Build-to-Rent with Mitch Rotta

We're talking all about Build-to-Rent –and how this new asset class allows for a path to large scale alternative building practices– in this episode! 

Mitch Rotta, Director of New Construction at Tricor oversees the entire lifecycle of the project – from land acquisition through vertical construction. With a background in large commercial projects, Mitch has implemented numerous construction efficiencies into Tricor’s Build-to-Rent program. Building information modeling (BIM), alternative building materials, direct product sourcing and in-house labor are just a few of the techniques Tricor is utilizing to help separate themselves in the build-to-rent space. This combination will allow Tricor to produce the most affordable, durable and energy efficient smart rental homes in the country.

Read more about our thoughts on #BuildToRent!

Many thanks to our partners at the University of Denver for their editing and post-production talents, specifically Lija Miller and Lisette Zamora-Galarza.

The University of Denver Franklin L. Burns School of Real Estate and Construction Management, teaches the full life cycle of the built environment. From integrated project leadership skills to a cohesive understanding of the built environment ––experience the only school of its kind!

"Upbeat Party" is brought to you by Scott Holmes, songwriter from Free Music Archive. 

Transcript

Speaker 1 (00:06):

You're listening to the Housing Innovation Alliance podcast in partnership with the university of Denver's Franklin L burns school of real estate and construction management. The housing innovation Alliance is a nationwide community of game changers driving the future of home delivery through crowd accelerated innovation. We represent thought leaders from dirt to dweller with a focus on the production builders business environment.

Speaker 2 (00:33):

Hi, this is Dennis Steigerwalt present of the housing innovation Alliance, and this is our podcast series. I'm joined today with Mitch Radha from TriCor contracting. How are you doing Mitch? Good, good. I doing, yeah. I'm all right. Thanks for joining us. So Mitch, you've been involved in the housing innovation Alliance for a good amount of time. Now we've seen your activities on the, on the build to rent space, and I know this is a hot new asset class that everybody wants to know more about, but before we get into that, want to welcome you to our show and to meet the audience. But by doing that, I want to really learn about your career in the construction industry. Yeah, absolutely. I mean, I've been in a construction man since I was in high school, just working as, um, we had like a building trades program.

Speaker 2 (01:13):

We went out for a couple periods and built a house from scratch. And, um, that kind of led me into, uh, majoring in construction management from Michigan state in that path kind of led me into more of a commercial realm for about five, six years. So I worked for Hensel Phelps, uh, kind of one of the largest GE general contractors in the country and was on some major projects. So we've renovated large terminals at lax, you know, 450 $500 million jobs. Uh, I lived in Hawaii for about a year and a half working on a project with the Navy. We built a missile defense system there. So kind of these like super complex and large, massive scale, but I always had to kind of draw to residential construction and, uh, and homes. I've just always been of interest to me. So I actually moved Arizona, um, with my brother who lives here and he's in the same field and we kinda got into custom home building game for, for about two years.

Speaker 2 (02:07):

And we're working on, you know, massive projects outside of that, you know, custom homes that are 40,000, 50,000 square feet, you know, for someone kind of the elite in the world. And, uh, you know, it, it just kept saying like, how efficient is this? Is this home building, but it's almost like another commercial job, right? Where it's like, you don't get the touch and feel of real production of real home building and development and what all that looks like. And so through mutual friends, I, uh, I kinda stumbled across TriCore. One of the cofounders is, uh, uh, one of our mutual friends was super close to both of us and kinda made the introduction, you know, they were up to something cool. It was brand new, right? I mean, single family rentals in 2015, 2016 were still too, a lot of people kind of a short term play in terms of an investment strategy. And as that was started, low ball then really come institutionalize. And the idea like, Oh my gosh, this is actually a whole new asset class. The light bulb went off and it's like, you can start from scratch and build this into whatever you kind of want it to be. And the idea of build to rent inside of that strategy really made it attractive to jump on board and kind of take this thing from an idea into reality here over the last almost four years.

Speaker 3 (03:20):

Very cool. So you were, you were at the early stages of TriCore exploring this as a new construction opportunity. Um, you know, piloted it through a consulting firm that you had set up and, and kind of partnered with them on so very entrepreneurial area. So obviously huge upside, as you said, you've uncovered. What else about this space

Speaker 2 (03:37):

Excites you? When you look at home building, you know, one of the number one things, and this has been in the conversations with a lot of, kind of the home building leaders that I've spoken with over the years, you know, you look at [inaudible] or dr. Horton, who's 40,000 plus houses a year, that's 40,000 plus customers that you're working with on a daily basis. And it just makes it an incredibly fragmented and difficult new actually become like more of a marketing machine than you do a builder, because you're trying to attract people to your houses. I'm in a development where there's six other builders doing the exact same thing. So in this scenario we say, okay, we approach it from way more of a production line, you know, and what production home building used to be. And it was kind of saying, Hey, well, we want to offer in this space is obtainable housing.

Speaker 2 (04:31):

It's not about the bells and whistles. It's not about trying to upsell you on, you know, what flooring you want or countertops you want. It's about truly putting a product out there that caters to a segment that's been looked past for quite some time. And that's kind of the middle America, right? It's, it's, uh, those people that are in an apartment because they can't afford a house because the bells and whistles are too expensive, but they need the space. They want to grow their family. They want to kind of live that American dream. We're kind of saying now, as well, if you can't buy it, at least you can rent it and experience it and get all the benefits of it without the financial obligations that come along with it. So

Speaker 3 (05:11):

Creating a more, a more accessible, better lifestyle, right. And that message of attainability is very much in line with what we're looking at. And you hinted at something there where you've, you've worked on these very complex kind of commercial projects prior to getting into home building, but many ways, you know, if you look at these purpose built communities, right? I mean, this is just a large scale, it's a commercial project, right? You're trying to deliver it as fast as you can all at once. You know, you're not looking at the same absorption rates of three, four homes a month, it's beds and heads quick, quick as possible.

Speaker 2 (05:36):

Yes, it is go, man. It is hit the gas pedal. And as fast as you can build them is what people will take them at. It was kind of why it was this kind of perfect marriage in between what TriCore his business plan was and what my expertise we're in at the time is you basically kind of couple this commercial style approach to a residential product. So going from having the build a prototype missile system to go into building a house from a construction standpoint is pretty easy. You know, when you have a knowledge in the industry, but the process by going from start to finish is super complex. And there are so many moving pieces in this it's, you know, it's why it's taken a long time to get off the ground is because you got to figure out not only the construction, but also what is the product type, what goes in the product type? How do you get it financed? How do you find the land that fits it? How many units can go on there? Do you got to rezone it? Do you not? It's a long journey to try to manage that is quite a task, but you know, we're working.

Speaker 3 (06:34):

Yeah. So you mentioned something there it's about the process, right? And over the last few years, when you've kind of evolved this offering through TriCore, it's become much more of a turnkey offering. And now you're involved in everything from underwriting through construction, to the handover, to the client. And I'm sure there's a lot of lessons you can share with us in there. Um, you know, w without, without mentioning names, maybe we can get into a couple of, you know, what are, what are some of the obstacles, the biggest obstacles you face when you're looking at that process with a client. Um, and I know that it's going to vary by geography and project, but maybe if there's a couple of things that just consistently come up, that you can share with us, you know, how you, you and your team overcome them.

Speaker 2 (07:11):

Yeah. I'd say number one is education, understanding this as a whole, and it's not only clients, but it's also everyone else, right? Understanding it from a municipality standpoint, understanding it from a design standpoint, under seeing it from a subcontractor basis, you know, all these pieces need to be educated on this approach because you're taking historically what has always been this for sale model and kind of putting a whole new layer of complexity and use over the top of it. And so in that everything changes, municipalities are now start saying, well, you're actually multifamily. And it's like, no, no, no, no. The way it's planted, the way that utilities are hooked up, you know, everything about it's got its own address. Everything about that is the exact same. It just is we're changing who owns this and who lives in it. And so instead of it being 150 customers, it's one customer, but it's still the same exact process.

Speaker 2 (08:03):

And that's sometimes hard to understand same thing with designers, right. They know they've had this model of saying, once again, look at the bells and whistles of this and the focus on that and 10 different elevations. Well, that changes as well, all of a sudden it's, well, how do you appease the city and what they're needing, but also completely streamline and value engineer the product, because ultimately what you have to do is get these things through a very solid cost basis to be able to achieve the rents that you're trying to do. And then the subs, right? There's no variability in the schedule. You know, there isn't three houses in August and then 25 houses in July. And you have to adapt to that it's consistency, which means now it's, can you bring one crew onsite? And they stay there forever much like a commercial site, or do you try to jam it into the exact same process that you've always had of, you know, Monday it's this crew then Tuesday, it's that crew and Thursday it's that crew. And once again, having all those inefficiencies in the process, we can actually identify and show them how guys you can maximize your margins and your crew availability, like you've never had before. Um, and it's just getting them buying into that, which that's all that stuff takes time.

Speaker 3 (09:13):

Yeah. It makes sense that, you know, it goes back to something United discussed prior to this conversation, you know, kind of this round peg in a square hole. I mean, it's an evolving process and it's not going to be one of the others. So it was somewhere in the middle. We're going to, we're going to meet on as we write the book for what this asset classes and how to deliver on it in an optimal manner, right. A hundred percent. Let's talk about some of the opportunity that exists here. So obviously operating at this scale, and I know this is something that's near and dear to your heart. You get, you get the chance to kind of experiment a bit, right. And deploy some really interesting technologies, both from a process perspective and then overall constructability side of things. So tell us a little bit about what you've worked with, what you're most excited about,

Speaker 2 (09:51):

You know, kind of what I was just explaining all of that lens too, you know, a different approach it's completely different in every way possible. So, you know, opening that door to a different process means that, okay, can we also work with different products? And what does that look like at scale? And so the construction industry and residential construction specifically has always been stuck in its ways. I mean, people have talked about it for decades of, you know, how it's just is so reluctant to change. And it's something that's come about now really big in the last five years is as you start seeing labor pools, just diminishing like crazy and commodity pricing, skyrocketing and being super volatile because we haven't changed. That's only going to get worse. There is no magical forest out there growing, you know, super rejuvenating wood for all of us.

Speaker 2 (10:40):

That's got, you know, all the strength that it did 20 years ago. I don't know how many, you know, 18 year olds you're talking to these days that are jumping into the trades right now that the first thought is, what college am I going to? It's just a compounding factor. And so when you look at that, you can start saying, okay, we have an ability to change what we're doing. So how do we do that? And so we've tried to tackle the first thing that stood out to us and that's, you know, the structure of the house. So, you know, wood framing has always had issues. I mean, we've built houses with dead trees, you know, that water likes to attach to and mold and insects like to eat, and it's warping and it's twisting and it's binding and it's, you know, just got all these issues, but we continue to use it because it's, what's always been done.

Speaker 2 (11:25):

We looked at that first and we said, okay, can we, can we swap that out for something better? So we're working with some manufacturing companies here in Phoenix that got, that have some great products to manufacturers in Texas that have some new systems that are coming out. And, uh, you know, we're, we're getting pretty close to being able to swap out the entire house from wood to just better materials. And that opens up the doors now to, you know, different labor pools that maybe don't have to be as sophisticated as a framer. You know, you don't need 20 years experience and layout and understanding headers and cripples and King studs and all these pieces, right? It's just, can you count from one to 20? And can you use a screw gun and stand up things straight that opens up the doors to people that have never pad experience in this, but now can get involved and be kind of satisfy that labor pool.

Speaker 2 (12:15):

And then it talks to the systems right now. Now we're dealing with products that are, are super energy efficient. I mean, it's thermal envelopes that are, you know, our 30 plus as a total building envelope, you know, opens up. Can I look at my HVC different now? Can I look at tankless water heaters in a different way? Can I look at insulation in different manner? Can my windows look different? Does solar open up completely now? Because I don't need as much energy, but I can store it and I can sell it. You know, this compounding factor that happens in terms of looking at the biggest component, tackling it, which is not easy by any means, but if you can get there and figure it out and put the time into it and kind of open up the industry to it and say, Hey, listen, we're, we're open to sharing our ideas and how we're doing this because the more people that buy into it, the bigger it gets, the better it gets, the better the price gets. And all of a sudden we start making the shift towards, you know, actually making alternative building practices, a feasible and financial viable kind of method, right.

Speaker 3 (13:12):

We've proven out that the demand is there for the product, right? And so now if we can create the supply, the ecosystem required to develop and deliver the right solution set to your point, if you know, nationally to do this. So we can all be a lot better off. And it's certainly gonna take more than one or even a handful of organizations to deliver on the demand that's out there, right? This is a tsunami that we'll have to ride together. So in talking about this, you know, you mentioned some of these new technologies and materials you're working with in different markets. I have to imagine that you're building longterm partnerships with developers, private equity firms, reach that are allowing you to experiment a little bit more and allowing you to take risks. Is that, are you seeing that from them that they're, as you bring these ideas to them, they're a little bit more well received now than it may have been in the past with your track record. And also just because, you know, your vision for where the industry can move towards.

Speaker 2 (14:02):

Yeah. I think definitely in the last couple of years, you know, we first started this out. Lumber did some crazy spike, right? It was up 60%. This is like back in 2017, 2018, something like that. And so a lot of people said, okay, Whoa, we need to look at something different. And so, you know, we kinda really hit the marketing stream with it at that point in time, I guess where we're at today, Lumber's up 80% OSB sheets are up one like 135%, something like that. So we're in the same environment and it happened inside of a 24 month period. Once again, this isn't going to change, right. We just had skyrocketing demand the largest year over year growth for, for sale product since 2005. And we're doing it with half the people and commodities that are sitting in 20% tariffs and we can't get it at the price that we needed.

Speaker 2 (14:50):

And so I think everyone is going to start to say, okay, you know, enough is enough finally. And that's why you're starting to see home builders buying up some of these panelized manufacturing plants, acceptance to saying I'd pay a little bit more, you know, for, for a more efficient and more safe play when it comes to construction. Because, you know, I can't predict as a contractor, what lumber is going to do in eight months from now. So I'm going to say that, Hey, at that, there's an increase on that. You know, Hey investor, that's, that's on you because I don't have the crystal ball. Cause if I did, I'd probably be hanging out in a boat right now, doing nothing. So we've seen people becoming a lot more accepted, acceptable to it. And at the same time, the manufacturing companies are starting to really finally hit their scale and their investors are starting to see that it's wow, this is an opportunity here to capitalize on this type of stuff.

Speaker 2 (15:38):

So let's get to the negotiating table with our raw manufacturing goods and start hitting this hard and getting those products out there and starting to see that perfect curve that you're looking for in terms of where we at in conventional construction and where are we trying to get to with alternative building products? And that gap is narrowing every single year that goes by. And I think for that, you're going to start seeing more people shift to it. And then you look at build the rent, right, where it's one owner, you know, kind of back to that, that statement I made before is I got 150 houses that I own go down in Florida right now and ask me how many communities under litigation right now because of stucco leaks. And now you're one owner with, let's say a 1500 house portfolio with the same inherent issues that the industry has always faced.

Speaker 2 (16:23):

And so from our standpoint, like I would take paying more money for a product all day long, knowing that 15 years on the line, it's holding up as if it was built yesterday, you know, and my tenants are happy and all my cap ex expenses went down significantly because I didn't have to, didn't have to worry about the typical issues that you have on just the conventional build that we go by now. So you have this commodity driven market that's just forever getting more valuable by the year. We have manufacturers that are starting to get really competitive and there's more and more of them every single day. And they're getting to scale. Finally, you have a platform that can have the ability for them to kind of capitalize on low variability and set of floor plans, you know, reduce elevations. You can kind of get that, that true production style, which means they can scale up quickly and deliver product at a cheaper cost as well to an owner that needs a better product because it's way more exposure for them down the road, having a house that could leak could work. And that could, it will. It just as when versus something that will kind of stand the test of time.

Speaker 3 (17:29):

So this is interesting. So this segment can have, or this, this asset class can have a lot of implications for us over the next five to 10 years, right? Not, not only just as an industry, as it comes to delivering single family detached homes, right? That in itself, the impact of the, as you mentioned, what it could do for creating a more diverse labor pool, what it could do for introducing new building and finally helping to accelerate adoption of some of these things, you know, with the one owner mentality, as you were saying, and you have a handful of them that are willing to take some of these, you know, these leaves cause it's their portfolio. They are going to have to own and operate for a number of years and also what it does for society. So it gives us, you know, as homeowners access or whereas occupants access to a better quality product in a school or a community that we're trying to get into an enterprise that's attainable. So accessibility is there, but then also the empowerment job creation piece. So there's, there's a lot that goes into this that can have far reaching implications. I'm kind of curious, you mentioned your crystal ball earlier. Um, what's going to happen in our industry over the next five to 10 years. What kind of positive momentum do we take out of this? Or what would you like to do?

Speaker 2 (18:30):

Uh, you know, I think it's going to play across the whole board. You know, I think you're going to see developers become this more of an acceptable product type that it's going to become. Uh, every community will have some sort of rental component to it. You know, master plans are going to shift in the way that they look at their land and how they use that land and who they're trying to attract that's happening now. And it's only going to get bigger and bigger as that goes in terms of demographics, like there's going to be more renters, right? I mean, we keep having these super volatile economic hits as well, that are just financially ruining for people. And let's say 75% of the population is okay. It makes it through it. Well, there's 25% that just got smoked, you know, and how long does it take them to recover in an environment that is ever increasing in terms of cost of living?

Speaker 2 (19:18):

So the rental market will continue to just expand and grow and then it kind of translate. Do you have the product enough product to satisfy the demand to keep it obtainable? And we can only do that through looking at different strategies of how we build products and how quickly we can get them to market. You know, if it's six months right now to get a house to the market, and that takes a long time to deliver product, can we cut it in half? Can we do it in a quarter of the time, all of a sudden, because we're dealing with better products that eliminate steps of the game and reduce kind of all those different pieces that need to come to come together. You know, when I look at a house it's 40 contracts of subcontractor labor to put it together, talk about a fragmented process in terms of getting from start to finish and a handoffs associated with that from trade to trade, you know, like of course there's going to be issues.

Speaker 2 (20:07):

It's just, it's the old, you know, I whispered one message in your ear and what does it look like when you pass it on to 75 people? It's completely distorted from what it originally started as. So I think I'll turn to building practices are going to completely take off technology is getting better, getting more efficient. There's more and more players every single day. And all of the private equity and capital markets groups right now are saying, you know, reduce carbon footprint, right? I was at a John Burns conference last year. And one of the, uh, the CEO of Brookfield, you know, it was pretty much the largest real estate company in the world was saying that the capital of the world right now is basically making a mandate to say that have to reduce your carbon footprint, which, you know, that's never been done before. How does that money trickle down into all these groups that are trying to tackle that the exposure to the capital markets side for alternative building groups I think is going to, is going to go completely explode as well.

Speaker 2 (21:01):

And, you know, for TriCore, our goal is pretty much capitalize across that whole idea, right? Is, you know, when you can kind of become a turnkey operation that starts at the point of looking at raw land all the way through the end product and the handoff of that, you know, we're excited because once again, it's in our blood right now to look at things in a different way from day one, whether it's the use of the land, how we approach municipalities right now, we have a whole virtual open house that's going to be happening for rezoning case, you know, when you step into it and it looks like it's a conference room and there's boards set up and everything, and you're clicking on stuff and you're getting all the information and you're doing it from your own house, you know, looking at how leverage that technology.

Speaker 2 (21:44):

And then it's, you know, in the actual construction side, you know, my goal, at least for this company, is that we're getting as close to net zero scaled developments, you know, inside the next five years. So using the end product as a way to harness energy, to ultimately say that, you know, a community from an energy standpoint could be self sufficient, if not only a revenue source as being able to generate back into the grid and communities become mini grids. That's kind of, you know, if I had, if I had a crystal ball and everything worked my way, that would be where we got to is that type of feat. I think it's totally possible what Mitch, this has been fantastic. Really appreciate you taking the time to kind of share your thoughts and your experience with us, what you and TriCore are doing is fantastic.

Speaker 2 (22:29):

I could see why you're such a popular guy all over the arena right now, and we'll circle back and see how things are progressing. But again, really appreciate sharing your story with our audience and proud to have you as part of our community. You know, you guys are, um, one of the few groups out there that really push for innovation and change and get people, a platform to get their voice heard. And so, uh, you know, kudos to you guys for staying on top of your game and trying to bring groups together to really match up. So I know even through your guys's network, I've met some terrific groups out there that are really trying to change things as well. And so you don't do that without something like this to kind of bring the community together. So it's, it's a, it's fantastic much appreciated. Proud to have you. Alrighty, man. Alright, take care. Bye. 

Speaker 4 (23:26):

On behalf of the housing innovation Alliance and the university of Denver, this is Dr. Eric Holt. Thank you for being part of our journey. This is where innovation calls home.