Build-to-Rent in a Brave New World
Global Real Estate Services Combines Personal Services and Technology for Investing Success from Start to Finish
By Carole Vansickle Ellis
Mike McMullen, founder and CEO of Birmingham-based Global Real Estate Services, started investing in real estate in 2002 at the behest of his accountant. “He asked me why I had so much money in the stock market when I knew nothing about it and suggested I work in what I know: real estate,” McMullen laughed. “So I started buying and managing investment properties.”
While the humble beginnings of Global Real Estate Services, a family of companies that today covers all aspects of single-family residential real estate investing from building to renting to selling, sound relatively simple, McMullen’s operation did not stay simple or small for long. “When I got started, I was working with my wife on our own properties, but we eventually opened a rental management company, started selling to investors, and used the same formula we had used personally to build all of the companies in the Global Real Estate Services family,” McMullen explained. “We are the original build-to-rent company. We have been building a build-to-rent machine for nearly two decades at this point.”
Global Real Estate Services consists of three companies: Prominence Homes, which specializes in “build-to-rent” single-family homes that both individual and institutional investors purchase as long-term rentals, America’s Rental Managers, which operates throughout the southeast and manages more than 1,500 doors for more than 1,000 real estate investors, and Mike McMullen & Associates, a real estate brokerage with clients in 24 states and across 17 countries.
Despite its size, the company maintains a highly personalized relationship with every client.
“We treat every property as if it is our own, so when you become a client, you are coming into a family,” McMullen explained. “We are very intent on listening to what the goals of the investor really are.”
That close attention to investor goals has paid off, with some of McMullen’s earlier clients already achieving goals like retirement in their early 60s. “All they do is travel all the time and count their money – and that was their goal,” McMullen said proudly. “They wanted to be in a position to really enjoy retirement, and it was fun to be a part of that and know we helped make it happen.”
A Southern Approach to Real Estate
Perhaps one of the first things investors learn from McMullen about his operations is that he is intensely proud of his southern company and its southern heritage. Global Real Estate Services was founded in Birmingham, Alabama, and is actively building, acquiring, managing, and selling properties throughout the highly attractive southeastern region of the country. It is more than just location for McMullen, however. His “southern company” is a way of doing business. “We will travel the world for our investors,” he said, noting that he has flown more than 3 million miles in order to meet investors face-to-face and make sure he understands their financial goals.
“We are southern people, so we want to see who you are. We want to enjoy working with you and for you to enjoy working with us,” he said. That determination to keep interactions personal was challenged in 2020 during the COVID-19 pandemic when many businesses like McMullen’s drew back, laid off workers, and did their best to take things “virtual” as the world shut down. McMullen, typically, went in the opposite direction with the full support of his executive team: Terri Nava, COO of America’s Rental Managers, Misty Glass, CFO of Prominence Homes, and Scott Underwood, chief development officer for Prominence Homes.
“I pointed out to them we have never won by following what everybody else is doing and we decided to not change one thing [from a production standpoint],” McMullen said proudly. “We increased production 50 percent. We never changed our hours, and we never laid people off. It kept us all sane.” While Global Real Estate Services was willing to meet remotely with clients who wished to do so, no one who wanted a face-to-face meeting with McMullen was denied. That dedication and clarity of purpose paid off, and McMullen and his partners invested in a private jet so the team could travel without uncertainty about flights, changeable health policies, and the increasingly controversial hygiene theater that was taking over the country at that time.
“It was a great decision because it enabled us to go into three more markets much more quickly than would have otherwise been possible because now I can get to those markets in a matter of 45 minutes on the plane. Everything comes with opportunity,” McMullen said. He added proudly, “Because we remained open and doubled down, we were able to meet client needs in terms of inventory and services while providing stability to our employees. There was no confusion or uncertainty about our companies. We were open and ready to meet investor needs. People always need a place to live – even in a pandemic.”
Seizing Opportunities with Nerves of Steel
One of the most important characteristics of the entire Global Real Estate Services family is a willingness to identify opportunities and then act expeditiously and decisively. In the wake of the housing crash in the mid-2000s, McMullen and Glass, who is his sister in addition to co-heading up Prominence Homes, began actively accumulating land. This enabled the company to ultimately get a huge head start on the build-to-rent trend – “We were build-to-rent before it even existed,” McMullen likes to say – and has also given them a huge advantage in today’s land-starved market. “We have a whole division headed by Scott Underwood, the third principal in Prominence Homes, dedicated to going out and finding land, so we are able to have between 200 and 400 lots in front of us every month,” McMCullen said.
Glass noted that even as acquiring land has become more difficult, the company’s established relationships with bankers, developers, and other real estate and finance professionals enables Prominence Homes to find and secure land off-market.
“We buy anywhere from 25 to 60 lots at a time, and we work in phases,” she explained. This enables Prominence to contract with developers so that they are constantly creating more inventory for their asset-hungry clients. Even better, Glass said, unlike most builders who are bemoaning a lack of built-ready lots, Prominence Homes has access to plenty of lots and rental assets.
“We do not expect a shortage of land at the moment,” she said. “We are good for at least three or four years with our land position currently.” Because the Prominence team utilizes a careful process of market evaluation before pulling the trigger on land acquisition, Glass noted that the company is well situated to provide the types of assets that investors currently want most: single-family residential properties.
“When we look into securing land, we are looking at employment, industry, proximity to attractive metro areas, even retail activity,” she explained. “At least 98% of everything we buy is sold to investors, so that market has to be solid.”
Because of their investor-oriented production process, Glass said Prominence Homes is able to deliver product much faster than most real estate investors expect these days. “We offer a fast, efficient build that does not require our clients to deal with the builders or the retail customers (usually their future tenants) but that is highly predictable because we – and they – already know what is going to be in the house before we even put the house in the ground,” she said. “We are very efficient at what we are doing.”
Efficient Growth to Meet Demand
Another aspect of Global Real Estate Services that is characterized by that same efficiency is America’s Rental Managers, which was formerly Alabama Rental Managers until it outgrew its state-based name. “We are dedicated to adding team members and services to keep the level of customer service that we want for clients and customers,” explained Terri Nava, COO and part owner of the company. With an employee roster of about 30 at time of publication, Nava said she expects to have “closer to 40” by the middle of this year.
“The past two years definitely have not slowed us down,” she said proudly. “At the beginning of 2020, we just put our heads down and decided to push the gas pedal – the opposite of what everyone else was doing.” Observing that America’s Rental Managers provides “a necessity for investing clients and customers,” Nava recalled deciding along with McMullen and Glass that if the doors were to remain open, they would remain fully open.
“We quickly discovered that investors did not want to stop investing during the pandemic,” she said, adding that the company’s dedication to growth and “business as usual (or better)” served both clients and the company well. “In a lot of markets, including our home market of Birmingham, most property management companies decided to ‘go virtual.’ That led to a lot of technical difficulties with technologies that had not been used before. We never ran into that because we stayed in the office, stayed in touch with investors, and stayed in touch with our renters. We always kept that personal touch going,” Nava said. “We have had one of the best years we have ever had since our inception in 2006 during a time when everyone else was essentially shut down.”
Nava emphasized that America’s Rental Managers and Global Real Estate Services does not eschew technology simply because they place such a heavy emphasis on face-to-face interactions. In fact, Nava and McMullen recently were featured panel speakers at the IMN Single Family Rental Forum (West) in Scottsdale, Arizona, where McMullen presented on the future of the SFR industry and Nava dealt with how to adopt and implement new and emerging technology in property management.
“Technology is necessary; advancements are necessary,” she said, “but we have built our business on the personal touch. It is something that we will always have in our company, in our teams, and in our culture.”
SIDEBAR 1
The $8 Million “Mistake” that Built a Business
When asked about their “biggest mistakes” in real estate, founder and CEO figures like Mike McMullen often veer toward the mistakes of others, relating anecdotes about how a client or colleague took a wrong turn or executed a near-fatal nosedive toward disaster. As is clearly typical of McMullen, CEO of Global Real Estate Services, when asked this question he turned hard in an unconventional direction.
“I’ll tell you a mistake,” he started off gleefully. “It’s a mistake I made, and it was a big opportunity lost. Cost us $8 million in missed profits!” He paused for emphasis, ready to divulge the “dirt,” as it were, on this major miscalculation. “This mistake taught us one of the biggest things we learned along the way when the company was first growing,” McMullen said. “We were doing a lot of growing in the early days of the company, but it was not necessarily the best growth because although we were growing revenue, we were also growing our expenses and, in the process, we were trying to please everyone even when we knew our way – building a good model in a good system and putting a good product repeatedly on the ground – was better.”
At that time, Global Real Estate Services was working with several of its first international clients, “big shots” who, as McMullen described it, “wanted to tell us how to do things when we knew that was not the way to do it.” The group bowed to the pressure from the new clients and, ultimately, lost out on millions in profits due to inefficiencies and tight margins on projects that should have had far more wiggle room had they used McMullen’s usual process. The clients did not lose money – in fact, they still generated solid returns – but they could have made far more. This was not okay with McMullen.
“What we found is that there are just certain criteria you have to follow if you want to have repeat buyers, repeat customers on the rental management side, and repeat business on the new builds,” he said, his customary geniality shining through despite the potentially sore subject.
Then, McMullen gets to the real lesson learned. “This experience affirmed our belief that you cannot have a good business with a bad partner or client, so we parted ways on the construction side with what was, at that time, our largest partner and client. Now, we follow our criteria and what I like to call our dummy-proof parameters, and everybody wins. Now, we are just really good at saying no!”
SIDEBAR 2
Real Estate Strategy for 2022
Hold On Tight
As the year opens to a sizzling national housing market, huge leaps in year-over-year appreciation in nearly all markets, and the potential for multiple rises in mortgage interest rates by next Christmas, Mike McMullen, CEO of Global Real Estate Services, has a few words of advice for investors. “You better get your hands on everything you can and put those assets on long-term fixed rates right now,” he said firmly. “You’re in a country that printed $16 trillion, and you can’t hide $16 trillion. It has to be eaten up, and it’s going to be eaten up by inflation.”
McMullen said he expects to see what is happening with inflation in other sectors at present to bleed into real estate sometime in the next 12 months. “Think about your daily cup of coffee as an example,” he said. “Two months ago, it was $2.62. Today, it costs more than $3. This is a bad time for people who do not own hard assets, but if you do own real estate, it is going to be a fantastic time. And if you don’t own it yet, then you had better get moving.”
Unsurprisingly, Terri Nava, COO of America’s Rental Managers, said her division is gearing up for an extremely busy 2022 as more investors realize just how imperative good property management is to the ultimate return on investment in a rental asset. “Investors nearly always dive deep into the numbers on the investment side, but historically a lot of them have not considered the importance of property management,” she said. In the wake of the COVID-19 pandemic and the vast array of rent- and evicted-related health policies that emerged with it, the importance of property management has certainly taken center stage. “I expect that 2022 will still have a supply-and-demand issue for most markets,” Nava continued, “and as you know, Prominence Homes already has homes under construction and many properties already sold. America’s Rental Managers are ready to help investors manage those new assets.”
In addition to worries about the availability of lots and land for development, supply chain issues are an ongoing concern for many build-to-rent companies and their clients. Misty Glass, CFO of Prominence Homes admitted that access to building materials is a concern, but expressed confidence that 2022 would hold some signs of improvement – at least for her company’s clients. “We have been working hard to expand the number of manufacturers we are using and also to stay in daily contact with our materials representatives,” she explained. This will help Prominence access kitchen cabinets, for example, at a time when the average wait time is more than three months. “Whenever cabinets come into an area where we are building, we are first in line,” Glass laughed. “Supply chains are annoying and difficult to maneuver, but we make it happen.” She noted that Prominence Homes is dedicated to using the same house plans, with minor modifications, and processes in every project, which gives the company a huge advantage when it comes to abbreviating supply-chain delays. “We can order materials right down to the cabinets two weeks before we pull permit because we already know what is going into that house,” she said.
