197 Exploring the Build-to-Rent Market - Jim Jacobi Dec 27 2023

Greg Bray: [00:00:00] Hello everybody, and welcome to today's episode of the Home Builder Digital Marketing Podcast. I'm Greg Bray with Blue Tangerine.

Kevin Weitzel: And I'm Kevin Weitzel with Zonda and Livabl.

Greg Bray: And we are excited today to have joining us, Jim Jacobi. Jim is the president at Parkland Communities and Parkland Residential. Welcome, Jim. Thanks for being with us today.

Jim Jacobi: It's a pleasure to be on the show. Thank you, Greg and Kevin, for having me. I really appreciate it and I'm happy to be with you.

Greg Bray: Well, Jim, let's start off and just help people get to know you a little bit. Give us kind of that quick background and overview of what you've been doing.

Jim Jacobi: Sure. [00:01:00] So, I own Parkland Communities, which is our build for sale side of our company and our build for rent side of the company is called Parkland Residential. We do for sale and for rent communities all around Georgia. We really stick to just Georgia only. Very active in the space and have really been kind of pioneering the build a rent around Atlanta in general. Focused a lot on, I would say infill initially, where we do a lot of infill projects, and now we're starting to branch out into other areas. Our tertiary markets are all around Georgia.

Kevin Weitzel: That sounds awesome. But Jim, before we dive into that, because we've got a boatload of questions for you, we need to know something, our listeners need to know something personal about you that has nothing to do with work or the home building industry.

Jim Jacobi: Something personal about me. I really enjoy fishing in my spare time. So, whenever I can. I have four kids; we always enjoy going fishing and catching fish. So, that's probably one of the personal things about me.

Kevin Weitzel: Fly, bass boat, off a skid, off of the shore, everything?

Jim Jacobi: Anything that bites, I'm game. So, that's it.[00:02:00]

Greg Bray: Now, Kevin, did you notice that he included two things? He says, we like going fishing and catching fish.

Kevin Weitzel: That's right. Dude, in my case, it's just the going fishing. I can't catch anything.

Jim Jacobi: That's right. My kids like going catching. That's totally true.

Greg Bray: Well, Jim, tell us a little bit more about how you got into the whole home building industry and some of your path and choosing that as a career.

Jim Jacobi: Sure. Well, my background is landscape architecture, which you can go into designing backyards or large-scale land planning engineering. I went the land planning engineering route. Did that for the first six years of my career with various design companies around Atlanta. Then went to work for one of the big builders at the time helping with land acquisitions and development, kind of worked my way up. Then in 2005, I decided to go out on my own, do my own thing. Really have not looked back ever since.

Started initially doing land and lots and developing, and then we started a home building company in 2007, just as the market was about to do a suicide dive off the high dive. We weathered the storm. It was a [00:03:00] blessing in disguise. We had no debt coming into the recession. And so, we were bankable. We thrived throughout the recession. I worked 25 hours a day, eight days a week, but we made it through and built up a nice company by the time it was over with.

We sold that company to Taylor Morrison. That's how they got into the Atlanta market and that was a great transaction. The people at Taylor Morrison are just wonderful. Then it wasn't part of my non-compete, only pertained to home building, so I started an engineering company. We started doing civil engineering surveying. So, the civil engineering survey land planning, built that company up and recently sold it to a engineering company called LJA out of Texas. Great group of folks.

Just focused solely on home building now, whether we're doing for sale or for rent, mostly for rent. Probably about 65, 70 percent of our whole revenue will be generated on for rental side and the balance would be on the for-sale side.

Greg Bray: Well, you triggered just a little bit of that PTSD from the 2007 comments there, and 2008. Just a great time to start a home building company. You look back now, and you say it was a blessing in disguise. At the time, it was just disguised. [00:04:00] Right?

Jim Jacobi: Best camouflage ever. It was tough. I mean, boy, I worked. I rarely slept and worked so much, but we did it. Figured out how to make lemonade out of lemons and that's it.

Kevin Weitzel: Now, were some of those lemons, were you able to capitalize on some of the losses that other companies were having with possibly like land grab or taking over failed communities or bankrupt communities? Was that part of the gameplay at all?

Jim Jacobi: Oh, yeah. When we started, it wasn't, but that's exactly what it became. I mean, look, I'm not going to help anybody's demise, but if there's an opportunity in the market and it's available, then ethically, we'll do it. And that's what we did. We got in a lot of the banks. Where the public builders couldn't get in with banks and work with banks, we found that niche of getting into banks where we didn't have any baggage and no debt.

So, we did some fee building for the banks. We bought lots from the banks. Proud to say we started with one subdivision, and we built it up to probably 20 subdivisions, over 2000 lots by the time we sold out. We were doing really well. So, it was perfect timing and, you know, it worked well.

Kevin Weitzel: And there's nothing sinister about that. You know, just because Carl's dead doesn't mean you [00:05:00] can't drive his car once he's gone.

Jim Jacobi: Exactly. That's right. Totally.

Kevin Weitzel: No reason to let it sit there and not burn oil, right?

Jim Jacobi: Amen. That's right. So, we just put new tires on it and took it out for a drive.

Kevin Weitzel: Giddy up.

Greg Bray: May Carl rest in peace.

Kevin Weitzel: Poor Carl.

Jim Jacobi: Right. Right.

Greg Bray: Jim, tell us a little bit more about your decision to get into that build-to-rent market. I know there's a lot of builders that have thought about it or heard or read about it, and maybe they're trying to decide, is this a good thing to mess with or not? What was kind of your journey there?

Jim Jacobi: My journey was probably a little different than most. In the build-for-sale side of the business, it's the only business where you're always running out of inventory. And so, I was constantly having to replace the next deal, replace the next deal. So, I thought, well, I'm going to get into build-for-rent and I'm gonna go build up, you know, 1500, 2000 houses and just sit back and collect mailbox money and never have to constantly find new projects.

The genesis was, I hate to say it, trying not to have to work so hard finding the next deal. I can keep the deals I have and maintain them. So, over time, I would say that my mindset started changing. Now we're going to a [00:06:00] much bigger scale. We started a really small scale. Now we've really grown it to a bigger facility where we have 1500 lots now. I'm just all build-to-rent in our pipeline at the moment that we're working on. So, we're looking forward to a big year next year.

Kevin Weitzel: Now, are you an agent builder? So, you're building and then off selling to a rental management company when it's done? Or are you also taking on the carry of the project as well once it's complete?

Jim Jacobi: We're agnostic. If somebody wants to buy it, I'll sell it to them at any point, and everything's for sale every day. Or if it doesn't sell, I'll go put Fannie debt on it and we'll own it and carry it and operate it. We're fine with both scenarios. We do it all. I'm negotiating a deal right now on a forward takeout. Whereas I'm also having one where I'm trying to find Fannie debt, a bridge to permanent, bridge to Fannie. So, we do everything in between.

Greg Bray: So, Jim, when you compare because you've done both. You've done the traditional build- to-sell and you're doing the rentals. What's different from kind of that sales and marketing process between those two business models? Is there a lot of overlap, a lot of lessons you can apply to [00:07:00] both sides, or is it just totally different business that you have to come at from a different place?

Jim Jacobi: I think there's pros and cons. I would say the pros are financial. Engineering is much more complicated on build-to-rent than it is build-for-sale. Most banks around town, I can get an A, D & C loan for a build for sale project fairly easily. Getting an A, D & C for build-to-rent right now especially is very difficult, and interest rates are really high. So, that's I would say one of the biggest cons is on the financing side.

One of the pros is build-for-rent, we put the same floor, the same paint, the same kitchen cabinets, the same countertops. It is rinse, wash, repeat and it's just build as fast as we can build. We drive costs down. It's easier to manage and maintain. It's a simpler process on the build-for-rent side. We put lots of upgrades in our homes. We just don't do standard builder grade quality stuff, cheap stuff. We like to do high quality finishes. At the end of the day, it is our reputation on the line, so we want it to look good and want it built right, [00:08:00] last the test time.

Greg Bray: What I'm hearing you say, though, is that because you're ready to continue the management of those properties if there's not an investor or somebody else who wants them, you're much more aware that the renter is going to know your name long term, and so that reputation comes into play. I know there's some builders that are, you know what? I'm just selling, you know, 10 homes, 20 homes, 100 homes to one investment group or private equity group or whatever it might be, and so maybe there's not quite that same worry about reputation the same way. Have you experienced anything like that when you've heard of others that are doing this or what's been your experience?

Jim Jacobi: I would say the experience is all over the board. I mean, from some investment groups, just looking for someone to fee build for them and just try and find a way to build a better mousetrap. But at the day, we self-develop everything. We self-build everything and we do our own warranty. We want to make sure it's built right and build good. Most importantly, if we sell a project to a fund, we want it to be a high-quality project. We don't want to sell them a lemon. I'm looking forward to the next deal. This one went well, let's buy [00:09:00] another one. So, that's the philosophy.

Greg Bray: So, as you look out in the market today, what is it about build-to-rent that seems like it's just exploded over the last few years? Maybe I've just haven't been exposed to it the same way, but it does feel like it's a newer business model, if you will, at least the way it's being done today. What do you think is driving some of that? Is this just a fad? Is this a new attitude toward living space in our society? What do you think is kind of behind some of that?

Jim Jacobi: Well, obviously one, the pandemic was a big push because it stopped the flow of dollars to office. And to some extent, industrial slow down, and especially around Atlanta, industrial slow down. So, when you have a large scale investors, they don't want to go invest in office. They're still a little skittish in retail, you know, multifamily is okay. So, it really truly is the prettiest girl at the ball. I hate to use the acronym, but it really is because it's the safest investments you have, that I think will last a test of time [00:10:00] just looking at trends of home values over the last 10 or 20 years.

I think it's here to stay. In my opinion, build-to-rent is kind of in the first inning and trying to figure it out. It'll become more prevalent and more acceptable with time when done in the right way, ethically, non-predatory manner. I think it serves a big need and fills a void in our communities.

Greg Bray: Do you feel like there is a renter that's out there that used to think that a home purchase was their only route that's now becoming more attuned to, well, maybe I can just rent a nice home as opposed to rental being an apartment type of mentality, right? If I want to rent, I'm in an apartment, or if I want a home, I have to buy. Kind of like with cars, you used to buy a used car, or a new car, but then leasing kind of came along and now you can get a new car every few years and trade up, you know, without the same ownership. Is that where home ownership is headed?

Jim Jacobi: I would say, it's a lifestyle change because when you rent from me, we advertise it's a maintenance-free lifestyle. You have no home maintenance, no [00:11:00] termites. If the dishwasher breaks, you call us. The AC breaks, we come fix it. The yard maintenance is included in our homes. We offer completely maintenance-free lifestyle. I have one of my friends who qualifies as a boomer. He sold his house at the peak. He got one of the letters from some investment company in the mail and hey, we'll buy your house at X and he's, sure, signed it up. And now he's a renter and this guy can more than afford to own, but he just uses the rent. He says at the end of the day, Jim, I have a maintenance free lifestyle and I feel like I'm living for less than if I want to go buy a house right now. So, it's a win-win for him.

Kevin Weitzel: I'm right in the middle there. I want to own, so I'm a townhouse guy for life. I went from a single family, detached home to a townhouse. I'll never go back. I don't have to worry about paint. I don't have to worry about roof. I don't have to worry about foundation, none of that stuff. It's all covered. I get the set it and forget it mentality, if you will.

Jim Jacobi: That's it. I would say that the newer generations are going to be more transit oriented. They don't want to be tied down and will probably more willing to move around. That's [00:12:00] what this offers a flexible, maintenance-free lifestyle.

Greg Bray: Well, you know, when you look at today with the interest rates, all of a sudden the cost of purchase is a lot different than it was just a couple of years ago because of that change there. And there's even some places now where rent is starting to become less than a typical mortgage payment. How do you think that is influencing some of those decisions?

Jim Jacobi: I think it's having a big impact. Interest rates are helping build-to-rent because obviously, just cost associated with down payment, your monthly rate. The current interest rate climate is definitely helping it out. We're seeing a little bit more phone calls and traffic which is great. At the same time, it's a little harder to get people qualified now. For whatever reason, we're just having a tougher time getting people to qualify. We put in a little more stringent qualification requirements. We're probably a 50 percent qualification rate at the moment, which is very new to us. That's relevant in the last 3 or 4 months.

Kevin Weitzel: On the rental side?

Jim Jacobi: On a rental side.

Kevin Weitzel: Wow. Okay,

Jim Jacobi: That's right. [00:13:00] It's becoming more difficult to get qualified renters. It was self-inflicted because we just raised our standard some and felt like it was needed. So, we just want to make sure we have quality folks in our homes.

Greg Bray: Well, Jim, you're obviously a guy who's been in this industry for a little while. I mean that with all the respect and the wisdom that comes with experience, right?

Jim Jacobi: And the gray hair.

Greg Bray: And the gray hair. That's right. Well-earned gray hair in 2007. You probably got more than you wanted. But where are you kind of seeing building as a whole with the economy and some of those challenges like the interest rate headwinds and some of that? What are you guys preparing for and looking ahead toward and some of the impacts of what you think the future is going to bring?

Jim Jacobi: One thing we are not seeing is land costs are not coming down. We've not seen that yet. Land development costs are not coming down and we haven't seen that. So, land and lot prices I believe we're going to continue to escalate. Build-to-rent, at least around Atlanta, build-to-rent just doesn't work [00:14:00] on a really expensive lot. You just can't make your yield on cost work if you're trying to go do a build-to-rent house on a 125,000, 150,000-dollar lot, just give that up. Around here, that's just dead-on arrival. You're never going to make those metrics work.

Kevin Weitzel: Wait a minute. So, you're saying that there's not a market out there for 8,000 a month rents?

Jim Jacobi: Not that I've seen.

Kevin Weitzel: Oh, okay. Just checking.

Jim Jacobi: There might be, but good luck justifying that to your lender.

You're going to take that risk all on your own. Tertiary markets are going to become much more attractive and they're going to become much more attractive to build-to-rent and build-for-sale because everybody's trying to chase a cheaper lot. So, we've even started looking at tertiary markets ourselves. We're going all over Georgia now building, and we're finding demand exists in those areas at the right price point whether it's for rent or for sale.

So, I think tertiary markets have become more normal, I would say. You know, we've always been Atlanta-centric here lately. I recently sold off a couple of projects where I just thought the lots were just too expensive and made me nervous where we're going to be. You know, a 140,000-dollar lot [00:15:00] just is not my cup of tea just because development costs have gone up.

Now on the flip side of that coin, I do feel like construction cost, whether it be some supplies and labor, I feel we're on the cusp where that's going to start getting some relief. Hope I'm right but seems like the multifamily side has slowed down a good bit, traditional multifamily apartments construction has slowed down a good bit. Homebuilders aren't putting as many homes on the ground as they once were. So, I'm seeing a little softening on the supply side for opportunity for contractors.

We've been experiencing a surge in phone calls from vendors, suppliers, trades, all the above looking for new opportunities. So, it feels like things are kind of on, I guess, on the fence. I would say in 2024, we could probably see a little softening on some areas there.

Greg Bray: Well, affordability is still a big issue for a lot of people to get into a new home and it's good to hear that there might be a little [00:16:00] bit of room there where people can, you know, maybe drop these things. I don't want somebody else to lose money on the house they bought yesterday. Right? That's the trick, right?

Jim Jacobi: That's exactly right. Builders have got to adjust as well. You can control what you build. So, we've done that as well. We came out with a new two-bedroom house, a single family home that's the only 985-square feet. We have our new series called our portico series where we have a three-bedroom house that's 1275-square feet and a four bedroom house that's 1450-square feet. So, we're trying to just save cost where we can save cost. They're still finished out really well, great use of space. But at the end of the day, our cost is probably 30 percent less than a traditional home that we built.

Kevin Weitzel: Yeah. And a 1000-square foot or 980-square foot, two-bedroom home. Sounds like the perfect home. Bingo.

Jim Jacobi: The mortgage works, the mortgage price works, the price point works and everything comes together. We're seeing some success with it and planning several more communities with that new product line.

Kevin Weitzel: Let's switch lanes just for a second. I want to know, [00:17:00] because you do both, both the build-for-sale and build-for-rent, obviously have some overlap on some of the expenditures of, you know, if you're building the similar product in the build-for-sale that just hasn't hit the rental side, you know, you develop one product, you can just spin it in one way or the other. What are the Carol Morgans of the world do when she has to market two different messages? Because I assume it's a completely different message that you're sending out. How do you filter that internally?

Jim Jacobi: Well, we traditionally stay all, I would say first-time buyer when we are doing a build-for- sale. So, we're still trying to provide a value in the market. And there are some people who have been renters and they've been renting for that three to five years or two to five years, whenever it may be, and whatever the timeline is, they've saved enough money and they're ready to go buy. They're ready to pursue the American dream of home ownership, and we hope you buy from us.

Not everybody's going to be a perpetual renter and we don't want everyone to be a perpetual renter either. We want people to buy homes. That's the message. We're just satisfying a need in the market. Whether that's a rental need in quality housing, or if you want a permanent home. We're here just to satisfy the [00:18:00] need that's a demand, and that's what we're going to do.

Kevin Weitzel: And are your digital assets similar? You obviously wouldn't need quite as much on the rental side. At least, that's my assumption. But, you know, digital assets meaning like renderings, because, you know, once you have it built, all you need is photographs or virtual walkthroughs. I assume you have a model in an office, a rental office.

Jim Jacobi: Yes, well, we do decorated model homes in all communities. So, we'll have a decorated model homes everywhere. We operate it all one in the same. We do color rendering for all the homes. We have floor plans for all the homes, 3D tours. So, if anything, I would say, the build-to-rent, we probably do more of that on the build-to-rent side to really help sell a vision of what people are going to be living in.

Greg Bray: Well, Jim, we appreciate the time you spent with us today. You know, we'd like to invite you to give us one last thoughts or words of advice to our listeners before we wrap up.

Jim Jacobi: That's a tough one. I would say, in this time the financial engineering is really important. Be very careful who you pick as your lenders. Your lenders are going to be [00:19:00] really important with you. Times could turn for a little bit of the worse and hopefully you have a lender that's willing to ride a storm out with you and is not a shark. Because there's a lot of sharks in this business. Vet people out really well and you may pay a little bit more money for a stronger relationship. But at the end of the day, it's better to sleep at night.

Greg Bray: Some great advice. That reminds me of the golden rule, right? Kevin, the one with the gold makes the rules.

Kevin Weitzel: Pretty much.

Greg Bray: Is that how that works? Right. So, the lender can change things later on if it's not going well, so.

Jim Jacobi: They can. And, you know, I've met some guys where I just thought, you know, there's no way I'm just going to do business with them. I've met great guys who are just wonderful to do business with. and women, both either way. We're just very picky in our business partners. So, very selective on who we want to do business with.

Greg Bray: Well, Jim, if somebody who's listening wants to reach out and connect with you, what's the best way for them to get in touch?

Jim Jacobi: Sure. Best way is send me an email. My email address is jim@parklandco.com, P A R K L A N D C O dot com. [00:20:00] Or you're welcome, call me on my cell phone. My cell phone number is 404 456 5562. Look forward to talking to you.

Greg Bray: Well, thanks again, Jim. Thanks everybody for listening today to The Home Builder Digital Marketing Podcast. I'm Greg Bray with Blue Tangerine.

Kevin Weitzel: And I'm Kevin Weitzel with Zonda and Livabl.