REI INK

Asset Management

Becoming Pet Passionate

Spread the Word – and Stay Pawsitive By Victoria Cowart, CPM Are you acquiring residential rental property and wanting to start on the best foot? Here’s a question that will impact approximately seventy percent of your renters. How will you respond to pets in your rental properties? Will you prohibit pets? Will you become pet-friendly? Or will you push yourself and your success by becoming pet passionate? Available data today says 76% of the property management industry consider themselves and their rental properties pet-friendly. Contrast that with those seeking pet-friendly housing, with 72% saying it’s hard to find. Also, consider that somewhere north of 90% of residents and property management professionals agree that pets are important family members. The Industry Response The rental property management industry today has a wide variety of responses to pets. Some companies prohibit cats and dogs in their rentals, some permit pets, and even have no restricted breeds of dogs. In contrast, other companies have ten or more restricted breeds. Some companies have no weight restrictions, while others have varying weight restrictions from 25 to 100 pounds. These policies are all over the map. So again, what will your pet policies and pet restrictions be?   And if you’re willing to permit pets, where do you stand on pet-related fees or deposits? The industry has pet rents, nonrefundable pet fees at move-in, and occasionally additional deposits as well. Some areas of the country have regulations on these rents, fees, and deposits. How will you structure those? As you continue or begin new property management endeavors, these are great questions to ask yourself. But you may ask yourself again, “Why is it so important?” From a human perspective, pets promote relaxation, reduce loneliness and depression, and reportedly caused their pet parents to report a higher life satisfaction than non-pet owners do. One study showed that 80% of pet owners say their pet makes them feel less lonely, and 54% connect with others more readily. Pre-pandemic, one in ten adults would raise their hand and admit to being people living with a mental or emotional disability. Would it surprise you to learn that it is now four in ten? And where does, if it does, that factor into your policymaking in this arena? Pawsitively Exciting But let’s not shy away before we’ve given this a full once over. Let’s quantify this a bit further. Twenty-seven percent of households in the country have children, whereas 70% of households have pets. This means that today’s households are more likely to include pets than children under the age of 18. Our most extensive group of renters, millennials, are very pet enthusiastic. Seventy-five percent of people in their thirties own a dog, and 50%  of people in their thirties own a cat. The resulting pet population is astonishing, at 230M+ cats and dogs in our country in 137M+ households. Those are statistics that are hard to stare at for long if you’re thinking of being less than pet friendly, but pawsitively exciting if you’re on the road to becoming pet passionate. As you read this, you may be saying, “But they make such a mess in rental properties.” And while many share that sentiment, there are statistics on this as well that are worth considering before you decide on your pet policies. One source said, “Pets are a safe bet in the rental housing industry.” “How so?” you might ask. The statistics show that only 9% of pets caused damage and that the national average value of that damage is only $191. With that said, what do your customers, renters, really think about pets in rental housing? Seventy one percent of renters know that pets create community—bringing people together. And not surprisingly, there was a better than seven out of ten correlation between the presence of pet-related amenities and the likelihood of rentals and renewals. Beneficial Results of Being Pet Passionate Studies show several beneficial results when we become more pet passionate about our policies. Among them, an increased disclosure about pets, leading to fewer unauthorized pets, a decrease in the risk of unvaccinated bites, and the creation of a tie that binds — community. Additionally, you receive more applications, more potential renters per available rental, a competitive edge, and faster and easier leasing. Eighty-three percent of property managers say their rentals rent faster, and 79% say their rentals are easier to fill with more inclusive pet policies. Are your levels of pet passion on the rise yet? Let’s get even more specific about the areas of enhanced performance. Turnover is lower in more pet-inclusive rentals. \Pets are a reason for turnover 24% of the time. With more inclusive pet policies, the occupancy duration is longer as well. Instead of 18-month tenancies in more pet-prohibitive rentals, pet-passionate rentals can have renters for 27 to 46 months. And with an average December 2022 rent in the country at $2007 per month, every month of additional tenancy counts. With even one extra month on average, that’s $2007 in additional rent and better than a $40,000 boost in property values at a 5% CAP rate. And in addition to additional months, renewals are enhanced as well — with one pet-passionate PetScreening partner reporting a whopping 80% of pet-owning residents renewing their lease. Eighty percent renewals, anyone? With reductions in turnover, you will save money marketing your vacancies. The National Association of Realtors says landlords spend less than half as much money advertising their pet-friendly units. And let’s be sure to address the ever-present pressure — vacancy. One study revealed that pet-friendly rentals have a vacancy rate that is 4% lower and that their vacancies rent ten days more quickly. With all these statistics, what are your reasons for remaining pet-prohibitive? Or are you already pet friendly? Pets make our renters happier, create community, increase their length of stay, increase revenue, decrease vacancy, and do wonders for your bottom line. Become pet passionate, spread the word — and stay pawsitive.

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Managing an SFR Asset

Save Money Through a Preventative Approach By Vincent Deorio As so many know, the end goal of asset management is to maximize net operating income (NOI). There are three primary ways to achieve a high NOI — increase revenue, decrease vacancy, or decrease expenses. During the period of resident occupancy, above all else, increasing resident satisfaction through effective property management is the most valuable approach. This means not only being responsive to property maintenance requests, but also to any other resident inquiries. This focus on resident retention will always be a preeminent factor for asset management in a wide variety of housing typologies. According to John Burns, the average single-family rental (SFR) REIT has an annual turnover rate of 23%. This means the average resident stays for just under five years. This is a good indication of the “stickiness” of typical SFR residents. In 2018, the average turnover was 33% which is a three-year average tenancy. As residents stay longer, it is important to deliver a home with durable systems and sustainable materials and landscape design choices. And it is also important to perform ongoing asset management efforts even while existing residents are in place. One of the most important best-practices seen in the single-family rental market is that of the midyear checkup. These recurring six-month inspections allow property owners to have an improved peace of mind and allow property managers to stay ahead of maintenance challenges. Conducting a pre-inspection prior to move out is also a key step to reducing turn times. The Five Key Building Systems For Long-Term Success There are five major components that drive the success of any single-family rental: The roof, plumbing, electrical, structural, and HVAC systems. Within each category there are items which require preventative maintenance in order to best manage the asset. For example, gutters need to be cleaned regularly, especially in the Fall and Winter seasons. If not, water can back up and impact both the roof and structural systems. An HVAC system with R-22 refrigerant should be monitored carefully. R-22 is no longer produced, which will lead to high repair bills. As a result, it is wise to replace the entire system rather than spend $1,000+ on a temporary repair.  Water intrusion is the single biggest risk which can quickly deteriorate a home. Water can enter via plumbing challenges, structural problems, and certainly via faulty roofing systems. One such example is that of negative grading near a home, which can cause leaking into the basement. If not addressed, water intrusion could cause major damage to the foundation of the home along with ruining the interior finishes. Damage from this scenario could easily reach the tens of thousands of dollars. The Atlas Real Estate team found this recently at a brand-new rental home where the soil was not properly compacted at landscaping, causing a miniature sinkhole. The foundational implications could have been catastrophic to the asset if not found through proactive inspection. Preparing For Resident Turnover Ultimately, managing turn times is critical to decreasing overall vacancy. In order to achieve this, asset managers should inspect the property prior to resident move out to generate a preliminary scope of work. This inspection should be conducted very shortly after notification of lease termination and should be conducted by a team of hands on, qualified systems experts. Any pre-moveout inspection should begin with an assessment of the five major systems listed above to evaluate their expected remaining useful life. If any component has less than five years left of useful life, it is a candidate to be replaced, due to the resident “stickiness” mentioned previously. The useful life of systems depends on market, maintenance, and material cost and availability, so this step will take a qualified professional to assess. After the systems are evaluated, managers should then review paint, flooring, appliances, countertops, and fixtures, with an eye toward lining up crews during and after the resident moves out. A primary goal during any resident turnover is to replace high-wear items, such as carpet, with longer lasting hard surface flooring such as vinyl plank. While this generally costs more up front, these materials are proven to bring higher rent rates and last significantly longer. Carpet has an expected useful life of seven years and is often viable for less time in high traffic zones. Vinyl plank flooring can last for at least 20 years for only a nominal upfront cost increase compared to carpet. Replacing laminate or tile countertops with quartz also generates a high return on investment. Further, quartz will last through many turns, whereas laminate often needs replacement every one or two turns. The historical industry rule of thumb for SFR unit turnovers is one day per $1,000 of cost. At Atlas Real Estate, our team has been able to deliver turnovers below that cost, at an average of $4,500 and five-days per turnover. In today’s market, flush with labor and material shortages, very few operators are achieving the historical standard, so this achievement is particularly noteworthy. The Atlas team attributes much of this performance success to the smart decision making and proactive measures made before and during resident occupancy. A preventative approach, instead of a reactive asset management approach, will save money and decrease headaches for both the manager and the resident in the long run; and, of course, the property owner most of all.

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Preparing for Rain While the Skies are Blue

Now is the Time to Take Control By Rebecca Smith After a long run upwards, the real estate market seems to have reached an inflection point. Interest rate increases have certainly had a dampening effect, but it remains to be seen whether the inexorable rise in asset values is temporarily paused or if we are now on a downward trajectory just as steep as the way up. The market may be a roller coaster ride for the next year, so should we be preparing for another buying frenzy or bracing for a stream of defaults and foreclosures? The real estate owned (REO) market has been relatively dry over the last two years, but changing conditions could leave lenders, servicers and agents unprepared for a flash flood. Let’s explore the forecast for the REO market and how to prepare for what may be coming. Clouds on the Horizon Today, there are indications that the real estate market which has enjoyed an enormous run-up in the COVID era is now headed toward a correction, the severity of which is unknown. Recent data shows that the record rates of appreciation during the pandemic appear to be waning quickly. August price appreciation slowed to 12%, compared to 15.4% in July according to the homegenius Home Price Index from homegenius Real Estate. The slowing market is a natural result of the Federal Reserve’s aggressive action to combat inflation. Over the course of 2022, the Fed raised interest rates 3.25%. As a result, mortgage interest rates have skyrocketed to their highest in 15 years. In response, the sentiment of homebuilders and homebuyers has turned sharply pessimistic. The Wells Fargo Housing Market Index which measures the outlook of homebuilders has plummeted in recent months from 76% positive in April of this year to just 43% in October. The Chief Economist at the National Association of Homebuilders (NAHB) is sounding the alarm declaring that the nation has fallen into a “housing recession.” This is confirmed by the value of the nation’s largest home building companies. According to the S&P Homebuilders Select Industry Index, which includes home-manufacturing giants such as Masco and Owens Corning, shares have fallen more than 30% this year while the broader S&P 500 has fallen 24%. But No Downpour. . . Yet In the midst of all this gloom, homeowner defaults are ticking up slightly. However, most are pre-COVID or COVID-related defaults, which were paused during the pandemic, finally coming through the pipeline. As of yet there has been no indication of a major storm on the horizon. In fact, the Mortgage Bankers Association reported mortgage delinquencies dropped to the lowest rate ever recorded in the second quarter 2022. Unlike the fallout of the Great Financial Crisis of 2008, most homeowners are not under water on their mortgages. According to ATTOM data from the second quarter 2022, because of the appreciation in home values, 91% of homeowners facing foreclosure now have positive equity in their homes. If they get into trouble, they could still sell and avoid foreclosure. Dark clouds but no storm means we are in a “wait and see” phase. Servicers, banks, owner/operators, vendors, and agents are trying to determine how best to prepare for what is to come. Analysts do not believe we’ll see pre-pandemic REO volumes until possibly the latter part of 2023 with defaults trickling in from now until then at a steady pace. But it’s important to remember that borrowers who find themselves in trouble, perhaps because of a job loss or other life changing event, usually take about 12-18 months before they exhaust all other options (savings, friends and family assistance, etc.) and face a foreclosure sale. Prepare Now and Take Control The last time the real estate market was hit with a wave of defaults and foreclosures was during the Great Financial Crisis of 2008. Back then, few servicers were ready to handle the enormous volume, leading to the emergence of a small industry of outsourcers to take up the slack. As the market gradually stabilized and REO properties were disposed of over time, most of those outsourcers moved on, consolidated or exited the business. Normalized volumes allowed servicers to handle the flow of REOs on their own and many took this function back in-house. So far so good. But if the volume increases again, will they still be able to process REOs with the current staffing, or will they find themselves overwhelmed? This is a good time to ask the question. Servicers are already seeing an influx of homeowners requiring loss mitigation assistance and, as a result, have their hands full carefully navigating legal and regulatory requirements as set forth by regulatory agencies. In such an uncertain time for the market, it would be prudent to make a plan now to handle higher volumes of REOs. That could mean reviewing and streamlining your current in-house capabilities or talking now with an experienced outsourcer. Only a few nationwide outsourcers remain in the market, and they’ve demonstrated enough strength and knowledge to survive when the market was lean and can be expected to have the resources to quickly ramp up capacity. For example, the homegenius family of companies, including its affiliate Radian Real Estate Management LLC, maintains a nationwide network of over 40,000 vendors including contractors, property managers, and real estate agents that can help investors acquire, rehabilitate, and market investment properties. In addition, RREM provides full-service asset management capabilities that can help servicers get the best execution on their properties and potentially mitigate losses after a foreclosure sale. Many things could change in the coming months and beyond. As persistent inflation continues to resist the Fed’s containment efforts, we will likely see interest rates increase further. This will directly impact mortgage rates and contribute to the reality among homebuyers and sellers that we are nearing a peak in house prices. In such a market, residential real estate will continue to offer challenges for investors and servicers who can deploy professional asset management capabilities and skilled experience

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The State of Real Estate Insurance

Investors Need to be Pro-Active Entering 2023 By Shawn Woedl If I could sum up the property insurance market in one word, it would be chaos. If you have been an investor for the last couple of years, you have undoubtedly had a challenging property renewal for your portfolio. You may have dealt with required increases to insurance value or experiencedpremium increases (or both) regardless of your loss history or account profitability. The last couple of years have been challenging, and it does not look like the next 12 to 24 months will be any better. Before Hurricane Ian hit, Florida homeowners were already paying the highest premiums in the country — nearly three times the national average. The state is increasingly difficult and expensive to insure and claims from the recent hurricane will only continue this trend. The aftermath of COVID is still being felt in the United States: rising interest rates, rising inflation, rising material costs, and almost every industry is experiencing labor shortages. These higher material costs and labor shortages are affecting claims payouts for carriers. This may lead to rate increases and even canceled policies or carrier insolvency. Additionally, longer repair periods leave investors missing out on potential rental income. Climate Catastrophes Hurricanes Contrary to popular belief, hurricanes and tornadoes are not occurring more frequently. They are, however, more severe. NASA reports that global warming has caused seas to rise, leading to a higher storm surge and resulting in more intense rainfall and an increase in coastal floods. Tornadoes Even though the total number of tornadoes per year has remained relatively stable, recent years have shown changes in their patterns. Tornado events are becoming more clustered, and evidence suggests that tornado patterns have shifted geographically. The number of tornadoes in the states that make up Tornado Alley continue to fall, although tornado events are on the rise in Mississippi, Alabama, Arkansas, Missouri, Illinois, Indiana, Tennessee and Kentucky. Wildfires Wildfires have been occurring in new territories as well. These fire events are largely taking place in areas of the country that, historically, have been lower for insurers, and therefore were afforded lower insurance costs. Property rates in western states are a fraction of what they are in the Midwest or Southeast. Unfortunately, just one extreme event can drastically affect a carrier or program’s profitability, causing them to halt business in these areas. Catastrophes Drive Up Property Rates According to National Centers for Environmental Information, there were 20 individual billion-dollar weather and climate disasters. What stands out is the diversity of disasters: a winter storm across the deep South and Texas, a wildfire event impacting seven states, flood events in California and Louisiana, tornado outbreaks, etc. And let’s not forget Hurricane Ida, the most expensive hurricane to make landfall in Louisiana since Katrina in 2005. 2022 did not provide any relief for these property markets. The same triggers were seen across the globe again this year. And just when we thought we would make it through the hurricane season without significant landfall in the United States, Hurricane Ian hit Florida. Damage estimations range from $42 to $258 billion. The insurance trend we have seen in Florida over the last few years will continue as claims arise from the hurricane. Climate catastrophes have driven up property rates for everyone, regardless of geographic location or individual loss history. Why are we seeing this trend? Reinsurance carriers are increasing their reinsurance rates for primary insurers. Unfortunately, primary insurers (yourcarriers) then pass that cost on to the end buyer, which is all of us. Looking Forward  The aforementioned factors all contribute to what is shaping up to be a chaotic 2023 property market. Although situations will differ, initial numbers for 2023 renewals show a 30-35% increase in property insurance costs on clean risks. “Clean” means your portfolio has had no property losses and is not located in a region prone to catastrophes such as wildfire, hurricane, or convective storm areas.  If you have had losses and/or your property is in a catastrophe-prone area, you could potentially see a 60-70% increase on your property this upcoming term. We are experiencing a hard property market, and in times like these, you should always shop annually for your insurance. You will get much more out of shopping for benefits, policy structure, and included coverages than you will for price. There is not that much fluctuation between property carriers. The most you can save is pennies on the dollar. Insurance agents that are selling on cost alone are struggling right now. Those that can find benefits and comprehensive coverage for the same cost are of more value to you. A good insurance agent will work with you to find ways to keep your costs stable. If you are comfortable taking on a little bit of additional risk, you and your agent can look at increasing your property deductible, changing your policy form from Special to Basic, and switching to actual cash value coverage instead of replacement cost coverage. Remember, if any of your properties have a lender, you will be required to stay within their insurance lending guidelines. You must check with your lender and insurance agent before you make or request these changes and understand any added risk. Your insurance agent should be an expert and be able to guide you in the right direction while providing you with the positive and negative implications of any changes to your property policy. I also stress the importance of being as proactive as possible with your renewal. Do not wait until the last minute to aggressively shop your coverages and costs, as markets will be limited. Your agent should certainly be ahead of this, but if not, you need to make sure they start shopping your renewal 60 days out. Lenders start requesting renewal proof of coverage from your agent around this time as well.  As an investor, you want the best terms, applicable benefits, and the broadest coverage form. In a hard market, this will be to

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Assistance Animals

Legal Obligations When Managing Rental Housing By Victoria Cowart In operations, we all feel pressured to have a certain depth of knowledge on critical topics. This pressure rises to another level when the subject touches the work of our on-site, centralized, supervisory, and corporate team members. That pressure increases to a whole new level when it touches the lives of our applicants, residents, and possibly even our guests with disabilities. And if that was not enough, this particular topic makes up approximately 60% of HUD complaints. With that, the pressure for operational knowledge and excellence rises fourfold. I am speaking of the rights of our disabled applicants and residents, and yes, those disabled guests “associated” with our residents, to request reasonable accommodations. These rights are afforded to the disabled by the Fair Housing Act (FHA) and the Fair Housing Amendments Act (FHAA). But let’s stop there for just a moment. What is a reasonable accommodation? An accommodation is defined as a change, exception, or adjustment to a rule, policy, or practice in your rental housing—but “reasonable.” That is a more subjective point of consideration. So, what is our obligation when managing rental housing while considering the FHA and the FHAA? Let’s start at the beginning. We are legally required to consider all requests for reasonable accommodation, and the requests do not have to come in a particular format or contain specific language. So far, this sounds straightforward. But how do we begin to understand what to do with these requests? In 2020, HUD released its first Notice regarding this topic in seven years. It is the HUD 2020–01 Assistance Animals Notice. It offers the industry excellent guidance, language, and opportunities to improve our work in this subject area. The new Notice did offer the industry clarity on the common language. The over-arching language to use in this topic is “assistance animals.” There are two types of assistance animals: service animals and support animals. Each of these two types of assistance animals requires a different approach when we process the requests. You can think of them as different paths we will travel based upon the type of assistance animal requested. Let’s travel along the first path, that of the service animal. The definition of a service animal is an animal trained to do work or perform tasks for the benefit of the disabled. Throughout the country, except in California, a service animal is simply three things: a dog, trained for a task, for the disabled. In California, other animals can be service animals. Support vs. Service Let’s dig further into the specifics of the processes. For a service animal, we are permitted to ask two questions. Those two questions are: is the animal necessary for a person with a disability, and what work or task has the animal been trained to perform? We can then evaluate those answers to see if they indicate an actual service animal. Occasionally, the answer will lead you to engage further in the interactive process. HUD defines an interactive process as a good-faith dialogue between you and the requester. This dialogue may reveal a possible support animal. This could be the case when a requester says yes to the disability question. Still, their answer to the task question makes it evident that the animal has not had any training to ameliorate one or more of the symptoms associated with the disability. Remember, though, it is impermissible to require any documentation supporting a service animal request. You are not to obtain, or to even ask for, training certificate(s) or documentation from healthcare providers. That said, if the first answer is “yes”; and the second answer is, “Yes my service animal has been trained to wake me during night terrors,” you have a service animal. Conversely, if the first answer is “yes”; and the second answer is, “Yes my service animal sits in my lap and comforts me during intermittent explosive outbursts,” you likely have a support animal. That leads us to our second type of assistance animal, the support animal. Support animals may be animals that perform a task. But because they are not a dog (in states other than California), by definition, they become a support animal. Support animals can also be animals who provide therapeutic emotional support, hence the ESA that we hear about most frequently. On this path, we are permitted to seek documentation from the requester — unlike in the service animal process. We are permitted to look for five things in that documentation. HUD says we have a right to reliable documentation, from a healthcare provider, with an indication of personal knowledge and *confirmation of disability and disability-related need for the requested support animal. Let’s stop for a moment and visit the confirmation of disability. You have a right to require this documentation to include confirmation of the disability only when the disability cannot be visually confirmed or when the individual is not on record or regarded as disabled. So, what does that mean in practice? It means your frontline team members should let you know if they were able to visually confirm that the requester is disabled. If that is the case, you are not looking to confirm the disability in the documentation. Likewise, if the individual is receiving disability benefits or income, as noted in their application, they are considered to be on record or regarded as disabled. Again, if that is the case, you are not looking to confirm the disability in the documentation. Responding to the Request So, with a request for a support animal, you can request documentation. You can look for the items noted above, including the specificity of whether or not to confirm the disability and the documentation in accordance with HUD’s Assistance Animals Notice. If you find the documentation is missing one or more of the items you are allowed to have, you should consider continuing the interactive process and requesting the information in accordance with HUD’s Notice. Please be prompt in your

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The Now and the Future of Asset Management

The Times are Changing and so Should Asset Management Companies By Justin Askew Strategy is everything when it comes to comprehensive asset management. Outside of traditional buying, renovating, maintaining, and selling, it takes a forward-thinking approach to develop and execute an effective strategy based on current real estate market conditions. Pressures from rising interest rates and inflation are likely to be more evident in the coming months, which creates the need for proactive, data driven recommendations for property disposition. Factors for investors have changed in short order. Investors have benefited from low interest rates and a sellers’ market that resulted in appreciating values in most parts of the country from 20% to 35%. Current factors of supply chain slowdowns, cost of materials, rising labor costs and interest rate increases have challenged the potential rate of returns for investors. Investors should understand that times are changing, and the asset management approach needs to adjust accordingly. The decision to rehab, sell as is, or lease the property depends on the type of asset, location, and the condition of both the asset and the strength of the local housing market. An effective approach is having the asset management company coordinate the collection of information from renovation companies, maintenance providers and local real estate agents to provide local knowledge of the asset location. Once the collection of data has been completed, the asset management firm should analyze all the data to develop retail values of the property to ensure the best execution for the asset and to optimize the ROI. Most parts of the country still have a shortage on supply of rental properties and affordable homes to purchase. This has continued the flow of investors acquiring and renovating assets with property values remaining at their current levels. As market conditions adjust, the cost of financing and renovation must be considered. Investors that intend on holding properties for rental should understand the rising costs of ongoing maintenance and property management and its’ potential to continue in the future. A comprehensive asset management process should be a major consideration for the investor. This includes partnering with a vendor that has a deep understanding of each investor’s short- and long-term goals and ensure that the advisor aggregates and analyzes all data to recommend the most effective solution. When this occurs, the upside is always going to probable. Despite record rises in building materials, labor costs and a global pandemic, fix and flip investors averaged 32% returns on investment over the last few years. Investment returns can be sustained with the right asset management. A weakening economy and housing market will impact labor and material costs as supply increases and demand decreases due to inflationary forces. Renovation contractors have started feeling the slowdown from homeowner direct contracts resulting in contractors reconnecting with asset management companies for potential business opportunities. Our vendor management team has reported an increase in new contractors boarding for repairs, inspections, maintenance, and renovation by over 70% from just six months ago. This trend is positive for management companies. Due to our footprint in all 50 states, the recruiting and retention of boots on the ground is key to our success on multiple fronts. Dotting I’s and Crossing T’s with Rehabs or Renovations The approach to a successful renovation for investment assets is to ensure costs are contained. Our team executes this by deploying the specialized contractors needed by the service line for the assets. We utilize boots on the ground estimating to help prevent unforeseen issues and forecast accordingly. By collecting this data upfront and underwriting the estimates to account for actual material and labor costs, we provide real data to our clients to help them factor in overall renovation costs. By combining this with a thorough evaluation of real estate market conditions by reviewing both the sales of retail properties in the given market and the competition from neighboring properties, a comprehensive best execution strategy recommendation can be prepared. The Role of Technology We utilize multiple sources of technology to provide the most efficient and informed asset management solutions. Our proprietary software provides distribution of orders for estimating and project management. This application is used to send and receive data throughout the life cycle of the renovation project. This software also keeps the investor engaged by providing full transparency of the status, to include project progress and expenses throughout the project. We use state of the art fraud prevention analytics and controls and embedded quality assurance and data integrity. We also monitor our contractors in the field and rank them based on performance to track efficiency and quality. We provide a mobile app that affords our contractors with the ability to communicate in real time. This allows for a faster, more accurate means of providing estimates and appeals to contractors by allowing them to save time by submitting bids from the field. This technology is vital to a necessary part of the overall management of the asset as it affords us the ability to receive bids quicker and provide them to the investor for quick decisioning. Valuations and the Importance in a Changing Market Valuation tools and software are instrumental in providing insight on ROI to investors. Advancements in technology, such as the use of artificial intelligence, are being implemented daily to improve the accuracy of valuations. This technology helps determine asset features and, in some cases, the immediate or short term needs for the property. Identifiers like the age of a water heater, roof, windows, siding, and other features enhance the ability to analyze the asset and prepare the best strategy for each property more accurately. The Future The extent that inflation and rising interest rates will have on real estate markets and foreclosures in the near future is unclear. Many within the mortgage servicing industry predict significant increases to levels equal to if not higher than pre-pandemic. Recent trends of REO assets selling quickly have the potential to change as knowledge of individual markets and the factors impacting pricing

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