THE FUTURE OF RESIDENTIAL PROPERTY MANAGEMENT AND BROKERAGE A Presentation to NARPM April 11, 2016

Demographics The impact of technology The impact of regulatory environment Consolidation The attractiveness of SF as an investment The future of residential property management and brokerage

Consumers continue to use the services of property managers and real estate agents 2001 – 81.2 percent of all buyers and sellers used an agent (Harris) 2014 – 81.0 percent of all buyers and sellers used an agent (Harris) Demographics

Most consumers still find an agent due to personal relationship ( percent, NAR, Harris) Investors in SF purchases and sales use agents at about the same as owner occupants do especially as they purchase more units (Invaluable Investor) Investors who own more than 8 units tend to trade or sell properties more frequently than do owner occupants

The impact of technology percent of all those seeking housing to rent or own seek information about options online first In each segment of the market there are a handful of major portals that dominate most of the online traffic In most cases the cost of accessing or utilizing these major portals is increasing as consumers seeking either to purchase, sell or rent are requiring firms to have a presence on these sites

The impact of technology In property management tenant screening and selection are additional areas where technology seeks to simplify the process In brokerage online transaction management systems have proliferated significantly and most productive agents now use such systems for processing transactions

The impact of technology Now arriving for both industries are the wave of fully integrated operating platforms that combine back office and front office systems including integration with the consumer internet: Accounting and financial CRM Transaction management Tenant screening and selection Online and offline marketing integration Business management Vendor management

The impact of technology Next up are reputation management and predictive marketing tools for both property management and brokerage Fixing and managing your reputation and contact points Targeting customers more precisely Both at lower costs

Consolidation There are significant barriers to entry for public sources in deploying capital in both industry segments Federal regulations prohibit banks from owning brokerage or property management The fragmentation of the industry creates a significant barrier to building scale without numerous acquisitions The ability of privately owned brokerage and property management firms to compete aggressively on service and price against publicly held national firms The lack of significant capital requirements to own and operate property management and brokerage firms

Consolidation In brokerage we have seen consolidation at the local and regional level more so than at the national level – there are many metropolitan areas where the three to four largest brokerage firms now handle >50 percent of all brokered transactions We expect to see the same trend take place in property management as the attractiveness of the business itself and the increased potential of margin improvement due to economies of scale become evident

Consolidation We would expect to see existing and new entries at the local and regional level begin to move into this market We also expect to see franchising increase its market share in the property management business Regulations will have an impact on this trend

The impact of technology The great fear – When will technology replace us? Geoff Colvin, author, “Humans are Underrated” The one great attribute of humans that has not and will not be replaced by computers is “Empathy”

The impact of technology It does not matter that investor or owners of SF can access HomeAdvisor as much as it matters that they can get their properties taken care of, their rents collected, their repairs made, etc. Can they find their own suppliers of services online – yes of course How many contacts, how much time will they have to spend doing this?

The impact of technology For purchasers and sellers of homes, the process is infrequent, complex (and getting more so) and the cost of failure can be ruinous It is for these reasons that the percentage of sellers and buyers using an agent hasn’t changed in the past 15 years There will always be those who use access to tools to “do-it- themselves” but the percentage of those doing so remains static

The impact of technology The next frontier for property managers is the Smart Home – a fully integrated home management system that can track everything going on with a home, both interior and exterior, maintenance, repair management, security, etc. Imagine being able to monitor your rentals from your office, HVAC, roof, watering systems, electrical systems, etc.

The regulatory environment FHA and Fair Housing Affordable housing CFPB and real estate financial services EPA and healthy home initiatives

Consolidation As stated, while consolidation is taking place the growth of new businesses in both property management and brokerage continues Low cost of entry Low barriers to entry Lack of opportunities in other employment sectors

Consolidation The sheer size of the industry is what is making it attractive to both public and private sources of capital Property management services$39 billion Brokerage services$68 billion Financial and other related>$500 billion

The attractiveness of SF as investment There are 14.9 million units of SF housing units owned by investors They make up 35 percent of all rental housing units in the country Adding 2-4 unit multi-family units adds another 7.7 million units which brings the total to over 53 percent of all rental units are investor owned residential

The attractiveness of SF as investment Less than 500,000 of these units are owned by large corporately owned entities The growth of households who are going to rent is projected to grow at least as fast as the growth of owner occupied housing – and it could grow faster

The attractiveness of SF as investment The opportunity for both residential property management and brokerage firms is to develop a full range of services for investors If just 10 percent of these turn over each year it would be equal to one quarter to one third of all housing sales in the country For the new or experienced investor it could be the entry they have been seeking