Successful residential investments require specialist expertise within a broader team. How do you personally contribute to the performance of Man GPM’s single-family rental portfolios?
Petteri Barman (PB): I have been involved in the single-family rental strategy since our team started managing these assets in 2012. My job is to guide overall strategy whilst providing analytics and insight to our Portfolio Managers, tapping into our team’s wealth of operational data. This helps us manage our portfolios more effectively – for example, looking to optimise occupancy rates by focusing on lease renewals, to increase rental income across a portfolio and to keep operational costs under tight control. Indeed, we manage our portfolios pragmatically, led by data and not intuition. In our build-to-rent strategy, for example, we aim to capture value at multiple points along the chain – from raw land, to development lots, to finished homes – and by partnering with builders directly, we can save costs in a number of ways, as we seek to create new properties at a discount to the market.
Rolf Jaeckli (RJ): I lead on portfolio management for our single-family rental strategy, working closely with Petteri and the management team to interpret large amounts of data to support our investment positioning. My day-to-day role involves tracking a series of KPIs, such as vacancy and renewal rates, in order to better identify and navigate potential challenges facing the portfolio. I also look to manage the costs associated with owning a large portfolio of single-family rentals. When we acquire homes for our portfolio, I am particularly involved in reviewing and underwriting bulk transactions - looking at how these opportunities can scale to provide particular characteristics. In our build-to-rent strategy, where Petteri mentioned the need to capture value right across the investment chain, a particular focus of mine is in sourcing new opportunities and developing relationships with counterparties in land ownership and construction.
Kipp Geis (KG): My primary responsibility is to oversee the lease renewal process and get properties ready to rent. This includes everything from oversight of new build processes, vacating previous tenants to getting the properties back on the market. My team looks to add value by ensuring the speed and quality of repairs carried out on properties, and maintaining intelligence on vacancy - minimizing off-market 'downtime' which could otherwise create a drag on rental yield. Doing this involves cultivating deep relationships with our contractors and property managers, including feedback on work carried out and continual inspection of the turn process across our properties. The stabilised occupancy rate across properties in our portfolio is around 94%2. My job is about 'on-the-ground' management, and I also play a role in identifying potential new targets for acquisition, ranging from plots of land to development projects.
Nicole Scott (NS): Like Kipp, my job is to manage properties in our portfolio day-to- day. In practice, there are two key oversight elements here: marketing homes to be leased, and ongoing maintenance and repair. Like Petteri and Rolf mentioned, cost is key in this business - and we work closely with our network of property managers to ensure that repairs are carried out efficiently (for example, my team reviews works valued at >USD 500, and ensures quotes from providers have been obtained in competition and are 'sense-checked' relative to our experience). I often travel between our sites visiting properties and managers, and our team also leverages our technology platform to keep our view of properties in the portfolio up-to-date.
A scalable approach supported by proprietary technology and a hands-on management team
Any descriptions or information involving investment process or strategies are provided for illustration purposes only, may not be fully indicative of any present or future investments, may be changed at the discretion of the investment manager and are not intended to reflect performance. There is no guarantee of trading performance and past performance is no indication of current or future performance/results.
How do you approach risk management and downside protection in your daily management activities?
RJ: One of the most important ways in which I approach risk management day-to-day is by interacting with property managers - where my team looks to ensure an alignment of interest, that they have the correct incentives and are properly motivated. When building or developing-to-rent, underwriting of individual deals is critical and I focus my attention here in helping the team execute while identifying potential risk points throughout our data. Such careful focus on risk is especially important when acquiring a large number of homes in bulk, where heightened concentration really enhances the need for diligent underwriting. Of course the support of Man Group's tenured legal resource in closing transactions is incredibly valuable.
KG: In addition to the risk management carried out by Petteri and Rolf, my team focuses on maintaining cash flows in the portfolio. Our team's robust technology platform gives us detailed insight into each property, and is allowing us to continually evolve this traditionally manual process. For example, we use automation where possible throughout the process, enabling us to manage high volumes of assets. In addition, I take a 'hands-on' approach to operational issues as a result of incidents, examples being the recent Hurricanes Harvey and Irma. Here I worked in partnership with local property managers to identify issues, ensure early work was carried out to help minimise long term property damage (for example where properties flooded damaged carpets were removed as well as lower sections of internal walls to allow properties to dry). In paralleI, I coordinated repairs with loss adjusters from our insurance providers to ensure coverage. Ultimately we were fortunate that properties we manage were less badly damaged than could have been the case, but we strongly believe that this hands-on management helps manage associated risks.
NS: In day-to-day lease management, we look to mitigate risk and protect on the downside by holding our property managers to account and maintaining high standards across the book of assets. In practice, this means setting clear tenant standards and monitoring rent collection carefully (quickly rectifying any outliers arising from our reports), plus cross-checking our records of property maintenance with those provided by property managers to help ensure consistency. In this context, relationships with our property managers are critical, as weII as the fact that we look to ensure high quality tenants at the outset of a new lease.
PB: Ultimately, we believe that for real estate investors, the first line of defense in a portfolio is diversification. We focus on properties valued around USD 200k - which we believe creates a diversified portfolio of assets. Another line of defense from our perspective is the entry price. As with any private investment, steep entry prices can be hard to overcome in the future – so we use our breadth of data to fully understand opportunities from a valuation perspective. To harness such large amounts of data, I have, with our development team, taken the lead in developing a proprietary technology platform to support our strategy, which has been in place since 2013 and is now in its third generation. This platform gives us real-time operational feedback, helping us make faster decisions in our portfolios. Importantly, it removes the waiting time that comes with month-end or year-end reports. Single-family rental homes are operationally intensive assets - more so than others, even in private markets. We take an active, hands-on approach to decision-making, and our advanced technology provides us with the transparency we need to help enhance our protection on the downside. On top of using our proprietary technology platform, we also strategically partner with large, institutional property management companies – where their well-established existing processes can complement our own.
In the build-to-rent space, our risk management approach is similar, but addresses slightly different risks. For example, we aim to mitigate risks around construction or real estate development through layers of insurance protection and careful structuring of ownership of the homes, plus continuous due diligence to help ensure that properties are compliant with regulation.
Allocation skewed to high income, low unemployment micro areas
|Avg household income||USD 54k4|
|Tenant income||USD 89k5|
|Avg household income||USD 60k|
|Tenant income||USD 87k|
|Avg household income||USD 66k|
|Tenant income||USD 88k|
|Avg household income||USD 46k|
|Tenant income||USD 100k|
|Avg household income||USD 70k|
|Tenant income||USD 90k|
|Avg household income||USD 33k|
|Tenant income||USD 100k|
|Avg household income||USD 58k|
|Tenant income||USD 77k|
|Avg household income||USD 55k|
|Tenant income||USD 85k|
Portfolio allocation by order of current investmnt size, for Tamina Homes, Inc. portfolios (2015 vintage).
What future opportunities do you see in this strategy from your standpoint? And how do you expect to deliver on them?
PB: From a macro perspective, we see continued long-term demand for high quality rental housing across the US, and family preferences for newer houses in strong school districts. These have been our predominant areas of focus within the rental housing sector since we started investing – and we continue to see new opportunities for building and acquiring homes in these neighbourhoods across a range of metropolitan areas. More broadly, from an investment perspective, this is the largest real estate asset class in the world7 – and has become an established part of many institutional investors’ portfolios in recent years. Of course, investors must remember the distinction between multi-family and single-family rentals (‘SFR’), and we believe that the latter offers the best potential opportunities. Indeed, SFR is gaining traction as increasing numbers of investors enter the market on a buy-and-hold basis, seeking rental income and capital appreciation beyond what multi-family property currently provide, given the higher asset valuations in the multi-family sector.
RJ: In the context of the increasing investor appetite Petteri mentioned, I think a key potential growth area for our team is an extension of our build-to-rent strategy – where we develop-to-rent. Here, we finance projects from end to end – sourcing and buying land, and then developing it. In this type of strategy, there are multiple points where we can potentially add value along the chain, and these opportunities require a strong network of land owners, developers and builders (who are often independent from each other).
KG: I agree with Rolf that relationships are crucial in assessing potential opportunities in US real estate. Specialist local knowledge is vital when it comes to expanding our acquisition base. We take a flexible approach to identifying potential opportunities and are guided by data – complementing the Portfolio Managers’ market analysis with my team’s strong relationships with builders and hands-on management. My past experience in the construction sector helps in this endeavor.
What aspects of your job excite you at the moment?
RJ: For me, building relationships is the most exciting part of my job. This is certainly ‘a people business’, and the majority of our opportunities are driven by our network and contacts in particular areas. On top of this, I think we are entering an age where technology has the potential to make a powerful difference to the way we invest in real estate, and that’s exciting. Residential property investment has not traditionally been associated with innovation in technology – but our team’s capabilities in this area are one of the key ways we manage risk and opportunity. It’s great to be part of Man Group as technology and innovation play such a crucial role across so many areas of the firm.
KG: Being ‘in the trenches’ and seeing homes first hand is exciting, and I enjoy the fact that there is always room for improvement and further optimization. I’m constantly thinking about the link between my on-the-ground property management (repairs, rental turnover, tenants) and the broader management of our portfolios by Rolf and Petteri. As we’ve said, our team leverages a wide range of data, and I love being part of a team which can consolidate so many inputs into a real and tangible investment strategy for clients.
NS: I'm excited by the fact that my role in day-to-day property management can help make a material difference to the performance of our strategies. Every day we get to be hands-on and test new ways of trying to improve performance, and as Rolf mentioned, advancements in technology are helping us shape our property management capabilities.
PB: Perhaps the most exciting thing about investing in property is that these are real, physical assets where real families are living day-to- day. These are real asset portfolios and I believe that what we do makes a contribution to improving the lives of many US families by providing a high quality home which constitutes value for money. There is no doubt that the housing crisis ten years ago had a negative impact on many families, who are continuing to rent property as mortgage availability remains constrained. I think our rental strategies have a clear role to play in providing quality housing stock for them in this context. Of course, l'm also excited by our opportunity to bring these assets to a range of clients - US and non-US pension funds, insurance companies, sovereign wealth funds and more - providing a much-needed source of potential return and income in the context of today's challenging investment landscape.
What's different about Man GPM Aalto?
- Over USD 1.7bn in AUM in US single family residential assets: USD 750m in equity and USD 950m in debt
- Portfolios with tenants at around USD 100k average annual household income
- Focus on newer properties - average age of 10 years
- Building homes since 2013
- Proprietary technology platform - offers real-time property level data
As of September 30, 2017.
1. AUM as at 30 September 2017. Reference to leases and cost items here are also as of 30 September 2017.
2. 2016 stabilised portfolio occupancy. Property is stabilised if it has been in the portfolio for over 90 days.
3. Bureau of Labor Statistics, 30 April 2017.
4. US Census Bureau, 2011-2015 American Community Survey 5-Year Estimates.
5. Median household income for tenants in Aalto managed properties, for leases starting after December 2015 (1,821 sample size), Aalto Invest.
6. Average across the remaining areas. Remaining 9% is allocated to cash. Any descriptions or information involving investment process or strategies are provided for illustration purposes only, may not be fully indicative of any present or future investments, may be changed at the discretion of the investment manager and are not intended to reflect performance. There is no guarantee of trading performance and past performance is no indication of current or future performance/results.
7. Zillow, December 2016.