Build to Rent

The Home Depot’s Path to Pro Program

by Jenna Arca
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Building the Next Generation of Skilled Trades Professionals By Jenna Arca As the skilled trades population becomes increasingly diverse, ensuring accessibility to trades training and resources is critical to bridging the labor gap between the number of skilled trade workers and the unprecedented demand for trade jobs. As an example, 94% of The Home Depot’s Pro customers struggle to find skilled workers. Across the U.S., the need for highly skilled tradespeople remains strong: » There are more than 400,000+ skilled labor job openings. » More than 61,000 hires are needed in construction per month to keep up with growth and the loss of workers. » 40% of construction workers are expected to retire by the year 2031. » There will be over 3.9 million jobs available for home improvement related trades within the next decade. » <3% of high schoolers considered a career in the trades. The Demand for Skilled Tradespeople The U.S. faces a significant labor shortage in skilled trades professionals. This shortage directly impacts The Home Depot’s professional customers, which in turn impacts our customers’ ability to source home improvement services. Through the Path to Pro program, we want to help introduce those interested in skilled trades professions to our Pro customers. According to the Home Builders Institute, the demand for skilled tradespeople in the U.S. remains strong, with over 400,000 current skilled labor job openings. There is a need for over 61,000 hires in construction per month to keep up with job growth and to replace exiting workers. And the U.S. Census Bureau predicts over 3.9 million jobs will become available for home improvement–related trades over the next decade alone. Path to Pro Path to Pro launched in 2021 as part of The Home Depot’s larger initiative to help build the next generation of skilled trades professionals and the Path to Pro Network launched nationwide in October 2022 to solve a top pain point of our Pro customers — finding reliable, skilled labor needed to grow their businesses. The Home Depot’s Path to Pro program offers three options to support your trades career journey. PathtoPro.com This site includes a resource library available in English and Spanish, containing educational how-to guides and video content, training opportunities and a variety of information on different career paths. Its goal is to help individuals better understand the career potential in the skilled trades while also helping them navigate the registration process for the Skills Program and Network. Path to Pro Skills Program This program offers free introductory trades training, also available in English and Spanish, for those interested in pursuing or growing a career in the skilled trades. Participants can take advantage of on-demand content that gives them the necessary training to secure entry level positions in the highest demand trades, including electrical, plumbing, HVAC, drywall and painting. Path to Pro Network This jobseeker marketplace was created to connect skilled tradespeople to hiring trades professionals in the construction and home improvement industries. Skilled trades jobseekers can utilize digital and downloadable guides, available in English and Spanish. These guides help them create a profile, upload their resume and add photos of their work to connect with The Home Depot’s Pro customers looking to hire in their local area. Those looking to hire skilled labor should visit HomeDepot.com/Network to learn more. Whether you are entering the skilled trades for the first time, refreshing your talents, or looking to make a career change, Path to Pro has you covered. With thousands of skilled jobs ready for the taking, making the best career choice becomes easy when you have multiple paths to explore — and will continue to do so for many years to come. If you already work in a skilled trade, this also means it is a great time to increase your skills and continue growing your career. The Path to Pro Network The Home Depot is committed to helping address the growing skilled labor shortage in the U.S. and building the next generation of skilled trades professionals. This commitment allows individuals to access Path to Pro’s resource library, introductory trades training, and the Path to Pro Network, a free jobseeker marketplace created to connect skilled tradespeople ages 18 or older to hiring trades professionals in the construction and home improvement industries. All these resources are available to anyone with internet access — without any cost barriers. Unlike many existing career sites and job boards that may charge fees for accessing premium features or building a profile, registering for the Skills Program and creating a profile in the Path to Pro Network is entirely free. Creating a Path to Pro Network profile allows skilled tradespeople to showcase their trades experience and connect with The Home Depot’s Pro customers who are looking to hire in their local area. Jobseekers can apply directly to open roles posted by The Home Depot’s Pro customers and the hiring Pros can reach out to jobseekers directly with job opportunities that match up with their experience. SIDEBAR A Path to Pro Case Study: Brandon Williams Residential contractor Brandon Williams always knew he wanted to get into the trades. “Growing up, I loved building things,” Williams said, which led him to learn about building as a hobby. “I knew some skills for hobby work, but for an actual job, I wasn’t fully trained, and Path to Pro put me in a position where I could get trained.” To prepare for his first job in the trades, Brandon registered for the Path to Pro Skills Program, which now offers free introductory trades training in both English and Spanish. Hands-on experience made all the difference. “I’d been looking for something in this profession for months before I learned about Path to Pro, but most employers wanted someone with experience,” Williams recalled, “and Path to Pro really helped with that.” After he joined the Path to Pro Network, a potential employer contacted him about a job, and his career began. “Every day, there’s something new, and this is the part I love about my

BTR Is Proving It’s Built to Last

by Greg Godderidge
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Investors are Flocking to BTRs as a High Performing Asset By Greg Godderidge Once occupying a small niche in the market, Build-to-rent (BTR) has emerged as the dominant acquisition model of the single-family rental (SFR) sector. Fueled by the persistent lack of existing homes for sale and growing demand for single-family rentals, BTR came into its own in 2023. The model attracted the attention of large institutional investors who recognize the valuable role BTR can play in creating much needed housing supply and offering high quality single-family living for families who have been shut out of the purchase market. An Urgent Need for Housing Supply Since the beginning of the COVID-19 pandemic four years ago, the housing market has been on a rollercoaster ride. After a frantic homebuying frenzy through 2020 and 2021, the purchase market cooled significantly in 2022 and continued at a slow crawl in 2023. Mortgage rates and home prices surged, and average monthly mortgage payments hit record levels, exacerbating the affordability crisis. With mortgage rates rapidly increasing from 3% at the start of 2022 to nearly 8% in 2023, we saw a new phenomenon, the “lock in” effect, which kept potential sellers unwilling to give up their low mortgage rates “locked into” their homes. This only worsened the enduring housing supply shortage, which is projected to continue through the end of the decade. Earlier this year, Moody’s Analytics estimated there is a total housing deficit of 1.5-2 million units, a number that clearly indicates we are still many years away from a balanced market. The shortage is even more severe for affordable housing. A recent Fannie Mae study estimates a shortage of 4.4 million affordable single-family units for both renters and homeowners. This extreme shortage of homes available for both purchase and rent is one of the main factors keeping prices high, thanks to the imbalance of supply and demand. The Urban Institute addresses this in a new report published in January, “Place the Blame Where It Belongs,” which identifies high home prices are “caused by more robust household formation relative to increases in the housing stock.” The report goes a step further to exonerate common scapegoats, including developers and investors, which it argues are not responsible for the supply crisis. In fact, the report suggests the most critical solution to the supply shortage is the most obvious: create more supply. BTR is helping with that. BTR Helps Create Supply Builders became an important source of new supply in 2023. According to John Burns Research and Consulting, builders made up 30-35% of home sales last year, up from the typical range of 12-15%. However, with prices and mortgage rates high, many prospective homebuyers were edged out of the purchase market. The Wall Street Journal reported the cost of buying in 2023 was 52% more than renting, a 30-year high. In response to this economic reality, a growing number of homebuilders began shifting their projects toward build-to-rent communities. As the current market dynamics favor renting over buying, there is an increased demand for single-family rentals. Multifamily rentals in urban centers are losing favor with the millennial generation as the desire for more space to raise a family and work from home have shifted the preference to suburban single-family homes. Many families would still like the benefits of living in a larger, traditional single-family home, but without the burden of a down payment, high-interest mortgage, and unmanageable maintenance costs. The demand for single-family rentals to accommodate the lifestyle of modern millennial families has driven demand to a new niche market: luxury single-family rental communities with amenities like pools, fitness centers, playgrounds and walking trails. Builders have been working hard to meet the surging demand. According to Census Bureau data, the number of single-family build-to-rent (SFBTR) construction starts were up 33% in 2022, with 69,000 homes under construction. New development surged in 2023 as well. Northmarq’s Single-Family Build-to-Rent Report from December 2023 noted approximately 70,000 single-family rental homes were completed in the first three quarters of 2023, up 35% from the same period in 2022. While this production activity is sorely needed, the BTR industry will not be able to solve the much larger issues behind the supply and demand imbalance alone. The most effective way to restore balance to the housing market nationwide is through federal housing policy. Investors Take Note As the scarcity of resale supply bolstered the demand for new homes in 2023, the build-to-rent market attracted the attention of institutional investors. Institutional purchases of scattered homes cooled in 2023 as home sales plunged nationwide. Investors like Invitation Homes and Tricon turned to build-to-rent communities. A number of large projects were completed in 2023, adding much-needed inventory to the single-family housing market. In September 2023, a joint venture of Tricon Residential, Foremost Pacific Group and Woodbridge Pacific Group opened a 170-unit built-to-rent community in Wildomar, California. Earlier this year, Blackstone announced a $3.5B deal to acquire Tricon, indicating continued interest in the BTR sector from institutional giants. Around the same time, American Homes 4 Rent announced a $625 million joint venture with J.P. Morgan Asset Management focused on constructing and operating newly built rental homes, and Invitation Homes established a new build-to-rent team to manage its construction pipeline. Outlook for the Future There are many reasons to expect long term growth and stability in the BTR market. Multiple trends are converging to drive and sustain demand for the foreseeable future. » The housing shortage is expected to persist for years to come, forcing SFR investors to create their own supply. » BTRs offer investors a differentiated product with similar operating features to traditional multifamily housing. » Demand for rentals will remain high from Millennials and the emerging Gen Z population who may be priced out of the homebuyer market in many areas or who simply prefer the flexibility that comes with renting. » Money continues to flow into the BTR market. Single-family homes built to rent are delivering strong returns to investors. » BTR may

Utilizing Blockchain Technology in the Construction Industry

by Paul Gozzo
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Is It Necessary? Will It Help? By Paul Gozzo New home construction is not broken. In fact, just the opposite; construction has evolved well over the last ten plus years. Builders of all sizes and specialties who build affordable houses all the way up to large custom homes, have adopted many new technologies into their processes. The majority of those innovations have taken place on the materials side of the building equation. These technological advances have historically focused on one area of need with a specific intent to improve that ingredient of the build. This includes concepts ranging from smaller components like leak detection systems to much more robust applications such as alternatives to concrete, all of which will continue to evolve and grow until they become generally accepted pieces of the residential build environment. Lagging behind these mostly material advancements and where we have yet to see any significant improvements is in the way new home construction is financed. We certainly have witnessed incredible amelioration with construction processes such as with prefabricated construction where entire sections of a new house are built off-site utilizing warehouse efficiencies including robotics. The sections are then transported to jobsites and assembled like an adult version of the classic metal toy, Erector Set. And, 3D printing by innovators such as ICON continues to evolve, as well. In fact, Lennar, one of the nation’s leading homebuilders, has partnered with ICON to build 3D-printed homes at a project currently underway in Georgetown, Texas. Yet, the process by which houses are actually built has not changed much at all. While existing processes are not necessarily flawed, there is room for improvement. I believe the advancement of blockchain technology will affect positive change when it comes to scattered site new home construction and specifically, the relationship between borrowers and lenders as it relates to workflow and payments. Blockchain and the Lending Process Historically, a borrower seeking a new home construction loan would submit an application to a bank or private lender and would need to have roughly 10%-30% of the total project cost including lot value in cash to get a loan. Plus, they would need additional equity to make the first set of payments to contractors and municipalities before being reimbursed in arrears through the archaic draw inspection process whereby an independent third party is engaged by the lender to inspect the home being constructed. These inspections can occur 20-25 times during the building process. The inspectors then report back to their client confirming that the money being lent has been spent on that exact project so that the lender can release the next payment to their borrowing client. With blockchain technology, the power to automate all components of the construction process now exists allowing for greater visibility and a faster construction process. For example, draw inspections alone can become obsolete as the need to confirm dollars spent on a project can shift from scheduling third party inspectors for approval to instant verification because blockchain can automate the contractual process and record all of the transactions along the way, including local building codes. While process improvement and clarity between lender and borrower are helpful, the existing methodology works, so this is not a situation where something is broken and needs to be fixed. However, among the many positive potential enhancements that blockchain can offer new construction comes in the speeding up and expediting of the process. For example, in most of the counties where I have built new homes, the municipalities inspect the job five to seven times during construction. This probably will not change any time soon, but if the draw inspection process can be built around these municipal inspections, then in theory the need for third party loan verification approval (20+ inspections) can be omitted and the build process can move along quicker and thus speed up project delivery. Blockchain and Construction Data Another benefit of blockchain technology infiltrating new home construction is in the collection and transfer of construction data at the time of sale. This means that all the details of the newly built house are transferred to the new and subsequent owners upon sale which can be tremendously helpful for homeowners and investor/landlords alike when diagnosing an issue at a later point in time. Think of not only having the product name and serial number for a microwave or AC unit to determine what the warranty status is but having that information in much more detail for every aspect of your investment property. This would include not only data on each big ticket item beyond mechanicals to include plumbing, windows, and doors but also at a more granular level to include paint colors, fixtures, hardware, and lighting, to name a few. Then further out, any additional remodeling work can be documented on the blockchain resulting in a very clear and detailed view of the home from its inception. As an investor, wouldn’t you like to see this level of detail prior to submitting your best offer? Other potential applications include the way subcontractor work is tracked and payments are processed. This would include concepts such as what can be most closely associated with a “score card,” whereby vendors are rated similar to the way you and your Uber driver rate each other. In this case, blockchain can be used to track timelines and budget metrics for each subcontractor culminating in quantifiable performance reporting which is helpful not only to general contractors and builders, but also to contractors (at least the ones that perform well anyway.) Smart Contracts Additionally, if contractors can adopt the same technology as builders, then “smart contracts” can be used as an accountability measure defined in advance between builder and contractor and where automated payments can occur when predetermined milestones are met. By definition, a smart contract is a self-executing contract with the terms of the agreement between the parties being directly written into lines of code. The code and the agreements contained therein exist across a distributed,

Where is Build-for-Rent Headed?

by Adam Stern
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The Market is Still Fundamentally Strong By Adam Stern For context, my firm provides Advisory and Investment Sales Services for regional builders looking to break into or expand in the Build-For-Rent segment, and showing them how to take residential projects and fit them into the Build-For-Rent mold in order to sell their neighborhoods as rental communities to long term buy-and-hold operators. Let’s start with a view of where things just were and where they are right now before delving into what lies ahead. The Past and Present The housing market in general is coming off a white-hot run where everything from resale homes to new construction homes were flying off the shelves shortly after they were listed. But the market changed in Q4 of 2022. There was a tangible and abrupt shift in the buying patterns of investors in the institutional Single Family Rental (SFR) industry, from the largest publicly traded REITS to smaller private equity and privately funded SFR investment firms. I would estimate buying velocity is down now by as much as 80% from a year ago. Firms that were continually buying particular homes in certain markets have shifted to buying opportunistically. This means they are not so much buying homes that fit a fixed set of criteria, but are now looking for homes that both fit that criteria and have a special circumstance that could lead to a lower than market acquisition price. Those firms that have made the shift are now competing with smaller fund buyers (who were generally always buying opportunistically) for that very inventory. So, professional investment firms active in buying both existing homes and new construction homes overall represents a relatively small segment of the real estate market. These firms, until recently, were very actively funneling capital into the housing market, and are now waiting to see where the market is going before resuming business as usual. Where the Market is Headed Some of those firms from large to small that have been actively pursuing both existing home acquisitions and new construction single-site projects (what is traditionally known as Build-For-Rent), seem to be shifting the majority of their focus to just Build-For-Rent. While the overall pace of acquisition in the institutional SFR sector cools, the desire of firms to see Build-For-Rent projects from builders is actually increasing. It’s a very strange time in this still relatively new and nascent market niche. The economy is slowing, inflation is high and interest rates are high, but inventory is still very low in many markets around the country. Builders are looking at investors to be a second option for them to sell their inventory to while still hoping for strong retail sales. Investors are being very solicitous to see that very inventory, but to make a deal work, both sides of the transaction need to squeeze to make deals come together. Investors need to accept lower overall returns for projects in order to make the option viable for builders, and builders need to be good with thinner margins in order to pen a deal to sell all units in a subdivision to investors. It cannot stay like this forever. So, the question remains… Where is Build-For-Rent headed? The highest value opportunities being sought by larger scale investors are single-site subdivisions in prime markets that are large enough to house an amenity like a pool and have an onsite leasing office. If a sub-market within a certain Metropolitan Statistical Area (MSA) is proximal enough to the major population centers in that market, meaning being drivable within 30 minutes to major employers, and close to shopping and retail thoroughfares, those communities have been and will continue to be highly sought after. For a while, there has been talk about the Build-For-Rent trend moving to smaller markets outside of top large markets with populations over 1 million people. I have seen and even attempted to sell projects that fit this mold. It is very difficult to get firms interested in projects in smaller markets unless they are already sold on owning in that market. It is an arduous road. What is happening now on a limited basis and is more likely be the case in the years ahead, is we will see some differentiation in strategies from fund investors where they will do the heavy lifting to get comfortable with certain smaller, tertiary markets and affirmatively start looking for opportunities there. Builders in markets like these will either have to find those firms or set themselves up as evangelists for their particular markets and look to draw firms in with opportunities. This is why Strata SFR was set up to be an Advisory firm to builders first, and an Investment Sales organization second. The task of taking a project that is already under way, building it out, and then structuring the subdivision for sale as Build-For-Rent is a critical first step. Only then does a builder have a chance at either working with a firm like ours or trying on their own to make a market for those communities with a Build-For-Rent investor audience. The Case for Smaller Projects Behind large single site subdivisions in major and tertiary MSAs are smaller projects that generally are not big enough for an on-site leasing office or amenity. These types of projects, generally ranging from as little as 20 units to high double digits, are a hard sell to most larger fund investors. If a project sits in proximity to other assets or communities of a current rental operator, they can be very attractive, as that operator can look to add doors and scale up their footprint in a particular area. This is only attractive so long as the performance of their current portfolio of homes in the area is strong, and the new units will not directly compete with their already operating inventory. We generally like seeing these smaller projects in good locations in large markets where the potential buyer pool is large and where any firm operating rentals in the area would be a potential take-out buyer. These smaller projects in tertiary markets without large scale investors already owning there generally won’t be