Latest / Real Investor Radio Podcast / Ep 75 | SFR, Home Building, Asset Management, Operational Efficiency with Lafayette Real Estate
Transcript
- Jack BeVier (00:12) Hey, this is Jack BeVier with Real Investor Radio. My co-host Craig Fuhr isn't able to join us today, but I'm super excited to be speaking with Thibault Adrian and Liya Mo from Lafayette. I've known Thibault for over a decade. Seeing him at the IMN conferences has been very active in the SFR space for a long time. I think we'll get into his background, of course, but he's the founder and CEO of Lafayette Real Estate. And I think someone who's really kind of been on the institutional side of single family real estate investing for a long time, really since the emergence of the asset class in over a decade ago now. So, hey, Thibault and Leah, very excited to have you. Thank you for joining us today. Thibault Adrien (00:59) Thanks for having us, Jack. Jack BeVier (01:01) So just to give a little bit of background on if you could just kind of bring the viewers up to speed on how you got into the SFR space, both of you, how you got into the SFR space and what led you to what you're currently, the opportunities you're currently taking on now. That would be awesome background. Liya Mo (01:02) Thank Thibault Adrien (01:21) Great, sure. I you just said that I've been on the institutional side all along. When I started in 2011, buying houses from my living room at the auction, I didn't feel quite like an institution just yet. But yeah, we quickly understood over the years that there was something to this asset class, that there were a lot of benefits in trying to build portfolios at scale. build some diversification for investors, get better financing for our investors, get more efficiencies on the property management side through the integration of property management. And so instead of just doing a trade, we slowly built a business, a long-term business. and slowly became a little bit more like an institution. So it took some time, lots of hard work. But yeah, guess, so to step back, I'm Thibault Adrien as you said, I'm the founder of Lafayette. We are a vertically integrated asset manager focused on the SFR asset class. Today we own about 5,000 homes. We have about 2,000 built for rent homes, either already built or in construction, 2,200 to be precise, and about 3,000 scattered site homes. We started with a scattered site strategy, as I said, in 2011, 2012, buying homes one by one. And over the years, we started to integrate the property management and more recently integrated the construction of new houses. And so we switched or added to our competency the built-for-end strategy on top of the scalar-sized strategy. So that's the background on how we got here. Yeah, I let you introduce yourself. Liya Mo (03:22) Yeah, of course. Hey everyone. My name is Liya Mo and as Jack mentioned previously, I'm the vice president at Lafayette Real Estate. I focus on our built for rent strategy. The journey of how I got here is pretty interesting. was always interested in real estate but came from a management consulting background focus on helping real estate clients expand, relocate their real estate footprint. In 2020, I heard about Lafayette Real Estate and this is right in the midst of COVID. So was very interesting to me to hear the thesis of single-family rentals, right? You have the tailwinds of a long-term supply shortage of single-family homes in the US coupled with now more demand for residents who want to move to the suburbs for more space, but don't want to necessarily own. They want to test out a new area. They want the convenience of maintenance. on site, so SFR made a lot of sense to me. I joined TiVo over four years ago now to lead and help with our acquisition strategy in the built-for-rent side. When I joined in 2020, it was buying entire communities of homes from home builders. And we saw how competitive the market was with retail demand being extremely strong. So mom and pop individuals buying homes for their own needs. And so we wanted to expand quickly as well and got into the development space. And as Thibault mentioned, started our own home building business to be at the forefront of building more homes, providing more supply of single family inventory in the United States. Jack BeVier (05:08) Is so is Lafayette still buying scattered site or you guys completely build to rent at this point? Thibault Adrien (05:15) No, we're doing both. So we have two main strategies, a core plus strategy where we buy scattered sites. So that strategy obviously has slowed down a lot with the rise in interest rates. We used to buy like a hundred homes per month. Now it's down to like 20, 30. It's picking up a little bit at times. So 30, 40 homes per month is the average acquisition pace. We have... refinanced all our scattered sites funds, funds one, two and three in December 2021. So all our LPs got out and printed their returns at the right time. And so we reset with a new institutional partner. We as a GP like reinvested in the portfolio. All our LPs got out in December 21. And so we took a 10 year view. on the scatter side portfolio and the scatter side strategy. The mark to market is okay. We had a lot of rent growth in the last couple of years, but obviously the cap rates have expanded. So all in all, we okay. But we take a long term view that a scatter side portfolio still makes a lot of sense. Those homes have a long traffic code of occupancy. know. There is, they are always going to be occupied, lots of diversification. So we like this strategy, even though it provides lower returns. So it's core plus. we target like 10 to 14 % IRRs depending on the exit cap rate assumptions. And so, and again, it's a 10 year underwriting from 2021. So we have time to... to improve and create value for this portfolio and to grow and improve the quality of our overall portfolio. So that's on the opportunistic side. have, on the core side, I'm sorry, we have about 800 million of gross assets. And then on the opportunistic side, we do the bill for rent. And so for that, we are capitalized by one discretionary fund, our fund four. And we felt like Fond4 was not going to be enough to capitalize on the opportunity. So we partnered with another institution, to have them co-invest with us and grow their portfolio over the years. So with that strategy, as Leah mentioned, we got into the development space. We don't think that it is fair to assume opportunistic type of returns if you buy at CEO from the home builders. As I mentioned, the retail market continues to be strong. Pricing from home builders continues to be strong. So we can get some deals done from time to time. But typically, the the returns don't work if you target high tins return. So you need to roll up your sleeves, find the right pieces of land, and that's what Leah and the team are doing, and entitle the land, do all the hard work, and build on it. And ideally, build on it yourself or build on it with some of our home builders partners. So there we have about 500 million of gross assets. Jack BeVier (08:42) Gotcha. So, Hey, my cohost Craig was able to jump in. Craig. Great to see you. Welcome to the conversation. Craig Fuhr (08:50) Thank you. Dealing with the demons of the internet gods this morning. it's good to be with everybody. Sorry, Emily. We were turning back up the gerbil wheel for the internet. Thibault Adrien (09:02) No worries. Craig Fuhr (09:03) I'll just jump in and listen for now and jump in where I can. Jack BeVier (09:08) Hey, Tivo, so a couple of things that you mentioned in there, you seem to have always taken a very long term perspective, come to this space with a very long term perspective, even back in 2011, 2014 timeframe, when there was still a debate over whether this was an asset class at all, whether this was a trade or a business. I'm gathering that you were never worried that it was a business because you took such a long term perspective on growing a platform, growing an asset management platform from day one. What led you to that conviction so early? Thibault Adrien (09:46) Yeah, so it would be, I'd lie if I knew that the asset class would become what it became back in 2011. think we quickly realized the first finding in 20, after we stabilized the first phase of acquisitions in 2012, we quickly realized that it was going to be tough to use only like third party property managers to manage our portfolio. And there was a lot of upside. on our NOI margins, on the customer satisfaction, if we were going to internalize. So that's probably when we started to internalize in 2014. And I saw that our renewal rates, for instance, which is the proxy for customer satisfaction in our space, when I saw that our renewal rates went up from 50 % to 70 % so quickly. I realized that at that point that yes, perhaps it could be a long-term trade, but between 2012 and 2014, I was still wondering about it. So not a long-term trade, a long-term business. But then you have to solve the capital equation because investors, when they give you money, they want to see it back, obviously. And so you have to align your vision with the capital that you have available. And in 2014, I only had like... four years left of capital availability basically because our fund one had the seven year duration so I had to return the capital to our investors at the end of 2018. And so I was hoping that I'd be able to make it as a long-term business, but I didn't have assurances yet that I'd be able to do it. And so it took some education, some work, obviously some performance as well, with our investors to communicate with them, to show them how the portfolio was doing, explain to them that there was a long-term shortage in the asset class and that therefore... the rents had more potential to grow beyond 2018. And the other thing that was happening is that capital markets were starting to sign off on the asset class. Invitational homes went public in 2017. More securitization got printed at a decent cost of financing. so cap rates had some room to compress. And so in 2018, I told them, right, decision time now. We have to decide if we want to sell or if we want to keep. And my view is that we should keep. And 75 % of them agreed. 25 % disagreed. So we refinanced the portfolio with new debt, insurance money debt. And we were able to buy out 25 % of our investors at mark to market and keep the assets for much longer. 2014, I think, is when I started to believe in the long-term story. And 2018 is when we were able to have the capital we needed for the long run. So that's how it started. Jack BeVier (12:52) Was that like a was that a negotiated was that a negotiated transaction like to buy out that 25 % of LPs who didn't want to come along for the ride? Did you just like negotiate the mark to market and they were like, yeah, we know we think that's a fair enough price. Thibault Adrien (13:06) We just said all right, we're hire a third party to do a mark-to-market valuation and we're going to buy you at that price and so we hired Houlihan Lokey that did a cap rate analysis, a third party valuation. We lined up Global Atlantic as a lender. We got some proceeds from Global Atlantic. We got the liquidity and we were able to buy the 25 % at the Houlihan Lokey value. Jack BeVier (13:34) global Atlantic, the insurance company, they did the refi. They did the refinance that, that capitalized the buyout. Gotcha. That's awesome. Thibault Adrien (13:37) They did the refi, that's right. Yeah. Yeah. That was a big milestone for us. First time we had like insurance money and we were able to move away from the first keys of the world. We were a little bit more expensive, but which I respect and I think that they bring a lot of value to the market. But for us, it was a better move to move with a nutrients company in 2018. Jack BeVier (14:06) How did you, so what scale do you have to be to go direct to the insurance company like that for a refinance? And what's the mechanism to do that? Are there brokers that are working that space? How does, if someone's out there with, you know, a thousand properties and growing from there and they're like, Hey, yeah, I'm sick of dealing with these banks. How do I go direct to an insurance company? What advice would you give? Craig Fuhr (14:25) Well, in addition to that, what's the quality the assets have to be in order to go to an insurance company as well? Thibault Adrien (14:32) Yeah, so in terms of sourcing the lender the way we did it, I had some connections on Wall Street. I mean, it's not like hard connections to get actually. Those guys were coming to the IMN. So I met this guy from Morgan Stanley. He introduced us to Global Atlantic. They got their fee. So they got a brokerage fee. We kept the global Atlantic honest, so we did it ourselves. We got a few other bids from a few other private landers in the space and that's how we got it done. Today, if I have some advice to give, I think you can use brokers for sure. ETH deal, Newmark. I'm sorry for the guys that I'm missing, but there are a few of those guys that can do good job and introduce you to the right lenders. We feel like we know a lot of them, like we are going through a refinancing right now. At this point, we have enough connections ourselves to run a process ourselves, but brokers can be very helpful. So I think you should, if you're looking for a verify, can reach out to some of those guys. worker than Pamina a lot. And then in terms of asset quality, think the insurance company was fine. We didn't have, so back then, invitation homes, American homes for rent was probably the same thing for them. They were more like buying the A assets. We were buying more the B assets. And so with B assets insurance companies to your question Craig were fine. think diversity Geographic diversification was a question that they had was a maybe a more than a question It was a focus for them. So we were able to show so having the investigation was helpful we were spread across maybe like eight markets so that kind of scale helped we had back then for this financing, I think the financing size in 2018 was like 140 million. So like 100 million plus, I guess is a... is the numbers that they like to see. So if you get to that size, 100 million plus, if you have good enough diversification, and if you don't have the connection, reach out to a broker and you can get financing. If you are smaller than that, if you want me to try to give some good tips, although Jack, think you're even more knowledgeable than I am, but at a smaller size, regional banks can be an option. We've done some financing with some local banks in Florida. We've done some financing with a local bank, union bank in Georgia. That was before we got to Global Atlantic. We tried a few different things. We liked that. It was cheaper but lower leverage versus the private bankers. Jack BeVier (17:32) Gotcha. So fast forward into today, Leah, you're in charge of acquisitions for Lafayette. What is on the B2R side of things? That seems, I'm sure that's been a roller coaster the past couple of years, particularly going from 2020 when you got introduced to the company, you're right in the whole roller coaster here in the past four years from an interest rate cycle perspective. How has deal making changed over the past four years? Liya Mo (17:57) Yeah, you're right. It's been a roller coaster ride, but it's been a fun one. It's interesting, right? Because in 2020, our strategy was buying just homes from homebuilders. And then I remember when Thibault told me, I think it was early 2022, that he wanted to start a homebuilding practice. And I was like, you're insane. Sorry, you're not actually insane, but no, it makes a lot of sense now. A lot of our deals are development deals from, I'd say even 2023, we did nine deals of which only one was buying from a home builder. So the majority of our deals are what Thibault mentioned earlier, buying raw land, taking it through the entitlement process, taking it through development and then vertically building the home. So it made a lot of sense for Lafayette to start its own home building business to be able to be vertically integrated from suit to nuts. And I think that's changed a lot in the market. You'll see a lot more investors looking at development deals these days because the retail market still remains to be very, very strong. So the opportunities for buying finished homes is so far in between for investors who are targeting higher returns than. your average home buyer in the US. It's so I mean, I now I'm hopeful that we'll see some slowdown in the home buying market. hearing very early innings from builders saying that they think Q4 is going to be a slowdown for them in terms of sales, but we're not actually seeing it yet. We're hearing it, but we haven't seen it yet. But I'm definitely looking forward to that so we can still continue to buy finished homes as well as buying land. Jack BeVier (19:53) Yeah, gotcha. Good. Thibault Adrien (19:53) And yeah, going back to the roller coaster thing, yeah, it's been a roller coaster like pre-COVID. We were doing it with our friend Dennis. We had like good response from Home Builder. Like they were interested in selling to us at a discount to retail prices. Then COVID happened and all of a sudden we could buy anything at big discounts for like maybe 30 days. then, I mean, I exaggerated, like 60 days. And so we were able to secure a few deals and then all of a sudden home builders realized that, actually this is good for us. Like people are moving out of downtown into the suburbs. They all want privacy. They want to buy homes from us. And all of a sudden it became like harder again. And so that's when... We decided that it's better to try to control our destiny. We want to keep working with our home builder friends for sure. We stay in touch all the time. We are ready to help when they are okay to give us a decent pricing. But we want to be able to have a constant deal flow of land and work to do. We don't like to get bored. Jack BeVier (21:05) So what do you, it makes sense to me, right? Like, you know, we couldn't find, it's harder to find margins. So we go further up into the development cycle so that we can get our cost basis down that like, that's an easy thing to say. But, and, but, you've been able to attract long-term capital who's interested in buying these assets, which is a feat in and of itself, but how do you, is it separately capitalized the land development activities? Is that a separate pool of capital that gets its own margin? Liya Mo (21:33) you Jack BeVier (21:34) Or were you somehow able to convince this long-term 10-year low-yield money to also take the land development risk of going way upstream? Usually those are completely different pools of capital, different kinds of risk tolerance behind the asset managers of that capital. So how did you put the money together to go upstream and still be working on an institutional scale? Thibault Adrien (21:55) Yeah. Liya Mo (21:59) Okay. Thibault Adrien (21:59) Yeah, so no, we were not able to do what you just said. the capital stack is divided into opportunistic, core plus core. And so the capital that we got for this is an opportunistic pool of capital that is okay in terms of duration, that is okay. Liya Mo (22:11) you Okay. Thibault Adrien (22:19) to have a five plus two years sort of investment horizon to let us buy the land and title, build on it, stabilize the portfolio. And so if you do all that stuff, you create a lot of value. Once the portfolio is stabilized, the only incremental value that you get is NOI growth, basically. And so at that point, the IRRs, the returns start to go down and it's time for an opportunistic buyer to get out. and for core plus buyer to get in. And so we were able to convince investors to invest in a strategy where we would be able to create all this value from start to stabilization. And so I know, I think what you alluded to that. There are some investors interested in just the land portion and then others just in the vertical portion and then in the lease up portion. But so we're able to convince investors that we are okay to take exposure to those like different phases up to stabilization. Once you've done that, if you've done a good job, you can get to a high teens 20 % returns and it's time to sell. And so when... Jack BeVier (23:30) And so are you selling from one fund to the other, basically from the opportunistic to the stable or to the core? Thibault Adrien (23:33) Good. Yeah, so that would be obviously tricky to do. There are some conflict of interest issues. So no, we have to sell to a third party buyer. And then if we get lucky, like we have in the past, the third party buyer would see us as the perfect property manager, the perfect asset manager and partner for the next phase. Because we know the assets well, we've built them, we managed them for the last few years. And so they're going to look at us as a good partner for the next 10 years for the implementation of their core strategy. so hopefully they will pick us as managers, Jack BeVier (24:20) Are you as when you're pitching that asset management service on the opportunistic sale, right? Are you going along for the ride? Like, are you co-investing in the long, in the long term for the long term with those? Is that part of the pitch? Like, we'll be the asset manager and we'll also buy into the deal at this price. Thibault Adrien (24:39) Absolutely, yeah, you have to show some skin in the game. You won't be very convincing to get a good price from the buyers and take you as a partner if you don't co-invest with them. So yes, skin in the game is expected. And depending on your liquidity and your risk appetite, Liya Mo (24:54) Yeah. Thibault Adrien (25:00) You have to invest 5, 10, 20 percent. It depends on the deal and the partner and the situation. Jack BeVier (25:07) So in terms of on a going forward basis, what have you guys seen from a cost of capital perspective versus cap rate? Like, you know, it was inverse for a while there where the cost of capital was higher than cap rates. And there weren't obviously for obvious reasons, weren't many trades happening in the market. Have you started to see deal making pick up and Leah, like you said, you were optimistic that the home builders are going to be a new source of inventory. Like And I guess where deals coming from right now? Has that spread, has the cost of capital versus cap rates gotten to a normalized level yet where the market is functioning again or are we still a little frozen? Thibault Adrien (25:50) So on the, can take it, Liay, feel free to add anything, but on the, because you talk to investors regularly, of course, and understand their cap rate expectations, but the cap rate expectations right now, like for a core strategy or core plus strategy is around like between five and a half and six. And so if you compare that versus the cost of debt, you're still not in positive leverage territory. And so if you do that strategy, it means that you take a long-term view on the fact that rent growth is going to continue to outpace inflation. And it has been the case over long periods of time. I think over the last four years, rent growth has outpaced inflation by about 70 or 80 basis points. So it makes sense to make this bet, especially with the supply-demand imbalance. I think it's a very rational investment decision, but you need time for the rent growth to get you back into a positive leverage territory. And then on the opportunistic side, I don't know, Leah, what you think the investors' expectations are for cap rates. Liya Mo (27:08) Yeah, I'd say like completely agree with you Tivo. What we're seeing is there's still some activity going on from investors. There's been two big trades this year that I know of. And when you look at the in-place rents, not unattractive. It's probably below five cap. But when you take it into account, the rent opportunity, rent growth opportunities, these are low five, mid five trades. So we're still seeing things happen. I'd say definitely not at the same pace as in 2022. But hopefully after elections and the new year, we'll see things pick up. I think there's definitely been more activity and interest from investors, but not a huge transaction volume yet. And then on the opportunistic side, think investors are targeting six plus, six to seven returns, probably if you had a had me put it down more, it's probably between like six, five to seven, two cap rates on opportunistic deals where they're taking on development risks. And for those, think there's more more investors having an appetite to do more development deals. So we're seeing more activity in that market. Jack BeVier (28:20) And you're finding that you're able to compete with the home builders. Like how do you guys slot into the development acquisitions versus the home builder competition? Liya Mo (28:29) Yeah, home builders are our primary competition these days. There's not that many investor groups still looking to buy raw land. So the way we differentiate ourselves from home builders is we're looking at smaller parcels. Your larger national builders are probably looking at 20 plus acre lots where they can fit in 200, 300 homes. For us, we're looking at 10 acres is probably our sweet spot, roughly 100 townhome units. So that's the opportunity that we're seeing in the market where we can compete against builders. And then the second thing is we're just faster. Our team's able to look at a location, underwrite it, and put an ROI out in two weeks. So we're nimble. And so usually we find more opportunities with new sites that are just on the market. Jack BeVier (29:21) That's interesting. Thibault Adrien (29:22) We also scan all the zip codes in all the markets that we are in and do some rent analysis. We find ourselves... more competitive at specific rent levels. Obviously, our underwriting is very sensitive to rent levels. We are cap rate driven. And so we are not going to be able to compete against builders in locations where the rents are going to be sub-2,000. There is just not enough value that we can't allocate to the land at that price, at that kind of rent pricing. But at like 2,500 to 3,000, the math work better for us and can give us a competitive advantage too. So we can compete on pure pricing at the right rent levels. The rent is the top line, of course, but then we also need to look into zip codes where like real estate taxes, insurance costs are so competitive. And so if we get those three kind of like metrics aligned, we can compete on numbers as well. Jack BeVier (30:28) Given that you guys, maybe just think of something, given that you guys are asset managing both scattered site, single family and build to rent both at scale. Do you guys, you know, there's this pitch anyway, in the B2R broker space that, your expense ratio is going to be lower for, for the build to rent prod projects versus scattered site, single family. Do you see, do you guys see lower expense ratios in B2R than S and then your scattered site? Thibault Adrien (30:56) Yes, we do because the product is more uniform, right? Like when we build a new community, we have like two or three floor plans at the most. We have a uniformity of materials, same types of flooring, of painting and everything. So like doing the repairs is quicker and the homes obviously are newer. So there are a whole range of repairs that we don't have to perform versus the older homes. the maintenance expenses are lower, but still, we have to be on top of things. One of the key things, and it's true across both Scatter and Build for Rant, is that you want to do... a lot of the maintenance yourself. It's always the same theme, at least it's our vision at Lafayette to try to control the process. And so we have like goals, internal goals of internalization ratios for maintenance, for handling like work orders. So in our Build4Rend portfolio, we do like 70 % of the maintenance ourselves. On the Scallout portfolio, do, so that's maybe two good numbers that I can share. 70 % of internalization on the Build4Rend, 50, 55 % on the Scallout side. So it's easier for us. It seems to internalize on the Build4Rend side, given the uniformity of the product and the concentration of assets in specific locations. Jack BeVier (32:33) What markets are you guys in? Which states? Thibault Adrien (32:35) Yeah, I'm gonna forget. Craig Fuhr (32:37) Hahaha Liya Mo (32:40) we're in Tampa. So our hearts do go out to every all the families impacted by the hurricane. So Tampa is a big market for us. We're in Jacksonville, Orlando, Sarasota, that's within Florida. And then in Texas, we're in Dallas. And then we're also in Atlanta within Georgia. Nashville is a big market for us to what was discussed earlier. Tax rates in Nashville have been really favorable. So we've been able to find more deals in Nashville. And then we're also in the Carolinas. in Charlotte and we love to be in Raleigh. And then within the Midwest, we're in Indianapolis, Kansas City, which is surprisingly being a really good market for us. I personally think it's because of Taylor Swift. And then we're also in Memphis. Jack BeVier (33:26) You So what is, because you mentioned Milton, who, which, you know, went through west coast of Florida or all of Florida last night. What has your guys experience been operating in the Florida market? mean, between insurance costs increasing and the events that we actually have had this year, last year in this year, what's your guys operational experience been with having, you know, lots of units in those locations? Thibault Adrien (33:57) Yeah, so Florida has always been a big exposure for us. Tampa was the very first market with Phoenix, Arizona back in 2011. It's our historic market. Yeah, but yeah, so in terms of weather conditions, Jack BeVier (34:07) wow, that was a nice ride up. Thibault Adrien (34:18) And we've been pretty lucky. So over the last 12 years, I remember having a lot of work around, was it Yerma in 2017? And so we had a fair amount of insurance claims to do lot of work after the hurricane passed. And then, as you said, what impacted us negatively were rising insurance rates. But somehow, last year, think it was a pretty good year for insurance companies. A lot of them made money. That had not been the case for a while. New insurance carriers came back in the market. so we did a decent good job thanks to... One of my colleagues, Chris, and our brokers, we renewed our insurance policies for 18 months a few weeks ago at a 30 % decrease to what we are paying the year before. So we got some good savings. So we are back to very acceptable levels in terms of insurance costs. Again, here, diversification helps because the insurance carrier is not only taking exposure to Florida but across a bunch of different states. And so we were able to reduce our insurance costs in August of this year and again for 18 months. So we feel like we are safe until 2025. In 2026, we might see again an insurance increase. That's for hurricane, but the hurricane risks. So making sure that you have the good policies obviously in place, making sure like you mentioned flood zones, making sure that you track flood zone changes. That's maybe something that you really want to pay close attention to because flood zones change. And I don't think you receive an email from Mr. flood zone, whoever decides the thing, letting you know that all of a sudden you are in a flood zone. And that matters a lot because if you are in a flood zone and don't have specific flood insurance policy, you're not going to be covered if your house is flooded. So being on top of the flood zone maps and making sure that you have the proper insurance in place when you are in those flood zones is very important. Jack BeVier (36:18) female. Thibault Adrien (36:41) And then it's Florida, so sure, in the summertime, you're going to have more humid conditions. You're going to see some seasonality on your maintenance expenses. You're going to have more HVAC repairs. So there is a cost to operating in Florida. But there is so much growth, so much demographic growth, rent growth, need for more real estate, business-friendly state. we continue to lack our exposure to the state. Craig Fuhr (37:13) going back to the conversation that we had with David Howard a few weeks ago and sort of these regulations. So David Howard is the CEO at the National Rental Home Council. in some of the markets that you just mentioned, Leah, we're seeing some pretty crazy regulations popping up in state legislators and even some talk in Congress as well about the amount of houses that any given company can own. Jack BeVier (37:13) Gotcha. Craig Fuhr (37:42) Some of them are pretty restrictive. mean, I don't recall what state it was once the cap it at like 50. And so, you never know on, you know, I think, I think a lot of times in these state houses, these guys will take as big a bite of an apple as they can and then let it, you know, won't pass and just keep coming back to that apple. And, and so. Just wondering what you guys are thinking in terms of the regulatory environment against institutional landlords and even frankly even mom and pops and what you're doing to sort of combat that. Thibault Adrien (38:16) Yeah. So, we can't combat it ourselves, like we are our scale, but we are confident that in what we do. So we are confident that we bring a lot of value to the market. There is no question that there is a need for more housing in the US and there is no question that we are helping solve that need. And we are confident that even though in, especially in an election year, there is going to be a lot of noise and a lot of headlines from some politicians about going after Wall Street. It's a speech that sells well, but in reality, I think they know that they need investors to provide new housing options to their constituents, to the people, that there are not enough rentals in the country. And so it would be very counterproductive to prevent us from providing those housing options. And this hurricane is going to show, again, how we provide value to the market. We have scale. We have great insurance policies. If some tenants are displaced, we can step in. We have the balance sheet to make the repairs right away. We don't have to wait for the insurance to pay us. We can do it ourselves, get repaid later, relocate tenants from one house to another. be on top of the customer service that we want to provide to our residents because we have skills. We are the radar. So we care about our ratings online. We care about our brand. Brandywine Homes is our property manager. So we care about all those things that not all mom and pop owners might care as much. They don't have the same. sort of like skin in the game. It's our entire business. That's what we do every day. And so we provide value to the market. And I'm confident that politicians see that. I don't think those regulations, as far as I know, don't have any real traction at this point. But we'll see. Liya Mo (40:23) And Craig, I think another part of it is just education too. Our communities are sometimes nicer built and have a nicer facade than a for sale community. For anyone which is our property management company, manages the landscaping for our homes. So there is a very good look and feel of the community. And our tenants are high income, have good salaries. We require three times our rental income and our homes are typically $2,000 for rent. So they're making decent salary. So I think a big part of it is education, that these are good living tenants who are going to be our residents. Craig Fuhr (41:12) Yeah, I mean, you guys are preaching to the choir, you won't get any argument from me in terms of the value provided. I just think that you're absolutely right. takes it takes organizations like the NRAC and great operators like yourselves to educate those who want to put such restrictions on, you know, people who are obviously providing great value and great service. Thibault Adrien (41:35) Yeah, and the debate around that, I mean, helps us get better. So I really don't mind that I never walk away from a good fight. I don't mind the challenge. think it helps. pushes us to get better. We know we are being watched. And so our employees and our team members at Brandywine know about all that stuff. And so they care even more. They want to show that we provide good value. So we like the challenge. And it reinforces, it helps us actually define our mission. I think our mission statement is that we want to help cure the shortage of homes in the US, one home at a time. That's a mission that our employees feel good about. so we don't mind the challenge. It helps us think more about. the why we are doing what we do and it gives us even more energy and motivation in pursuing our mission every day. Jack BeVier (42:40) So in terms of, we get close to wrapping up here in terms of really appreciate your guys time today, by the way, deal making over the course of the next 12 months, Leah, you mentioned that the market, you know, there's whispers at the market slowing, but the home builders haven't started, you know, really calling in earnest and dropping their pricing expectations, you know, that much parentheses yet, like, you, what's your guys view on what, how the next 12 months is going to go quickly? My, our feedback is that showing activity has been really slow over the course of past 60 days. Sometimes like, it doesn't matter if you drop the price or not, just they're, know, showings are very, very quiet. And so I think I'm, I'm personally a little pessimistic right now going into the winter, you know, spring selling season's over, you know, the, down taking the mortgage rates weren't enough to get home buyers off the sidelines. And now between the strong jobs report a couple of days ago and the inflation being a little bit higher than expected today. mortgage rates are going back up. So that market is just not, I don't see any signs that it's going to unfreeze over the course of the next four or five months. And that's a, that's a long, slow winter for sellers to go through. So anyway, I'm, I'm, I guess I'm optimistic for you that you're still start to get some home builder calls. But, and I'm certainly keeping a lot more in our pipeline in our rental, adding it to our rental portfolio, know, moving, moving the business plan from cell to homeowner. to keep it as a rental property. So, what's the deal making side of things been for home builders and what's your guys view of how that might play out over the course of the next six or 12 months? Thibault Adrien (44:23) I don't see, I agree with you, I don't see major changes. I don't love to predict future by the way, I just want to be ready for different options, but I don't see things like changing rapidly one way or another. I think if we learned one thing over the last few years, two, three years, is that demand for homes is not correlated to interest rates. And the market completely got it wrong. You saw the home builders stock prices tank at some point when the rain swelled up. And then they realized, actually, people continue to buy homes. They don't care as much. And so I think consumer sentiment is a more reliable like a prediction for home buying activity and so if the consumer don't feel as optimistic and which seems to be the case right now like the market is going to continue to be slow but I don't think it means that home builders are going to stop buying land. So I think we're going to still face some competition on the land side. They are always land-hungry. They think that things are going to improve. I think if you ask them, think they think that things are going to improve in the spring or summer next year. And so they want to be ready for that. And they want to have the land pipeline lined up to be ready to address the demand back then. So I don't see them slowing down on the land acquisition. Maybe a little bit, but not too much. And perhaps we'll have some opportunities, as you said, on buying some inventory homes from them if the short-term demand is low. Jack BeVier (45:57) All right, cool. Sounds good. Really appreciate you guys taking the time today. Enjoyed the conversation. It's, you know, obviously an extremely impressive platform that you built, you know, my, my congratulations and, you know, as a best in class operator in this space, I'm looking forward to, keep it in touch and, we'd love to have you guys on again at, you know, as the next curve of the roller coaster happens here. Thibault Adrien (46:23) Great. Thanks a lot, Jack. Congrats for your businesses too. Thanks, Craig. Bye-bye. Liya Mo (46:24) Okay. Craig Fuhr (46:26) Thank you guys very much. Jack BeVier (46:27) Thanks, Thibault. Thanks, Liya.