The Economic Impact of MaineHousing’s Investment in Affordable Multifamily Housing: State and Regional

by Richard Taylor, Research and Communications, MaineHousing

Building housing contributes to the quality of life in a community and its economy.  Economic contributions are measured in jobs, wages, revenues, and increases in the overall value of products and services produced in a given area.  In 2016, MaineHousing teamed up with the Maine Center for Business and Economic Research (MCBER) to examine the economic benefits of investments in Low Income Housing Tax Credit (LIHTC) multifamily housing construction to the economy.

MCBER, a US Economic Development Administration funded University Center located on the University of Southern Maine campus in Portland, Maine, provides strategic research and technical assistance to public and private organizations in Maine.  Under the direction of Ryan Wallace, MCBER links University expertise with organizations to support economic prosperity for Maine’s residents and businesses.   MCBER used the Regional Economic Models, Inc. (REMI) to analyze the economic impact of MaineHousing investment.  REMI models are considered among the best available for estimating economic impact.

For this analysis MaineHousing provided MCBER with data on expenditures for new, rehabilitated, and reuse developments for 2015 and 2016.  During that time MaineHousing and its partners spent $180 million on multifamily housing developments.  With this investment, 29 multifamily buildings were created across 9 counties, totaling 1,119 affordable housing units.

With the expenditure data, the REMI model estimated:

  • 1,430 jobs directly related to construction were created and another 1,016 were induced for a total of 2,446 jobs.
  • The equivalent of 17% of average annual residential construction jobs were employed in MaineHousing developments, an employment sector that has yet to return to pre-recession levels.
  • $74 million in wages and salaries were added to the economy.
  • The economic output for private non-farm industries, state and local government, federal civilian, federal military, and farm sector economic activity was worth $259 million.
  • $150 million in gross domestic product (GDP) was created as the expenditure made its way throughout the economy.

Table 1 below provides a breakdown of this economic impact by the seven regions used in the REMI model.

REI table july 18

In addition to the employment and other economic benefits seen in Table 1, MaineHousing’s investments generated an estimated potential $1.4 million in municipal tax revenue spread across 21 municipalities.

Who is Employed?

MaineHousing’s contribution to the residential construction sector is important.  The majority (59%) of those employed in MaineHousing’s developments work in occupations directly related to residential construction.  At the outset of the Great Recession in 2007, this industry was hit particularly hard due to the collapse of the housing market.  Between 2007 and 2010 the average number of residential construction employees dropped 29% or 1,567 workers from peak pre-recession level to the bottom of the recession. Only the information sector lost a greater percentage of jobs.  Since 2010 some of these jobs have returned.  MaineHousing developments have employed an estimated 17% (692) of average annual (2015 – 2016) residential construction jobs statewide.[1]

MaineHousing expenditures also generated jobs in other industry sectors, in particular the professional and technical fields.  Of the 2,446 employed in MaineHousing developments 19% were professional, scientific, and technical services workers.  Retail trade, health care and social service workers were employed indirectly and comprised 8% and 4% of the total employed.   In total, MaineHousing’s investments support 19 different employment sectors.

Revitalization

Of the 29 housing developments financed by MaineHousing, 21 were existing structures either rehabilitated for continued use as a residential occupancy or an existing structure previously used for another purpose but renovated for residential use.   These existing structures contain 78% of the affordable housing units built by MaineHousing in 2015 and 2016.  In addition to the potential increase in tax revenue, the buildings are less costly to operate and safer due to upgrades that bring them into line with current building and life safety codes.

Affordable Quality Housing is Needed

MaineHousing’s investment in housing supports its core mission of assisting Maine people in obtaining and maintaining quality affordable housing and services suitable to their housing needs.  In 2016, Maine’s median household income was an estimated $51,000.  For renter households that figure was closer to $29,600.  For renters to afford an apartment at the statewide average rent of $872 their income would need to be $34,800 in order to avoid being housing cost burdened (defined as paying in excess of 30% of household income).  In 2016 there were an estimated 92,000 households that were cost burdened.  That’s over half of the estimated 160,000 renter households in Maine or 37 times the units that were built as a result of MaineHousing’s 2015 – 2016 investment.

MaineHousing is a driver for affordable housing and the economy.  As Ryan Wallace, Director at MCBER put it: “MaineHousing serves a critical need in the state supporting Maine families and workforce housing. But what these numbers demonstrate, is that not only is the organization addressing affordable housing challenges, their direct and leveraged investments are making a sizable economic impact in the form of jobs and income.”

[1] Maine Department of Labor, Center for Workforce Research and Information, Quarterly and Annual Industry Employment and Wages

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Is Your Paycheck Protected?

By Kerry Peabody, CSA, CLTC Long Term Care, Life & Disability Insurance Agent

You’ve insured your home, your car, your boat – but have you insured the one thing that makes all of those other things possible – your income? How long would you be able to maintain your financial independence if you were unable to work for several months, or a year? What if you were forced to retire tomorrow due to a serious medical condition?

Disability is far more common than people want to admit – roughly one in eight workers is expected to become disabled for five years or longer during their working years, and the average private disability insurance claim lasts just under three years. Many people think that accidents and injuries are the most common cause of disabilities, but roughly 90% are actually the result of an unexpected illness, such as cancers, cardiovascular problems, or musculoskeletal issues.

As a real estate professional, you’ve probably seen a home listed because the family has to sell for financial reasons. Medical expenses and job loss are the top two reasons for bankruptcy, so imagine becoming ill, piling up medical bills, and being unable to work because of that illness – a disastrous situation for anyone – especially a family.

That’s where individual disability insurance can make the difference. A good disability insurance policy will cover up to roughly 60% of your income. Your first reaction is probably “But that’s just over half… I can’t survive on that!” You need to understand, that when you buy individual disability insurance, you’re going to pay your premiums with after-tax dollars. So, when you receive disability benefits, the benefits won’t be taxable as income. A realtor making $100,000 a year could qualify for roughly $5,080 per month in non-taxable benefit – that’s $60,960 of non-taxable benefit if you’re disabled. It may not buy you a new beach house, but it will certainly help keep your bills paid.

With all of this in mind, when you start looking for coverage, you need to shop wisely. There are several very good disability insurance products on the market – and a few not-so-good ones. When you’re shopping for coverage, here are a few things to keep in mind:

  1. What’s the policy’s definition of disability? Is the policy you’re considering an “own-occupation” policy, “modified own-occupation, or an “any occupation” policy? This will have a significant impact on when and how the policy will pay a benefit. Your agent should be able to explain the difference between these definitions, and tell you how the plan you’re considering works. In most cases, you’ll want to avoid “any-occupation” policies.
  2. Is there a benefit for partial disability? For instance, what if you become ill, and as a result, you need to reduce your hours by 40% while you’re being treated or recovering? When you your income decreases in turn, will you be able to collect a partial benefit, for the partial disability? If the policy does offer a partial or residual disability benefit, does it require you to be totally disabled first? (The good policies don’t.)
  3. What’s the Benefit Period – how long will it pay for a disability? 2 years? 5 years? All the way to your normal retirement age?
  4. What’s the waiting period – how long do I need to be disabled before the policy will consider me eligible for a benefit? Typically, people choose a 60 or 90-day waiting period.
  5. Do you expect your income to increase over the next several years? If so, be sure to consider a “Future Increase Option” rider. This lets you buy more coverage as your earnings increase, even if your health has changed for the worse.
  6. Does it offer a Cost of Living Increase rider? If you’re disabled for a long period of time, the COLI rider will give you a raise each year. The younger you are, the more important this rider is.

All of these factors will affect your price, as will your occupation, your age, and your health.

A well-designed disability insurance policy will be affordable and effective, and will help you pay the bills if you become disabled. However, if you buy an inferior, poorly-designed plan, you’ll regret it when you need help the most. Shop wisely. Work with an independent agent who represents several different companies, and can help you compare the various plans. Don’t give up valuable coverage or better contract wording just to save a few dollars a month. If you do, you’ll regret it at claim time.

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The Maine Real Estate & Development Association Announces 2017-18 Officers

 The Maine Real Estate & Development Association (MEREDA) is pleased to announce its 2017-18 slate of officers, which include Bruce Jones of Creative Office Pavilion and Brian Curley of PDT Architects serving as Vice Presidents, and Bill Shanahan of Northern New England Housing Investment Fund as Treasurer. Paul Peck of Drummond & Drummond will continue as President, in the second year of his two-year term, and Shelly R. Clark continues as Secretary of the Board in addition to serving full-time as the organization’s Vice President of Operations.

L-R:  Paul Peck, Bruce Jones, Brian Curley, Bill Shanahan, Shelly R. Clark

L-R: Paul Peck, Bruce Jones, Brian Curley, Bill Shanahan, Shelly R. Clark

For further information, please contact MEREDA’s Vice President of Operations, Shelly R. Clark at 207-874-0801.

 

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The Right Equation for Responsible Development: Spotlight on Wayfair at Brunswick Landing

In multi-part series, exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, social impact and job creation.

Please join with us in celebrating Wayfair at Brunswick Landing.  A conversation with Priority Real Estate Group.

MEREDA:  Describe the building and project. 

Priority Real Estate Group:  Wayfair resides in a 50,000 square foot building that was renovated and rebuilt in a mere 16 weeks.  Currently, Wayfair occupies 42,000 sq ft, with the balance of 8,000 sq ft to be finished in the next 36-48 months. The 550-seat, state of the art E-commerce Center employs over 200 with an additional 300 expected in the next few years. This location has business-to-business sales and services offices with additional office space for support staff, supplier operations, human resource and information technology. Not only did we complete the renovation and rebuild, but we also had to accommodate for a parking lot to handle 550 employees. We had room for 250 spaces, and with help from MRRA, we tore down nearby buildings to create parking spaces for 300 more.

MEREDA:  What was the impetus for this project?

Priority Real Estate Group:  Wayfair was looking for a location to support their growth in the e-commerce home and office furnishings division.  Wayfair, through their site location firm Cresa of Boston, contacted Maine and Company, a private, non-profit corporation comprised of Maine businesses who then contacted PREG to see if this project could be completed. There were two other states, North Carolina and Texas, that were competing for the E-commerce Center contract. Maine’s reputation for their work ethic and quality of life along with Brunswick Landing being a designated Military Redevelopment Zone, were incentives to locate in Maine. Another noteworthy mention is the ability for one to take the Amtrack train from North Station in Boston directly to Brunswick, Maine, making for easy accessibility to Wayfair’s Maine E-commerce center.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Priority Real Estate Group:  Our team met with Wayfair at their Boston location at Copley Square. It took 6 months to negotiate a lease, design and plan for this real estate project. Along with PREG, Maine’s Department of Economic & Community Development, Midcoast Regional Redevelopment Authority, as well as the office of the Governor all joined together to take this project from conception to reality.

Wayfair at Brunswick Landing Wayfair at Brunswick Landing Wayfair at Brunswick Landing

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Priority Real Estate Group:  The project was challenging because an accelerated timeline was needed to get Wayfair in the building and up and running by June 2016.  The demolition work commenced in February and was completed in mid-March.  The rehabilitation to meet the standards required for Wayfair started after that and was completed for occupancy on the first of June. It’s important to note that the Navy had different building standards and codes, which forced us to bring the building up to current municipal and state standards. We ran into asbestos on the outside walls. This required a special crew and added time to rectify the situation. Additionally, the Navy Exchange was a former grocery store which required us to remove coolers, which added an additional burden to our workload.  We also had to add technology for 550 computers which resulted in 42 miles of cable being installed in the new facility. Overall, the biggest challenge was having 150 people on the job site for weeks on end, and managing every aspect, right down to planting the purple and white petunias (Wayfair’s colors).

MEREDA:  Something unexpected you learned along the way was….

Priority Real Estate Group:  The immediate impact that this project had on the community.  We’ve been developing for so long now, that there are few unexpected surprises in our projects. Working with a publicly traded company requires additional approvals and disclosure which adds to the overall time frame. We worked through that process in the first 6 months. During construction, we ran into asbestos, we installed miles and miles of cable, we operated under a tight deadline and succeeded in completing a renovation/rebuild of a 50,000 square foot space as well as created a brand new parking lot. Once the doors opened, the most unexpected thing in my mind was the immediate economic and social impact Wayfair brought to the community of Brunswick and the Midcoast area. People are renting and buying houses, restaurants are busier, school enrollment is up, local businesses are seeing increased foot traffic. This positive impact to the local economy will only continue as Wayfair completes their hiring of the next 300 employees.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable?

Priority Real Estate Group:  This was a substantial project in many ways, and it all came together seamlessly. Maine’s workforce reputation and the ability to complete the Wayfair vision in a very short timeframe is a testament to all those involved. But beyond the construction, the numerous jobs created, and their immediate impact on the Midcoast area is extremely exciting. This project transcended the normal timeline of a real estate redevelopment project. It took a great team…from ME & Co., MRRA, DECD, the Office of the Governor to every individual who played a part in this success story to allow Wayfair to call Brunswick Landing their home.

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THE ELEPHANT IN THE ROOM 2.0

by George Casey, CEO of Stockbridge Associates, LLC

Here’s home-building operations guru George Casey’s take on how tech-driven automation will drive into site-built home building sooner than later.

My recent article “Home Building’s Elephant in the Room” has elicited some interesting responses and has opened a simmering anger.

It seems that many in and around the home building industry have seen the same trends set forth in the article: a persistent labor shortage for skilled trades, a need for disruptive solutions, a cry for a new business model for home building, and an astonishment that many of the leaders and owners of home building companies are neither seeing the problem nor seizing the opportunity created by this situation.

There is an anger that many see the issue, but those who could do something about it are doing nothing substantial, creative, innovative, or exciting to lead their companies into the future where new leadership and business models will make a positive difference.

Too busy grinding the same old business model that yields capital returns that are ho-hum at best and T-bill worthy at the worst. A model that is hated by customers, is as slow in delivery as Amazon is fast, and is antediluvian.

Listening to and speaking with some of the commentators on the article has opened interesting ideas that have pointed to a “gaze through the haze” look at what the future might look like.

The way forward appears that the core outfacing role of the builder will look pretty much the same. Finding land, getting it entitled, understanding markets and demands, relating to customers in multiple ways, and providing the ingenuity in creating great neighborhoods that people value will continue to create great value. Owning the customer relationship is critical.

However, the creation of the home itself will be divided into two segments.

In one case (and for those who can afford it) there will still be “craft-built homes,” just like there are bespoke suits and shirts. They will be desirous and costly, as the pool of craft laborers will continue to dwindle. This model will be expensive, still take a lot of time, and will become more and more of a rarity available only to those with wealth.

In the other case, for those with more modest incomes and for affordable and workforce housing, factories that are highly automated will create “Lego pieces” of various sizes and functions that can be easily assembled on site to create homes of various complexity and end-price.

These factories will be characterized by high use of robotics, the creation of standardized shapes and functions, and relatively low labor content. Builders and architects will use the core components to create individual floor plan end elevation solutions, but out of the common tool kit.

The builders will have, most likely, a multi-disciplinary crew or crews who will assemble the pieces on-site. Some may be contracted, but my guess is that they will probably be employees of the builder, just to ensure consistency and efficiency.

I also believe that, at some level of production, the factory will be owned by the builder to ensure supply, but that is not a necessary component.

What will be necessary is a high degree of partnership between the factory and the builder, most likely with very robust, high frequency sharing of information among builder reps in the factory and factory reps in the builder.

I also believe that builders will most likely adopt a model where they are building homes both for-sale and for-rent to keep throughput high and to reduce the variability in production that is inherent when a builder is tied solely to the for-sale market and its finicky mortgage availability and underwriting issues.

Even if not owned by the builder directly, I also believe that the factory will need to have its production going to both for-sale and for-rent pieces of the industry for the same volatility dampening logic.

The logical combination of high automation and components inside of a high production factory has not happened recently in the US. Companies like Unity HomesBluHomes, and Proto Homes are already in this space, but tend to be small in terms of overall production and relatively high in cost, in part due to focus on high energy performance or architecture.

They are great current prototypes to understand and study.

On the other hand, the manufactured home industry, with existing factories, is ramping up production. It looks like the industry will do about 80,000 units for 2016, up from 40,000 at the bottom of the recession, but still significantly less than the 250,000-400,000 per year the industry did up to about the year 2000.

Although offering an ability to assemble large near-complete components in a factory environment, the degree of automation used is relatively limited. It is more akin to stick building or panelize building homes on an assembly line than the more automated factories that we are used to seeing in other industries. Clayton Homes is the leader in this segment with about a 50% market share nationally.

The product is set to work on a pretty standard modular or manufactured home type of simple rectangular platform currently, without a lot of real architectural diversity.

Bridging the gap is the modular home industry, which allows for factory building of near-complete subcomponents that are connected on-site to create homes of more interesting architectural character. Champion Homes and Cutting Edge Homesare two examples here.

They tend to retail out through independent contractors and smaller builders and are not as easy a purchase process for a customer.

I think that one of the best current prototype to look at comes from Sweden in the form of a 90-year-old company, Lindbacks. They employ high automation, even-flow and lean techniques, and create architecturally pleasing modules for both the for-sale and for-rent markets. An article in Treehugger by Lloyd Alter last March is a very good top-level introduction to the company and its methods.

What has become evident to me is that we are seeing the pieces of what the new business might look like, but not the right combination of heft and sophistication on the customer-facing side (neighborhood development, marketing, and sales) combined with the new automated factory component production technology that does not have the labor issues inherent in the current subcontractor-based, craft-built system we now use.

What is interesting is that we have been here before. National Homes, based in LafayetteIN, was started in 1940 and throughout World War II and up into the 1970’s, they did prefabricated single family homes nationally and with high volume, but with a strong emphasis in the mid-west. Factory built components were assembled on-site by builders and many National homes still stand.

The split of the building industry into distinct multi-family-for-rent and single-family-for-sale segments, coupled with very low cost manufactured homes created a branding problem for factory-built housing that we live with today.

There are four logical routes to meaningful scale in a short period that I can see that could impact the business in a reasonable future timeframe.

One is for the current large-scale home builders, who own the customer-facing part of the industry right now, to either deeply partner with or acquire the existing major and minor modular and/or manufactured home builders and then drive automation to a Lindback-type scale, so that the labor to capital asset balance tilts more to the capital asset side, permitting higher levels of production without the skilled labor constraint.

The second is for the reverse to happen. The large-scale modular and manufactured home businesses either deeply partner with or acquire home builders to attain the customer-facing elements of the business and then invest in the automation to drive even higher scale.

The third is for one of the existing smaller prototype companies to perfect their product and process and then either create more production capability and front-end capability or acquire it by purchasing existing builders and/or factories to drive scale faster.

The fourth is for an out of country player who is familiar with this integrated process to come in and establish a beach-head by acquiring or deeply partnering with existing builders and factories to drive the scale.

I am not smart enough to know which of these might be the actual path, but all of them are possible. Who will have the vision, leadership, capital, and execution capability will be the deciding factor.

All I know is that disruption is on the way and current owners and leaders of both home building companies and manufactured/modular home companies will either be driving the disruption or will succumb eventually to it.

There is going to be a National Homes 2.0 for the 21st century created at some point and the ethers of the past will reform to create a new dynamo home building business model.

It is going to be interesting to watch, no?

Originally published in Builder Online on December 26, 2016 and can be found at http://www.builderonline.com/building/the-elephant-in-the-room-20_o

 

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Home Building’s ‘Elephant in the Room’ … a manifesto from operations guru George Casey.

Without innovation, today’s home building business models risk extinction

by George Casey, CEO of Stockbridge Associates, LLC

Over the past several weeks, I have had the opportunity to attend a variety of fall industry conferences: the Urban Land Institute (ULI) fall meeting in Dallas, a Vistage Construction Network CEO Roundtable in Boston, and John Burns’ Fall Homebuilding Conference in New York.

The latter was held the day after Election Day about two blocks from the New York Hilton. An interesting time to be in New York, to say the least.

I enjoy the mix of the conferences, because of the variety of viewpoints they provide.

ULI gave the industry view from home builder, master planned community developer, financing and technology perspectives. Big picture and long-view stuff with a national and international perspective. The Vistage Network CEO Roundtable involved construction and construction service CEOs from New England and covered both commercial and residential, but Northeast focused. John Burn’s conference was expansive and deep on home building, residential community development, finance, and demographics on a national basis.

As I processed all of the information, a recurring theme kept coming back, kind of like that “It’s a Small World After All” song from Disney World. Once you get it in your head, it never leaves.

The theme was that many of the major players in the industry are not fully recognizing and attacking one of the core challenges for the industry: the inability to generate enough housing supply to meet the current and even-greater-tomorrow demand that is on the way. The focus of many in the industry is actually on yesterday problems and solutions.

An inability or unwillingness to see the issues that are new and with us today and which lack focus or solution seems to be a blind spot for many leaders.

At ULI, a panel of home builders and community developers on the developer/builder relationship in master planned communities spent the bulk of its effort talking about demographic trends, the need for more product segmentation to drive incremental velocity, and the rapid introduction of ever-more sophisticated technology tools to target buyers, to get to know more about them, to show them Virtual Reality model homes, and, generally, how to drive more sales to accommodate the coming millennial demand that is now, finally, upon us.

Yet, the reality is that in many markets in the country right now, builders cannot keep production up with the current sales level, forget one that is significantly stronger. More sales in this environment equals extended delivery times and eroding profits (just look at the recent batch of public builder operating metrics for case studies) and, most likely, really ticked-off customers.

There simply is not enough skilled labor to build what is being sold in many markets, and the prospect of more labor coming in time to make any kind of short- or medium-term difference is not very bright. Further back in the chain, the existing skilled labor pool for construction is relatively old and retiring out at rates that are becoming concerning.

The historical response to this issue has to bring in immigrant labor (both legal and illegal) to fill this gap. However, in the current political environment, this solution seems taboo.

The reality is that if any of the existing non-working population really wanted a pretty good paying job, the existing demand in construction would have been filled long before now. It seems that the truth is that the hard manual outdoor labor required for site-built construction in the current business model does not fit the fancy or inclination of the remaining unemployed.

The logical conclusion is that we are stuck, most likely, with a continuing and worsening labor shortage in all of construction, whether it is residential, commercial, or the services to the industry.

I asked the panel why they were focusing on the generation of even more demand when it appears that the real problem is how to generate more housing supply in a world where the labor supply to the industry is relatively fixed. Not surprisingly, no one had an answer or had thought much about it (other than to complain).

In fact, it is a relative new and vexing problem.

In the last housing cycle (1991-2008), we filled many construction jobs with baby boomers who didn’t mind working outside and immigrant labor from Central and South America, the former Communist Eastern Europe, and, particularly Mexico. Before that, the non-college-educated blue collar population of the country plus immigrants provided the labor in every cycle before.

The structural immigration changes we have made and the relative demonization of manual labor for millennials has left the cupboard bare.

The bottom line is that some of the smartest people in the industry were back focusing of the intellectually stimulating, tech and demographic fun stuff of marketing, sales, and demand generation, because that was the solution when production constraints were minor in the past.

The fact that the current problem (structural supply constraint instead of demand constraint) is not the past problem, but a new one, had not garnered much intellectual capital for solution.

Meaningful and permanent innovation in production was not on anyone’s radar.

At John Burns’ Homebuilder Conference, that perception was reinforced again through many of the presentations.

Great and thoughtfully analyzed demographic data from John’s team showed a surge of demand coming for both the millennials finally starting households and baby boomers needing retirement housing. A rosy demand picture for the foreseeable future.

A panel of Wall Street analysts and bankers, however, when questioned on why home builder stocks had not appreciated since 2012 in any meaningful way, despite a growth in orders, closings, and revenues, hit on a root problem. They noted that the builders continually overestimated their deliveries, and their margins are continuing to be under pressure and are declining.

These are not good stories to drive stock valuations higher.

In some cases, stock prices are being buoyed by returning capital back to shareholders, rather than re-investing in the business. The stated culprit was that labor was in short supply, which drives up production costs faster than sales pricing and inhibits any reasonable ability to fully dictate deliveries.

Most of the home building participants in the room took this rationale as the non-adjustable norm. Same as it always was; same as it always will be.

When queried about innovation in the industry, new floorplans, the adoption of better CRM software, and better demographic targeting were cited. No one even tried to approach the issue of productivity, nor the possibility that the current business model for builders might be outdated. Not on anyone’s radar.

All I know is if I go into Delta’s faucet plant, Whirlpool’s stove plant, Ford’s F-150 plant, or Boeing’s airplane factory, that factories look significantly different than they did 40 years ago. Robotics, offsite sub-assemblies, lean manufacturing, just-in-time delivery, and other innovations have been brought into those industries in order to become more productive and profitable.

The businesses look much different in so many ways than a generation or two ago.

Yet, when I look at home building, the way the business is run and the way production is done have not changed markedly in that same 40-year period.

The house sales and production processes today are only marginally different than in 1960. Yes, the tools might be better (a pneumatic nail gun vs. the old 16 oz. “Thunderstick” hammer), but fundamental ways the business operates have not changed much.

Almost every builder uses exclusively sub-contract labor to site-build their homes. The training and management of those trades are left to others and most builders have little or no idea who will be showing up each day to advance the production of the homes they (the builder) have sold to a customer. Even worse, most builders do not even know whether the labor will show up.

Therein lies the risk and the opportunity.

If skilled trade labor is no longer as plentiful as it was in the past, yet demand looks like it will be considerably higher than our current and forecast ability to produce well into the future, perhaps someone should recognize the elephant in the room and be looking to fundamentally change the business model of the business.

Rather than buying back stock, shouldn’t the largest home builders reinvest in another way to create homes that involves less labor and more automation, and achieve higher productivity?

It would seem that the very existence of builders depends on how this question is answered and the value of their companies either ride higher or lower based on how they address the issue.

Shouldn’t Boards of Directors of home builders address this existential question before either the activists come in and turn the company upside down or market forces slowly eviscerate the franchise?

I wonder what the reaction in the marketplace would be to a builder CEO who, when asked the question regarding how they were innovating, had a response that sounded something like this:

“We recognize that this industry cannot operate any more like it has historically. The days of abundant and qualified sub-contract labor seem to be coming to an end.

We cannot afford to embrace a business model that thinks it is okay to deliver homes in 6-12 months and where we have little control over who builds our homes each day.

We have looked at other industries and see that, on our current track, we are destined to extinction in the face of a surging demand that our current business model does not permit us to meet at levels of margin and capital return that are acceptable and industry-leading.

We, instead have chosen to take a different path that will involve some short term pain, but will position us as a leader in the new housing economy.

We are going to take a meaningful portion of our cashflow and, rather than reinvest it back in land or stock buy-backs, we will invest in new methods of producing our homes, using a high degree of automation, new materials, and a dedicated workforce consisting of full-time team-members of our company.

We will use the best people and ideas from other manufacturers and home builders from around the world to help drive this innovation. Our belief is that we can deliver homes in under 60 days from the day the customer signs a contract with us, and at net margins and returns on assets of over twice what we achieve currently.

Even more, we are choosing to reorganize our company to continue to invest in the research and development needed to drive the continuous innovation and improvement that we see will be needed to keep us at the top of the competitive heap.

We will be innovative in our use of technology, materials, business systems, and people in this drive.

We know that, if we do not make these fundamental changes, we stand a high risk of extinction, and we will not ignore that fact.”

Wouldn’t that be interesting?

If our current crop of home builders cannot make that speech, my sense is there are others from outside of the industry or outside of the country who see this opportunity and will take it and run with it.

If this elephant of a question is not addressed, the current crop of builders risk a fate similar to those companies in other industries who failed to see the changes that drove new companies like Walmart, Amazon, and Apple to dominate spaces where more established companies had operated. Those companies that did not change with the times and environment ultimately became either extinct or food for the new.

So, if leaders and directors of current home builders continue to work in the old business model and on innovations with a small “i” and a 3-font, rather than innovations with a capital “I” and a 128-font, they will be truly picking up peanuts while the elephants run wild, and, (to mix metaphors) risk becoming the extinct dinosaurs more quickly than they realize.

Originally published in Builder Online on November 28, 2016 and can be found at http://www.builderonline.com/builder-100/strategy/home-buildings-elephant-in-the-room_o?utm_source=newsletter&utm_content=Article&utm_medium=email&utm_campaign=BB_112816%20(1)&he=acb26dfc22037f8627bb26d072d9871f0bba5969

“The Elephant in the Room 2.0” coming next week! 

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Maine Real Estate & Development Association Awards Top 10 Notable Projects of 2016

The Maine Real Estate & Development Association (MEREDA) recently announced the recipients of its 2016 Notable Projects Awards at its Annual Real Estate Spring Conference. This year’s event, titled “’YIMBY’ism: YES in my Backyard – Why Development is Good” was held on May 18 in South Portland.

Each year, MEREDA recognizes some of the state’s most “noteworthy and significant” real estate projects, completed in the previous year. Spread across the state, each of these projects aided in Maine’s economic growth, while also embodying MEREDA’s belief in responsible development. These projects not only exemplify best practices in the industry, and also involve a significant investment of resources and job creation statewide.

“We are blown away by the vision and integrity demonstrated by developers across Maine, so much so that, for the first time ever, we expanded the list in true David Letterman style to a TOP TEN,” noted Paul Peck, President, MEREDA Board of Directors and LWS Investments/Drummond & Drummond, LLP.

Selections were made based upon criteria including: environmental sustainability, economic impact, energy efficiency, social impact and job creation.

MEREDA’s Top 10 Most Notable Projects of 2016 were awarded to:

  • Forefront Partners, for Brick North at Thompson’s Point in Portland
  • Avesta Housing’s Ridgewood at Village Square in Gorham
  • Community Housing of Maine’s Village Centre in Brewer
  • Anew Development’s Meetinghouse Lofts Condominiums in South Portland
  • Southern Maine Affordable Housing and Biddeford Housing for their collaborative effort at Mission Hill in Biddeford
  • Avesta Housing for the Young Street Apartments in South Berwick
  • The Szanton Company for The Lofts at Saco Falls in Biddeford
  • Sebasticook River Partners’ Sebasticook River Apartments in Newport
  • Priority Real Estate Group’s Wayfair at Brunswick Landing, and
  • Risbara Properties, LLC, for Blue Spruce Farm Apartments, Waterside Apartments and Island View Apartments, all in Westbrook

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Representatives from each of the above projects were on hand at the event to receive their award.  For more information about each of these impressive projects, please click here: http://ow.ly/YkQ530cceFr

Throughout the year we’ll also provide an up-close look at each of these notable commercial development projects in multi-part series exclusive to the Maine Real Estate Insider.  Stay tuned!

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YIMBYers extol the virtues of development

MEREDA conference offers big picture perspective of Why Development is Good

2017-06-06_REI_LGThe Maine Real Estate & Development Association (MEREDA), the state’s leading organization advocating for responsible real estate development, convened a conference last month entitled, “Yes-In-My-Backyard: Why Development is Good.”

“Renewed interest in Maine’s cities and downtowns have placed pressure on communities to build in unprecedented ways. Recognizing the crippling effect of NIMBY, or ‘not in my backyard,’ ways of thinking,” said MEREDA president Paul Peck in announcing the event. “The ‘yes in my backyard,’ or ‘YIMBY,’ movement is an overt counterargument to oppositional mindsets – and is gaining traction quickly.”

Jesse Kanson-Benanav, a Boston area YIMBY pioneer keynoted the conference. He is an instrumental leader in the movement, and set the stage for a discussion about how to move development forward, with an update on the present status of pro-growth efforts and implications for the future of communities.

Kanson-Benanav asserted that development:

– Moderates and/or stabilize housing prices,

– Increases economic stability, and

– Improves the general diversity of communities, both from a social and economic perspective.

He came armed with real-world, pro-density examples. For instance, household size is decreasing across the globe, with families choosing to have fewer children and with less multigenerational living situations. In the U.S., in 1950, the average household was 3.37 people. Now it’s 2.6. Even if populations don’t grow overall, the amount of housing needed in any given community to accommodate the same number of residents is growing year-over-year.

“When you build at lower densities, you have to take farms and open spaces and turn them into lots,” he continued, suggesting that density is better for social integration and better for the environment. “Suburban expansion combined with large lots leads to exclusionary land use practices, with fewer people and increased pricing.”

Local experts augmented the conversation. James Brady, visionary of the Press Hotel and the Portland Company redevelopment in the East End, Jeff Levine of the City of Portland, Dana Totman of Avesta Housing, and Patrick Venne of Redwood Development Consulting each spoke about their local experiences, as part of a panel moderated by Elizabeth Boepple of BCM Environmental & Land Law.

Venne provided real-world examples of how convening community conversations and cultivating stakeholder questions and support is worthwhile, even before filing an application with the local planning department. “Moderating the design ahead of time can be more powerful,” he said.

Totman advocated that planning boards and planning departments take a more proactive approach to updating zoning ordinances, suggesting that those folks are the subject matter experts, but that a slow reaction to trends or best practices can mean that the city council or other entity is forced to interfere.

Levine honed in on the evergreen issue of parking, which is almost always controversial when any development is proposed. He said, when a developer gets “a curb cut, you basically take two public parking spaces and privatize them,” and therefore advocated that municipal entities relax minimums and let market decide. “Planners are libertarians when it comes to parking,” he concluded.

Some of the discussion was tactical in nature, for instance the interplay between a municipal comprehensive plan and zoning codes, while other conversation will double-down on the role of development vis-a-vis school funding models, local employment opportunities, and other quality of life benefits.

“Our goal was to offer a big picture perspective of how development is good for our collective future, and the rationale around smart growth development,” said Brian Curley, president of PDT architects and vice president of MEREDA. “Attendees were armed with tools about how to get more people to think globally about development, and what it means for the real estate industry more broadly.”

All presentations can be downloaded at: http://www.mereda.org/eventdetail.php?ID=701.

For more information about MEREDA and upcoming events, visit MEREDA.org.

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Maine Real Estate & Development Association Elects Josh Fifield to its Board of Directors

Josh FifieldJosh Fifield, a Senior Account Executive in the Business Insurance Department of Clark Insurance has been elected to the board of directors of the Maine Real Estate & Development Association (MEREDA), a statewide organization of commercial real estate owners, developers and related service providers.

Since joining Clark Insurance, a 100 percent employee-owned independent agency, Josh has built a reputation for understanding the complexities of real estate development to help insure large affordable housing projects, commercial developments and industrial properties, including insurance solutions for state and federal historic & LIHTC tax credits.

A Maine native and graduate of the University of New Hampshire, Josh has been a volunteer on MEREDA’s Marketing and Membership Committee since January 2014 and was recently named by MEREDA in January as one of two Volunteers of the Year.   He is an active and energetic volunteer helping to attract new members, creating original content on behalf of MEREDA for Mainebiz’s Maine Real Estate Insider e-mail newsletter, and promoting MEREDA’s important mission and benefits throughout the state.

Josh and his family reside in Portland.

MEREDA’s Vice President of Operations, Shelly R. Clark says, “We’ve enjoyed working with Josh at the committee level and are excited to have him now engaged at the board level.  Josh has a lot of drive and ambition and will bring a great energy to the group.”

For further information, please contact MEREDA’s Vice President of Operations, Shelly R. Clark at 207-874-0801 or visit www.mereda.org.

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Maine’s second biggest industry as healthy as it’s been in 11 years

MEREDA Spring Index Logo 96Maine’s real estate sector reached its highest point in 11 years, with the industry metric that measures the health of the market, The MEREDA Index, coming in at 96. The MEREDA Index grew by more than 7% over 2016, the strongest growth since the recession.

“The most recent quarter marks the eighth in a row — that’s two years — where The MEREDA Index has been above 90, a number not otherwise seen since the height of the market in 2006. That the real estate sector is so strong in Maine, and has been so strong for so long, is impressive,” said Paul Peck, board president of MEREDA, who is also a real estate attorney and real estate developer.

“Real estate is one of Maine’s biggest industries, second only to healthcare, contributing 14% of GDP. The strength of this sector benefits us all.”

The MEREDA Index is a twice-annual metric meant to measure the health of the sector against pre-recession, 2006 levels. It was designed and is compiled for MEREDA by Dr. Charles Colgan, an economist with the University of Southern Maine, and is comprised of three components.

Thanks to the support of Eaton Peabody and SMRT for underwriting this edition of The MEREDA Index, three industry insiders recently joined MEREDA to discuss the latest numbers.

Learn more by watching the following video.

The commercial market, accounting for 50% of The MEREDA Index, grew almost 9% over the course of six months, and was a key driver in the record-setting performance of the metric. “Commercial lease rates and square footage were both strong over this period, offsetting weaknesses in the volume of commercial transactions and sales price per square foot,” remarked Colgan, who also noted that total commercial transactions and median commercial sale price remained near and/or surpassed 2006 levels for this period.

The residential market, comprising 40%, “was unchanged over the past six months as sales of existing units and median price remained strong, but permits for new units dropped by nearly 17%. Estimated quarterly median price 1 hit 195,000 on a seasonally adjusted basis, equivalent to the 2006 first quarter figure … Sales of existing units and mortgage originations were both strong in the fourth quarter of 2016, but fell off in the first quarter of 2017,” according to Colgan.

And construction, measured solely by construction employment, has grown almost 9% in the past six months and almost 6% year-over-year. “This is the strongest growth in construction employment over the past several years,” said Colgan. Industry insiders say there is still strong demand for new construction projects to go online, and that more skilled workers are still needed in the industry, laying the groundwork for even more increases in this sector in the months to come.

“Stable interest rates and prudent lending by financial institutions has set a solid base for continued growth in the months ahead,” concluded Peck.

A full report of The MEREDA Index is available for download here.

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