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Construction Brand James Hardie Goes Global, Acts Local In Climate-Challenged Residential Market



Scientists developing new building products at the James Hardie Research Center that will make homes more resilient in the face of intensifying climate challenges.

Mother Nature – a.k.a. necessity – is the mother of housing invention. Or it had better be.

Every wildfire, super-convective storm, seismic spasm, tidal surge, polar vortex bomb cyclone, tornado, months-long drought, inch of coastal erosion – there were 22 events whose destructive toll eclipsed $1 billion and took 262 lives in 2020, according to the National Centers for Environmental Information – now clocks in as a statistical menace, impacting one in three U.S. homes at risk of catastrophic damage.

In the face of such challenge, paradigms rotate. Tried and true ones in construction and real estate formed around cyclical constancy and copious quantities of relatively cheap manpower, trees, land, and access to money. Now, those structural baselines no longer revert to their historical norms – there are just less of them everywhere.

What’s more, President Joe Biden’s new $2 trillion infrastructure framework, now treading an iffy, tricky, bumpy, bruising gantlet through Congress, would quite literally redraw residential property value maps in the U.S. The plan’s master architects and lawmakers up and down the national, regional, state, county, and local policy life-cycle will face tough choices on where – and where not – to invest those dollars to replenish and freshen infrastructural foundations.

It’s no coincidence, then, that Jack Truong, CEO of the $2.8 billion in net sales global fiber cement building products manufacturer James Hardie (ASX: JHX; NYSE: JHX), figures there’s no better moment than now to challenge — head-on — practically cardinal rules of engagement for construction products distributors in a volatile, disrupted global supply and value chain.

The commonly-held, if idiosyncratic, laws of a still largely un-industrialized residential construction community come down to four received-knowledge assertions:

  • Being a true, strategic global residential construction products producer and distributor is practically an oxymoron, given shipping costs, trade and tariff disputes, and supply chain dysfunction;
  • Design aesthetics are sharply local, and almost never port over from market to market, especially when the markets are culturally, climatically, and hemispherically separate;
  • Exterior cladding and finish products bear little impact on interior live-ability features;
  • That consumers view homes as a cross between a quick-turn investment vehicle and a cash dispensing ATM based on escalating valuations.

Thing is, COVID-19’s sundry crises and upheavals broke a lot of rules and turned many notions previously regarded as a reach into urgent necessity. Just over a year ago, in housing — like everywhere else in society’s daisy chain of trillion-dollar value gains and losses— nearly everything seemed instantly to sort into before-COVID and after-COVID. What the world of housing looks, feels, and acts like now is a place with altogether less patience for hidebound stipulations as to what can and can’t be done.

More needs to be done – for people and their homes, for communities, and for a planet whose bounty – while enormously resilient and abundant, is alarmingly finite.

James Hardie’s Truong, just over two years in as CEO, has cause to believe that what loom as structural challenges for most of the construction industry’s household names represent a frontier full of opportunity for his current enterprise.

A business and economic-cycle stress-tested track-record, highlighted by a seven-quarter run of sequential better-than-market growth and a 250% increase in market capitalization to more than $14 billion in early 2021, has earned Truong this “think-global-act-local” case-study play for worldwide strategic cohesion where few have achieved it.

Odds of succeeding owe in large part to James Hardie’s core proprietary fiber cement building block and just how applicable, adaptive, and, in an ever-more-climate challenged built environment, enduring it can be. The fiber-cement “secret sauce” ingredient-brand in James Hardie’s array of exterior siding and trim product lines has the DNA virtue of being made of 85%-locally sourced raw materials, like water, sand, and natural cellulose fibers.

A top-down focused lean-in on lean production in facility-tooling, manufacturing, best practice, and process standardization across the James Hardie global network of factories has begun to net performance improvements, says Truong. “We now ship 70% of our products to customers within a 500-mile radius of our plants, which lowers our operational carbon footprint.”

The other part of James Hardie’s step-change potential, says Truong, springs directly from an exclusive capability to draw on its multi-continent operating footprint – with 18 production facilities as of March 31, 2021 and distribution capacity spread across Asia-Pacific, Europe, and North America – as an enormously rich sounding board to discover consumer needs and wants around the next corner.

“We have spent the better part of the past year-and-a-half intensifying our investment in consumer research – and among architects and designers – so that we can be ahead of the changing curve on homeowners’ wants and needs,” says Truong. “We bring homeowners into our innovation centers, expose them to the way varied materials look and perform, and ask them to respond. Our role as an innovator, though, is not only to listen carefully to what they don’t express to us, but to also study their actions, reactions, and behaviors, so that we can also discover what people find difficult to articulate about what they need.”

Within the broad context of crisis – pandemic, economic, social, and climate – what people may be incapable of saying about what they need is a strategic critical path issue. In Truong’s mind, it’s an opportunity for an enterprise to de-couple from the legacy secular status quo and do more.

Step one for Truong and the James Hardie organization meant busting the myth that to fit in functionally as a go-to producer of its portfolio of exterior solutions in building’s value stream, it needed separate, siloed, one-offs for myriad different operating arenas dispersed across its multi-continent footprint.

To free up trapped opportunity in global operational streamlining – which by cutting down on the number of steps and hand-offs that layer costs on top of costs, Truong took all the right cues from the deep-dive to the company’s center-of-the-universe: consumers. He was not driving for efficiency sheerly to impact consumers’ costs, but, in the end, to aim to become a “passion brand” among consumers.

“By realigning our operations across three global regions and integrating manufacturing, supply chain, sales, marketing, and design into a cohesive platform, we have given ourselves a front row seat to discover all the things that are happening among consumers around the world,” says Truong. “It used to be assumed that design needed to behave strictly on a micro-region to micro-region basis, but we’ve seen first-hand the adoption of California-style modernism in homes adopted whole-cloth in Denmark, while more South Hamptons-style elevations are going gang-busters in Australia. This kind of portability opportunity is new, and we’re on the front lines of helping bring this about.”

An unappreciated dimension of James Hardie’s ability to both listen to and anticipate consumers wants and needs – especially in a climate-risk-filled residential landscape — is in its essential building science product properties. Few of us look at a home’s exterior cladding and finishes and realize how much of the interior livability derives from what goes on outside the walls of the home.

For instance, room air comfort, interior flow, indoor-outdoor living, natural lighting, and, ultimately, a sense of peace-of-mind and well-being spring in large part from how durable, saft, and resilient the exterior materials serve functionally as well as in aesthetic form.

“We view affordability, sustainability, and that sense one wants so deeply in their home – of its beauty – as synergistic as opposed to mutually exclusive,” says Truong. “Our mission is in understanding unmet needs among people, and as people spend more time at home, those unmet needs change.”

Truong’s ahead-of-the-curve focus – particularly at a time more people are spending greater tenure in their homes, and as climate conditions worsen – is on securing both the beauty and the viability of the nation’s second-hand homestock.

“There are 80 million owner-occupied homes in the United States and 55% of them are 40 years old or more – which tallies up to 44 million 40-plus-year-old houses,” says Truong. “When you think about it, just 5% of that total would come to 2.2 million homes, which is double the size of new construction. We believe that many of those homes are built with wood, vinyl and other materials that are not durable enough, or are highly flammable, or are just not going to be fit to survive more adverse natural disaster conditions. We see James Hardie in that light as a solution homeowners can turn to, and we’re working to transform that landscape of opportunity.”

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Real Estate

How To Determine Your Investment Strategy For Apartment Buildings



Rows of keys

Eric is a Real Estate investor, founder of MartelTurnkey, and author of Stop Trading Your Time for Money.

Apartment buildings are widely considered to be a good investment, but are they right for you?

To answer this, let’s first differentiate between two investment strategies when it comes to apartment buildings: buying turnkey properties versus value-add properties.

Turnkey Properties

Buying turnkey apartment buildings offers a way to build wealth without having to renovate anything or build from the ground up. You simply collect the rent from tenants each month. If you’re thinking long-term, this is a great way to build equity and a solid investment. As a passive investment, the returns are not as high as a value-add strategy, but this may work better for investors who don’t wish to spend a lot of time managing their properties.

So why would someone buy a turnkey apartment building? For those who don’t have time to manage construction projects, turnkey investments are great because they are tenanted and have cash flowing from day one. Turnkey apartment buildings are a great way to build multi-generational wealth with steady appreciation.

Leverage is one of the key strengths of real estate. To buy an apartment building, you would apply for a commercial loan. These loans have significant advantages over your typical residential mortgage. Banks don’t look at your W-2 when underwriting commercial loans, but rather look at the intrinsic Net Operating Income (NOI) of the building, which can open up more opportunities than if you were trying to purchase a single-family home. Some of these commercial loans are accessible with a non-recourse clause, which protects you in the event that something happens to the building that impacts your ability to pay the mortgage. The bank cannot claim the debt from you personally, making this a great option for protecting your personal assets.

Turnkey apartment buildings are not completely devoid of opportunities for value add. You can slightly increase rent, provide additional services (e.g., WiFi), tweak building expenses and pursue various other renovations and strategies to increase the building’s net operating income, and therefore its value.

Value-Add Properties

The second investment strategy is to seek an apartment building that requires significant renovations. Value-add apartment buildings are very time intensive. You have to be involved on a regular basis with contractors, property management and various other players who keep the building operational and manage the tenants during the construction. A lot of coordination is necessary; it doesn’t become a passive investment until the renovations are complete and the building is fully tenanted. It’s similar to the “buy, rehab, rent, refinance, repeat” (BRRRR) strategy, but on a much larger scale. A bridge loan would be used during the renovation. The building would be refinanced with a long-term commercial loan once the building is fully occupied and showing its highest value.

The value of a building is determined by its NOI and the cap rate for its neighborhood or comparable buildings in the area. For example, if the NOI of a building is $100,000, and the cap rate for the area is 10%, then the value of the building is $1,000,000. So, if you can increase the NOI — whether through renovations, increasing rents, reducing expenses or more — by $10,000, then you’ve added $100,000 total value for the building. As you can see, the cap rate is a strong multiplier on your investment. As long as the cap rate outpaces your renovation costs, you’ll enjoy a tremendous value add to your building. These types of returns are difficult to achieve with residential properties because their values are typically determined by comparable sales in the area without taking the rental revenue into consideration.

So should you consider investing in apartment buildings? The short answer is yes. Turnkey apartment buildings provide an opportunity for passive income and long-term wealth building. If you want a more active and time-intensive type of investment, a value-add apartment building will increase your equity. Obviously, investing in apartment buildings requires more money, including everything from the down payment to loan fees to maintenance. If you’ve never owned rental property, apartment buildings are probably not the right entry point for you. Instead, I’d recommend you start with turnkey single-family rentals.

It’s important to make sure you enjoy the responsibilities of being a landlord and working with tenants. It may not fit your personality! However, if you find you do enjoy it, you can then move your way up to more complex properties like apartment buildings.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

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Real Estate

Three Things Buyers Should Know When Shopping For Their First Home



Male realtor shows a couple a beautiful home

Beatrice is the Consumer Trends Expert for Opendoor

Buying a home will likely be one of the biggest and most important purchases you make during your lifetime, and it’s still part of the American dream. Investing in a home can also be a smart way for younger generations to build wealth over time.

Over the last year, we’ve seen interest rates drop to historic lows, making it possible for many people across the country to buy a home earlier than planned. And while you might be willing to make big compromises to score a home you love in a hot real estate market, there are a few important things I wish all first-time home buyers knew while looking for their first property.

1. Home and termite inspections are critical, even in a hot market.

While you might win a bidding war or save money in the near term by skipping a home or termite inspection, having them done is a smart move that can save you from making an expensive mistake. Once your offer is officially accepted, schedule a general inspection and a termite inspection as soon as you can.

With the general inspection, an inspector will visit your property and spend a few hours looking at key areas of your home. These include the roof, foundation and even smaller items like cracked tile or leaky faucets. Your inspector may recommend a specialist if they see issues with something more specific, like a fireplace or the swimming pool system. 

Though sellers may reveal termite damage upfront, an inspection is the only way to know how extensive the issue may be. While significant termite damage can be terrifying and costly to fix, having an inspection done is typically inexpensive. In addition to reporting on the state of the home and any problems, your inspector can also share preventative treatments to keep termites away in the future.

2. Don’t panic when you receive your inspection reports.

Though it’s daunting to think about uncovering a list of items that need attention after making an offer on a home you love, first-time buyers should remember that all inspections turn up a long list of issues — and it’s important not to panic. 

The purpose of having a home inspection is to show you the condition of the home and eliminate any surprises before you’re the owner. Typically, most items are minor and aren’t costly to maintain. And some might not require immediate repair. For example, I often see inspectors recommend changing the A/C filter. This is incredibly easy to do yourself, and it only costs about $10 to buy a new filter. If there are bigger problems on your report, I suggest working with a professional who can help you understand what needs to be fixed and how much it will cost.

If the inspection turns up results you’re not happy with, or if you can no longer afford to pay for the home and its necessary repairs, you can choose to renegotiate your offer or walk away. Major red flags such as mold, structural problems or other expensive issues may indicate it’s a good idea to move on. You should also pay close attention to the real estate deal-breakers and anything that presents a risk to your health or safety.

3. Your lender will help you navigate the appraisal process.

Much like with home inspections, many first-time home buyers are unfamiliar with appraisals and how to navigate them. While mortgage lenders require an appraiser to visit the home, they’ll also work with you closely during that part of the process. Having a home appraised is a quick process. The appraiser will only spend a short amount of time inside the home. Following their visit, they’ll complete the appraisal by comparing similar homes in the neighborhood. 

Your appraiser may find that the home is worth exactly what you’ve offered, or even more than what you’ve offered. In these cases, nothing will change and you’ll be set to continue moving forward with your home purchase as planned. In the event that the home is appraised for less than you’ve offered, you’ll be asked to pay the difference between the appraised value and your offer price as a cash down payment to the seller at closing. 

If you can’t afford to pay the difference, you can choose to cancel your purchase. Alternatively, you can also try to work with the sellers to negotiate the price. Your third option is an appraisal rebuttal, or asking for a correction on value. It’s important to remember that appraisals are an art, rather than science, and the exact value of a home is difficult to define. I had my current home appraised by two different appraisers within a week, and they each came up with very different values. Consulting with your agent can help provide you with clarity on the best next step.

Buying your first home is a major purchase. Working closely with industry professionals — from your agent and lender to inspectors and appraisers — will help you avoid costly repairs and financial errors. This will not only save you unnecessary stress but also set you up for happiness in your new home later on.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

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Real Estate

Where Apartment Rents Are Falling Fastest In The U.S. [Infographic]



Where Apartment Rents Are Falling Fastest In The U.S.

When it comes to renting, the U.S. has experienced a noticeable shift in patterns due to Covid-19. After the pandemic struck, many residents decided to pack up and leave expensive city centers in order to relocate to the suburbs or smaller and more affordable towns. The widespread adoption of remote working has made that possible in many cases and it is already resulting in a fall in rent prices in some of the country’s most notorious rental hotspots such as the Bay Area and New York City.

That’s according to ApartmentGuide’s most recent Rent Report which found that out of all major U.S. cities, San Francisco experienced the largest decrease in its average apartment rental price over the past year. Its position as America’s leading tech hub makes remote working a realistic option for many workers struggling to pay exorbitant rent and the average rental price for a one-bedroom apartment fell 45% between March 2020 and March 2021. Likewise, the average rent for a two-bedroom apartment also declined by 24%.

Chesapeake in Virginia, located in proximity to prominent naval installations, experienced the second largest decline in rent over the last year with a 29.4% fall. Ludicrous rental prices are nothing new in New York City and it posted the third highest decline in the analysis for a single bedroom apartment at 27.3%. Other notable cities experiencing some of the greatest falls include Long Beach (-27.0%), Seattle (-18.9%) and Los Angeles (-16.0%).

Rents are not decreasing everywhere, however, and some U.S. cities are experiencing a spike. With a 33.5% year-over-year increase in the average rental price for a one-bedroom apartment, Kansas City experienced the biggest rise in the country over the past year. Gilbert in Arizona posted growth of 26%, putting it second, while Las Vegas came third with 25.3%. Despite the recent downward trend, New York City still has the most expensive rental prices for a one-bedroom apartment in the country, averaging $3,117 as of March 2021. Los Angeles and Chicago come second and third with averages of $2,648 and $2,205, respectively.

*Click below to enlarge (charted by Statista)

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