2022 was a year of resets in many ways, the global stage was reset, the state of the economy was completely reset and valuations for companies were also reset. As we now know, the world can turn on its head from one day to the next, and as some economists say, the only certainty in the economy is fundamental uncertainty.
The housing sector is highly cyclical — it has famously been said that “housing is the business cycle”. So how does this correlate to a cycle that is fundamentally uncertain? We believe it’s about focusing on the basics, focus on housing that’s affordable, focus on quality of product and focus on bringing that product to market faster.
A survey from the Pew Research Center released this year showed a 10-percentage-point increase since 2018 in the share of Americans- now one in two- who see the availability of affordable housing in their area as a serious problem. This is Madelon’s focus, the only way to reduce the cost of housing is to add to the supply.
A proof of concept became a housing brand
A year ago we were opening the doors to our first Maison in Brooklyn, to a still fairly uncertain market, as many people had declared NY all but dead.
There was no doubt we had created a great product, and knew there was demand for it, but we would not have imagined that within one year we would have another three buildings open at full occupancy across the board. So we’re very excited to open the doors to our newest Maison in Manhattan in just a few days, and to keep building our brand across multiple cities this year.
Ground up productized development
At the beginning of the year a site in the Santa Fe Arts District of Denver, became home to our MVP, Blue Room House One. Throughout the year we assembled an amazing team, that we are incredibly proud of and will be sharing more about soon.
An important piece in productizing housing development has always been. streamlining the process, starting from the way it’s designed, underwritten, and built, to how it’s operated. An important factor in the undersupply of housing has been the lengthy, cumbersome and expensive process to get a development entitled, especially if it is an affordable housing development.
A 2018 study by the U.S. Government Accountability Office found that 14% of the price tag for California’s affordable housing projects was made up of consulting fees and other administrative costs — the highest in the country and more than developers spend on land.
By bridging the gap between factories doing products and developers doing projects, we are able to reduce both pre-development and construction timelines, bringing products to market quicker and considerably reducing not only TDC’s, but also reducing risk.
Blue Room House One is groundbreaking not just in terms of the capital stack our partners have built, as it will offer affordable units without relying on the traditional Low-Income Housing Tax Credit (LIHTC) program, but it will also be one of the first prefab modular housing projects in Denver thanks to its use of our REDtech platform. We are also very excited that the project just got accepted into the Affordable Housing Review Team, meaning that the permitting process will be streamlined, dramatically reducing consulting and administrative costs, savings that will be passed on to tenants.
By reducing risk for development, our customers are now able to think in terms of pipelines, and not just on a building by building basis. This is something we have achieved in both our NYC Maison pipeline, and will soon have some very exciting news to share regarding our ground up development pipeline in Denver.
Bits and Atoms
From the start, we knew that the mission we set out to achieve would not be an easy one. We were dealing with bits and atoms and we needed to innovate on both sides.
On the bits side, we launched our REDtech platform in order to reduce the barriers of entry to small and medium scale developers. Because in order to truly increase the supply of housing, we need to catalyze the creation of infill and missing middle projects across our cities. REDtech is an amazing resource to find and underwrite these types of developments in LA, Denver and NY (more cities coming soon) and it has had some radical improvements and amazing new features this year.
In the current environment in which most ground up opportunities will not pencil out, we need to unlock value at every step of the process, that’s why a major focus has been on a new feature that will help users source both listed and unlisted parcels by filtering through multiple different objectives like TDC, YOC, Total square footage, etc, providing an exhaustive list of potential sites perfect for modular in just minutes.
In Q4 we signed a deal for yet another revenue stream in the platform with a group called Stacksource, to help developers quickly and easily source multiple debt options in REDtech.
Stacksource has been a force in the commercial lending world for some years now, and as a valued friend to Madelon since our inception, we are thrilled to soon have them as an official revenue share partner. As a B2B managed marketplace, this rev-share agreement will be yet another significant revenue channel for Madelon, and further solidify our position as an essential conduit for productized development now, and in the future.
2023
There is no doubt that this won’t be an easy year, global economic instability will continue to rise and that has greatly impacted and will continue to impact the Real Estate industry. But this is the year that we catalyze what we have been working on and developing the last few years. Not only are we working with customers from coast to coast, on products and pipelines, truly delivering affordable housing, but we are also in conversations with state economic development agencies and political leaders that are keen on having REDtech solve their housing crisis.
This is the year where atoms and bits meet and we break ground on truly scalable and replicable projects that will be delivered in shorter timelines and with lower costs, this is the year we put a dent in the housing market.
