https://www.rampartridge.com/insights daily 0.75 2021-11-16 https://www.rampartridge.com/insights/2020/10/13/upup-stdtp monthly 0.5 2022-09-13 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1603233382773-UEX09RGFIVLODK477SOT/Model+Comparison.png Insights - Up&amp;Up: A Negative Feedback Loop (Repost of Oct 2020 Analysis) The above are expected unlevered returns for a condo located at 12773 Caswell Ave in LA, as if owned by INVH (black) or Up&Up (blue). Increasing returns over first few years of hold period are attributable to the amortization of transaction costs over more years. I’ve highlighted the higher probability outcomes in each table, with INVH holding longer term, Up&Up holding the length of its lease, and appreciation between 3-4%. While comparing unlevered returns allows us to focus on the fundamentals, I grant that it overlooks Up&Up’s asymmetric structuring with the user (see text for why I’m okay with this). Rents: Based on new apartment product of equivalent size on neighboring block. OPEX: Based on INVH's 2Q'20 costs as a % of revenue. R&M also reflects interior hallways using input from high density apartment OPEX (from Rampart Ridge). With Up&Up we assume a generous $2,500 reduction in OPEX and replacement reserves (user care & DIY, however irrational). Transaction Costs: We assume 6% brokerage fees for INVH and 2% for Up&Up (inferring a 66% chance of avoiding brokerage by selling to a user). https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1602800321610-JRHJ15FSB2J3QOWWG3IM/Appreciation.jpg Insights - Up&amp;Up: A Negative Feedback Loop (Repost of Oct 2020 Analysis) The top and bottom charts tell the story best: The gross appreciation Up&Up’s position enjoys is subsidized by the tepid appreciation of the user. Unless appreciation is very strong, Up&Up is unlikely to be a user’s best alternative for amassing a down payment. Assumptions (1) The user only contributes equity at time zero, with monthly profit also being on average zero (likely the case in LA even if Up&Up doesn’t take an amortizing loan to ensure it). (2) We assume the mortgage is interest only. If it wasn’t, User's monthly payments would subsidize Up&Up's position to an even greater extent, in that User does not participate in gains from principal paydown. We also assume home appreciates at 3%/annum and that the mortgage funds 80% of the purchase, with User contributing 10% of the equity. (3) User's returns are governed by asset-level appreciation, despite it paying its pro rata share of the cost of debt. https://www.rampartridge.com/insights/2021/11/4/key-unlocking-homeownership monthly 0.5 2022-05-25 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/e05725f3-4e78-4922-bccc-5a176c3a8aff/Schiller+Long+Run+Growth.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 2: Real building costs and home prices, population growth and long interest rates indexed to 1890. Source: Prof. Robert Shiller of Yale (from his book Irrational Exuberance; Online Data - Robert Shiller (yale.edu)). Indexed all variables to 100. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/dddeae9b-3091-4b9a-8e78-fdabac60d6bc/Condo+Prices+vs+UST.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 4: Note the intuitive inverse relationship between the 10-year and Zillow’s index. Observe also San Francisco’s divergence, likely a reflection of tech-driven growth in GDP per capita (worth additional analysis). Source: Zillow Monthly ZHVI Condo Index ending 6/30/21 (by City) https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1635791798415-WARW52JYE0X70EQ3E3CG/CoreLogic+Growth1.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 1: Year-over-year home price appreciation has been torrid across several MSAs through C19. Source: CoreLogic’s Housing Price Index, August 2021 year-over-year https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/08c02371-e792-4783-b3dd-f0e3d313a703/10+yr+Appr+CAGRs+by+City.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 5: Note ‘quartiles’ displayed above are demarcated based on a division of the range of observed outcomes into four quadrants of equal length (whereas the traditional usage of ‘quartile’ implies boundaries chosen to divide pool of outcomes into four groups of equal size). Even in supply constrained cities with very strong economic growth, a significant subset of 10-year appreciation CAGRs over the past 25 years have been in the city's respective first quartile. In San Francisco 44% of outcomes were between 1.2 - 3.7% per annum, whereas in San Jose, 35% of outcomes were between (1.8%) and 1.5%. One could likely do better by applying tactical tilts toward cities in which fundamentals are most attractive over time. Secondly, our rigid 120 month hold period conceals the advantage of patience. Five-year hold results involved even wider variation and specifically, if you evaluate San Francisco-focused Exhibit 6, holding a few more years can cover a multitude of sins. Source: Zillow Monthly ZHVI Condo Index ending 6/30/21 (by City) https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/bce8659b-dbd0-47dc-bbf2-15e60db638a6/Case+Shiller+1.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 3: Whereas growth had been tapering in 2019, factors related to C19 produced sharper growth than of the pre-GFC housing bubble and the post-GFC recovery. Note: HPI stands for CoreLogic’s Housing Price Index. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/dd658306-5d37-46ac-9dca-7220a912ef56/SF+Condo+CAGRs+Zillow.png Insights - Key: Unlocking Homeownership - Make it stand out Exhibit 6: This depicts the range and frequency of 10-year CAGR outcomes for SF condos over a 25 year run. Red shading: CAGR < 1%, white shading: 1% < CAGR < 6%, green shading: CAGR > 6%. The frequency of green outcomes is encouraging as is the relative infrequency of red ones. Note that we are transacting different units in every given year. We are counting on the law of large numbers for index prices to reflect mean pricing per annum. Source: Zillow Monthly ZHVI Condo Index ending 6/30/21 (by City) https://www.rampartridge.com/insights/2020/9/19/unison monthly 0.5 2021-11-19 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1600664436863-F4DWN4XA1SGBV1SJGZS0/Unison+vs.+User.png Insights - Unison Homes: Enlightened or Extractive Capitalism? For a hypothetical home based in San Francisco (priced to dovetail with Unison’s website exhibit), the above provides a more realistic picture of returns to each party. Whereas Unison earns a 1.8x multiple on its equity, the user only breaks even, absorbing all transaction fees. Unison’s Multiple: If Unison exercises, its strike price of 30% of initial home purchase price is paid through escrow at sale, concurrent with user’s payment to Unison of 40% of the sale price (we net the payments and divide by the only capital Unison actually sends the user before exit). Unison’s option structure enables it to invest 10% while earning returns on 40%, amplifying its IRR. It also gets paid based on the increase in gross exit price over purchase price (user alone being responsible for $60k in fees). The user can lose money on the deal and still owe Unison a return on its capital (not what I would call “true partnership”). User’s Multiple: Due to user’s responsibility for all fees, Unison always outperforms the user in terms of returns. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1600879253871-QWSIO968JFVYBZQEINAG/Options+Trade+Value.png Insights - Unison Homes: Enlightened or Extractive Capitalism? This table depicts the value of the call option Unison receives from the user minus the put Unison gives the user (as a % of home value). The blue cells describe our estimate of the net value Unison gains if its users hold 12.5 or 30 years on average at today’s ultra-low rates. The red cells reflect the same but at risk free rates that applied one year ago. Unison’s call options are intuitively incrementally less valuable than standard European options in that time to expiry is chosen by the user. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1600812029171-DZGSUY0B75EA6AJLAMBS/Unison+vs.+User+v2.png Insights - Unison Homes: Enlightened or Extractive Capitalism? This exhibit depicts the various multiples each party earns on its equity depending on appreciation rate. Note that despite Unison’s claim to presenting “true partnership,” its equity multiple greatly exceeds that of the user. Breakeven Scenario: Unison gets paid a percentage of the extent to which the sale price exceeds the purchase price. If user sells home for the purchase price (appreciation rate = 0%), user pays the $54k in fees in column two and ends up losing $54k before having to return Unison's $50,000 investment. 1.50-1.85% per annum appreciation still results in a user loss. Between appreciation rates of 0.0% and 1.0%, Unison gets paid returns on capital despite a deal-level loss (user getting diluted). This is because it is paid based on the increase in sales price over purchase price instead of net proceeds over investment cost. Unison captures > 49% of upside across these scenarios, more than the 40% presented in its incomplete math. Furthermore, Unison earns a multiple on its equity invested that exceeds that of the user by between 0.1x and 1.2x depending on deal performance. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1600471916993-BG8A87GHJI5BP5F22RFU/HOMEOWNER_PKR_PDF_Concept_10.jpg Insights - Unison Homes: Enlightened or Extractive Capitalism? https://www.rampartridge.com/insights/2020/9/9/new-housing-affordability-models-divvy monthly 0.5 2022-05-25 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1599780058874-BFRE1JD1D11FSFCCORCB/Screen-Shot-2020-02-06-at-4.17.36-PM.png Insights - New Housing Ownership Models: Divvy Homes Higher rental yields reflect Divvy’s presence in higher yield (lower growth) markets, which also generally have lower labor & materials costs (in addition to its shifting of R&M, turnover, and landscaping costs to the user). Source: https://a16z.com/2020/02/10/a-novel-path-to-homeownership/ https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/8def7c43-8c7e-4973-94e2-9163836657f4/Appr+CAGR+to+Users7.png Insights - New Housing Ownership Models: Divvy Homes - Make it stand out The above is an attempt to quantify the expected appreciation returns to users of Divvy. While the forced-savings account Divvy helps users to accrue does not earn equity returns, users are contractually bound by a forward to purchase, and if the spot price exceeds their contractual price, they enjoy the appreciation overage. If the contract price exceeds the spot price, and users still close, Divvy has successfully hedged. Methodology: First I ran three-year CAGRs on monthly SFR data back to Jan 2000. I assumed each sale takes place at lease expiry (T = 3). I assumed Divvy would choose as its predetermined forward price, the T = 0 market price grown by the truncated arithmetic average (“TAA”) for each respective MSA. For each monthly CAGR calc, if it exceeds TAA, a user buying in this month captures the overage, buying the home for < spot price. If 3Y CAGR < TAA, a user either overpays (if a lender will finance home at an inflated price) or bears penalties of equivalent severity. Divvy does not specify whether it would use its 'shared loss deduction' lever only if values decline, versus fall short of its expected appreciation. We assume it will use SLD to attempt to incent users to take Divvy's loss although practicalities around financing and user wherewithal will limit efficacy. Source: Zillow ZHVI Index: Metro-level SFR Data (Jan 2000 - Sept 2021). Represents “typical home value for each region. https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/04b3bd6b-c3f4-4e78-9f82-64073fd30969/Home+Value+CAGR.png Insights - New Housing Ownership Models: Divvy Homes The median growth rate amongst the top 25 MSAs is 3.6%. Note that results are base year sensitive. See Key analysis for more extensive exploration of appreciation rates. https://www.rampartridge.com/insights/2018/10/20/oz-investing-irs-guidance-dramatically-alters-expected-investment-strategy monthly 0.5 2020-09-13 https://www.rampartridge.com/insights/2018/9/24/opportunity-zone-investing-does-capital-flow-downhill monthly 0.5 2018-10-25 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1537849168609-YI17A710NXT1VS0RWFUY/Sales+per+MSA.png Insights - OZ Investing: Does Capital Flow Downhill? Implications of Disparate State Tax Rates Figure 2: Transaction Dollar Volume Across Primary & Secondary Markets Source: Real Capital Analytics https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1538423355266-06LU7NJ1SJDUYBFB9ZQI/Novo+State+Map+v2.png Insights - OZ Investing: Does Capital Flow Downhill? Implications of Disparate State Tax Rates Novogradac’s Map of State Tax Conformance (illustrative purposes: not 100% accurate & designations are changing as states vote to conform, decouple, etc.) https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1537815966233-HV4WOMZP2OJ05KD9VAVE/Buyer+Composition.png Insights - OZ Investing: Does Capital Flow Downhill? Implications of Disparate State Tax Rates Figure 1: Buyer Composition https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1537852105574-EAVQUS42234V8I3AYI91/Income+Tax+Rates+by+State.png Insights - OZ Investing: Does Capital Flow Downhill? Implications of Disparate State Tax Rates Figure 3: Top Marginal (individual) Income Tax Rates Across States https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1537899605382-SHIR2094CK2EJZPY7BPL/UHNW+by+State.png Insights - OZ Investing: Does Capital Flow Downhill? Implications of Disparate State Tax Rates Figure 4: UHNW Families by State of Residence Source: WealthX 2014-15 American Ultra Wealth Ranking; 2017 Wealth Report (major MSA data only) https://www.rampartridge.com/insights/2018/8/9/opportunity-zone-investing-indirect-questions-1 monthly 0.5 2018-08-17 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1533842448851-3WLQV7OEYBVZHCIZM7YP/Investment+Diagram.png Insights - Opportunity Zone Investing: Indirect Questions 1 Single Asset Fund Indirectly Investing in Real Estate Development https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1533844924139-UQ5XZD51TZPGS2B2OA71/Constraint+Tradeoffs.png Insights - Opportunity Zone Investing: Indirect Questions https://www.rampartridge.com/insights/opportunity-zone-investing-series-inv-strategy-prereqs-coloring-2 monthly 0.5 2018-10-24 https://www.rampartridge.com/insights/opportunity-zone-investing-series-inv-strategy-prereqs-coloring-1 monthly 0.5 2018-08-17 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1531853948976-RPN5SRGVUM1YDBUZZTCU/Build+to+Core.png Insights - Opportunity Zone Investing Series: Investment Strategy Prerequisites—Coloring within the Lines (part 1) https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1531852453962-69Y18TJ8N3HGZIEAWAHT/MultiAssetFundComparison.png Insights - Opportunity Zone Investing Series: Investment Strategy Prerequisites—Coloring within the Lines (part 1) Trade offs to Single vs. Multi-Asset QOFs (assumes multi-asset vehicle cannot sell individual assets) https://www.rampartridge.com/insights/2018/7/7/opportunity-zone-investing-series-heads-i-win-tails-we-lose monthly 0.5 2018-07-31 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1530917892916-Z6ZTZY9N248UKVTHFUZ5/QOZ+Timeline+JPG.jpg Insights - Opportunity Zone Investing Series: Heads I Win, Tails We (the US Treasury & me) Lose Tax Event Timeline https://www.rampartridge.com/insights/category/Proptech monthly 0.5 https://www.rampartridge.com/insights/category/New+Home+Ownership+Models monthly 0.5 https://www.rampartridge.com/insights/category/Opportunity+Zones monthly 0.5 https://www.rampartridge.com/insights/category/Real+Estate+Investment monthly 0.5 https://www.rampartridge.com/insights/tag/Housing+Affordability monthly 0.5 https://www.rampartridge.com/insights/tag/Social+Impact monthly 0.5 https://www.rampartridge.com/insights/tag/Qualified+Opportunity+Zones monthly 0.5 https://www.rampartridge.com/insights/tag/Opportunity+Zones monthly 0.5 https://www.rampartridge.com/insights/tag/Opportunity+Zone+Investing monthly 0.5 https://www.rampartridge.com/contact daily 0.75 2024-11-13 https://www.rampartridge.com/home daily 1.0 2024-02-15 https://images.squarespace-cdn.com/content/v1/5a7beb118a02c7a46148cd94/1527106908424-Y9MF1486UEV3A9DIBEZP/New+Perspective.jpg Firm - Superior Investing Begins with a Differentiated Perspective View of Mt. Rainier from Rampart Ridge trail