Tim Kane on MBK's diversification and the underserved market for shelter

Multifamily, rentals, and assisted living are not flash-in-the-pan opportunities for MBK Homes.

By By Mike Beirne, Senior Editor | January 9, 2017
MBK Metro Gateway pool rendering

 

During the darkest days of the recession in 2009, managers for MBK Homes reexamined the builder’s role as a provider of single-family homes and repositioned the company with the broader mission of being a provider of shelter. Today, this division of multinational real estate parent company Mitsui & Co. has 1,000 rental units under development, in addition to closing between 175 to 200 single-family homes by the end of the fiscal year in March 2017.

Q: Is MBK’s diversification into single-family detached construction, multifamily, rental housing, and assisted living a long-term strategy or more like taking advantage of current opportunities?

A: It’s long-term. With a Japanese company, everything is long-term. So let’s talk about the landscape here. There’s a housing shortage approaching us. In the ’70s, over that 10-year period, there were approximately 17 million dwelling units built. That includes for-sale homes, apartments, mobile homes—all types of shelter. During the ’80s, ’90s, and 2000s, it ran somewhere between 13 million to 15 million during each decade. And for the decade we’re in now, I think it’s about 9.5 million (units). By the way, during this period, the U.S. population has increased from 200 million to 320 million people, jobs have grown, and we have Millennials in the marketplace. As you can see, we’ve really undersupplied the market. Part of that is due to the devastation from the lending crisis from which we haven’t yet pulled out. The big question is: What are Millennials going to do? Are they going to be renters or buyers? No one really knows. It’s a conversation that goes on and on in every builder forum we’ve attended. But we do know that Millennials need places to live, so it’s either going to be an apartment or a home, and MBK wants to be in both markets to supply shelter to those people.

Q: Any insight yet as to whether your renters are going to be longer-term lessees than what is typically expected?

A: No, I don’t have enough long-term data about projects that we’ve been building and leasing to give you a definitive answer. But from the information I do have, we know it’s unlikely to change. There are a lot of ways to explain that. One is that the average person isn’t staying more than a year in an apartment: After a year, they change jobs, find another place to live, find a newer place, want new amenities, or find a new girlfriend, partner, whatever. One of the beauties of renting is that it gives you flexibility. It gives you the ability to be much more mobile than if you own your home, and I think people want that flexibility.

Q: Have some of your renters turned into MBK homebuyers?

A: We haven’t seen much of that.

Q: Have you learned anything about renter preferences that then turned into features for your house products?

A: We have. The pet-washing station is a perfect example. Pets are a big deal. More than 50 percent of Millennials have pets, and we make sure we try to accommodate pets in our designs. The other thing is packages. With so much online ordering, what do you do with all these packages? So our apartments have package concierge services: There are lockers that Amazon, FedEx, and UPS can put packages in, email you a notification, and you can go and pick up the package. We’re doing it at all of our rental projects right now, and we’re looking at how we can incorporate that kind of stuff into our for-sale projects as well. 

Q: Does MBK intend to manage its rental properties someday?

A: We still use an asset manager for that, except for one portion of the business that we decided we’re pretty good at. Asset managers are adept at the other parts of the business. The asset manager we have manages more than 50,000 rental units across the country, so they have the ability—through economies of scale—to do lots of things we can’t. For instance, they have an on-site videographer who works for them and goes around shooting video and helping put web pages and advertising together. Well, we don’t have enough volume to keep a staff videographer. So that kind of stuff is an example of something that an asset manager can do a lot better than us. But one of the things we noticed is that property management companies are very good at taking over a building that is already full and selling a few units every month. But what is unusual for them is taking a building that has already been built that all of sudden needs hundreds of units filled up. That is a lot more like selling houses. When you have a tract where you have to sell a number of houses, you got to market it, you got to get the sales office up and running, and you need to generate some excitement. We think our experience in selling homes on that portion of the business translates very well. We use a lot of our skills in home buying for that particular part of the business. Once that building is filled up and you’re in maintenance mode, the property management company does a better job.

Q: Do you see a bright big picture ahead for multifamily?

A: Yes, and (single-family) homes too. Interest rates are creeping up, and we have not seen much of a major slow down in home buying even though monthly mortgage payments definitely are affected by interest rate creep. So both businesses (rental and for sale properties) are good, but we’re in the single business of providing shelter, housing for people. A lot of that is because there is undersupply in the market.

Q: What are some new developments MBK is working on now?

A: We’re doing some departures from where we have been and also departures from some of the big apartment developers. We just purchased a project and San Luis Obispo County up in Paso Robles, and we’re now looking at building more projects in California, particularly in underserved markets. Paso Robles has been a beautiful area where getting approvals to build has been difficult in the past, so it’s particularly underserved. The city has been very gracious and helpful as they realize that they have a critical need for housing, particularly for rental housing. I expect us to be doing much more of that throughout the state of California.

Q: How is this project a departure?

A: When I look from the office here in Irvine I see almost every major apartment player building 300 to 400 units because the jobs are here. There are more jobs in Orange County, more jobs in the apartment building that I’m sitting in and within a 20-minute drive than there is in the entire population of Paso Robles. So many of these big apartment builders are just not going into rural or semi-rural areas because it doesn’t fit their market profile. It doesn’t fit into a place where they want to be. When we look at ourselves as the provider of shelter, we’re going to build in markets that are small and severely undersupplied. We think there is good opportunity for us there that some of the major apartment builders and homebuilders would simply overlook.

Q: How do you deal with the NIMBYs?

A: When we purchased this project it had already been through that process. We purchased it from a local guy that has the local connections in order to navigate that minefield. So we paid the premium to buy a project that was already approved. But just because a project is approved on paper does not mean it will not be difficult dealing with the city. So general approval is one thing and then you have to go through plan check, building permit and all that. If they are not cooperative, it can get difficult. We deliberately look at our business and look at long-term strategy. I remember my folks had a Buick when I was growing up, and when you get into the car; there was a little seal (on the door plate) with a carriage logo that said, “Body by Fisher.” Fisher was a carriage manufacturer for horse and buggies, Fisher decided that they were not the buggy company, they were a supplier of transportation and when automobiles started picking up, Fischer got involved in that. By the 1920s, it was a big automobile coach manufacturer. They were purchased by GM (in 1919) and off it went. We look at homebuilding the same way. We are changing our purpose from being a homebuilder to being a supplier of shelter, and we will be looking at all the different ways we can supply shelter to human beings. In conjunction with that we have a sister company here that is providing assisted living and memory care to people in the later stages of life. So our apartment, homebuilding, and assisted living are all on that same line of providing places and home for people to live. 

(Editors Note: The Fisher family business was a horse coach maker in Ohio during the mid-1800s before two Fisher brothers joined their uncle in Detroit and eventually formed Fisher Body Company in 1908)

 

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