well, what Greg ended up doing was he tied up a bunch of parcels for our type of product, having done the research on us, and he got them entitled and zoned. And then if you listed off to me, the largest BTR groups in Phoenix, other than Next Metro, all of them were started by Greg. So he built their first projects. He couldn't, he couldn't get equity for reasons that I won't go into himself, he couldn't raise equity himself. So he, so he went out and find these, found these groups to provide the equity and he built them. And, and all those builders were kind of started by him. So you've got the kind of, the confluence of us being first. So our first project was in 20, delivered in 2015. If you look at all those other groups, they started delivering, delivering their first projects in 2017, 2018, 2019. And it was all because Greg kind of put them in business. And that's the story of. And I think that it's, you know, there's nothing wrong with that, right? Replication. We all copy ideas that we think are good ideas. Right. There's nothing wrong with that. There used to be a thing called MySpace and now there's Facebook.
- [47:50]
A
Yeah, I remember that.
- [47:51]
B
Pretty safe. Similar concepts, right? But I think that's why, because getting our particular type of product, our cottage style, multi approved is hard. You have to be kind of stubborn. I'm kind of a stubborn person. Greg's kind of a stubborn person. And, and getting them approved is hard, and you got to stick with it. And, and that's why you see so Many in Phoenix, because we kind of broke the mold here. You got to ask yourself, why didn't you see it in, you know, we've been in Dallas for a long time. We have a lot of properties in Dallas, Denver, we have a lot of properties. I wouldn't say a lot. I wish we had more. But Denver, much higher barrier to entry market. Right. Much more expensive. And it's, it just takes a long time to get approved. And so you don't see a lot of people doing it there, although there are some. And then besides us and then in Dallas, I think it's just you are seeing a lot more coming on now in Dallas that are that type of product.
- [48:43]
A
Yeah, well, certainly I think most of us think of, you know, Next Metro as one of the early pioneers, obviously, other than Steve Kellman and Redwood communities in Ohio and much of the Midwest. They started doing it even prior to the gfc, but that only later came into the Sun Belt. So that a really a different concept y' all brought. And so, you know, I, I, I think the story is fascinating. So I want to go back. If you go back to those early days when y' all had this thesis, hey, we want to try this concept of these rental communities, and you've already mentioned that even the demographic maybe wasn't quite what you expected. Let's go back to those early days. That initial strategy, that first product y' all built. If you look at that initial thesis, if you had the benefit of hindsight, what would you have done differently?
- [49:29]
B
Yeah, I mean, we're, we're super disciplined. I mean, I mean, it's a little embarrassing, but we haven't changed that much since, since way back, way back then, you know, we're still building the same, you know, type of product generally. If I took you to this projects in Tucson, you'd say they look a little bit different, but they live the same. But I do think the one thing we did that I, I think made it more difficult on ourselves is early on, we thought we had to be different, right? We had to look different. Let's do some, like, unique architecture. We had these, you know, vibrant colors on our projects. And some of that was driven by the jurisdictions wanting us to, you know, they're saying, hey, we want to, we want something unique, want something contemporary, etc. And we, and we did that, but it hurt us because then, you know, the next, you know, architecture is, you know, it's kind of like beauties in the eye of the beholder. Some people like, it's, you can you can design something? Somebody loves it, other people don't like it. Some people like mid century modern, some people hate it. So it hurt us because we go to the next jurisdiction because we're trying to build scale and they didn't like that, right? But the design we did on that project, and so they're like, no, we don't want you to build that here. We're like, well, we can change the exterior, right? And so after about our fifth project in Phoenix, we switched to a pitched roof. So we were doing all flat roof product, kind of square, boxy, kind of contemporary style, and we switched to pitched roof, clay tile, kind of more traditional looking product. And I know some people would say, well, you know, it's better to do something unique and kind of unusual. It's like, well, not really if you're trying to scale, because if somebody doesn't like it, they don't let you in. So once we went to a more traditional looking home, it was a lot easier to get our approvals. And I think that we could have scaled a little bit faster if we wouldn't have had that anchor of like, hey, a project that somebody didn't like in, you know, some jurisdiction on the other side of town that slowed us down on other projects or, or you bring someone in, you know, we moved into Dallas, right? We go to Dallas, we say, hey, we build this product, it's really cool. We fly people out to Phoenix to see it. They're like, I hate that, right? Show somebody in Dallas or flat roof with like, you know, saguaro green colors, et cetera. It's like, no, no, no. We want really high pitched roofs, stone with stone accents and some extra stone for, you know, and so, so it made it really hard for people to visualize that fitting into new markets. So not only made it difficult in the market you're in, but also kind of made it a little bit more difficult and in new markets you want to enter because that market's looking back at like, hey, I know you're in Phoenix. What are you building in Phoenix? I don't like that. So that, that I probably would have changed that just from a scaling standpoint.
- [51:59]
A
Yeah, it's funny you mentioned that because I know there's a lot of people, especially in social media, saying, oh, like they don't like the sort of commoditized look of some of these rental buildings. But you know, the reality is, is that they, they become common for a reason. And, and when you try unique projects, they don't scale as well, to your point. So Josh, a follow up then. So in terms of size, these projects, the floor plans, the finish outs, amenities, community features, has that all been pretty much the same or have you evolved it slightly over the years?
- [52:30]
B
It's definitely evolved. So we're consumer driven company. We listen to our residents and ask them what they like, what they don't like. We do surveys pretty regularly. Both just kind of powers, how's your lifestyle? But also do you like the product? And so we've done two or three of those at this point in our evolution. But the changes are small. Right. So for example, in our, in our one bedrooms we added a pantry because people like more storage. We changed up the way the kitchen was configured a little bit. But the, the size of the, of the homes are almost identical. I mean maybe within 50 square feet. So that hasn't really changed. I'd say we've enhanced the elevations a little bit over time. That just happens. We have in early on we were super focused on maximizing our density and so in some cases to the detriment of just the feel of the community. And so we've gotten a little bit more comfortable that, you know, the model works. So provide a little bit more open space, create a little bit more, little bigger backyards. But nothing massive, right? Nothing that you'd be like, oh, that's a complete change. I could take you to a project that we built 10 years ago and then take you to a project that we, that we're building right now and you, you might not be able to tell the difference. As kind of the layman, you know, not being part of the company. I'd be able to tell because I'd say, oh, that's different. That's different. Like that lighting fixture is different, but it hasn't changed too much. The, the big area you'll see is like the pool, you know, the pools, right. The amenities. It's just I think human nature that the, the development team, you know, it's a little nicer and a little nicer and a little nicer and you got to kind of pull it back a little bit. We try and let our, the amenity wars, right? It's like, oh, well, they have this. So they're getting five bucks more rent because they have a, you know, they've got two spas instead of one or whatever. So that, that's probably changed a little bit. So they've gotten slightly more amenitized. But I. Not substantially different. We just, we try and keep it consistent because for me, you know, I'm an engineer, right? So I have an engineer brain. I think process, I think simplicity. If we, when we redo our floor plan. So last time we did a survey or a residence, we had a few tweaks. We changed some things on the ones, twos and three, and ones and twos, we didn't really change the three bedrooms. And once we got those floor plans done, approved through our design committee and looked at by our general contractors, we rolled that out on every project, right? So every project starting on whatever, January 1, you know, 20, 23, these are the floor plans so that they're consistent across the country. That way we don't have to spend a lot of time thinking about approval of tweaks to the floor plan, tweaks to the design, adding this, changing that, it's. I don't have to go visit a project to make sure it's in a villa project. I, I know that that's what we're building and it makes it simpler for scaling. And we're all about scale. If there's a group that's, I mean, I, you know, I, I love architecture, I love design. You know, I live in a custom home, you know, that's contemporary. That's all great for one offs. But when you're trying to scale a business, having consistency of product just makes it that much easier. And also from a customer standpoint, right? If we have a customer resident who's living in Phoenix and they're moving to Dallas for whatever reason, they have a job change, they're like, oh, well, I live in a villa, I'm going to live in a villa in Dallas. It's the same, right? It's got same floor plan, my furniture fits. Everything's simple. It makes everything a lot easier. So we try and keep it, you know, keep it, keep it simple, rinse and repeat. We talk about.
- [55:55]
A
What's interesting now is I'm seeing that even among apartment developers and BTR developers you mentioned, like the home builders doing this, you know, in the 2000s, mid-2000s, is that there's much more focus on, I think, fewer floor plans, you know, more. This is the wrong terminology. More kind of copying and pasting and making it more scalable and especially in a tighter margin environment, I think others are kind of using that model more and more. So. Josh, one other question. They're kind of related to that. Tell us about your renters. You know, what's the profile of your typical renter in terms of, you know, age, household incomes, do they have kids, what type of jobs or anything you can share.
- [56:35]
B
Yeah, it's, it's, it's. I wouldn't say it's changed a lot, but it's, it has changed over time. So initially we were core market, we're 25 to 35 year olds, you know, young professionals, higher incomes, single mostly. As we've grown and as the product's grown in terms, in terms of the market niche, it's broadened out, which is great. So now to fast forward to today, we're still 25 to 35 year olds is probably 25%. I think it's 30% of our demographic. So young professionals, high incomes. But then we also have the retirees who are empty nesters, 55 plus. That's about 20% of our resident, something like that. 20, 22% of our resident. And it varies by market. In Phoenix we have the most 25 to 35 year olds. In Dallas we have more older. And also in Dallas we have more older demographic. But then more recently we've seen kind of in that 35 to 55 range, we also have about, you know, 25 to 30% of people. Now keep in mind, I'm talking 25 to 35 year old. A 10 year span is about 30%. And then I'm talking about, you know, 35 to 55, a 20 year span being about that amount. But that's, that's kind of how the spread has been. Average household incomes about 105 to 110,000 a year. Most of our, a lot of couples not necessarily married. So 50% of our residents are married, 50% are single. Of that 50% that are single, half are widowed or divorced, half are never been married. And then we have a small demographic group. Well, I shouldn't say small. It's reasonably 15% of our residents. It's funny, we did the resident survey and it came back. We have 15% of our residents didn't qualify to live in a Nevilla. We're like, okay, there's a mistake in the data. Like that doesn't make any sense. How do we have 15% of our, you know, don't have the incomes to live in a no villa? And we digging in or scratching our heads and we're like, oh, it's people whose parents are subsidizing their rent. So that's another demographic. Wow, 15% of our residents are receiving.
- [58:46]
A
I would not expect that in a BTR unit. That's amazing.
- [58:49]
B
Yeah, but, but I mean, I also consider that a lot of like more of our residents are, are women. Right. And it's, it's kind of a, I don't want to say safer, but I mean you've got a little home, four walls of freedom. You're walking up to your front yard. You're parking right there in front of your home. You're not parking in a parking lot.
- [59:08]
A
The dad's like that.
- [59:08]
B
Yeah, the dad's like that.
- [59:10]
A
Right?
- [59:10]
B
Like the parents are like, okay, I feel like it's safer. I mean I just had this conversation with my brother the other day about his daughter, you know, not wanting his, his you know, 18 year old daughter to be by herself in a city in Wisconsin. It's like, okay, come on. But, but I think that, that that's a factor. So it's. So we see a little bit and they can maybe live closer to where the parents are. Right. Because we're building in slightly. We're kind of like first ring, second ring suburban. And that's probably where the parents are living. And so hey, they get it. They can be a little bit closer. They've got their, their feeling of freedom. So anyways, that's, that's a demographic that's kind of interesting to us. Very few children, you know, 15 to 20% of our homes, depending on which market you're in, have, have a school age child in it. Actually any, any age child, not just school age, but between toddler all the way up to 18 years old. So very. That, that's been consistent for, for the entire life cycle of our company. And that was one of the surprises early on was so few children.
- [60:04]
A
That's lower than I heard from others. That just more because of the cottage style. Do you think that's more because of the product type you're building versus what other BTR guys are doing?
- [60:12]
B
100%. Yeah, I think it's when you, you know, our average home size is a thousand square feet. It's our two bedroom, two bath is about a thousand square feet. One bedrooms 650. Three bedroom, two bath is about 1250. That's too small to have kids running around. You've got a relatively small yard. So I, you know, our demographic when I talk to the kind of the btr, the that are like really what I consider like sfr. Right.
- [60:37]
A
Yeah.
- [60:37]
B
Those guys, their core demographic is couples with kids.
- [60:41]
A
Yeah.
- [60:41]
B
And that's not our demographic at all. We have very few kids. And it's just, I think you're, you hit it on the nose. It's just the product. Right. I don't have kids, but I would imagine having a Couple kids in a thousand square foot two bedroom.
- [60:51]
A
Yeah, it gets tight.
- [60:52]
B
Two bath house would be tough, right?
- [60:55]
A
Yeah. Let's, let's talk about the current market today. You know, I'm sure you hear that sometimes upheld people tell me, you know, we'll talk about btr. And somebody said, well BTR is just overbuilt. And I try hard not to laugh when people say that because I mean while we have some sub markets, we all could think of like the three or four places that's happened like where there's a lot that's gotten built. I mean I tell people all the time, BTR supply we were talking about, it's basically a rounding error in the total housing stock of nearly every MSA with maybe the exception of Phoenix. So a question is, you mentioned you have a lot of friends who are investors. So I assume they're maybe more educated on this. But when you talk to me, prospective investors or other people out in the industry. Do you ever hear that and if so, how do you respond to it?
- [61:38]
B
Yeah, I mean you, you just gave the answer that I usually, I don't get it too much. Our investors, you know, most of our investors are, you know, knowledgeable on real estate and so they're not, you know, that they know that there's, I mean think about how many garden style multi projects are going up in the market. I mean, I look at Dallas, I mean you could just pick a, pick a market. Right? So Dallas has what, a million ish apartments. You know, there's 30,000 under construction and there's like 4,000 BTR. Right. I mean it's, it's, it's nothing. And so I, I just think that there's, there's, there's not enough housing in the US in most markets. And this is just another, you know, product type that fits certain lifestyles. And I don't think we should be discouraging any housing type. Right.
- [62:22]
A
I mean, yeah, we more about everything.
- [62:24]
B
We need more of everything. Right. And we need it. And there's all different kinds of consumers and they all want different things and they have different price points. And I, you know, to, to, to point out one and say, well, this is too much. Right. I think it, I think it's just because it's been so hyped in and I hate, I'm not blaming the media, but it's so hyped. I mean I, I see BT announcements of BTR projects starting all the time. You see very rarely like an announcement of a big, you know, traditional garden style Multi being started. I just think it, there's a little bit of an obsession with BTR right now and that'll change over time.
- [63:00]
A
How would you describe the current state of supply demand rent fundamentals for BTR? Right now, high level, and I'm speaking very broadly, it seems like we have still very strong demand tailwinds still. I think a very small, relatively speaking amount of supply for BTR compared to other sectors, other housing types, I should say. But you do have some areas, some submarkets where there's been a lot of supply concentrated in the same spots. Not just btr, but even apartments and even we've seen some increase in scattered SFR in some spots and that's collectively put some downward pressure on rents. Maybe some, you know, maybe summarize short term challenges, but still kind of a long term positive demand drivers. Is that a fair assessment or what nuances would you add to that? If not?
- [63:45]
B
I think it's fair. I mean, Jay, you know this better than I do, so I kind of feel like I'm the experts asking the novice, like what do you think? But you know, all the tailwinds are there, right? There's, I mean we have the need for housing which you've already addressed and we have interest rates are coming down the short term interest rates, which helps, which helps the development rate. We've had two reductions in the Fed rate which directly correlates to sofr, which helps us. All of our developments on SOFR is silver based. It also impacts kind of long term rates. So that's all positive. We're starting to see construction costs come down. A lot of that driven by the home builders slowing down. We use the same kind of sub base and material providers as the home builders. So that's helped us. We've seen a pretty reasonable decline. We're coming in 5 to 6% under budget on a lot of our projects. That's positive. So there's a lot of positive things working in our favor. The one thing that's not working in our favor is rent growth. We just have not seen rent growth for a long time. And if you look at Dallas, I was just looking at this this morning, kind of in preparation for, for our call is, you know, I, Jay, you know this better than I actually want to ask you the question. I mean, we're now in, you know, rent started declining in Dallas in 2022, right? Late 2022. So we're now what almost we're three years in, going into our fourth year of rent declines in the Dallas market. Or you know, not major rent declines, but just kind of steady down, which the challenge is. It's like, okay, well I refinanced for a three year extension thinking that okay, I'm just going to wait out this declining rent. And now three years later, they're still declining. Everyone's getting more nervous. I haven't seen that in the last, since 2000, like three years of rent declines, which has just put incredible downward pressure on valuations. But you got to think at some point based on all the tailwinds, that rents are going to start increasing and then that's when institutions will come back in the market and that's when values will start going up. It'll kind of be like a little bit of a 2010, 2011 replay. But what are your thoughts? I mean that I, I, I don't see a time in, I mean I was in home building right the last time this in the gfcs. I could tell you that story. I can't necessarily tell the multifamily story, but it doesn't feel like it's ever been this kind of extended decline.
- [65:55]
A
Well, yeah, I think that's, that's a good point, Josh. But I think that's also, it's interesting in this extended decline is very different from the home building period in that, you know, in the home building, you know, during the GFC you had a demand problem. You know, Dallas has had more demand, more demand for rental housing than any market in the country over the last four years and yet five, six years and yet still has the rent clients, particularly in those, what I would say those ultra high growth areas along, you know, the North Dallas 380 corridor where a lot of that supply is getting built. And so, you know, I don't think my perspective is probably unique from yours and others, but I think that, you know, when it's really more of a supply issue than a demand issue, you know, supply is coming down, we know that fewer starts, you know, demand catches up. And I think rents, once you get a little momentum, I think rents are going to kick back up fairly quickly now, exactly when that happens, I don't know, but I think, I think we'll see that.
- [66:48]
B
Yeah, the win is the when is the question. Right. Like you on saying it's not if, it's when, that I just don't know when.
- [66:54]
A
Oh, it is, it is. But some of those spots we all are in 380 corridor. I mean these are some of the fastest growing cities in the country. And so, you know, even if even if that demand slows down moderately, it's still going to be. Supply is slowing down even more than that. So, you know, you're gonna. It'll come back just again, just a matter of when.
- [67:15]
B
Real estate's. Real estate's a long game. Right. You just have to. You can't get into real estate, I mean, and think, like, I'm gonna get.
- [67:21]
A
In, I'm gonna get out.
- [67:21]
B
I mean, you can do that for a while, but eventually it catches up to you. So you just gotta stick, stick in. And I've been doing this, you know, like I said, for 30 years, and it always goes up into the. Right. Over time. You just got to stick with it. And that's what we're kind of doing.
- [67:35]
A
Yeah, no, especially now with your strategy of holding on because those assets, because the timing plays are more boom bust than playing the long game, for sure. So, Josh, to wrap things up, tell us about what's next for Next Metro. What's the next chapter look like for your country and your company? Not the country, sorry. In this new era of what seems to be, you know, moderately higher rates and, you know, still early btr, but more challenging environment to get starts going, how are you guys evolving in terms of, you know, locations, markets? Maybe not the product so much, but, you know, what are you doing to prepare for this next cycle?
- [68:17]
B
We've, you know, we. We've really set ourselves up being in, you know, the, the seven kind of markets that we're in. We're only doing one, two projects, you know, at that one time in those, in those, in those markets, and we could definitely be doing more. So we're kind of in hibernation mode of just waiting until the market comes back. We're, you know, we, we started, I think, eight projects last year. We're going to probably start six or so this year, depending on how the market goes. You know, we could be doing easily 15, 16 projects per year if the market was stronger. So we're just kind of in hibernation on our development side and not really hibernation, but, you know, I'm saying it's kind of work just like, hey, keep it steady, keep everybody busy. But, like, let's wait until we see the opportunity to really. To press the throttle on that. But, you know, we're changing as a company. You know, we started out, it was just me. I mean, I was the only. I was the only employee for two years.
- [69:14]
A
Wow.
- [69:14]
B
Back in the day. And I'm a little bit cowboyish, I'll admit. I'm A classic kind of real estate guy. So, you know, my initial underwritings were a little bit looser than they are today. We're tightening things up right. And being a little bit more disciplined on that end of the business. And I think, you know, I think we've shown that we can be one of the, you know, one of the top developers in the space. I'm not going to say we're the best, but I think we're pretty good. And, and I think that what we now, as we're thinking about holding assets, we need to become one of the best operators in the space. And that's where we're really focused is, okay, we're building this portfolio, we're going to continue to hold assets, maybe not every asset, but a lot of assets, and build this portfolio. How do we become a better operator? How do we focus on that? That's not my background. So we're bringing in, we have people on our team that are experts on asset management, investment management. So that's kind of the next evolution of Next Metro is really. Okay. How do we, you know, we've always said we want to be institutional quality, entrepreneurial spirit. We're probably leaning a little bit more into the institutional quality now to try and figure out how do we. As we get bigger, we can't be quite as cowboyish as we used to be in the past. But, but the future of Next Metro is growing that portfolio, having some great assets. Maybe at some point we get into acquisitions and become kind of both a developer and acquirer of BTR type product within a very, like, strict buy box.
- [70:31]
A
Yeah.
- [70:32]
B
And, you know, I think that'll. That'll put us in a position where. What I love about the portfolio strategy is it puts you in a position to make it through these downturns with still having cash flow as a, as a. To kind of support the development. The development has, as everyone knows, development big pops, you know, great profitability. But it's very dynamic. Right. And unpredictable in many cases. So bringing in the portfolio asset management component of it gives us a little bit more of a steady base of revenue to grow the business. And I think that's the direction we're going to go in the future. And who knows? We're still entrepreneurs, we still entertain different ideas. We're not stuck on any particular plan, but we like what we're doing now and we like holding the assets. So that's our strategy for the long term.
- [71:19]
A
Well, Josh, congrats on now more than a decade of being one of the early pioneers in this sector and wish you all the best for 2026 and beyond. So thanks so much for being on the program today.
- [71:31]
B
Definitely. Thank you. Jay, great talking to you.
- [71:54]
A
And that's a wrap for episode number 66. Thank you to Josh for being our guest today. And a big thank you to JPI, Madera, Mason, Joseph, Authentic Landing and Funnel for sponsoring today's episode. And thank you to all of you for spending part of your day with us. We'll see you next time.