Breaking Ground

National Housing & Rehabilitation Association’s 2024 Summer Institute in California presented a series of one-on-one conversations with key executives from NH&RA member companies – the Developers’ Perspectives on Markets, Opportunities and Challenges.

Sindy Spivac, the West Region Market executive for Bank of America’s Community Development Banking Division, spoke with Caleb Roope, president and CEO of The Pacific Companies, about overseeing multiple interrelated companies in development, finance, architecture, construction and property ownership.

Caleb has nearly 30 years of professional real estate experience with a concentration in affordable housing development, and The Pacific Companies provides extensive experience in producing assets that combine resources and priorities of the public and private sectors.

This interview has been edited for length.

Sindy Spivac: You have built a successful, sizable, scalable, diversified, affordable housing practice. And in addition to being a development company, you have a construction company, a portfolio management company and now a modular manufacturing company while also leading advocacy at the California state level. How do you manage to create such a successful, scalable practice?

Caleb Roope: I’m always looking to learn. And it’s the people that have been brought into my life. The networks of help that come around and I feel like I’ve been pretty good at seeing someone’s capabilities and then figuring out how we can use those capabilities to expand upon what they can already do and how a partnership can be built.

SS: Modular has been around since the sixties. But five or six years ago, you went for it and started Audible Volumetrics Modular. I’m curious, what made you dive in and how’s it going?

CR: One thing I’m frustrated about is cost increases. They’re out of control.

We do a lot of work in the San Francisco Bay area where the costs are the highest in the country. We’ve been on this runup for a long time now because of cost increases. And I got frustrated and said, I’m going to make a big push into modular. I’ve got to do something to create my own supply. Because the factories weren’t necessarily reliable.

A long-time, 40-year veteran of modular said to me, “I want to do a factory, and I need a capital partner.” That was the genesis of it, and it was perfect timing with my frustration with cost increases.

The point was that we wanted to drop costs and build faster. So, in 2020 we opened the factory. And we are now able to drop costs in the Bay Area, about a hundred dollars a square foot, and build for about two-thirds of the time. So, mission accomplished, and it’s been profitable.

SS: How does modular become business as usual? Why do we not see it becoming more prevalent?

CR: For starters, the reason modular exists at all is because of the developer community.

So, they’ve got to first embrace the technology and make it their priority. We need more developers to believe in the technology, to learn about it and to approach it properly, because that produces the sort of market demand for the factories to start and other entrants to move into the market.

SS: Where do you see future innovation in this business?

CR: I see the need to expand out of our government-focused world and get to the private markets. And maybe the big money center banks are partly the answer to that, but it feels like we have a real problem.

We have to do something to bring the private sector into this space. And that’s kind of what we’re focused on.

SS: Switching gears a little, you mentioned earlier the importance of partners. How do you pick your partners and what do you look for in a partner?

CR: There are so many different partnerships, right? There are lending and investing partners, there are joint venture partners and there are our management companies. So, I start at a fundamental level and ask, are they dependable? Dependability matters a lot. Also, flexibility and understanding.

On the other side, we want to be trusted (and to me, trust is a three-part assessment that includes sincerity, reliability and competence) and to have the autonomy to figure things out.

SS: If you had a magic wand, what would you want to do with it?

CR: Honestly, that we would have the housing problem solved. That would be what I’d really want.

But if I had to pick one policy-driven thing, it would be to make a flexible credit so that instead of a four or nine percent credit, you could have a credit flexed based on conditions. For example, if you wanted a deep target instead of a nine percent credit, you’d get an 11 percent credit.

If you adjusted the credit based on area median income so that as you lose sources of financing from deep targeting or services, you would get a credit increase accordingly to mitigate that loss. Difficulty developing things like that would be factors, maybe basis boost factors, but I would take a credit that ranged from five to 12 and pick your percentage based on a formula – based on what you were going to target and the population you were going to serve.

To me, that would be a much better way to approach the system and lead to the states having more flexibility in how they allocate resources. That’d be my tactical magic wand.

To listen to the full interview and following Q&A visit NH&RA’s On-Demand Learning Center.