Remote Work & the Local Economy - EP05

In this episode, Steve, Chase, and Sherida discuss what the growing trend of remote work means for analyzing a real estate market...

"We've got some good information for you here today. With the US population continuing to grow, and construction basically falling well short of demand... The build-to-rent space is more interesting than ever. We aim to bring a great conversation and awareness to the topic here.

As you think about analyzing markets today and where you might want to build "for rent" products, there are a few changes that have evolved over the last two years specifically around remote work." - Steve  Olson, B2R Show

Steve Olson: Welcome to the Build-to-Rent Podcast. I'm Steve Olsen here with Chase Leavitt and Sherida Zenger.

We've got some good information for you here today.

With the US population continuing to grow, and construction basically falling well short of demand... The build-to-rent space is more interesting than ever. We aim to bring a great conversation and awareness to the topic here.

As you think about analyzing markets today and where you might want to build "for rent" products, there are a few changes that have evolved over the last two years specifically around remote work.

Chase, Sherida, and I were at lunch yesterday, with our brokerage, just doing a little quarterly lunch thing. Catching up and discussing what's happening in the business.

I was talking about a vacation that I just took with the family for Labor Day to St. George Utah. We went and saw School of Rock at the Tuacahn Theater, I highly recommended it. We did that, we did the swim thing, hiking, etc.

Every time I go to St. George, a city that's about two hours northeast of Las Vegas on I-15. If you live in Utah, you totally know it. In fact, in the western US, you increasingly know about St. George.

It's a vacation town. That's what it's always been. There are a lot of good people there and some great businesses, but it's kind of the gateway to a lot of National and State Parks. A very scenic place.

We get asked all the time, by locals here. When are you going to build in St. George? When are you going to build apartments or for plexes? Or homes? In St. George, I love it. Now, I think that they're usually asking that from the point of view of I want to have a vacation house that I can go to and maybe Airbnb it and do whatever I want. That's usually why they're asking. And I get it.

We've in the past felt the same way about St. George, that we have Las Vegas. Although because this is becoming less true and this is a good example of what we're going to talk about today.

My position was, and I said this to Sherida, Chase, and Jesse, who works with us. And because Chase and Jesse are from St. George. The thing that makes me nervous about St. George is it's a bunch of old retired people, construction workers, some doctors, and who else. Right? That was what I thought. You can compare that to Vegas if we look at the mortgage meltdown of 2008. Las Vegas is on the shortlist of places that were really, really hammered. And so was St. George, Utah.

St. George really took it on the chin during the mortgage meltdown of 2008. So I said to chase and share, like what's the big deal? What am I missing here? Should we be looking at St. George? And I don't know, I'm not saying that we officially are but it's something that we felt was worth discussing on the show today.

Is what you would use to evaluate the employment base of a market permanently changing?

And I'll cap it off with this headline from flexjobs.com that we're going to talk about more today: "30 Companies Switching to Long-Term Remote Work"

To name a few of them here: Adobe, Amazon Atlassian, Capital One Coin Base, Dropbox.

Chase and Sherida, I want to know what you think. Where you're gonna build some product, you're gonna rent it out. You're worried? Is it growing? Are there jobs? Do the tenants have a place to work? And in the past, we would say that economy is one-dimensional. It's not really growing. With COVID, accelerating this remote work thing. Does this matter anymore?

Sherida Zenger: No, I think it changes dramatically. I had cousins that just recently moved from the California bay area to Utah of all places, which was kind of random. But both of them work remotely as well. And so I had asked them, hey, why did you move here? And they said, Well if we could live in where we wanted to and still have the same employer, why wouldn't

Why would we stay in California, we want to move we want to get out of here. So I think people are starting to say, See, or understand the Hey, I don't necessarily have to live where the headquarters are. But there are some pros and cons to that, that we'll get into a little bit later that we talked about yesterday at lunch as well. But I think it's a huge shift in how we think, going forward.

Steve Olson: Are you seeing it, Chase?

Chase Leavitt: St. George, that's where I'm from. We looked at St. George, about four or five years ago? It's a great example because it's that city where there could be opportunities that some people might not be going in, and some people are actually going to. They see other things that really attract their attention.

One of the things that we like about St. George that I've heard is their vacancy rates are so low, it's like 0-1%. But then you bring up the point, where are the jobs at? Is it just teachers’ schools? Where are they? Where are they coming from?

We're talking about remote work, and you have a nice area like St. George. And there are probably 100 different cities that are similar like that, that's a little bit smaller, trying to figure out the employment where the employments coming from. But if you look at St. George, you look at how beautiful it is, and the opportunity from it from an outdoors perspective, to be able to get out and enjoy life more.

And so that's why when we're talking about being able to work from home and working remotely, it's those places that are probably pretty dang attractive right now. And so when it comes to investing, whether it's a long term, vacation, rental, whatever the case is, I think it's those markets that are still staying hot, or maybe even more popular right now.

Steve Olson: In the past, you've looked at I want to build here, I want to move into this market. What are the big companies who's hiring, where are these jobs? What's the employment base?

We're saying that might not be enough anymore. Right? You might be getting not the whole story on a market for a good or for bad, right? I remember this was like in April, or maybe march of 2020. Some stuff was going on, if you hadn't heard. And I had a fourplex under contract for an investor. And somebody needed to go do a walkthrough of this fourplex and get some pictures.

This is at the time where like, can you like to go to somebody else's house? Like if you go outside the Coronavirus is going to immediately kill you. Right? That's what people were kind of acting like because nobody really knew what this was at the time. And so the governor had just, we never had like a firm stay-at-home order in our market here in Utah.

The governor basically said you should do it. And most people did for a little while, and then we all got tired of it. In Utah, everybody has a bunch of kids, you're just not gonna stay in your house forever. It's not happening.

So I go to this fourplex. And I was thinking how's this COVID thing going to impact multifamily real estate. And I remember in three of the four units, one of them wasn't home, who knows where they were three of the four. One of them, a woman was a nurse, she was doing telehealth, she had a desk set up in the kitchen, she was talking to some patient I heard more than I should have HIPAA, right. But she was going through this, this diagnosis, perfectly able to do it from home.

The next was a guy in tech of some kind, he was working at home, he had three monitors set up, he was dug in for the long haul. And the third one was another guy think he was in some kind of a sales job that could be done remotely and over the Internet and Phone and such. I thought that's interesting. These people are gonna keep paying their rent, they're not barred from going to a job, they're not going to get laid off. It will be very interesting to see how these companies adapt. So what I said earlier, I named off some companies.

Let's pick on one of them and talk about how it kind of bat this around for a minute. Adobe: remote work plans employees will have the option to work from home approximately 50% of the time and in the office the remainder of the time. So that probably doesn't affect you.

You're looking at a market like St. George, Utah and you say well, the employees probably got a life near the office. But I still think there's a domino effect in real estate because you can't tell me if Adobe is requiring employees to work at home. And we have a ton of Adobe here where we live a part of the time that they're going to keep their entire giant office in San Jose open. They're probably scaling that back. What do you think about that? Would they do that and what do you think that means?

Sherida Zenger: I think they're saving a lot of money on rent. And then they're realizing that some of these employees are actually putting in more quality time to get their work done and are doing it in shorter hours, versus, you know, having chat at the watercooler so to speak. So I think that they're actually getting some people to be more productive. Another one on here was Capital One.

They said that they're trying a flexible hybrid model that will not require employees to be in the office a certain number of days, some employees were able to work from home 100% of the time. So I think employers are going to try to figure out Hey, does it 50% of the time work or? No, what about 100% of the time?

Steve Olson: Here's another one. Dropbox will let all employees work from home permanently existing office space will become Dropbox studios. Well, that's slick, where people can choose to go into work.

So your relatives had the choice. And they made it. Right, I was out analyzing a market. I was in Fort Wayne, Indiana. I saw one of those giant yards that had like 1000, Chevy Silverado and GMC Sierra is that can't get the chips. They make a lot of those in Fort Wayne. And I was, you know, looking at some opportunities there. And it's kind of a manufactury, Rust Belt, type city. And I began to see a different picture.

Granted, that's a heavy influence. Because the funny thing is, this employee from Dropbox wants to go work from home, somebody's got to make their microphone and their computer and their desk chairs. There's always that manufacturing demand. But so I think we're not saying the whole economy is mobile, but a significant portion of it is now mobile.

But interestingly enough, what did I see in Fort Wayne, I saw that younger crowd moving in downtown, I saw new buildings under construction. I saw people moving into offices and people taking restaurant and hospitality jobs, and tech jobs, I'm more and more of that, because they moved to somewhere that was a little more affordable, that was a little bit more business-friendly, right?

They attract, frankly, they're attracting those jobs out of Michigan. And Illinois is what I observed. So Dropbox is another here's Facebook. Facebook in June 2021 announced employees can work from home, permanently. Crazy. Even Ford Motor Company, employees can work from home.

Sherida Zenger: It says work from home indefinitely with flexible hours. So if I'm a mom and have to work, having flexible hours is huge. Because if I have little kids that I need to get off to school, or if I'm still doing remote learning, I'm gonna have to be with those kids and help them. So maybe my hours really are more of a nighttime type of job. I think flexible hours are huge too.

Steve Olson: Lincoln Financial Group, ironically enough, had a headquarters in Fort Wayne, where I was. Hundreds of employees are not eligible for permanent remote work.

We have a colleague that we've worked with moving his family to Costa Rica. That's where they're going crazy that you can do this stuff now.

So knowing what we're talking about here, Chase, take St. George, UT as an example, where previously would say we would say, most of the employment base is in government education or retired or construction, as probably a fair summary of the old St. George, how would you look at that mark? How do you uncover Hey, is remote work, giving me a better or worse opportunity here? Where would you start? If it was you to analyze that online?

Chase Leavitt: What we've been looking at here, Flexjobs, and other websites... understanding major companies and what they're allowing, and then when you're researching that market, you still want to look at the core jobs that are within that market. But look a little bit further.

I think a good place to top my head is talking with other property managers, other rental communities who are your tenants? Yeah. Yeah. Who are your tenants? Where are they coming from? They're gonna know that and that's going to give you a good idea of Okay, there. A bunch of coming from California, Adobe, Amazon, whatever the case is, just look a little bit further. And that's a good start.

Sherida Zenger: The city may have some information for you, as far as you know who's signing up for new utilities, they're not going to give you exact people's names, obviously. But they could say, Hey, we're having an increase in our population.

Well, what's bringing the people here? I think you can try to start to narrow that down a little bit. I think it's going to take a lot of time to figure out Yeah, you know, the trend of this, but I think it definitely is something that is starting to trend a little because

Steve Olson: You can tell if people are coming. But why are they coming? Right. And we've seen up in Boise, where we do a lot of work, its lifestyle, its affordability, although voice has just become astronomically expensive, compared to where it once was.

This is all a compared to what proposition. If you're coming from Portland OR, Seattle, Boise is still very, very affordable. But I remember I pulled the costar reports for Fort Wayne, I wanted to see what was going on. And I saw a vacancy rate of like 2% and 16% year over year rent growth. It doesn't tell me why or who but it says people are coming here, right? They're showing up, it's driving rents up.

So you can take that and you can say okay, they're definitely coming. Will they keep coming? Or what does that look like? Because I think that cities and counties and states do things that make people want to come. As you talk to the city, you find that out. I met with a couple of mayors and they talked about all the policies they had enacted. And you can kind of piece that together because it's just not enough anymore to look at the press releases of "so and so is bringing in 2000 new jobs."

That's great. But there might be a lot more than you're missing. We don't have the exact solution there. But our intent is to bring something to everybody's attention about what you should think about when you consider a market for build-to-rent investing. Getting a picture of the job situation is a little more nuanced than it used to be.