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MRE Investment Climate in 2020: An Interview with Mark Caplan

MRE Investment Climate in 2020 A Q&A with Mark Caplan, Chairman of WPM Real Estate Management and President/CEO of Time Group Real Estate Investment We recently sat down with WPM Chairman Mark Caplan in his role as managing partner of the firm’s largest client to get his perspective on the climate for multifamily real estate in 2020 WPM: How would you describe the multifamily real estate investment market for 2020? Caplan: From an investor perspective, the multifamily real estate market is generally going well, is very local in nature and increasingly competitive. Existing communities are performing well and investment opportunities with the right economic return are harder to find. I think multifamily real estate investment is being pursued aggressively in the region, driving down capitalization rates and expected returns. Plus, the market may be a little over supplied. There’s been a lot of new building and that simply takes a while to be absorbed. WPM: How would you say the Mid-Atlantic and MidSouth regions compare to the national market? Caplan: I would say these markets are performing similarly or even a bit better than the national market because of growth. We’re a coastal country with the East and West coasts shouldering much of the activity and economic growth in our country. WPM: What current trends are you seeing in multi-family real estate? Caplan: I believe we’re seeing less movement to home ownership in this next generation. Increasingly, we’re seeing millennials continuing to rent versus buy. I think this will lead to greater diversity in terms of property types, including more suburban and single-family home rentals. As millennials who would typically have been housed in urban apartments begin to have families and move out to the counties, we see their desire to rent continuing. Additionally, some of the amenities that up until now have typically been in urban settings may need to be thought about for suburban communities – things like package delivery, fitness centers, and business centers. Furthermore, I think transportation is key. How we’re thinking about transportation, including services like Lyft, Uber and Zip Cars, impacts where people want to be located and how people choose their communities. WPM: What do you think will be the biggest opportunities this year for real estate investment? Caplan: I think one of the biggest opportunities for real estate investment is on the office and retail side. It’s not my focus, but I believe someone with the right vision – who understands and can anticipate the way industry is changing and how that will affect how people will work or shop in the future – has a big opportunity. Investors may have different views based on their perspective about changes in technology, industry, home delivery models, etc. It’s a chance to be really right about what’s needed or to be really wrong. Who knows? WPM: What challenges do you think the market faces? Caplan: I would have to say affordability and supply. There’s a lot coming online right now, and the question is how you pay for it. It’s why I think it is so important for companies like WPM Real Estate Management to focus on being both customer centric and efficient in managing expenses. Residents who are happy will stay longer. WPM places significant emphasis on providing residents with a good home and superior service at a fair price. It’s why the firm continues to maintain high occupancy levels and continues to receive some of the top ratings for customer satisfaction in the industry. Ensuring operational efficiencies is another critical factor for properties and owners, especially when faced with challenges of an over-supplied market. It’s important that your management company understands the owner’s perspective and is making good decisions that ensure both quality and cost-control when turning apartments, handling repairs and maintenance, and servicing equipment for operability. WPM: What’s next for your team in 2020? Caplan: We continue to look for greater geographic diversity and expansion into mid-tier cities within the region, where we can bring our investment expertise and our management experience, size and scale to bear. We have recently invested in the York, Pa., Richmond, Va., and Wilmington, De., and continue to look for opportunities within these and other similar regional markets. I think what makes us different than other investor groups entering these markets is our commitment to becoming a part of the communities we serve. We’ve been very intentional and selective about where we want to grow. Our interests are in long-term relationships where our work is integral to the greater community – much like what we’ve done in the Baltimore market. We bring significant development expertise as well as a deep reservoir of equity to make projects happen. And, we bring with us a talented property management company that has a proven-track record of success. I’m excited about the strength of this combination and look forward to seeing what lies ahead in 2020. Mark Caplan is Chairman of WPM Real Estate Management and serves as President and CEO of The Time Group, an investment real estate firm. He is a founding member of the Real Estate Advisory Board at the Columbia Business School and has been a guest lecturer on real estate topics at the Columbia Business School, Wharton Business School, the University of Maryland School of Law and the Carey School of Business. He has served on the Board of Trustees at Saint Ignatius Loyola Academy, the Bryn Mawr School, Walters Art Museum, Gilman School, Center Stage, Baltimore Educational Scholarship Trust, Bay Bank, FSB as well as the Charles Street Development Corporation.

WPM – Q&A Blog Interview with Craig Zaller Attorney, Craig Zaller – Nagle & Zaller, P.C.

Your Association’s Legal Questions, Answered! An interview with Craig Zaller, Managing Partner and Principal at Nagle & Zaller, P.C. We recently sat down with Attorney Craig Zaller from Nagle & Zaller, P.C. to get his thoughts on trends in the community association industry and important legal issues facing homeowners and the communities that they live within. WPM: Given the breadth and depth of experience in the community association industry, what trends do you see that you feel communities should be aware of? Zaller: First, I see a lot of aging infrastructure within communities, and a lack of funding for a Board of Directors to make the necessary repairs. This is a huge concern for many communities, and, in Maryland, there has been at least one Condominium that was terminated due to these issues. I worked on that case. As communities age, there is more and more need for physical improvements, especially for communities with common amenities, such as condominiums. If communities have not sufficiently funded their reserves, and do not have assessments that cover all their expenses and funding to their reserves, the Boards will not have the funds necessary to maintain the common amenities. The community then starts to deteriorate and falls into disrepair. To avoid these issues, I strongly urge communities to obtain reserve studies which address the components within each community, their life expectancy, and the estimated costs of replacement at the end of each component’s estimated life. A Board must take this into account in its budget and in setting its assessments. And, if a Board does not have the funds necessary to put money away in reserves and/or pay its bills, it needs to discuss increasing assessments, obtaining a loan and/or special assessing its owners so that the community has the funds needed to preserve, protect and enhance the property values within the community. Secondly, we are seeing significant issues with delinquent owners which can exacerbate the issues noted above and cause serious financial problems in these communities. There are more people today who are buying into communities that they struggle to afford. As such, many owners put less priority on paying their assessments. And, often, these owners do not have the funds necessary to maintain their properties themselves. If owners do not have enough money to paint their home, fix their siding, or install a new roof, for example, when necessary, then the property values of homes within that community may likely decrease. As such, Boards must enforce their “maintenance covenants” and ensure that all owners are properly maintaining their homes. The Board should budget for enforcement issues such as this, anticipating that many owners will not comply with their obligations. This brings up another important point: one of the most important jobs of the community association are the collection of assessments. Funds to operate the community only come from one source – the owners and their assessment payments. Assessments are the lifeblood of the community, and without these funds, a community cannot survive. Boards and their community association managers must aggressively pursue all owners who are delinquent. That can often include foreclosing on non-paying owners if the standard filing of liens and lawsuits does not resolve a case. Third, I see a lot more litigation today than I saw over twenty-five years ago when I started working in the community association industry . Homeowners seem to have become much more litigious. For example, owners are fighting boards and communities over things like covenant enforcement matters. Issues that should be very clear-cut, such as installing a property feature without permission, are rising to the level of litigation. Owners are now employing bodies of the law and coming up with creative arguments engineered by attorneys to try to get their clients/owners around the rules they agreed and consented to when they moved into the community. Some owners are using and/or manipulating the Fair Housing Act, as an example, to try to skirt the provisions in the Declaration and Bylaws of a community to obtain approval for a structure that would normally not be approved. This is not to say that there are not people who deserve to be protected in the manner that the Fair Housing Act was intended. Owners are obtaining notes from doctors to support requests for a “reasonable accommodation,” but the owner may not have a disability and they may be abusing the process. Oftentimes we can challenge these issues, but, the Fair Housing Act is a very complex area of the law and challenging an owner regarding issues such as this can be costly and risky, even if the owner is wrong. Boards are forced to make decisions that they would not otherwise have to make to avoid risky and costly litigation over these issues. This is an area where Attorney advice early is advisable. The point is that when you buy into a community, you are buying into the governance of that community and you should abide by the rules. Finally, most properties for sale today are in planned communities. It’s harder and harder for potential buyers to find properties that are not bound to covenants like you see in a community association. This makes for more owners that may wish to live as they please but are forced in a sense to comply with covenants that they do not personally care about. This sets the groundwork for internal struggle within a community and often creates disputes with owners who fundamentally do not agree with the concept of community association governance. WPM: Are there commonly overlooked issues or areas of legal risk that you see with community associations? Zaller: Failure to have an attorney review contracts with vendors is a grave legal risk. An Association may have large contracts with vendors, but the provisions in the contract do not necessarily protect the Association. They are drafted to protect the vendor. Opting not to have your attorney review the contract to save money in the end can be far more costly. Because of agreed upon contractual provisions, a community’s recourse, and the right to recover the legal fees expended fighting the vendor, even if you are right, can change the whole strategy in a case and may limit recovery should something go wrong. Using attorneys and having them review and revise contracts to protect an association should be deemed a necessary line item in each community’s budget. Too many communities do not budget the proper funds to use attorneys when needed, and, therefore, avoid using them, taking on great and unnecessary risks. I also see communities that do not fully understand their governing documents and the statutory and case law that override the same. Communities often think that the answer to any legal question can always be found in the community’s Declaration or Bylaws. But the provisions in the Declaration and Bylaws are often not correct, as there may be statutory law at the federal, state, or local level that overrides what is set forth in those documents. There is also case law to consider. Communities need to be aware of this and should have their documents reviewed by their attorney who can best advise them of the current state of law. WPM: How often should a community association revisit its legal documents? Zaller: While I don’t believe there is a set timeframe, I do think that your attorney should periodically review your governing documents to provide feedback on how to improve or respond to changes in the law and issues the community is facing. I often suggest a community review their governing documents with counsel as soon as they come out of developer control, as the governing documents for a community are often written from a developer’s angle and to protect the developer. However, everything changes once an owner- controlled board is in place and their goals are often very different than a developer’s. In addition, make sure that your attorney is publishing regular updates in the law through special client letters or on their websites and stay informed. The law can change quickly. WPM: What do you believe are the most important legal issues or protections a community association should implement, plan for, or prepare to address? Zaller: The most important thing a community can do is to protect itself financially and be financially sound. In addition, they need to ensure that their community’s governing documents provide the board with the power to do what is necessary to properly run the community. Finally, they need to be aware of and comply with insurance provisions in their governing documents and statutes on point including, most importantly, obtaining the proper fidelity insurance so that if their funds are stolen, as has happened many times in this industry, they will have coverage. WPM: What advice would you provide to a new incoming Community Association Board president? Zaller: First, it is important that they read all their governing documents. They should join the Community Associations Institute (CAI). They should seek the advice of their professionals when necessary. This includes talking to their managers, attorneys, accountants, and other board members, as well, to get the full picture of how their community operates. Finally, they need to always remember that their job is to preserve, protect and enhance the property values within the community. And, that includes enforcing the covenants, collecting assessments, looking out for the best interests of the community, and making the best reasonable decisions that they can for the community. Craig Zaller is the Managing Partner and Principal at Nagle & Zaller, P.C., a Columbia -based law firm that serves over 700 hundred communities in the Baltimore/ Washington area. The firm boasts more than 150 years of combined legal experience, provided in a personalized setting so you have access to the legal resources your community needs. Learn more about Craig and his team at www.naglezaller.com .

What’s in store for property management in 2019?

According to Urban Land Institute’s annual Emerging Tends in Real Estate® report, 2019 is not to be easily predicted, with trends that are more complex and less certain – but that could also provide for a promising outlook long-term. The report forecasts that an overall economic slowdown could make it more difficult for investors to capitalize on new opportunities. It anticipates suburban markets attracting more young adults – especially communities that offer walkable environments and access to transportation. And amenities are becoming the name of the game in today’s competitive rental market. What’s more, technology is disrupting traditional approaches to real estate – from artificial intelligence and smart buildings in the commercial space to online platforms that are changing the way home sales are transacted. Going green and environmental sustainability continue to be part of the conversation. And with most new construction in the multifamily sector focused on the upper end of the market, concerns remain about housing affordability long term. How do these national trends translate to the mid-Atlantic market? While we have no crystal ball, we are keeping watch in a number of areas to help our clients, residents and tenants navigate the changing real estate landscape. There is no shortage of cranes in the sky, and Baltimore’s multifamily real estate market may begin to see oversupply and above normal vacancies. We will remain vigilant and continue to look for ways to attract and retain residents while maintaining competitive pricing as more area properties struggle to maintain occupancy levels. Given the predicted economic slowdown and the increasing trend in flexible and shared workspaces, commercial properties are expected to see more vacancies and will need to adapt to the increased demand for greater amenities – from plush lobbies and redesign of workspaces to more advanced technologies and services that make tenants’ lives easier – if they are to remain competitive. We will continue to help our commercial real estate clients assess their properties and identify opportunities for improvements that will help them maintain their appeal. And while the predicted correction in the home-buying market (given inventory shortages and increasing interest rates) may be perceived as a good thing, this could mean lower borrowing capacity and buying power for those individuals focused on maintaining a certain monthly housing payment. Homeowner and condo associations will need to ensure they are efficiently handling their funds, carefully planning and saving for future capital expenditures, and diligently taking advantage of opportunities that benefit their bottom-line. At WPM, we remain committed to working together with our clients and partners to leverage our collective strength, challenging ourselves and each other to strive for continued improvement. Through careful analysis and attentive planning, we continually look for ways to improve efficiency and productivity. Which trends or predictions will prove true in 2019? Only time will tell. But one thing remains certain – we will continue to serve the needs of our clients with a passion, level of excellence and commitment that ensures our performance adds value.

Life of the Streets

You get one chance to make a first impression. And for commercial properties, part of that first impression is based on the condition of the streets, driveways and parking lots that potential customers use before ever entering your building. Therefore, it’s imperative that property owners make a great first impression by Preventing and Preserving , to Prolong their drivable area’s useful life. Prevent. While wear and tear on your property’s asphalt is inevitable, you can slow the deterioration in the following ways: Fix drainage problems. Standing water seeps into asphalt causing it to crack and break down, creating potholes. Stop this problem before it starts by touring your property’s asphalted areas after a heavy rainstorm to see where water has pooled. Then redirect water flow to address these problem areas. Reduce the load. Larger vehicles such as trash trucks and commercial trucks wear down your property’s asphalt. So limit your asphalt’s load by positioning trash dumpsters near the entrance. You can also reinforce areas near loading docks to protect driveways from heavier trucks. Preserve. There are several routine maintenance tasks you should perform to extend the useful life of your property’s streets, driveways and parking lots. Seal it. Sealcoating your lot not only protects it from the elements, but it also keeps it looking fresh and new longer than a non-coated lot. Fill it. Small cracks will eventually appear in any asphalt or concrete surface. The key is to fill those small cracks before they become bigger cracks. Clean it. Keeping your lots and streets clean not only helps you create a great first impression, but also contributes to their longevity. Regular cleaning prevents damage caused by debris. It also makes it easier to see the condition of the lot and attend to problems. Prolong. Performing regular repairs and preventative maintenance to your drivable areas prolongs their life. This saves you money in the long run, as you’ll have to repave or replace your streets and lots less frequently. What’s more, it’s easier to budget for ongoing preventative maintenance. So remember: make a great first impression by Preventing and Preserving to Prolong !

Understanding FHA Certification

We are often asked by our condominium and homeowner Association clients: What is FHA certification? And why is it important for our Association to be FHA certified? Here’s what you need to know about both of these important questions. What is FHA certification? The Federal Housing Administration (FHA) is a division of the United States Department of Housing and Urban Development (HUD) and is a government-owned insurance company that insures home loans for buyers who cannot afford a conventional down payment or prefer to use their funds in other ways. The FHA has come up with specific criteria that it believes will help minimize the risk of default on home loans. And if your condo or homeowner Association is FHA Certified, then loans on the units in your development are eligible to be insured by the FHA. This does not mean that buyers obtain their loans from the FHA. Rather, eligible buyers obtain their loans from approved lenders and the FHA guarantees the loan. FHA certification is attractive to lenders because FHA-certified loans are eligible to be sold to Fannie Mae and Freddie Mac. Fannie Mae is another name for the Federal National Mortgage Association (FNMA), which the government created in 1938. Freddie Mac is another name for the Federal Home Loan Mortgage Corporation (FHLMC), which the government created in 1970. These large financial institutions were created to stabilize the home mortgage market by purchasing home loans from lenders, in turn allowing lenders to replenish their capital funds to be able to issue more loans. For your Association to be eligible for FHA certified loans, your Association must meet requirements that fall into five general categories: Property type and use, Financial stability, Operational stability, Insurance requirements and Legal requirements. Why is it important for your Association to be FHA certified? FHA certification should be very important to your Association for several reasons: It adds value . FHA approval can actually increase the value of the properties in your Association. That’s because FHA approval makes it easier for more people to get loans to buy into your Association. The general adage is that the higher the demand, the greater the selling price. That’s good news for the value of the units in your Association. Naturally, the opposite is also true: for communities that don’t get FHA approval, it limits the available buyer pool. Less demand results in less value. It makes it easier to sell . When your Association is FHA certified, it opens up the resale of a unit to a greater pool of potential buyers. And, when demand is high, it is likely that units will sell more quickly and at the asking price. It commends your board to Owners . Working through the approval process sends a strong message to Owners that the Board cares about the Association and is positively contributing to the community’s value. FHA certification offers great value to your condominium Association. If your Board is ready to begin the process, you should seek the assistance of your property management firm or a third-party company who specializes in FHA certification.

If you lived here you’d be home by now

It’s Friday afternoon. Your car is in a sea of traffic, slowly slogging its way out of an overcrowded city. And just ahead, on the side of the busy road, you see a row of well-maintained apartments next to a billboard that trumpets, “If you lived here, you’d be home by now!” A roadside billboard is just one of the many ways to reach potential residents. Property managers of multifamily real estate need to be very strategic about using collateral and marketing tactics that 1) maximize their advertising budget, and 2) build a brand for that particular property. WPM Director of Multimedia Marketing and Communications Brent Gratton describes his process for achieving these two objectives for a brand new or takeover property. “A lease-up property has no face. It’s up to us to communicate a property’s points of distinction. When we start, we look at who is the resident or demographic for this property. Will it largely be students? Is it intended to be high end? Then we put ourselves in the shoes of that target market.” From there, Gratton’s team creates collateral—the collection of media used for marketing—that helps the property stand out to that specific potential resident. “We understand that perspective residents have choices. There may be five different properties in the same area with similar amenities. So how can we help our property stand out? One strategy is helping the resident envision his or her life in our property. All of the images and language of our collateral depicts the lifestyle the resident will enjoy if they lived here. For example, we may create a sidebar of ‘Things to do’ on a brochure or webpage so that they can picture what their first Saturday as a resident would look like.” Another essential element in Gratton’s narrative about a property is the promise of community. “People don’t want just a residence, they want a community,” he explains. “We foster camaraderie among neighbors by hosting and encouraging social events, such as ‘yappy hours’ for pet owners, wine night mixers or even creative events like a murder mystery dinner. These events help residents feel more at home because they build friendships with each other. This, in turn, helps us because it means they are more likely to stay. Naturally, a property with a great sense of community is a selling point that we are certain to highlight when reaching out to potential residents.” Obviously, this is too much information to fit on a billboard! So which media provide the best options for getting a property’s “story” in front of potential residents? Gratton asserts that the best way to reach perspective residents is online. “Print advertising is no longer the way to go,” he explains. “The best way to maximize your marketing dollars is to place ads on Facebook, Twitter, Instagram and Google.” Not only are these placements often less expensive than traditional print, they boast the added benefits of “re-targeting”—a cookie-based technology that anonymously follows the target buyer all over the web—and returning valuable analytics about the ad’s performance, such as the click-through rate. These ads then drive traffic to a property’s website, another key piece of the suite of marketing materials that tell a property’s story and paint the scene for potential residents. So back to that roadside billboard… Chances are, if you, as a weary commuter, were interested in avoiding traffic and moving into those tempting apartments, at the next stoplight, you might pull up that property’s website on your phone. And if Gratton’s team did their job well, you would spend a few moments picturing what your life would be like if you lived there. And later that night, when you finally made it home and were relaxing and scrolling through Facebook, an ad for that property would “re-target” you and show up in your newsfeed. Next thing you know, you’ve clicked-through to the website to view gorgeous property images and imagine how much fun you’d have at a community wine night and how convenient it would be to be able to walk to so many nice restaurants… And before you know it, the combination of great storytelling and advertising placement may just have the desired effect of converting you from commuter and prospective resident to resident.