3. Evaluate the key strategy implementation efforts at Burbank HousingHave CEO Larry Florin and the leadership team allocated sufficient resources to the strategy execution effort? Exercised strong leadership to propel strategy execution forward? Instituted policies and procedures that facilitate good strategy execution? Explain in brief

Burbank Housing: Building from the Inside Out Christy Anderson, Armand Gilinsky Jr. MBA Student, Sonoma State University Sonoma State University wildfires, Larry reflected on the company's position given the road ahead. His challenge: put Burbank Housing in a position to take on new development Burbark Housing, like many affordable housing. projects to mitigate the housing crisis while assuring companies, was comprised of a development departthat Burbank. Housing could internally mannge all ment, a property management department, ard a new project growth. -resident services department as their core organizFor a company like aurs, carh fows is everpthing. And ational stracture. The development department was this is acfually not diferent than a for profit compary. charged with constructing mes. projects. Property. In the development world if goer- y and down. There management managed the rental propertics once. are big big cycle. fi's even worse in she affordable hous. they were completed. Resident services provided ing warld. Because of you far a fax credis projech our various types of support programs for renters: fypical project, the way we make money here is off of Reviewing these activities. Larry grappled with how developer fees, Which we are allowed so collect, but we to improve the coordination of these departments, carinot collectia dereioser fee wnth a praject is done, and if is what is called sfabulized. So, if has to have three monthe worth of fulf occupancy and people payink fent. So, woy down she line we get pail. Its really about C-261 manage the cash flows associated with new project RealPage reported "apartment completions reached developments, and systematize processes and pro- a 30year high in 2017 , with 364,713 units completed cedures-across the organization. in the 150 largest U.S. metro areas. 6 Investors also took note of the focus on apartment complex proAFFORDABLE HOUSING $19.6 billion in apartment properties in 2015 , SEGMENT $19.6 bilion in apartment properties in 2015 , Affordable non-profit housing companies acted as developers in that they were able to compete for tax credits and needed to comply with certain regulations TAX CREDITS once tax credits were awarded. However, for-profit Affordable housing was beavily reliant upon tax creddevelopers could also compete for tax eredits. The its. The low-income housing tax credit (LIHTC) promain difference was that affordable housing compan- gram had originally been a part of the Tax Reform Act ies made it their mission to provide housing for indi. of 1986. According to the Congressional Research viduals below the median income levels. tor expanded at an annualized rate of 3.4 percent over indirect federal subsidy used to help finance conthe five years prior to 2018 and reached $2.0 trillion, struction and rehabilitation of lon-income affordincluding a 3.3 percent jump in 2018 alone. 2 Growth ablerental housing " Without this incentive, affordable in California oceurred at a faster rate, The demand for rental hoesing projects were not expected to gencrate construction projects was driven by macroeconomic below market rates. factors such as rising disposable income, low inter- Thax credits gave investors a dollar-for-dollar est rates, mortgage interest rates, government pol decrease on their federal tax liability. At the saine icy measures which supported homeownership, and time, investors also accounted for depreciation or increased access to credit. Construction contractors losses on housing projects. Tax credits were paid out additionally benefited from accommodative lending annually over ten yenrs. Projects that were awarded standards by banks over the five years, providing them tax credits needed to be available only to low-ingo pre with increased financing for operations 2 As a result tax credits necded to be avielable only to bowingme of the increased demand for construction services, the least 30 years. There were fwo types of tax credits, average profit margin for operators in the constroc 4 percent and 9 percent. New construction protion industry reached 5.9 percent of total construction jects were generally awarded the highly sought after revenue in 2018, up from 4.5 percent in 20133. At the 9 percent tax credits, while the 4 percent credit was same time, the industry experienced severe shortages normally reserved for rehabilitation profects. of skilled labot due to tight employment markets. (he general qualification required that the hodse- Across the United States in 2017. floods, hurri- hold made less that 50 percent of the Area Median canes, wildfires, and earthquakes, among other nat- Income (AMI). Acconding to the Sonoma County ural disasters, acutely decreased the nation's housing Eoonomic Development Board, Sonoma County had supply and intensified detnand for construction of ( a median household income of $66,783 in 2017? ? singlefamily homes. Housing industry observers increased by 900,000 units in February 2018, the HOUSING CRISIS highest level since September 200 . 4 Maltifamily, or According to Larry, and the Congressional Research apartment complex construction was also a signifs Service groap, tax cradits were almost nonexistent cant driver of residential busilding construction from during the Great Recession of 2008. The Lom-lncome 2012-2018, Multifamily housing starts, which were Housing Tix Credit (LlHTTC) ptogram existed prigenerally more volatile than their single-tamily pro- marily because of fundizg from large barks. As a jects, were expected to tise at an annualized rate of restil, the price of U.THTC: fell, creating fanding gaps 6.1 percent over the five years prior to 2018 . Reports in projects that had toceived tax credit allocations in from property manugemeat software solutions firm 2007 and 2008 but had not yet sold. it This incladed C.262 PART 2 Cases in Crafting and Executing Strategy thousands of projects and tens of thousands of units 500,000 a year, M California had historically built an that would have otherwise been bought or rehabili- average of 80,000 new homes per year over the prior tated. During that time Burbank Housing's focus decade. Evea to Larry, a goal of 3.5 million housing shifted to property management. Without any afford- units seemed very ambitious. able housing development projects to support the business during the Great Recession, property management was the only way Burbank housing could COMPANY HISTORY generate funds to stay afloat. California renewed its focus on trying to solve the profit with history going back 40 years. When the housing crisis. "Housing [was] more expensive in organization was in its first years, there was not California than just about anywhere else," accord- much competition and the market itself was almost ing to the report by California's Legislative Analyst's nonexistent. During the Great Recession of 2008 , Office (CLAO), which noted an increasing gap in Burbank Housing had to shift their focus to propsupply and demand for housing in that state since erty mannagement because of the economic fite the 1970s. California was known for its robust the whime. In 2010. Burbank Housing developed a faster than the housing market could keep pace with. strategic plan which focused primarily on taking According to the CLAO, California maintained one on tax credit projects, selling to new partnerships of the highest median housing prices and rents in and updating their assets. Around this time other the United States. In 2015 an average California conipetitors began entering the market. In 2015. home cost $440,000, about twoandehalf times the board of directors brought in a consultant to the average national home price of $180,000, and take a deep dive into the organization and provide California's average monthly rent was about $1.240. recommendations. Some of those changes focused which was 50 percent higher than the rest of the on leadership, and in 2016 helped the board select country at $840 per month.2 According to the Larry Florin as the new CEO. CLAO, the main reason that homes were not built 2017 the Board of Directors, other organiza. Was because local communities made most deck. tional leaders, and a group of employees developed sions about housing development. How residents felt a strategic plan focusing on the core values of the about new housing. particularly affordable housing. organization. The arcas of focus and goals for the was another important factor. Incumbent residents concerned about new housing had the ability to concerned about new housing had the ability to Exilitit. Thc dasiboard was created (at the time of bar new construction via the community's land use (ight in a single snapshot where the authority, which allowed them to effectively slow or organization was with each goal from the strategic stop housing from being bulit or require housing to plan. When asked what his own goal was as CEO, be built in lower densities. Other important factors Larry responded: that prevented housing projects were the environ- I I want ur fo min propertier shar people are going to be ernment were very moch in support of new develop. The residents. Ulimately I thint we make cur mark by ment of affordable housing projects to help solve the bringing mov poofeets an boant minen the demand that is housing crisis, especially after the fires. The Tubbs tof there? Fire began on October 8 , 2017, and quickly became Focusing on the strategic plan allowed Burbank the most destructive fire in Calfornia history, result- Housing leaders to decide which areas were conIng in a loss of 4,658 homes. 13 Thirteen months later, sidered priorities, as shown in Exhibit 1 . Based on the Camp Fire obliterated Paradise, California. In a recent review in early 2019, the leadership team 2019. California's Governorelect Gavin Newsot color-coded where they were currently in attaining units over the next five years, of an average of completed. Lightgreen goals were considered in EXHIBIT 1 Burbank Housing's 2017 Strategic Plan, Updated Spring 2019 completion and ongoing because much of Burbank As of 2019, Burbank Housing managed over Housing's strategic goals needed to be continuously 63 properties, almost 3,000 rental units, and was practiced. Yellow goals were in process. Orange working on starting projects that would bring over goals were designated as having been in beginning 500 new rental units to Sonoma Coanty. Based stages. Red goals were considered highest priority; on 2017 financial statements, Barbank Housing the areas that needed more focus were cash flows, reported 459 million in assets of which 385 million commanication, standardiring processes, cmployee were property. motivation and training-in order to handle the Burbank Housing was dividedinto three conpanadditional capacity. The Development Company had 21 employees, the Property Manngement Company had 77, and the Development Resident Services Company had 66 . Exhibit 2 shows Burbank Housing existed to develop affordable housthe organization chart of Burbank Housing. ing for the North Bay in California. The Development department was the heart of Burbank Housing. EXHIBIT 2 Burbank Housing Leadership Team Organization Chart in 2019 Source; Creased by case witer fram interview with Divector of Property Mansgement. Stoddard West Apartments, in the city of Napa, Costs. varied based on a host of factors but Which was 50 units of family affordable rental units. Often fell into the $450,000$550,000 per rental Construction started in April 2018 and was sched- unit. Because ownership units tended to be moduled to be completed in late summer 2019. est in size, unit costs for those fell into the same Six projects in pre-development included: range. Once a property was approved, entitied, and - Redwood Grove, Napa, 34 units, ownership funding sources were secured, construction eould - Lantana Place, Santa Rosa, 48 units, ownership ocgin. Towards the end of construction an itvestor - Caritas Homes, Santa Rosa, 128 units, rental - some of the properiy. Burbank Housing usually ended up of which is homeless-dedicated, the rest family with a small portion of the ounership by entering - Heritage House, Napa, 66 units, rental for home into a limited liability partnership with an investor less houscholds Io transfer the management of the property over to - Valle Verde, Napa, 24 units, family rental Burbank Housing. Developer fees were not generated - Journey's Fnd, Santa Rosa, 162 units, servior had been "stabilized." 1arry explained it typically rental (plus another 300450 market rental units) took at Ieast three months after construction for a C.268 PART 2 Cases in Crafting and Enecuting Strategy housing complex to reach full occupancy with pay- allows Burbank. Housing insight into the level of risk ing renters. These delays in revenue were a big rea they are getting taking on. Debt-tocquity ratios for a son why managing cash flows was so important for company are compared against industry ratios to see Burbank Housing. Burbank. Housing. Being a company with large development projects Generally, according to Larry, a ratio of 3 or lower made managing debt important. 16 Most of the time was acceptable in the construction industry, Table 1 Burbank. Housing had to take on loan financing to highlights an overview of Burbank Housing's debt to fund development projects. Looking at debt-to-quity equity ratios from 2016 to 2018 . TABLE 1 Debt-to-Equity Overview, 2016-2018 Source: Butanik Hossing internal document used with pe-missipt. Burbank Housing's debt to cquiry ratio was almost 3,000 rental units. Property Management higher in 2017 than the industry average. Larry generated revenue based on management fees for explained a ratio of 3.2 was not alarming to him, how- ranning the day-to-day operations of rental propever it is something he was monitoring and planned erties. Managing properties with more units brought to reduce by increasing free cash flow. in greater management fees. Looking at Table 2 . Burbank Housing supplied Northern California with of the portiolio. TABLE 2 Summary of Properties Managed by Property Management, 2019 Source: Burbank Housing yhermal document used with permisteen. Burbank Housing's Development Plan called out staff optimire the management of their current portthe goal to "Develop initiatives that allow employ. folio as well as prepare them to take on more propees to work smarter," Annie MeNeany, Director of erties. "Optimization of Yardi software has beca a Property Management, outlined a plan to help her primary focter for my department." Yarti-property C.269 by many affordable these apartments, they all had to apply for affordable management software was used by many affordable these apartments, they all had to apply for afforchable housing and for-profit housing companies. However, housing through Burbank Housing. These residents Annie and other managers agreed that Yardi had not information was captured through the application AnnieandothermanagersagrecdthatYardihadnotinformationwascapturedthroughtheapplicationyetbeenleveragedfullyatBurbankHousing.processes.Then,anewpersonwasrecruitedand yet been leveraged fully at Burbank. Housing. Processes. Then, a new person was reeruited and paperless invoicing and Yardi Marketplace, which assessment of the property's rehabilitation needed to was to be used by Property Managers to purchase be done. These workflows could have been managed supplies. Invoicing became noticeably easier and far more efficiently and less costly if the process of saved costs to the organization because of a decrease information capture and management were managed in invoice processing times. Processing one invoice in the Yardi software. typically cost \$35. With Yardi PAYsean, invoicing "It [was] difficult to automate this process," costs decreased to $5 or less per inwoice. The time it said Bonnic Maddox, Assistant Director of Property took to process an invoice also dropped, from 32 to Management. For each property they had to update six or fewer days. tool to help pronerty managers purchase supplies cant asking certain questions to check the status of needed for properties such as light bulbs, paint, or the applicant's eligibility, Because of the time it took a refrigerator. This feature was integrated with the to manage this process, many properties had already Yardi software used by the Finance and Property Management departments to streamline tracking sisted of information that was already in the Yardi costs and paying vendors. Adontion and usage of to system. It has been a goal of Property Management the technology remained slow, however. Some of developer experience was necded to set it upecific Yardi the technology remained slow, however. Sotme of developer experientee was needed to set it up. Burbank Housing's staff indicated that additional Director of Property Management Annie training - was needed and that it was difficult to McNeany worked with a consulting company and change a workflow process with which they were Yardi support to try to automate processes in Yardi. Yardi also had the potential to be used as a perfor- Also, specific Yardi questions and issues that came mance evaluation tool. Burbank. Housing's Director up dayto-day sometimes proved challenging to of Property Management was excited about the solve in a timely manner. Bonnie connected with implementation of Yardi because the performance afferdable housing company in Nosthern California cvaluation feafure allowed for greater consistency in to share knowledge and expericnee of Yardi issues personnel reviews, whereas previously, employee per- to share knowiedge and experience of Yardi issues formance evaluation processes and reports had never able housing company. had in-house Yardi experts been standardized. For all properties, Property Management ere learned this conspany was able to automate their ated and managed lists of people waiting to become rental applications, waitlists, and mailing. Hists in approved for an affordable rental unit. For larger Yardi. Looking at Exhibit 5, we can see the geoproperties the lists contained hundreds of applicants. graphical spread of Burbank. Housing's rental propThe ideal process would have been automated and f erties. An inhouse Yardi expert could have been or systematized in the Yardi software. An example: added to payroll if Yardi software assistance was Burbank Housing purchased Parkwood Apartments,a needed. Bonnie explained it wais difficult to support. 56-unit apartment complex, for $15 million. The City all the Property Managers because of how spread of Santa Rosa provided a loan of nearly $2.5 million out their properties were throughout Sonoma and to Burbank to help elose the deal.' Often. Burbank Napa Counties, but sometimes Property Managers Housing purchased an existing property to protect needed in person support. Exhibit 6 shows budget the current residents from having to move out with space for computer assistance and training. however the threat of a new owner raising rent. Setting up this might not be enough for a foll-time Yardi adminproperties like Parkwood involved a series of steps istrator salary. which required extensive, and often redundant, com. Communication between departments was also munications. When there wero already residents in extremely important to help Property Management EXHIBIT 6 Burbank Housing's 2019 Budget (summarized for technology support and training-related expenses) Source: Butbanik Housings 2019 fludget, prepared in December 2018, used with permisuion: prepare to take on more properties. Burbank Housing employee satisfaction and communication. Annie"s had a goal to "Foster strong and positive open oginion was that employee edacation and motivation communication between internal departments." would help their department efficientfy take on more Feedback from leadership included that communj- properties and optimize the way they managed eristcation had been an ongoing area Burbank Housing ing projerties. desired to improve. Some front-line staff members. such as property managers, voiced that they felt they were siloed and didn't know what was going on at the main office. Director of Fundraising and Communications, Laurie Lymn Hogan, implemented Burbank Housing's mission statement is as follows a weekly newsletter to be sent out to the entire organ- +Burband Houring is a focal mospofit dealizied so ization with updates of new development projects. Bariding quality afforiakle hoarine in the Niorth Bar. This newsletter was well received but proved to be We crrate wibrant focul commarities that are atrefathr a significant amount of work to put together. At the deazned, prafestionalls matanen and mattainakle beak ling up a twoway commanication process so front- and special needs. Employee training was also a focus Annie had in Although the purchase of properties like her plan for Property Management. The training plan Parkwood helps keep renters in their apartments. consisted of providing employees, and possibly the and generated income for Burbank Hoasing, this was entire organization, education on tax credits, afford- not Burbank Hoasing's main modas opcrandl. CFO able housing laus, and software such as Microsoft Jeff Moline emphasized the importance of introducExcel. Employees had voiced that they needed mote ing more affordable boasing options into the market knowledge and truining in those areas to do their jobs as their primary focus. more effectively. Exhibit 6 shows the budget for 2019 . The organization held four core valaes: comallocates $58,000 for employee training. of which riunity, integrity, compassion, and temwork. As $14,000 is currently allocated for Property manage- stated in their strategic pian, community was defined ment alone. Most departments in the organization by Burbank Housing as the desire to "actively provided team development activities throughout engage with people and institutions to share inforthe year. Team development activities have improved mation, ideas and fesources in order to belp others achieve their goals." Burbank Housing is a known increasing the estimated cash flows for developname in the community. They have collaborated ment projects, automating processes in Property with a long list of other organizations focused on Management, hiring a Yardi Administrator, improvhousing, homelessness, wildfire recovery, educa ing internal communication, providing training tion, healthcare and politics. CEO Larry Florin and and cducation for employees, as well as motivating Head of Community and Government Relations employees. Efren Carrillo, as well as other leaders of Burbank Housing, have regularly informed the community of Increasing Cash Flows various events. Director of Resident Services Lauren Increasing cash flows was not as simple as collecting Taylor has built and maintained relationships with eash and putting it aside for development projects. A other housing entities in the community to share carge amount of cash came from development fees. information, ideas, and resources. From almost all Burbank Housing also collected management fees angles, Burbank Housing has applied their core value from managing the properties. The challenge was of community. our promises. Professional, ethical behavior is are needed for development and how much could be expected by all. We have the courage to acknow - generated through the company without having to ledge mistakes and do whatever is needed to address get funds through financing. them." For compassion, Burbank Housing "values individual differences, demonstrate empathy and Yardi Administrator [works] to understand the concerns of others with- According to Glassdoor.eom, the median salary out judgment." Integrity and compassion are both of a Yardi Administrator in California in 2019 was "assumes positive intent, [practices] effective cont internal costs. munication and collaboration to establish mutual understanding to overcome challenges and inspire Optimize Yardi Software \& others." This value relates to Goal #1 from the stra- Automate Processes tegic plan: to "Develop initiatives that allow employ- Opportunities to optimize processes would come can be trained in new areas and new initiatives are from use of the Yarti software. If all property mankimplemented, then everyone in the organization can agers used Yardi marketplace, billing vendors would work as a more effective team. As Burbank Housing be casier and less costly. Waiting lists and applicaaccepted new development projects and additional tions processes would be automated. Currently. rental properties to manage, they acknowledged that this is a very manual and timeconsuming process. more focus would be needed on communication, process that can be optimized through consistency ereate stronger teamwork. through Yandi. FUTURE OPPORTUNITIES Increase Internal Communication Burbank Housing's leadenthip team concluded An increase of twoway internal communication was there were several opportunities to optimize the requested by many employees throaghout the organizorganization internally to handie the additional ation. Property Managers had been speciffcally vocal capacity in the pipeline. The tean considered about their desire for communication concerning C.272. PART 2 Cases in Crafting and Executing Strategy what was going on at the main office. Monthly newsletters had been the norm in the past. These monthly newsletters required a significant amount of time and Much of Larry's time after the wildiires had been effort. Encouraging communication would improve occupied talking about the housing crisis arid recovteamwork and provide opportunity for cross-training. ery efforts. Getting support for affordable housCompanywide informational meetings had not been ing over the years had its up and downs, and Larry done in over a year. Discussions about setting up a recalled a time when he was worried to be in the twoway communication process had already begun; affordable housing industry because of the lack of however, the process was as of late spring 2019 not funding and support. As California witnessed the in place. effects of a shortage of supply in the housing market, affordable housing companies like Barbank Housing \begin{tabular}{ll} Training and Education & were receiving greater support than they had received \\ Property Management employees voiced a desire for & before. 19 Consequently, much of Larry's time had \\ \hline ficroforing on opportunities on how to navi- \end{tabular} Microsoft Excel training. Yardi training, as well as gate this shortage, rather than on the difficulties. classes centered around learning about updated tax Reviewing Burbank Housing's Strategic Plan, credits laws. Annie decided to make it her priority to Larry saw that little focus had been placed on create training and ate and promote her staff. ENDNOTES