Mike Kaeding 0:00
But the reality is today our rents are market rents. And that’s intentional. We could charge 20 to 30% less and still be profitable. But that solves housing affordability for a couple of 1000 people. Let’s that’s good. But that’s not the scale. We want to solve it at. The solve it nationwide, we really have to pour the money into building the system that builds apartments. You know, Elon Musk talks about how it’s hard to produce a car, but it is 10 to 100 to 1000 times harder to produce the system that builds that car. And that’s what we’re working on engineers, architects or our team, don’t think about how do I build the next building? They’re looking at this system and how do I tweak and change a system to make it better to produce units at scale. And then our goal in the next 10 years is to reach 192,000 units under manage it with a 60,000 unit per year pace and that kind of level. Our hope is to produce enough units in the marketplace, but supply and demand starts hitting
Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.
J Darrin Gross 1:31
Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
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Today, my guest is Mike Kaeding. Mike is the CEO of Norhart, where they design build and rent apartments. Norhart is transforming the way apartments are built and managed by incorporating technologies and efficiencies that have revolutionized other industries. And in just a minute, we’re going to speak with Mike about how Norhart is disrupting the housing crisis.
But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Mike Kaeding, welcome to CRE PN Radio.
Mike Kaeding 3:24
Yeah, thanks for having me. I’m excited to be here.
J Darrin Gross 3:27
I’m looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Mike Kaeding 3:36
Yeah, at a high level we designed to build and rent apartments. But really, we’re about driving down the cost of housing by really solving construction. So right now we’re already producing multifamily units at about 20 to 30% less than other developers for similar properties. We believe we can achieve a 50% reduction in cost. But imagine what that means. I mean, someday your rent could be half or your mortgage payment could be half. So at a very high level we’re trying to solve America’s housing affordability crisis.
J Darrin Gross 4:19
Well, that has if that didn’t pique the listeners interest. I don’t know what well, because when you say and especially in this environment where, you know, seems to be inflation is the the opening sentence for any kind of news. You hear or, you know, just the the increased cost everybody’s facing. I think this is going to be a great conversation. So, if I understand right, you are based in Minnesota, is that right?
Mike Kaeding 4:52
Yeah, Minnesota was born here. I grew up here raised here. Great place to have a family.
J Darrin Gross 4:59
Okay. A and is that where all of your your investments and your construction your properties are?
Mike Kaeding 5:07
Yeah, most of our properties are here in Minnesota, although we have manufacturing capacity in Wisconsin, we’re expanding now into Texas, we also are looking to expand manufacturing capacity in Mexico, and we have an inner belt 15% of our staff are international all across the world.
J Darrin Gross 5:25
And it’s a you get even incorporated the remote work for your staff as well.
Mike Kaeding 5:31
Oh, absolutely. And that’s been a really interesting experiment to how to do that. Well.
J Darrin Gross 5:37
Yeah, no, I’ve never got any secrets I’m sure everybody would love to hear. I mean, it’s, it’s interesting in that it’s expanded the opportunity for employers to find talent, you know, from from all points of the globe, as opposed to just in their local, you know, workplace. But it is a he and I think this is probably here to stay kind of a phenomenon, I’m seeing people racing back. And most of the conversations I’ve had with people about offices, or office assets would tend to support that. So unless you know something, otherwise, I think that’s probably
Mike Kaeding 6:18
it’s, it’s really interesting, because people often think you need to be in close proximity to build great relationships and a great culture. But that isn’t necessarily true. What it really comes down to is intentionality. So in a, in an environment, like an office, you’re gonna bump into people and have a little bit of international, but you can improve the international if you’ve more intentional about it. Same is true about remote. And so when we bring out a new remote person or a remote team, we spend quite a bit of time and attention intentionally working to build those relationships. It’s small things like just having coffee over zoom together, right? Connecting in different ways. You’re playing little games together, a big part of it’s finding amazing people who are just fun and engaging to interact with. And honestly, now that we’ve gone through it, some of our very best, most engaged teams are the ones that are fully remote. So we’ve we’ve seen how it can be done? Well, it’s not easy. It’s not it’s not given. But you can definitely do it.
J Darrin Gross 7:19
No, Agreed. Agreed. That’s good. So let’s talk about Nora Hart, and what you’re doing. You mentioned your in the introduction, I read that you guys you build and you you operate apartment, buildings, do you guys, are you You manage in house as well? Is it from stem to stern, or?
Mike Kaeding 7:44
Yeah, we have everything under one roof. So management, we also have development, general contracting, all the sub contracting work, we have manufacturing, we have supply chain, the whole gamut is an engineering architecture is all under one roof, what we find is that you look at this industry, and typically it’s pretty segmented, not always, but mostly, it’s pretty segmented. If construction work to produce cars, you’d have a different company installing the windshield, a different company, and side door and different company installing the wheel. And of course, you know, the wheel company would come to us and say, Hey, by the way, I had this other project, they ran late, I’m going to be late to your project, it’s just how it is. And then your line would be shut down, and they would come back and maybe two weeks, and then we’d get there. And they would be irate, they be so upset, because they can only work on one car at a time rather than a whole fleet of cars. And so the manufacturing world looks at this and says that’s crazy, we would never do that. That’s normal in the world of construction. So bringing everything under one roof starts helping a little bit with solving the affordability issues in construction.
J Darrin Gross 8:59
So in the construction side of your business, I understand like the development but are you you do the general contracting and do you also have the subs? Do you have all the trades in house or is that due to sub out for those?
Mike Kaeding 9:15
No, it’s all in house or the general contractor all the subcontractors and as far as manufacturing, we have precast concrete manufacturing we have steel wall power manufacturing where she’s spinning to a 48 acre manufacturing facility now and engineering architects are are all in house as well.
J Darrin Gross 9:37
So is the is the thesis or nor Hart’s your your plan is it to to buy or I mean build and hold forever or is there are you guys selling properties?
Mike Kaeding 9:52
Now we occasionally sell but generally we buy and hold because we really want to think about what the end customer experience says we’re trying to create a better way for residents to live, not just in the affordable for improved writing affordability, but also just in the quality of lifestyle.
J Darrin Gross 10:11
So as you start out here, how long have you been in business?
Mike Kaeding 10:19
The business has been in place for about 30 years, and I have been running it for the last decade or so.
J Darrin Gross 10:25
Okay, and is the mission always been the same?
Mike Kaeding 10:28
No, it was originally a small family business, right, my parents started it. I remember family outings where we would go to the local hardware store about a half an hour away, my brother and my myself and my mom and my dad, we’d each get two carts full of materials stacked as high as we could get it. And we can put it all in my little my dad’s little trailer, behind his fairly small car, I’m pretty sure it wasn’t entirely illegal I if things were flying off when they were driving on the highway. But we would work on building these buildings. And so that was my entire growing up was this this this construction, this building small multifamily, I mean, like four, eight units. And then I went off to college. And I wanted nothing to do with the family business. But the reason that was is that I don’t want people to think it was given to me, right. And I had to really wrestle with my own ego, not to care so much about what other people thought. And what I realized is deep down, I wanted to make some kind of meaningful, positive impact on the world. You know, my dad died at a relatively young age not long after this point. And it really reminded me how short life really is. So I don’t want to waste my life, I want to do something meaningful with that. And so that’s, that’s what we started doing. And so my dad and I worked together for the first couple of years, then, as I mentioned, he suddenly passed away unexpectedly, was really rough. And overnight, I was in charge of this business, it was getting very small all the time. But looking back, I think that was part of the magic. And the reason I say that is because it I didn’t know everything, right, I was inexperienced, I didn’t know the way things were supposed to be done entirely. And we started questioning everything. Why is it done this way? Can we do it differently? Is there a better way to approach this? We started to change things, there was no one to tell me? No. And what we started to realizing is that there is a better way we can make a change, we can actually start driving down the cost of construction. And now it’s really become clear that that is the impact I think we can have on this world, at least nationwide over the course of a lifetime.
J Darrin Gross 12:56
Now, that’s, that’s awesome. Sorry to hear about your dad, and your loss. But I think like you said, the magic in that is when you if you don’t know what you don’t know, you know, why? Why would you do it, you know, the way that it’s always been done. I mean, to have that kind of blank slate and the opportunity to really approach things from a different angle or a different way of, of in, you know, not not just have to go with the status quo kind of thing. So let me ask you, so, it sounds like your family started this business 30 years ago? How many units did you have, prior to you taking over?
Mike Kaeding 13:39
About 90 at that time?
J Darrin Gross 13:42
Okay. And I’m assuming, I don’t want to say anything. How does debt figure into your, your growth?
Mike Kaeding 13:55
So what’s interesting is our cost of construction is low enough that typically dad can cover the entire cost of construction. So if you have $100 million building, a bank loan might be 75 million, but our cost might be 70 million, which means we can actually generate cash with each building. Although the reality of the world today with rising interest rates is that it’s changed a little bit. Banks have become more skittish, the proceeds have gone down. So maybe they’re only offering 55 or 60 million today. So we’re having to pivot a little bit, but that’s kind of how debt fits in that picture.
J Darrin Gross 14:35
So you mentioned the in the beginning, your your family is building these smaller properties and that you you eventually had 9090 units. What’s What’s the sweet spot as far as your new construction, how large properties are you building?
Mike Kaeding 14:52
Are we target around 350 units per building today?
J Darrin Gross 14:57
Are buildings here going vertical then How many
Mike Kaeding 15:01
I sort of latest building is seven storeys above ground and others underground parking as well.
J Darrin Gross 15:09
Gotcha. And you’ve mentioned the affordability factor. Are your units are the market rent? Are the Harry, is it strictly? Are you going after the affordability? Are you doing any of the light, low? Low income, housing tax credit, light tech? Are you doing any of that kind of thing?
Mike Kaeding 15:32
It’s a great question. It’s a common question we get. So we talk about affordability and wanting to solve a more America’s affordability crisis. But the the reality is today, our rents are market rents. And that’s intentional. We could charge 20 to 30% less and still be profitable. But that solves housing affordability for a couple of 1000 people. Let’s that’s good. But that’s not the scale, we want to solve it at the solvent nationwide, we really have to pour the money into building the system that builds apartments. You know, Elon Musk talks about how it’s hard to produce a car, but it is 10 to 100 to 1000 times harder to produce the system that builds that car. And that’s what we’re working on engineers, architects or our team, don’t think about how do I build the next building? They’re looking at this system? And how do I tweak and change a system that make it better to produce units at scale. And then our goal in the next 10 years is to reach 192,000 units under manage it with a 60,000 unit per year pairs. And that kind of level? Our hope is to produce enough units to the marketplace, that supply and demand starts hitting, right. There’s so many units available, the prices start coming down, naturally. But here’s the magic. It’s not just for our own residents. It’s for everyone, nationwide. And that’s how you truly solve housing affordability in America.
J Darrin Gross 17:14
Couple of questions. How many? How large is your staff? You’ve got in be curious, overall. And then also, in your in your local, based on all of the different trades and hand people you have incorporated in your in your projects?
Mike Kaeding 17:35
Yeah, so we have about 250 staff members entirely right now. It’s maybe a little less than 200. That’s specifically in the realm of construction.
J Darrin Gross 17:45
Gotcha. And how did you arrive at the 350 unit size of a property to build as opposed to some of the smaller units you get he Richard originally our building.
Mike Kaeding 18:02
It’s pretty simple in that the more units that you can have on site, the nicer the amenities can be because you just have more money to spend on those amenities, which makes the property more attractive overall. Another important factor is land costs. And so we’re really good at optimizing a site for the maximum number of units imaginable. And it just lowers the cost of the land per unit. It’s just another way that we reduce costs.
J Darrin Gross 18:34
So in speaking of land, how large of a a parcel do you need for 350 units?
Mike Kaeding 18:41
I think I think our latest project is two and a half acres.
J Darrin Gross 18:47
Really two and a half acres for were 350 units. That’s That’s great.
Mike Kaeding 18:53
Yeah, it’s yeah, it’s it’s very well compacted in there.
J Darrin Gross 18:59
So let’s talk about capital. We talked a little bit about lending. Are you are you raising money? Do you do you have investors?
Mike Kaeding 19:11
Yeah, so it’s been amazing. Over the past decade, we’ve grown, we’re about $200 million valuation today. And we’ve grown all of that organically. We’ve not brought in any outside investors and we haven’t needed it. We don’t need it even going forward. But there’s that change in the debt structure, right? So the fact that the loan proceeds have gone down means that we’ve got to solve that gap somehow. One way is we can sell buildings. But this past six, nine months, we’ve actually been working on an investment platform, giving investors an opportunity to get involved for the very first time. The way it works is that it’s its account so you can put your money into earn a high rate of return and then pull that money back out when you want you can lock it up for different things. periods of time, basically, we’re kind of working to replace the banks. In some sense, we’re bringing that function in house, as well. And we’re giving investors not only the rate of return you would have earned at a bank, but also the bank’s profits, which has been really fun. We’ve been pitching investors and really enjoyed it, because the reception has been really strong.
J Darrin Gross 20:21
So in that, would your investors be more on the on the debt side of things? Or would they be an actual equity player or partner,
Mike Kaeding 20:28
I, the way it works is that Nord invest, which is the platform is a fund. And the investors are debt holders into that fund. So they get a fixed rate of return, and they get the money back then in the period of time, that fund also has equity investment that we put in as a company to protect the debt holders. So if something happens, we lose our money first before the debt holders get impacted. And then that fund in turns, invests in our different projects. So for example, if we have $100 million building, the bank loan in that building might be 55 or 60 million, no hard invest might invest maybe 20 million. And then on that particular building, we’d also have an equity stake there was kind of nice there as it is gives investors two levels of protection
J Darrin Gross 21:19
on it, and is that a new thing and that you’ve ever how many projects? Have you have you operated under this model? Where you’re where you’re raising capital?
Mike Kaeding 21:33
Yeah, it’s brand new. We are launching soon. And by the time the podcast comes out, it might actually already be launched. Okay. Yeah.
J Darrin Gross 21:43
That’s exciting in a different, different hat. One more thing you get to learn, right?
Mike Kaeding 21:49
It’s been really fun. Actually, I was always nervous about the world of investors. But now that we’ve gotten into it for the past six or nine months, it’s been actually kind of fun working with the SEC, it’s been fun talking to investors. It’s, it’s crazy as it sounds, I kind of enjoy audits as well, like I just learned something through those processes. That’s been fun.
J Darrin Gross 22:09
Well, and it sounds like the way you’ve been operating thus far, you’ve been free of all that kind of requirement. And hats off to you to be able to grow it to the to the size you you have. But it is interesting how the debt has changed. And not just the interest rate going up. But the you know, like the the percent of the project the lenders are willing to lend to. As far as the debt goes, Are you is an agent’s agency debt, or are you are you doing any longer term debt?
Mike Kaeding 22:48
Yeah, so the variety, our construction lending tends to be mid tier banks, the really big ones tend to not offer the best terms, the smaller banks are just not big enough for what we need to do. So it’s a middle tier bank, usually two or three of them, we bring together for one of our construction lenders. For the after we’ve stabilized the building, then it goes typically to HUD financing. So just it depends on the situation, each situation is a little bit different. But our general pipeline is is to push it in a while because they just have great interest rates, long term loans, it’s one of the best best vehicles out there that I’ve seen.
J Darrin Gross 23:33
You have what little I know of HUD and if your your, your plan is to keep them for long term, we think that makes a lot of sense for you, as opposed to in and out kind of thing, where I think most of the people I speak with are, are more of a value add, I’d say it’s probably a lot of the strategy. Although I’ve talked to a few, you know, more construction oriented, or guests, even though I think a lot of them, you know, look to build, fill, get the value up and then have a disposition and return the capital to the investors. So for you to
Mike Kaeding 24:18
just really kind of interesting strategy there too with hide one of the things. So HUD all they do is they put their stamp of approval on it and say that this is going to be backed or guaranteed by the government in some way. But then you still have third parties have to go out and sell that. And so there’s there’s an expense there that you’re paying because of that, that that extra third party involved. One of the things we haven’t dug into this too deeply yet, but one idea we’ve had is let’s go get the HUD stamp of approval. But then take those notes and put it back on that no harder invest platform, because now these are notes that are government guaranteed they’re probably can’t legally say this, but they’re probably similar. A degree of safety is like a traditional bank then. But it’s not a bank, be clear with that. But that can be really interesting to investors, because now they’re getting a higher rate of return yet again, and very low risk. And then we cut our costs even further as a result.
J Darrin Gross 25:18
No. So you mentioned you’re looking to expand operations from just Minnesota but also Texas. I thought I heard you say Mexico. Yeah. Are these? Is this where you’re you’re working to expand your portfolio? Or is this more of a where you’re expanding capacity for construction for some of your construction? You mentioned you had some panels or different material supply kind of thing?
Mike Kaeding 25:53
Yeah, so in Minnesota, we have most of our properties we’re producing, we’re getting close to producing a level that’s producing much of the multifamily in Minnesota. So we have to start expanding elsewhere. So the next place we’re working on expanding the multifamily buildings we produce is in Texas, thing I like about Texas is its largest three or four major cities all within a few hours of each other, lots of room for growth, there’s good demographics in general in that area. And it lets us kind of expand and scale up without having to spread out geographically, because with more geographic locations, it’s just more pain and headache to have to deal with the Mexico play is to move some of our manufacturing capacity in New Mexico, it will be the manufacturing capacity that’s feeding the Texas operation. So the first thing that moved down, there would probably be wall panels precast concrete or probably stay in Texas. But there’s a whole variety of things that we’re starting to move into, in for manufacturing capabilities. In some sense, you look at Tesla, and how they’re producing cars right now. In many ways, this is incredible, right? It’s automated. There’s robots, there’s the Tesla bot, they’re reengineering, the way cars are even made, but the full body cast, for example, in many ways, working here right now feels a little bit like how Tesla probably was 10 or 15 years ago. And our dream is over the next 10 to 15 years that we have plans at that kind of level, like the Giga Noor heart, not just the Giga factories for for Tesla. And yeah, so Mexico helps us reduce some costs a little bit of labor savings there, there’s a lot of supply chain stuff that we can do more efficiently through Mexico. So that’s, that’s where we’re headed.
J Darrin Gross 27:53
So with the kind of the factory build of the wall panels Ned, do, you have basically a standard floor plan that you are building and that’s how you’re able to do the to the system, build.
Mike Kaeding 28:11
I it’s more like Dells model a mass customization, right, because when you build buildings, you need to have flexibility to produce the bespoke quality of building that you want to build. So we do allow enough variation to make that happen. But whenever we can, we do actively remove variations. I was just on a call with our head engineer this morning, we’re talking a little bit about some of those design decisions. So one of the goals is to to make basically like Lego bricks. And so we choose the best 30 Different Lego bricks for wall types that we typically need now becomes 99% of our production, but it lets us get 99 plus percent of all the variations of design we ever want to build in buildings.
J Darrin Gross 29:02
So it’s your current capacity. How many units can you build? A year?
Mike Kaeding 29:09
500 a year right now, producing about an apartment every five hours.
J Darrin Gross 29:14
That’s great. Yeah. And you said, Did I hear you it was a 6000? Or 60,000? Was your goal. Steve 60. That’s big.
Mike Kaeding 29:23
Yeah, that’s yeah, we’ve been more or less each year in the last handful of years, we’ve been doubling in size.
J Darrin Gross 29:31
Yeah, no, that’s, that’s fabulous. I’m guessing based on all of your reference to Tesla. Are you a Tesla driver?
Mike Kaeding 29:39
Oh, yes. Very much.
J Darrin Gross 29:40
So Nyla love the cars are. They’re crazy.
Mike Kaeding 29:44
It’s just fun watching how good the technology has gotten. And just in general, the AI space right now. I don’t know how carefully you pay attention to it. We’re laser focused on it, but it’s insane. How fast that space is moving. It feels like if you have news that’s a We’re too old. That’s already old news things have radically changed.
J Darrin Gross 30:03
No, no, no. So let’s talk about the demand for housing. We talked about kind of the affordability thing. And then your your plan is to go ahead and to stay in the market rate, but essentially affect the affordability by by basically filling the demand gap. If that’s kind of what I understood is that my list ended here.
Mike Kaeding 30:32
You’re right. That’s exactly right. Yeah.
J Darrin Gross 30:35
And how long do you think it would take to reach that point? Where you’re able to essentially create a surplus of suppliers? What it what it would take to lower the lower the cost is that then that’s yeah, the economics are currently a supply and demand.
Mike Kaeding 30:56
Yeah. It will likely take a decade, I so wish it could be faster, and we will fight to the nail to make it as fast as we can. But scaling up something like Tesla is done with the Giga factories, it’s, it’s a ginormous task, I don’t think people really appreciate how incredibly challenging is to manufacture things effectively.
J Darrin Gross 31:21
Yeah, I think that, for most of us, I’ll speak for probably one by myself Is it it’s one thing to have an idea for a system. But as you grow, and you run into the challenges, a lot of people get discouraged. And we’ll go back to I’ll just do one at a time. You know, I won’t forget what was the, the M math or they’re talking about how, you know, guy starts off, and he’s a mechanic or whatever, and he, he does good work and, and his clients are telling all their friends about how good work he does, and all sudden, you get more work than he can handle. And then he has to hand hire an employee. And then obviously, he’s got a managing employee, and all sudden, he’s not doing the mechanic work anymore, which is what he enjoys. And, you know, to where he says, I can’t handle the employees and get rid of everybody. And he’s basically back to the, you know, the guy working on one car at a time kind of thing. And so that curious how how is it that you really kind of, you know, focused in and saw that that was the bigger system? Was it you? Were you primarily the driver of that? Or were you and your family? Kind of, you know, recognizing the opportunity? Or how did you come from, you know, the smaller operation to recognize and the bigger opportunity and making that shift.
Mike Kaeding 32:42
I think a part of it is just a little bit of who I am and that I just don’t want to waste my life not making at least an attempt at solving a world level problem. So I think that’s where the energy comes from, but the solutions and how we tackle things and how to move next. And exactly what that vision looks like, comes from a lot of people, one of the most important lessons I’ve ever learned in my life, is to hire the very best. And when I say the very best, I truly mean, like World Class world level people. But I found and I’ve, I didn’t just find this where people taught this to me, but I’ve seen it myself, the best people outperform the average person by two to five to 10 times as much. And people often think well, okay, great. You’re hiring great people, the best people, but they’re expensive, aren’t they? And the truth is, yes, on a per person basis, they are expensive. But when you look at what they produce, because that production level is so much stronger, they’re actually less expensive. Now, you bring on this caliber, this group of people at that kind of level, and they start to change things, right? They’re the ones that question things. They’re the ones that push the ball forward, and invent a whole new world of how things could be done. And it is just, it’s magical, right? You You knew that mechanic example. You start hiring your friends happy to help you do the mechanic work, you’ve got lots of problems, because managing people are difficult. And that’s true with great people as well. But it is a lot less difficult, right? They bring way more energy and passion and drive to a team than they suck out of that team. And honestly, like, I come into work, and I have so much fun, because the caliber of people that work here are extraordinary. I can give you examples, but they’re extraordinary. And they’re changing the world and I just along for the ride.
J Darrin Gross 34:58
Well that’s awesome. And definitely encouraging based on just, you know, having some excitement for being or doing what you’re doing. And also, I would tend to think that the employees or your your staff would, would be, you know, probably praised praise you based on just the the creating the environment that creates that kind of open for ideas, and, you know, the ability to share ideas and create and to contribute in a meaningful way to the output that they’re, that they’re involved. And I would think that would be a create an exciting place for people that want to work there. So, absolutely.
Mike Kaeding 35:45
Culture is so critical we, we have three major strategies in our company, three things I think about every day. And the first of those three strategies. Only three, the first of those three, is all about our staff. It’s the people, it’s the culture, if you get that, right, you’ll change the world. If you get that wrong, you’re gonna struggle most of your life.
J Darrin Gross 36:11
Yeah, no, no. So I’m curious. You’re focused on housing. Do you see are there any other asset classes that this model would work in? Or have you considered any other asset classes?
Mike Kaeding 36:26
It certainly could. Because the idea is quite simple, like, learn the lessons from other industries, and then apply it to your own space. So it could be things like other classes of real estate, you could use it to manufacturing in general. In fact, I have been working on a TED talk right now that’s kind of touching on this very point, how do we take these innovative brainpower and apply it to solving some of the world’s biggest problems? Now the reality of it is, the idea is simple. The execution is incredibly hard. That is where all of it all all of it is at is in the execution. And so for us as an organization, for us to be world class best in the world at something, we have to be laser focused on what that specific something is. And for us, that is housing. And that’s what will stay focused, I kind of doubt will go beyond that, because the housing problem is a big enough one for us to tackle within our lifetime.
J Darrin Gross 37:27
Yeah, that makes sense. Let me ask you, as far as the the different elements that you’re brought in house, is there are there any other elements as far as manufacturing go that you have identified as a potential opportunity for you to bring in house like, cabinetry or more, I don’t know just as ideas or any any other ideas, or any other we look
Mike Kaeding 37:53
at, we look at everything, even down to like drywall manufacturing. We’re, in fact, I just got sick earlier, I got off a call with my head of engineering, we’re starting to dream a little bit about what that overall system looks like. It starts not just the manufacturing, but it starts all the way back in software. Right now we’re working on a system such that we the dream is we give it the site layout, and it can compute and figuring out what the most optimal layout is maybe some impact from our designers. And then it actually spits out a full set of drawings, a full set of materialists entire cost and Ally analysis. And the reason that is, is because we don’t want to engineers, designing buildings, we want our engineers designing systems. And so we want them to take a step back and be designing and working on tweaking the system that builds that layout. And then we’re also moving our engineers then to think about how do you manufacture this in a different way. So we’re, I, one of the things we’re looking at is doing full volumetric. So producing entire apartment units in a factory, not 100% sold yet that that is actually the best for lowering costs, or if it’s just a step shy of that, which is a kit of parts where you’re producing a bathroom pod, a kitchen pod, and then you delivering them on site and kind of assembling them. The kind of simpler things is yeah, we’re looking at cabinets trimwork. We, we even looked at like Job creep mixtures concrete we’re doing or we’re looking at building a batch plant as well. Really, we look at each one of those specific niches and we say, is there some kind of advantage? Can we lower costs in some way because we’re doing it the work on site on a manufacturing facility? Or can someone else do it better? Like drywall is an example where somebody else can do that better because there’s a certain scale that’s needed to really make that effective and So we won’t get into drywall. And so we look at all those different components. But really, every step of the way is there’s 10,000 little problems. We’re just working to solve them so that we can lower the cost of what we’re doing.
J Darrin Gross 40:13
So the majority of what we’ve talked about is the construction cost. Are there any other unique things that Nora heart does with respect to operating the property?
Mike Kaeding 40:27
We think a lot about design. And this is this is newer, so I talk a little less about this. But it’s coming down the pike pretty strongly in the next few years. We want our buildings to be destinations. And we’re looking at like, how do you brand a building? Right now most people in this space they brand a building? separately for each building? Why is that? Why don’t we have apartments like we have hotels, where it’s, you know, the Hyatt your high building, and you know, that’s the caliber, the quality, and things that you expect from a Hyatt building, we want to provide that kind of branding and experience within our facilities. And so if you look at some of the most recent renderings that we’re putting together, it’s an experience, it’s a, it’s a different feel, and flair, it doesn’t feel like an apartment building, it feels like a destination in some way. Other things we’re thinking about, is if you look at the employment market, pre COVID, places like Google have these amazing campuses and places where people can engage and connect and build relationship in a kind of really cool way in their working environment. Now we’re moving a little bit more toward remote work, I don’t think it’ll ever be 100 100% remote work, but we certainly will live in this hybrid world, this opens up some space there, maybe one or two or three days a week that people are working from home. But can we create an experience in our facilities, that gives them that kind of inner connection, that human connection that they would have normally gotten at work, but now it’s with their apartment mates in a co working spaces. So we’re building up that kind of infrastructure in our buildings. You know, things like spas, pools, game rooms, Sky lounges, Penthouse Suites, those are all things that we’ve already been doing. But I think the last piece of the puzzle is the experience. And the key to really make an experience amazing is the human interaction part of that. And so where we pour a lot of time and attention right now is really built up the team, but it’s in that team. A lot of people think that to create an amazing customer experience, you have to think about the customer experience. And that’s true. But really, really to put your time and attention into is the employee experience. If you can find, attract and hire the best people, give them an amazing experience that bleeds out and just us a natural and authentic way to our customers. And so those are some of the areas that we’re thinking about on the resident side.
J Darrin Gross 43:15
But fascinating to hear all the different aspects and the ways you can tweak or make better the overall experience for everybody involved. That’s great. Yeah, he might, we could, I’d like to shift gears here for a second by dam and insurance broker, and has such I work with my clients to assess risk and determine what to do with risk. And there’s three strategies we typically consider. We first looked to see if there’s a way we can avoid the risk. But that’s not an option, we look to see if there’s a way we can minimize the risk. And if we cannot avoid nor minimize risk, then we look to see if we can transfer the risk. And that’s what an insurance policy is. It’s a risk transfer vehicle and asset to I guess my guests if they can look at their own situation. Could be your clients, manufacturers, interest rates, investors, tenants, political how are we you would frame or like to frame the question and what you know what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you Mike Kaeding. What is the Biggest Risk?
Mike Kaeding 44:35
Such a good question. I’m going to answer it in three parts, three levels. The first level is the surface level, which is today’s some of the bigger risks of the economy. Specifically rise in interest rates has that has a negative effect and debt proceeds used to fund new construction and just deals in general. But if we take it a step further deeper, which you realize is that those kind of problems happen all the time. It’s this year, it’s interest rates next year, it might be employment. After that it might be a supply chain, just something totally different. And so the deeper level, the deeper risk, there’s level two, is making sure you have the right people. Because if you have an amazing quality team that can solve the biggest, most challenging issues, they solve those problems, they start unlocking doors and making things happen that you didn’t know could happen. They have the capacity to pivot and change with the changing times and the changing market. So that’s the level two tickets one step deeper, and maybe the deepest level for me, I think the biggest risk in life is not utilizing your life to the fullest potential. You know, as I mentioned earlier, my dad died at a relatively young age. And I haven’t asked myself the question, how do I want to spend the minutes I have here on Earth? It For Me, a big part of that answer is I want to make some kind of meaningful, positive impact on the world. So I think the biggest risk we all face is selling ourselves short not trying to make the biggest impact we can and not living the life that we know we can live.
J Darrin Gross 46:41
Now I’m definitely being intentional. I like the the sentiments. Mike, where can listeners go if they’d like to learn more or connect with you?
Mike Kaeding 46:52
Yeah, the best places to visit our website. That’s Norhart.com. That’s n o r h a r t.com.
J Darrin Gross 47:04
Awesome. Mike Kaeding, I can’t say thanks enough for taking the time to talk today. I’ve enjoyed it. Learned a lot and look forward to doing it again soon.
Mike Kaeding 47:14
Awesome. Thank you so much for having me.
J Darrin Gross 47:17
All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.
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