Core Plus and the Changes to the Industry

Wally Smith:
Tell us about core plus. You mentioned that in our pre-meeting a little bit.

Jeff Montgomery:
So core, core plus, core asset, brand new, straight from the developer, primary markets. That’s one aspect. Core plus is take a 2014, 2012, or even just a few years old, where there’s institutional investors, it’s a primary market, and there’s new developments nearby. So you’ve got brand-new development within the area that shows a path towards, “Hey, if we improve this slightly, we improve this slightly dated product, we improve that, we’re going to see a lift to our NOI.”

Wally Smith:
Mm-hmm. Okay.

Jeff Montgomery:
And what core plus provides us the optionality of is, we’re not solely dependent on market movement. We’re not just underwriting rent growth. We’re underwriting rent growth. We’re looking for markets that have a solid rent growth. But the core plus gives us the optionality to look at a market that’s not the highest rent growth, but is going to be a stable rent growth, while also giving us that NOI lift, through a value add, through a improvement of the common area, ultimately making the tenants more desirable or having the tenants desire the product more and be willing to pay a slight increase on the rent for that.

Wally Smith:
How has that changed? I know we track a lot of the student housing and with other sponsors in the market, and gosh, back when I was in college, back in the Stone Age, it was the cinder block walls and a chow line. And now they’re like country clubs, with climbing walls and all of that.

Jeff Montgomery:
Yeah.

Wally Smith:
How have the amenities changed over just last decade?

Jeff Montgomery:
Oh, the amenities. That’s a fun game. So, on new development, luckily, we’re not the developer. So we don’t have to sit back at a blank canvas and say, “Okay, what are we going to do?” It’s fun, and we’ve done it, but it’s not where we’re at now. So, it’s an interesting trend to watch the new developers and the creative side and the designers, what they’re able to come up with. We’ll implement those trends so we can capture the trends on the multifamily, residential side of, “Hey, what are tenants ultimately demanding?”

Wally Smith:
I don’t think 10 years ago, you heard about many pickleball courts.

Jeff Montgomery:
No.

Wally Smith:
Right? [inaudible]-

Jeff Montgomery:
No, but now we’re looking at those.

Wally Smith:
Got to got to have your pickleball.