CEO Money Podcast with Michael Yorba | Guest Scott Choppin
Scott Choppin is the founder of the Urban Pacific Group of Companies, a Long Beach, CA-based real estate development company, founded in 2000, that focuses exclusively on urban infill and affordable housing communities throughout California and the western US. Over the last 18 years, the company has developed nearly 1,700 units unique to market urban housing communities throughout the Western United States. Presently, Urban Pacific has created a new housing innovation called UTH, which provides middle-income multigenerational housing to urban families, while producing market superior yields on invested equity. Historically, Urban Pacific’s UTH projects have delivered 29% IRR yields on equity.
For full transcript click here Expand Scott Choppin: CEO Money- Episode 207“We worked on an asset in Westminster, Colorado, which is about halfway between downtown Denver and Boulder. That was a 16-acre site that in fact the city of Westminster owned, and we took on the development of that project under the auspices of the city’s vision of creating a new downtown node.
That ended up being about a 10-year project, 5 years of which were ’07-’08 recession, at which time we were not working on it…
But we came back in 2013 and finished, and actually entirely reentitled the project – redesigned it to be coherent with the now new trend, although it’s been going for a while, of infill apartment assets in the Denver market.” – Scott Choppin
Host: Michael Yorba:
Guest: Scott Choppin:
Duration: 14:23
[Intro Music]
Michael Yorba: Welcome to CEO money, I am Michael Yorba, thanks for joining with us. I have Scott Choppin, he is the owner of the Urban Pacific Group of Companies. Scott, welcome to the show. Thanks for being here.
Scott Choppin: Michael, great to join you. Thanks for allowing me to join you guys.
Michael Yorba: Alright you, you’re welcome and you’ve got some great, great history behind you, helping mankind through well through the Real Estate Industry and I’d like you to give our audience some background on you, the Urban Pacific Group of Companies, what you do that makes you so different, and how you help change the lives of so many people that, that you come in contact with.
Scott Choppin: Yeah, we appreciate that Michael, thanks so much for the great introduction. So I have about a thirty-five-year history in the real estate business. Actually, my family was in the real estate development business starting back in 1960, moving forward through my time joining the industry in the mid-90s. So really a family history and then I just did an entire professional career organized around being a really a real estate developer, not necessarily even an investor but just purely a real estate developer creating new projects out of whole cloth. Our ambition, objective the entire time since forming the company 2002 is to build, urban housing, urban infill housings as we sometimes call it and as you alluded to, in the last few years, really about the last three years, we’ve been focused on a workforce housing model we call the urban townhouse or UTH. And our basically entire business plan has now focused on that. And you UTH basically simply as a privately financed workforce housing model, workforce housing, meaning that we’re building units to house working class, the blue-collar families, that in California, most urban metro areas, through the United States are deeply undersupplied. And we’re serving that marketplace using private capitals, we don’t require government subsidy. We’re really a capitalist based model of producing yields to investors to attract capital, while also providing this social impact housing story around housing, middle income, multi-generational families, so we’re exclusively focused on that for the last three-plus years.
Michael Yorba: Now, when you see you’re privately funded. Is that from your own money or do you have a group of investors that pools with you to create these new…fulfil the void in the market?
Scott Choppin: Great question. So, we really predominantly raise capital from the marketplace. So we use a combination of individual high net worth investors, high net worth families, family offices and institutions, combined with our own capital. So when I say privately financed, I’m really trying to differentiate it from the true, what I call true affordable housing model which is taking government subsidy, plus, you know, available credit debt and equity in the marketplace to then finance a long term, low income, low rent type of project, think tax credits or home funds. Ours is using what, in essence, any developer would use in the private marketplace to finance any deal. We just happened to be in this case applying it to this modern income UTH model. So it would be a combination of all the above, although we’ve got the most traction amongst high net worth and family offices most recently, and really from the, the institution or constitution of the UTH model, we’ve focused on these high net worth individuals and family offices.
Michael Yorba: What’s the average price of the of these units that you’re building because I assume that people are buying these from you, you build them, you develop them, and then are you selling them or you going into kind of a leaseback model?
Scott Choppin: So we are actually exclusively rental housing offer. If you look at the marketplace in California, and really this has been true in many metro urban areas throughout the United States, the capability of middle-income families to both save the down payment and qualify on an income basis for housing prices in their local market. It is becoming a more and more difficult endeavor for these families and particularly our model, it really came out of the California marketplace. You know, by design meaning in California, probably out of the top twenty-five (25) markets for housing prices across the United States, the top 18 are in California and all the top 10 are in California. And so what you get is a whole sector of the marketplace in California that cannot afford to buy a house and so they are renters by default or some kind sometimes even by design, they don’t choose to try to afford the housing. And so our model UTCH is purely a rental housing model, intended to coherently serve families that don’t or can’t choose to purchase and that we serve them with a five-bedroom, four-bath product. I didn’t talk about that earlier. One of the unique characteristics of this is that it’s a townhouse model with five bedrooms, four baths, one of the bedrooms on the ground floor, making it multi-generational. And we rent these units for about $3500 to $4000 a month, on average, but that sounds like a high rent payment. But that puts us at about $2.00, maybe $1.80 to $2.00 a square foot on a value ratio, meaning rent divided by square feet in a marketplace that generally exceeds $3, $3.50, $4 or $5.00 a foot square foot rent, you know basis in the marketplace. So we’re providing a unique product that lives like a house has a two-car garage, and rents coherently for these families that are in these 80 to 120 medium income categories, and this is a completely underserved marketplace in California.
Michael Yorba: What about the geographical location? Are you focused mainly because I think you’re in Long Beach right?
Scott Choppin: Yeah, we’re based in Long Beach correct?
Michael Yorba: Is that your geographical market or are you expanding that to other areas?
Scott Choppin: So initially, so about three years ago, we created the innovation that came really from my background, having worked both in affordable housing and the market rate sectors in the apartment development. And but in the beginning, we created what we call the demonstration phase and that was all very, super local, you know, in our backyard, take away all the inner variabilities of trying to execute out of the market and we’ve basically are now completing that demonstration phase. In fact, our last projects can be completed in about two weeks, and so will expand further in Southern California and that’s where we generated all of our projects to date. But we are looking at scaling this product really across California. So think San Diego, Bay Area, Southern California, Los Angeles, and where’s Canada already acted, but we’ve underwritten these projects in Portland, Seattle, and Denver and this product and the red categories and the cost categories land categories all make this a feasible offer in each of those markets. So we do see a long term scaling picture here for sure.
Michael Yorba: You know, I’d like to say come on here to Dallas. I work in this arena myself through a fund, advanced fund and I can see that your model is really going to be a filling of a huge void not just in various pockets throughout California but other pockets throughout the United States. Have you ever given thought to coming East?
Scott Choppin: We have in fact, I to me, I see this being a national story right the, the ever-changing marketplace in urban and I’ll be very specific to urban marketplaces when I make the statement, but if you Look at the housing markets across United States urban housing markets. And look at the increase in rents and fore sale prices, lower folks on rents here, relative to moderate-income family incomes, which are basically flat and I think that’s a well-known statistic, our product type really, it bridges the gap between this rising housing price and flat income area of the marketplace. In other words, middle-income families are being dropped ever further down the food chain and in housing markets, right. So they’re having to get worse housing, or they’re having to bring more folks into occupy a certain size unit or they’re living further out. So our model basically gives these families the capability to live close into town, which usually it’s going to be closer to jobs, probably much more coherent with their social networks of kids in school, extended family. But we also make it affordable and coherent with their middle income and that’s again 80- 120% of median income. And, and you’ve read like, I have we’ve even talked about a little bit offline but you know, affordable housing as a concept and then eat for more of it is really an every market I mean, even tract articles to talk about Dallas and Austin needing affordable housing and really, again, fam, you know, housing for working families and others, those who make too much to qualify for true government subsidy. Yeah, need and want new housing opportunities and the places that they already live and that this UTH model really is providing that in an almost fully uncontested part of the marketplace. There’s almost no competition for us presently, which we enjoy. We’re also realistic enough to know that there’s, there are folks who will follow on, but we are in conversation with capital sources and looking always grower networks of capital capacity that we would like to take this product on a national scale.
Michael Yorba: What is the internal rate of return that you’re issuing for your investors?
Scott Choppin: So it’s a great question, I’m going to answer it two different ways. So in our original part of the plan, we did the demonstration phase, which I alluded to before. And that was purely a merchant build model. So think build it, run it, sell it and I’m at the phase of projects, we generated 22.6% turei, return on a programmatic basics cross the projects that we developed in that early phase. Now though, we’re converting to a long term fold model and we’re doing that for two reasons. One is as corporately and philosophically we want to hold these assets long term because we’re such believers in that in the product and these families, that we think this is a long term story. I don’t see this housing constraint undersupply story be resolved for decades, and particularly in California, I think we’re looking at twenty (20) to thirty (30) years before this market could catch up, and maybe never then. So we like the viability of the long term pool.
Scott Choppin: But also, you know, we’re like anybody else, we’re looking to anticipate the, the recession, a recession, which we know we’re in the longest extension, extended marketplace, upward marketplace in US history economically related to the economic cycle. And so we want to be prepared for that, so we’re raising capital and ten-year whole basis, which we feel will be comfortably getting us through a recession that was somewhere between three and seven years from now, get us enough time to come out the backside of that recession, recover value, have a defensive strategy investment. But if you look at our particularly California rents were exceptionally stable through the 2008 recession and so with this family tight many middle-income families that are have strong social networks locally and an undersupply story. We think this is an exceptionally defensive, meaning protected, safe investment zone. That’s why again, we want to call them long term. So what we’re offering right now in our long term gold is about a 15%, average and tillery return over a 10 year whole, but particularly, we’re generating a three X multiple, so the returns on your, you know, dollar for dollar return on capital based on a moat for our, you know, really good. And then also, again, the safety like it’s a very defensive undersupplied marketplace. So we think that the returns are relevant, coherent to attract capital, in fact, are coherent, we’re attracting capital on a regular basis to projects.
Michael Yorba: Right, Scott, thanks for being a guest on today’s show was great talking to you.
Scott Choppin: Yeah, thank you, Michael. Good to join it.
Michael Yorba: You’re welcome. Alright, you’ve been watching CEO money with Michael Yorba, thanks for joining with us. Don’t forget to download our app on iOS and Android. Talk to you soon.
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End of the podcast interview
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