Raising the Roof in the Housing Development Market
Casey Lynch, Roundhouse
February 04, 2020
Our Evergreen® business, Roundhouse, develops and operates multi-family housing in four Western states. Historically, ours has been an extremely commoditized, financially driven industry. The goal for most developers in our space is to either provide a high volume of low-cost housing or—largely in coastal cities— high margin luxury developments. In both scenarios, most pursue short-term business plans that involve quickly selling projects upon completion in order to extract the highest-possible time-weighted return for investors.
We sit between the production developers and the luxury developers, focused on the middle market. We develop communities for residents who want a high-quality living experience. In our view this means a beautifully designed, healthy, environmentally sensitive environment that functionally improves their lives. Our approach to how we develop and manage our properties makes us an outlier in an industry built to serve investors first and residents second.
If you look at the websites of developers and investors—almost without exception—you’ll see numbers first: X-thousand apartments under management or X-billions of dollars of assets under management. The reason: they view their capital partners as their primary customers.
We think there's a better way—an approach that serves residents, the communities in which we build, and the environment while still producing a reasonable profit that allows us to grow and positively impact additional families.
We subscribe to the philosophy that when you make a good investment you should hold it forever. For that idea to be viable in our industry, our projects need to be durable, operate efficiently, and be timeliness in their identity. This standard requires that we spend more money upfront on materials and building systems that reduce the overall cost of operating and maintaining our buildings over a long period of time. This investment creates a durable stream of cash flows that can be reinvested into other successful projects. If we’re effective in our market selection in the face of trends such as climate change and urbanization, among others, the financial return will outpace our benchmark over time. It’s obvious to us that a long-term approach to investing produces a better result than short term profit-taking, and we’ve structured our business entirely around this concept.
Our long-term view is reflected in the choices that we make to construct high-quality, durable, environmentally sustainable buildings. An example would be the use of centralized boilers in our buildings. The additional up-front cost (in a hypothetical 200-unit apartment building) for this system versus installing individual water heaters may be $500,000 or more. If your business plan is to immediately sell the building upon completion, you would never incur this cost. But, if your business plan is to own the building for 30 years, you will save a multiple of that in energy costs and replacements. A single boiler may last for 30 years, whereas individual water heaters will need to be swapped out after 10 years (at which point we would potentially be dumping 200 water heaters in the local landfill.) This is just one of many choices we make that stems from our core values.
The second significant differentiator in our model is that we prioritize the resident as the primary customer and focus everything we do around providing them with a high-quality living experience. An important way in which we do so is by managing all property services ourselves. When we founded the company, we contracted with third parties to provide many services, but we found the service level provided did not equal the care and thoughtfulness that went into the development, design, and construction of the buildings. That was unacceptable to us, so we integrated property services into our core platform.
Now, we self-perform all maintenance, leasing, marketing, and resident retention. By integrating these services into our model, we ensure that every team member a resident comes into contact within our community is aligned with our values and our commitment to putting residents first. The quality of the service and the personal communication meets our company standards. Whether these are simple interactions with our maintenance staff or relationships that develop through community initiatives or events that we coordinate on behalf of the residents, the fact that we are managing the services of the properties that we build creates connection between our residents, our employees, and the cities and neighborhoods in which we build.
We also recognize that in order for our employees to serve residents in this way, we need to be equally committed to our team’s well-being. This commitment is another way we veer from industry norms. The property management industry has extremely high turnover because many of the jobs involve customer service and can be very demanding. As a result, employees are treated as expendable. We are attempting to flip that model by creating an environment that inspires our employees to come to work every day, aligned with the same mission that we pursue as developers and owners. Because we know that when our employees have a great experience, that positivity is passed along to the residents of the building and the wider community.
The design of our communities also reflects our commitment to putting residents’ quality of life first. For instance, one of our early projects, Blackbirds, in Los Angeles, connected 18 residences by way of a living street, which is based on the Dutch concept known as a "Woonerf." The area is meant to prioritize pedestrian uses over auto uses and includes beautifully landscaped community gathering spaces such as shared garden and resident mailboxes. The street created an open space for residents to play and gather, encouraging casual interaction and connection with neighbors and was a reflection one of our core values: belonging.
All of the innovations that set us apart in our industry reflect another of our core values—our Pioneering Spirit. This key driver compels us to continue to innovate, challenge the status quo, take risks, and identify emerging trends. When we do, we learn and grow to provide more for our customers—the current and future residents of our developments.
Casey Lynch is CEO and Co-Founder of Roundhouse.