Get to know Margaret Whelan, CEO of Whelan Advisory Capital Markets.
Margaret is passionate about the opportunities for innovation across the U.S. housing industry. Her firm has recently advised and raised capital for several of the more progressive companies in the industry including Entekra, Resicap, Thomas James Homes, and Brewer Companies.
In this episode we discuss 3 main topics:
Margaret is a Keynote speaker at our Housing Innovation Summit, April 27, 2023 where she'll talk about leaving a legacy and will share inspiring stories of leaders in the housing space and how they’re giving back to their teams + peers, the communities they serve, the industry, and the planet. Learn more: https://housinginnovationsummit.com/Support the show
Haley Baumeister (00:00):
Welcome to the Housing Innovation Alliance podcast. I'm Haley Baumeister, a marketing and BIS student at the University of Pittsburgh. In today's podcast, you'll hear from Dennis Steigerwalt, president of the Housing Innovation Alliance, and Margaret Whelan, CEO of Whelan Advisory Capital Markets. We have a lot of great topics to cover, so let's jump right in. To kick things off, we asked Margaret to share her favorite quote.
Margaret Whelan (00:22):
Well, as you know diversity matters a lot to me. Diversity of thought, generational diversity, gender, whatever it is, I don't really care. But my very favorite quote, which is from Thomas Shelling, who's an economist, is the one thing a person cannot do no matter how rigorous his analysis or heroic his imagination is to draw up a list of things that he would never have thought of. And I love this quote, I read it and it was just such a light bulb moment because, you know, sometimes you go to a show, you go to an event, you sit next to someone and you hear someone you speak and you literally like, man, I, in a hundred years, I never thought of that. It's brilliant. It's hiding in plain sight. It's a solution. And for me, that's the benefit of diversity. It's the idea sharing. And I get so frustrated as a professional speaker going to these events, looking out to these vast rooms of old white guys saying, no, you're wrong. It's nothing's going to change. Because I think it has to change the, we have a negative value equation in housing where the is expected to pay more ultimately of their, their net worth for a house that's not improving in user functionality. The way, for example, your car is the car you drive today versus 10 years ago the phone you used today has improved dramatically. And so I'd love to see more diversity of thought in our business.
Dennis Steigerwalt (01:38):
That's, that's great. Well, I appreciate that and certainly can we, we, we at the Alliance certainly support that as well. Along those lines, as you bring that diversity of thought into the industry, what is your priority as an innovator?
Margaret Whelan (01:49):
My priority for my business, we're certified as a WeBank, a women owned firm we hire licensed with Finn, the s e c. It's an investment bank, which I'm very proud of cuz we're one of the only founder led women owned firms on Wall Street. And my priority is doing everything I do better versus bigger. I'm a big believer in just not always wanting to scale up and getting bigger, which is unusual for Wall Street people. Just serving my clients more efficiently, more effectively. My team managing balance at home with my family and also giving back. I must spend 10 hours a week coaching young people, diverse candidates who are trying to get into our business, into investment banking, onto corporate boards. You know, I started my corporate board career about a decade ago, one of the youngest New York Stock Exchange female directors. And when I came off that board I was happy cuz at the time I was the first and only women woman, but I had two women replace me when I stepped down and I was proud of that. And so just helping other women or young people or people of color or immigrants, you know, just anyone who feels that they need an extra push, I can be a bit of a bully in that respect.
Dennis Steigerwalt (02:58):
All right. So you're a great champion to have in your corner for sure. So taking the, you know, kind of your favorite quote and your priority as an innovator and what you're doing through oil and advisory, what would your call to action be for the Alliance Network?
Margaret Whelan (03:09):
You know, I don't necessarily think you need a call to action. I've been a founding board member for the Alliance since how long is it? Five, six years now. Since George Casey calling George the man I could never say no to. It's just to keep doing what you're doing cuz I feel like you have so much positive momentum. I absolutely love the bus trips, getting out on a bus with a bunch of people, meeting people I wouldn't have met before going into a factory with them that I could have had access to on my own. But going with those other people and hearing their perspectives, it's just absolutely fascinating, so valuable. I also feel like the casual events you're doing, the happy hours, the, the meet and greet, breakfast, that kind of thing, it's hard for a lot of people who are entrepreneurs who are very operating focused. They're not necessarily extroverts. It's not easy for them to show up at those events. But I love when, when we do that, we all have name tags, we meet each other, it makes it so much easier for the next event. And often I find they'll be sitting in the front row at the next presentation I'm giving, which is really cute cuz then I can introduce them to people that are important to them. So I would say just keep up the good work, stay focused on the content and in particular the networking.
Dennis Steigerwalt (04:19):
Well that's fantastic. I'm glad to hear that kind of, that that spectrum of, of different networking opportunities we're trying to create, whether they be kind of our, I they're still very intimate at 250, it's like a large, like a large wedding. Right. at our, at our, you know, our annual conferences all the way down to the 40 or 50 person adult field trip type scenario where we get out into the field, then get to kick the tires and, and on on different projects and technology. So, love to hear that. All right, so two more quick questions. Are you a dog or a cat person?
Margaret Whelan (04:47):
I am a hundred percent a dog person. In fact, I'm, I prefer dogs to most people,
Dennis Steigerwalt (04:52):
<Laugh>. Fair enough. All
Margaret Whelan (04:53):
Right. My golden retriever is sitting under my feet.
Dennis Steigerwalt (04:56):
Okay. All right. Very nice. Yeah, we, we just got a we just got a golden doodle
Margaret Whelan (05:00):
Oh, how fun.
Dennis Steigerwalt (05:01):
Margaret Whelan (05:02):
Amazing. Full size or middle or
Dennis Steigerwalt (05:05):
Y Yeah, we thought he was gonna be smaller, is turning out to be full size <laugh>. So he's eating round and out and us 50 pounds, five months in. So we'll <laugh>, I'm sure he is got another 20 to go. And then we'll figure out if he'll be bigger than the kids for a little while. Yeah. Yes,
Margaret Whelan (05:20):
Exactly. We got this beautiful pandemic puppy. Her name is Orla, which means it's an Irish word, means golden princess, and she's golden and she's a princess.
Dennis Steigerwalt (05:30):
Beautiful. Beautiful. That's love it.
Haley Baumeister (05:32):
Great insight from Margaret on the diversity of thought. Up next, Dennis and Margaret talk about the recent International Builders show, including their key takeaways and predictions.
Dennis Steigerwalt (05:41):
What was the feeling you had as you came out of the, the builders show this year?
Margaret Whelan (05:45):
Definitely more optimistic than I had expected. We spoke at a couple of events in mid-November, right ahead of the holiday season, and folks were very taken aback, I guess by the rate of which rates, mortgage rates had gone up, up very quickly. It was a sharp increase overall, a big impact to housing affordability and the fact that we may just slow down for a couple of years, and that was through mid-November. But by early January what we were hearing is that sales momentum had really picked up despite higher rates. Builders know how to sell, you know, they're, they're used to cyclicality in the business. They're able to buy down mortgage rates, they're able to offer price discounts or encouragement, motivation for consumers to get into the backlog or if they're in the backlog to stay in it. And so all of those sales initiatives were being received successfully.
Margaret Whelan (06:32):
And even yesterday I was in Tampa with some of the local builders in Tampa, the very strong housing market, a lot of new families moving there because of strong job growth and high income job growth. But several of the builders I met with over the course of the day said that their traffic at the sales centers in the last six weeks was higher year over year, which was fascinating and that the conversion rate was even higher, meaning these were very serious buyers. So that I would say the positive tone was coming out of IBS and we were delighted to see it.
Dennis Steigerwalt (07:00):
Yeah, it, it seems to me in a lot of the conversation that we were having, that there's, there's kind of two components to the mortgage rates increase, right? So there's a mental component and there's a mathematics component. So can I truly afford it and can I overcome the fact that I've been used to these suppressed rates for such a long period of time? And I, I think we're all coming to terms with the fact that that interest rate environment is gone and it's mm-hmm. May, may never return. And where we are at now is the fact that, you know, a five to six and 5% rate is a, is a healthy rate. Ideally we can get it down, but it, we're gonna have to make the moves we wanna make and, and wait, if we delay it, we're gonna be delaying it not for, for years, not months, waiting for those rates to kind of drop back off. So
Margaret Whelan (07:36):
I think with the, with the strong employment backdrop, not just the number of jobs being created, the less unemployment than people anticipated, but also the fact that the inflation is helping income growth, that consumers are feeling strong. And so yes, it's a higher rate, but ultimately they get to shop a little bit. Buying a a home is a very big emotional decision. And for all of us in the industry coming outta Covid housing was just so in demand and there was so much frenzy trying to supply homes and the buyers had to take what was available. Now they can actually hike a bit. And I think that feels good.
Dennis Steigerwalt (08:09):
Yeah. Yeah. Well, you get to have a little bit more breathing room in the process, right. And everything doesn't feel so rushed. You know, one of the things that we talked about, you know, was mentioned in your post, we talked a little bit in the beginning of the call here, was kind of your take on innovation that was happening at the builders show a lot more in the pre-fabrication offsite space. I think that that's starting to get a louder and louder message across a lot more awareness there. But can you just share a little bit from your perspective on what you see happening or what you observed at the builders show within context of offsite construction? Perhaps a broader story around innovation? Yeah,
Margaret Whelan (08:38):
I mean, what happens when you have a slowdown is it really magnifies the opportunity for change and positive change in the business. And so we started to see that last year after two years of high demand. And I think already the industry had accelerated the use and the adoption of technology because necessity breeds invention. And with covid and labor constraints and supply chain delays, we just had to figure out some new solutions. So what was very exciting to see at this show was not just the components and the structure components, we heard a lot about that, but the fact that now they're being precut for m e p, mechanical electrical plumbing to come right in behind them. So you're delivering a very precise framing system, very little room for error. M e p comes in behind it, and in some cases we are also seeing structured insulation panel sips coming with the frame.
Margaret Whelan (09:26):
And so I feel like the stick builders are doing everything they can to have more offsite components and more value add components that they can bring to the job site. We also met with several of the providers of those components and that value add, and it's being very well received by the builder customers. And I think that regardless of where the housing, the retail demand goes right now, we also have this built rent business percolating, which is very simple, standardized houses that are often built on a even flow basis. And that the lack of complexity in the design of those houses. So because they're being built ultimately for a long term investor to own and to manage they have less options, less upgrades, less elevations. So they're was much simpler to build. And I think that was in part the reason for so much confidence and some of the new factories that are being billed for offsite solutions, which was great to
Dennis Steigerwalt (10:17):
See. Yeah, no, I, I, I completely agree and I wanna, I definitely wanna come back to the build to rent segment, but I wanna highlight on the, on the innovation side, one of the things that, that I was excited to see at this show is that the N H B seems to have really invested in giving early stage companies an opportunity to showcase these solutions. You know, the startup zone, which was introduced last year in Orlando, had a much more prominent location this year in the show amongst some legacy and established players. So the traffic count, I think, was quite high. And they gave them an opportunity to have a pitch contest in one of their jam session formats, which I think is a great way to showcase, again, these companies and give them a, a much lower barrier to entry to get into the show.
Dennis Steigerwalt (10:51):
And then, you know, you saw many of the companies from last year take up a much larger presence, like the group from hierarchy who had a, you know, a very impressive booth that was telling a fantastic story around the digital capabilities they're trying to bring into business. So I, I think for me, the N H B em embracing that for the show and for their attendees, I think is a great story because two-thirds of the homes are still built by builders that are building much, you know, less than a hundred units a year. And, and it's a great way to introduce them to solutions that could be attainable for them and accessible to them as well. So I think that it's a great storyline and, you know, prefabrication, new HVAC technologies, operations and processes, all of these, all these systems and solutions that they're showcasing, I think is super beneficial.
Margaret Whelan (11:30):
I agree with you, Dennis. I think the NHB is really doing a nice job, but I also think the alliance and your team is doing a great job of facilitating all of the introductions and the communications. Because what we see with a lot of the new entrant is the teams are young, they're short on funds, it's a big investment for them to get to Vegas or Orlando and put up a booth like that. And it's great that it can be such an efficient use of their time and through the alliance they get to meet investors, strategic partners, clients, customers, material suppliers. And so it really, you come out of that with with so many business cards and so many leads, which makes it very productive.
Dennis Steigerwalt (12:03):
Yeah, no, it, it's a, yeah, certainly was a great opportunity to see all those new members that we hadn't had a chance to connect with in person all, all at one time. I think, you know, when you have over almost 200,000 people across the five concurrent shows, it's it's really an imp an impressive demonstration of the interest and the time now available to explore these new ideas and concepts. And then, you know, the conversations around how do we actually implement and what are the right partnerships. Kind of going back to what you were mentioning about your involvement in the build around space, so this, obviously, this was headline grabbing for the last two years. It, it seems to have quieted down a little bit, at least from the press perspective. Kind of curious, what are you seeing from a business activity standpoint? Is there still a lot of capital available? Are there deals being done? What's, if they're not happening, why are they not happening?
Margaret Whelan (12:46):
So in terms of supply and demand, the demand is absolutely there. I think the consumer is shifting from multi-family to single family rentals. For decades, we've been building hundreds of thousands of new, brand new professionally managed multi-family apartments and homes for families, but not single family. So I think the shift that we're seeing on the demand side is coming from the consumer. I think it's strong and I think it's going to be persistent. There's no doubt in my mind that single family is going to continue to take market share from multi-family because the attributes of those single family homes are so attractive. On the supply side, as you know, we're a boutique investment bank. We raised a capital for a lot of these providers, and we have done for years, because we were doing s FFR before S FFR morphed into to build to rent the capital is there, the demand is there.
Margaret Whelan (13:35):
So with capital you have supply. I think the challenge is the sharp increase in interest rates last year not only hit the consumer's pocket from a mortgage and affordability perspective, also the cost of capital and the cap rates for those long-term cash flowing assets. And in some cases it got prohibitive and some of the projects went on hold. I'm kind of encouraged by it because I feel like there was a lot of, what I refer to as tourists coming into the space thinking it was easy. They're going title and develop land, spec houses, built houses, rent them out and manage them. I'm like, what could go wrong? Right? And so I think a lot of the tourists have gone to the sidelines, which is good, but the real operators are still there. And it allows some of our home builder clients to shift the mix of their product from a hundred percent retail to doing some rental as well, which from an even flow perspective and an offsite solutions perspective makes a lot of sense.
Dennis Steigerwalt (14:25):
Yeah, I mean that's, that's the, the general message we have is, you know, as, as the market started to soften a bit, we've had a lot more builders that were, you know, let's say casually entertaining and exploring built to rent get much more involved. Right. And I think, you know, and you see a lot of that also happening more on the high performance side. So builders that we're, we're delivering a more energy efficient product mm-hmm. <Affirmative> more funds that were specifically directed into them as an example, we've seen, we've seen a lot of that activity within the network. So that, that's interesting. Do you wanna share any thoughts on kind of your out what your outlook for the year is, and maybe in context of that provide us with what are the metrics and market movements you're gonna be tracking throughout the
Margaret Whelan (15:02):
Year in terms of the market? You know, we're, we're a cyclical industry, but we don't have to let the cycle on us. We can own the cycle. And so you don't wanna waste a good flow down, try to find opportunities where ways to improve the business get buy-in from the top down. What we specialize in m and a representing owners and founders want to sell. Often they have a unique business model or type of product or presence in the market that's attractive to a big company. And rather than have that big company pay dump tax, they'll buy one of the companies that we're working on. And so I think what I would love to see is more initiative from the leaders, the boards down to executive management and really thinking around the corner for our industry, because I don't think that we have a labor challenge in our industry as much as we have a lack of process challenge.
Margaret Whelan (15:51):
And that creates so much improvisation and, and rework on the job sites. I also going out all the time, literally a few days a week to job sites and seeing these big dumpsters with all the materials sitting in front. I wish we could motivate the framers by not paying them per yard, because in paying them per yard, you get so much waste. In fact, the National Framing Council estimates 30% of the materials that are purchased for the house, and that's half the cost to the house is in that dumpster. The consumer's paying for that. So if we could eliminate the waste and eliminate the improvisation, both of which are easy solutions to address with an offsite presence, then I think that builders would've higher margins, they'd have better returns on capital, and consumers would've more homes to choose from.
Dennis Steigerwalt (16:32):
Okay. Great. Are there, so in context of that outlook, are there gonna be any specific metrics you're keeping an eye on over the course of the next several months, quarters to, to track progress of, of the market, maybe some non-traditional numbers, if you will, or indicators? Well,
Margaret Whelan (16:45):
The thing about it is that you have, you have supply and new demand, so everyone's talking about rates and confidence and jobs, whatever. There's a, there's an underlying amount of demand that's important. I think we cannot build houses if we don't have finished lots. So vls vacant can develop lots, is really important. It's at an all time low in almost every top m MSA in every top city in the country. So it's a leading indicator. If we don't have dirt and finished dirt, then we can't start houses. So something like that is what I would focus on as much as anything else. I also think the trends, the number of people leaving the big cities is, John Burns always says the U-Haul trucks, <laugh>, you know, it's, it's one way from New York to Florida or from San Francisco to Utah and some of these places. That hasn't changed at all, and I think it's gonna continue. Yeah,
Dennis Steigerwalt (17:31):
No, those, those are excellent, excellent points. Well, thank you so much for sharing those opinions. These have been, these have all been great. I, I've, you hit everything on my list. Is there anything else you'd like to leave, like, to share with our audience? Just
Margaret Whelan (17:42):
That I'm, I'm grateful to be a part of it. I appreciate it and I learn a lot from the alliance. Thank you. Yeah.
Dennis Steigerwalt (17:47):
Well, thank you for contributing as much, much, and as you said, yes, in 2017, we were no longer the best practices research alliance. We became the Housing Innovation Alliance, and George Casey stepped in and helped Michael Dickens and, and Betsy Scott assemble an entirely new board. And we appreciate you being a part of that ever since. And I'm glad to get to know you and, and work alongside you since 2019 when I joined. I can't believe it's not even that long, right?
Margaret Whelan (18:07):
I I was gonna say same. Yeah, likewise through 2017. And then I think McKenzie Institute came out with the path to productivity late 17, early 18. And that really elevated the, the amount of conversations around the opportunity that could be addressed. And from an investor perspective, the returns that could be realized, because there's not a lot of industries that are in the bottom of that fourth quarter <laugh>. So instead of complaining about it, let's find a way to make some money on
Dennis Steigerwalt (18:34):
It. Yeah, no, no, certainly I think it, that McKinsey airport raised awareness in a very global way, and it's, and it has attracted a lot of attention in areas of investment opportunity. And I think that, that now, now that the, the key to that is taking that and making it actionable, right? Mm-Hmm. <affirmative>, yeah. What we're doing with teams like you're doing, bringing people together, formalizing the right partnerships so we can execute towards closing the gaps who are identified in these
Margaret Whelan (18:56):
Reports. Yeah. And just bite size, you know, small positive changes, getting buy-in from the board, partnering sometimes with a strategic relationship, whether it's a supply or a customer, making sure you don't run outta money. The, the real 1 0 1 blocking tackling basics.
Dennis Steigerwalt (19:11):
Yep. No, it's, it's, it's about being, you have to go all in on those commitments, but those commitments don't always, they, they can be incremental wins. Right?
Haley Baumeister (19:18):
Yeah. Thank you for listening to the Housing Innovation Alliance podcast. Do you have a story to share? Reach out to us and we'd love to hear from you.