The Urban Pacific Group of Cos. has broken the code to profitable workforce house new construction. Its new development model focuses on building new construction multi-generational workforce housing in blue-collar communities—and the model generates 25% internal rates of return over an 18-month to 24-month period. Urban Pacific calls these properties Urban Town Homes or UTH, each of which has five-bedroom homes with a total of 10 to 30 units. "We started looking for a new workforce-housing model, and we identified a marketplace for rental townhomes with multiple bedrooms to serve multi-generational working families," Scott Choppin, founder of Urban Pacific, tells GlobeSt.com. "We found that if we build five bedroom units, we could house a larger family and given the way that the rent structures work, we could be around $3,000 per month for a five-bedroom unit. When we finished the underwriting, we found that this model would produce market-superior yields to equity. Specifically, we have a 25%-plus internal rate of return over an 18- to 24-month period." In addition to the superior IRR, Urban Pacific is also able to generate higher analytic costs with this model. Generally, says Choppin, developers want to be 2% above your exit cap rate. "With these projects, at the beginning, we were generating 7% to 8% of our NOI/cost, which is really high," he says. "In California especially, that just doesn't happen. When we came to these numbers, we realized that this was a great business model that produces great returns and has a social impact characteristic that is serving a deeply underserved population." Simplicity is the integral to making the model produce these strong numbers—and Choppin says they keep things simple at every bend, from construction to financing. He describes the capital stack as "vanilla," It is a 75% debt structure with 25% equity, all privately funded and financed. Construction style, amenities and finishes are also kept simple. "The innovation is that we produce a unit with rents that deliver superior yields," says Choppin. "We only buy zoned sites, in neighborhoods that serve our population." The biggest challenges to construction in general is finding and acquiring land sites. In the workforce niche, this challenge is exacerbated. Urban Pacific is focused in blue collar markets throughout Southern California, including Central North Long Beach, South L.A., Harbor Gateway and San Pedro in L.A. and Stanton, Westminster, Garden Grove and Fullerton in Orange County. Despite focusing on less competitive markets, finding developable land sites at the right price is a challenge—but one they are overcoming. "There is always a lot of friction in that process, but that is development," explains Choppin. "We are purposely sourcing land in markets with less competition." Urban Pacific has delivered one UTH project and has two under construction. These early, smaller projects were meant to test the model. Its first larger project is in its pre-construction phase in Fullerton. In addition, the firm is in the process of acquiring three land sites. "Our early projects were demonstration projects because we wanted to prove the project worked," says Choppin. "We are now moving out of the demonstration phase, and our first larger project is in Fullerton. It is seven units, so still small in relative terms. Our new model is anywhere from 10 to 30 units."