REI INK

Streamline For Success

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Using Data Analysis, Visualization and Cycle Optimization to Achieve Success By Kori Covrigaru PlanOmatic recently launched PlanOlabs, a research, data, and consulting hub for PlanOmatic. For years, the team at PlanOmatic has been working with real estate investors to assist them in improving their overall performance. Our team has access to endless data, process maps, and benchmark reports to support our clients’ efforts in streamlining their operations. With this vast amount of information at its fingertips, PlanOlabs was launched to coach, consult, and support clients in better managing their real estate investment (REI) portfolios. How can PlanOlabs support your portfolio? Improve Your Profit with Optimized Real Estate Investing Let’s begin with a goal. Is there a particular piece of your process that is falling short? As you think about your REI processes, you might find that an issue always arises during tenant turnover, maintenance projects, or some other point in the process. Through client conversations, we learned that they had many questions that went beyond our photographing and virtual tour assets. They needed to know what to do with their aged inventory, determine who is accountable for tenant turnover, and so much more. Let’s walk through the PlanOlabs process and how we help our clients work through their unique challenges. Workflow Optimization The first step in optimizing your workflow is to identify which piece of the process needs to be improved. With that in mind, determine who is accountable for each step in the process and where handoffs are taking place. Handoffs are usually the place where bottlenecks occur. Once we understand the process and who is involved, we can then look at how tasks could be centralized or automated to simplify the process. Property Lifecycle Strategy When we began building PlanOlabs, the first thing we did was create a property lifecycle map. Regardless of the issue or problem, the solution can be found in the property lifecycle. Within the larger property lifecycle are smaller cycles for acquiring or building the property, renovating the property, marketing the property, managing tenant turnover, and creating an exit strategy. Each of these cycles can be streamlined, which is where the Workflow Workshop comes in. During a Workflow Workshop, we work with our clients to paint a picture of what their workflow could look like. We identify the parts of the process that can be automated or streamlined to achieve optimal performance. One goal we often see from our clients is to reduce vacancy time. To accomplish this, they need to pre-lease. In order to pre-lease, professional photography is required ahead of time. Beautiful real estate photography must be completed at the beginning of the REI journey with a space designated to store those photos. When it comes time to pre-lease the property during a tenant turnover, everything is set to go. Data Analysis & Visualization PlanOlabs acquires its data from a number of sources, but often, real estate investors already have that information – they just do not know how to use it. PlanOlabs takes your data, analyzes it, and determines where a process can be adjusted. As an example, we had a client who had the necessary data but did not know how to use it. They knew they had a challenge with quick turnovers. They always found a large gap between a turnover and a new move-in but could not pinpoint what was causing the issue. Their data provided the answer. After analyzing the data they provided, we discovered that there was a regional correlation. This issue was only happening in a few markets. So, with these insights, our client was better able to determine the best-performing markets, learn their process, and replicate it in the poor-performing market. Industry Research Another way PlanOlabs gathers data is through data mining. Data that is publicly available from competitors, vendors, and other investors is carefully researched to produce high-impact information. With this information, PlanOlabs can provide benchmarks for their clients who want to move up to that next tier in real estate investing. Without benchmarks, you will not know what success looks like. If you are new to this high tier of real estate investing, you will want to know what other investors are doing so you can be at their level. For example, 51% of institutional investors use professional photography while only 30% of the overarching rental market do so. If you want to keep up with the institutional investor, you will want to do the same. At PlanOmatic, our goal is to help our clients win. Whether winning is defined as reducing vacancy rates or growing into an institutional investor, our data analysis and visualization, cycle optimization, and industry research will help you achieve those goals.

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Q&A With Rich Osika

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Maximizing Yields on Multifamily Residential and Commercial Investments With the multifamily residential and commercial real estate markets starting off strong in 2022, REI INK asked Rich Osika, Managing Member of REGO by BuildPro Construction Services, to discuss how to maximize yields on investments in these segments. REGO is a vertically integrated real estate development company—handling every aspect of planning, design, building and delivery in-house. The general consensus is that 2022 is starting off strong for the multifamily and commercial markets. What are you seeing day-to-day? REGO is observing the same trends. Multifamily buildings used to fight for tenants. Now—in a twist on Field of Dreams—if you build it, they will come. For example, REGO does a great deal of work in major metro areas like Houston and Austin, and it’s becoming rarer to see any multifamily residences there with occupancies below 90%. As a result, residential building owners are able to command much more in rent than in previous years. That means more potential profit for investors in these buildings. On the commercial side, REGO is also seeing heavy demand, including some very creative projects. For instance, the company will be constructing a mixed-use, lakeshore development in Austin on the site of a decommissioned private airport. Buildings for industrial use also represent an important area of growth. What should excite investors about the current market? Conversely, what should worry them? The answer to both questions is essentially the same. Unlike with the fix and flip market, this kind of real estate investing is not a short-term game. To create wealth, it must be a long-term play. For that reason, for every 100 proposals that REGO receives, it will typically move forward on just two. It’s important to rule out or reduce any risks that could lower returns—whether three, eight or even ten years down the road. It’s better to fail a project before it begins than to deliver a weak return after it’s complete. What about the upside? How can investors maximize their yields? Taking a holistic approach from the very beginning is extremely helpful. When a project team is staffed by individuals with wide-ranging expertise, there are more opportunities to weigh the tailwinds against the headwinds and make prudent decisions. Pro forma financial statements are very valuable for this purpose. Having people experienced in site evaluation, proof of concept, architecture, civil engineering, site preparation, systems infrastructure, permitting, sales/leasing and more, all working as one, is eye opening. Each individual notices different opportunities to build on, or obstacles that can’t be overcome. When they’re evaluating whether a potential multifamily project will be profitable, what factors do developers consider? To start with, it’s important to understand the businesses in the area, their target demographics, and daily traffic and revenues. For example, if they’re considering a new luxury development, the area must have the population density to support it. If the three high-end grocery stores in a two-mile radius each have an average daily revenue of $200,000 and are always busy, that’s one promising factor (among many) in its favor. For other projects, the construction of a new highway is a good sign because it will make the area more accessible. REGO, for instance, is developing a large 4,000-unit complex 1,000 feet from a highway exit ramp. Rapid building of warehouses and distribution centers is another indicator of a potentially profitable location; new employees will want to move close enough to work onsite. What other aspects of a site should potential investors care about? Any time there is a piece of land to develop, it’s important to conduct careful due diligence to assess any challenges that will make site acquisition and development more costly. For example, is the site near a flood plain or on wetlands, and will the building need to be raised? Is there an adequate water supply for an expanding population, or will a new 200-foot commercial water well be required? Does the regional sewer system extend into the area? Are all other utilities available, and how is broadband/mobile access? What do architects feel they can develop given existing zoning laws? From engineers’ perspectives, what are the opportunities and risks of supporting architects’ initial blueprints? There are environmental considerations, too. If a gas station was on the site 18 years ago, that is a potential red flag. Conversely, if a school was there, chances are good that the site is clean. If it is on top of a former golf course, investors need be wary of pesticides seeping into the groundwater. Assuming that owners have identified a good site, how can they maximize their yields? They need to know what is optimal, region by region, because there will be variation. Once they have a benchmark in mind, they should calculate the required operating income to make their investment profitable. They should have a sense of how long they will hold onto the property. It it’s a long-term investment, they may be able to build at a higher price, under the assumption that their ongoing expenses (such as maintenance) will therefore be lower. It’s important, too, to understand the behavioral patterns and needs of tenants in different regions. Honing in on the residential side: An owner might be inclined to build a 200,000 square foot building with 230 micro units for maximum profitability. This might work in some parts of Manhattan, but it is unlikely to work in the suburbs as people clamor for more space. Besides this additional space, REGO sees a general preference for secured residences that feel more like communities—with breakfasts, lunches, movie nights, etc. Tenants will generally stay longer and readily accept yearly rent increases if these buildings truly feel like home. Do you have any concluding advice? With this kind of holistic planning, investing can be much more turnkey. Investors should look under every corner before making a commitment. Having transparent access to the upsides and downsides of every potential development is the key to long-term success.

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Boulder, Colorado

Tight Inventory, Rising Rents and An Economy with Staying Power By Carole Vansickle Ellis Boulder, Colorado, has kept a tight rein on its own growth almost since its founding, starting with U.S. Congressional approval of the allocation of 1,800 acres of area around the young city in 1899. The city is known for careful control of urban expansion, such as “Blue Line” amendments that limit city water service by altitude, an Urban Wildlife Management Plan that protects prairie dogs and a variety of other native plant and animal species, and height limits on buildings to protect residents’ views of the surrounding mountains. Not surprisingly, these programs have preserved much of the natural beauty of the area while creating a market where housing shortages are an accepted part of life. In fact, home prices in Boulder rose 60 percent between 2010 and 2015, and median home values in Boulder are currently hovering around $900,000. Realtor.com analysts note that although Boulder homes are currently listing around $890,000, they are selling at a median of $945,000. “Boulder has had a tremendously successful rental market, [but]…rental income is not the only way Boulder investment properties can make money,” observed Mashvisor analyst Hamza Abdul-Samad. He cited a “great economy,” the University of Colorado, and quality of life as reasons that people continue to move to Boulder even if they can only afford to rent instead of buy. “52 percent of the city’s residents live in a Boulder rental property,” he said, predicting rental owners would continue to enjoy high demand and low vacancy rates. That demand for residential real estate has also been fueled by a strong population growth, observed Jack Krupey, principal of multifamily syndicator JKAM Alternative Investments. “We certainly have interest in Boulder because of the strong population growth, which is almost always good for real estate values, and its proximity to Denver,” Krupey noted. “Having a prominent University like the University of Colorado is a plus as well.” Since 2010, the Boulder population has increased by more than 11 percent according to information released in 2020 by the U.S. Census Bureau. A Strong Economy Based in Technology Boulder’s unique combination of hosting a world-class research university, major government research facilities, a thriving entrepreneurial population, and a plethora of high-tech industries including aerospace engineering, bioscience, cleantech, and IT, makes its economy uniquely stable and recession resistant. In the wake of the emergence of the 2020 COVID-19 pandemic, Boulder took less than a year to officially enter “recovery mode” in the first quarter of 2021, while the entire state of Colorado was declared officially “in recovery” by the end of last year and is expected to reach pre-pandemic levels of employment and economic activity by the end of 2022. In a period of time when many state and local economies are struggling to provide eager employers with labor, Colorado noted its labor-force participation rate was more than two-thirds, “nearly back to the pre-recession high.” Easy access to “natural outdoor spaces” makes Boulder particularly appealing to big companies looking for new locations for headquarters post-pandemic, wrote Wall Street Journal commercial real estate reporter Konrad Putzier in February of this year. “Being able to take a lunch-break hike in the mountains is already a big reason why cities like Boulder are attracting big companies,” he explained. Marco Santarelli, founder and CEO of Norada Real Estate Investments, noted that relative affordability also plays a role when “big tech” moves to Boulder. “The Boulder real estate market is relatively cheap [when compared] to the insane real estate prices in San Francisco,” he said. “For a small elite relocating from Seattle and San Francisco, Boulder is affordable.” However, he noted, the presence of this buying population does drive up home prices and rental rates. While many tech giants have had a presence in Boulder for years, 2021 saw an increase in the number of those companies’ employees based in the city. This was positive for local real estate values and developers. For example, Apple is currently expanding its workforce in Boulder and, as a result, multifamily development is getting an additional lift from the projected entrance of these new residents. Apple, specifically, has been directly tied to rising values in office REITs and multifamily properties because, as GlobeSt.com contributor Jack Rogers explained, “Apple campuses are expected to create higher occupancy and rental rates at existing properties and more demand for development projects under construction.” “Boulder’s technology economy and the information technology economy have grown up together, dating back to the 1960s when IBM established a 500-acre facility in North Boulder,” boasted the Boulder Economic Council in a recently released report on the IT/Software presence in the city. Today, the concentration of IT employment in Boulder is 2.7 times the U.S. average and the city is home to two of the world’s 10 fastest supercomputers. Tech companies with significant presence in Boulder include Google, IBM, Oracle, Qualcomm, Nest, SendGrid, Twitter, and dozens of others. Investment funds like TechStars also keep the momentum going for tech startups in the area. The TechStars fund was founded in 2006 and accepts 10 companies each summer to receive support and mentorship through the program. Natural Beauty & Outdoor Disasters Of course, it is impossible to discuss Boulder housing in 2022 without addressing one of the biggest environmental stressors on the market: the Marshall Fire. The Marshall Fire was a wildfire that started on December 30, 2021, and burned through more than 1,000 structures, including many residential homes, before ending due to heavy snowfall. The Marshall Fire was the most destructive wildfire in state history in terms of structures lost to the fire although there were just two fatalities. Overall loss totaled more than $513 million according to the Boulder County Assessor. The local housing market, already stretched thin, reacted with even stronger demand for the remaining properties. “We were already in a low inventory/high demand situation. We took 1,000 houses out of that scenario [and]…put 1,000 people back into it that need homes

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Bullish Outlook

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An Analysis of Capital Market Conditions and Trends By Paul Fiorilla Investor capital is pouring into commercial real estate, especially favored segments such as multifamily, industrial, single-family rentals, and self-storage. Capital market conditions entering 2022 are nearly optimal, with the sector gorged with debt and equity as investors seek to deploy capital in a sector with strong fundamentals and bullish prospects in coming years. Plus, borrowers seek to take advantage of rock-bottom interest rates. Added together it has produced record-high deal flow and rock-bottom acquisition yields, even as Treasury yields rise. The story is the same on the debt side. “Every capital source has a really strong appetite for placing mortgage debt this year,” says Jamie Woodwell, vice president of research and economics for the Mortgage Bankers Association. Activity is driven by the flood of capital into commercial real estate, as investors are looking for stable assets with potential for appreciation. That leads them to alternative sectors including real estate, which provide steady cash flow and higher yields than fixed-income sectors such as sovereign debt or investment-grade corporate bonds. In late 2021, more than 1,000 private equity funds alone targeted more than $350 billion of U.S. real estate investments and were sitting on upwards of $250 billion of dry powder, according to Preqin, a London-based data and analytics firm that tracks global investment trends. Most private equity dry powder involves funds seeking opportunistic (30%), value added (28%) or debt (22%) investments. With that much capital looking to be deployed, the biggest limit to deal flow is how many sellers are willing to put properties on the market. Property sales hit record highs in 2021 while yields, or cap rates, declined in every property sector. Total commercial real estate transaction volume shattered records in 2021, according to Real Capital Analytics (RCA), which tracked $808 billion of deal flow, up 88% over 2020. Sales Hit Record Levels Within real estate, multifamily and industrial are the main targets for investors among the traditional major asset classes. More than 60% of property sales last year were in those two property sectors, per RCA. Apartment sales totaled $335.1 billion, up 128% year-over-year, while industrial sales totaled $166.3 billion, up 56% from 2020, according to RCA. As those segments get crowded with buyers, yields get squeezed. In 2021, apartment cap rates fell 50 basis points to an average 4.5%, while industrial cap rates declined by 30 basis points to 5.5%, per RCA. Yields in both sectors are at all-time lows. The difficulty in winning competitive bids and the desire for higher returns has led some investors to branch out into niche property types including self-storage and single-family rentals. Some $10.9 billion of self-storage properties traded during 2021, a 161% increase over the $4.2 billion sold in 2020, and well above the previous high of $4.3 billion in 2016, according to Yardi Matrix. New York City led the activity at $3.2 billion, most of which was StorageMart’s acquisition of a portfolio owned by Edison Properties. Institutional and private equity capital are focused on portfolio purchases to deploy large amounts of capital quickly. Investment in single-family rentals (SFRs) also surged, although the dynamics are different because of the nature of the product. Institutions have raised more than $10 billion to invest in SFRs. Some are acquiring assets by buying houses one at a time. Acquisitions of SFR communities with 50 or more units increased by more than three-fold in 2021, to $171 million from $52 million in 2020, according to Yardi Matrix. Other institutions have a build-to-rent strategy that involves developing communities of single-family homes or townhouses to rent. Yardi tracks 38,000 SFR units in the development pipeline, with 17,000 units in SFR communities currently under construction, mostly in the Southeast, Southwest, and Midwest. One attraction for investors is the rapidly rising rents in the self-storage and SFR segments. Self-storage street rates rose about 7.5% year-over-year in 2021, per Matrix, as demand boomed during the pandemic. The ability to work from home and vibrant housing market have helped to foment migration and increased the use of self-storage for home offices and gyms. What’s more, an increasing number of businesses are using larger storage units for distribution and logistics facilities. Single-family asking rents continue to be a bright spot on the investment horizon, growing by 13.5% nationally year-over-year through January 2021, per Matrix. Demand remains strong, driven by households that want more space and amenities such as yards for pets and for small children to play. John Burns Real Estate Consulting reports that upwards of $50 billion of capital is competing for SFR investments. Although that sounds like a great deal of money, Burns estimates that it amounts to about 125,000 homes, or roughly 1% of the SFR market. Still, the variety of investor types, which includes large institutions and foreign capital, and the diversity of equity and debt strategies involved is a good sign of a developing market. Lending Boom Market conditions also drew capital to the debt markets in 2021. Securitization volume reached post-2007 highs in 2021. CMBS issuance of $110.5 billion was the highest since 2007, while CLO issuance reached a record $45.4 billion, per Commercial Mortgage Alert (CMA). CLO issuance was fueled by the growth in debt fund vehicles and demand for loans on value-add multifamily properties that are looking for short-term debt. Almost 70% of CLO issuance ($31.7 billion) was backed by multifamily assets. Freddie Mac estimated that multifamily lending totaled $450 billion in 2021, up from $360 billion in 2020. Multifamily origination included a record $129.7 billion securitized by Freddie and fellow government-sponsored enterprise (GSE) Fannie Mae, according to CMA. The biggest development in recent years, however, has been the rise of private equity debt funds. Upwards of 200 debt funds are operating and/or raising money as investors look for alternate ways to put capital to work in commercial real estate. To some degree funds have helped to fill in the void of transitional property lending that was created after the Global

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Outpacing the Competition in Commercial Financing

Walker & Dunlop Boasts the Best of Both Worlds in Innovation & Technology By Carole Vansickle Ellis When Walker & Dunlop was founded in 1937, it was one of the first companies to use FHA insurance to make single-family home loans. Over the following decade, the company pioneered a variety of lending products for real estate investments, growing the company’s network of lending partners and expanding offerings to meet growing client demand. By the mid-2000s, Walker & Dunlop was universally recognized as a leading commercial financing provider and poised to move into its next phase as a technology-enabled financial services firm. This move included first partnering with and then acquiring leading commercial real estate technology company GeoPhy, expanding into the appraisal space using groundbreaking data and analytics systems via the company’s appraisal service, Apprise, and establishing an influential presence in the affordable housing space at a time when the demand for this type of housing had reached unprecedented and dire levels. The results have been both rewarding and, as senior vice president and chief production officer Alison Williams describes them, “refreshing.” “We are unique in that we are an 80-year-old company with a proven track record, but we also have a refreshingly progressive mindset and the agility of a startup,” Williams explained. “We are the best of both worlds, and that enables us to use innovation and technology to outpace traditional banking models both in terms of financing services and also when it comes to advice and guidance on how to scale business and growth wealth.” Meghan Czechowski, managing director and head of valuation at Apprise, agreed. “We excel at using tech-enabled processes to speed up our products and create efficiencies,” she said. Apprise, which launched in early 2020 as a joint venture between GeoPhy, a Netherlands-based, award-winning global data science and analytics technology company, and Walker & Dunlop, uses a proprietary application to aggregate data on multifamily properties in ways that not only smooth out what Czechowski refers to as the “frictions” associated with multifamily underwriting but also remove much of the mystery from the appraisal process for clients. “In traditional appraisal methodology, once information leaves the public property records database it becomes largely un-trackable and is no longer useful for aggregating and trending purposes,” Czechowski explained. “This creates human-error-related redundancies and can cause significant inaccuracy.” Apprise data and supporting information is retained on the company platform where conclusions are recorded and confirmed comps are compiled over time and aggregated into the overall picture of a property asset class or submarket. “It absolutely works for understanding expense comparables, rents, walk scores, crime rates, economic drivers, land values, tax effects and trends, demographics, and even repositioning and new development projects,” she said. “This helps us assist clients in whatever aspect of investing they are engaged and identify potential investments very quickly.” Czechowski noted also that Apprise operates within strict client confidentiality standards and that all assets and information held in the proprietary database are anonymized according to the Uniform Standards of Professional Appraisal Practice (USPAP) as issued by the Appraisal Standards Board of the Appraisal Foundation. Levels of Collaboration “Off the Charts” One thing that stands out at Walker & Dunlop amid the myriad layers of products, processes, and awards for excellence (see sidebar) is what multifamily executive vice president Donald King describes as “a level of collaboration that is off the charts.” King’s responsibilities include strategic development, growth, and product development on the company’s Freddie Mac and Fannie Mae lending platforms, and he says the job is made easier by the amount of collaboration between company verticals that is simply a part of Walker & Dunlop culture. “We have capital markets, which is our mortgage banking operation, a HUD vertical, the multifamily side, and a lot of different originators and teams across the board,” King explained. “If you had told me that these groups would work so closely together before I came on board, I would never have believed it. In this culture, however, different people are able to see the amazing successes that come with partnering with different skill sets and it means we better serve our clients and provide better solutions.” King cited an example of a multifamily deal that his division was working on recently in which the client expressed an urgent need to lock the interest rate before a Fed announcement later that afternoon. The committee package had not been completed yet since the deal was scheduled to be presented to the company’s loan committee and have the interest rate locked the following week. “This was a large deal; it needed to go before our large committee that includes people like our president and our CEO,” King recalled. The ask seemed too big to accomplish, but King and his team were willing to try. “My CEO, my president, and my chief credit officer all agreed to take enough time out of an important board meeting to get that deal approved,” King said proudly. “We turned a commitment around to that borrower by locking their interest rate before the announcement and accomplishing in hours what should have taken days. We are a large company and enjoy all the benefits that come with our scale. That we are as nimble as we were when we had fewer than 150 employees is incredible.” That level of collaboration and customer service extends throughout all levels and divisions of Walker & Dunlop, added Sheri Thompson, executive vice president of affordable housing and investment management/proprietary capital. She described a recent transaction in Maryland where the client was seeking to acquire 900 affordable workplace units. “Maryland is a high-cost area and there is a huge need there for affordable housing,” Thompson said. The sponsor had initiated the move toward affordable housing, but they wanted to create the best scenario for future residents possible. Walker & Dunlop identified a strategy that would actually reduce rental rates in some of the units after closing: a new Fannie Mae product called the SIA (sponsor-initiated

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The Co-Living Strategy

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A Proven Approach That Leads to Increased Profitability By Frank Furman Today’s housing market is not for the faint of heart. From delays in permitting to rapidly shifting moratoriums, to inadequate rent relief programs, being a property owner has never been so challenging. For those of us paying attention, though, this challenging environment is also leading to a bevy of new opportunities. One growing trend is co-living. According to Cushman & Wakefield, the co-living sector grew to more than 7,000 beds by the end of 2019. This is not surprising — more companies have entered the space recently, creating purpose-built co-living units, converting multifamily units or even turning hotels, warehouses and houseboats into communal living. In fact, this number is a big under-representation based on what I’m seeing. My own co-living company, PadSplit, already offers more than 3,500 units today, and we plan to triple this number by the end of 2022. So, what is causing all this interest in co-living? Shared Housing is Already a Proven Approach There is a lot of buzz about co-living lately. But many people do not realize that co-living is actually not a new idea at all. Co-living, or as it was called, boarding, was an extremely popular and widely accepted form of housing throughout the 20th century. Many individuals who worked in factories boarded. Families lived in duplex homes alongside other families and shared common areas. Net: this isn’t a new idea at all, but rather the rebirth of a proven concept. Of course, we’ve always had co-living for college towns and senior housing. More recently, AirBnB deserves credit for normalizing the idea of sharing a home to increase profits. Co-living is a different approach for a different use-case, sure, but “house hacking” overall is now a common practice for new and experienced property owners, and in every city in the U.S., not just vacation destinations. The Numbers Don’t Lie: Co-living is Leading to Increased Profitability The other big reason co-living is taking off right now is because of the increased profitability operators are seeing from the model, which are in part due to the demands from today’s housing market. Regardless of where you live, there is a shortage of housing inventory for both buyers and renters. This shortage is caused by a myriad of issues from over-reliance on single-family housing creation, to pandemic effects, to the changing size of U.S. households. For the latter point, consider this statistic: according to AARP, in the U.S., 73% of the population is made up of small households, but only 12.5% of the housing stock comprises studios and one-bedrooms. Thus, no matter how you slice it, there is nowhere near enough housing supply today to meet surging demand. Co-living provides an attractive and pretty simple solution when you think about it. We can take the existing single-family homes today, create a few more bedrooms, and instantaneously create more supply. In doing so, property owners are also maximizing their net operating income generated by square foot. We have certainly seen this at PadSplit. Over the past four years, our property owners have increased their NOI by more than 2X when converting their homes to co-living through our model. Another financial benefit that appeals to property owners is increased diversification for their real estate portfolios. Co-living is a different type of asset class from offering an entire single-family home to one family as well as a different use case from AirBnb, which is more seasonalin nature. Introducing co-living into your mix immediately allows for further risk mitigation since it is essentially getting into multi-family investing with a lower barrier to entry. Doing Well and Doing Good in the Community Profitability alone is a big driver, but co-living is also meeting the moment we are in. With record low levels of inventory, and increased demand that leads to a higher cost for traditional rentals, it is easy to see why the affordable housing crisis is only getting worse. Building our way out of the crisis is too costly and slow, so it is necessary to make better use of the residential resources we already have. Co-living spaces, regardless of the audience they are intended for, are almost always more affordable than median rents for traditional studio or one-bedroom units. As a result, co-living enables operators to not only do well financially, but also meet their community’s needs, whether it is for young professionals moving to a new city or in the case of my company, offering workforce housing close to job centers. Like it or not, landlords get a bad rep — so why not do well and do good? How to Get Started in Co-living If the above points were not enough for you, another proof point is that with real estate, those who show up early often realize the biggest benefits. Look back to 2008 and 2009: the independent real estate developers who scooped up as many single-family homes as they could are certainly seeing the rewards from taking on that risk. The same can be said for co-living. Operators who get in early on the model will stand to benefit most as the trend continues to take off. To be fair, there are some challenges with co-living. There’s a steep learning curve for buying and readying the homes, as well as integrating new technologies for payments. There is much to learn about efficiencies for shared utilities and common spaces. There are regulations to be mindful of as well. But at PadSplit, we talk to property owners everyday who are fully bought-in to the model and most are doubling down in the space. In fact, 70% of our property owners choose to expand with us and offer more units after their initial commitment. For anyone considering co-living, I advise speaking with property owners who have entered the space before. And as always, do your homework to partner with credible companies and marketplaces who are familiar with the concept. There is no question that co-living is a

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