Evernest Acquires Poplar: CEO Matthew Whitaker interviewed by Peter Lohmann

I think one of the things that people need to be very mindful of is as you scale your organization, when you start to get to the point where you need a middle management layer, that becomes a big suck on the organization's resource, mostly cash. And, you know, the way Vern describes it is like up until $10 million, it's like really hard to afford everything you need and also make sure that you're consistently capitalizing the business. So I would just be very careful and very intentional about how people think about about their organization.

Good morning, Matthew. How are you doing today?

Hey, I'm great. How are you, Peter?

I'm doing well. So if you're watching this, you know now that Evernest just acquired Poplar, and I appreciate Matthew coming on and speaking with me for a few minutes. Just to kind of satisfy some of my questions that I immediately had about the deal and how do you actually operate a company with that many doors. So if you don't mind, Matthew, I'll just kind of start asking you a few questions that naturally came up for me when I heard the news.

That's perfect. So I'm a little nervous just because somebody that has a lot of context in the industry said this may be my most nerve-wracking interview.

You'll be fine. Don't worry. All right. So my first question is, how do you integrate 9, approximately 9,000 doors into a large management company? Because I've done a couple acquisitions before, you know, our largest was maybe 130 doors, and that seemed like a monumental, overwhelming thing. I just can't even imagine, you know, what you guys are going through this week, this month. What, what's the plan? How do you do it?

Well, we're right in the thick of it right now, so it's, um, it's a good question. I mean, we started— I mean, first of all, as you know, like, we've bought about 30 different management companies over the years. Now, clearly nothing as big as we bought here, but we, we created a checklist, or what we call a scrum, and it has 200, 300 things that we need to make sure that we do. So we come from a, from a pretty good base of, uh, you know, start, like a start of a checklist. So that was, that's the first thing. The second thing is we've actually been planning this even out ahead of the closing. We've been planning this for about the last 60 days, and we even spent a whole offsite day simply planning, you know, what does it look like? What are the— what do the weeks look like? What do the days look like? And so we feel like we had a pretty good plan going into it. Now, the old saying, like Mike Tyson says, everybody has a plan until they get punched in the mouth. So the plan still needs to remain really flexible. And we've already changed the plan and move some things around. We actually moved some things up, you know, as we've, as we've gone into the last couple of weeks where we're actually going to migrate all the systems this week. And we are, we already, we notified the owners last week and we are, we're going to move everything onto the Evernest, the way we call it, the Evernest process. But, you know, what does that mean? We're going to move it on to AppFolio. We're going to move it into our proprietary system, Open. And so we, we want as quickly as possible. One thing we learned over the years, like it's better to do it your way and to execute at a really high level doing business the way you understand it, uh, than it is to try to leave one foot in two different camps. So do it quick. Sure. And that's what we're doing.

Love that.

Uh, yeah. And then the, you know, the, the last thing's just the training piece, right? Like one of the things that we've done is since we've developed our own technology, it's just become way easier to train. Property managers and train the team. And so we have a full integration team that's doing nothing but, you know, in each position on the Evernest team, training the organization. And we actually kicked that off last week as well. And early signs are that it went really well.

That's great. Yeah, that all makes sense. Do you have any talking points that you share with the owners, the property owners, like you give them a call? Hey, You know, we, we are— what do you say to them? Actually, I'm curious.

Yeah, this is very similar to— I actually shot a video last week, and if you know EOS's differentiators, we basically just communicate those differentiators, right? Like national brand, local team. Evernest has always had a local market, a local office, local boots on the ground. That's really important to us. We think our owners benefit from our national scale in certain ways, but at the end of the day, property management still best done by local operators, and real estate's still very local. The second thing is we don't want to ultimately just be a property management company. We want to be like the entire ecosystem for these investors. And so we also communicate, hey, we don't want to just do property management. If you need to buy another rental home, sell a rental home, you know, we have now insurance partnerships and we started an insurance company. So we have all these different things that we're also selling to our investors and they're asking for them. And so they see that ecosystem as a, as a benefit. And then the third thing, which is also a differentiator, is our in-house maintenance. We really feel like in-house maintenance allows us to wow the residents in terms of getting work orders done quickly. Our CSAT scores are consistently higher with our in-house maintenance techs than our vendors. And so that just helps our owners because residents stay longer. And we also can control cost on our, on our W-2 maintenance techs. And our owners see that as a clear benefit. So those are our 3 differentiators and that's all we talk about. We repeat that message and that's what owners want— high net operating income, their resident taken care of, and a knowledgeable staff at the local level.

So it's almost like you're You're, you're kind of like running back the sales pitch almost to sort of bring them on board and get them excited about what you guys are doing.

You nailed it. I mean, even if it truly is a differentiator, like if it truly, like, sets us apart from others, we want to make sure that the owner, the new owners know that.

Kind of like get them excited about it and not just answer questions about like, well, what about my 1099 and things like that?

That's right.

Yeah. Cool. So as part of the announcement, you guys raised some additional capital, and I was curious about your plans for those new funds that were sort of announced as part of this.

So we did. LL Funds is our new partner. Now, they were also a board member and partner in Poplar, and so developed a relationship with them over the last year. We've raised $15 million and the Elo Funds led that round. And the idea is that, you know, we feel like the last couple of years there's been a gap in terms of kind of like the mom-and-pop property managers being bought just because of capital markets. It's been really hard for some of the bigger players to get capital to go do that. And we actually see this next the next 18 to 24 months, we're going to go back and start buying some of those mom-and-pop property management company owners. One of the exciting things now is because we're in 52 markets, we can buy in markets that we're already in. And when we buy in markets that we're already in, that's just a better deal for us because we already have infrastructure there. We can take what they're doing and move them onto the Evernest platform. And we, so we're going to, and we're a little different from some of the other acquirers. We actually want people that are wanting to retire. We want people that are wanting to get out of the business. There's some acquirers that if you want to stay in the business, they're probably better suited to acquire you and you can kind of continue to run your business. But we're looking for people that want to get out of the business and retire. And I think there was— it got kind of frothy a couple of years ago in terms of valuations and what people were willing to pay. The expectation is that because You know, these, these last couple of years, there's just not been a lot of— and I think that frothiness actually brought forward a lot of that, a lot of people selling because they didn't know how long that was going to last. Probably a wise idea by them, but there's kind of going to be a reset of expectations around property management company valuations over the next 18 to 24 months.

Yeah, I think that's fair to say. I'm trying to gather some data around that right now so we can have some insights into actual—

Yeah, I actually saw— sorry to interrupt— I actually saw you sent out some. Yeah. And, you know, there was one that looked kind of out of line, but there was 4 or 5 that looked like they were very tightly coupled around a revenue valuation. So, yeah, that's kind of the way we're seeing the world. Symbols, you know, I don't know where the, the 6th or the 7th one came from, but those other ones seem to be fairly tightly coupled.

Yeah, I'm really curious as more results roll in and I'll be compiling that data. I wanted to ask you about scale. So you guys are operating at, at a scale that's, you know, you're, you're breaking new heights in our industry. You're in the top, in the top 3, if not the top 2 largest third-party scattered site operators. What are the challenges that surprised you at about scale? And maybe what are some of the advantages that surprised you about scale?

I think the biggest challenge is, you know, we have 700+ people on the team now, and anytime you have a message to get to 700 people, you've got to make sure that it doesn't get diluted. Everybody knows the game of telephone, and I'm sure somebody's listening to this and they have 10 people and they feel And everybody's in the same office and it's still a struggle to get everybody to kind of like understand. So what I find myself doing is repeating myself a lot. We've created some ways, some kind of catchy ways to make sure that information travels without getting diluted. An example of that would be we require our maintenance tech to work 40, bill 38, work 40, bill 38. So that's kind of like an easy thing to travel, if that makes sense, right? Another way we've done it is We've created some Evernest principles that we, we actually talk about at our huddles every morning. So there's 23 Evernest principles. 5 of those are our core values. 18 are just things, mental models that I've learned over the years of property management. An example of that is one I stole from Mark Creditor a number of years ago. Make your worst call your first call. And, you know, if we can create those mental models in our team, then they're going to do a better job. And so we're trying to do the best we can to pass down information in, you know, steady drips. Some of the benefits that we've learned of scale is just profitability. When you have density in a market and you have density, we actually like to spread even density across regions. We have found that from 0 to 200 units, you know, we have a certain amount of gross margin per unit. When we get up to north of 600, and this is not in Atlanta because Atlanta's, you know, a little different, or maybe Detroit, but in most of these markets, when you get it north of 600, they just become really, really profitable businesses. That gross margin, actually, you can multiply that times 5. So, you know, the whole idea of building a very dense market is, is good for us from a profitability standpoint. It's actually good for our clients, too, because what we have found is that our cost to maintain and our repairs and maintenance are consistently cheaper than, than, you know, than our competitors. And so that density is a benefit to our clients too, right? It drives up net operating income for them because I don't have maintenance techs riding all over the city. I have maintenance techs that are really efficiently moving from job to job.

Yeah, they can move from like one house to another house down the street to one a few blocks over because you've achieved a density within a specific market.

That's right. I'll tell you, uh, one of another challenge though is, is like, how do you prioritize the algorithm of where they go next, right? Do you go to the closest one or do you go the one that's, you know, the biggest problem? And so we're trying to figure out what that looks like on the back end.

Yeah, there's some interesting like traveling salesman problems in there. And I think about like DoorDash and like how they have a, you know, they're trying to like link deliveries, but like it can't wait too long. And there's some Fascinating parallels there.

Yep.

You mentioned density. I'm really interested in this topic, especially, you know, as a PM owner-operator. I— what I think about a lot is, hey, how big should we really get before we expand to a new market? We're in Columbus here. Like, you know, should I expand to Cincinnati? Should I expand to Cleveland? Part of me thinks, well, hey, there's PM companies with over 2,000 doors in a metro area similar in size to Columbus. So don't even think about expanding until you've figured— until you've cracked that code. Now, there's another part of me that's like, well, I obviously know how to get to 700 doors in a market, so I can just copy paste that times 2 and now I'll have 2,100 total doors. So what's your perspective on this?

I think it's really hard to grow from 0 to 200. So I think your each incremental door in a market is way easier than starting fresh in a new market. Each incremental door is also way more profitable. So one of the things I learned was I dug and dug and dug and, um, you know, it was so hard to get a business to profitability where I made $1,000 a month. But at scale, we can make an extra $1,000 a month almost like that. And so the thing I would say is until you feel like you've maxed out your market, I wouldn't even consider going to another market because it doesn't double the complexity. It, it similar to the communication piece, you know, it, it, it's really multiplicative in terms of, you how hard it becomes. The other thing I think becomes a challenge is, and I learned this from Verne Harnish, is that businesses grow from plateau to plateau, and between each plateau is what he calls the valley of death. And there's some great books out there on that. But I think one of the things that people need to be very mindful of is as you scale your organization, when you start to get to the point where you need a middle management layer, that becomes a big suck on the organization's resource, mostly cash. And the way Verne describes it is up until $10 million, it's really hard to afford everything you need and also make sure that you're consistently capitalizing the business. So I would just be very careful and very intentional about how people think about their organization.

I think I've heard you recommend that book, No Man's Land.

That's right.

Yeah. You mentioned Valley of Death. It made me think of that book. We'll, we'll put a link to it. I enjoy that book as well. I really appreciate your time, Matthew. I'll just leave you with one question. I know that Evernest puts out a ton of great content for property managers. If you were to point some listeners or viewers to some of those resources, where's the best place for them to sort of take advantage of all the lessons you guys have learned the hard way? And you've been very generous in sharing those things with the industry.

Yeah, we— I appreciate you asking that question because we do want to give back. Like, it's, um, it's really important.

I— there—

I mentioned Mark Kreditor earlier in this. There's guys like Mike Nelson out of Atlanta. There are people, um, Robert Locke in Atlanta. There are people that just gave and gave and gave when I first got into this industry almost 15 years ago. And I always wondered, like, why do they do that? Like, they, they're basically educating their competition.. And what, what I realized is that there's like plenty of houses for all of us to manage. And we actually all benefit from increasing the, the expertise of the industry. We come from a, and you've been around this like a decade ago, our industry had just a terrible brand. And I think we've done a great job over the last decade of improving that. And it even showed in your report recently that professional property managers are actually increased by 20%. I think it went from 30 to 36. So what we're doing is moving the needle, and just by moving that, there's just way more houses to manage, uh, as a, as, as a collective group of us. And so we actually— I would say the best thing to do maybe to get started with us is listen to our podcast. We're actually going through a 5-part series on the history of Evernest, and of course it's going to culminate in this deal. So Uh, if you want to hear the behind the scenes of how the deal got done, we're going to cover that in episode 5. I think today, uh, we launched episode 3. So, um, that's probably a good place to get started and just hear the Evernest story. And if you like listening to Spencer and I, and apparently we sound just alike, so if that's not super annoying to you. So we cover things like EOS, we cover things like hiring. And if you, you know, you can dig in subject by subject, you can take it from the beginning all the way through. But we have obviously done a lot of dumb things and we just love to be able to share that with, with the broader world and help people along. Maybe they don't make some of those same mistakes.

Yeah, it's a great show. I've listened to almost every episode. Highly recommend the podcast and we'll put a link in there. Matthew, thank you again. This was awesome and I appreciate your time today and good luck with the integration and the path forward. Thank you, Peter. If you like the show and want to get connected to the community, you can follow me on Twitter @PSLohmann and subscribe to my email newsletter on my website, peterlohmann.com. I try to share as much valuable property management content as I can on a regular basis. Thanks again for listening and have a great week. Mm-hmm.