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Q&A With Radian’s Rebecca Smith

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A Conversation About Past, Present and Future Rebecca Smith is vice president of business development for asset management (including single family rental) with Radian. She has more than 20 years of experience in the Real Estate and Mortgage Default industry. Smith helped create a vendor network and establish best practices for the valuations operation, which led to her managing the vendor network for all of REO management. In her current role, she continues to support business growth by managing communications, maintaining strong relationships, and leading the company’s initiative of providing the highest level of client service. Can you share a little about your background in the asset management industry? I started my career in default servicing in the late 90s and moved into REO Asset Management during the Great Recession period. Since joining Radian in 2008, I have held management positions in Asset Management, Valuation Services, Vendor Management, Client Relations and currently in Sales and Business Development. Throughout my career I have worked with National and Regional Banks, GSE’s, Private Equity Firms, Mortgage Servicers and Investors of all kinds. Each has their own approach to residential real estate which has allowed me to develop broad perspective and insight. How has the industry changed throughout your career? The mortgage and real estate markets are cyclical, and I have seen it all over the last 20 plus years. When I first entered the default servicing industry, default volume was steady. But during the financial crisis in 2007-2010, defaults and real estate owned (REO) volumes skyrocketed to at an all-time high with some listing agents managing 200-300 REO listings at a time. When institutional investors began scooping up these assets, it launched the single-family rental (SFR) asset class. Since then, SFRs have been gaining popularity and maturing into a highly valued asset class. Meanwhile, REO volume has dwindled to all-time lows. To keep up with these shifting market conditions, our industry has adopted new technology to make us smarter, faster, and more agile. Technology has made a huge difference in how business is done now compared to early on in my career. We now have portfolio management tools, property management workflow systems, and valuation tools that use artificial intelligence, automation, and machine learning. How has the COVID-19 pandemic shaped the sector? The effects of the COVID-19 pandemic have had a striking impact on the real estate market over the last two years. It has created challenges for many in the REO industry, while dealing major gains to those investing in SFRs. The home, already the most valuable asset for many, became the safe haven for millions of people working from home. Historically low interest rates, shifting preferences for suburban housing, and remote work trends have driven demand for bigger houses away from crowded urban areas. But with housing supply at historic lows, competition has driven price appreciation higher and higher. By the end of 2021, the median estimated home price in the U.S. rose to $307,022 compared to $252,597 recorded at the onset of the pandemic in March 2020, according to the Radian Home Price Index provided by Red Bell Real Estate, LLC. And, as more people have been priced out or frightened away from the competitive purchase market, the demand for single-family rentals has exploded. Meanwhile, for much of the pandemic, defaults were halted. Under the CARES Act, borrowers with a pandemic-related financial hardship and a government-backed mortgage were entitled to up to 12 months of forbearance, allowing qualified homeowners to defer their mortgage payments for up to a year. Over the course of 18 months, the Federal moratorium on single-family foreclosures and evictions was extended numerous times and additional protection against foreclosure for post-COVID defaults were put in place by the Consumer Financial Protection Bureau (CFPB) through the end of 2021. These measures allowed homeowners who may have been unable to pay their mortgage to stay in their homes. For nearly two years the foreclosure and REO market remained dormant due to the moratoriums. This has been a challenge for practitioners in the default space who have been sitting on the sidelines. What current trends are you seeing for assets? There have been several interesting trends in response to the current market dynamics. Despite the competitive market offering major leverage to sellers, many homeowners are staying put and holding on to equity or making the best use of it. Consequently, supply remains extremely low. In fact, in December 2021, the number of actively listed homes for sale was at the lowest level ever recorded by the Radian Home Price Index since it began tracking in 2007. In response to that, investors are getting creative. We saw an uptick in rehabs over the last year, but, unfortunately, supply chain issues and labor shortages across the country have thrown a wrench into projects. SFR investors have turned to creating their own inventory with the emergence of build-to-rent (BTR) communities. And, while some iBuyers have struggled, overall iBuyer activity and consumer direct acquisitions remain steady. What challenges have you observed over the last year in the SFR market? While limited supply and high demand continue to make acquisition challenging, the biggest story of 2021 was a shortage of materials and labor that disrupted creation of new housing supply. Beginning at the onset of the pandemic, the global supply chain has been under extreme strain. Bottlenecks at shipping ports have tied the global fleet of container ships in knots, triggering a surge in the cost to ship materials. There are also shortages of essentials like paint, nails, windows, and lumber driving prices higher and creating major delays to receive materials. On top of all this, the construction labor market is severely understaffed as many skilled workers left the trade during the pandemic. According to Associated Builders and Contractors, the construction industry needs an additional one million craft professionals over the next two years to meet demand. What opportunities are there for SFR investors in this market? Build-to-rent will remain a key opportunity for SFR investors, as the housing shortage is

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Property Technology Is Not Going Away

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Give Your Residents the Amenity They Are Asking For By Marshall Friday Multifamily investors across the country are asking the same questions regarding how to gain and retain residents. The coronavirus pandemic, for all of its struggles, actually brought about rapid changes regarding technology adoption in the multifamily space. A sector that is usually a laggard with change was ready for a makeover. Enter property technology, or as it is more commonly referred to, “proptech.” Proptech means different things to different people, but essentially, it is the usage of technology and software to assist in today’s real estate needs. For many, the shift to self-guided tours was self-evident. There was a growing need, out of safety and concern, to allow prospective residents to tour a property with limited interaction with leasing professionals. The simplest way to do this was to repurpose smart home technology that had already begun to take root in the apartment industry. Smart locks became ubiquitous with self-guided tours and the ability to control lighting and thermostats alongside the lock was almost a no-brainer. Before the need was present, several operators had already begun playing in the space. These trendsetters were looking for a way to differentiate themselves from the other properties in their footprints. Early adopters like BH Management and HHHunt made strides toward full smart home integration into their portfolios. Opposite to what one might think, these solutions were not just being implemented in new construction of A class properties. The solution worked very well in retrofit situations for B and even C class properties. Adoption among residents was universal, and several comments from these management companies after implementation indicated that residents really enjoyed their new “fancy” apartment amenities. Implementing Property Technology Let’s take a step back and look at what implementation looks like. When you take the leap into smart home technology, several questions arise: >          “How are we supposed to install this when our occupancy is above 95% without disrupting residents?” >          “How will my staff adjust to the changes?” >          “What happens if my staff is not ‘tech savvy’ and does not understand how to use the new bells and whistles?” >          “Can I afford this, and more importantly, can I make money with this?” Most proptech companies thought about these questions; the retrofit model is actually simpler than one might think. In an average garden style community, a well-oiled installation team should be able to knock out 50-60 units a day. A 300-unit property can go smart within a week. Let’s look at each of the questions above and take a deeper dive. Installing smart home technology without resident disruption is a key focus for all suppliers in the space. It is important to go over the installation timeframe and expectations with the on-site staff throughout the weeks leading up to the implementation. When the onsite staff is trained, they can then begin handing out “flag letters” to residents informing them that a change is coming. Having a partner who can help answer some of the early questions is crucial. Several residents will wonder, “how will I get into my unit if you are getting rid of keys?” With today’s smart lock technology, there are numerous ways to get into your unit. You can utilize a pin pad on the smart lock itself or tap a button on your phone to unlock the door. And with smart thermostats, no more getting up in the middle of the night to change the temperature; just say, “Alexa, drop the thermostat to 70 degrees.” Once the residents use the technology, there are usually no further questions. It is exactly what they have been waiting for! When it comes to staff, there will be several long-time employees who have developed a routine with how they handle issues. Take maintenance, for example. Maintenance staff today receives a notification from a PMS software (like Yardi Voyager or RealPage OneSite) that an AC unit is malfunctioning. They head to the office and check out a key for the unit that called in the request. After they get to the unit, they adjust the thermostat to see what happens to the unit. They head down the stairs and to the back of the building to see what is happening with the AC. When something does (or does not) happen, they head back upstairs and adjust the thermostat again. This process repeats until they have uncovered the root cause. With smart home technology, the maintenance tech will still get the service call pushed from the PMS, but now they get a second push notification from the smart home system. They head straight to the unit (no key needed) and use the temporary code to unlock the door. They can then check the thermostat to see if the issue is there. When they head down to the AC unit itself, they can adjust the thermostat up and down from their phone and service the unit without having to traipse up and down the stairs. When they are done, they do not need to go back to the clubhouse to check-in the key. What could your staff do with that time savings? How much more efficient would they be? Implementation Cost and Benefits Lastly, several operators wonder about the cost of implementation. While there are upfront costs (most providers charge $500-$1200 depending on the level of automation desired), these costs can be allocated to a CapEx budget. There are also software fees with most smart home providers, ranging from $5-$15 per month per unit. Early adopters of smart home technology are universally charging this back to the residents, at a premium! While they are paying $10 to their provider, they are charging the residents (either as a part of rent or as a technology amenity fee) between $45-$55 on average. This is not unexpected either. NMHC’s recent survey reported that not only are residents asking for smart home technology (between 65-80% of respondents are looking for it), but they also expect

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Improving Quality of Life for Residents

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Focusing on Sustainable Communities and Eco-Friendly Projects By Jordan Kavana The rise of the Coronavirus in 2020 marked a before and after stage in the real estate industry. As jobs became remote, and various areas shut down, a vast population from the North started migrating at faster rates than ever towards the South, which brought firms, partners, and CEOs to reorganize their business ideas, and changed the way in which investors perceived stable markets. Following studies developed by Forbes, and analysts’ columns detailing the future of real estate, Americans are now seeking “warmer, healthier, less dense and more mobile places that offer access to the outdoors and more open spaces.” As investors and developers, it is important to understand what causes such a change and analyze what communities need and want in the forthcoming years. These new features are encompassing the fact that several sectors of the US population realize that they must adjust to a new form of life. Being able to grow within a community that seeks to improve one’s well-being, and includes amenities to avoid underlying conditions, ensures that residents will feel safer and will have the space to accommodate all their needs despite a global pandemic. As 2022 begins, and businesses adjust to the “new normal,” there is a clear statement one can be certain of: Health Comes First. Health Comes First Previously, real estate trends focused on the commercial side of projects, which often prioritized structure, feasibility, and convenience. However, most companies did not take into account the carbon footprint that new constructions left behind, nor the communities’ well-being through the usage of non-toxic/sustainable products within them. Often, such products have been thought of as high-cost luxuries which do not benefit companies within the single-family/multifamily residential space, but rather, products that imply additional costs and decreased revenues. Nonetheless, Transcendent Investment Management (TIM) has observed a current rise in healthy communities. Since 2008, The Private Equity Real-Estate Investment Firm has centered its strategy on analyzing the intrinsic value opportunities of developing projects that are energy-efficient and revolve around well-being and mindfulness. Studies performed by the US Green Building Council (USGBC), which distributes the Leadership in Energy and Environmental Design (LEED) certificate, demonstrate that green communities decrease their energy expenditure by at least 25%, operating costs by 19%, and improve revenues by 9%. Thus, the innovation taken into account when developing a new BTR project would not only deem profitable, but also increase the quality of life of all people, not just a select few. Along with its Build-For-Rent Collection (2019), TIM has decided to take on the challenge and launch the newest “CleanLiving Health and Wellness” subsidiary. It is envisioned to become a collection of communities that combine technology, programming, and amenities designed to connect physical, mental, and spiritual health with real estate. Recognizing that well-being starts at home, and by implementing multi-purpose rooms, community gardens, and walking trails, the tenant is seen as a human being who can develop their own lifestyle revolution at a low financial expense. Inclusively, the company has the purpose of fulfilling the Six Core Pillars of Health (Supplement, Movement, Mindset, Nutrition, Diagnostic, and Sleep) by establishing healthy partnerships with companies that have the same mission as CleanLiving. In terms of the two largest pillars, Supplements and Movements, the subsidiary has a team composed by Kimmi Le, PharmD, that advises on aiding tenants through the use of vitamins, amino acids, and food nutrients. Regarding Movement, the green areas will be constructed in a manner that will allow community members to thrive and develop leisure activities in nature, such as jogging, and outdoor exercises. Achieving Certifications All the above will be complemented by aiming to achieve a Green Building Certificate. By utilizing energy conscious products, eco-friendly paint, sustainable materials, and Smart Home technology, the communities should utilize fewer resources, produce less waste, and enhance the use of fresh air, sunlight, and natural waterways. It is important for the team to comply with all the requirements to obtain certifications such as LEED, Energy Star, or the Living Community Challenge Certificate. These certifications not only focus on the decrease in community energy & water usage, but also on providing a better quality of life. Thus, by maintaining an eco-friendly structure to allow bikeways & transport access, and by complying with environmental laws, both the walking and livability scores of the areas will increase, promoting the installment of similar homes/communities. Although feasible, fulfilling all aspects from the planning phase to the execution phase is a process. Each member of the team must comply with all the regulations on the areas they are covering. The purpose is to achieve the firm’s goal from a health and wellness spectrum. Nonetheless, deciding which products should be implemented according to the location, costs, and difficulty level must also be discussed with the builders and evaluated before construction begins. Following the COVID-19 pandemic, the supply-chain restrictions have also represented a hurdle within the industry. Material costs have increased which raised the total cost of construction. Therefore, the firm’s experienced team must work with different options and available resources. This evaluation is imperative, especially when it comes to complying with and evaluating certifications such as LEED’s requirements. A minimum number of points must be obtained in 7 categories: Energy and Atmosphere, Materials and Resources, Indoor Environmental Quality, Innovation, Location and Transportation, Sustainable Sites, and Water Efficiency. Each of these have pre-requisites that must be considered, and the team must decide which areas should be prioritized when choosing amenities and projects. Ultimately, the purpose of the USGBC and equivalent associations is to ensure the real estate industry has a positive impact on the environment. The objective is to improve the quality of life of residents by focusing on their mental and physical health through diverse programs, and healthy and eco-friendly amenities paving the way to creating better and safer homes for all.

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