Rethink Real Estate. For Good.

For Chris Miller, it’s all about community capital.

Chris is chair and one of the founding board members of the National Coalition for Community Capital - or NC3. They are leading the charge to strengthen local economies by empowering ordinary citizens through community investment and ownership.

Chris has been working on community, economic, and entrepreneur development in Michigan for nearly 20 years, in roles as varied as city official, board chair and Innovation Fellow. As the City of Adrian’s economic developer he secured millions of grant dollars and matching private investments. But he also developed a local investor group and championed Michigan’s MILE – an investment crowdfunding exemption that served as a national model.

It’s all about community capital for Chris.

If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to RethinkRealEstateForGood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

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Early in her career, very early, Katie McCamant visited Copenhagen. She was an architecture student studying abroad. In Copenhagen she learned of a new housing model called co-housing -- a small intentional community of private homes clustered around a shared space. Common space usually includes a large kitchen, dining area and other common facilities, but will vary depending on each communities’ wants and needs. This was a brand new concept with just 8 projects built in Copenhagen and nowhere else in the world.

Katie was wowed. She was interested in housing in architecture and this model made so much sense to her. So she wrote a couple of books and built a career on helping people build their own cohousing community, advising them from soup to nuts.

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As mayor of Salt Lake County a decade ago, Ben McAdams was frustrated that there wasn’t $500,000 in a $1.3 billion annual budget for a promising early childhood education program.

Not one to permit defeat, he decided to map the value of the city’s underutilized real estate. And that yielded an impressive number: All of a sudden the city had $45 billion on its balance sheet. “I found out there is actually money under our mattress,” Ben says. “It's real estate that is just forgotten.”

Since then Ben has spent time in politics as mayor, senator and congressman. But now he’s launched an incubator to help cities map their public assets, much like he did a decade ago, providing a path to solve issues that need money - like affordable housing and homelessness.

Every city should listen in.

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This is a long one. But I couldn’t help myself. You’ll soon see why.

Enrique Penalosa is an exuberant lover of cities. Equitable cities. He served as Mayor of Bogota, Colombia not once, but twice, profoundly transforming his city from one with no self-esteem into an international model.

As Mayor, Enrique launched TransMilenio, a bus mass transit system, which today moves 2.4 million passengers daily. He also built an extensive bicycle network at a time when only a few northern European cities had one, along with greenways, hundreds of parks, sports and cultural centers, large libraries, 67 schools and a radical 33-hectare redevelopment in the heart of Bogota, previously controlled by drug dealers. This required demolishing more than 1200 buildings. Recently he published a new book called Equality and the City. Look for it on Amazon.

Of course, the accolades are too numerous to mention here. Enrique’s work is considered significant and influential by many and the list of awards is long.

There’s a lot to learn here. More than an hour of podcasting can hold.

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Lyneir Richardson is building Black wealth through community-owned shopping centers.

He has an audacious plan to buy 16 community shopping centers and invite 1,000 small investors to co-own them with his company, Chicago TREND. He’s made a sizable dent in this goal with over 340 investors, and five shopping centers in his portfolio. This will be #6.

To accomplish this, Lyneir and his team have developed a rigorous set of criteria for finding and buying shopping centers in majority Black Demographics that are on the cusp of change that might offer added value over a time. His plan is to empower Black entrepreneurs and community residents to have a meaningful ownership stake in the revitalization and continued vibrancy of commercial corridors and Black shopping districts.

But there’s so much more!

Lyneir wants every neighbor to be able to say "We Own This".

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Kirk Sykes is Managing Director of Accordia Partners, a Boston-based real estate investment and development company. Accordia develops large public-private real estate projects. Kirk was previously the head of Urban Strategy America Fund, perhaps one of the first urban real estate equity funds focused on the triple bottom line.

And that brings us to this podcast.

Kirk has had a highly successful career, but that is not enough for him. He has always given back, and for Kirk that means helping the Black community he is part of access capital and investment opportunities that have historically been unavailable to them.

Listen in to learn more!

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In real estate development, envisioning how future societies will live can often feel like masterminding a high-tech work of science fiction. Just outside of Houston, a new development of the future is emerging. But instead of flying cars and sky-scraping utopias, this version of Tomorrowland has its roots firmly and sustainably planted in days gone by.

Indigo, a 235-acre community, is being developed by Scott Snodgrass and his partner Clayton Garrett, both farmers. They have thoughtfully gone against the norm in every aspect of this project, focusing first and foremost on people and a human-scale to encourage interaction. Downsized lots and homes, a working farm, the integration of small businesses, careful attention paid to embracing everyone, all make this project one worth watching.

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Rich Rogers is an urban planner and attorney in Buffalo, New York.

In his practice he focuses on tax credit financing and on creative problem-solving to help public and private sector projects work from concept into financing and implementation.

Rich is also a real estate developer, with a project in lease-up on Buffalo’s main street. There he’s put his knowledge to good use, converting a 30,000 s.f. Historic building into modern retail and affordable housing units, and employing every trick in his book to build his super-complicated capital stack, which of course, includes tax credits.

If that’s not enough, Rich has a crowdfunding platform called Common Owner focused on real estate and, you guessed it, crowdfunding tax credits as well.

There’s a lot to learn here. You’ll enjoy listening in.

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Adriana Abizadeh is the executive director of the Kensington Corridor Trust (KCT) in Philadelphia.

You might wonder what that is and why it exists.

Kensington was once known as the Workshop of the World with booming manufacturing and a well-employed neighborhood. Then, Kensington Avenue was a bustling local business corridor. Now there is a lack of economic investment and everything that comes with it. 58% of Kensington residents live below the federal poverty line and the average household annual income is just over $20,000.

Formed in 2020, the trust is tasked with reclaiming control of the corridor. They do this through the purchase of property which is placed in trust and governed by the neighborhood.

Neighborhood trusts are fairly new but if Adriana has her way, they will become mainstream. Listen in to learn more!

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As we embark on a new year, we’re all thinking about fixing things. I bumped this podcast up on my list, because Tracy Hadden Loh has a much bigger and more inspiring fix list than most of us do.

Tracy is bi-racial and has experienced inequity first hand. Even as a young child she knew something was wrong. Her career has been a purposeful exploration of how to fix things.

As a Fellow with the Center for Transformative Placemaking at Brookings Metro, a branch within the Brookings institution, Tracy focuses on cities, downtown metropolitan areas, placemaking, diversity in cities and reinventing cities post-pandemic.

And of course, fixing things.

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After a successful career in architecture and design in New York City, Mark Winkelman purchased a 300,000 s.f. historic Pajama factory. Once the largest pajama factory in the country, the buildings sat vacant in a small town in central Pennsylvania with a population of just 114,000 They set about filling it, one corner at a time, with a vision for an affordable and thriving creative hub. 16 years later, and 60% complete, the stunning buildings are coming back to life but there is still more to do. What was Mark’s motivation? And his thesis? And how has it played out?

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It’s been 4 years since I first interviewed Lorenzo Perez and I love his work every bit as much as I did then.

Lorenzo advocates for LOCAL community, culture and commerce in his real estate projects, and for crafting, artistic, one-of-a-kind environments and experiences. He and his company, Venue, put that passion to work throughout the Metro Phoenix market.

This approach helped them to weather the last four years, pandemic and all. Lorenzo was about to open his first hotel project right after everyone was sent home … and yet. Well, I’m not going to say more because that would make me a spoiler.

You’ll have to listen in!

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Atif Qadir is a serial entrepreneur, but that’s not where he started.

Trained as an architect and urban planner, Atif decided pretty early on that he wanted to work his way up the ladder, from servicing developers as an architect or builder, to being one! So he started developing his own small properties, and as his frustrations with finding project financing grew, so did his entrepreneurial ideas. He launched Commonplace, a fintech platform, with a mind to create a marketplace for emerging developers and investors. Dating for development projects.

In amongst all of this and in partnership with the Office of Michael Graves, Atif hosts a podcast show called American Building.

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This is my second podcast interview with Brian Murray. But time has passed, and his business (and expertise) have grown.

Brian came to real estate as a non-real estate guy. Always interested in impact, he wanted to find a way to address poverty and real estate presented a tangible path. And so he launched SHIFT Capital, an impact urban real estate group focused on mission-oriented real estate strategies in underserved communities. Simply put, at Shift, Brian works on uncovering better solutions to society’s most difficult urban challenges - intergenerational poverty, urban revitalization, access to opportunity, and community displacement.

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From Wall Street to mortgage banking to real estate developer. Joel Miller has focused his career with clarity and purpose. And now he’s taking it one step further by raising money for his next real estate project, through crowdfunding.

Joel wants to bring others up behind him. He wants to give others the opportunities he’s been given. And one small way to do that is to provide an opportunity for everyone to invest in his latest project.

Early on in his career, Joel realized that his goal to lead an organization might not happen if he waited for an opportunity. So he made his own. He started his own company, Wall Street Capital Partners, specializing in sourcing and arranging debt and equity for acquisitions and development of real estate. And of course, over time he started to build his own real estate portfolio.

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Joyous disruption.

This is Jonathan Dodson's goal with each and every real estate project he develops.

Jonathan pivoted from an early career as a banker to real estate developer, aptly calling the firm he co-founded, Pivot Projects. He had developed an interest in urban neighborhoods and redevelopment initiatives, and when given an opportunity to co-partner on a project, he grabbed it. Now he leads the Pivot Team, navigating tough conversations and decisions to create the best outcomes for his teammates, partners and tenants. And for Jonathan, the best outcomes are not traditional ones.

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Lindsey Scannapieco is an urbanist and an artist in every sense of the word. While living and studying in the UK, Lindsey worked on projects such as activating an underutilized subterranean crossing alongside Westminster Council, supporting Tech Shop in their global expansion, and developing a community led design project that reconsiders traditional construction hoardings in South Kilburn. All of this led her to found Scout, an urban design and development practice that focuses on the activation of underutilized space. Not one to think little, Lindsey submitted a proposal to purchase a 340,000 square foot vocational school building from the city of Philadelphia. Much to her surprise, she won the bid. Eight years later, BOK, as it is called, is a thriving and creative mix of makers, small businesses, and nonprofits, and 100% full. The building is a testament to Lindsey's staying power.

If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to RethinkRealEstateForGood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

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Liz Dunn is a real estate artist.

After spending the early years of her career as a software developer at Microsoft, Liz made a hard pivot and launched her own Seattle company in a completely different field: real estate.

The last 20+ years have been filled with people and buildings for Liz. Of her 35 or so retail tenants, all are local and over half are minorities or women. Fascinating names like Chophouse Row, the Agnes Lofts and Melrose Market label even more fascinating spaces. And then there is the Cloud Room. It’s a Culture club, lounge and bar packaged as a coworking space and located inside one of her buildings. Liz runs two affiliated businesses as well: Cloud Studios, a practice facility for musicians; and the Overcast Room, a podcast-recording studio. These businesses add a vibrant dimension to already fascinating buildings.

With an organic but masterful style, there’s lots to learn from Liz, so listen in!

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Franchell Abdalla is a minority in every sense of the word. She is black, a woman and a real estate developer.

But that’s not stopping her. Not for one little moment.

Franchell only recently launched her development company, Be Good Development, and yet she has her sights set on incredibly complex and rich real estate projects. She assembled an astounding team to win a significant Request for Proposals issued by the City of Tulsa, Oklahoma. She won and has been grappling with a 100,000 s.f. Foundry building, planning its repurposed life and working on the legal and financial structure. There are plenty of setbacks, as there always are, but to Franchell it is all a joyful challenge.

There is lots to love in my conversation with Franchell. Please listen in!

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Charles Mahron is a recovering engineer.

He used to build roads. Charles followed all the rules he learned while studying to become an engineer.

But in 2008, well into his engineering career, he became disenchanted with the notion that more roads lead to prosperity. So, Charles started blogging his thoughts. He advocated for a new approach to land use and warned about the dangers of suburban sprawl. With each blog, Charles gained readers until the blog converted into a non profit organization called Strong Towns.

Today, Strong Towns has millions of followers.

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Samuel Alemayehu was born in Ethiopia and educated in the US. He is a serial entrepreneur and investor focused on deploying technology as an equalizing force. "Let's change the world to technology and products that empower the individual and sustain the village" says Sam.

Through his work with Cambridge Industries, Sam is revolutionizing the way we think about sustainable energy and infrastructure. He built the first waste to energy plant customized for sub-Saharan Africa in Ethiopia, the Reppie Waste to Energy project. The project takes 80% of the city's garbage and turns it into 25% of its electricity. Sam has boundless energy and a lot to tell.

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Ten years ago, Jeff Speck wrote a book called Walkable City: How Downtown Can Save America, One Step at a Time.

Since it was published, in 2012, the book has become one of the most popular titles in urban planning. His blunt assessment of the state of the planning profession, along with 10 steps for improving street design, have influenced efforts to improve safety and livability across U.S. cities over the last 10 years. Basically, it’s all about walking, for Jeff.

Listen in and learn. After all, Jeff’s TED talks and YouTube videos have been viewed more than five million times ...

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Is the city dead?

Christopher Leinberger doesn’t think so. He recently co-authored a report called Foot Traffic Ahead 2023 that loudly proclaims, the city is not dead.

Post pandemic, price premiums and increased market share dominate walkable urban places. These findings may cement walkable places as the wave of the future. They point to us moving toward a more connected, environmentally-sustainable way of life

Christopher has a storied career in real estate policy and development. His most recent project, Places Platform, an information services company, tells you what “location, location, location” is actually worth.

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People. Planet. Profit … and Place.

This is the return that Juli Kaufmann believes all real estate should achieve. Less than that is simply not good enough for Juli.

Juli founded her company, Fix Development, with this explicit goal in mind. She applies her philosophy to each and every project in her portfolio, prioritizing economic stability, environmental stewardship, social equity, and cultural continuity. One recent example is The Aux Evanston in Illinois, a vacant warehouse destined to be converted to a Black-owned business wellness hub. The goal is for the community to own and manage the building, with investors contributing through a crowdfunded capital raise and Juli has orchestrated this in the background.

Juli is a woman mapping her own path.

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In 2019, Dafna Kaplan embarked upon a journey to uncover the obstacles preventing true construction innovation from widespread adoption. Extensive research and development led her to launch Cassette, and garnered her the 2020 Presidential Award from the Los Angeles Chapter of the American Institute of Architects (AIA) for her work addressing the housing crisis. In 2022, Cassette introduced a beautifully designed one-bedroom apartment pod that can stack up to six stories high into a multifamily development. Dafna’s commitment is simple and straightforward: Deliver one manufactured product exceptionally well, improve that product’s performance and features over time, and with that discipline and repetition – reverse the cost escalation in housing construction.

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Micaela Connery is co-founder and CEO of The Kelsey, a non-profit focused on inclusive housing for people with disabilities. Micaela’s lifelong advocacy grew out of her relationship with her late cousin and close friend, Kelsey Flynn O’Connor, who lived with multiple disabilities. As the two grew up together, Micaela saw firsthand the obstacles many disabled people face in accessing the same resources as their nondisabled peers. Determined to work on solutions, she realized there was no cohesive model for housing that would allow people like her cousin to live independently in a mixed community, so she set out to build one.

Since founding The Kelsey in 2017, Micaela has secured more than $120 million in funding to pilot programming in existing units and to finance new buildings in two of the nation’s most challenging housing markets—San Jose and San Francisco.

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Lyneir Richardson is building Black wealth through community-owned shopping centers. He is planning to buy 16 community shopping centers and invite 1,000 small investors to co-own them with his company, Chicago TREND. To accomplish this, Lyneir and his team have developed a rigorous set of criteria for finding and buying shopping centers in majority Black Demographics that are on the cusp of change, and which offer added value over time. His plan is to empower Black entrepreneurs and community residents to have a meaningful ownership stake in both commercial corridors and Black shopping districts. Lyneir wants every neighbor to be able to say “We Own This."

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“Being a developer without believing in architecture and its fundamental principles is like being religious without believing in God.” This is Philip Kafka’s take on architecture and real estate. I recently got to talk with him about his work and I think you will be as wowed as I am. Philip has taken a position on rebuilding Detroit that is inspirational, innovative and rare. He’s working in forgotten places, and on land that no one else believes has much value. His projects weave together commercial buildings and community space to create sculptural places you just want to be in. And his unique approach has certainly earned him accolades. I just want to visit every single one of his projects.

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Greg Howes is the co-founder of CutMyTimber, a fabricator of timber and steel components for the entire building industry. Their projects are spread as far as Alaska, Québec, and Australia, with production based in Portland, OR, with an office in Vancouver, BC. They are able to make highly complex and efficient building systems available to both large and small companies, as well as to individual, independent builders. What makes them unique is how they use state-of-the-art computer software to optimize their projects. This result is less waste and off-cuts, so they can build 'greener' at lower cost. And now they are pushing their technology even further, building to 'passive house' and net zero energy standards. Oh yes and don't forget the mass timber 'tiny homes' they are developing!

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Three years ago, I interviewed the delightful Jeremy McCleod of Breathe Architecture, and today I'm lucky enough to interview him again. Jeremy founded Breathe, an architecture studio in Melbourne, Australia. There he delivers gorgeous and sustainable buildings to his clients. But Jeremy was unhappy with the ever-widening gap between those who have wealth and those who do not. So, he embarked on a second journey to deliver sustainable and affordable housing to everyone. Many told him that this was an impossible goal. But he completed his first project, The Commons, with accolades, three years ago. With a waiting list of over 8000 buyers, Jeremy and his team set about building lots more. This is what a great architect does. Listen in to learn more.

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Last summer we got to talk to Molly Meyer, a remarkable entrepreneur who wants to put a green roof within the reach of anyone who owns a building, big or small. Why, you ask? 80% of the buildings that will exist in a few decades from now are already built. And since buildings are one of the biggest contributors to climate change, figuring out how to retrofit them economically, and easily, is a must do. Green roofs are abigpart of that. Molly is tackling this through engineering incredibly lightweight soil and systematically training contractors in how to use it. Her company, OmniSystems, based in Chicago is growing, evidence of the demand.

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Katrina Johnston-Zimmerman is an urban anthropologist. Want to know what that is? So did we! As an anthropologist, Katrina is curious about us – and why we behave the way we do in society and spaces. As an urbanist, she’s passionate about our cities – and how we can make them better for us, mentally and physically. So she applies anthropological principles, research methods, and the lessons learned from our collective history to the present day, observing interactions between people and the built environment, in the spaces between buildings. This is what an urban anthropologist does.

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Adam Gower is the founder of GowerCrowd. On his platform he shares his decades of experience in finance and development, showing developers how to raise money online for real estate crowdfunding deals. Content-rich, the platform has educational materials and training courses for both developers and investors alike. Adam also hosts a podcast show called The Real Estate Crowdfunding Show, where he speaks with the founders of crowdfunding platforms, attorneys, professors, investors and more, all on the topic of crowdfunding. Oh yeh ... and he’s written 5 books as well!

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Sandra Lupien is passionate about the potential of mass timber.

As Director of MassTimber at Michigan State University in Lansing, a program focused on outreach, research and education, she is working to advance mass timber construction and manufacturing in the state of Michigan.

Sandra originally came to mass timber after exploring possible uses for wood ravaged by a beetle infestation, the result of years of drought in California. Today, she is part of a growing energetic community advancing Mass Timber as material for all construction types.

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It started with Tosha Wilson and her cousin wanting to open a laundromat with comfortable seating, fresh brewed coffee, a book room, and a yoga/meditation space. But they were turned down for every small business loan they applied for. In an interview, Tosha said, “Two professionals with decent jobs [and] good credit scores, and the bank basically told us, ‘You don’t have enough experience.'"

Out of frustration Tosha founded an internet-based community group, called Boosting Black Business, that helped raise over $100,000 for Black-owned start-up companies throughout Chicagoland. The Chicago Tribune named her as one of their “10 People that Gave Me Hope in 2020.” Today she is a co-developer of an $8 million project in Evanston called The Aux, planned as a 100% community-owned Black-business hub.

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Cedric Bobo is the co-founder of Project Destined, a non-profit that teaches minority teenagers the ins and outs of real estate investments. The name, Project Destined, was inspired by the 2016 film Destined, which tells the story of a young boy who in one reality is a drug dealer, and in the other, a successful architect. The outcome of a single event determines the path the man pursues.

Cedric, who has roughly two decades of investor and investment banking experience, plans to change the outcome to a successful one for many minority teenagers. In 2015, Cedric was named to the “10 Top Powerful Black People on Wall Street You Should Know,” so he has a lot to share.

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Adewale Agboola is an astounding photographer with many Fortune 500 clients. As a Black man he is in a minority in that profession. Only about 5% of professional photographers are Black. He is also a minority in his hometown of Portland, Oregon. Only about 13% of the population in Portland is Black.

But he and his partner, Cyrus Coleman, another successful artist who also lives in Portland, started hatching a plan to create a small art gallery/meeting space aimed at people just like them. Last year, they closed on a 20,000 sf building in downtown Portland, not so small at all, and have some big plans to turn it into a creative hub, catering to BIPOC creatives. They call themselves the Creative Homies.

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Jamison Manwaring is enjoying success as the co-founder and CEO of Neighborhood Ventures, an innovative Arizona-based real estate crowdfunding company, focused on value-add multi-family properties. It’s a real estate company for sure – they buy, hold and sell property. But the capital plan is innovative.

Jamison went to business school and studied finance. He loved it enough to become president of the finance club. Even at a young age his determination shone through. He wanted to work in New York, at a top finance firm. But those companies have their pick of Ivy league school graduates ... So every Thursday night Jamison flew the red eye to New York to network.

But wait, if I tell you what happened next I’d be a spoiler ...

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Meet Julie Bargmann, the inaugural recipient of the Cornelia Hahn Oberlander International Landscape Architecture Prize, described as the landscape architecture equivalent of the Pritzker Prize, so it's a really big deal! What makes this most exciting is the work that is being honored.

In 1992, Julie founded D.I.R.T studio – Dump It Right There – intent on regenerating contaminated and forgotten urban and post industrial sites. And it all began near Pittsburgh, at the Vintondale Reclamation Park, a 25-acre park on a former coal mine. The end result became the early poster child of her work, and a model for bioremediation featured in the Cooper Hewitt National Design Triennial. Today, she is referred to as the “fairy godmother of industrial wastelands,” as she crafts amazing new landscapes out of contaminated and toxic sites.

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Elizabeth Timme is no snowflake. Strong and outspoken with degrees in architecture under her belt, she's building an alternative career on the strong beliefs she holds. That great design should be a right, not a privilege. A third generation architect born in Texas with childhood years spent in Italy and West Indies, Elizabeth has made roots in L.A.. First, she co-founded La Mas in northeast L.A. and now Office of Office, a nonprofit focused on designing joyful and careful places in collaboration with communities.

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Allison Arieff was lucky enough to help launch Dwell magazine, first as founding senior editor and then editor in chief. During her tenure, the Design and Architecture magazine won the National Magazine Award for General Excellence, and by that point, it had already become a ubiquitous read for an emergent design community, rekindling a design lifestyle boom for the 21st century. Since then, Allison has continued to build a storied and prominent career as a writer, author and thought leader. Prefab, her first book, explores the history and innovative potential of prefabricated housing well before prefab became a thing. Today, Allison is back where she started as the editorial director of another print magazine, MIT Technology Review.

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Helle Søholt was just 28 years old in 2000 when she co-founded Gehl Architects with Jan Gehl, her professor at the Royal Academy of Fine Arts in Copenhagen. Together, they built a commanding firm, now over two decades old. Gehl focuses on people first in urban design with a focus on walkability and access to greenery and public space. In 2016, Helle took over as CEO and the firm now has offices in Copenhagen, San Francisco and New York. People first has gone from its humble beginnings in Copenhagen, to work that spans over 50 countries and 250 cities globally.

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Tracy Hadden Loh is biracial and has experienced inequity firsthand. Even as a young child, she knew something was wrong. Her career has been a purposeful exploration of how to fix things. These days Tracy is a Fellow with the Center for Transformative Placemaking at Brookings Metro, a branch within the Brookings Institution. There, Tracy focuses on what interests her the most. She is an advocate for cities with a focus on downtown metropolitan areas in the U.S. She writes about placemaking, diversity in cities and reinventing cities post-pandemic. And she's advocating for the great real estate reset.

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Rebecca Möller has managed very big construction projects for her entire career. In fact, she’s overseen more than 22 million square feet of commercial real estate worth over $10 billion in construction projects nationally. That’s a lot.

But now she is tackling an even bigger problem – the housing crisis in California. Recognizing the need for a scalable solution, Rebecca has designed, and is manufacturing and deploying, a garage-to-ADU conversion kit. Buy the kit and your contractor can convert your garage into an affordable and income-producing accessory dwelling unit in a matter of weeks.

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Early in his career, Jim Heid worked on humongous real estate projects all over the world as a management consultant. Over time, the diversity of places he lived and worked in shaped his appreciation of small, community-centric places with soul. He moved his head and heart from a loft in downtown San Francisco to the tiny 12,000-person town of Healdsburg in California, where he is building his thesis that small is big.

There are some big things that Jim is working on. They include his small-scale developer forums, which are growing bigger. A recently published book called "Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders and Great Communities" and real estate projects that are small and meaningful.

Jim Heid has found his tribe. Slowly but surely, he is bringing together like-minded thinkers with his forums, his book and his real estate projects. His path from big to small is inspirational.

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Jim Heid has found his tribe. Slowly but surely, he is bringing together like-minded thinkers with his forums, his book and his real estate projects. His path from big to small is inspirational.

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Brinda Devine wants to get back to basics.

Early on in her real estate career, Brinda says she was often the only woman and/or Black person in the office, in meetings, at events, and even in classes. Today, she has over 25 years of experience in real estate, having worked as VP of Asset Management for Acquest Development, and as Wayne State University’s first Real Estate Officer.

In 2020 she started P8 Real Estate Solutions, to focus on developing neighborhood marketplaces in areas that lack easy access to the daily necessities most of us take for granted. Her first project is the Kornr Store.

Brinda says, "We could have a long discussion on the why, but I would rather focus on a solution and create a why not.”

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Madelyne Kirch is the founder of Sun & Moon Marketing Communications in New York. What differentiates her agency is its focus on real estate.

Madelyne founded her company in her basement with a $2,500 investment. That was almost 30 years ago, and the need for Sun & Moon's expertise hasn't waned, in part because developers are not schooled in marketing and generally need (serious) help.

Over the years 'marketing' has changed (a lot). Gone are the days of ads in a newspaper. Today you need to find your audience in other ways. Listen in to hear how Madelyne thinks marketing real estate works best.

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David Kemper wanted to find a way to safeguard established renters against gentrification. His goal was to build a real-estate investment model that both stabilized existing rents and gave a voice to that community. The model he landed on, MINT (or Mixed-Income Neighborhood Trust), is a sophisticated and replicable ownership model. Each MINT develops, owns, and operates a rental housing and retail portfolio. Trust Neighborhoods, David’s non-profit, works with neighborhood-focused organizations to facilitate the formation of each MINT with the goal of a self-sustaining organization, run by the neighborhoods themselves.

Trust Neighborhoods is still new, but David has said that they hope to expand their reach and work with neighborhoods around the country.

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Early in his career Paul Rabinovitch worked as a tree planter in the reforestation industry, personally planting over 800,000 trees in Canada, where he grew up.

That set the stage for the career he pursued, first as the Executive Director at The Nature Conservancy, and then as a founder of Terracycle Investments, a socially-conscious real estate firm.

Now Paul heads up Real Estate Investment at New Island Capital, one of the largest family offices in the country, and one of the first to focus on impact investment ... before such a thing really existed. New Island invests in growing companies as well as farms, forests, and, of course, real estate at scale!

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From an early age, Rico Quirindongo was interested in the impact of the built environment on people. That’s why he became an architect. But he sees an architect’s role as much larger than just designing buildings with a useful life. He believes every architect has an obligation, a responsibility to engage in a civic conversation for design justice - to absorb the history of a place and the needs of the current community in a meaningful way, into each and every design.

Recently Rico became Interim Director at the Office of Planning and Community Development for the City of Seattle, the city he has lived his life in. And this role feeds his soul. Here he can push harder for what he believes in. Positive results are already rolling in.

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Molly Meyer is democratizing the green roof. Why, you ask?

80% of the buildings that will exist in a few decades from now are already built. And since buildings are one of the biggest contributors to climate change, figuring out how to retrofit them economically, and easily, is a must do. Green roofs are a big part of that.

Molly wants to put a green roof within the reach of anyone who owns a building, big or small. She’s tackling this through engineering incredibly lightweight soil and systematically training contractors in how to use it. Her company, OmniSystems in Chicago is growing, evidence of the demand.

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Bryan Lee may have studied architecture, but he’s way more than an architect. He launched Colloqate Design to explore big, challenging and adamant ideas about equity in the built environment.

At Colloqate, everything is on the table - sustainability, community history, immigration, transportation, food security and housing values. The end goal is an equitable physical landscape. Bryan is a founding organizer of the Design Justice Platform, he co-organized the Design As Protest National Day of Action, and in 2021 he was named a Cooper Hewitt National Design Award winner in the emerging designer category.

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NuMarket was born out of the pandemic. Ross Chanowski founded the social crowdfunding platform in 2020 because he felt there wasn’t a way for communities to purposefully support the survival and growth of their local businesses. In an interview with The Boston Globe, Ross said that he wanted to develop a way for customers to meaningfully support the businesses they love while, yes, getting something in return.

Ross Chanowski is passionate about building businesses that are needed, and make a difference. It looks like NuMarket is well on its way to making a mark.

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A year ago we talked with Kevin Cavenaugh. In case you missed that conversation we recommend you take a listen.

Kevin is a rare developer. Left brain, right brain, head and heart all come to bear on his wildly creative buildings. He has carved out a special place for himself in the Portland real estate world. He has said, “I’m tired of mocha-colored, vinyl-windowed boring. I can’t change the fact that the streets are gray and the sky is gray. But the buildings?”

Kevin's projects often have striking facades and far out names like Dr. Jim’s Still Really Nice, The Ocean, Burnside Rocket, Rig-a-Hut, Two-Thirds, and The Zipper. Two of his projects, Jolene’s First Cousin and Atomic Orchard Experiment, have units reserved for homeless people and social workers at reduced rates.

If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to Rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

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Alex Lofton’s mom was a school teacher. That’s who he was thinking of when he founded Landed.

Alex is on a mission to help essential professionals build financial security and buy homes in the communities they serve. By 'essential professionals' Alex means school teachers, like his mom, firefighters, police and healthcare professionals – all of those professionals that a city can’t function without. And many of whom can’t save enough for a down payment on a home.

Landed has developed a shared equity down payment product for this target market. Their product might be as essential as the workers they serve. With a series B raise in their back pocket, they are growing rapidly to put homeownership in the hands of everyone. Landed is taking off.

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Stephanie Blake is an historian at heart. That’s what she studied at Yale, much to her parents dismay. They didn’t understand how she could leverage history into a career. But she has. In a big way.

Stephanie leads a company, Skylight Studios, that revels in reimagining enormously gorgeous and gritty vacant buildings. Millions of square feet of vacant commercial space and empty industrial buildings that all have a story to tell.

What began as a small business, creating temporary popups and events in unused spaces, has become a big one with a non-traditional portfolio of venues ... and where 'temporary' can mean a decade. For Stephanie, there is always a story that will pave the way from old to new.

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Majora Carter is truly a renaissance woman. Her career as urban revitalization strategist has spanned environment, economy, social mobility and real estate development, and her work has won major awards in each sector, including a MacArthur Genius grant.

Majora's words are inscribed on the walls of the Smithsonian Museum of African American History and Culture: "Nobody should have to move out of their neighborhood to live in a better one." Her new book called "Reclaiming Your Neighborhood", the subject of our podcast, takes a next step in her thesis. Build where you live, talent will stay, and your neighborhood will prosper. Look for the book on Amazon, in bookstores or on Majora's website. There is no way around it. If you are really interested in impact investing, this podcast is a must listen.

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Pooja Agrawal, architect and planner, is co-founder of the social enterprise Public Practice, and now serves as its CEO.

Based in London, Public Practice creates placements for trained architects and planners in local government. Their goal is to build up the capacity of planning departments to respond to both the crisis of affordable housing, and to the shortage of skilled practitioners in the public sector. At the same time they are working to make that new generation of city planners young and diverse. Public Practice’s initial cohort was 17 ‘associates,’ then 37 the following year (from over 400 applicants). And those new associates joined 24 councils across London and south-east England.

Pooja has also worked at Homes England and for the Greater London Authority, where she managed the Mayor’s Good Growth by Design Programme and the London Review Panel.

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Adrian Washington says that until he was past 30 he had never even heard the term ‘real estate developer.’

Today he is known for over two decades of experience in urban real estate development, construction and management and the startup of several companies including the Neighborhood Development Company. 100% minority owned, NDC is a triple-bottom-line company, responsible for over 1 million sf of completed residential and commercial projects.

Adrian has said, “I think disrupting is almost always good for an industry,” and true to that he just launched a new business, Platform, to “revolutionize the way that buildings are built.” It's ambitious and challenging, but we wouldn’t expect any less.

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Jill Ferrari is all about creating impact where it is needed.

An attorney with twenty-five years of real estate development and operations experience, she is also the co-founder of Renovare Development: a woman-owned, social impact, real estate development company focused on transformational projects in Michigan.

To say Jill knows this space would be an understatement. She has worked in community development, managed complex brownfield redevelopment projects in multiple states, and she has experience forming complicated capital stacks that combine both federal and local funding with unique financing programs and conventional debt. Previously, Jill was CEO of Shelbourne Development (affordable housing), CEO at Michigan Community Resources (economic development), and director of community development for Wayne County, MI., where she distributed 100 million in federal funds to various projects and communities. She is kinda amazing.

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Tracy Gabriel works at repairing urban environments.

As president and executive director of the National Landing Business Improvement District in Northern Virginia, she puts her experience as an urbanist, planner and place-maker to work, daily, leading the ongoing makeover of the Crystal City with over $8B in private investment in the pipeline. Designed using the best practice principles for the 1970s, it is a car-centric development, dense with generic mid-rise towers, tied together with pedestrian tunnels and an underground mall. And Tracy’s job is to turn this inward-looking place ... into an outward-looking one. Which means walkable, livable and vibrant at street level is the goal.

This is a conversation you should not miss.

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Scottie Smith fell in love with real estate at just 19. By the time he was 21, he had invested in multiple properties and had numerous tenants.

In 2011, Scottie founded SSA, a real estate brokerage, with just one other agent, and it has doubled in size, year over year, making SSA one of the fastest growing independent real estate brokerages in Texas. And if that’s not enough, Scottie started a real estate training program, and found time to write a book, “From Decision to Close," which provides a practical, no-nonsense guide to homeownership.

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Tom De Simone is totally into community finance.

He runs an $80 million community loan fund called Genesis LA. It’s a Community Development Financial Institution (CDFI), which looks and feels like a bank (because they make loans), but with special 'super powers' reserved for triple bottom line projects and customers.

CDFIs emerged in the 1990s, specifically to build capacity and projects in places that banks don’t want to be. Organizations like Genesis LA fill that critical niche by investing in economic development, community services, housing and by providing working capital for small businesses.

That's a lot of impact. For a start, 92% of Genesis LA's investments are made in distressed census tracts. 65% of borrowers are women and/or minority-owned businesses. 55% of projects promote environmental and community sustainability.

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John Green is working on a very big idea.

With well over a decade of experience in real estate and finance, John has co-founded Blackstar Stability, a program that uses a double-bottom line business model to create compelling risk-adjusted returns for investors, while generating significant benefits for low-income and middle-income families and communities.

The program’s roots go back to the 2007 recession, when John ran a program which helped families with substantial negative equity and focused on loan modifications. It was a great success, so they went national by leveraging private capital, but still working with low- and moderate-income families, as well as minority communities, that were slow to reach full recovery following the Great Recession.

This is social impact with a capital "I."

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Harri Holopainen has a mission - to define Next Generation Recycling.

A bit of a technology ‘man for all seasons’, Harri started his career in computer graphics on a Commodore 64. He worked on smart card payment systems, co-founded a small graphics software company, and even designed and implemented a prototype online gaming world, a subject he did his university thesis on. But in 2013, Harri stepped into the world of machine learning and robotics at ZenRobotics, a Finnish company that builds smart “ZenBrain” robots for waste sorting (including construction debris) and recycling.

Harri, now CTO at ZenRobotics, describes himself as a generalist, having worked on VC rounds, defined product strategies, headed R&D development teams, and even hand-built critical robot components. But lately, he says, “I've been up to my elbows in trash.”

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John Liss is running on fumes. He’s up very early, every morning, building his company FAST. And he’s doing something important and having fun.

John has always been fascinated by the real estate industry. But more often than not, John says, people do not realize the true value of their real estate asset because the industry is ... a little sloppy. John has set out to solve that problem with the company he launched in 2019 - True Footage. They provide residential appraisals that are super-accurate, using lidar and machine language-based software. Not only can they create faster turnaround times and more accurate underwriting for lenders, they are adding a level of objectivity to a process that is often highly subjective.

And they are in demand. Over the last year John has added 200 employees, he’s in 17 cities, and he’s only just started.

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Travis Lee is a developer who fully believes in the local economy.

After launching a career 'building big,' Travis came home to Dorchester, a vibrant and diverse community in Boston. Taking his role as a developer in the neighborhood seriously, Travis has worked closely with community groups and civic associations to conceive, plan, permit and construct his various projects. 100% of his built (or planned) residential units are designed to be affordable to families making between 60%-90% of the area median income. And his projects are designed and built to meet Passive House standards. Then there is the brewery he co-founded there and the local co-working space ... you get the idea.

We learned something and we think you will too.

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A year ago we talked with Avra Jain, an innovative developer based in the city of Miami. With a career path that had taken her from bond trading on Wall Street to developing properties along some of Miami's trendiest streets, Avra earned a reputation for identifying the next it neighborhood.

While she works on very large scale projects, her passion lies squarely with the personal project portfolio she is building – the conversion of abandoned and historic motels into re-imagined affordable housing communities. She’s leveraging her past success to tackle both the restoration of significant architecture and the making of affordable housing in a very unique way.

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Saki Bailey, Executive Director of San Francisco Community Land Trust, is an expert in community land trusts, co-operatives and limited equity housing cooperatives. Plus, she has authored books on property law, community land trusts, and the commons.

In this podcast she breaks down how community land trusts emerged, how they have morphed from land to buildings, and how they are gaining (rapidly) in popularity. And she tells us about the SFCLT's latest project: 285 Turk Street in San Francisco’s Tenderloin neighborhood.

Saki is hoping the community will fill in the equity gap for this project through a crowdfunding campaign to convert 34 units into a permanently affordable co-op.

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In early 2020, we talked to a remarkable architect, based in Melbourne, who has embraced an ethos of “affordable and sustainable simultaneously." The result? Spectacular urban apartments, inexpensive to live in, with a waiting list of over 8,000 people.

Jeremy McLeod is the founding director of Breathe Architecture, a world class architecture firm in Melbourne, Australia, with a reputation for delivering high quality design and sustainable architecture. Tired of hearing from project managers that said it couldn't be done. Jeremy embarked on a program to build beautiful and sustainable housing affordably, by reducing the architecture to essentials.

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Joe Minicozzi has been recognized as one of the '100 Most Influential Urbanists' of all time.

Although he trained as an architect and urban designer, the above honor was not bestowed for designing buildings or spaces. Joe’s influence comes through data.

Joe's organization, Urban3, helps communities understand the economic impact of development – tracking data in the built environment, demystifying tax codes, government jargon and municipal finance. Stuff that most developers and governmental entities don’t think about when planning their next development project.

And his deep dives have uncovered some astounding and important truths about the cities and metro areas we live in. I’m fascinated by his work and findings, and I’m sure you will be too.

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Jonathan Cohen has made his mark.

Though he started his professional life as an environmental engineer, Jonathan's true persona as a restless entrepreneur emerged when he tackled the remake of an historic building in Portland’s Chinatown district. This project, in a building vacant for almost four decades, might have frightened most people, but Jonathan and his partners forged the building into something truly shiny and new for the 21st century, a mix of hotel and hostel where travelers from all walks of life can mix and mingle.

Jonathan and his partners were ahead of their time. And he’s doing it again!

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We're going to point you back to one of our golden oldies today because it's been an insanely popular podcast. If you missed it, here's another chance to listen.

Sam Ruben is passionate with a capital P, about sustainability. Sustainability is not just a moral principle for Sam. He believes that as a core value, it can improve the bottom line and increase the brand value of any company. And Sam is living this belief. Today he is Chief Sustainability Officer and Co-Founder of Mighty Buildings, a company that offers 100 percent digital prefabrication of its modern ADUs and kits. In the first three years of their existence, Mighty Buildings developed a breakthrough material that can be printed into any shape, a series of ADUs with a growing order list and a house kit of parts. Now deploying a Series B round of funding, their goal is to manufacture thousands of houses through the 3D printing material, in thousands of locations globally within the next 10 years, reducing waste and energy and helping to house people quickly, affordably and beautifully.

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Mott Smith is not a big box developer, at least not the big box that might spring to mind. His company, Amped Kitchens, rebuilds vacant warehouses into turnkey food production spaces. Think of it as an apartment building for commercial food producers, says Mott. This might sound straightforward to you, but it took two years working with the L.A. County, the Department of Public Health, Food Business Accelerator, Food Centricity and even Southern California Gas Company to get the first Amped Kitchen building off the ground. It opened 50 percent leased and quickly had a waiting list. Clients included brand name companies like Beyond Meat, Soylent, Blue Bottle Coffee and Applebee's, as well as startup companies who have outgrown their hourly incubator and home kitchens. And this first facility was quickly followed by a second in Chicago. Mott's plans are big despite the complexity of these projects. I'm fascinated by his approach and I'm sure you will be too.

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DC is a city where rents are running rampant and this only promises to get worse once Amazon’s HQ2 fully opens.

For Kimberly Driggins, this is a challenge worth taking on. She has had a remarkable career in urban planning and public policy, working on and in the cities she loves. And now she is turning her passion and energy to the challenging crisis that is touching so many people – housing.

Heading the newly-created Washington Housing Conservancy, Kim and her team plan to acquire and own 3,000 units of affordable housing, helping to stabilize rents, prevent displacement, create communities and promote opportunity and wealth building.

If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast. And go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

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Michelle Boyd runs the Housing Lab at the Terner Center for Housing Innovation.

The Terner Center's mission is to formulate bold strategies to house families from all walks of life in vibrant, sustainable and affordable homes and communities. And in turn, the Housing Lab program was developed to support entrepreneurs trying to solve core problems in the housing market. The result is a business accelerator which hosts a widely varied group of developing businesses.

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Jamison Manwaring is the co-founder and CEO of Neighborhood Ventures, a remarkable Arizona-based real estate crowdfunding company, focused on value-add multi-family properties.

It’s a real estate company, for sure – they buy, hold and sell property. But the capital plan is innovative, with a growing pool of state residents who are permitted to invest through Arizona intrastate securities law. Nine successful projects later, Jamison is now taking his plan to the national stage with their latest project, a short-stay hotel he wants to repurpose into affordable housing.

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Chris Gourlay is founder and CEO of Spacehive, the world's first crowdfunding platform for projects that improve the civic environment. Spacehive aids local fundraising efforts by matching them with funding sources from civic councils, companies and foundations. Over 45 of them.

What makes Spacehive so unique is that it can positively impact a community far larger than just those who donate on the platform. It has been used by community groups, charities, schools and local businesses, mayors, corporations and foundations – all to collaboratively improve local places, both big and small, momentary and lasting. It has the highest campaign success rate of any crowdfunding platform in the UK. And since the pandemic, the platform has seen a 300% increase in people helping to fund improvements to their local area.

If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

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Mark DeSantis is a serial entrepreneur and past Pittsburgh mayoral candidate. Right now his talents are focussed on a startup called Bloomfield Technologies. They build robots that inspect valuable crops, like grapes, helping to predict crop outcomes and helping to manage crop disasters before they happen.

Mark’s robots are for rent. All over the world. He’s certain they will help to produce more food on the finite amount of land we have on this earth and so are his customers.

Go Mark, go!

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Samson Williams isn’t one to think small.

Having studied and worked in emergency management, he also holds a certificate in Blockchain and Cryptocurrency Law, and worked in Dubai for two years at the cutting edge of financial technologies. Oh yeah, and he wrote two books on the space economy.

Samson has worked in various roles as an advisor and strategist, serial entrepreneur, ‘accidental investor’ and teacher, but today Samson is serving as president of, and evangelist for, the Crowdfunding Professional Association. As he says, “Crowdfunding ain’t your grandfather’s capital formation ... RegCF is now 5, which makes it just old enough to go to Kindergarten. Buckle up!”

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You may recall Daniel Dus from Season 2 of the podcast. He wants to take luxury estates out of the hands of the 0.1% and into the hands of … well … everyone!

The luxury estates that he restores will still be luxurious, but carbon neutral and available for middle class families to enjoy. And Daniel is taking the democratization of these estates one step further by offering the community an opportunity to invest in them. His next act is a stunning 1881 mansion, built by a former Secretary of State, a true Great Estate right in the heart of the Berkshires.

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Anne Nickel Cannady was born and raised in Minnesota, but has lived an international life. Over the past 20 years she has worked in brand strategy, culture, innovation and immersive experience design with start-ups and leading brands that include Starbucks, Avalon Bay, Choice Hotels, Royal Caribbean and Honda, to name just a few.

Anne is now challenging herself with a project that brings all her skills to play … and more. The plan is ambitious – a social community bath house in the heart of San Francisco. The building is ambitious – the transformation of an historic warehouse into a biophilic wonderland.

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Judi Lynn Brown is a self-professed 'world saver.' "It's a Buckminster Fuller thing," she says.

One of a new generation of progressive change-makers in support of radical inclusion, Judi, a design strategist, decided to figure out a creative way to change a system that currently doesn’t work for 100% of humanity. The organization she co-founded, CivicMakers, based in the Bay Area, is a design and digital strategy service to support excellent community engagement. For her, 'hyperlocal' is big!

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Joanna Bartholomew, owner of O’Hara Developments, is a woman who’s breaking all barriers.

Being a Black woman in the real estate industry is not quite enough of a challenge. On one hand, Joanna is focusing on broad community development by tackling decaying properties in East Baltimore (one block at a time) and breathing new life into them. On the other, she is committed to providing outreach to the people who will occupy them. To make sure that what she is building will serve the community effectively, Joanna's organization offers up financial literacy courses and down payment programs, to both educate and support new potential home-owners. All of it to make sure everyone can have a chance at home ownership.

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Two years ago, I didn’t know that our audience would grow as it has. In fact, two years ago I wasn’t sure we would have an audience at all. Now 10,000 people download episodes every month. That’s 10,000 people who care about thoughtful and impactful real estate solutions. Wow! I am humbled that all of you want to listen in.

This second year has been an opportunity to learn from yet another class of extraordinary leaders and innovators in real estate. My guests are working on housing solutions, policy issues, manufacturing, in fintech, on preservation, on developing new technologies and on providing real estate metrics, on mobility issues, as architects, on sustainable development, on community capital, on equity for women and equity for minorities and in many other niches, pushing the boundaries of the built environment to be better for everyone. The range of work that is being accomplished is quite awe-inspiring.

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Dr. Shannon Mudd is an economist and educator with a University of Chicago pedigree, specializing in microfinance and impact investment.

He currently runs the Microfinance and Impact Investing Initiative program (Mi3 for short), which he founded about 8 years ago. One of his hottest classes teaches students how to invest $50,000 of real money for maximum social impact. This might seem trivial in the investment world, but it’s powerful ‘homework’ for students testing the waters of impact investing for the first time.

Shannon has turned teaching economics into a meaningful and hands-on exercise. His students gain real world experience learning how to invest for more than a financial return. And they are taking that knowledge with them into the job market and passing it on. Impactful classes for impact investing.

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This episode was very popular in our first season. And since zoning issues continue to be recognized as one of the primary issues in the housing shortage, I thought we should revisit this insightful episode with Eric Kronberg.

Eric is a principal at Kronberg Wall, an architecture and urban design firm based in Atlanta. They describe their work as conscious urban placemaking and they describe Eric as the firm’s zoning whisperer. In this episode we unpack the impact of zoning along with Eric’s belief that the revitalization of a neighborhood is perhaps the best way to advance the “triple bottom line”.

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Jonny Price has spent most of his working life in the world of microfinance, first at the nonprofit, Kiva, and now with the crowdfunding platform, Wefunder.

He started his journey from management consultant to crowdfunding guru in 2009, as a volunteer with Kiva, on an externship from his consulting job. He made the full leap over in 2011, to lead the Kiva Zip pilot project, which later became Kiva U.S. And a couple of years ago, he transitioned to Wefunder, a crowdfunding platform where everyone over the age of 18 can invest as little as $100.

Kiva and Wefunder have a common theme for Jonny – they are aimed at “financially excluded and socially impactful businesses.” He talks about the “crazy gap” between bank loans for established businesses, and venture capital for a select few.

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Our episode, "Yes! In my Backyard," made it to the top of the charts. More of you downloaded this episode than any other to date. And since my guest, Patrick Quinton, is currently offering an opportunity to invest in his ADU’s on SmallChange.co, we thought you might be interested in listening to Patrick’s vision again.

Dweller is Patrick’s startup company. They create turnkey accessory dwelling units with a goal of addressing the very pressing housing needs of his city – Portland, OR. Patrick started Dweller because he knew that Portland has “the most ADU-friendly code of just about anywhere.” A 32x14 foot ADU can be set into a typical 50-by-100-foot lot without hitting the setback limits and without requiring city design review.

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Charles Durrett is an architect often credited with introducing the concept of cohousing to the United States through his co-authored book, Cohousing: A Contemporary Approach to Housing Ourselves. Over a number of years, he has built a career around this idea - one he was introduced to as a student in Copenhagen. These Danish housing projects captured his imagination enough that he set about bringing this novel idea to the U.S.

Today, Charles oversees The Cohousing Company, which designs cohousing projects for many kinds of clients. A typical design includes densely packed cottages of 30 or so homes that form a 'village,' with a liberal sprinkling of communal areas and amenities, occupied by people who want to live co-operatively. The historical idea of planned communal ‘villages’ in the U.S. is not totally new – you have everything from worker housing to the freeform communes of the 1960s and 70s. But Charles has taken it further, inspired by the Danish model and adding in a dash of the principles of New Urbanism. Most interestingly, Charles describes himself as more of an anthropologist than an architect because every design begins with a deep dive into the psyche of the 30 families that plan to live together. Only once he understands how they want to live their lives, does he embark on the process of designing the physical place.

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After a decade of building a career in real estate finance, from a pre-college stint as an analyst for an established D.C. development firm all the way to co-founding (with his brother, Ben) the first real estate crowdfunding platform, Fundrise, Dan Miller changed lanes....Sort of.
In 2016, he founded Steward, an online platform which enables people to invest directly in sustainable farms. In a way, it wasn’t such a shift from Fundrise, which used an online funding platform to connect developers and investors. Think farmers instead of real estate developers. “I always saw finance as a way to open up access to new groups of people” says Dan, and true to his word, you can invest for as little as $100.

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Beth Silverman is Executive Director of the Lotus Campaign, a nimble nonprofit startup focused on reducing homelessness.
What makes the Lotus Campaign especially interesting is its approach to putting a roof over a homeless family’s head. Instead of building ground up affordable homes, employing a bevy of subsidy financing, the Lotus Campaign is instead focusing on existing Class B apartment buildings, and on building partnership with Landlords. By offering a networked support system to ensure that each tenant succeeds the Lotus Campaign has been able to house 300 families to date. Only 1 has been evicted - a resounding success and a testament to the program. Even better, each placement has only cost an average of $800.

This seems such a small price to pay to put a roof over someone’s head…

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An enquiring and eclectic background led A-P Hurd to where she is today - an in demand consultant solving very large real estate challenges, all focused on sustainability.

Born and raised in Ottawa, journalism, finance, software startup, and novelist are all part of her career path. Not a straight path, but a very rewarding one. Then she decided to go to graduate school to further her engineering skills, and found her way to sustainable and transit-oriented real estate development. Today she has SkipStone, where she works with clients like Sound Transit, the City of San Jose, Community Roots Housing and private developers bringing projects to market, sustainably.

Her mantra these days is “livable and delightful”.

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Today, I'm talking with Andre Perry, a senior fellow at Brookings in Washington, D.C. Andre is also a scholar in residence at American University, a columnist for The Hechinger Report, and he writes for the Nation. But what really drives Andre is the seemingless impossible divide between blacks and whites in this country. He is focused in his recent work on the multiple issues impacting minority communities in urban metro areas. And he has authored a book, published in 2020, called Know Your Price, Valuing Black Lives and Property in America's Black Cities. In his work at gathering data for the book in black majority cities across the country, Andre found that homes in black neighborhoods where the share of population was 50 percent or higher were valued at about half as much as white neighborhoods. Andre further refined the data by taking into account education, crime, walkability and other key neighborhood factors. And still, he found that homes in black majority neighborhoods were underpriced by 23 percent, or about 48,000 dollars per home. That's 156 billion in lost equity. And Andre knows we have to fix that.

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Today I'm talking with David Peter Alan, journalist, intellectual property lawyer and all-around public transit advocate. David has worked for decades as an advocate for rail transportation, serving on boards, councils and committees. For two decades, he chaired the Lackawanna Coalition, an independent non-profit organization that advocates for better service for New Jersey riders. His expertise is widely recognized. He has spoken and testified at hearings, moderated panels and written extensively on transit issues for much of the last decade and a half and currently for Railway Age. Not one to stop at writing and talking, David has ridden the entire Amtrak system and about 300 transit providers in the U.S. and in Canada. Overall pre-pandemic, he thinks he has probably ridden every single system in the contiguous 48 and then some. This is a passionate conversation. Listen in to learn about the current state of transit in the U.S.

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Today, I'm talking with Sam Ruben, who is passionate with a capital P, about sustainability. Sustainability is not just a moral principle for Sam. He believes that as a core value, it can improve the bottom line and increase the brand value of any company. And Sam is living this belief. Today he is Chief Sustainability Officer and Co-Founder of Mighty Buildings, a company that offers 100 percent digital prefabrication of its modern ADUs and kits. In the first three years of their existence, Mighty Buildings developed a breakthrough material that can be printed into any shape, a series of ADUs with a growing order list and a house kit of parts. Now deploying a Series B round of funding, the goal is to manufacture thousands of houses through the 3D printing material, in thousands of locations globally within the next 10 years, reducing waste and energy and helping to house people quickly, affordably and beautifully.

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Andrew Luong,CEO and co-founder of Doorvest loves real estate. Growing up in a lower middle-class family, he decided early on that real estate would be his path to financial security. So he started buying and fixing up single family homes in his spare time. While he honed his skills as an entrepreneur in a variety of start-ups, his portfolio grew into the double digits. He had honed his skills as a real estate investor as well. It dawned on Andrew and his co-founder, Justin, that the long laundry list of items that comes with purchasing a property could be deconstructed and rebuilt into a frictionless process to bring real estate investing to everyone. And so Doorvest was launched to provide a turnkey real estate investment service online. You'll want to listen in to learn more.

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Eve Picker: [00:00:15] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers.

Eve: [00:01:29] Today, I'm talking with Libby Seifel. Libby's life is built around big causes. She has spent much of it professionally focused on affordable housing and much of it personally focused on women. Libby's interest in housing came about when she lived through gentrification in her own neighborhood in Boston. There she saw her own godmother pushed out of her apartment into distressed public housing, and that convinced her that mixed income housing was a far better solution. She went on to get degrees at MIT in Planning and Urban Studies and became the founding Executive Director of Tent City Corporation, a non-profit developer of a ULI, award winning, mixed income housing development in downtown Boston. At that time, mixed income housing and sustainable development were considered somewhat of an oddball concept, says Libby. Now they're widely accepted as good planning. And then she founded her own firm. She was the only woman in the room when she started her career. Today, that has changed a little, but not nearly enough for Libby, who has founded a quickly growing women's development collaborative to support women developers. I'm a member of the Women's Development Collaborative, so I've seen firsthand the strength of Libby's focus. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe, if you can.

Eve: [00:03:32] Libby, I'm really happy to talk with you today. Thanks for joining me.

Libby Seifel: [00:03:38] Thank you.

Eve: [00:03:39] So I've known you for quite some time. I was trying to remember how long that was, but I just couldn't. It's been a long time. But still, I was really surprised when I read your resume and you've done so much and there's probably more that you haven't talked about, which I'm hoping we're going to talk about today. But I wanted to start with a quote I read that you were going to be a doctor and and I'm wondering what happened.

Libby: [00:04:07] That's interesting story. So, I think what happened was that I got really, really interested in urban planning and I was actually talking with somebody about this recently that I had the great fortune of having Lewis Mumford as one of my professors, my freshman year in college. And I was coincidentally reading The City and History, which is his famous book. And he was such a wonderful storyteller and really conveyor of what was going on in the earlier part of the 20th century with respect to thinking about what cities could be and how they could be. And so he looked at it both historically and as a visionary, and he was very dedicated to sustainable development. About having development that was holistic, where people could walk to, walk in their communities to the grocery store where they could live together.

Eve: [00:05:16] And that was before this was the thing, right?

Libby: [00:05:18] This was before it was a thing. This was, yeah, it was. I mean, there's, we can talk about the criticism and there are pieces about the movement that he was part of that was very white focused. So I want to just say that up front. And I understand and and that but this sort of it was kind of the city beautiful, but it was really more country beautiful movement. He lived for it pretty much his whole life after he moved out of New York City, in Amenia, New York, which is an absolutely beautiful part of New York. And if you've never driven up the Hudson Valley, it is absolutely exquisite. And Amenia is off the Hudson Valley inland. And it's a beautiful farming community near the border of Connecticut and on, coincidentally, a rail line that goes into New York City.

Eve: [00:06:11] I've been on that train. It's fabulous.

Libby: [00:06:13] You've been on that train. So you know what I'm what I'm talking about. So, and my uncle's an architect, so my mother never wanted me to be an architect or an urban planner, which is what I am now. She wanted me to be a doctor and specifically she wanted me to be an ophthalmologist. So I was like, no, but I love visual arts and I love visual science. And I actually studied that. So alongside of studying urban planning, I studied neurophysiology and urban, just a lot of urban studies. And and I prepared to be a doctor. And I finally convinced my mom that if I got a master's in urban planning alongside of my undergraduate degree, I'd be so much more competitive to be a doctor. So, so that's the funny story. But on a more serious note, I was able to study with Dr. Land at Polaroid on visual art and visual science. And I have a very deep appreciation for the arts and colors in particular. And I like the idea of creating a colorful world where we all can participate and be part of this. You know, it's the utopic view, but my life is really dedicated to making the world a better place. That's what I try to do.

Eve: [00:07:41] That's wonderful.

Libby: [00:07:41] And I think Lewis Mumford and people like him are just very inspirational to us in this field.

Eve: [00:07:50] You were lucky.

Libby: [00:07:50] And I wouldn't really be here without him. And then actually the other clincher to all of this was that - it's a story that kind of leads into my career - is that I moved to Boston, I went to school in Cambridge at MIT, and I moved to Boston with my college roommate, who's now still a very good friend of mine and a real estate developer and investor. And we moved into the South End neighborhood of Boston, which is a really incredible neighborhood now. And then when we moved in there, it was a neighborhood very much in transition and it was a neighborhood very affected by urban renewal. And these were the times when wholesale displacement of people occurred, where they were moved out of their homes. Where a vibrant neighborhood that had been very colorful and dynamic, was changed through urban renewal, and the community had been promised development as part of their protests against urban renewal. They had formed a tent city in protest to say we did not want to be moved. And a group of folks reenacted this tent city event, this demonstration, and I was coincidentally in college at the time and was at a studio that was dedicated to working on studying this site called Tent City, which was the site where this protest had occurred. And so I took the studio and I was forever transformed. I got very involved with the community. I was living there. We really wanted to make this housing happen. We wanted it as mixed income housing. We wanted it to be a resource for the people who have been displaced in the community. And we wanted it to be a place where people of all income levels could live together in a great, absolutely great site in Boston, right next to that Back Bay Station, which ultimately got built. I mean, that's part of my whole history, but ultimately got built with that vision and that dedication of that group of people totally transformed my life.

Eve: [00:10:14] And that also got a ULI award, right?

Libby: [00:10:17] It did. It did. It got a ULI award. And it is great to visit. It's right next to Copley Place. There's a whole story about Copley Place. We could talk about later if you wanted, but it's next door to Copley Place. It's next door to Back Bay Station, which is where the Amtrak station is and the light rail. And it's also next door to the moved underground railway that used to be an elevated railway, a streetcar through Boston, through the South End in a southern part of the South End which was then put into an underground tunnel. And on top of it is the most amazing set of community gardens.

Eve: [00:10:57] Yes, I've been in them. They're stunning.

Libby: [00:10:58] You've been in them. And the walkway...

Eve: [00:11:01] That was the Big Dig, right?

Libby: [00:11:02] Yeah, well, it's not the Big Dig, but the Big Dig is amazing. The Big Dig is over by the waterfront of Boston. This is actually in the Back Bay, South End, part of Boston. It's the orange line. And you wouldn't know because you're going underneath it if you're riding it. But it is on top of it. There are these amazing community gardens.

Eve: [00:11:25] The gardens are gorgeous.

Libby: [00:11:27] Yeah.

Eve: [00:11:27] Including, you know, community vegetable gardens.

Libby: [00:11:31] Exactly and each neighborhood block actually participated in the design of each garden and walkway at the end of their block. Another mentor and person that got me into this was Ken Kirkmeyer, who lived in the South End, who was the President of Tent City Task Force. And he was actually the project manager that spearheaded this project and worked with the neighbors to create this marvelous place to walk the South End corridor.

Eve: [00:12:04] So Boston and all that really formed your professional path. And where did that lead you? Where are you now?

Libby: [00:12:12] So I now live in San Francisco, across the country.

Eve: [00:12:18] Very different.

Libby: [00:12:20] Yes. But I think sister cities. We're on the water. We have a long history of progressive politics. Though, it's quite different out here than it is in Boston and a very, very strong set of values when it comes to preserving history, to recognize the importance of neighborhoods and community and thoughtfulness about design. A lot of architects and designers. In fact, when I when I was making the decision to leave Boston and come out here, I can't tell you how many people told me not to come because there's way too many planners out here, urban planners and architects and real estate economists. And it was going to be very hard to move, unfortunately, chose the time to move, which was one of the recessionary times we had across the industry. But it all worked out and I love it here. It's a beautiful city and the Bay Area is an absolutely lovely place to be. And there are so many challenges and I thrive on challenges. So there are so many urban challenges in the Bay Area to work on.

Eve: [00:13:34] What sort of challenges? What do you work on?

Libby: [00:13:36] Well, first, you know, like in Boston, but even worse, the cost of housing is just phenomenal out here and out of reach of so many people. And it exacerbates the haves and the have nots. So that's a big challenge that I work on a lot, both as a volunteer and in my profession. It's also that we have we have to be very conscious of sea level rise, much of the Bay area is on water, as it makes sense, we're on the bay. We're on the ocean, San Francisco straddles the Pacific Ocean and the San Francisco Bay. And so, we're virtually surrounded by water on three sides. And we have the possibility of our downtown in San Francisco being underwater in the not-too-distant future. The history of San Francisco, like Boston, there's a lot of the city is on fill. We have natural hills that we took down, many of them to build fill, and we filled in a lot of the areas that when you come to visit San Francisco and you're walking around that land used to be either marshland or ocean, very deep ocean or bay. So actually bay, not ocean, but through the ocean, water intrudes. So that's a big challenge. We also have earthquakes. Just to keep things interesting. So that shakes us up every once in a while. And we're at risk of an earthquake, particularly in the East Bay, happening again. So we have to be very conscious of resilience in so many ways. So that makes our our life challenging. And we have we have it's an absolute blessing and a curse. As many people say, we have the most amazing set of folks in technology. I mean, many of whom are M.I.T. alums and Stanford alums who have formed this tech corridor and biotech corridor that we have all through the through the Bay Area Peninsula and Silicon Valley, which is absolutely amazing and makes our economy incredibly strong and robust. And California's incredibly strong and robust. But alongside of that, it ends up pushing up the price of land and the price of development so it can make it very hard for small businesses to be successful. Sometimes small retail businesses, the rents can get very expensive. That can make it more difficult for them. So, we have a lot of challenges.

Eve: [00:16:18] So how does that like, how does that color the work that you do? You now have your own company, right? And you do consulting work? And is it mostly around affordable housing or what challenges do you confront in that work?

Libby: [00:16:33] Great question. So, I do a lot more than affordable housing work, but my passion and heart is around affordable housing. I just want to say on one of my volunteer efforts, because I want people to know about this, I'm the co-chair of the Utilized San Francisco Housing the Bay Steering Committee, and we are dedicated to promoting and producing more housing in the Bay Area through our work. And we have an upcoming summit that's happening June 2nd, 3rd and 4th. This will be our fourth summit that we've had where we bring together a very diverse group of speakers from around the world and the United States to talk about the Bay Area's housing situation, but also more generally, the housing situation across the United States and what are great strategies and tools and best practices that we can use to improve our housing situation. Which includes building all types of housing for all types of people. It's very invigorating to be part of the housing the Bay effort. And this summit always inspires me every year to do more. And in my practice, I work with a lot of cities and developers that are dedicated to building affordable housing and mixed income housing, which is even tougher to do. Tent City was able to hit the timing right with the funding and the commitment by the city to make that mixed income housing development happen. And it had a unique location, but it's been it's very difficult to get the funding together and the financing that is necessary to do mixed income housing at scale. We do have a strong inclusionary housing set of regulations, but here in many cities in the Bay Area, so we do a lot of work and inclusionary housing, which means that a portion of housing is restricted for occupancy or dedicated to occupancy by persons of usually very low, low and moderate income, which is HUD speak is federal housing agency speak for people that earn typically less than the rest of us or about the same.

Eve: [00:19:05] Critical for the function of the city, right?

Libby: [00:19:08] Right.

Eve: [00:19:09] Often service workers and ...

Libby: [00:19:11] Essential workers, yep.

Eve: [00:19:12] And people who keep places going.

Libby: [00:19:15] Yep, exactly.

Eve: [00:19:17] If they live too far out, then those places are not going to work anymore.

Libby: [00:19:20] Exactly. Exactly. And trying to figure out how to do this with the private market. So I work a lot on the private market side. I'm the number cruncher behind the scenes and the strategist trying to work on these projects. And so, we're constantly trying to thread the needle to figure out how can we keep the private market still building housing while including housing for more people of a greater and more diverse set of backgrounds and incomes?

Eve: [00:19:54] Yeah, it's a really big challenge.

Libby: [00:19:58] It's really big.

Eve: [00:20:00] Well, I want to shift gears a little bit, because I also know about another one of your passions, which is also very close to my heart. And that is how to increase the visibility of women in the real estate industry, in particular real estate developers. And so I've kind of watched you over the years put together a little group that's become the Women's Development Collaborative, and it isn't so little anymore. And I wanted to talk about that. Where did this come from? Why did you start it?

Libby: [00:20:35] That's a great question. I guess I mentioned the Urban Land Institute or ULI earlier, and I've been a member of ULI now for, realizing it's been three decades or more. It's an organization that's dedicated to advancing development across the world, globally, and since I've been involved for so many years. When I first got involved, I was often the youngest person in the room and many of these national conferences, and I was often the only woman or one of the few women. And it was very important to me to find, I guess, soul sisters or wise women in this industry. It had been a struggle in my career at different I know, right, to be the only woman. And it was definitely...

Eve: [00:21:31] I was the only woman developer in Pittsburgh for quite a while. So, I ...

Libby: [00:21:35] Yeah. You were? Well, and Eve, I don't know if you remember this, but how we met was we were at a conference for the Women Presidents Organization in San Francisco.

Eve: [00:21:47] Yes.

Libby: [00:21:47] Many, many years ago, and you and I both were involved in that. And that's an organization that's dedicated to women entrepreneurs and building capacity. It's a peer-based group. It actually also inspired the Women's Development Collaborative. So it's worth talking about for a minute in case anybody on the line, a woman entrepreneur, it's a great group.

Eve: [00:22:09] It's a great group.

Libby: [00:22:09] But what was incredibly funny was there's this entire ballroom, one of San Francisco's largest ballrooms, with tables all across it on a Saturday morning with signs on it of like, you know, are you in consumer affairs? Are you in you know? I don't know. Do you do retail product, apparel, whatever? But all across the room, everything. There was one table in real estate, and it was at the table. You and I, we were the only ones at the table.

Eve: [00:22:40] And it's really not a whole lot different today, Libby. What really scares me.

Libby: [00:22:49] It's true. It's true. So, I mean, it's better, we're working very hard at ULI. So the origin story of the Women's Development Collaborative goes back to these times. And ULI, which still often continue but have gotten better because a number of women that were part of this informal network of wise women, soul sisters that came together to meet on a regular basis at the spring and fall meetings of ULI, which are national meetings when we get together across the country. And we would meet, whether it was for dinner or breakfast or whatever, and we would share ideas about development and best practices and what we were doing. And one of my mentors, she said to me, well, you need to we need to do something more than this. Like these women's receptions in these gatherings are fine, but we need to actually make a difference. We need to improve leadership. And so a number of us got together and helped form what's now called the Women's Leadership Initiative, or WLI within ULI, which is dedicated to advancing women's leadership in the entire real estate industry. And that's been phenomenal and that's gone on since 2012. And again, anyone in the real estate industry should follow that because WLI is wonderful. But at the same time, there we had this niche group that was really focused on development and we recognize that development itself, which is part of the entire landscape of real estate, that you needed support and nurturing and showcasing. And so we started to alongside of the WLI activities, I continue to organize with a lot of other women, events around this spring and fall meetings where we would showcase women developers. We'd go tour their projects, we hear from them, we learn from them. And it's just been so inspiring to see these projects.

Eve: [00:25:02] It really has been.

Libby: [00:25:03] And then we had to go virtual because there was no Toronto meeting. And so now we're online. So, you can find us at the Women's Development Collaborative online. And we are really trying to build our presence across the United States and Canada. We have a number of women involved from Canada to really promote and advance women's success, leadership, innovation and collaboration and building transformative developments.

Eve: [00:25:35] I need to tell you, like I I was also a member of ULI for many years, and then I stopped my membership because I really didn't feel like I belonged there, for a couple of reasons. One was the whole woman thing. But also, I was working on quirky, small interstitial urban projects. And when I was a member of ULI just there was there was nothing there was no one talking about that. So I stopped attending. And actually, when you started inviting me to the Women's Development Collaborative meetings was when I decided to join again because I finally felt like there was sort of a space emerging for developers like myself. That and the small-scale development group, which has been also pretty wonderful to see emerge. But I think...

Libby: [00:26:28] Yes, yes.

Eve: [00:26:29] Times are very different, but it is incredibly inspiring what you're doing and you have a lot of stick-to-it-ness. And it's also very frustrating to see how slowly things have changed. I mean, what do you think about that, for women? It's very slow.

Libby: [00:26:43] Yeah, it is really slow, but it is it is getting better bit by bit. You know, it is, I was looking at some data and it is it is improving, but it is very, very hard. And it's I think that, you know, I, I think that a couple of things that we have to think about and think about deeply, which is that in addition particularly to the history of African-Americans in the United States and their inability to first secure and hold property or even keep property right after the civil war. Property was actually stolen away from them, it was often stolen away back from Native Americans as well. So, we have had a history in our country of not respecting and honoring property for persons of color. But at the same time, when we think about the history and it's not just of the United States it's of the world, women were not allowed to own property. And it also varied state by state. And I believe it still does. And a lot of states that there are different rules that make it very hard for women to hold property or to transact. So it's not just discrimination in the sense of how you show up. Like if you're a woman, you're obviously different as you enter a room, but it's also the rules by which we play. So getting through the those rules...

Eve: [00:28:21] Not just the rules, but the culture that those rules perpetuate,

Libby: [00:28:25] Yeah, and the culture.

Eve: [00:28:25] Because even if there are no rules there, you know, I have to say I, I own a small portfolio of buildings and I have two female bankers to thank for it. Without them, I would not own that portfolio of buildings, which is really an extraordinary thing to say, right?

Libby: [00:28:44] It is. It is. And, you know, that's part of what WDC is trying to work on. I mean, we have we have a lot of ambitions and it's and it's hard to even figure out what to prioritize because there's so many challenges. But alongside of really promoting women developers, we want to expand women in the workforce and the development supply chain for developments because of exactly what you said, that we need more women bankers. We need more women equity investors. I mean, that's something we want to talk about, right? That that women just aren't investing as much as men.

Eve: [00:29:24] Oh yeah, women investors. Why do women not invest? I don't understand.

Libby: [00:29:32] Well, and I think it's I think there's a history of this. Like I think there's an education process. I mean, that's partly what WDC is a big part of our mission is to educate. But I'm now recognizing it's not just educating and building up women developers like educating ourselves about each other or, you know, the service providers, introducing them to women developers. It's also about educating the broader community. I was listening to your podcast with Stephanie Gripne and I absolutely loved the conversation that you had about the fact that in essence, you know, part of this is a perception issue that if we think about it, everyone is an investor, as Stephanie said. She said when we make a choice to buy, she used buy milk. That was her analogy. When we buy milk, we make a conscious choice whether we're realizing that it's conscious or not, that we're using milk. We're choosing a type of milk that's sold by a certain company. And we may be choosing it based on price, but we may be choosing it based on the fact that we recognize the farms or the farms where it came from. Or in these days, we might be making a choice not to buy cow milk. We might be buying almond milk or soy milk, and we may be looking at how that was grown. So we have to, I think women are the biggest consumers in our country. So struck by this, after I listened to that podcast, that we are the ones that we lead the buying. If you look at all the consumer surveys, women are the buyers in our society. We are the retail shoppers. We love to shop. We do comparison shopping, et cetera, et cetera. We need to learn as women how to do the same thing with real estate investment. We need to get educated about it, it's it's a much different world than buying milk, but at the same time it is it is how the milk is, where the milk sits right in our society, these buildings.

Eve: [00:31:49] What's interesting to me, if I think about researching where milk comes from, so I can make an informed decision, that makes my brain hurt compared to understanding a real estate project and what I might invest in. So I think it's partly what you're trained in, what you learn, how you're educated. It's not I don't think it's harder to do. It's just different.

Libby: [00:32:12] Yeah, yeah, yeah. No, you're absolutely right. It's it's not harder to do. It's just different. But we're not educated in it. I mean, I don't know how you feel about this, but I never learned really what I do today. Like when I was in school, they didn't teach me what I what I practice right now. I learned real estate by reading books, honestly.

Eve: [00:32:39] Oh. How did I learn Securities Law? Yes, yeah.

Libby: [00:32:46] Yeah, exactly. Like reading books so and getting educated in it. And now I mean I'm grateful. I'm able to teach, I'm teaching now at UC Berkeley. I'm a lecturer part time, but I just absolutely love being able to teach. And what I recognize is I teach public private partnerships, which is a lot of my work is how to get the public in the private sector to work together, whether it's on a deal that the public sector is sponsoring or whether it's just a deal a private developer wants to do. And they need the support of the public sector, which is pretty much every project ever.

Eve: [00:33:24] Yes, that's right.

Libby: [00:33:26] Especially in the Bay Area. If you don't have public support, you're not going to get your project. And what I recognize is there are so there are so few classes that actually teach people how to do this and how to do it well or how to do real estate development and how to do it well. Luckily, ULI has offers a lot. And as you said, the you know, the small scale development council, that they focus on that and have some great trainings through ULI. But it is not something that is taught to the average person. It's not like we go to school and we learn about how buildings are built.

Eve: [00:34:03] Right.

Libby: [00:34:03] And so I think we have to start to educate the general population and in our case with the women's development, collaborative women in particular, and including women in our field, because what I'm even finding out is through the WDC, I've been asking women like, do you invest in real estate? And the answer is often is pretty much no, we don't we don't know. We don't know how to do it. We don't understand it. So that's a mission for someone in our and where...

Eve: [00:34:39] I can sense a class coming along that you and I can conduct.

Libby: [00:34:43] Exactly. I'm so excited about this. I really want to do this, Eve this spring or summer. I want to do a class in how to invest in real estate and why. It's like how to invest in real estate and why should we care and why should we do it. And I think it's critical.

Eve: [00:35:01] Yeah, it's also something else about real estate, you know, that I think over the last few decades, everyone's been trained to think about quick returns. And real estate isn't that. You just have to think about the long haul.

Libby: [00:35:19] Right.

Eve: [00:35:20] And I'm always stunned when I hear from people saying I invested there and they're going to give me my money back in six months. Can I do that in real estate? And I'm like, no, what can you do in six months in real estate? It's, it's a different thought process.

Libby: [00:35:38] It's absolutely a different thought process. And I also think that the real estate is much more long term in the investment horizon that many capital providers, meaning institutional and private investment capital, which is what fuels a lot of real estate development in the United States and across the world. It is usually focused on five-to-seven-year time horizons. And in terms of equity investment, a lot of the money that is coming in. So, their preference is that they can make their money back, they can get their money back and a return within a five-to-seven-year horizon. And that puts you on the one hand, it puts a certain discipline in the market, but it also means that it goes at counter purposes for, you know, the idea of patient capital, because buildings are they're going to I mean, if we build them well, they should last for a very long time, if not forever, like they do in Europe. And some buildings have a lifetime. Kind of you think at a minimum of 50 years, if we're doing a good job, that should be the minimum life and hopefully it's much longer than that. So the time horizons have to be much longer. But as you said, you know, in many consumer markets, it's a much shorter time horizon, six months or a year. It is just not it's not realistic in real estate.

Eve: [00:37:15] Tell me, how much has WDC grown since you started it? How many members how many of your meetings and what do you do now that it's covid-19.

Libby: [00:37:28] Right. Right. So so first of all, we are very much still a start-up organization. We're reaching out to anyone that's interested in joining, please Google Women's Development Collaborative and reach out. Our organization has about I guess we have 400 to 500 women on our email list and our LinkedIn group now I think it's around 300 people. So it's still very much a growing group. Our meetings are intentionally intimate and small, usually 30 to 40, maybe 50 people, 50 women. We are intentionally keeping this focused on women. We are trying to think about how do we bring in men as allies, because that's critical, particularly as we start to think about some of our next goals of what we want to do as an organization. But the goal of WDC is to really build our capacity and to create a safe space for us to as women, to be able to provide advice and guidance to other women and to be open about our deals and what we're what we're experiencing and to provide advice. So that's the scale we're at. And I think to myself, how big do we really want to be? Do we want to be another ULI? What is the scale that we really want to be at, and I and I think it's a, it's a question that we have to ponder as the group of us, because I think we cherish having the ability to know one another and to get to know one another. So, we want to keep that part of WDC alive because it's so important to all of us.

Eve: [00:39:22] So this year, programming is changed because of the, at least last year, because of the pandemic.

Libby: [00:39:27] Yes.

Eve: [00:39:28] And I thought as I watched it, it was sort of an amazing opportunity. To move this group along a bit fast and not be reliant on ULI meetings twice a year and the people who can afford to show up there.

Libby: [00:39:42] Yes, yes, that's true. It is. That is one thing about being online that we can provide better access to, just across the country and people can access it. We will definitely keep an online program, even if we could hopefully go back to meeting in person, maybe even as early as this fall in Chicago at ULI. But what we what we have right now are a series of programs that we've been evolving. You do such an amazing job at Small Change in branding. I've learned so much from you about this.

Eve: [00:40:23] Thank you.

Libby: [00:40:24] And really, it's incredible. And one of the programs that we have very much inspired by you and this podcast, though I didn't even know when I when I was first thinking about it, I didn't even realize you were on this podcast quest. And then when I started talking with you, you actually agreed to be the first person to participate. And it's called In Conversation with Developer. So, it was in conversation with the developer, Eve Picker. And we've done a series of these. And each conversation is just so fascinating like this. Your podcast about how did the women make the decisions they did to be developers, who has provided them support along their way, etc. So those have been really, really inspiring. We also have these project forums that are dedicated to helping women developer and emerging developer present the challenges that she's facing regarding her development project and receive advice from a panel of seasoned professionals to help her overcome these challenges. And thankfully, Eve, you also participated on one of those project forums as well, were you able to be part of a panel to provide advice? We call it kind of instead of a shark tank. It's a guppy tank. It's a place it's a safe space where people can feel comfortable and really get honest advice about how to move forward. So, we've had several of those. We've we're doing three this year. We've had three already last year in the year before. So, we're building our program there. So, if anyone out there is an emerging developer, that's an option for you to consider. And then I'm just going to do one other program. We have a number of others. But the other one I want to talk about is the investment forum, because this is where tying to our discussion earlier, we are really trying to build our collective muscle to invest in and advance successful development partnerships. And that investment forum is featuring conversations with women developers and investors about how deals are done. And it's actually a learning experience for developers and potential investors. So that's what we're dedicated on. And that's the program where I really want us to collaborate on thinking about how. How can we get more women in the investment world?

Eve: [00:43:03] Yes, that's critical. So what are some potential strategies you're thinking about for promoting investment or encouraging women to invest?

Libby: [00:43:16] So we've been working on an investment framework that's a gender lens framework for how we could evaluate investments in women led developments. And that's been a process. We've been very informed by the Small Change metrics and thinking about how crowdfunding could be a potential tool to encourage investment in women led developments. But we also realized that we needed to define what we meant by women led development, and we needed to think about the whole ecosystem, like I talked about earlier, about all the women that could contribute to it. So we're focusing right now on WDC taking on four dimensions of activities to empower women developers to expand economic opportunity, which means expanding women in the workforce and the development supply chain, as we talked about earlier, expanding access to capital. So building on the same theme. So, both getting women, individual women investors to invest in real estate, but also just to promote investment more broadly from men and women and institutional corporations in development. And then we want to make sure that these developments benefit women and communities, and so we've come up with a set of principles and you and I speak. There's a lot of 10 principles books. So, we have 10 principles of transformative development that benefit women and communities. And we're using these four criteria, these four activities, as a way to measure women developers and their development to provide recommendations. So the screening process to provide recommendations to women and to men about developments that they may invest in. So, four lenses are women in leadership in development, women in the supply chain and workforce, women capital providers and benefiting women and communities. And out of these criteria, we developed 10 questions. We spent a long time actually refining these 10 questions that really it was more like 15. We refined it went through a number of rounds. And what's really been great is we had this whole community of women developers who've beta tested this scoring process a lot. And you were one of them. So, thank you so much, Eve.

Eve: [00:45:53] It's great.

Libby: [00:45:54] Women from around the country and we learned a lot through this beta testing. And we think we have an investment framework that can work alongside of the Small Change index and other crowdfunding platform.

Eve: [00:46:09] And other ESG indices, right? Like...

Libby: [00:46:13] Yes.

Eve: [00:46:13] It's a very particular woman-centric real estate lens. It's great.

Libby: [00:46:20] Yeah. And so what we're hoping to do, our next step is that we are really trying to work on the strategies that are going to enable us as a small organization, you know, where can we make impact first and how can we make impact first? But our hope is to actually encourage some individual investment and crowdfunding investment in specific real estate developments that will be placed through this investment framework lens. That's our first goal.

Eve: [00:46:52] It's pretty big.

Libby: [00:46:54] It's a big goal. It's a really big goal.

Eve: [00:46:56] It's a very big goal. So, I have to wrap up and I just have one final question for you, and that is, what are you most excited about right now?

Libby: [00:47:08] It's so many things that I'm working on, but I think what I'm most excited about with WDC and my work generally is just the number of wonderful young and emerging women developers and and women who want to be developers. There is this community of women that are both really younger and older. It's women who've been in their careers in real estate for a number of years. For example, a woman architect who's decided that she wants to be a developer after having been leading her practice for a number of years and is actually her first project, is going to be building a building for herself and her community of professionals that she works with. So the building will be bigger than just her architectural practice. It will include others in it as well. And then younger women developers who are starting out, who are really interested in changing the world and in leading development companies. And it's very exciting to talk to them and hear what they're doing and how they're going about it and trying to support them. We have another colleague that you and I know who is developing is working on a mixed use project in her community that is going to be transformative for that community, be a place where people can gather. And whereas she says one plus one can equal much more than that. And that's Molly McCabe, who you've also interviewed here in your podcast.

Eve: [00:48:50] Yes.

Libby: [00:48:51] So I just thought that constantly inspires me to have to just have that sense that there is this community and this future of women in development that we can encourage and build upon, which is fabulous.

Eve: [00:49:06] Well, thank you so much for your time, Libby. I have really enjoyed our conversation and I'm going to be seeing a lot more of you.

Libby: [00:49:14] Yes, I'm looking forward to it. Thank you so much, Eve.

Eve: [00:49:32] That was Libby Seifel, Libby's career has been one built from her heart. First, she worked on affordable housing concepts that were ground-breaking at the time, having witnessed firsthand how crushing gentrification and displacement can be. And now she is focused on the small number of women in the room. She has puzzled over the years, as have many of us, why there are so few women who take the leap into real estate investment and development. She intends for the Women's Development Collaborative to be a safe place for women who are testing the waters to land. A place where they will be supported by their peers as they emerge as women developers. Please share this podcast so that more women learn about Libby and the Women's Development Collaborative. You can find out more about this episode on the show notes page at EvePicker.com or you can find other episodes you might have missed or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:14] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers.

Eve: [00:01:18] Today I'm talking with Scott Ehlert, co-founder of Fabric Workshop, a company focused on low carbon, mass timber building technologies for California's livable future. Scott is designing a proprietary hollow core mass timber plate column and wall system that uses 50 percent less wood fiber and will cost ten to 35 percent less overall than for a CLT structure. His system will also provide installation benefits like integrated MEP, acoustic and fire performance. And as if that is not enough, Scott is also designing a robotic fabrication facility to anchor a new wood product innovation campus in California to help in the state's wildfire efforts. Scott's background is an unlikely one for an entrepreneur in mass timber. He spent years in the production and logistics management of concerts, private and corporate events, and national experiential marketing campaigns before pivoting to system design strategies that leveraged research, data and design to meet high level business objectives. While consulting for some of the largest companies in the real estate and construction space, Scott recognized a massive need for desirable middle-income housing that wasn't being met by the market. So, he left his agency and started on the journey of what would become Fabric Workshop. This is a story of sheer stick-to-it-ness.

Eve: [00:03:04] If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:03:33] Hello Scott, I'm so pleased to have you on my show.

Scott Ehlert: [00:03:37] Thank you. Yeah, good to be here.

Eve: [00:03:39] So you've had a fascinating and pretty astounding career, from concert and event management to design and strategic consulting, to property technology. So, I wanted to start with what you're doing right now. What are you doing right now?

Scott: [00:03:57] Yeah, great question. Yeah. So we are, I've created a company called Fabric Workshop and we are pioneering a new next generation mass timber manufacturer. We manufacture in California and a fabrication, a digital and robotic fabrication facility to bring those next generation Messmer panels to life.

Eve: [00:04:20] So what does the next generation mass timber panel mean?

Scott: [00:04:26] Yeah, so, you know, we kind of started our journey looking at the cost of housing. And, you know, as you mentioned, I worked as a design strategy consultant for many years and I kind of had run my course in that in that career and was looking for something new and something for, you know, a bit more impactful. And really started looking at housing, which was the most kinda pressing thing in my life as I was starting a family and seeing how so many of my friends and peers in California were leaving the state because of the cost of housing or were in a constant state of financial and mental pressure due to housing. And I also consulted with quite a few really large companies, just by chance in my design consulting days, worked with some of the largest companies in the housing and real estate space in the United States and just saw this, you know, kind of looming existential crisis around housing affordability. And, you know, when the housing affordability comes up, we love to kind of cut out the perennial teachers and firefighters, as you know, our benchmarks for who can afford housing. But what we were seeing was that housing was really kind of impacting bankers and doctors. We were you were talking to doctors who were having to have roommates in the Bay Area because they couldn't afford the housing.

Eve: [00:05:54] Wow.

Scott: [00:05:54] And so there was this kind of big, big question of like, how do we make housing? How do we create housing in California that's affordable to middle income folks we traditionally call the middle-class. And so that started us down a really long journey and looking at just a year long process of just listening and asking questions and sitting in the back of rooms and talking with as many folks in the in the industry as possible. And it became really clear that how we build and the type of projects we build were really kind of fundamental to, this seems kind of obvious, the kind of fundamental to the cost of housing. And so, you know, we really started to look at how we can build things differently and what with the technologies available out there to help them offset these costs.

Eve: [00:06:53] So let's back up a bit. Like for some people listening, they may not know what mass timber is, which is kind of all the rage in the architecture building industry, but perhaps not something that most people know about.

Scott: [00:07:06] Yes, so mass timber is kind of the catchall phrase for what is a range of engineered wood products similar to glulam beams. The most prominent is cross-laminated timber or CLT. And that's, the that's the type that you'll see turning up most often. And what CLT is, is just that, it's cross-thatched, and kind of cross-threaded dimensional lumber, 2x6s and 2x4s, laid out in a giant press with glue. And then that press puts extreme pressure on those panels and that glue and turns it into essentially a giant butcher block. It turns it into a more or less a solid piece of wood. And those panels can be 12 feet tall and 12 inches wide and 40 feet long or larger, in some cases.

Eve: [00:08:00] Smaller, non-structural pieces of wood, glued together and engineered in such a way that they become much larger structural elements.

Scott: [00:08:09] Yes. And then they take on some really incredible structural properties. So, you know, they are stronger and lighter than steel. Stronger and lighter than concrete. You know, it's an incredible product. It has been widely adopted in Europe and into East Asia and Japan. And it's just starting to kind of trickle up in the United States. And as you said, it's kind of all the rage right now. Everybody's talking about CLT and there's a lot of hopes and prayers being put on CLT as the, you know, the silver bullet that's going to save us from our cost of housing.

Eve: [00:08:46] So it's cheaper than steel and other structural elements. Is that what you're saying?

Scott: [00:08:52] Um, no, that's kind of the problem, that's the that's the challenge with it, is that while it does have these incredible attributes, you know, speed of construction is one of them. You know, these are essentially printed building panels. You know, you can get an entire wall or, you know, five, half a dozen panels to make an entire floor plate of a large building. And so you're seeing buildings, you know, eight story buildings go up in two weeks. Right. It's all crammed in. It's all kind of flat packed like, an IKEA footer. Pre-cut, pre-manufactured, there's no saws on site, no hammers. You know, nobody's doing anything manual on site. They're just essentially cramming these giant plates into place and a small crew catching the plates and then screwing them into place with some really advanced metal connectors to hold this together.

Eve: [00:09:51] But the materials themselves are expensive...

Scott: [00:09:54] Right.

Eve: [00:09:55] But you're saving, you're saving time on the site. You're saving uncertainties like weather. Because they are factory built.

Scott: [00:10:03] Yes, exactly.

Eve: [00:10:05] Insurance you're saving.

Scott: [00:10:09] Yeah. Insurance is still kind of a question mark. It's still very new in the US. So, the insurance has not quite caught up yet, but it is completely a completely safe product that has to go through a very rigorous testing process called PRG 320. And that is the fire certification process. And it's also been the new international building codes updates around mass timber and CLT. So they're able to build much larger buildings now. So, you know, 18 plus stories, large warehouse facilities, distribution centers, you know, these very large type two, type four type structures can now be built with mass timber.

Eve: [00:10:47] So, in balance then, if you can save all of these site costs, will it provide a less expensive solution? And especially for, you know, what you're focused on, which is what I understand, the missing middle housing, those smaller infill lots that maybe are not as efficient as a huge 800-unit building, but certainly helped to kind of just stitch cities together, right?

Scott: [00:11:17] Yeah, exactly. So, when we were looking at CLT, we want to have all of the benefits of CLT, but without the biggest drawback and the biggest drawback of CLT, or there's a couple of other variants like DLT, which is dowel laminated timber, which is they use wooden dowels to connect the boards together, or NLT, which is nail laminated timber, which is just that the boards are stuck together with nails. The biggest drawback with them is, with those technologies, is they just use a lot of wood. There's just no way around it. It's a giant butcher block and so, you know, and it uses dimensional lumber, the same lumber that stick frame builders use and modular builders use. You know, when you go to Home Depot and buy, you know, Doug fir for your deck, that's the same stuff that goes into CLT. And so, you know, it's a commodity product and they're using a lot of commodity product. It's susceptible to high prices and that there's just no way around that. And so, you know, I don't know how anybody that started a CLT project a year ago is going to make those projects pencil today. What, the cost of dimensional lumber up to, what, two hundred percent or something like that over year over year. Right?

Eve: [00:12:34] Why is it up so high?

Scott: [00:12:36] Yeah, so...

Eve: [00:12:37] I'm sorry. I'm completely new to this so I'm learning.

Scott: [00:12:40] Absolutely. Yeah. Yeah. No, this is you know, we are we are incredibly focused on the forestry and supply side. You know, we are kind of a hybrid between a housing prefab re-manufacturer and a forestry company, in particular the wildfire side, so I can definitely share more on that. And so, yes, you know, the implications on the lumber costs are, have a big, big impact. And lumber prices were already going up, right, there was just limited supply. There's limited companies involved in the forestry space. And everybody's going out to the same suppliers, like, you know, in the US. Dimensional lumber on the West Coast comes primarily from British Columbia, Washington and Oregon. And Idaho and Montana to a lesser extent. But those are the three kind of major producing markets and everybody's buying it. Right. And even if you're on the East Coast, a lot of people want that, like the aesthetic and material qualities of West Coast feedstock. And it's primarily Doug fir. That's what everybody wants. And so there's just high demand, it's just a supply and demand, and then Covid came and just threw a giant wrench into all of that. The mills shut down, the logging shut down, and everybody thought the housing and construction industry would collapse with Covid. But just the opposite happened. There was a huge remodel boom, a huge push for new homes in the suburbs. People were trying to get more space. And so the macron effects of that are that an industry that was already under high demand pressures is now under extreme demand pressures. And then they took their capacity offline for a period of time with Covid. And now they're just trying to play catch up. And the industry in 2019 is already at record highs. And now we are just, it's just through the roof, you know, OSB board, plywood of all that down the stack is all impacted by this. And so, when prices are just really high so CLT or DLT, NLT that's just going to be less price competitive now than they were before.

Eve: [00:15:00] Interesting. So let's go back to what you're trying to solve and what your solution looks like. And then we can talk about how the last year has impacted that.

Scott: [00:15:11] Yeah, absolutely. Yeah. So, you know, that use of material is kind of fundamental to our approach. And, you know, we were really pursuing a CLT based product initially. But when we, when that reality of the the material cost, the fiber cost, just was the 100 pound gorilla in the room, there's no way around it. It's going to just do more research. Kind of went back to the table and some to look at those more mature markets in Europe and Japan and started to see this kind of, as I was saying, the next generation of mass timber products coming out where they've already kind of gone through that and recognize that, you know, a CFT panel is not necessarily the ideal product for a lot of building types, particularly smaller and faster buildings. And so what they're using now is what are kind of known as cassette systems. They, these are a panelized approach, just like CLT, but they're taking the fiber out. And so, what they're doing is, they'll be more or less there's like two kind of sandwich layers, a top and a bottom and then a structure on the inside of those two sandwich pieces that give it the structural integrity. So you get a box-like panel with a hollow core and that removes a substantial amount you know 50, 60 percent of the fiber, from those panels, driving the cost down while still maintaining the structural integrity of a full kind of solid wood panel.

Eve: [00:16:47] Like a hollow core door, but not as flimsy?

Scott: [00:16:53] Exactly. A hollow core door that you could build an eight-story building out of.

Eve: [00:16:58] Yeah, yeah.

Scott: [00:16:58] There's a membrane, a structure on the inside of that hollow core that gives it its strength. Ingenuity at play here. Companies are now taking advantage of that cavity to include things that would normally be exposed in a CLT building. So, CLT with the solid wood in place, all of your MEP systems, your electrical, your plumbing, your lighting, all of that can't run in the middle of the plate. It's solid wood. Right. And so it has to be hung underneath or run in interior walls or both in most cases. But with these hollow core cassette systems, you can actually run those MEP systems inside the cavity of the floor plate. So, it gives it a much cleaner and tight aesthetic.

Eve: [00:17:46] Yeah, yeah.

Scott: [00:17:48] And then you can also add additional elements to those cavities. So you can add acoustic materials, you can add insulating materials to increase the R value. You can add seismic and fire safety materials in there. And so you can actually get a much thinner for floor plate overall than CLT, where you have to then just have any piece stuff hanging beneath it. With CLT, a lot of that insulating and acoustic and dampening performance has to be laid on top. And it's generally a really thick concrete layer that's poured on top of the wood panel. So, a lot of people with CLT they think that you get to see all the wood, but in most cases you don't. Actually, on the floor plate it's kind of covered in five inches of concrete and gypsum and all that stuff. So, the cassette systems are a really genius kind of approach to a lot of those challenges with CLT.

Eve: [00:18:44] And it means less time on site, by the sounds of it.

Scott: [00:18:48] It does, yes. But the flip side of all of this is that it does add complexity and you do have to be in much deeper coordination with your trades very early in the process to coordinate where all of those runs are going through those plates so that the connection points on site are all, you know, when you when you're doing a small prefabricated, a lot of it's going to be automated. And so, the tolerances are down to the millimeter. So things have to be tight. There's no change orders, I guess. So there's no saws, there's no handsaws or circular saws on site to fix problems. Everything has to be really, really tight. So that really, kind of, front loads the design and the engineering process. And all of the trades have to be at the table very early. And so, it's a very different process than a standard site build construction. You know, that's the trade-off. Is that the process that has to adapt to the material.

Eve: [00:19:47] Just listening to you speak of it sounds to me like you might be enjoying that process.

Scott: [00:19:53] Yes, very much so. Yes. As somebody that that worked in design and system design and customer experience design, you know, all of that thinking is really, you know, and you can see the outcomes, right?

Eve: [00:20:07] Yes.

Scott: [00:20:08] You know, you can go and tour these sites in in Europe and parts of Australia, where they're being, you know the sophisticated approaches, is happening in Japan and particularly Central Europe, where this market is very mature. I mean, you're seeing build costs in major urban markets, you know, down to 140-150 dollars a square foot.

Eve: [00:20:29] Oh, that's extraordinary.

Scott: [00:20:31] Whereas in San Francisco, you're at, what, 750-850 a square foot for a poor-quality building.

Eve: [00:20:39] Yeah.

Scott: [00:20:39] That's what we're kind of chasing. Right. Like that's the that's the end goal is to build out the system that can drive towards those better pricing outcomes and make housing more affordable.

Eve: [00:20:50] Where are you in your process right now? You've been at this for how long?

Scott: [00:20:56] We're now officially into year three, so it's a long and winding road. As I mentioned, with our company, with Fabric Workshop, there's this really big wildfire and forestry component to it. So, we are focused very much on the California market. We're based in California. We by no means will turn clients away, that's in a neighboring state. But the challenge in California is so enormous that we feel like that so many other housing starts to take on like a national approach. And we feel that we just need to be very specific to California and the codes and the and the challenges and the crisis that that's at hand here and that it's a big enough opportunity that it can justify that. The new housing element numbers are coming in across the state. And, you know, we're going to need two million units of housing in the next, within the next 10 years. You know, it's just a staggering number of housing. And so that that volume actually presents a really powerful opportunity to impact another, maybe bigger crisis at hand in the state of California. And that's the wildfire situation here. And so, I don't know, I'm sure you've seen that on the news.

Eve: [00:22:21] Oh, yeah. I mean, I'm Australian, I don't know if you realize from my accent, so I've lived with it.

Scott: [00:22:27] Yes, that's right. Right. So, yeah, in California, you know, five of California's six largest fires in modern history were all, all happened last year. And they were all burning at the same time. Right. When four million acres of forest burned across the state last year, which was double the previous record, which was just in the previous couple of years. You know, it's just really staggering, right? There was nearly ten thousand separate fires across California last year. And the fire season is growing, right? Climate change, drought is driving more extreme fire seasons. And so, we're now seeing fire season in 2020 is 75 days longer than it was 20 years ago, just 20 years ago. And that's two months longer, two and a half months longer. And so there's this overarching kind of pressing need to fix that. And one of the best things that we can do is to get this excess unnatural growth out of our forests and turn it into wood products. So our forests in California are completely overgrown, grossly overgrown, naturally overgrown. We have, for the last hundred years, we've taken a policy of complete fire suppression.

Eve: [00:23:52] That's really interesting. Yeah, because fire is an actual regeneration of forests and that's what was brought up on me.

Scott: [00:24:02] Exactly.

Scott: [00:24:02] They happen for a reason. So, you have to just control them.

Scott: [00:24:07] Yes. Yes. And so we actually have to go back to a natural fire cycle where we're not stopping fires. We're actually letting fires happen. But in order for that to take place without being so destructive, like they are now, is we have to get all of that overgrowth that was the result of stopping fires in the forests.

Eve: [00:24:26] That's really interesting, though.

Scott: [00:24:28] Yeah.

Eve: [00:24:29] But my question is, is why were they stopped? I've always thought that the push of, you know, the spread of cities into forests. I mean, I've seen it in Australia, you know, as housing popped up in amongst the forests. Of course, you want to stop fires there. And that also exacerbated the problem because, you know, you have this push and pull between people who want to live in those places and the natural the natural forest. It's a mess.

Scott: [00:24:58] Yeah, right it is. Yeah. That's a huge, huge driver to it that that growth is called the WUI. It's the WUI and that's the wilderness urban interface. And that that growth, particularly since the 90s, has just been exponential as we've continued to sprawl ever farther outward in California. We've pushed our towns and cities, the perimeter, more and more into that WUI. And so that's been a big, big driver as well as the, you know, the agricultural, livestock and forestry industries in the 20th century. They didn't want fires. And you combine that with just a...

Eve: [00:25:44] Yeah

Scott: [00:25:44] Very. What's the term? I mean, what's the word? How do you describe it?

Eve: [00:25:48] It's a manmade problem.

Scott: [00:25:51] Yeah, yeah. And just a desire to control nature, you know, is man's desire , the man emphasis there to control nature and dictate, basically saying fires are evil and treating them as a as an enemy that needed to be defeated.

Eve: [00:26:07] When I was young in Sydney, Australia. I mean, I remember bush fires. Like Sydney's a huge….

Scott: [00:26:12] Bush fires. Yeah.

Eve: [00:26:12] I remember in the middle of the city, seeing just red and grey sky all around me. But there wasn't the pain and misery of today because not, there was not nearly as much suburban housing - it pushed into the wilderness.

Scott: [00:26:31] Yeah. Yep. Yep. And that's the same here. That's just an overarching problem that needs to be solved. And there's really no easy solution to it. The state now has about 33 million acres of forest, which is bigger than Oregon, and 13 million of them are considered very high risk. These are drought affected, beetle infected, because of lots of dead trees, and they have just this extreme level of overgrowth and that overgrowth are small and medium diameter trees. Those are the trees that normally would have been cleaned out by natural wildfires. And because there was no natural wildfires, they just exploded. And what they do, the small and medium diameter trees, they're much more susceptible to fire, but they're also tall enough to carry the fire into the canopies of the healthy, strong trees. And that's where we get these infernos that then get the wind picks up in the canopy and carries it from tree to tree. And it just creates these, this tinder box. So, we have to get those small and medium diameter trees out of the forest. And right now, they have no value. They're used for livestock, mulch, woodchips in your yard. And that's not a valuable enough product to justify the cost of thinning, mechanical thinning. And mechanical thinning is a laborious, hard job. You have to, you know, carry chainsaws and particularly if we want to take a much more ecological approach to forestry thinning and not clear cut and carve up all of these fire roads that cause horrible erosion. The state's trying to avoid the forestry problems of the past. So, it's all done, a lot of that has to be done by hand, much more mechanical.

Eve: [00:28:20] 32 million acres, manually cleared.

Scott: [00:28:24] It's staggering.

Eve: [00:28:25] It's really staggering. How long does it take?

Scott: [00:28:28] Yeah, the goal of the California Forest Management Task Force, which is kind of the broad extra agency group that's trying to address this challenge, their goal is a million acres per year by 2025. And right now - in 2019, we had 114 thousand acres - so we're off by a factor of ten.

Eve: [00:28:47] Wow. That's like one hundred years we're looking at and more.

Scott: [00:28:52] That's right. And what's going to be left in California in 100 years of we're burning four million acres a year. And it's not just, this is not an abstract any more. Our water, for all of those cities comes from these forests and with these forest fires that you can grossly impact our water supply. The carbon impact of this. Right, 2020, there was 112 million metric tons of carbon were released by the 2020 wildfires. Which is 30 percent more than all the power plants that generated power that year. So, the health and that's how you get into the asthma and respiratory issues of all that wildfire smoke. I mean, the implications of our society are bleak. And so, we have to figure out ways to get those small and medium diameter trees out of the forests. And that's why we really kind of looked at, you know, not only these cassette systems, but getting away from dimensional lumber and really kind of focusing on veneer-based products. So, there's another sub product of mass timber known as laminated veneer lumber or mass plywood panels, mass plywood. MPP is a brand from an Oregon company called Freres Brothers. And what they do is instead of cutting the log into 2x4s and having a bunch of scraps left over, is they put the log on a peeler and they peel the log and turn it into a big, long sheet. And then they glue those sheets together versus gluing 2x4s together. And that's something that you can do, that's, a that's a vehicle for these small and medium diameter trees, whereas 2x4 dimensional lumber is not really feasible. And so they can peel logs, you know, down to six to eight inches and turn them into veneers. And so that's what we're really focused on, is these veneer-based structural products. Both floor plates, floor and ceiling plates and wall plates as well. That's where we see our role in the forestry and the wildfire piece is creating market side demand for these small and medium diameter trees and putting them into really advanced, these really advanced cassette-based plate systems.

Eve: [00:31:14] Interesting. So I'm going to back up one more time. I sense a two-parter is coming on here. This is fascinating because...

Scott: [00:31:24] Yeah.

Eve: [00:31:24] I heard somewhere in amongst all the impact finance center information that there is a company out focusing on small diameter timber products. I can't remember the name of the company, in California.

Scott: [00:31:38] So, we pitched at that event. So you might have, is that our pitch that you're referring to?

Eve: [00:31:44] No, I think there's another company I talked to so, we can come back to that.

Scott: [00:31:50] Yeah, yeah.

Eve: [00:31:51] But I've heard of people focusing on specifically that product and now it's all falling into place for me. Personally, I didn't know all of this. It's really fascinating. But the importance of using that small diameter timber is becoming pretty clear.

Scott: [00:32:07] Uh huh. The great thing is that it could actually go into a very valuable product for the construction industry, the building industry. Incredibly green product, right? Very, very high embedded carbon in the veneer-based products, much lower travel times if we're sourcing our wood from our local forest and putting it into buildings in Los Angeles and Sacramento and San Jose. Think of all the truckloads from British Columbia and northern British Columbia that we're saving, right. And all that diesel fuel that gets burned. So, this really big upstream and downstream and benefits to sourcing this wood from California.

Eve: [00:32:51] Sounds like a whole new industry can emerge.

Scott: [00:32:54] That's the goal, right. And that's what the state is trying to incentivize is a re-ignition. I hate to use fire related terminology when talking about this stuff, but like, we kind of rekindling, that's another one, restarting a forestry industry in California, which is really kind of on its last breath. Like, in the last 45 years, 70 percent of wood processing facilities in California closed. So, there's really no eco system to actually process this. There's no LBL manufacturers in California. There's no plywood manufacturers in California. There's very few mills left in California. There's very few loggers left in California. And so we're kind of having to start from scratch. And what the state is working on is incentivizing and creating these wood products, wood innovation campuses, across the state to bring this industry back. And to bring it back with a much greater kind of technological focus and an environmental and ecological focus. And so that things are done right. And so we're at very early days of that. You know, we are not going to try to get into the manufacturing side of the LBL panels. It's a very capital heavy side and there's a reason why most of the companies that get into that, you know, they have three or four family generations that have been in the logging industry or they've been around for 150 years. You know, there are companies that just know how to do that and to manage those supply chains and to manage that production. And so we're focused on it being a remanufacture of those products. And so, if we can help, you know, kind of show that there's demand for this for this LBL and MPP type panels in California, hopefully we can then lure a manufacturer to the state, with our some of our demand, and get them active in the state and thinning our forests.

Eve: [00:34:58] So, Scott, you've bitten off a huge project, like where are you? You said you're in the third year.

Scott: [00:35:04] Yes.

Eve: [00:35:06] I mean, where are you in the process of building a company?

Scott: [00:35:09] Yeah, yep. So, it is a very meaty challenge and myself and everybody that's on our team is up for that challenge. That's why we're all here. We all understand the enormity of it and the, and the urgency of it. And that's what motivates us every day. And the fact is, there's not a lot of other companies doing this is yes, it's an opportunity, but it's also drives us to lead and to show that it can be done. And so, you know, we have to take advantage of the resources that we have. This is all bootstrapped at this point and self-funded, as you said, this is a big, meaty challenge. So, it's really hard for investors to kind of wrap their head around it or see an exit to liquidity event in the near term. So fundraising has been a challenge, but that's really not a deterrent to us in the slightest bit. And so, we have to focus on what we can sell for.

Eve: [00:36:08] Well, you have to eat. It's going to be a little bit of a deterrent, right?

Scott: [00:36:13] Well, you know, the spouses of entrepreneurs do a lot of the heavy lifting. Right? And so, I have a really, my wife is an incredible partner and she's also an entrepreneur, though a much more successful one. And she's able to carry us through this kind of start-up period. But what's great is that our story and our kind of mission is bringing a lot of really amazing people to the table. We are working with a company, for example, called Hacker Architects up in Portland, and they are an incredibly experienced, one of the most experienced architecture firms in North America working with mass timber. And they are becoming friends. Right. Like they they've really been a key supporter of our mission. And it really kind of backed us up and provided a lot of design assist and are really helping the design of our building system, because we have to think of this as a holistic building where we can put these different wood materials throughout the building. And so that's just one example. We've got a whole network, whole ecosystem of companies that all share our same values and recognize the enormity of the problems that we're solving. And so, we've built this great network of aligned allies that are helping us drive this forward. So, like I said, we're a small kind of bootstrap team, but we've got some really great friends. And, you know, we are in the R&D phase and getting closer to a first prototypes. We originally had our first building construction project penciled as supposed to break ground this year, as a single-family home in the Tahoe region. Unfortunately, that project kind of fell through, just wasn't the right application. And so, we decided to kind of shift focus. But ideally, we'd like to get a project off the ground here sometime this year with our investor pool that we do have and get a proof of concept project on paper this year and breaking ground next year. So that's really what we're what we're driving for at this point.

Eve: [00:38:22] What is good proof of concept look like at this point?

Scott: [00:38:25] Yes. So, we're looking at a small multi-family project and that's the market that we're going after is a unique market in the industry. Most of the construction industry and the prefab industry is really kind of set up to focus on how we build in the United States today, which is sprawl or tall. Right? Like it's single-family homes on the peripheral cities, or it's a big giant two hundred unit podium structures or towers in the urban core. And Fabric, we see the opportunity, especially considering the sheer scale of the housing need and how fast that housing needs to be produced and brought to market. We really see the opportunity in that missing middle upper missing middle range, small to medium lot, three to eight story buildings. So that's really our key focus and really kind of unique, a bit more unique in the marketplace. And so we want to, we want to get a proof of concept project of at least four units. It doesn't have to be huge. It just needs to show how the systems kind of work together and kind of bring that to life in an infill type application.

Eve: [00:39:42] I'm excited to see it.

Scott: [00:39:44] Yeah.

Eve: [00:39:44] Are you going to act as your own developer or are you looking for a developer who will use your system?

Scott: [00:39:51] Yeah, it's kind of like yes and...

Eve: [00:39:55] Yes, I know.

Scott: [00:39:56] If we yes, either, you know, we are talking to more and more developers. We are finding that network of of young kind of independent developers, baby developers, I've heard that kind of term kind of thrown around, you know, the folks that are producing like the 20-unit buildings and the odd 16-plex. Right. Like those small buildings. And we're building that network. And hopefully we can bring a developer partner to the table sooner rather than later. But we're also kind of setting ourselves up for self-developing our first project. And that's what we were going to do on that single family home. We were going to develop that through our, through one of our investors, but we kind of shifted and would like to ideally bring on a development partner that knows that process better than we do. You know, we're not developers.

Eve: [00:40:47] And so you might stretch yourself very thin during trying to do both.

Scott: [00:40:52] Yes, exactly. And we have to kind of kind of focus on what our value add is. And the development side is not it today, who knows down the road where this goes. But as of now, ideally, we have a partner that can, that can really kind of drive this through that to the development process.

Eve: [00:41:11] So you've talked about these materials looking very sleek. What does that first project going to look like?

Scott: [00:41:18] Yeah, I wish I could show you some of the renderings, the absolutely beautiful renderings that Hacker put together for us. One of the advantages of focusing on this smaller type three, type five building typology is that the fire code and the fire ratings aren't as strict with the CLT. So we can leave a lot more of that with the mass timber, we can leave a lot more of that exposed. So, you'll see a lot of exposed natural wood elements. So wooden ceilings, heavy timber beams, well it will have the aesthetic about heavy timber beams, but it's actually LDM. A lot of the columns in the beams will be exposed and even wall panels can be of exposed wood to them. So, a very natural and a minimal, what's the term a soft minimal kind of aesthetics to them and and very high precision tolerances on that minimalism, right, like that's kind of what separates good minimalism from bad minimalism is the execution and the precision of it. And because everything is cut in a factory, the aesthetic is just really tight and really clean. And so we're really looking forward to bringing that to life.

Eve: [00:42:37] Do you have the renderings on the website you'd like to share?

Scott: [00:42:40] Yeah, on our website we have a few renderings on there. So you can kind of get a sense out of the real aesthetic and that that would be our proof of concept project. Each developer will have that choice that they want to drywall over those exposed wood elements they can. But our preference would be to leave them exposed. And there's a lot of really interesting data back to that benefits of mass timber. There's a lot of really interesting data around the biophilia benefits of mass timber, where people get that sense of serenity and calm. Like being in a forest.

Eve: [00:43:16] Yes.

Scott: [00:43:17] In a mass timber house, they are really cool buildings. I don't know if you've had a chance to spend time in one. But they do have a a dampness to them, not not wet, damp, but just materially damp. And so sound travels differently. And you do get the sense that you're in the forest. It's really, it's a really cool experience.

Eve: [00:43:37] So I'm going to go back. You're in Truckee. Right. And I'm wondering...

Scott: [00:43:41] That's correct. Yes.

Eve: [00:43:42] Why are you in Truckee?

Scott: [00:43:44] I asked myself that question sometimes, too. I love Truckee, but I'm definitely a city kid. So, Truckee is more or less a one road town. And so, I do feel a little stir crazy here sometimes, but it is a great place. And I have two young kids, four and six years old, and just this is a big playground for them. So, we ended up in Truckee a long time, a decade and a half in San Francisco, three years down in Los Angeles, and then had to get out of L.A. and Truckee was supposed to be a one year stopover on the way back to the bay. But, shocker, the cost of housing was so high in the bay that we couldn't afford anything there so we could afford something in Truckee, Truckee at the time. So we were able to…

Eve: [00:44:34] You're living the Californian dream.

Scott: [00:44:36] Yeah. More or less trying to.

Eve: [00:44:40] Okay. So tell me, I'm going to move to shift gears a little bit and just ask you, are there any other current trends out there or innovations in real estate development or construction that you believe are really important for our future?

Scott: [00:44:54] Yeah, and so a couple, yeah, so one thing that we are bringing in house we have, this is a capability that we are, as we speak, kind of building out a facility is the fabrication side of construction and particularly automated and robotic fabrication. That is the piece that's going to have prefab construction kind of realize the benefits that it kind of promised the world when it came out a few decades ago. You know, from pricing to quality control, robotic fabrication is going to be a huge piece of this. And we are actively building that capacity out in California, will be a leader in that space here in the state. And particularly as more and more construction will go towards wood-based construction to offset the carbon and environmental impacts of concrete and steel. You know, we firmly believe that wood construction is the future of construction. And so, to make that a reality, you have to have a much more advanced fabrication capabilities like you see across Switzerland and Austria and Germany and Sweden, for example.

Eve: [00:46:10] Right. Right.

Scott: [00:46:11] And so that's going to be a big piece. Right. And then, you know, I do believe fundamentally that we are seeing the cracks in the dam when it comes to planning and zoning in particular. I think that the sea change and our laws and regulations on what gets built and where is going to happen very quickly, much faster than I think a lot of people give it credit for. You know, we are slowly starting to see the end of single family only zoning. When I first really started thinking about creating the housing company in 2014, most of them really talk about like, oh, yeah, houses are expensive in nice parts of the city. But that was kind of the attitude. And now fast forward seven years and it's a topic in our presidential campaigns. It's just becoming a fundamental issue in this country. And I think that the 20th century experiment of highly segregated neighborhoods, housing over here, business over there, commerce over here. Single family based, car based, an entirely car-based society, car exclusive society. I really fundamentally believe that that is coming to an end in California and that those changes are going to happen. It's going to build and then is going to happen really rapidly.

Eve: [00:47:36] Wow. I have one final question for you, and that is, what is your big, hairy, audacious goal?

Scott: [00:47:43] Yeah, I and I would say, you know, not as ambitious to say we want to build a new city out of wood, but definitely, you know, a neighborhood out of wood. That's kind of our big goal is to build a five 600-unit community, all sustainably sourced, locally sourced, sustainably sourced timber neighborhood. And we're seeing those neighborhoods pop up in Europe and Japan and they are incredibly inspiring. They are walkable, human scaled, car free, no carbon passive house technology. And I would love to just get my hands on a decrepit shopping mall in central Sacramento and convert that into the neighborhood. A vibrant, diverse, mixed income neighborhood in in Sacramento, for example. And that's our big, big goal that we're driving towards.

Eve: [00:48:41] Oh, I'm really excited for you. It sounds amazing. And I hope sometime in the future we'll get to host one of your projects on Small Change.

Scott: [00:48:51] Would absolutely love that. Yes.

Eve: [00:48:53] Thank you so much, Scott.

Scott: [00:48:55] Yes, thank you, Eve. Really appreciate the time. And I'm honored to be on your podcast and be part of this group. So thank you.

Eve: [00:49:11] That was Scott Ehlert of Fabric Workshop. Scott pivoted his life and career in a way that most people do not dare. He is making all bets on an industry that doesn't quite exist yet and technology that he needs to design. While other housing developers try to crack the construction affordability code using the same old building systems, Scott has spent years planning how to become a housing developer using a brand new building system, one that he has designed and one that he will manufacture. We'll be hearing more about Scott. I'm sure.

Eve: [00:49:58] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed, or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:11] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So, I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers.

Eve: [00:01:10] Today, I'm talking with Andy Williams, the founder of Recon Realty, amongst other things. Andy was a Marine determined to better his life through real estate. In a fairly short period of time, he built a substantial portfolio of homes, a real estate development business focused on larger projects, and a program that seeks to turn veterans into entrepreneurs just like Andy. While Recon Realty is focused on making a profit, Andy's heart is in the impact. The question for him is, how can he use real estate to turn transitioning veterans into entrepreneurs so that they too can turn a profit? Patriots need to start buying up America, he says. I'm going to learn a lot from Andy and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:02:42] Hello, Andy, thanks so much for joining me today.

Andy Williams: [00:02:46] Oh, it's a pleasure to be here. Thanks for having me.

Eve: [00:02:49] So you've gone from being a U.S. Marine to a real estate developer to impact entrepreneur, in a pretty short period of time. And I wanted to start by asking you how you got involved in real estate.

Andy: [00:03:03] Real estate really was a transition from private security contracting to civilian life. I was trying to build a bridge back home, so I bought my first rental property in 2006. And it was a safe investment, an easy investment and made sense. And I just kept doing it for about six years, buying rental properties in my hometown with the intent to build enough cash flow to replace my income that I was making overseas.

Eve: [00:03:38] And where is your hometown?

Andy: [00:03:41] It's in central Texas.

Eve: [00:03:42] Okay.

Andy: [00:03:42] So I'm 5th generation Texan. So...

Eve: [00:03:45] Okay.

Andy: [00:03:46] After getting back from the Marines, I made Texas my home.

Eve: [00:03:50] What did it take to purchase your first time? I mean, that's a pretty big leap from Marine to buying a house.

Andy: [00:03:58] Yeah, actually, my first house was around 50,000-dollar rental property. So it took me, I think I put 20 percent down, so it was about 8,000 dollars. And after I got out of the Marines, I'd actually save some money while I was in. And then I was making, you know, very good pay, working with the State Department, under private security contract. So, I I'd basically reinvest my my monthly salary into rental properties for about six years.

Eve: [00:04:33] Wow. So. And did you need to make these properties tenant ready? Like, I suppose I'm wondering what skills you had to learn in that transition and how you identified the right sort of properties to buy. And you know, what your plan was. What was your big strategy?

Andy: [00:04:50] I didn't have one of that time. I grew up in in this in this community that was segregated. It was there was good houses, bad houses, you know, people that were rich and there was people that was poor. There was really not a middle class. And so when I started making money, I wanted to buy properties for the underserved and provide sustainable housing. So, my dad was a concrete foreman when I was growing up. And around that time, he was he was aging out, wasn't able to do the do the work that that he had in his trade. And he was kind of out of work. So, he was kind of my eyes on the ground, and I would buy properties and he would be my project manager and he would make them ready and then we would lease them out. It was very mom and pop.

Eve: [00:05:45] That's fabulous. Yeah. Were your first houses a success or did you have any failures, any moments where you regretted what you were doing?

Andy: [00:05:57] No. I'm very conservative and I was always I've always been an investor for the long haul. So, you know, I think I just sold last year a property that was in my portfolio for 15 years. I think some of the the fifth house I ever bought was a duplex. It's still in my portfolio. I've always looked at real estate as a as a way to kind of build wealth, but also solve a problem. And I think that's what attracted me to the affordable housing market. Because I grew up understanding that real estate and safe housing, quality housing was really a privilege that was afforded to few.

Eve: [00:06:43] Yes.

Andy: [00:06:43] And when I was in a position to, you know, do well, I wanted to do good. And so it became a safe return. It wasn't until I started trying to build an operation around it, was there risk really being assessed because I was buying really cheap properties in a market that I felt that I understood. I actually felt that it was misaligned and I wanted to play on the long haul and being well traveled as a as a veteran and seeing kind of the simplicity of being able to buy a home, you know, fix it up and rent it out and looked at the rate in the rents and the cash flow, it just made sense. But when you started to, it was it wasn't until 2012 when I came back from Iraq. At that point, I had about 50 rentals and I wanted to kind of start a business. And so I started looking at trying to integrate construction component and I started flipping houses. And that's when I started realizing that there was a different dynamic. Most of that had to do with the characters. When I started investing in the in the city, the Dallas Fort Worth area. I ran into some bad actors and not everyone did what they said. And you had to kind of have protocols in place. And so, I spent a better part of three years building some infrastructure. But I was able to kind of make some mistakes and build through those those challenges because I always held a decent sized rental portfolio, that in my mind was kind of a baseline. It was a cushion, in case you ever ran into some problems you could dump a rental and if you needed to leverage, you had cash flow coming from your rental portfolio. So, you never really was too overexposed.

Eve: [00:08:56] So how big is that portfolio? I mean, what do you think the baseline should be for people who are listening?

Andy: [00:09:03] That really depends on your goals. I mean, mine was, you know, about a five-million-dollar portfolio. And, you know, I was thinking I got it up to about 100 houses. I've scaled it down over the last three years because I hit that threshold where I didn't want to deal in that housing stock. And then also I didn't want to reinvest in the communities where I had properties. I ran into some some infrastructure challenges. My dad passed away in 2014. My mom started managing the properties and that that original portfolio really was just kind of a mom-and-pop operation and meant to be mom and pop. And once, you know, it kind of served its purpose, I divested it. And then I moved my operation to the major market and then I started building teams. And the projects I'm doing now, they're more, you know, leveraged on teams. I'm good at I'm good at certain things, certain things. You know, I'm not as strong at or passionate about. And so I leveraged my my military background to kind of build teams and into medium to large size projects that are basically what I've learned over the last five years is that, you know, good projects are are really executed with good teams and a solid project is is really effective if you can assemble the right team around it. And so I focus on team building around projects at this point. And entrepreneurially, I have a focus on, you know, capacity building and training that I actually do what I've already done. And that's more more where I'm headed in the future. We're actually rebuilding our portfolio now, but we're doing build to rent and we're we're playing in and into areas and we're focused on distressed communities that have been redlined or segregated or socially deprived of capital because of its demographic. And we're trying to get ahead of gentrification and build capacity...

Eve: [00:11:15] Right, right.

Andy: [00:11:15] And then trying to hold some properties there as we we have an input.

Eve: [00:11:19] But what a great story. Those small properties really helped you build a much, much bigger career. And that's, that's pretty valuable, right?

Andy: [00:11:31] Yeah, I think the sense is, is, you know, you make your mistakes and you learn. But I think the biggest thing that I've learned over the last three years, maybe five, is that, you know, I got started early and I was lucky because I was you know, I was advised to invest for the long haul and I wasn't looking for, you know, a quick buck. And once I figured out something that made sense and it made money and kept doing the same thing.

Eve: [00:12:01] Yeah.

Andy: [00:12:02] It's like in the military, you know, in the Special Forces community, you don't you don't really add a magic style or systems. You just kind of focus on mastering the basics. And that's that's what I did. So when I look at, you know, buying, you know, single family homes to to do renovate to rent, it's very simple. You do it once you figure out what your kind of your cost is, you know, you take a wood frame home 1950s. You got to figure out what it's going to be to get that renovated and get it turn what it's going to rent for, what your leverage is going to be. And you just rinse and repeat once you figure out how to get in there. Right. You you get it gutted. You put it back together and you throw a tenant in there. It's really should be, you know, an operation, a management issue. And you just scale up to what your capacity is. And, you know, there's a lot of liquidity in the market now, too. And so, you know, the finance vehicles that are present today weren't present 10, 15 years ago. So it's a lot easier to to really execute the scale. You know, an operation and you just got to find the right markets and the right product.

Eve: [00:13:18] Right, right, right.

Andy: [00:13:18] So you can go that down.

Eve: [00:13:20] But I've also read that you want to use real estate to turn transitioning vets into entrepreneurs. And so, you know, to help people like you do the same thing in some way. And how do you do that?

Andy: [00:13:37] A couple of years ago, I got to a point where, you know, I had some national exposure and I was able to create a conversation with the right people. So, I've always thought that and believed in the idea that America runs on capitalism and veterans were not necessarily being positioned to build sustainable businesses. We were kind of being, you know, reintegrated into corporate America. And, you know, a lot of veterans just aren't cut out, nor that they need to just go right to work. They need to figure out a passion that they can pour their energy into. And it can be project based.

Eve: [00:14:22] You know, my son is a vet, so I witnessed that firsthand. Takes away the transition. Yeah.

Andy: [00:14:29] Yeah, so funny story. There's a Marine that got me in the real estate. He was a World War II Bronze Star recipient. He fought at the Battle of Iwo Jima. And I still have some of the properties that he sold to me. But when I when I was in Iraq, I was on leave and I have seen this old frail man pulling some carpet out of this duplex. And I stopped and I asked him what he was doing and if it was his property and if he'd be willing to sell it. And, you know, gave me his number. When I got back overseas, I called, and we talked for about a month and a half and end up selling me the property. I didn't know him until he sold me actually about 30 properties, which helped me scale, but I never got to know him. He came back from World War II and he started a fencing company, and he was moving houses from Fort Stockton down to central Texas. And he he kind of had a retirement built on free and clear properties. And so I kind of followed his blueprint. But when I when I seen myself, you know, fast forward 2012, 2013, 2014. And then I get some national exposure. I just was frustrated that my peers, my friends, my fellow veterans weren't positioned right. And I just always felt America needed to do better, but I just didn't think they understood. So, I went to the Department of Labor and I sat down with them and I worked with them to create a programatic that, you know, I believe was a transition platform. And we tested it and we brought it to market. And we're now in the process of expanding that that mission. Rehab Warriors does exactly that. We teach veterans to be the average home builders and developers. The big difference is we're not telling them to come work for me or they're not vertically integrated and we're a construction company. We actually don't have them picking up tools and hammers and we don't teach them trades to work for DR Horton or Lennar. We we actually give them the principles. We show them how to model financial projects and we give them access to capital and we have them go access properties in their market.

Andy: [00:16:42] And we've got a lot of success. And that's more my passion. You know, I could flip 1000 homes in the next ten years. I could, you know, build a large rental portfolio, but that's not success for me. Success is if I can train 10,000 veterans to do what I've already done and find peace at home. Because I think the war fighter really does deserve to own part of the country by which it served. And the other way, I think that we're going to be able to to be able to do that, you know, truthfully is to buy at a discount, create the value and rebuild the infrastructure. And that's why we have a huge emphasis on affordable housing in distress zones. We teach these veterans, and we redirect their energies and efforts into their communities. And they're finding properties and they're having a lot of success. And naturally, they're building teams. But more importantly, they're local to their community and they're solving problems in their local community and they're finding their passion. And America's better for it, you know, I'm better for it. And and America is getting a new breed of developer that I believe it deserves.

Eve: [00:17:53] So tell me about some of these success stories. Like it sounds like you're sort of starting out on this journey. How many vets have you trained? How many have been successful? What does it look like so far?

Andy: [00:18:05] So we have 100 percent success rate. And, you know, we we probably supported about 100 veterans. So far through the training, we have about 50 on the platform we're going to roll out, which we're still early stage because I focused on making sure that we had 100 percent success and then tooling it down to where the veterans wanted to be. But we had a military veteran perfect case study. Female veteran, you know, started a minority owned business right inside the community that she was discharged from. And you know, she she got into, you know, our community back in June 2020. We helped source and identify the right property by August, matched her up with a local banker. She was able to access, you know, very competitive financing. We try not to play in the hard money space. We don't play in the private money space. We really have a position. We want proper capital to execute these projects. And so access to capital was something that I emphasized the last year and a half, two years. But she just finished her project, took her 90 days, bought a working home, took it apart, put it together. And, you know, she she ran into some some contractor issues, which is mostly...

Eve: [00:19:24] Pretty normal.

Andy: [00:19:26] Yeah. And that's where we really emphasize the support is we, anyone can show you how to find a property, anyone can show you how to model, and anyone can show you where the money is. What we do is we build a community where we help walk you through it. Because we want you to be successful, because if you get you get through one property, you're going to continue on the journey. So, we help navigate the contractor issues. And she ended up completing a beautiful rehab and set on the market. She got a full price offer and she closed and she made, she made money. She made a lot of money.

Eve: [00:20:04] Good for her.

Andy: [00:20:06] It wasn't the money, though, that that was motivating. It was the fact that she she got through it and she was able to, you know, less than one mile from the gate that she left and discharged. She was able to reintegrate successfully. And she chose our program over any of the any of the programs that the military had. And so we have a waiting list. So, you know, there's a lot of veterans that that are on the waiting list. We're building out the infrastructure. But right now, as a founder, I'm kind of putting the culture in place.

Eve: [00:20:36] Yeah, yeah.

Andy: [00:20:37] The market, it's really, it's really hot right now. And I don't want to send a bunch of veterans into the communities right now to go buy, because really, you shouldn't be flipping houses in markets that are kind of peaking. And most of the market shifted to new construction. We do teach home building. And then as for myself, I shifted to developments. And I think, you know, we're being disciplined right, and we're trying to, we're waiting for the dip and then we're going to assemble and deploy. But in the meantime, we're putting the training wheels on and we're putting them, the people through the program so that they can execute. And more importantly, we we're building the culture where we want to we want to put the community first, yield second and we want to serve.

Eve: [00:21:22] Right. So, like, just generally, what are some of the challenges you've been confronted with? Because you've come a long way from your roots. There must have been financing challenges and, you know, neighborhood complaints. And I don't know what else. You know, aside from the contractor challenges which are always there.

Andy: [00:21:44] Yeah. I mean, I think, you know, let's take it down because, you know, my my smallest project we just put on the market, you know, 150,000-dollar rehab that we threw up. We bought it for 60, put 70 into it and you know, turned the market to a little affordable house that we could have tore down and rebuilt. But we wanted to connect with the community. But in that same neighborhood, we got 13 acres and a contract where we're going to throw up a tax credit investment. Low-income housing tax credit, portable housing, you know, three story corner unit, garden style apartment. And really, it's the challenges we've navigated, you know, so far has been just understanding what, while we're there and what we're doing. I don't really see real estate as complex as some people. I mean, the financing is is very intricate to the project. And I've been very, you know, focused on going downstream. You know, there's a lot of private capital out there, financial institutions, you know, there's crowdfunding platforms. But my focus has been really I want the federal allocation. You know, there's trillions of dollars spent on affordable housing. So, you know, I'm going to go get the money that, you know, is best suited and effective at modeling out.

Eve: [00:23:09] Um hmm.

Andy: [00:23:09] I'm on the State Board of Affordable Housing. And so, I have some some initiatives and I'm pushing at the state level here in Texas. And we're executing beautifully the model and we're navigating the challenges. But what's happened with the approach for the overall mission is that I'm allowing organizations to align, that they really see the big picture, going to help me move the needle forward. And that's how we're creating progress. Because it's, we're solving the real problem.

Eve: [00:23:45] Um hmm. So one final question. What's what's next for you? It doesn't sound like you stay in one place too long.

Andy: [00:23:53] Yeah, I think what's next is just keep doing what I'm doing. I'm really focused on Rehab Warriors. We just got done redeveloping and rezoning a large tract that we're going to we're going. To have a seven-year commitment to the city where we're going to end up building 500 single family homes.

Eve: [00:24:16] Wow.

Andy: [00:24:16] Over 100 build to rent single family homes and town homes. And we got a multi-family affordable housing project, a single-family affordable housing project and some retail. So that was kind of my case study. We picked up some land, brought it to an RP from HUD and my development team and I'm a I'm a I'm a small part of the development team, but a big part of the mission. We're able to work with the city and this small community that didn't really have the right developers supporting them. And we came in and we put together this master plan.

Eve: [00:24:54] Um hmm.

Andy: [00:24:54] And, you know, the by-product of it is we're going to continue to serve the community. And my goal is to just close the loop between the size of projects I'm doing in the in the single-family homes that actually have a passion for capacity building for the veterans. Because I really believe that the veterans have, in my mind, the ability to not just reintegrate, but safely land inside America's housing market and solve a real critical problem. Because we have an affordable housing crisis across the country. We have a lot of skilled trades and unskilled trades gap, but everyone sees that as the problem. Right. But it's the opportunity for me because I see the problem is I got 250,000 more fighters coming home every year and they're trying to figure out what's next. And I'm just going to give them a very focused target. That just go and do this and you'll find not just peace of mind but purpose. And if you do it right, you execute and you end up economically mobile, which is the end state. Because if we can, you know, help our war fighters come back home and have economic mobility in America, we're better off. And so that's my mission to improve America's housing stock by, you know, reintegrating veterans, but doing it in a way where we're winning and we're ushering them into a conscious capitalist community.

Eve: [00:26:27] It's an honorable goal and a really big one. And I really hope you'll be incredibly successful at it and I thank you very much for taking the time to talk to me today.

Andy: [00:26:38] Yeah, it's a pleasure. And you've done some great work. And, you know, I think your platform is also, you know, an option. And I think I love what you're doing because, you know, you're democratizing access to great projects with great operators.

Eve: [00:26:55] Yeah.

Andy: [00:26:56] It's needed. I think everyone wants to be a part of, you know, the change. And I think that this is just one area. You know, my goal is just to capacity build, build operators so they see this is a focus. So, it was a pleasure. And I keep doing the good work.

Eve: [00:27:14] Yeah. Yeah. No, Andy, I want to say I think I mean, I think, you know, I've always been horrified at how vets have been treated when they leave the military and having seen the sort of support that they get inside before they leave. It's it's not it doesn't seem to be the right sort of support. So, I think what you're doing is fantastic. Just keep going.

Andy: [00:27:38] Yes. I appreciate it and you as well. Thank you for having me.

Eve: [00:27:42] Okay, bye.

Andy: [00:27:50] Bye, bye.

Eve: [00:27:50] That was Andy Williams. He's a self-made real estate mogul with a heart. He's passing on what he's learned to other vets just like him, so that they, too, can participate in the wealth this country has to offer. It doesn't matter how much money you have, it's whether you're solving a problem. Andy says, I want to show the world that entrepreneurs like me can exist. You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed. Or you can show your support at Patreon.com/RethinkRealEstate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:13] Hi there, thanks for joining me on Rethink Real Estate, I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co. A real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers.

Eve: [00:01:17] Today, I'm talking with Kevin Cavenaugh, who may very well be my favorite developer. Kevin has carved out a special place for himself in the Portland real estate world. His buildings are memorable escapes from the mocha colored vinyl covered buildings he so disdains. Forgotten buildings in forgotten neighborhoods, buildings that you and I would not look twice at, are transformed into little creative hubs and bright spots in streetscapes in Kevin's hands. And now he's bringing heart into his practice as well, setting himself the challenge of incorporating homeless housing or anti-gentrification into his projects. All with no subsidy and all providing a return to his investors. I'm going to learn a lot from Kevin and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:02:45] Hello, Kevin, I'm just really thrilled to have you on my show.

Kevin Cavenaugh: [00:02:49] Howdy, Eve. Thanks for having me.

Eve: [00:02:52] You are one bad ass developer. I'm really not sure where to start with this interview. I've seen so many tantalizing quotes by you, so I figured I'd start with those. Is that Okay?

Kevin: [00:03:05] Okay. Yeah, of course.

Eve: [00:03:07] The one I probably love the most is, "I do a bunch of weird stuff." So what is it you do?

Kevin: [00:03:14] Oh. Boy, that's a big essay question. So I guess for your audience, I'm educated as an architect and I became a developer only because I knew nobody would hire me to do that weird stuff. Well, and when I was working for an architecture firm, I was doing really boring stuff. And I realized early on that I was being hired at phase one as the architect, and the interesting thing is phase zero. Like I wasn't deciding what the 'it' was supposed to be, what the program is. Here's a piece of land, who gets to decide whether it's going to be an apartment building or retail or mixed use. I wanted to decide that. That's why I became a developer. Once that I realized that the developers weren't necessarily smarter than me. They just control the money. And once I realized that it wasn't their money, they just grabbed the important seat at the table. They asked around. I took some of the developers to coffee. I'm like, hey, is there any reason I can't grab that seat myself? And they all said, no, you know, go for it. So that allows me to build my weird stuff. So I design and then develop and own and manage projects that I always wished somebody would hire me to do. If that makes sense.

Eve: [00:04:30] Yeah, it does. So there's another quote which probably comes right off that. "I'm tired of mocha colored vinyl window boring. I can't change the fact that the streets are gray and the sky is gray, but the buildings?" So is this your mission statement? How does this play out in your world?

Kevin: [00:04:48] Well, I've got like a dozen mission statements. It's an ever evolving mission statement. But Portland, Oregon, the skies are gray and the city's gray and it's that's great. I can't change that. But I rail against institutional money. I never, I run away from institutional money. I run away from national franchise tenants. I want to be quirky and local. And actually, I want to prove that being quirky and local and colorful and not doing copy and paste buildings is just as profitable, if not more profitable than the mocha colored vinyl windows buildings. I don't put vinyl in anything. As a trained architect, the design comes first.

Eve: [00:05:29] Vinyl is pretty offensive.

Kevin: [00:05:31] It's so bad, it's so bad. And it's cheap and it makes sense in a pro forma if I'm going to sell the building. But because I don't sell anything, I can do deeper dives on what I put in the building. I can paint The Fair-haired Dumbbell. That paint job on that building...

Eve: [00:05:47] Is insane.

Kevin: [00:05:47] Cost a half a million dollars. It's the most expensive paint in the world. And I'm never going to sell the building, so I can make different decisions and I can add to the city skyline in a way that institutional money would never consider.

Eve: [00:06:02] Yes, and that is impactful, isn't it?

Kevin: [00:06:04] I think so. I hope so.

Eve: [00:06:06] So there's a final quote I'm going to read to you. "I just realized that I don't have to play by the rules. It's that simple." How does that play out?

Kevin: [00:06:17] Real estate development is so easy and straightforward and simple. It's almost, I'm never the brightest person in the room. The only thing I am is the person with the largest risk appetite, in the room. So once I took Francesca Gambetti to coffee and she was a client of ours when I was in the, at the architecture firm and I said, hey, how do you, what is a pro forma, how do you do what you do. And she laughs. She's like, you're already doing it, Kevin. You just bought a house in my neighborhood and I saw that you're fixing it up and you're selling. That's development. That's real estate development. You just have to shift the decimal point over. And instead of doing your house, do a little mixed use building. Or it could be an adaptive reuse. It could be new construction, but A plus B equals C, um, you know, hard cost plus soft cost plus land cost, you know, that's that's your total all in cost. And as long as when you're done, throw a cap rate on it, it's worth more than what it costs. You're a successful real estate developer. So then my first question is like, that's great, Francesca, what the hell's a cap rate? So like, I was starting at zero. And after twenty minutes, I knew I knew everything. And then she emailed me her pro forma, which is the pro forma that I still use today, and all of my pro forma are up on my website open source. So people are downloading my pro forma from my products every day because if she gave it to me, I can pay it forward. It's not complicated. It's simple. And when people try to make it complicated, they mystify it in a way that keeps the layperson out of real estate development.

Eve: [00:07:51] Absolutely.

Kevin: [00:07:52] Which makes American cities dumber and uglier and more mocha colored.

Eve: [00:07:56] And doesn't spread the wealth around. That's what I deal with every day in crowdfunding. The fact that people don't understand the special language that's been developed for the developing incrowd, that just doesn't have to be that complicated.

Kevin: [00:08:07] It's not necessary.

Eve: [00:08:08] Yeah.

Kevin: [00:08:09] It's so dumb. It's just it's you buying the neighbor house across the street that's dilapidated and fixing it up and selling it. That's real estate development. What you and I do, Eve, is no different. It just takes a little longer and it's C for commercial instead of R for residential. But...

Eve: [00:08:25] That's right, right.

Kevin: [00:08:26] Everything else is the same.

Eve: [00:08:27] Yeah. I can't wait to download one of the pro formas. I'll probably use it.

Kevin: [00:08:32] You're welcome to it.

Eve: [00:08:33] There's nothing worse than getting a pro forma that's like 20 pages, 20 tabs, an Excel spreadsheet and you've got to work your way for every number, trying to figure out where it came from. That's just too complicated for me.

Kevin: [00:08:43] Not necessarily. Mine's one page. And the funny thing is, I go to a bank, with that pro forma that that you're about to download, and it's one page and I show it to a bank and I can get a 10 million dollar loan. So complex isn't required. Banks aren't demanding it. It's just part of that language that we feel we have to create to keep the outsider out, which is just not helpful.

Eve: [00:09:07] Not at all. So going back to your quote about the mocha colored vinyl window boring, many of your projects have really both striking facades and pretty far out names like Atomic Orchard Experiment, Burnside Rocket, or Dr. Jim's Still Really Nice, which I admit is my very favorite building.

Kevin: [00:09:29] That's where I live. That's that's what I'm talking to you from, right now.

Eve: [00:09:31] Oh, that's a beautiful building.

Kevin: [00:09:32] There are stories behind all the names. I don't know that I want to tell you the stories, though.

Eve: [00:09:35] Oh, well, what are you trying to accomplish with your buildings? Let's talk about that.

Kevin: [00:09:41] They are all experiments. They're all just things that I want to do and I'm curious about professionally and sadly probably like you, it all is interesting. It all like when someone brings an opportunity to me, I look at it. I have such a hard time saying, no, I'm an actual addict. Like I, I can see fun in almost any project. And I go to my coworkers, like should we do this and they're just as bad as me. They've never said no, no boss, don't buy that property, don't do that building. We are all in all the time. The names are funny. It's just that if I told you that the names are so deeply personal to me and I found in the past that when I explain to somebody what a name means, they're almost disappointed because the story that's in their head or what they've kind of thought of is much more compelling than what I just told them.

Eve: [00:10:32] I have no preconceptions about who Dr. Jim is.

Kevin: [00:10:36] Dr. Jim Saunders is an eye doctor.

Eve: [00:10:39] Oh.

Kevin: [00:10:40] And he sold me a warehouse over on Southeast Ankeny Street. And I got really creative financing and I borrowed hard money for hit the down payment. He carried a contract so I bought his building without any money of mine. And as soon as I closed on it, a hard money guy reached out to Dr. Jim Saunders and said, hey, Cavenaugh has no skin in the game. I want to replace him. I want, the buildings worth more than you sold it for. I'll pay you more.

Eve: [00:11:06] Oh. Eww.

Kevin: [00:11:07] A just as little end around. And I had bounced a check, my first payment to Dr. Jim bounced. So like, I was in a really vulnerable place. And Dr. Jim called me up and he's like, Hey Kevin, like what are you doing. Like I like you. You've been, we've been talking for a year. We're like, you put this together and like I believe in your vision. Don't like, I don't want to get calls like this. So he could have made more money. And he said he had other offers for more than than what I was paying him as well. And he kept honoring his handshake to me.

Eve: [00:11:41] He is really nice.

Kevin: [00:11:44] Yeah, he's really nice. So ,that building, that project was called Dr. Jim's Really Nice. Now, in the recession, I had to sell that warehouse because the bank put a gun to my head and I lost everything in the recession.

Eve: [00:11:57] Awww.

Kevin: [00:11:57] But lo and behold, eight years later, I bought another warehouse, a hundred year old warehouse, one more neighborhood over. The exact same program, that exact same phase zero that I talked about, I was doing. And when thinking of a name, I just I wanted to still honor Jim Saunders. So I named it Dr. Jim's Still Really Nice. That's the LLC of the building and it's a single asset, LLC. Dr. Jim doesn't know this building is named after him. I haven't I haven't talked to him in a while, probably should mention to him that I've given him props.

Eve: [00:12:31] Well, I think that's a great story behind the name. So what are you trying to like, they're all experiments, but I know I've been to some of these and I love your buildings.

Kevin: [00:12:43] Thank you.

Eve: [00:12:43] And I can see that they are, you know, experiments with a clear purpose. There's got to be more than just I'm going to experiment with this building.

Kevin: [00:12:52] Yeah. Yeah. So there's a couple different layers to that. When I first started, it was about left brain, right brain. Even before that, I think most buildings have too many cooks in the kitchen. I think buildings that we're all drawn to and we all see have one dominant voice, one dominant vision who is in charge. And and it's not a committee of designers or a community.

Eve: [00:13:18] Not a democracy, right.

Kevin: [00:13:19] It not a democracy. No. And I say that to my investors and I say that to other folks. I don't collaborate. I don't have any interest in collaborating. If you want to if you want to hop into my 15 passenger van, that's great. Just you got to sit in the back. I'm going to I'm driving this van. I'm not sharing the steering wheel with anybody. And you end up getting these hopefully iconic, singular, visionary buildings that I don't need to explain them to you. You as the observer or participant or tenant. You just get it. And you don't know how I got there. You don't care. You're just really happy to be in the building. That's the goal.

Eve: [00:13:52] Right.

Kevin: [00:13:52] When I started, the first layer was left brain, right brain. So a product always starts with the design. And then I instantly toggle over and do a pro forma. And if the numbers don't work, then I crumple up the paper and start with a new design. So it has to be design first and then the numbers. But the numbers can't be ignored because there's a lot of architects who become developers and just done one project and it's an ode to their ego and then they can't do it again because all of their money is sunk in the building. It's not really a successful financial deal in the bank. The bank says next time, like, nah, I'm not that interested in giving you the million dollars because that wasn't very pretty the first time. So the numbers have to work. But the vast majority of our peers, Eve, it's only the numbers. So I view those mocha colored vinyl windowed buildings. I call them either Greavy buildings or I call them pro formas with windows. And I look at them. I think I know exactly what the numbers look like in that, because it's just a pro forma that the developer is only tasking the architect to do the bare minimum to reach this ROI, to reach this return, to reach to reach this number.

Eve: [00:15:04] Right.

Kevin: [00:15:05] And the funny thing is. None of our buildings are maxed out. So if a developer says, hey, I know I can put 100 apartments on this site, so they hire the architect and the architect has no option of building designing 90 units. When a 90 unit building might be significantly better to the city skyline, to the streetscape.

Eve: [00:15:23] Right.

Kevin: [00:15:23] There are no dog units with their 90 units, but if there's 100, there's going to be some dog units. But the developer doesn't care. He or she just wants the 100 units. So toggling back and forth between my left and right brain is all about making sure the design is always front and center and it just has to make enough money. And then I pull the trigger, then I go for it. The tricky thing is that the last layer to that equation, what makes a building compelling or not, is about social repair. So now it's more about head and heart instead of just staying left brain, right brain all on my head. Now I look around the city and I see homelessness or I'm doing a project that supports social workers. I'm doing a project that supports 18 year olds aging out of foster care, which have a higher proclivity to become homeless. I tried to do a reverse gentrification project, which isn't actually a thing, but in the office we call it gentlefication. So how do I how do I develop in a neighborhood that's turning without displacing anyone who's already there? So these are the more social repair elements that I'm trying to lean into, which is super fun, but hard.

Eve: [00:16:33] Very difficult. Yeah. Oh, that's really interesting. So these projects I mean, I've seen you do some pretty remarkable projects, which includes homeless housing and in neighborhoods that no one else have looked at really before. Are they making you money? Are they making your investors money?

Kevin: [00:16:53] They are. Jolene's First Cousin is my first attempt to tackle homelessness, and it's up and running. It opened last summer and we cut Q4 distribution checks last month.

Eve: [00:17:10] That's amazing.

Kevin: [00:17:10] And it made five percent from the crowdfunded equity. It made, I think seven percent for the long term tranche of investors. I raised three hundred grand of crowdfunding and three hundred grand of accredited investors. And there's not one dollar of public money in that project. And I'm super proud of that.

Eve: [00:17:29] Amazing. That's amazing.

Kevin: [00:17:31] It's fun.

Eve: [00:17:32] Congratulations.

Kevin: [00:17:33] Thanks. And the performance online, go ahead and take it. And I'm I'm breaking ground on Jolene's Second Cousin and I'm buying the land for Jolene's Third Cousin. So I'm just going to pepper, these nestle into neighborhoods. I don't like Pruitt-Igoe or Cabrini-Green. I don't like when thousands of poor folk are crammed into a building. That's a great way to not break the cycle of poverty from generation to generation. So each Jolene's Cousin only has like a roughly a 12 bed SRO plugged into it, like a 12 bedroom apartment, like a flophouse, and the tenants pay rent. It's just that it's super, super, super cheap rent. And there's usually a subsidy for that rent. That's not my, I'm not involved in that. I just provide the ...

Eve: [00:18:22] What's the what's the rest of the building. How do you make that pro forma work?

Kevin: [00:18:26] It's internally subsidized. So, Jolene's First Cousin has three retail spaces. It has a hair salon, a coffee shop and a bakery. It has two market rate apartments that are very expensive and it has the SRO, the homeless housing unit. So when all six rents are added together, it's enough to spin off a profit. And the other fun thing is, it's allowed by a right. So I didn't have to do any special entitlements to get it. In Portland, you have to go and present to the neighborhood association on any project. Because it's a law by right, you don't have to do what they ask, but you just have to be a good neighbor and be transparent. This is the first neighborhood association I thought I was going to go in front of where I was going to get rotten tomatoes thrown at me. Because here I am, I'm bringing homeless in. I mean, there's a single family house right next door and I presented it and I kind of stood back and waited and there were no questions and there were no tomatoes. And then I asked a question, how do you guys, what's your take on this? Like, how do you feel about bringing homeless into your neighborhood? And then a woman in front said, well, once they lived there, they're not homeless anymore.

Eve: [00:19:34] And they're probably already in the neighborhood, so giving them a home...

Kevin: [00:19:38] Exactly. And then another neighbor said, with 11 bedrooms, like, we're going to know their names. It's going to be like Suzy and Jim and Frank. And if it was 100 units, we probably would be pushing back Kevin. But there's 11. So they were in total support. And they're it's been wonderful.

Eve: [00:19:56] That is wonderful. And, you know, I think it's vastly different than it might have been five years ago. I think homelessness and affordable housing is now on everyone's mind. And it's a real shift. But, you know, what about the two market rate units? How do they feel about the SRO unit right next to them?

Kevin: [00:20:13] That's a great question, because there was so much speculation in the papers, on blogs, like like Cavenaugh's an idiot. Like no one's going to rent those. Nobody's going to want to, like, be paying 1,800 bucks a month living like next to guys who used to be living in sleeping bags out in front on the sidewalk. And my response was like, well we'll see, you know, like all of my products are all experiments. It's a question. There's only two units. My guess is there are two people who will love being part of this. And lo and behold, they rented out in about 20 minutes.

Eve: [00:20:51] Oh, that's fantastic, Kevin.

Kevin: [00:20:52] There's a huge backup. Yeah. Backup for people who want them when they become vacant again.

Eve: [00:20:57] Are you sure you won't partner with anyone? Because I want to do a project with you.

Kevin: [00:21:03] Just take it...

Eve: [00:21:03] I would like to be in the passenger seat, not the back seat.

Kevin: [00:21:07] You're welcome to be in the passenger seat. I do. I do talk about that. I said it's not a pretty ride. It's usually scary, but I always arrives safely at the destination.

Eve: [00:21:17] Oh, it really sounds wonderful, sounds wonderful. Okay.

Kevin: [00:21:21] But you know exactly how to do this, Eve. You should just take my plans and my pro forma and build it in Pittsburgh.

Eve: [00:21:27] Yeah, I should. I've been thinking about it for a long time, actually. I have one in mind, but it's a lot of fun what you're doing and really impactful. So, you did mention crowdfunding. So, you know, I first became aware of your work when I started to build Small Change, my crowdfunding platform. And you had launched a Regulation A offering, which, if I'm remembering properly, may have been the first of its kind for one of your buildings in Portland.

Kevin: [00:21:53] Yes.

Eve: [00:21:53] The Fair-Haired Dumbbell. And what was that about? Why did you do that?

Kevin: [00:21:58] Good question. I don't, I didn't realize it was the first until we were done and then my lawyer, I chose this lawyer who was recommended to me because he was an expert in crowdfunding, all the hoops that he had to jump through. And when we were done, it took me a year and a half to to get through the SEC regulatory framework. He, on the phone is like, oh, my God, congratulations. We're so excited. This is our first one. Wait, what? Like you're the expert? What do you mean? Like this is your first one. He's like, no, this is everybody's first one. So,

Eve: [00:22:31] Wow.

Kevin: [00:22:32] It was a big deal. It was the the first new construction. I think there was one prior to me, construction that the Fundrise brothers put together.

Eve: [00:22:40] Yes. I remember seeing a photograph of the paperwork they had to submit, which was about three feet high.

Kevin: [00:22:47] Yeah. Yeah.

Eve: [00:22:48] And just, um, just for listeners who are not aware, Regulation A is an offering that lets anyone over the age of 18 invest. It requires really writing almost like a mini IPO and submitting it to the SEC and getting their approval before you can launch and raise money. Right?

Kevin: [00:23:05] Exactly right. Yeah. And it's it's a lot it's a it's a heavy lift.

Eve: [00:23:10] It's really not worth it for, you know, anything much under five or ten million dollar raise. It's too much work. Right?

Kevin: [00:23:16] I raised one and a half million dollars.

Eve: [00:23:18] Oh!

Kevin: [00:23:19] I don't know that I would do it again for that amount, but I want to do it again because the idea of it is so profound to me and I know to you too, Eve. So, I'm legally not allowed to talk to my mailman or my kid's teacher about a very lucrative development deal that I'm working on. They're not accredited investors. They're not already wealthy.

Eve: [00:23:44] Right.

Kevin: [00:23:45] And part of the social repair that I'm working on is the wealth gap in America. It's broken, it's distorted. It's not sustainable in the long term. It's not sustainable today. So when I decided to dip my toe into the crowd investing pool, it was purely to allow mechanics and school teachers and librarians to own a 17, 18, 20 percent, 10 year IRR building with me. Right. Internal rate of return, a really lucrative investment. Like my wife has a 401k and she puts her money in a mutual fund. And that's all she, the options to her are different than the options to somebody who's on the 17th fairway of a country club golf course talking to his buddy about deals.

Eve: [00:24:32] And many people don't have a 401K at all. They've just got the bank with less than zero percent interest.

Kevin: [00:24:38] Exactly. So it was important to me, just ethically and profoundly to do this, even though it was, it would have been so much easier to just tap some rich guy's shoulder and say, hey, I need 1.5 million, that's the gap to get this product off the ground. Instead, I took a year and a half and people for as little as 3,000 dollars now own the Dumbbell with me. And they've been getting paid from day one, eight percent.

Eve: [00:25:01] That's fantastic. So, yes, since then, regulation crowdfunding has come into play, which is, would be much easier for you. But I have yet to convince you, yet.

Kevin: [00:25:11] Well, I've done two other crowdfunding vehicles on the homeless housing project. I did raise 300,000 dollars that way...

Eve: [00:25:19] Through a state vehicle, right?

Kevin: [00:25:21] Yeah. State only. And that was unaccredited. And then on my Tree Farm Building. I like that one for your listeners...

Eve: [00:25:29] What is a Tree Farm Building?

Kevin: [00:25:32] You got to go my website and see it, but it's like it's self-explanatory.

Eve: [00:25:36] Okay.

Kevin: [00:25:38] But I raised two million dollars that way, but they're more accredited and I don't want to holler from the rooftops about that. But it is legally, it's another form of crowdfunding.

Eve: [00:25:48] Well, we just had a breakthrough on our site. We raised almost 900,000 dollars through Reg CF.

Kevin: [00:25:54] Wow.

Eve: [00:25:55] For a project in the Berkshires. And the issuer was the most pleased when the local librarian made an investment.

Kevin: [00:26:04] Yeah.

Eve: [00:26:05] He was just delighted. And I mean, that's really the point, right? That's why I do it.

Kevin: [00:26:11] It democratizes real estate investing.

Eve: [00:26:13] Yeah.

Kevin: [00:26:14] I understand why there are fences up that keep the shitty developers from bilking Mrs. McGillicuddy from her retirement. Like there should be there should be rules and laws against that from happening. So so lowering the bar for me to talk to Mrs. McGillicuddy can be scary, but it's still a pretty damn high bar. I just like that I can jump through some hoops and you can jump through some hoops and Mrs. McGillicuddy can invest in a building.

Eve: [00:26:43] Well, you can actually, under Reg CF talk to her, but you can't tell her the terms of the offering. That's got to be on a registered funding platform. But you can say to her, we're doing a project and it's around the corner from you and you can invest. If you go to this funding portal, right?

Kevin: [00:27:00] Yeah, yeah, I love it.

Eve: [00:27:02] Yes, I love it, too. Okay, so so you've gone from getting your architecture degree, to joining the Peace Corps, to far out real estate developer. And told us a little bit about how you did that. And what's the biggest challenge you've had?

Kevin: [00:27:22] Mmm, well I lost everything in the 2008-10 recession. That was difficult, but, it I mean, on paper, that should be the most challenging. I lost everything. On a Thursday, I had a net worth of four million dollars. And then a month later on this day, on a Thursday, I was a million dollars underwater. And that should be bad. That should be difficult. My buddy claims that I have HSP, which stands for hyper serotonin production, which isn't a thing, but I didn't even know at the time that I was getting punched in the face by the economy. Every day I would wake up like, Okay, I guess this is the puzzle and I like puzzles and I know you like puzzles and just everything.

Eve: [00:28:14] Yes.

Kevin: [00:28:14] All of our products are puzzles and it's just another puzzle. And I got to figure this one out. So I should have probably been more devastated by it, but I was too dumb to know that I was, you know, in a hole.

Eve: [00:28:24] Oh, I don't know that that's forward looking, right?

Kevin: [00:28:28] Yeah, I think that my internal wiring is probably such that I, like my wife calls me dangerously optimistic. So there are probably things where I should have been more concerned or realized that I was on the ground, but I just didn't even realize it.

Eve: [00:28:45] Wow. So, you allowed to talk about your next project. What are you working on now?

Kevin: [00:28:50] Sure. This is a fun one, so I never want to sell anything.

Eve: [00:28:55] Why is that? Is it because you love your buildings too much?

Kevin: [00:28:58] Yeah, it's like selling my progeny. Like, I spent so many, like I lie in bed for I go to sleep and I'm like building. I close my eyes. I'm building the building in my head and by the time it's drawn, I've already built it 100 times in my head. It's my baby. Like in the 2008 recession, now a lawyer owns the Burnside Rocket. And I did, it's LEED Platinum. There's a geothermal open loop heat pump under the under the building, although all the water is, you know, I have tapped into a 10,000 year old aquifer for all the potable water. It's it's a crazy fun experiment. And now some like, you know, kind of a knuckleheaded lawyer who doesn't care about that, owns that. It's just an asset. And he views it differently than I view it. So I don't want to sell. Was it Monday, my most recent project? I'm buying a house on a big lot out in what's called The Numbers of Portland. It's a pretty trashy area. It's no sidewalks, deeper poverty, houses without foundations, double wide trailers. It's it's it's rough, but it's also where all the young families are moving because they can buy there. Because the house prices have just gone through the roof here. So we all understand that in five, 10, 20 years, it's going to be a place you want to be. It just not a place, now. You're on the bleeding edge of gentrification. So, I'm actually going to buy this house for 265,000 dollars. And on Zillow is worth 100,000 more than that. It wasn't on the market. Someone just called me up and I'm going to split the house off and probably give it to someone else to fix up and keep that. I don't need the profit from that. Someone else can go get the profit, but all they want is the land and the rest of the land, the, a guy named Eli Spevak is a developer in town. And he does forward thinking policy. And Portland has some wonderful density promoting policy and Eli's work to change all the zoning for every single family house you can now build fourplex on. You're allowed by right to build a fourplex on it, in the entire, everywhere in the city. And this lot is such that I could build 12 houses if I wanted to. I don't want to own rentals out in The Numbers. So what I'm going to do is I'll fit seven. There will be seven two bedroom cottages, two story, two bedroom. Little front porches, you'll walk down a path and they'll spin off to the left and right. And these will cost 200,000 dollars each but be worth 300,000 dollars each. And I will sell them off for two hundred thousand dollars to first time homebuyers who qualify. You have to be poor, whether it's a perfect partner with Habitat for Humanity or some agency to identify who the buyers are. But held against the deed of the house, if you buy this for 200 and that's worth 300, that's great, but has to always be owner occupied. And if and when you sell it, you have to sell it at two thirds of the appraised value. So it has to always be affordable. So if you sell it for, if it's worth 600,000 grand in a decade...

Eve: [00:32:03] How are you going to track them?

Kevin: [00:32:06] Just put a covenant against the deed on everything.

Eve: [00:32:08] Wow, and are you going to break even on this?

Kevin: [00:32:12] I'll probably make 10 grand per house, so I'll make 60 grand and it's not enough to, you know... Yeah, I'll break even. It's it's a deep experiment. The other projects, I've got 21 other projects and since I keep them ,they all spin off a little bit of money to me. But you know, it's been a decade since the last recession and now I've got those 21 projects, 14 of them are spinning off money and I now make enough passably that I don't need each project to work.

Eve: [00:32:48] Yeah, yeah.

Kevin: [00:32:48] If it breaking even is is a fine. Not everyone do I want to do that with, but...

Eve: [00:32:54] Interesting.

Kevin: [00:32:55] This feels fun. I'm also this week I'm putting an offer in on Jolene's Third Cousin, so I'm keeping that going. So there's, there's no lack of fun stuff. I'm breaking ground on an apartment building where 20 percent of the lofts are being held aside at 60 percent of median family income for I mentioned before, 18 year old aging out of the foster care system in a really great neighborhood. Most see their options for living are way out in The Numbers, not near jobs, not in your transit, not near opportunities. So that'll be fun.

Eve: [00:33:30] It all sounds fun. And I'm really jealous.

Kevin: [00:33:33] I just I'm just I virtue signal like nobody else, you know, that's all I'm doing.

Eve: [00:33:39] So I'm going to ask you one wrap up question and that's what's your big, hairy, audacious goal?

Eve: [00:33:46] Oh, that's a that's a great question, because I just spent the month of January vacationing and usually the big, hairy, audacious goals happen when you're not in your 9:00 to 5:00. You have to step outside of your life to to have them kind of allow your your brain to accept them. So, my youngest of three is a junior in high school, and in a year and a half, I'll be an empty nester. And I have been courted by lots of other cities. Cincinnati, Honolulu, Denver. And I've always said no because I can't do what I do it unless I am embedded in that city. I do a lot of micro restaurants. I find that food is a great inroad into a neighborhood. It's a great, micro restaurants are like a a variation of the food cart. I understand the business model. I need to live in Pittsburgh to know who the sous chefs are, looking for a space that can afford 25 or 30 grand if they call their uncle and their neighbor and they can cobble together some money and open up a restaurant. I'll never know that person without living in Pittsburgh.

Eve: [00:34:54] Mm hmm.

Kevin: [00:34:55] So in a year and a half, I know that I'm start taking the show on the road. And to kind of continue the the virtue signaling theme. I am a fifty three year old white man. And the vast, you know, this Eve, good God, the vast majority of developers look like me. Maybe 10 years older, maybe 50 pounds fatter, and it's just it's a caricature.

Eve: [00:35:21] Mm hmm.

Kevin: [00:35:21] But it's true. And there's no license you need to be a developer. There's no special credentials or, you just need to have knowledge and you need to be invited into the room. You need to have access to the 17th fairway, the country club, and that's a broken system. So, as I go into cities like Honolulu or Tucson, I'm thinking of Detroit as well. And I create branches of Guerrilla, and I go and I drop myself in for three months at a time. I want everyone that I hire to eventually run the show. To be native Hawaiian or Latino or African-American, and when I leave, I'm gonna drop the keys off to the company, to the next generation, a developer that looks nothing like me because that doesn't happen to them. When I lost it all, it took me about a minute with my 505 credit score to get a loan for a million dollars for my next project.

Eve: [00:36:20] Mm hmm.

Kevin: [00:36:20] That's not OK. There are people who are much more deserving and I didn't question it at the time. I was just so happy that I can merge back into traffic and start developing again. Now, we all realize that there are people at that same bank getting rejections that were much more deserving of the money. They just didn't look like, I look like I'm good at tennis and golf. I look like, I have the gift of gab. That helped me get that million dollars and my face more than anything else. I had a 505 credit score. That's offensive. That's really, really bad. And only now am I realizing that other people need to just be handed opportunities and they need to have hutzpah and they need to have tenacity, the way that I know you have, Eve. I mean, it's more about personalities than skill. I can teach you skill. I can teach you how to do certain tasks, like just the way that Francesca Gambetti taught me.

Eve: [00:37:15] It's about sticktoitness, too, isn't it?

Kevin: [00:37:18] Oh, my God, yes. If you don't have a risk appetite and when I'm interviewing the next generation in Detroit, I want to know all about you as a person. I don't care about whether you know Excel. I don't care about where you went to school. I need to know what happens when you get punched in the face.

Eve: [00:37:32] Yeah.

Kevin: [00:37:34] And I can't wait ten years from now, to walk away from these branch companies and hand the keys off to the next generation and change the face of what development looks like.

Eve: [00:37:43] That's an amazing goal. And I really appreciate you taking the time to talk with me. I'm totally in love with what you do, Kevin, thank you so much.

Kevin: [00:37:54] Thank you. It's fun.

Eve: [00:38:10] That was Kevin Cavenaugh.

Eve: [00:38:13] Kevin is a rare developer. Left brain, right brain, head and heart all come to bear on his wildly creative buildings, his personal solutions to the physical world. Each building must make an occupant or visit a happy one. Each building must drown out the gray of Portland streets. Each building has a tantalizing name with a back story. And now each building needs to serve impact goals as well. Homeless or affordable housing for a start. All while making a return for investors. Wow.

Eve: [00:39:02] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed. Or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:16] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate where there are special opportunities for my friends and followers.

Eve: [00:01:24] Today, I'm talking with Brian Dally of Groundfloor. Groundfloor started with the seed of an idea born out of the Jobs Act of 2012. From humble beginnings, funding their first 50,000 dollar loan with just 50 investors, Brian and his partner have built Groundfloor into the go to funding platform if you want to fix and flip property. And now they've added in accessory dwelling units as well. Last year, with the pandemic looming over their heads, 90,000 investors invested 145 million dollars into 'fix-n-flips' through Groundfloor. You might learn how to fund your next ADU. It's an unusual model and worth listening in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:02:44] Hi, Brian, it's a real pleasure to have you on my show today.

Brian Dally: [00:02:48] Great to be with you, Eve.

Eve: [00:02:50] Yes, so you and I are kind of in the same business, we both founded companies based on the 2012 Jobs Act and we both care about democratizing investment in real estate. So I want to just start talking about what you do first today and that is Groundfloor. Why don't you just explain what Groundfloor is.

Brian: [00:03:13] Well, as you said, we realized back in 2012-2013, you and I didn't know each other back then, but you were tracking the same trend. You know, the world of investment and capital formation was undergoing some very early change back then, and it continues to go through change, even today. But what started back then is Congress and the SEC put rules in place that for the first time allowed everybody, regardless of your income or wealth, to participate in a whole class of securities offerings that haven't been open to people who don't meet the definition of an accredited investor.

Eve: [00:04:00] Let me jump in.

Brian: [00:04:01] Sure.

Eve: [00:04:01] Because people don't know what an accredited investor is. It's probably about three percent of the adult population in the state, which in itself is pretty shocking and it's anyone who has income of 200,000 dollars a year and has had for three years. Or has net worth of a million dollars, at least a million dollars without their primary residence. That's right. Right?

Brian: [00:04:26] Yeah, exactly. And that's a very small slice of the American population. And if you meet that definition, if you're in that club for a long time, you have had access to investments that the other 97 percent of us haven't had. And which started to change in 2012 is Congress and the SEC put forward rules that would start to open that up. Now, since then, they've continued to improve those rules, spell them out a little bit more. Companies like Small Change and Groundfloor have been built. Republic is another one that allows you to invest in startups, for example, or StartEngine or SeedInvest, there are a bunch of portals now where you can go invest in a wide variety of securities offerings that weren't open to us all before. We saw that coming, we started a company to help open up that market and we're still going. Now, we've got about 90,000 investors who are investing. Last year put in about 150 million in aggregate into our investments. We're funding 70 or 80 different real estate projects per month now using this model. And I mean, we're really just getting started. I think you would agree, right, with Small Change we're just in the early innings even still.

Eve: [00:05:43] So what is your model? Because we both have real estate platforms, but they're pretty wildly different, right?

Brian: [00:05:49] Yeah, we looked at the market for investments and we said, look, what's missing out there is sort of a short term high yield secured investment that people could get their hands around. You know, so many times you invest in real estate or you invest in a startup or something, and your capital is locked up for a very long period of time. Typically, the terms of those investments don't give you a lot of control over it. Like, for example, if you put money in any of the eREITs like Fundrise or RealtyMogul, any of these new kind of funds that have launched, you weren't able to access your capital when you probably wanted it. And you're in Covid. Because they shut down redemptions out of those funds. And we looked at the landscape of investments and realized what was really missing was for all of us to invest the same way that hedge funds and banks do, which is on a per deal basis, on a short term, a short term loan that that has a high yield. So where we started with Groundfloor was with value added renovation to single family houses that were being basically built by independent entrepreneurs. Right, so you have somebody who had a real estate project that they wanted to fix and flip, for example, or fix up and rent out and create rental housing out of it. We make a loan to them and then we turn around and allow individual investors to participate in that loan, ten dollars at a time. So, most people invest about an average of two or three hundred dollars. But you can start with a minimum of just ten. And what that means is if you have 1,000 dollars to invest, you can invest in 100 loans, which is a very nicely diversified portfolio. You're as diversified as a lot of small private equity funds or hedge funds. So you get the same benefits of diversification and the loans repay on an average of about nine to ten months. And the average rate that people are earning ranged between 10 and 11 percent. So it's a very high rate of return on short holding period in an asset that if you watch any house flipping show, you can understand what's going on there.

Eve: [00:08:01] Sure.

Brian: [00:08:01] And I think that's why it's been so popular, is those factors.

Eve: [00:08:04] So, a couple of things. One is I get what you're offering investors. Opportunity to invest in a way they've never had before. What does this do for developers who do 'fix-n-flips?' ?

Brian: [00:08:17] So developers who do 'fix-n-flips' or who are trading rental housing or we also finance independent builders who are doing new construction. There are a couple of problems with the capital markets, the way that they've been built, so far, on the legacy infrastructure. The legacy infrastructure is financed by some kind, what used to be banks. But when banks stopped funding this category of real estate development or or this type of small business, if you will, these types of projects, really who stepped in were sort of wealthy people with checkbooks. In any town, there are probably a couple dozen people who will finance these types of real estate projects. The problem is that the form of lending was not very professional. It was hard to find these lenders. The terms were all over the map, sometimes very lopsided terms for these agreements.

Eve: [00:09:12] Yeah.

Brian: [00:09:12] And I think the problem is if you're just getting started out as real estate investor, a house flipper, a builder, it's pretty hard to find your way in those capital markets. And I think the other problem is that a lot of the real estate development that's getting done in residential real estate, in places where housing stock is aging, for example, when Wall Street steps in, they just buy up blocks of a neighborhood and they bulldoze everything and they build up mcmansions or they build up some kind of mass market product. And that doesn't leave a lot of room for the independent builder or the independent real estate investor. So they've been playing at a disadvantage over the last 10 or 15 years. And Groundfloor's approach solves that problem because we're not lending out tens of millions of dollars at a time to one company that's going to go bulldoze a neighborhood. We're working with independent real estate developers who know these neighborhoods. They probably live in the neighborhoods. They care about the neighborhoods. And I think that's a good counterweight to gentrification. Right. I think it's a way to to renovate the residential real estate stock in a way that is more community friendly. Right. It also allows people in the community to participate in the financing of it, which I think is a novel idea.

Eve: [00:10:32] And so where are you lending now?

Brian: [00:10:35] We lend in about 30 states. Our lending is heavily concentrated in the southeastern U.S. We dabbled quite a bit in the mid-Atlantic and the midwest and we're starting to expand out west now. We started to finance projects in Colorado. We've done a couple in Washington state. We're not in California, but we're in about 30 states for lending and then investors nationwide.

Eve: [00:10:59] Yeah, yeah, obviously. And then how do you vet the the developers and the deals.

Brian: [00:11:05] We're frankly looking at developers on these deals the same way that anybody who's lending money or investing money in an entrepreneur would look at an entrepreneur. We're asking ourselves, can this entrepreneur with this plan create the result that they're hoping to create? And a lot of times we use this expertise to help entrepreneurs realize maybe the deal wasn't as good as they thought it was going to be. Right. Maybe their plan, they didn't have a big enough budget. Right. We really look very closely at the budgets for the projects and we look a lot at the valuation at the end. Do we believe I mean, every entrepreneur, myself included, we always believe what we're doing is super valuable. Right. So Groundfloor will serve as a little bit of a reality check for those situations where maybe their expectations are a little inflated. We need to make sure that the properties can sell for enough in the end...

Eve: [00:12:00] That investors get their money back, right?

Brian: [00:12:02] Yeah, I mean that and they get it back in a timely manner. Right? I mean, that's that's really important to the model that investors can trust the projects that we put up. It's not that things don't go wrong. Things do go wrong. You know, when you're renovating something, you know this well. You've dealt with so many interesting projects in Pittsburgh and beyond that, you know, you've seen it firsthand. I mean, you can't plan for every contingency, right?

Eve: [00:12:27] For sure.

Brian: [00:12:27] Things take longer, things cost more money. And so in our vetting, we make sure that the plan covers those major contingencies. And that's why we've had such a low loss ratio. Over time, we've lost less than one percent of the money that we've loaned out. And the returns of 10.5 percent are net of those losses. So, it's a pretty low volatility and investment where you really know what to expect.

Eve: [00:12:54] Right.

Brian: [00:12:54] That's why it works for the investor. Why it works for the borrower, for the entrepreneurs, they get a professional outfit that's actually looking at the merits of what they're trying to do. And we're providing some advice to them and a perspective. And if everything lines up, we're happy to fund it. We're doing like I said, we're doing about 70 to 80 fundings a month right now.

Eve: [00:13:14] Wow. A few years back when I met you, we talked about how hard it was to find your crowd of investors.

Brian: [00:13:23] Yes.

Eve: [00:13:23] And what you have to go through at the beginning. And I'd love to talk about what that was like and how that compares to today and what you think made a difference.

Brian: [00:13:33] Well, I realized early on that, and I think you felt this too, you and I are creating, you know, an unknown product in an unknown category from an unknown company. Right? So it kind of just amazed me in the early days that anybody would, you know...

Eve: [00:13:52] That's absolutely true.

Brian: [00:13:54] Isn't that the feeling, though? It's kind of just amazing.

Eve: [00:13:57] Yeah. And by the way, we just closed an offering today for 890,000 dollars.

Brian: [00:14:02] I saw that. Congratulations. That's huge!

Eve: [00:14:06] Yeah.

Brian: [00:14:06] That's huge! Congratulations. That's got to be one of the bigger ones, I would think.

Eve: [00:14:11] Yes.

Brian: [00:14:12] Yeah, I would think so. That's that's a huge success. And that's a testament to just continuing to persist because I think what I was about to say is, I think you're probably feeling this too, is that people now are more comfortable with the idea that this exists, you know, this category exists, that they, too, can get access to these deals. And there's a little less of what I used to call the Groucho Marx problem, which is like I wouldn't want to invest in any investment that would allow me to. Right? It's a problem of investor psychology. And I think the category has advanced now enough that people are interested. I also think we're seeing the rise of the retail investor more generally. I mean, look no further than what happened last month with Robinhood and GameStop.

Eve: [00:14:59] Yep.

Brian: [00:15:00] The retail investor is waking up and as they wake up, they're also realizing that public markets for a lot of people feel like it's a rigged casino. And they're now open to the idea that they can invest, that they should invest, that they can band together to put their capital to work and cause a change. And I think some of these traders are going to become investors. And that's part of what's happening, too. And then the third factor that has started to change the game and bring in a lot more growth. And we had a record Q2 and record Q3 last year because of some of those other factors, you know, the retail investor waking up and opting out of public markets. But I think the future growth that's to come and that we're starting to see lift off from now is the track record that we've all built. Right.

Eve: [00:15:49] Yes.

Brian: [00:15:49] Now that we're repaying, you know, we have over 1,500 loans that we've repaid.

Eve: [00:15:54] Yes.

Brian: [00:15:55] You know, and people now can see what the empirical data tells them about what they can expect. You can go on our website and see a scatterplot of, I think 9,000 portfolios that have returned capital on at least one loan over the years and you can see what returns that portfolio has earned on average based on how many loans they've invested in. What you learn is the more you invest, the more you can predict the return. And I think that's giving people more confidence in the category, in the companies and in the products, right, that we're building here.

Eve: [00:16:29] Right right right. So along with all of this, but I want to go back to what I originally asked. Sorry. And that was like I remember you telling me a story about what it took to get one person to invest in the beginning. And how many did you have last year?

Brian: [00:16:45] Gosh, we now have 80,000 investors.

Eve: [00:16:47] That's amazing and really what is a fairly short time to kind of scratching your head over why you can't even find one investor to...

Brian: [00:16:56] Well, the first loan we funded was a 50,000 dollar loan for a house flip in Adair Park in Atlanta, which is a neighborhood, transitional neighborhood near the beltline. I think we put, it was a 40,000 dollar loan. We put 39 investors in it, you know, a thousand dollars each. And it was a lot of work.

Eve: [00:17:16] A lot of work.

Brian: [00:17:18] A loan that small won't last a day or two on the platform.

Eve: [00:17:22] Yes.

Brian: [00:17:22] And, you know, people are investing smaller amounts in many more loans. So there might be 500 people in that loan. Three or four...

Eve: [00:17:31] It's pretty amazing that you can invest just ten dollars.

Brian: [00:17:33] I think just yesterday we hit a new record for I think 1.2 million dollars was invested on the platform just yesterday alone.

Eve: [00:17:41] Oh, wow. That's that's amazing. Congratulations.

Brian: [00:17:44] We've come a long way. But I'll tell you one thing that's exciting to me about that is that now that we have those basics in place is we recently started piloting an ADU financing program.

Eve: [00:17:57] That was my next...

Brian: [00:17:59] Oh, oh good.

Eve: [00:18:00] Question. Yeah. I want to know about your ADU program because that's a little bit different for you. And I wanted to ask why you are piloting that.

Brian: [00:18:09] I'm psyched to talk about that, because when we started off, yes, we wanted to build a financial product, but more than that, we wanted to build a platform that could be used for good. You know, we wanted to open up this asset class. We wanted to make a great investment product. But we also hoped that people would come to the platform as borrowers or sponsors and investors in order to have a positive impact on the world as well. I feel very strongly that the source of capital really matters to the result that we actually see in the world. And I think real estate plays an important role in shaping our communities. I mean, it's where people live and shop and work. And I think that who is financing that work really matters. And I think this ADU program is exciting to me because as an entrepreneur, when you build a platform, you have ideas about how people will use the platform. You can't predict it. If it goes well, people use your platform to create even more value for themselves in the world around you. Then you even get. Right. I mean, that's the whole idea of a platform. And still with this ADU pilot, we were actually approached by some people in that community who are having trouble finding financing because of the particular borrower situation that sometimes exists where you have somebody who doesn't want to move out of their house, out of their neighborhood. Home values are changing over. They like to participate in the growth of the neighborhood and they see ADUs as a way to do that because we're increasing density. I mean, there are two ways of dealing with increasing lot values and housing stock values. Right. One is you can knock everything down and just rebuild it all with mcmansions and more valuable real estate. I think most of us in the impact community would agree that sucks. Right? The other way is to increase density by changing the zoning rules and you change the zoning rules, but then you still need financing.

Eve: [00:20:11] Right.

Brian: [00:20:11] So to support that increased density. And I know you've talked with PadSplit, for example. That's one way to increase density. This ADU sort of approach is another way...

Eve: [00:20:21] PadSplit doesn't really increase density. They find unused spaces.

Brian: [00:20:26] Right.

Eve: [00:20:27] A little bit different. And by the way, I feel bad, because we we haven't told everyone what ADU stands for. It's accessory dwelling unit. And it's also what we know as a granny flat. It's just an additional unit on your property, on your piece of land.

Brian: [00:20:44] I think the reason we were excited about it is we saw it right away as a valuable approach to urban development in certain situations, especially with gentrifying neighborhoods where homeowners don't need to be displaced, but they can participate in what's happening around them as owners and grow their equity value without having to be displaced.

Eve: [00:21:06] Yeah.

Brian: [00:21:07] Right. So, selling their property and taking that money and moving elsewhere, we think is a suboptimal outcome for many people who would rather stay right where they are. You know, stay in their neighborhood, retain the character of the neighborhood, but open up some more housing opportunity in that neighborhood, too.

Eve: [00:21:24] Yeah.

Brian: [00:21:26] We've got excited about it, mostly because we saw a place where, you know, the traditional financing sources weren't going to step in. We thought that investors on our platform would like it. And we were right. The first two ADU deals that we've put out there have sold very quickly. Had a really enthusiastic reaction. And so, you know, we we have a little ways to go to kind of build up the pilot. But I'll tell you, we piloted new construction two years ago, and it's already, I think it's on track to be about a third or maybe even 40 percent of our volume this year. And I mean, the same thing could happen with ADUs.

Eve: [00:22:01] The most difficult thing might be that the person who wants to build an ADU, accessory dwelling unit, the homeowner may have absolutely no experience building anything.

Brian: [00:22:13] Right.

Eve: [00:22:13] What do they do? And this is probably one of the most difficult things to crack about accessory dwelling units. How do people who have no development, no real estate experience, go about adding that value to that property?

Brian: [00:22:28] Happily, there's an ecosystem of builders, contractors, architects who are ready to meet the needs of the people who want to do that. The problem is that those people cost money. The projects cost money.

Eve: [00:22:44] Yes.

Brian: [00:22:44] And a lot of people don't have the money. So even if you know about the idea, you know, first of all, you have to get connected into the ecosystem of people who work on these things and do them right. Right. Do them within the zoning standards, you know, do them in a way that will be good for long term value. People who are inexperienced that I think have to tap into that network. But then even if they tap into that network, what's been missing is the money. Where do you get the money to do it?

Eve: [00:23:12] Right. And, you know, the whole business of financing something as complicated as well.

Brian: [00:23:19] Agreed.

Eve: [00:23:19] You know, provide something consistent and easy to understand, that would be really helpful.

Brian: [00:23:25] And that's the goal, right. So we're we're looking to partner with contractors and architects who know how to get these projects off the ground. And so, when someone has an interest, there's already a network of providers that know how to plan it out, design it, and, of course, finance it, because we're we're out there offering that fund.

Eve: [00:23:51] That's fabulous. Yeah, yeah, yeah. You know, I was on a panel with a CDFI a few months ago and was horrified when they explained with great pride how they had spent the last three or four years developing a program which looked like it would, you know, finance a couple ADUs, maybe four a year. And I was just like, how do we even get this to work if there's no financing out there?

Brian: [00:24:14] Right.

Eve: [00:24:15] Yeah.

Brian: [00:24:16] Yeah. I think people on our platform, investors on our platform have a lot of appetite for it. I think it's a it's a really attractive investment. I think it's a really attractive initiative for homeowners in certain situations where they want to stay put and they want to grow their equity value in concert with the neighborhood around them. And I like it because we think that one of the benefits of crowdfunding for financing as a way to finance real estate is that people should be involved, directly involved in deciding what gets financed and how. This is a way that that can happen. Right?

Eve: [00:24:56] I like ADUs because I think they build on infrastructure and community that's already there, which is a great thing. You know, the bus stop that's right out there on the street or grocery shop or a school or anything like that is already there in that community. And we're adding density around those really important pieces. So it's a fabulous idea. So I want to go to your background now. Your background is very diverse. Communication technology, gaming, political theory, business and law, but not real estate. So I wonder how you came to this real estate platform from your background?

Brian: [00:25:36] Well, I have been an investor since about age 15. And one category that I had never really invested in was real estate. You know, you always hear it's it's almost like a trope in American life, right? Like, well, the way to build cash flow is through owning real estate. Right. And so there's there are no shortage of real estate investing seminars and whatever out there. So I feel like real estate investing is kind of in the air, you know, in America, more or less. I mean, it's amazing to me that we still have house flipping shows that are watched. You know, people people are interested in it. And I think that drove me as an entrepreneur because what I was looking for after leaving the wireless industry in my previous startup, by agreement, I could no longer work in the wireless industry. But we had built this wireless company that was structured in a way that allowed people to route around, you know, the cell phone network, except when they absolutely had to have it. And then they could, you know, the calls would switch from the Wi-Fi network to the cell phone network. And the company that we built, it's called the Republic Wireless it's still around today. One of the things I noticed and I think this is true in politics, in philanthropy, I know it's true in finance, people when you give them a platform where they can band together, I mean, this happened on Reddit, right? You give them a platform where they can band together and cause some change by voting with their dollars, by buying differently, by investing differently. They will do it because we can all debate whether people are smart enough to make their own decisions or whether they know what they're doing or not. The truth is, regardless of whether they are or not, they're going to behave as though they are. And that's what can drive a lot of change in the world. And I think we start to get a closed loop feedback system where people do get a lot smarter. And so, you know, as an entrepreneur, I was very attracted to that. I didn't quite know what sort of financial product we could build and what would be underneath it. But pretty quickly, Nick and I realized that if you're building this new type of product and you're trying to open up this type of investing, you should probably do it in a space like residential real estate that's tangible, that people can understand, that people are excited about. And I think that's what really led us there. Now, once we got there, you know, also as an entrepreneur, you need to have something as a beachhead that, you know, makes up for the perceived risk, like, for example, at Republic Wireless, we're launching phones, we said, look, this is an unlimited plan that's going to cost you 20 bucks a month instead of 150 bucks a month. And you're not going to be locked into a contract. Well, people really like that. They saw some advantage in that. So they were willing to try the technology. With Groundfloor, we said, look, you know, you're not going to lock up your money, you know, for years. You're going to lock it up for months. You're going to get a really high rate of return. If this thing works, over ten percent and you're going to get to control it, you're not turning your money over to a fund manager.

Eve: [00:28:46] Um-hm.

Brian: [00:28:46] You get to make the decision. And I think because it was residential real estate, they believed it. Right? It was tangible and they could buy into it. If we had done it in some exotic category that nobody understood, like financing receivables or something, I don't think it would have been as successful. So I had to learn about real estate. I've spent a lot of time with people with many decades of experience in real estate. And now very shortly as an operator will have made a billion dollars worth of loans in this category.

Eve: [00:29:16] I think that's fantastic.

Brian: [00:29:16] You know, which is not an insignificant number. So I had to climb the learning curve. We have a lot of advisors and executives around the company with deep experience in this. And as an entrepreneur, you know, a lot of us want to learn something. This was an exciting area for me to to learn. And now I guess I don't get to claim that I'm not experienced in real estate anymore.

Eve: [00:29:36] I think that would be true. What do you love doing the most about this?

Brian: [00:29:41] I love working with people who are putting themselves out there and taking a chance. So the people who I've most enjoyed interacting with are the entrepreneurs who are financing projects on our platform. I can really identify with them and equally the investors who are venturing off into this unknown. I really identify with those people. You know, we started raising money from our customer base to finance the growth of the company. So we have a crowdfunded equity offering that's still live today on SeedInvest. I love talking to people about getting involved in angel investing. So I really like engaging with the people who are drawn to these platforms because I admire them for being intrepid enough to take the risk and vote with their dollars to change the way that we finance, in this case, real estate. And we're startup. I think that's that's what I love about it.

Eve: [00:30:41] I think that's great. And actually, there's still a relatively small number, because one of the reasons this is hard is there's still a pretty big group of people out there who don't trust online investing and...

Brian: [00:30:54] It's still the early innings, it really is.

Eve: [00:30:56] Early innings. Yeah. So what is your big, hairy, audacious goal for Groundfloor?

Brian: [00:31:04] The big, hairy, audacious goal is to take the model that we've pioneered for these private capital markets and to show that what we've done in these first couple of sub asset classes in real estate can be done at a bigger scale across a broader scope. You know, the big, hairy, audacious goal would be to infect other asset classes with this model. You know, it's a very disruptive model. It's easy for people to look down on it and say, oh, it's underpowered, but that always happens with disruptive technology. So my big, hairy, audacious goal for this is to see how many asset classes at what level of scale this model can produce, the kind of results that it's producing in this market. And I don't know where the endpoint for that is. I think it can go very, very far. So I don't have a specific quantification of that. But that's the idea, is I'd like to take what I think we've proven in this one market and see how many more markets we can extend it into.

Eve: [00:32:08] And I have another question for you that may be a little bit difficult, but is there anything else that you're noticing out there that really excites you about the way we might do things differently, live a lot differently, what we what we can change?

Brian: [00:32:22] I look at our own market and I think it's true in digital assets, I think it's true in the securities that we're offering online, I think it's true and how we transact in real estate. I see a lot of opportunity to remove friction from the system. I mean, you look at something like title and how much time and money.

Eve: [00:32:44] Oh yeah.

Brian: [00:32:45] Is put into clearing title and then battling the insurance company when there's a defect in title that comes up later. I think this is the bane of real estate investors everywhere. And I think it's true in private market transactions with illiquid assets generally. And I think it's something I'm excited to see change because I feel like it's a very difficult change to effectuate. But I think as a community, we're going to keep chipping away at it and eventually we're going to have to knock down the barriers to I mean, title is a great example. But I would just say in general, these kind of transactions in illiquid securities need to, the friction needs to come down.

Eve: [00:33:28] Yeah, I totally agree with you. Well, thank you really so much for talking with me. I really enjoyed it. And I'm really wondering what's going to happen this year if you did so well last year as well, too. Right.

Brian: [00:33:42] I think things are looking up, you know, in 2021. And and I hope we get to work together.

Eve: [00:33:48] Yes.

Brian: [00:33:49] Eve, I really admire the work that you've been doing and been persistent enough to keep doing over the years. And I hope we get to join forces someday and do some work together.

Eve: [00:33:59] That would be fantastic. Thank you so much, Brian. Bye.

Brian: [00:34:02] Yeah, you too.

Eve: [00:34:06] That was Brian Dally. Brian isn't planning to stop at 'fix-n-flips' or accessory dwelling units. He thinks the Groundfloor model can be used on a much bigger scale. And on a much more varied asset class with 145 million raised in 2020, I can't wait to see where he takes the company in 2021. You can find out more about this episode on the show notes page at EvePicker.com. Or you can find other episodes you might have missed. Or you can show your support at Patreon.com/RethinkRealEstate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:14] Hi there. Thanks so much for joining me today on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at Evepicker.com, where you can sign up for my newsletter, join an Impact Real Estate Club or find a transcript of this podcast. You'll also find me at Smallchange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at patreon.com/rethink real estate where there are special opportunities for my friends and followers.

Eve: [00:01:09] Today, I'm talking with Dr. Stephanie Gripne. In what seems to be an improbable amount of time, Stephanie has gone from ecologist to impact investment guru. Her big, hairy, audacious goal is to move a trillion dollars into impact investing. Ten years ago, about four years after getting her doctorate, she became director of the Initiative for Sustainable Development at the University of Colorado's Real Estate Center. There she was immersed in issues surrounding the built environment and socially responsible investing. In 2012, she took the leap and founded the Impact Finance Center as a nonprofit academic center with a mission to identify, train and activate philanthropists and investors to become impact investors. I've already learned a lot from Stephanie, but I'm going to learn more and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon/rethinkrealestate.com to learn about special opportunities for my friends and followers and subscribe if you can.

Eve: [00:02:40] Stephanie, I'm so happy to talk to you today.

Stephanie Gripne: [00:02:44] Eve, I am so happy to talk with you today.

Eve: [00:02:47] So you have a supremely cool resume and it's pretty clear how driven you are. There's a lot to talk about, but I wanted to start by talking about what you're working on today. You lead the Impact Finance Center. What is that?

Stephanie: [00:03:01] That's a great question, Eve. For those of you in the audience who have heard of an accelerator, you might have heard of TechStars or 500 startups or Y Combinator. Those accelerators are essentially boot camps for people who want to start a startup or a small business. So they identify, educate and invest in entrepreneurs. When I was a professor at 2010-12 at University of Colorado at the Lead School of Business, I was actually the director of the Initiative for Sustainable Real Estate Development. I just kept wondering why isn't there more money flowing into good things? And I finally kept unpeeling the onion and realizing there are not entities out there providing investor education that is non conflicted or trustworthy in that most of the investor education is actually trying to get your business. So it comes from Wall Street and they're trying to become your investment adviser or raise a fund. And so my hypothesis was that if we started providing non conflicted investor education from the inside of a nonprofit where we weren't going to try to raise a fund or become your investment advisor, we could actually educate and activate these investors. So going back to the accelerator analogy, Impact Finance Center is essentially an accelerator for impact investors. Instead of identifying, educating and investing in entrepreneurs, we identify and educate individuals and organizations who want to become impact investors. And those typically are private foundations, community foundations, high net worth individuals, companies and family offices.

Eve: [00:04:51] So that's really how you and I started talking way back on the plane ramp where we met, right?

Stephanie: [00:04:58] That is true. We did mean at a plane ramp in California. And yes, we are. I had been following the crowdfunding movement for some time and figuring out what my role in it was going to be.

Eve: [00:05:10] How do you accomplish investor education and accelerate those impact investors? What is it you actually do?

Stephanie: [00:05:17] That's a great question. We really offer five ways for people to get education. One, and this is the the holy grail of it all is we can evaluate your investment advisor portfolio, and that is pretty brutal. We evaluated a hundred million dollar foundation in Seattle and found out their investment advisor had charged them in excess of fees of one million dollars over five years to underperform by 5 million dollars.

Eve: [00:05:49] Ohhh.

Stephanie: [00:05:49] We have a 15 million dollar foundation in Denver, a JL foundation where we evaluated their investment advisor and found out they had been charged in excess of fees of $240,000 over seven years to underperform by 1.4 million dollars. So we have that, is number one. We can evaluate your portfolio at investment advisor for governance and fees and evidence based decision evaluation and impact. And then the next phase are just education. We're putting our two hundred classes online. We have forty seven recorded webinars up there. So if you're a do-it-yourselfer, join me and sign on on our Impact Investing Institute and train yourself. We also offer one on one training, small group training and large group training.

Eve: [00:06:39] Wow. That's a lot of work, Stephanie. When did you launch the center?

Stephanie: [00:06:43] I was a professor at University of Colorado in 2010 to 12. And I realized then once I had essentially collected evidence and accidentally discovered that the financial return of a grant is negative one hundred percent loss. I determined that this impact investing was legal and determined that also that people were interested, but there wasn't a place for them to go learn, and then the other piece I realized is asking somebody to do a first investment, cutting a twenty five thousand dollar check, even if you have a lot of money, is scary. And so the key was, that's in my, I use a baseball analogy, that's a major league investment. And so how do you create a T-ball opportunity for people to learn by doing. And so that's either using simulations like business case competitions or kind of monopoly. We do some simulation type activities where you get to pretend you're an investor or you actually do a small dollar amount. And we often have people take money they would have donated and pull it together in a giving circle model and then they learn how to invest together.

Eve: [00:07:55] Interesting. Interesting. Who are you trying to reach? Like, who do you think your audience is? How big is it?

Stephanie: [00:08:04] Our audience is gigantic. If you just Google the number of millionaires in states like Colorado or Georgia or Massachusetts and you'll see a range from one hundred and fifty thousand millionaires to over a million millionaires, that's a great question, Eve. People often ask me, oh, would you rather not work with a foundation or versus a high net worth individual? And there's two criteria that we look to partner with people. One, they have to be motivated and willing to take action. If you're going to be on the rowboat will still help you, but you don't get to be first in line. So you have to be willing to move and take action. And the second thing is you have to be an independent thinker. If you're somebody who likes to have the crowd go first and you join the crowd, you're probably not the right individual organization to come find us. And so those are difficult to go find. But it's great. We're really nice about it. When people get stuck, we're like, hey, it's OK. Go back and do this homework. And when you're ready to get back into it, move forward. But what that means, Eve, is that I have worked with foundations where 20 trustees, oftentimes family members are in unison and I've worked with a grumpy high net worth individual that's difficult to move. So it doesn't have to be an individual or a foundation or a family office or a corporation. It just has to be a willingness to take action.

Eve: [00:09:29] And beyond the gigantic audience of accredited investors, as you know, they are only about three percent of the population. There is now a growing audience of people who've never invested before and sit in the non accredited group. So it's a huge run.

Stephanie: [00:09:45] It's endless. And it's interesting because I was trying to think the other day about how I got started. And I know my dad when I was 12 or 13 years old, we invested in Micron Together Technology Company. I'm forty seven years old. I don't know how I found, it had to have been at the library, found a book on Motley Fool that taught direct investing. So drip investing was public companies. And I still have some of those stocks I first invested in. But I actually did an investment in Enron because it was a renewable energy company. So I kind of like to think of myself as an early adopter in the modern day crowdfunding.

Eve: [00:10:25] Since you started seeing a shift towards impact investing?

Stephanie: [00:10:30] Oh, absolutely. In Colorado, for example, we started the Center in 2012, and I'll go back and answer your your last question in a little bit. When we started the Center, I realized when I was at University of Colorado when I had that aha moment that, wow, people do need education and I thought every entrepreneurship center needs an innovative finance center. And then I took a step back and I'm like, wait, every university that's going to struggle financially needs innovative finance center to stay financially viable. And then I took a step back and I thought, wait, every association of, I call them Clubs of Money, a community foundation association, a YPO, family office association. They need this curriculum too. And there was at the time only 15 centers and really only two of us that actually do transactions. And so that was my idea to leave in 2012 and then start a non-profit, multi-university academic center where we could essentially provide a curriculum in a box. And just to give you a sense of how long it takes to get going, at least in Colorado, um.

Eve: [00:11:46] Are you telling me how long it takes to get going?

Stephanie: [00:11:48] Well, just to just have a sense, in 2010 to 12, our first two transactions we supported where the Museum of Contemporary Art and the Alliance Center and those both were real estate transactions and one was a foundation and a couple of board members. So they got one hundred and one percent return. And we financed the Museum of Contemporary Art and saved them five hundred and fifty thousand a year. The other one was a project I led with the Alliance Center in partnership with the Denver Foundation, and we used a donor advised fund to do a loan at zero and one percent that essentially said that nonprofit six million dollars and gave the donor one hundred and one percent return. I worked on those two transactions for three years and they all moved when the bills were due. They tried everything else for years and years and years. And then when the adjustable rate mortgage was going to be due or the building renovation cop bill was going to be due, that's when they were finally willing to move, so that there was a negative like desperation as the birthplace of innovation. It took three years for two transactions. And I do believe Colorado's probably done one hundred impact investment transactions in the last three months.

Eve: [00:13:02] Wow. The story you're telling is much like mine. I think if you build something new and I suppose on the cutting edge, it takes a really long time and you have to have stick-to-it-ness. Right. Just have to keep going.

Stephanie: [00:13:15] You do. You have to have the Stockdale paradox. You have to have this eternal knowledge you will prevail in the end. And I had great advice from a friend, Dan, whose dad said, you need to stick past three and a half years and go to five years. Most people give up at three and a half years. And there's a great metaphor. It's like paddling an iceberg with flippers on. It takes a long time to get that iceberg going.

Eve: [00:13:38] Yeah, it really does. It can be a little depressing but there it is.

Stephanie: [00:13:42] Um-Hmm.

Eve: [00:13:42] This is a pretty unusual place for a Ph.D. in forestry to end up. That's what you have, right?

Stephanie: [00:13:49] Yes.

Eve: [00:13:49] So I have read about Fish and Wildlife and Spotted Owls on your resume. Tell me about the journey that took you from wild life to impact investment.

Stephanie: [00:14:01] It was great. I was watching an interview this morning with Heather McGhee and she's approaching this conversation from a race issue. I grew up in an environmental issue and she's framing it using a zero sum game. And I grew up in central Idaho and in Sun Valley, Idaho. And there was a zero sum framing where it was either we either could save the endangered species of the wolves and the salmon, or we could have jobs. And I just remember knowing deeply in my heart that there was enough resources for both of them and my friends would literally threaten the lives of my other friends with guns. And there was a river guide I used to work for that, a bunch of the river guides made a sticker that said Happiness is the fisheries' biologists' face on a milk carton. And it was a very tumultuous and some ways violent way to grow up. And I just I didn't know. I thought it was about the wildlife at that point. And now I'm really clear it was a resource allocation issue. And I deeply believe there's enough money for communities and the environment and jobs. And so that just has motivated me since I was 16 and I'll never forget. I do like woodworking. And I announced when I was 16 or 17 that I was going to become a carpenter and make furniture. And my dad, who was incredibly supportive, my late dad, of whatever I would choose, said Stephanie, What about architect? I said, I said no. I said, What about wildlife biologist? And my dad said, You have a mind for business, Stephanie. Why don't you go make a lot of money and then you can have influence on the environment. And my dad, actually, he was a workout guy that would take companies through bankruptcy, but the last 10 years of his career, he took a company out of bankruptcy, a precast concrete company. So for 10 years, my family made every precast concrete box in the state of Idaho, electrical box, etc., and air conditioner pad. And and I said, Dad, I just don't have the constitution to do it the way you did it. I'm not willing to go make money in whatever way I can and then do what I want to do. I'm going to do what I want to do along the way.

Eve: [00:16:22] Yeah, I think this must be part of being a parent, not really understanding what your kids are doing. Right. What would be good outcomes, do you think, if more people invest in important change making projects, what are the outcomes you hope for?

Stephanie: [00:16:41] I'll actually, answer that question and continue my last answer a little bit. My dad would end up being quite wealthy, becoming homeless for two years, and then at twenty four years of age, he would come back to live with me. And so the roles were reversed for those of you who cared for your parents, except my roles were reversed for me when I was twenty four. And I remember I was doing my PhD in seven states with ranchers and a socioeconomic analysis, a conservation project. And I got to study with my hero, the chief of the Forest Service, Dr. Jack Ward Thomas. I was also working for the Forest Service in multiple roles all around the country based out of Lander, Wyoming. And my mom came down with pancreatic cancer and my dad was living with us in a home in Lander, Wyoming. And I remember coming home one day and I said, I don't care if you walk dogs or volunteer or you get a job, but you can't just stay in this basement apartment. You have to do something. And he would get a real estate license and a mortgage broker license. And he didn't cost a lot of money to support him at that time because he was living in a basement apartment of our house. And so, essentially what we did is we were used to being poor graduate students. And so instead of taking all the excess money of having two salaries and a grad's stipend, we would buy a house. You could buy a house in Lander, Wyoming, for six to eight thousand dollars from down payment, one hundred twenty thousand dollars house from 2000-2005.

Eve: [00:18:17] Wow.

Stephanie: [00:18:18] And the reason I'm saying this is my mom passed in 2003 and I wasn't emotionally ready to sell the house. My sister was. So I bought the house from my sister. And I think most of us, our road to becoming an investor in a meaningful way, is that second house. The first house is, I made it. I'm an adult. I'm building wealth. But that's a it's a very different experience to to get your second house. And I don't know that I would have offensively purchased my second house. It kind of came to me because my mom passed. But once that second one happened, I talked to several people who've had this experience. You're like, wait a minute, I can do this. I can own an asset and make money. And so we bought a third house and then on the fourth or fifth house, my dad came home and he said, Stephers, he's like, there's these families coming into our mortgage business. A lot of them have bad credit, but there are some that have bad credit that actually used to have good credit. They just had a medical situation and they didn't have the right medical insurance. And now they're in this bankruptcy called a medical bankruptcy. So they're not allowed to buy a house or car, even though they are people who paid their bills. And so we ended up doing a lease option with these families and we had a family meeting and agreed that we wanted a 10 percent return. And so we would set aside 10 percent of their rent as a partial equity. And if the house appreciated above 10 percent return during their medical bankruptcy, essentially get the upside of that. And the houses during that time period appreciated fifteen to twenty five percent. So we got the joy of philanthropy, a job for my dad, an amazing tenant, a solid 10 percent return, and they got dignity. Got to move into their home three to five years early and get partial equity upside. And so I think that all of us are on this quest of connection and meaning. And when you realize, like I did then at twenty four, twenty five years of age, that you can do well by doing good. I don't think most of us can go back from that.

Eve: [00:20:27] I think you're a rock star. You probably made some friends for life as well in that process, right.

Stephanie: [00:20:34] Absolutely. That was about three hundred transactions ago and I'm I have lots of friends along the way. Three to four hundred. I've lost count. I kind of stopped keeping count after two hundred. As as my colleague Todd James says, 60 percent of what we do has been visible and behind the scenes. So there's a lot of lovely, incredible, awesome people out there that don't even know that we were helping push and pull to make their dreams happen. And, you know, it's it's it's an incredible role to play in people's lives.

Eve: [00:21:03] You really did shift from fish and wildlife to real estate, and then you dragged me into it recently, which I'm really enjoying. But we're working together on one of your many projects, which you didn't mention before when you talked about the five ways to educate people. You're also creating impact investing clubs, which are really fascinating, they're themed clubs where potential impact investors gather and you're educating them with a particular focus. And we're on the journey of building a real estate impact investing club.

Stephanie: [00:21:38] We are, Eve. I didn't mention this at the beginning. So Impact Finance Center does two things. We identify, educate and activate individuals and organizations to become impact investors and we also build what we call community infrastructure, which can be replicated, scaled and customized. And in that bucket of community infrastructure, you just mentioned investor clubs, which is one piece of it. We also stood up the first statewide marketplace for impact investing, which is the second time I met you when you came out to Impact Days.

Eve: [00:22:11] That's right. Yeah.

Stephanie: [00:22:11] Our Impact Days, and that's, you can think of it is, imagine everybody who needed money in the state, doing good, shows up and they create a farmer's market booth and we activate new investors and organize existing investors and we bring the investors to go shopping in the farmer's market. We call that Impactings. A Bodega is a subset of that marketplace. And that's what we're branding as our Investor Clubs. And then we also have two hundred classes, which we refer to as our Impact Investing Institute. And one of the most exciting pieces of infrastructure that we created was, are you familiar with The Who's Who Under 40 that business journals do?

Eve: [00:22:49] Yes, yep.

Stephanie: [00:22:50] Yeah. We reached out to our business journal and we said we're going to do Who's Who in impact investing for the Rocky Mountain region. Do you want to be our media partner? And that was exciting because the first year we did it, we had three hundred people apply.

Eve: [00:23:03] Oh, wow, that's great.

Stephanie: [00:23:05] The second year that we had thirteen hundred and so that builds the book. And then the last piece, which is really the key, is our impact investing, giving circle or investor accelerator, and that's in partnership with civil society organizations like Community Foundations. So, right now we have thirty four women ,that could be middle income or high net worth or connected to a company or family office or foundation, who are Major League when it comes to intelligence and Major League when it comes to alignment and Major League when it comes to admission and Major League when it comes to access to money. But they've never actually written a check to support a sutainable real estate project or a small business or a startup. And so in this case, we make it low cost, easy and fun. We say, let's participate in a giving circle, donate two thousand dollars in and we end up getting a kitty of seventy five thousand to one hundred and fifty thousand and we say, who needs money? And this year we had a one hundred eleven women apply. One hundred and twelve women apply for over fifty million dollars of need. And then we go through a selection process and they do due diligence and they invest in a couple investments for their first investments because it's a pooled donor advised fund that the Women's Foundation of Colorado, if they don't get the money back, it's essentially a learned by doing fund experience where hopefully they walk in is that as a donor, they walk out as an investor and then they say, I want to join the investor club. So, yes, Eve, the investor clubs are...

Eve: [00:24:38] This is especially important, this educational piece, because because women don't invest. And I can tell you that with certainty on Small Change, women, just a tiny minority of investors. It really kind of puzzles me.

Stephanie: [00:24:53] You know, it's interesting because I am counting on my fingers right now and hopefully going to my toes. I have several women who will be investing in Lyneir's project who have been spreading the good news on Lyneir and some of the other great offerings you have on Small Change right now. And I'll be completely honest with you, we we started the Investor Club as a response to Colorado's CDFIs, Community Financial Development Institutions and nonprofit lenders, who basically said Steph, that's been great. The three year pilot, we had a goal to move one hundred million. We're up to three hundred million. Success. But we need to still keep helping raise capital for the CDFI's and non-profit lenders. And so the first Investor Club was a Main Street Lender Club. The second one was our Indigenous Investor Club. And then the third one was with the federal government's Sustainable Forestry Mass Timber CLT Investor Club that connects with real estate. And now we're starting clubs in California and Massachusetts and with the New York City's. But I have to say Eve Picker, the most popular one, has been the Real Estate Investor Club.

Eve: [00:26:02] This was unexpected, wasn't it? We have to keep up.

Stephanie: [00:26:06] Yeah, I was only mildly surprised. I saw there's a quest to need. Nobody gets paid to do the work we're doing. I think that's the difficult part. If Wall Street had figured out how to get paid to educate investors we would have money flowing like hotcakes to Main Street investments.

Eve: [00:26:23] And, you know, it's been pretty stunning because some on our club meeting announcements for mid-March, there's something like eighteen hundred people signed up on LinkedIn and I have no idea where they're coming from. It's pretty big. It's pretty astounding, so we better put on a really good show, right.

Stephanie: [00:26:43] Yeah, it's well it's easy to do. I mean, people who are either investing or working in community real estate, creating real estate, affordable housing, mass timber CLT, all of the all the good stuff. Is there some of the most inspiring people you've ever met.

Eve: [00:26:58] Yes, I agree.

Stephanie: [00:26:58] So so it's pretty much you just have to set the stage and let them shine.

Eve: [00:27:04] Let me ask you, so what happens to the club meeting and how it happened? What's your formula?

Stephanie: [00:27:10] Yeah. And and for those of you who are familiar and who've gone to like a pitch competition or an expo, that's what I think about it. I think it is essentially a virtual farmer's market. And our goal is investor education specifically and also some social venture education. But what we want to do is we do an investor panel and we want to showcase different types of investors so people can see themselves in the crowd and go, wait, they're just like me. I could do that, too. And so really, that's about getting diverse, interesting investors up there so we can make it seem more accessible to people sitting in the crowd that they can go from not identifying as an investor to becoming an investor. And then the same is true for the social ventures like community real estate projects. It's a way to educate people about what's possible. Most people I mean, Eve, you know better than anybody, but if you and I walked out of our front door right now and and just talk to the next hundred people that walked by and said, are you an investor? All of them are investors, but most of them would probably we'd probably get five to ten of them who would say that they identify as an investor?

Eve: [00:28:24] Yeah, maybe less, actually.

Stephanie: [00:28:27] Maybe less. And that is the challenge. Like I remember when Mitt Romney was running for president, the Mormon Church put up signs, they had a campaign and put up billboards and they put up everyday faces and they called I'm a Mormon campaign. And I feel like we need to put up do a similar campaign, that I'm an Investor campaign.

Eve: [00:28:46] Yeah, that's right. I think that's a great idea because an investor could be someone who invests ten bucks in their friend's startup or an investor can be someone who invests a million dollars into something big.

Stephanie: [00:28:59] I would even argue a mom who goes to the grocery store and decides which milk she's going to buy for her child as an investor. She's invested in the supply chain of...

Eve: [00:29:08] Oh, yeah.

Stephanie: [00:29:09] Are you buying organic or not organic or how are the companies trading?

Eve: [00:29:13] Or if they decide to go purchase at a farmer's market instead of the grocery store.

Stephanie: [00:29:18] Every time a dollar changes hands, you're an investor.

Eve: [00:29:24] Yes. I think you have a broader description of investor than I think of. But you're right. So the club meetings are like a mixture of panels with investors, large and small, talking about their experiences and what it means to them and social ventures. And then a little pitch round right. Of deals that are looking for money.

Stephanie: [00:29:43] Yeah. So we we essentially, because we're in Covid, we can't do this in person. And so I think that's to the benefit of this, Eve.

Eve: [00:29:50] I agree.

Stephanie: [00:29:52] And because in Colorado, when you came out to Colorado, Impact Days, we physically have a farmer's market, you know, where...

Eve: [00:29:59] I don't want to travel that much. I kind of like this Zoom thing.

Stephanie: [00:30:02] Absolutely. So we're essentially putting the farmer's market online. And so we created an investor catalog. And it's really the social venture panel is to give five to 12 minutes casually for people to learn about a couple of the investment opportunities. And then we do a speed round of two minutes. And it's shocking to me sometimes that people actually shine better in the two minutes than they do when they're given seven to ten minutes.

Eve: [00:30:29] Yeah, it's pretty fun. And people get an opportunity to ask questions, too. I think it's exciting for me. I mean, what's your ultimate goal with these clubs? What would be a fantastic outcome in five years for you?

Stephanie: [00:30:41] I'll put my geeky academic entrepreneur hat on for a second. We actually wrote a paper called Laying the Groundwork for the National Impact Investing Marketplace. So we published in the Foundation Review. And we're pretty confident now that if you take our infrastructure and combine it with some other infrastructure, such as Lenny Lavis up in Seattle, he has realized impact investor flow, a Fleg regenerative accelerator. If you take some of our joint infrastructure together, we can actually completely fix the capital markets and move a trillion dollars into impact. I can do it two ways. I can go fundraise 20 million dollars and take what we did in Colorado and expand it to all 50 states. Or we can earn money from some of our social ventures, such as our Impact Investing Institute, and use it to self-fund our expansion to all 50 states. So what's exciting about the Investor Clubs is most of our Investor Clubs are actually being purchased or supported by foundations who want to do economic development and Covid recovery. Federal government, USDA, Forest Service. And we've had interest in state governments, too. So I think if I was in state government or foundation interested or family office interest in Covid recovery or a corporation, I would be basically investing in as many Impact Investing Giving Circles and Investor Clubs as I could afford to support. I think that getting one percent of our wealth to invest in Main Street as an example in Colorado, that would be five billion dollars that could be leveraged through CDFI's and banks for a 15 billion to 50 billion dollar year investment. It wouldn't take much, just one percent of the wealth.

Eve: [00:32:27] Um-hmm. Fantastic. I'm going to change gears again. Just ask a few more questions to wrap up and they're about you. And what do you love doing the most and why?

Stephanie: [00:32:39] I love most partner dancing. Ballroom dancing is my favorite joy in the whole world. Which I feel like it's going to be the last activity that comes back to us after Covid. So I'm sort of isolated. I'm single in Denver, Colorado, and I Waltz and Cha-Cha and Two-step and learning the Latin dances and I Swing and I just can't wait to get back to partner dancing.

Eve: [00:33:04] So I have to ask, have you watched my very favorite Australian movie called Strictly Ballroom?

Stephanie: [00:33:09] I have seen Strictly Ballroom. Yes.

Eve: [00:33:13] So, the Star of Strictly Ballroom used to live next to me in Sydney.

Stephanie: [00:33:17] Well, I can't wait to be traveling with you to Sydney.

Eve: [00:33:20] I don't think he lives there any more.

Stephanie: [00:33:24] We can go have lunch.

Eve: [00:33:24] And what are you excited about the most?

Stephanie: [00:33:27] I am excited, two things. Is, as I used to feel like that from 2012-20, I felt like I know there's an answer and we just have to develop the answer. And now I feel like the answers there. All the puzzle pieces are on the table. Now, we just have to put the puzzle pieces together. And so I'm excited about all of the amazing impact investors and all the amazing social ventures out there. There is so much goodness and love and light and inspiring people who are showing up in the impossible ways to make the world a better place. And so I'm very fortunate in that I get to hear from people with resources and people needing resources, doing amazing things and have the the joy of being able to connect them together. And our phone has just been ringing off the hook. Especially a lot of middle aged white women, just between the combination of the global pandemic and our civil rights crisis have just called. And many of them have got a text once that says, what can I do to help my sisters of color immediately? And she made an investment quickly. I had another woman call. We do a fellowship of ten sessions. And on her first session, she's like, I'm ready to make a first hundred thousand dollar investment today. I'm like, OK, there we go. And so, yeah. So it's just great to see how many people are showing up and going, now's the time. I can't wait any longer.

Eve: [00:34:59] It's been really wonderful talking to you and I really can't wait to see what becomes of the Impact Finance Center and our club and what's next for you.

Stephanie: [00:35:09] Oh, well, and likewise, Eve. I just want to give a gratitude and compliment to you, because I don't know that we've discussed this, but when this movement was getting off the ground, I was very aware there's a role to activate new investors, educate and organize existing investors and build the financial fintech solution. And I chose to be on the education of investor side, and I couldn't be more happy to be collaborating with you. You're just somebody who is a visionary and a joy and has incredible integrity. And I think,

Eve: [00:35:44] I'm blushing now.

Stephanie: [00:35:45] Oh, I think that what you do and what I do are two pieces...

Eve: [00:35:51] Perfect match.

Stephanie: [00:35:51] Of a puzzle that literally will democratize and provide that pathway to solve the problems that I had as a 15 year old, 16 year old watching.

Eve: [00:36:01] You know, you're right. I mean, I think investor education is the most difficult part of what I do, and I can't do that and investor education. So I'm extremely grateful to have you around.

Stephanie: [00:36:14] Well, let's go find what should our goal be in the next five years.

Eve: [00:36:18] We should build humongous impact investor club and just showcase thousands of projects. And, you know, I'd have to quantify that goal clearly.

Stephanie: [00:36:30] Well, I'm going put a goal out for us. It's February 18, 2021. How about a year from now, our goal will be able to have a list of twenty thousand investors that are actively investing in and community real estate.

Eve: [00:36:43] I think that's a fantastic goal. I'm happy to add to it.

Stephanie: [00:36:48] Fantastic. It's a true honor and joy to be in partnership with you.

Eve: [00:36:51] Thank you.

Stephanie: [00:36:52] Thank you.

Eve: [00:37:04] That was Dr. Stephanie Gripne. Stephanie believes that impact investing is all about educating people. Trustworthy, non conflicted investor education. The Impact Financial Center is quickly becoming the go-to place for just this type of education and for every level of investor, from foundations to individuals who have never invested before. You'll be hearing more about the Impact Finance Center, I'm sure. Please share this podcast so that more people learn about Stephanie. You can find out more about this episode on the show notes page at Evepicker.com, or you can find other episodes you might have missed there. You can also show your support at Patreon/RethinkRealEstate.com, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. Thank you so much for spending your time with me today. And thank you, Stephanie, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:09] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. Today, I'm talking with Michael Shuman, an economist, attorney, author, entrepreneur and a go-to person on local and community economics. Michael has been credited with being one of the architects of the 2012 Jobs Act. He's one of the fathers of investment crowdfunding. Without him, I wouldn't have my crowdfunding platform, Small Change. Michael's given an average of more than one invited talk per week, mostly to local governments and universities for the past 30 years, in nearly every U.S. state and more than a dozen countries. He says, "I love public speaking because it gives me an opportunity to explain difficult, arcane topics in simple, hopefully entertaining terms to people who care about their communities." Not being busy enough, Michael has also authored, co-authored and edited quite a few books, most recently 'Put Your Money Where Your Life Is: How to Invest Locally Using Solo 401ks and Self-Directed IRAs.' I'm going to learn a lot from Michael and so might you, so listen in. Be sure to go to EvePicker.com, to find out more on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: [00:01:58] Hello, Michael, I'm really delighted to have you on my show today.

Michael Shuman: [00:02:02] Great to be here.

Eve: [00:02:04] Put your money where your life is. That's the title of your latest book. And it seemed like a really obvious statement. Why do you need to write a book about this?

Michael: [00:02:15] Well, maybe I'm just book-o-philic, that I tend to write a lot of books and that's the way I express myself. But I did feel like there were two bodies of knowledge I was trying to bring together. One was a whole emerging body of knowledge around why local businesses and local economies are so important. And the other is this body of knowledge about how to use these somewhat obscure tax tools, the self-directed IRA and the solo 401k, For local investing. And so, bringing these two things together in a readable form, that was really the objective and I couldn't see a way of doing that just as a pamphlet.

Eve: [00:03:05] But I suppose more than that, like why local? Who are you trying to reach with this book and why? Why do you think it's important?

Michael: [00:03:12] Well, I would say for about 30 years, I have been on a campaign to remake economic development, and the reason is, is that I think there is a very impressive body of evidence that locally owned businesses are the key to community prosperity. They comprise 60 to 80 percent of the private marketplace in the average American community. They are highly profitable. They are highly competitive. They have done great despite the ways in which economic developers and subsidies have overlooked them. And yet, when it comes to economic development, when you talk with an economic developer for any length of time, they will tell you that their mission is to attract and retain business. And when you unpack that term, attract and retain, it's really all about global companies. So a tiny fraction of what constitutes a community's economy is what in fact is driving economic development. And it's totally backwards. So, what I've been arguing is that we have to figure out ways of nurturing and strengthening and getting capital into local business. And if we do that and, we can really enhance jobs, income, wealth and tax receipts.

Eve: [00:04:49] We've got that backwards. Do we have it backwards at the local level, at the state level? What about the federal level?

Michael: [00:04:55] Every level conceivable has it backwards. At the state and local level, it's estimated that something near 100 billion dollars per year is spent on attraction, corporate attraction. At the federal level, it's not really corporate attraction, but what you see is all of these subsidies, which are largely going to larger businesses, big Ag, big cattle, big water, big coal, big oil and gas. I mean, you name it. And small businesses in the end are getting the crumbs. So, yeah, I think this is a systematic problem and requires some systematic solutions.

Eve: [00:05:43] How did you get interested in this?

Michael: [00:05:46] I became interested in this in a circuitous way, so I was graduated from law school in 1982 and really detested the idea of becoming a lawyer. So, I started a nonprofit in the field of peace and justice. It was called the Center for Innovative Diplomacy. And one of the things that we did in the ten or so years that this organization lasted, is we organized several thousand mayors and city council members across the United States to get involved in what we called municipal foreign policy. So, the involvement of cities and say in nuclear free zones or anti-apartheid campaigns or human rights initiatives. And I got very excited about this way of influencing international policy. But I started to think about how to get involved in economic development through these tools. And I had a partnership with an organization based in Europe that was then called Towns and Development. And you can think of Towns and Development as sort of sister cities with attitude. So, they had thousands of links between northern and southern cities built around economic development, and Towns and Development asked me to write a critique, a sort of retrospective of what at that point was more than a decade of work. And at the end of that critique, I said, you guys are doing marvelous work. You have great principles for economic development. The problem is, is that your practice of economic development has no relationship to the principles. That is, if the northern city sends a big company to the southern partner, you celebrate that as a big success. But in fact, success needed to be measured in greater self-reliance. And it was that moment that I realized I needed to pivot and start working on a whole different field. So, I wrote a book in the mid 90's called 'Going Local,' and I thought it would be a one-off book. I would, you know, write it, be done. But it opened so many interesting doors that that's really what I've been doing ever since.

Eve: [00:08:19] What would be good outcomes if we move towards more localized economies?

Michael: [00:08:26] If you look at the evidence out there of lots of different studies, we know that communities with a higher density of locally-owned business have higher per capita job growth rate. They have less poverty. They have more civic engagement, higher voting participation, higher rates of volunteership. We know from an EPA study that locally-owned smokestack businesses pollute about one tenth as much as their absentee-owned counterparts. We know that locally-owned businesses are the dynamism of what promotes entrepreneurship and what promotes people really being committed and excited about a stable city. So, I feel like the list is very long and compelling. And so, I really feel like if we had a world of more localized economies, we would be wealthier, we would be more equitable and we would be less likely to go to war with one another.

Eve: [00:09:37] I have to ask. Is there a gold standard city or community out there that you would point to for localized economies?

Michael: [00:09:45] I have become familiar through studies that I do with many local governments. I've become familiar with several hundred local governments. And honestly, there's none that I would give better than a B or B minus to.

Eve: [00:10:03] Oh, OK.

Michael: [00:10:05] And I think part of the problem is the pernicious impact of these outdated ideas about economic development. And so what a typical city you look at, say, a Portland or a Seattle, which nominally seems like a very green kind of city. And they have all of these departments working on recycling and storm water management and energy efficiency. And by those criteria, these cities are looking really good. And then they have economic development departments that are filled with dinosaurs that all they want to do is spend vast amounts of public money to attract global companies.

Eve: [00:10:52] Yeah.

Michael: [00:10:53] And they systematically ignore their local businesses.

Eve: [00:10:56] Yeah, I live in a place like that.

Michael: [00:10:58] Pittsburgh. Yes. And, you know, in Pittsburgh has despite that, I think, become a more self reliant community. I mean, they turned, but ...

Eve: [00:11:11] But you know, Michael, I think that's because, isn't Pittsburgh, the birthplace of community development corporations?

Michael: [00:11:18] Yes.

Eve: [00:11:20] Community development activity is very, very big here. And that's almost like their own little localized economy. So, that may be part of the difference. Does that make sense?

Michael: [00:11:31] I think it does. And I think the other thing, I mean, I'm not intimately familiar with Pittsburgh, but one of the things as a visitor that I have noted about it is that it's really a city of amazing neighborhoods.

Eve: [00:11:46] Yes, it is. Yep.

Michael: [00:11:47] And the definition of those neighborhoods.

Eve: [00:11:50] Physically quite distinct.

Michael: [00:11:52] Yes. I think that makes a difference, too, because people then self organize around that sense of neighborhood well-being.

Eve: [00:12:01] I think that's right. It's one of the things I've always thought about, like in when I go visit San Francisco, which is a beautiful city, one neighborhood bleeds into the other. And I've come to really love the very distinct neighborhood personalities here and the character, the buildings, and it's really interesting. Yeah.

Michael: [00:12:20] I lived in San Francisco for about 10 years and I used to say to people, it's a terrible place to visit because the only way you can enjoy San Francisco is by slowly taking it in, walking the streets, going from neighborhood to neighborhood. And there's no way you can do justice to that as a tourist going to Alcatraz.

Eve: [00:12:47] Right. Yeah, well, that's how I prefer to visit cities anyway. Would there be any bad outcomes if we move towards localized economies? Like what would we be missing?

Michael: [00:12:57] So, there are different conceptions of localization. And I believe that critics of localization have in their head what I would call a theory of 'dumb localization.' And what it is, is it, looks at, say, what Brazil did in the 1960s with the idea that, oh, we need to build up our internal economy, we'll put up trade barriers, we'll put up technology transfer limits, we'll punish people for coming into the country with long visa processes. And by that process, we will build up more internal self-reliance. That's the way globalization fanatics think about localization. And if we do that, we will become poorer, and countries will become backward, and we will miss out. So, I really think that localization has to be defined in more market terms, that localization means consumers freely finding great local deals and goods and services and freely choosing those. It means businesses expanding to meet local needs. It means governments getting rid of subsidies that are currently favoring global businesses.

Eve: [00:14:27] So, if you were the mayor of a city that was a D on your scale, what would you do to make it an A, an A local economy?

Michael: [00:14:38] The first thing I would do is I would announce that we were not giving a penny of subsidy to any business, so that automatically would save me a good deal of money that I could spend on other things. I would create a procurement system that really looked objectively at the impacts of local business when they were potential bidders versus non-local business. And I would realize that the local businesses pay more in taxes and therefore they deserve a boost in the procurement process that objectively reflects that. I would change my city's investment policies so that rather than putting money out in the global economy, I would, like the cities of Tucson or Phoenix, put my money in local banks so it could be re-lent to support various economic development projects. I would think about how to use municipal bonds and municipal powers of creating investment funds in order to foster various kinds of economic development projects like affordable housing or local food projects. So, there's a long list of things that cities could do that really is hard to find any city that's doing that right now.

Eve: [00:16:03] I mean, honestly, one of my pet peeves is most cities look outside their borders for the best consultants, whereas they often have a lot of talent inside. And that's also one way to increase the economy of a city. And it's a very weird dynamic, but I think you're probably right. There are tons of things you could do.

Michael: [00:16:23] I've experienced that here. I live in Montgomery County, Maryland, and I can't tell you the number of times I have bid on Montgomery County contracts. And they go for some ...

Eve: [00:16:35] Oh, yeah, I can imagine.

Michael: [00:16:37] ... competitive person a hundred miles away, and they lose out on the tax benefits.

Eve: [00:16:42] Yeah, I may as well be invisible in Pittsburgh, I think.

Michael: [00:16:45] Well, you're not invisible to me and to the rest of the country, so that's the good news.

Eve: [00:16:49] That's the problem, right? That we want to shift to local. So, OK. And how do you think the pandemic, I have to talk about this, might impact this trajectory? Because I have a feeling in some ways it might actually help.

Michael: [00:17:05] I think it has helped. And what I've noticed is that most of the cities that I'm working with have at least put the word resilience into their vocabulary and are thinking about how they can make their communities more resilient. What they haven't realized yet is that resilience is the opposite of what David Ricardo advocated in 'comparative advantage,' and which is, it's a subtlety, but at some point they're going to realize, oh, yeah, resilience means more diversity of business. It means greater self-reliance. It means greater localization. It means what we're doing in economic development is a little bit outdated. So, that's going to take some time to work its way through the system. But ultimately, it will be a very good thing because we'll be resilient not just against the next pandemic, but will be resilient on the next capital flight and the next climate catastrophe and so forth.

Eve: [00:18:11] Yeah, one of the things that's been fascinating me about the pandemic, which I think feeds into this, is there's definitely people moving out of cities. Not that I believe the cities will die. There's always going to be room in Tokyo and Paris, okay, but there's definitely a shift back to smaller places. And that means that there'll be money in those places. And often there are main streets which are very underutilized. And I'm hopeful that those small local economies will be revitalized. That would be a good outcome in amongst this misery, right?

Michael: [00:18:44] Absolutely. I was in North Carolina. I shouldn't have traveled there in the pandemic, but...

Eve: [00:18:51] No, that's for sure.

Michael: [00:18:53] ... I made the decision to go there when one of the curves was on the down slope. But it was a was a discussion with economic developers in the Charlotte area about how to heal the urban-rural divide. So, I did a lot of reading and thinking about this. And I actually agree with you that, I mean, if you look at the literature out there, there is an assumption that rural is dead and people are moving to the cities. And to some extent that has been true. But I think what you're observing is really happening. That there is a turning point that has happened in rural America that a lot of people don't appreciate. That Internet connectivity has come to much of rural America, not all of it, but much of it, that people of color, particularly immigrants are beginning to move there because it's a cheaper place to live. And that's diversifying rural America. We're also seeing a lot of retirees going there and they bring Social Security and their pension savings, and that money drives the economy in different ways. So, yeah, and if you add resilience to the mix, you really see why for, not all Americans, and you're right, you know, the great cities are still going to be great cities. But for some Americans, some fraction of millions of Americans, they will move into rural America.

Eve: [00:20:25] Yeah, we still have financing issues for investing in rural America. We have an offering on our platform right now that could not find a loan, and were told over and over again by banks that we don't lend in rural areas. And so I think, you know, the whole financing system behind everything is also part of this story. Right?

Michael: [00:20:47] It's another form of redlining, isn't it?

Michael: [00:20:50] Yeah, it is. OK, well, I want to move on to regulation crowdfunding, which is the love of my life. And I know that you've been involved in it since day one, before I was. And I'd love you to tell us about that journey.

Michael: [00:21:04] Yeah. So. As I said earlier, one of the things that I have found fascinating in the whole discourse about local economy is that every answer to a question opens up new questions. And as I, in the 1990s and early 2000s was sort of thinking about how do we change economic development policy, I started to pay attention to the capital system and started to see how difficult it was for a small business to raise grassroots capital. And my very specific experience with this is, for about two years, and I think this was maybe 2001 to 2003, I tried to start a chicken company in the Eastern Shore of Maryland and it was going to be called Bay Friendly Chicken. It was to offer a greener alternative to what the bionic chicken that Tyson and Perdue were offering. And I started to think about ways of raising money. And I'd have meetings with securities attorneys and learn just how extraordinarily difficult ...

Eve: [00:22:32] Ridiculous.

Michael: [00:22:32] And expensive it was to even get a penny of money from a grassroots investor.

Eve: [00:22:38] Yeh.

Michael: [00:22:38] And I started to think about what the rationale of this was. And they would say, well, you know, we don't want grandma to be buying swampland in Florida. It's always grandma. It's always Florida. It's always swampland. And look, I have a mother who is 97, 98 now. I don't want her buying swampland in Florida. But what does my mother do with her money? My mother goes to the local casino. She lives in St. Louis. And when she goes to the casino, do they say to her, Mrs. Shuman, excuse me, but are you an accredited gambler? No. I mean, and she is not an accredited gambler. She is, you know, she is one of tens of millions of Americans who enter into thousands of casinos and they can lose everything independent of their income.

Eve: [00:23:40] Yes.

Michael: [00:23:41] And yet we never regulate that. And so that contradiction was like a chicken bone in my throat. And 2008 crisis came and I said, you know, I'm going to start writing about this. So, I wrote a piece for the Federal Reserve. They have a community journal.

Eve: [00:24:00] Okay.

Michael: [00:24:01] And basically made the suggestion that there should be a 100 dollar exemption in securities law, that any human being should be able to put 100 hundred dollars into a business with absolutely no legal work whatsoever. Lawyer Free Zone. And some friends of mine kind of got wind of this. They wrote a rule-making petition to the SEC, Securities and Exchange Commission, and hundreds of people wrote letters in support. So, that was sort of the beginning of a lot of conversations and there were other people who were simultaneously doing similar conversations. And then, I remember there was a hearing on Capitol Hill about a proposed crowdfunding bill introduced by Patrick McHenry, conservative of North Carolina. And I remember the head of the SEC was being grilled by Tea Party Republicans. And I was sitting in the room watching this. And they asked her, they said, you know, you've got a proposal in front of you for a one hundred dollar exemption. What have you done with it? And at this point, unemployment in the country was running at about 10 percent because of the Great Recession. And she responded with such condescension and contempt and said, look, we get these kinds of proposals all the time. And, yeah, you know, we'll get around to them ...

[00:25:47] Oooh.

[00:25:47] ... and the Congresspeople left and right, were, like, outraged. We have unprecedented unemployment. We know that local businesses can help fix this. And yet you in the SEC are systematically ignoring the simplest of reforms. That committee voted unanimously in favor of McHenry's proposal and the House supermajority passed it. Now, where McHenry went with crowdfunding was not where I suggested. He actually originally suggested a ten thousand dollar exemption for people. And then it got whittled back to two thousand dollars. And all of these additional regulatory things got put on it. So, it was half a loaf, but it was something. And I think crowdfunding has been a qualified success. The bill was passed in 2012. It took four unnecessary years of haggling for the SEC and FINRA to put forward rules for implementation. But in the four years since, the data show 700,000 people putting in almost half a billion dollars into several thousand companies and projects, and that the beneficiaries have been overwhelmingly, disproportionately companies led by women and people of color. I think it's doing some good things out there.

Eve: [00:27:26] Yeah, no, I agree. Well, this is what we use on our platform. And I think it also helps for us, those real estate developers who are doing really innovative and necessary projects, sometimes small, that most banks don't want to deal with. And so, that also propels the economy forward. When you have someone thinking about how to deal with the affordable housing crisis and they can't get a loan for their project idea, that's a problem. So, there's lots of ways that this has helped. It's a fantastic rule, but it's got a long way to go. What's the silliest thing, do you think about this rule? I can probably give you a lot of those, but I'd like to know what you think.

Michael: [00:28:12] What's the silliest thing about the rule? Well, the silliest thing is something they just fixed. And it wasn't so much that it was implicit in this rule. It was a long standing piece of securities law. But they finally, in their discretion, got rid of it. And that was prohibiting businesses and grassroots investors, from having conversations before the formality of the issue was done. And this idea in securities law that communication will somehow pollute the marketplace has got it fundamentally backwards. Communication is what lays the foundation for a marketplace. And when there is a conversation between a real estate project and a grassroots investor before there is any formal transaction, it should be a moment of celebration, not a moment of repression. And when the SEC finally, finally, finally put in some rule changes in the first week of November, which most people overlooked because there was an election happening.

Eve: [00:29:25] Oh, I didn't overlook it.

Michael: [00:29:27] Of course, what election?

Eve: [00:29:33] But I'm you know, I'm on the federal register every day looking for the thing to be posted.

Michael: [00:29:38] Right. Right. We're still waiting, aren't we?

Eve: [00:29:40] Yes. So, for people listening, you know, the rules are not implemented until 60 days after they're posted on the federal register. And so while there was a vote, it's still not moving along. Right, Michael?

Michael: [00:29:53] Right. Right. I think $2,200 per person is too low a number. I think it should be higher. I do think it's getting the number that a company or a project can raise, from a little over a million dollars to five million is a very big step forward.

Eve: [00:30:13] I should probably, like, take a break and just explain to listeners who don't know about regulation crowdfunding that this is really the first step towards democratizing investment. It's a rule that permits everyday people, everyone, not just accredited investors, to invest in businesses or real estate projects that developers bring to them, and business owners bring to them. And they do that by requiring platforms, called funding portals, to be registered with the SEC and to be members of FINRA, the Financial Regulatory Agency, to sort of manage this business of putting everyday investors together with businesses. And the rule really started out as having a cap of 1.07 million that businesses could raise every year, and permitting everyone to invest 2,200 a year, not per project, a year. If they want to invest more than that there is a calculation around income and net worth, and it even capped what accredited investors could invest in. Even Warren Buffett is not currently permitted to invest more than 107,000 a year.

Eve: [00:31:24] So, these upgrades raise the cap that you can raise through an offering to five million dollars. And while they do not raise that $2,200 cap, they do raise what unaccredited investors can invest by changing the way the net worth and income calculation is made, which is a good thing. And they also permit accredited investors to invest as much as they want. So, these are pretty big steps forward, right, Michael? And then the thing that you care a lot about is the 'test the water' piece, which I agree with you on.

Michael: [00:31:57] Yeah, that's a very good explanation. And one other thing I would just add for your listeners is that sometimes there's confusion about donation crowdfunding with investment crowdfunding. And donation crowdfunding on sites like Kickstarter, Indiegogo, that has been always permitted because donations are not securities, and securities are what are heavily regulated and that's, those regulations are what we are talking about.

Eve: [00:32:27] Right. If you go to Small Change or you go to Wefunder or any of those sites and you invest, you really become an investor in the capital stack of that business or that development project. And there's an offering made, an offering of what the business owner might return to you because you invest in their projects.

Michael: [00:32:49] Yeah, and I think it's worth saying to your listeners why this is so revolutionary. And for the last 10 years, at least when I was able to talk to audiences in person, which you can't do now, still, I would I would ask them three questions. And the first question was, by show of hands, how many of you have mindfully bought something locally, maybe at a farmers market over the last week and almost all the hands go up. People love their local businesses and they love the things in their economy. And then I ask, well, OK, how many of you have a show of hands do your banking at a locally-owned bank or credit union. Half the hands go down. And then I say, those of you with pension funds, how many of you put at least one percent of your pension funds in these local businesses that are 60 to 80 percent of your economy, and all the hands go down. And suddenly people realize, oh, my god, why is that? Why is all of my money going to the global minority of businesses in the economy rather than supporting the projects and the businesses that I love? And it's all about securities law. So, what this law represents is the beginning of a transformation, so that we are putting our money into the things that matter in our life.

Eve: [00:34:24] Yes, so you know the way I think that the SEC and FINRA missed the mark with this rule is, the amount of due diligence the platforms have to do is really burdensome. And you have to remember that these platforms are startup businesses. They're small businesses trying to support other small businesses. And a small business can't afford a full-time compliance officer. And essentially, that's really what you need to be able to run one of these platforms. So, I think you're right. If someone is going to invest $2,000 dollars, do you really need to have all of the burden of, I mean, the rule, that if I told you everything we have to do, it's nuts. We do it because we have to, but it is a lot. So, that's my pet peeve.

Michael: [00:35:13] Yeah, I think it's a very important one. And I worry that your platform and many of the other platforms are going to have challenges long-term because the regulatory burdens are so high and that limits your ability to just pay the basic bills and keep the lights on.

Eve: [00:35:36] Oh, yeah. I mean, insurance for our platform is over $40,000 a year.

Michael: [00:35:41] Wow.

Eve: [00:35:42] That in itself is huge. I mean, the compliance piece of it, figured that out in the first few years and we have, come to a simplified and efficient system. So, that's less of a problem for us now. It was excruciating in the early years, but there are expenses that just never go away and it's hard to catch up with those. Insurance is a really big one because the insurance industry doesn't understand this. This is a nascent industry that's emerging and they are going to charge top dollar until there's thousands of platforms like this.

Michael: [00:36:20] It's outrageous. But let me just say, I love your platform. I love its personality. I love the things that you are putting on there. I think it's unique and it's mission-driven. And I think over time you will enjoy success that many of your competitors do not because they are not mission-driven or they are not distinguishable from one another in the same way yours is. And yours is after mission-oriented real estate. And I think now that the ceiling has been raised from one million to five million, I think a lot more projects are going to be coming on to your site. And that augurs well for your future.

Eve: [00:37:05] Yeah, I hope so. I think the missing piece still, and I'm going to keep that in mind in my dark moments when things are difficult as only they can be in a small business, I think still investor education is the most difficult piece. And there's a lot for people to learn who've never been able to invest like this before. No matter what, they invest in, it's a leap. And that's really, I think, probably the hardest part of this. But what would the ultimate end goal be for this ruling in your mind? What should it be?

Michael: [00:37:41] I think currently Americans have about 56 trillion dollars invested in stocks, bonds, mutual funds, pension funds and insurance funds. So, those are all the long-term securities. And right now, about 99 percent of them are in global companies. I would like to see, say, 80 percent of that money in the locally owned businesses and real estate projects that they belong in. And when that happens, I will think we have achieved real success.

Eve: [00:38:20] Wow, that would be amazing.

Michael: [00:38:22] And, you know, it works out per capita. You know, earlier I said that the range, depending on how you define local business, is 60 to 80 percent of the private economy is local. So let's take 60 percent. So 60 percent of 56 trillion dollars, you know, works out to 30 plus trillion dollars and dividing that by the number of Americans out there, 330 million. It's about $100,000 per capita. So, I encourage listeners to think about your community, say you live in a 10,000 person community, multiply that number by 100,000 per capita. And that's what the benefits of local investment could be for your community. It is hard to imagine a more significant stimulus that you could bring to your economy than bringing local investment in.

Eve: [00:39:21] Yeah, you're right. So, you are a very busy guy. You're a prolific author, prolific speaker. I think I read somewhere that you speak once a week. Professor, consultant. What do you love doing the most and why?

Michael: [00:39:38] Well, more and more, I love teaching. I mean, I've always loved teaching. I taught as a way of paying my bills at law school at Stanford. I taught a writing class. And I still teach now, and I have the privilege for the last four years of teaching at Bard Business School, which is a sustainability-oriented program. And the school is expanding and my course load is expanding. And I'm really, I'm liking that a lot because I think young people now are so much smarter than ...

Eve: [00:40:15] Than we were?

Michael: [00:40:16] ... the people I remember. I don't want, Eve, you were very smart person, so I don't want to say "we." I'm going to only take this route myself. But when I was, when I was younger, the way that you changed the world was, And this is, again, from the law school perspective, that I would take a job for about $5,000 a year working for Ralph Nader as a Nader's Raider. And that was doing good. And then, as I understood that world better, I realized, oh, what that world is all about is spending all of your time begging for money from rich people or rich foundations. And that's how they made ends meet. And I did that for about 20 years and I was pretty good at that, but today's young people have a different view of the world. They see the way to change the world is through mission-oriented business, and that by having great businesses out there doing great things, they can change the planet faster. And I think they're right. And so, I love my role as a teacher to support them in that work.

Eve: [00:41:32] And so, like, my final big question is, this is the wrap up question. What's next for you?

Michael: [00:41:39] So, what's next for me is I am going to try to start soon a very simple newsletter that lists all of the local investment-oriented blogs, and all the local investment-oriented sites, and all the local investment-oriented people to try to get some glue, to hold all these various pieces together. Because I feel like there's a proliferation of organizations, a proliferation of sites. But the big picture is still not quite there. So, I see a kind of a swan song act as I get into my mid-60s, a swan song act of really being a networker and bringing of people together for this larger cause. So, that's that's my next act.

Eve: [00:42:38] Well, I can't wait to see the list, and I really enjoyed the conversation.

Michael: [00:42:43] I did as well. Thanks so much, Eve.

Eve: [00:42:45] Thank you.

Eve: [00:42:56] That was Michael Shuman. In everything he does, Michael is focused on the little guy or girl. He firmly believes that our robust economy would not be so robust without all of those little Main Street businesses and startups. And so he follows through on that belief every day, in his support of investment crowdfunding, in the lectures he gives, in his teachings, in the books he writes and in his consulting engagements with local governments. You can find out more about impact real estate investing and access to the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Michael, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:05] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:11] My guest today is Gary Gilliam. Gary is perhaps best known for his starring role in football. He entered the NFL in 2014 after signing with the Seattle Seahawks, a superstar climax to a very long journey, which we talk about in the podcast. But today's focus, The Bridge, came about as a joint effort with friends to give back to their hometown, Harrisburg. There they will take an obsolete school building, the Bishop McDevitt Building and repurpose it for 21st century needs. It will become an eco-village with about 50 units of sustainable, zero energy, housing, commercial uses and indoor urban agriculture. Their broader goal is to acquire five to 30 acres for sustainable eco-village campuses that will produce healthy, fresh food, clean water and renewable energy. Gary doesn't plan to stop there. Over the next 10 years, he hopes to invest one point five billion dollars (1.5) in 20 different cities. He'll turn to other athletes and influences of color to invest in and lead each project.

Eve: [00:01:35] Be sure to go to Evepicker.com to find out more about Gary on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:59] All right, Gary, thanks so much for joining me on this show.

Gary Gilliam: [00:02:08] Yeah, thanks for having me.

Eve: [00:02:09] So I'm very excited to talk to you. Someone shared your really wonderful video, What is The Bridge Eco-village, with me. And there's really there's so much passion and love in that video. I really just wanted to hear more about the project.

Gary: [00:02:26] Yeah. Yeah, definitely. That video specifically was featuring our pilot location in Harrisburg, Pennsylvania. So, The Bridge Eco-village is a for-purpose real estate development company. The model that is also in that video is our B model in which we acquire old schools, malls, warehouses and convert them into eco-villages. And to us, an eco-village is essentially a mixed use development that has spaces for you to work, eat, live, learn and play. So that workspace, co-working spaces, maker-space, an area for entrepreneurs to come for incubation acceleration, what have you, that each branch is actually urban agriculture, the growing food with aeroponics and hydroponics, or growing food without soil, which allows us to grow food year round and also control the environment so we get bigger and higher yields and actually higher nutritional value as well. So that's where we live is housing, affordable housing as well as luxury housing. It's important for everybody to be together. That LERN Branch is actually our non-profit, which is Empower at the Bridge Foundation, which is a heavy focus into financial literacy, teaching people how to repair their credit. Also a heavy focus into job training, mostly like contractual work, so plumbing, electrician work, things like that, and then also sustainable business practices and research and development.

Gary: [00:03:51] Then within that play branch, the last branch is entertainment. So that's providing a space for people to have zip lines and batting cages, electric go-carts, virtual reality areas. So providing entertainment spaces to the local community. So The Bridge Eco-village, essentially a community center or village aspect, mixed use development. The eco aspect actually comes from the way that we are building mostly through our ITW branch, but for the entire building itself. So solar panels not just looking to be net zero, but striving to be net positive in our energy. We have water collection which doubles with how efficient our water usage is within our farming aspect. We actually save ninety five percent more water than what traditional farmers do. And then within our our waste and our carbon, we actually have a bio waste food digester. We can bring in fresh food waste from outside sources, convert that into nutrients and also more energy. So not just, you know, closing the energy loop, the waste loop, the water loop, carbon loop, so building things sustainably and our build environment. But to us, it's not just about the word sustainable. It's really about kind of playing chess and thinking ahead and making things that are built to last. So for us, sustainability really means longevity, which is why we're looking to convert these older good bone schools and malls and do something great with them.

Eve: [00:05:12] You have my head spinning. Any any one of these things is a pretty significant business to start. And for those who are listening, I mean, you've you've moved a career from professional football to basically community visionary. And so let's step back a bit. I mean, how did that transformation happen and where did the seed of the idea for The Bridge begin?

Gary: [00:05:38] Way back, actually. So when I was eight years old, I actually was enrolled into a private boarding school for orphans. I'm not an orphan, so I'll give a little bit of history about the school itself. So Milton Hershey School, founded by Hershey's Chocolate, the great chocolate chairman Milton Hershey, not only was he into chocolate, but he also founded this school back in 1909 for little white orphan boys. It was called the Hershey Industrial School for Boys. And that's what the school was up to the 60's when black males were admitted, to the 70's and 80's females were admitted. And by the time that I went in late 90s, it was no longer just for orphans. But your family had to be below the poverty line, single parent homes, still your orphans, foster kids, the like. And what the school does is it provides a fully cost free education. You live on campus, cost free your clothes, your food, everything, and then they double it up. And when you graduate from the high school, whatever college you get accepted to, they provide you with a pretty significant scholarship, anywhere from eighty thousand to one hundred thousand dollars to go toward that education.

Eve: [00:06:47] Wow.

Gary: [00:06:48] So, that's really the true inspiration of the work, eat, live, learn, play model. One the school, but but on a bigger scale, the town itself. So there was nothing in that farm town of Hershey wasn't being called Hershey until Milton Hershey himself went there and established this town. Now there's a four theme park, stadiums, theaters, obviously the entire school just it's now a one stop shop for everything that he provided for his workers. But now it's an entertainment space for everybody. So, that work, eat, live, learn, play model definitely comes from the town. And then also on a microcosm of the school itself, providing all the opportunities and resources that the kids needed that would have never gotten those opportunities or resources before.

Eve: [00:07:29] I bet Hershey would love to hear this story, right?

Gary: [00:07:32] Yeah, yeah.

Eve: [00:07:33] That's a great seed to plant. So then you went on to have a professional career in football and I suppose came back to your hometown, right? That's Harrisburg.

Gary: [00:07:45] Yeah, yeah, yeah. Yep. So I got a full ride scholarship to play at Penn State where I went and played for Joe Paterno and Bill O'Brien. While there, I triple majored in business, advertising and psychology. So made sure that with that full ride I maximize it and got some pieces of paper to my name. So then after that I went to the NFL. I went undrafted actually to the Seattle Seahawks. Earned a starting spot there and played there for three years and ended up getting two new contracts actually with the Forty Niners. And that's who I most recently played with and now I'm a free agent. I'm taking this year off to stay away from the virus and decided to, you know, develop The Bridge. A few business plans had already been developed for The Bridge. So you kind of put them together. So, yeah, I went to the NFL, played for a few different teams, and now I'm doing some real estate development. And like you stated, you know, community development.

Eve: [00:08:38] Yes, it's a lot of fun, isn't it?

Gary: [00:08:40] Absolutely.

Eve: [00:08:41] Yeah. Where are you starting? Like, physically? What are the buildings like? And you have a first project, I think, in Harrisburg. What does it look like?

Gary: [00:08:50] Yeah. Yeah. So that specific property was built in 1930. It's an old Catholic school. The Catholic school was there until 2014, so it's been empty since then. It's actually the fallout shelter for the city. So it's got great bones. It's actually really, really good shape on the inside. A few areas need some work, got to put a sprinkler system in and repair parts of the roof. That's part of the biggest expense, aside from obviously the renovations that we plan on doing. But, yeah, that the building in terms of the areas, though, that The Bridge itself targets, there are three main requirements. First and foremost, the town or the city or the area is a food desert or within close proximity to a food desert.

Eve: [00:09:37] Um Hm.

Gary: [00:09:37] Our main objective is to convert food deserts into food oases. Food security and food localization are extremely important, not just in the health of individuals, but also in finances and keeping the dollar circulating within your community. So first and foremost, food deserts. Second, we're targeting places that have home owner occupied rates lower than 45 percent. And then we're also the third requirement is the local school district there is ranked in the bottom half of the state. So those three things, Venn diagramed out the middle area right there is where The Bridge wants to be. Normally areas that most developers don't want to go into. Lots of distressed properties, you know, areas that don't have people that have a lot of disposable income. Those are the exact people that we're targeting. We're pitching or constructing this model to really combat systematic oppression. Those things that I just labeled create systematic oppression and keeps whoever lives in those areas down. You don't have resources there. You don't have opportunities to get yourself out of those situations. So that's right where we want to be.

Eve: [00:10:40] Ok, so this first building sounds like a gut rehab. I think I saw pictures of it. It's pretty gorgeous on your video and it looks pretty big. How big is it and what are you planning to actually build inside that space? And you adding new buildings like I'm an architect. I want to know how the physical structure, what you're planning.

Gary: [00:11:01] So it's one hundred and twenty thousand square feet.

Eve: [00:11:05] Oh, that's pretty big. Yeah.

Gary: [00:11:06] Sitting on eight and a half acres. And it's currently there's a ground floor, first floor and a second floor. We plan on building another floor on top, at least one floor. We're still deciding if we're going to go a bit higher within that top floor is going to be housing. As of now, we've got about 50 units. And that's a mix of affordable housing as well as luxury housing. As I stated. In the ground floor is actually where our maker-space, music studio, a digital media lab, that's where those those areas are. So kind of the co-working space.

Eve: [00:11:41] Incubator space.

Gary: [00:11:41] Some co-working offices up on the first floor, as well as some more housing. The gym, there's a gym. The gym will remain the gym. There's a nice stage in there and some built-in bleachers. So we'll refurbish that and people will be able to use that for TED talks and what have you. We're not going to put a gym floor back into it, but you will be able to do some physical activities in there, pull up curtains, sectioned off the area, use it for different events and what have you. There'll be a new building actually built connected to the gym, which will house our adventure arcade. So the zip lines, the batting cages, the trampolines and what have you. So that'll be new build as well as our farm. Which is looking to be anywhere from sixty thousand to seventy thousand square feet, but going vertical. So about six stories high, so only taken up about a third of an acre, but being able to produce the same amount of food that 13 acres does in a traditional farming sense.

Eve: [00:12:34] It sounds like your plans are pretty fleshed out. Like, how far along are you in the development process?

Gary: [00:12:39] Yeah, the conceptual phase is done. We're getting our land development plan together. We haven't gotten our full construction drawings together yet. We're still locking in a few of our different anchor tenants, some of the local entities that want to be a part of our mission and really help the demographic that we're trying to help too. So we're making sure we lock in the right anchor tenants there and get their spaces developed the way that they like them. And as of now, we're raising money. And luckily, being in the NFL, I got to be our main investor. But we're in the process of opening up to bring more investors in so we can obviously bring this fully to fruition. We just had our groundbreaking actually on November 19 and looking to start construction in the spring.

Eve: [00:13:21] Oh, wow. So you're really pretty far along.

Gary: [00:13:23] Yeah. Yeah. So we're we're moving along, moving, moving, moving right along. We acquired the building last November, so we took the last year to really do a lot of our planning stuff. You know, Covid slowed a few things down.

Eve: [00:13:36] Really slowed things down.

Gary: [00:13:38] Yeah. But allowed us to still meet virtually and get some of our things done.

Eve: [00:13:43] Right.

Gary: [00:13:43] But now we're obviously entering the next phase and taking it from paper to dirt and steel. It's going to be paramount that we get there. And so being in March, April, May it will look a little bit better.

Eve: [00:13:53] Yes, hopefully. So what do the locals think?

Gary: [00:13:56] Oh, we've got, oh man, tremendous community support. So, what we do, like so The Bridge Eco-village, work, eat, live, learn, play. Right. That's that's the model. But the specific amenities within each of those branches is determined by what the community there needs. Right. So, okay yeah, we want a co-working space, if that's what you guys want, or we want an area like a maker-space. Like, what do you guys want within a maker-space. What do you need. What have you not had access to. You know, so we actually hold a bunch of community panels before we even put together our plan. So that's what a lot of the last year was too, is getting in touch with local community, local neighborhoods, figuring out what the specific things people want, need, what's lacking, obviously talking to not just the community, but also to politicians and getting their support. You know, because obviously within the fundraising aspect, there's a public private partnership. So being able to have their support as we pursue some of those public funds was was very important, you know, and they're all behind it. Everybody's super behind, you know, what we're doing. It's not like this is some like, you know, come to Jesus thing. This is like, all right, look, we have an old school here, a building that's been sitting here as a community. We have an opportunity now to put together a plan to really develop this thing as something that we could use and need. And not only that, but then actually create a showcase to show what other communities can do in their places and in their cities with their old buildings.

Eve: [00:15:18] You talked about public private partnerships. Does that include financing partnerships?

Gary: [00:15:23] Yeah, absolutely.

Eve: [00:15:24] So affordable housing dollars or historic tax credits?

Gary: [00:15:29] Yep.

Eve: [00:15:29] Like, how do you bring the capital stuff together? I know these projects are very difficult.

Gary: [00:15:34] Yeah, yeah. No, so a lot. So there's different grants, obviously, like you mentioned, tax credits, historical tax credits. We actually have a meeting set up with the expert, for historical tax credits. The way we designed our plan, we know we're not being super intrusive and knocking down a ton of different walls. So, we are anticipating...

Eve: [00:15:52] Yes, they don't like that, do they?

Gary: [00:15:57] No, they don't. That's the kind of the public side, the private side, a lot of different athletes and entertainers. Right. So. As an athlete, most of us have different, like I'll speak specifically to the NFL and football. We have our own football camps and we go back home. Right. So, it never really sat well with me, you know, just like, ah man, first of all, the chances of making it to the NFL are very, very, very low. And even if you do make it to the NFL, the chances of you keeping a lot of your money is very, very low. Eighty eight percent of NFL players are bankrupt within just two years of playing.

Eve: [00:16:29] Oh, that's shocking.

Gary: [00:16:30] Eighty eight percent. Yeah.

Eve: [00:16:32] Why is that?

Gary: [00:16:33] That's financial literacy and really understanding, you know, just making bad investments. I think you've got to have a certain image, spending the money in the wrong places, purchasing liberty.

Eve: [00:16:44] You grow up poor and then you have all this money. And because no one's ever really taught you how to manage it, it's too much.

Gary: [00:16:51] Yeah. Yeah. Kind of like, you know, when people win the lottery. Most of them end up same thing, either broke or dead, unfortunately.

Eve: [00:16:58] What a shame. Okay.

Gary: [00:17:00] So, aside from that, which is also an issue, instead of going home and preaching about or having the kids come in and go to these football camps, and them thinking, oh, I want to make it to the NFL and be just like Gary Gilliam, you know, if there's a kid that that has the potential, by all means, do it. It's also great for the physical aspect and getting the kids out of the house to do things. But let's think a little more deeply with it. Let's let's really go back and talk about real estate, business, agriculture, leveraging credit. Let's talk about those things. You can create a lot more millionaires that way than we do with athletics, right? That same drive and tenacity and execution ability that we have in athletics, we can mirror that in the business world, too. So let's be the face of that. You know, athletes, let's be the ones that are going back home now and using the money that we've gained to then, one, create opportunities for other people to gain money, but also be helping a ton of people. And most of them like it and and they want to get on board. And what The Bridge is, is it's a model. So it's not just in Harrisburg. We've got a target to hit a bunch of other cities over the next few years. So this thing is about scalability. It's about impact. Like I stated in the very beginning, it's a for purpose real estate development company. So really about impacting individual's lives. But it's also structured and made in a way that you can make a lot of money with and has a great return too.

Eve: [00:18:20] So then what will success look like to you in five or 10 years, say?

Gary: [00:18:26] Yeah, I think success will go back to our three requirements. If that area is no longer a food desert. If the home ownership are higher than forty five percent, significantly higher. And if the school district in that area is then ranked in the top half of the state, then that's when we know we were successful. And that ripple will be able to be measured. That's quantifiable. We'll be able to see that with numbers. And you kind of wonder, OK, well, how does the school district, how does homeownership rates, how does that food desert, how does that relate to the bridge? Well, the school district is directly correlated to homeownership rates and values, which in our LERN branch were heavy on financial literacy, getting people into homes, using FHA loans to get their home owner occupied, taking care of properties, property values go up, more funding to our school districts. Right, these things are linked. So if we're doing, we're supposed to do with each bridge location and that means the area surrounding us, none of those things are now issues and we'll see how far that ripple goes. Which will then allow us to overlap, if need be, other bridge locations so we can start to cover the areas that still have those issues.

Eve: [00:19:32] Those are really great and pragmatic metrics. I think it'll work really well.

Gary: [00:19:38] Thank you.

Eve: [00:19:38] I have to ask, what's the biggest challenge you've had with this project? Maybe you haven't had any.

Gary: [00:19:44] The biggest challenge personally would be asking people for money. It's kind of an odd thing personally, for me to do so, you know, getting over that hump and just kind of like, yeah, you know, this is this is kind of, you know, what we're doing. And everyone's always like, well, how can I get involved? It's like, well, we need capital. That's that's that's a big thing. You know, we've kind of assembled The Avengers. If you've got expertise, right, in architectural stuff or engineering or marketing or whatever else it is, like, this is obviously something that would be in a lot of different cities and teams are needed in each of those cities to run these living buildings, if you will. So, yeah. So teams and capital.

Eve: [00:20:22] Ok, and what's your what's your really big, hairy, audacious goal? You said you wanted to be in a few other cities in a few years. What's, what does this look like in in 10 years from now, do you think?

Gary: [00:20:33] Oh, yeah. Oh, yeah. We're looking to raise. You want big hairy. Okay.

Eve: [00:20:38] Yeah, Big hairy.

Gary: [00:20:39] Ok, here we go. One point five billion dollars. We want to pump that into 20 different cities over 10 years.

Eve: [00:20:50] Okay.

Gary: [00:20:50] One point five billion dollars to be deployed into 20 different cities over 10 years.

Eve: [00:20:56] That is a lot.

Gary: [00:20:59] Yeah, Big. Hairy. All that.

Eve: [00:21:01] Yeah, this is really great. Well, I'm really excited to see what what happens. I would love to be at your groundbreaking. Who knows if we'll be through this pandemic by then. I hope I hope it's over soon. But it really it sounds like a fantastic project. And I want to tell everyone, if they haven't seen your video, they should go look at it because it's a pretty wonderful description of what you're trying to do. I really enjoyed it.

Gary: [00:21:28] Thank you.

Eve: [00:21:29] It's been really nice talking to you.

Gary: [00:21:31] You as well. Thanks for having me.

Eve: [00:21:43] That was Gary Gilliam. Football star would probably be enough for most people. It's not enough for Gary, who planned to leverage his extensive and influential network to do some good. To do a lot of good. The community he grew up in, Harrisburg, Pennsylvania, is poor and segregated. Gary says it is the epitome of systematic oppression, redlining, food desert, lack of resources for the school district. It's all here. And it's been that way since I was young. He wants to find a real solution for those real points of pain, not just in Harrisburg, but all over the world. You can find out more about impact real estate investing and access the show notes for today's episode at my website, Evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Gary, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:15] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Diana Lind. She's written a book called Brave New Home. In it, she explores the history of and alternatives to the single family home in the United States. Her interest in this subject was kindled by her own experiences as a young mother living in a typical single family home which didn't quite meet her needs. Diana's past experiences come into full focus with this book. Professionally, she started life as a writer at Architectural Record, kindling an interest in architecture, and her tenure at Next City cemented her interest in urban advocacy. If you'd like to know more about Diana once you've listened in, be sure to go to EvePicker.com to find out more on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:42] Hi, Diana. I'm really delighted to have you here with me today.

Diana Lind: [00:01:46] Thanks so much for having me.

Eve: [00:01:47] So, you're a writer and you've spent your career deeply immersed in urban issues. And I'm wondering how you became an urban advocate?

Diana : [00:01:57] Sure, I grew up in New York City. So, living in a city and just adoring all of its creativity, its vibrancy, its density, all of these kinds of things, just as part of who I am. But I originally thought I was going to be a novelist or just a journalist. And when I graduated from college, my first job was working at a magazine, but it was working at an architecture magazine. And I didn't really know very much about architecture, but it was a fantastic experience. I was working for Architectural Record and I still write for them and it's a fantastic publication. And really from that experience, that was in the early 2000s, it was a period when there was a big focus on kind of the 'Bilbao effect.' How could cities use amazing architecture to spark a downtown revitalization in cities around the country? And so, I really went from architecture into becoming very interested in cities and started working at Next City, which was then known as the Next American City Magazine, in Philadelphia. And that's really when I transitioned from being focused on architecture, to cities and urban policy issues. And I've been in that place ever since.

Eve: [00:03:21] So, did you ever get to Bilbao?

Diana : [00:03:23] I did not, no.

Eve: [00:03:25] I did, it's a really fantastic city. It's a really interesting city.

Diana : [00:03:32] Yeah. I mean, what is one of the problems with the Bilbao effect's translation into the U.S. is that I think a lot of people thought, well, you just need an awesome museum by a brand name architect and you need so much more than that.

Eve: [00:03:45] Oh, no. I think the remarkable thing about Bilbao that I really, was burned into my brain, is the use of public squares and how just the culture is very different in American culture. So, in the evening, you know, families would come out into these little urban courtyards and squares and join other families and the kids would be playing and it was fantastic. That's really what Bilbao is about.

Diana : [00:04:10] Yeah. And also like an economic development strategy, not just an expensive museum. So, I think you need a fuller package. Yeah, for sure.

Eve: [00:04:20] So, tell me about your latest book, Brave New Home.

Diana : [00:04:23] Sure. Brave New Home just came out in October 2020. And the book is really a history of single family housing in the United States and an exploration of how we went from a country that had many more diverse housing options to one dominated by single family homes. And then a forward looking view at what are some alternatives to the single family home and why they've become so compelling. And swirling all around this is issues of demographic change, cultural change, ways in which just society has changed and housing has not kept pace. So, the conclusion looks also at how can we address some of the social, economic and environmental issues that we're facing as a country through better housing policies.

Eve: [00:05:17] So, why did you write the book? What prompted you to write it?

Diana : [00:05:20] I was inspired to write the book first from a personal level. So, I was one of these people in my 20's and early 30's who spent very little time at home. And I was always kind of out working or I was going out with friends or going to different cities, things like that. And then when I had my first child, I just started spending so much more time at home and I really started to question how I had come to assume that a certain style of living, the single family row home that we lived in, was the right choice for our family. And also wondered about why it was, being a first-time mother, very difficult in terms of not having connections to people to kind of learn from and talk to, and other families to have dinner with where it wouldn't matter if your child was screaming or crying. And I've found that we have created all of these sort of workarounds to that, like Mommy and Me classes that you pay 20 dollars to participate in. But that, you know, actually housing, multigenerational housing, neighborhoods that were purposefully built to be, you know, more closely knit as communities. These were ways in which we had raised generations in the past, and that was really no longer the case anymore. So, it started with a kind of personal questioning of how housing affects our lives in the way that we just raise families and exist in the world.

Eve: [00:06:55] Right.

Diana : [00:06:56] And then, this was a number of years ago, when really the price appreciation in Philadelphia where I live, and in many other cities, was picking up at a really fast pace. So, I think in 2016, prices went up by about 20 percent in Philadelphia in just one year alone. And so just witnessing...

Eve: [00:07:18] Wow...

Diana : [00:07:18] Yeah, and, you know, and that was not even the most extreme example. I mean, Seattle was probably the leader that year. And so, recognizing that housing was so expensive and there was such a great need for more affordable housing and just absolutely no way that we were going to be able to just sort of subsidize our way out of that, through whether it was new taxes or new government programs, that there had to be some other ways of addressing some of this affordability issue. And then finally, also in the past couple years, obviously, people had been thinking about climate change forever. But, you know, in the past couple of years, it's become very evident, especially with wildfires in California, that the ways in which we have built into nature and kind of further expanded development has really had an impact on our ability to bring climate change under control. So, the social, economic and environmental issues had been swirling. And really, I wanted to put it together in a book and write about it in a way that would be accessible to people who knew a little bit about housing, but not a ton, perhaps. And also just sort of like a general person who was very curious about some of these issues and needed a bit of like a foundation of understanding the history of housing in the country.

Eve: [00:08:41] Right. You must have learned a lot researching it. What was the most surprising thing you learned?

Diana : [00:08:48] You know, that's a good question. I don't know that I was entirely surprised, but I had, of course, imagined that in the past there were more diverse housing options, like obviously knew about boarding houses or single room occupancy type buildings, or inns and taverns and the very beginning of colonial cities and whatnot. What I didn't realize was that there were just so many variations upon things like apartment hotels that were built to give people a certain amount of privacy in their own apartment. But to have these kind of communal dining rooms where you could connect with your neighbors. And also how, you know, some of these types of communities were not seen as the way that I think they're portrayed today, as kind of just bourgeois, you know, laziness, but rather a way to address some of the domestic inequality of women always having to take on the laundry, the cleaning of the house, et cetera. And so, some of these kinds of communities where there were amenities built in, were actually seen as feminist projects.

Eve: [00:10:00] That's amazing.

Diana : [00:10:01] Yeah. And, you know, gender segregated housing that had a mission to provide for professional opportunities and colleagueship among women or men, over and over, and I couldn't include it all in the book, but just found really interesting examples of, like, housing set aside for sailors that came in the city. Or, you know, just like so many different types. And we think, you know, pretty much today of just like single family housing and senior housing and maybe student housing. And that's kind of it, you know?

Eve: [00:10:33] I interviewed someone a few months back who built a project, specifically housing for teachers. So, again, a community like that could kind of really lean on each other in a variety of ways. Interesting. You must have learned some troubling things as well. I read a quote. You said, "The housing that we built is built on a model that was created, frankly, with a lot of classist and racist exclusivity and privacy in mind." So, you know, tell me about them.

Diana : [00:11:03] Sure, yeah, well, when you look at the growth of single family homes, it really started in the early 20th century at a time when there was an influx of immigrants in cities and a lot of the immigrants were not wealthy people living in crowded situations, in tenements and other housing types. And when both a combination of a bunch of different things happened, housing became more affordable to build through some standardizations of technologies and materials and the proliferation of private cars and trolleys and transit systems that would get people out of cities. You know, the real push for these initial suburbs in the beginning of the 20th century were really opportunities for the wealthiest and the whitest to move out of cities.

Eve: [00:12:02] That was catastrophic. Places like Pittsburgh. Right?

Diana : [00:12:06] Um hum, yeah. And that started, you know, really before what we think of as the baby boom period, which really led to suburbanization and very much car oriented suburbs, which then were communities that were built explicitly to exclude people of color, Jewish people and other minority groups. And that was done both legally, first through redlining and then sort of extra legally continued through restrictive covenants that could determine who was able to own a home or not able to own a home. You know, I think a lot of people in the history that has been talked about of this have really thought about the suburbs as being this great opportunity for people to access affordable housing and improve their quality of life. But it was not an opportunity that was available to all people. And many people have read Richard Rothstein's Color of Law, but that is a whole book on that particular topic and certainly worth reading for that.

Eve: [00:13:12] Ok, so what does housing reform look like to you after writing this book and doing this research?

Diana : [00:13:18] The key thing is recognizing that there are a lot of different demographics in the country that want different styles of housing and we've really tried a sort of one size fits all approach to housing through the single family home and pursued that too. I think in some cases boost property values for people to continue to provide the kind of privacy and seclusion that we associate with the American dream, but which is really benefiting a kind of smaller and smaller group of homeowners. And in fact, as more corporate entities come into the single family home investment space, buying up tens of thousands of properties to use them as rental properties or even as flipping options as Zillow and other companies have done, it's not even homeowners anymore who are pursuing this dream. So recognizing that we need to provide options for people who are in different economic circumstances and have different cultural and social needs is going to be really important. The reform part of it would really be to ensure that there is the zoning that allows for different types of housing, that there are incentives that provide for different types of housing, and that we're not really only incentivizing the single family home through things like the mortgage interest deduction, through homeownership oriented programs, but that we're thinking about ways to say legalize and encourage duplexes, because that might be a style of housing particularly suited for multigenerational households or households where someone needs an in-home caretaker or people need access to rental income or all of these various different things. And it's really not legal in many neighborhoods, residential communities across the country. So I think step one would certainly be reforming the zoning and reforming what kinds of incentives we provide for housing.

Eve: [00:15:28] Yeah, okay, I suppose that was my next question. What is the impact of zoning on building a more equitable housing landscape is huge.

Diana : [00:15:37] Absolutely. Just yesterday, I was talking with a group of people interested in trying to encourage Philadelphia to reword some of its zoning to allow for accessory dwelling units across the city or in more neighborhoods and make the zoning less restrictive for it. And hearing from developers that were part of the group talking about how it costs time and money to have to deal with zoning variances or the uncertainty about whether a project is going to get it approved, you realize just how these kinds of zoning issues affect the whole pipeline of housing.

Eve: [00:16:19] Enormously. So, we actually have an offering live on Small Change for aiding a developer in Oregon. And there they put an overlay district, I think it statewide, which makes them use by right as long as they conform to a certain size. And he's built the business around that zoning regulation.

Diana : [00:16:40] Yeah.

Eve: [00:16:40] So that he can move really quickly and create a manufactured unit that is actually half the price, a regular one bedroom unit to build. It's one hundred and fifteen thousand instead of two hundred and fifty. So they have that in place. But the next problem is that financing them. I mean, you cannot find a bank, a CDFI fund or anyone who really finance these projects.

Diana : [00:17:07] Yeah, I think that's an interesting issue and something that I talk a little bit about in the book. I give an example of an innovative project in Los Angeles through a nonprofit there, called LA Más. And they were really exploring, along with the city of Los Angeles, how to provide accessory dwelling units that would be both affordable to construct, and affordable to finance and all these kinds of issues. And what they were trying to do was to essentially line up all the parts for the homeowner to make it kind of one stop shopping so that they could have the contractor, the architect, the financing, all as part of a package that you buy into. Because I think one of the other issues is just for so many people, the idea of building an accessory dwelling unit is it's very difficult. And if you're not real estate savvy...

Eve: [00:18:02] Oh, it's impossible. So, this guy actually builds it, installs it, finances it, and then gives them a ground lease. So, the opportunity to buy it at any time, you know, within a 10 year period, I think.

Diana : [00:18:19] Right. So that's definitely a model that is gaining popularity and with good reason.

Eve: [00:18:24] Yeah, except he can't finance it. I mean, it's really difficult like we are with this huge housing need. And while I think people are being extremely creative, developing new models, getting banks and financial institutions to catch up is the next part of the story, right?

Diana : [00:18:46] Yes, absolutely. You know, just today, I got an invite to a webinar about accessory dwelling units with someone from Fannie Mae participating in it. So I think that there is kind of an increasing awareness among our governmental institutions that are financing housing that we need to be more nimble in what types of housing we're financing and that there's a I think, a growing awareness among a lot of banks as well. To your point about that statewide overlay in Oregon and some of the reform in California, these are huge markets and there's a real opportunity there for these banks. So it's going to become a question of them figuring out sooner rather than later that this is going to be a business opportunity for them. And they would be silly to not participate in that.

Eve: [00:19:38] Yeah, I think what I love most, about ADUs, backyard units, Grandma, in-law units, whatever you want to call them, is that they slip into an existing infrastructure in the neighborhood which has transit options and the grocery store and the school, they just slip in as extra housing without much fuss at all. If you can provide an affordable unit to someone in a great neighborhood that already exists, it's just a fabulous option and we ought to all be on it.

Diana : [00:20:09] Yeah, yeah, absolutely. You know, something I try to stress in the book is that I don't think there is a single housing option that's going to solve the housing crisis. And so, you know, accessory dwelling units, they sort of have their limits. And before this call, you and I were talking a little bit about covid. And it kind of reminds me in some sense of what is increasingly called sort of like the Swiss cheese model, which is the idea that you have to wear a mask, you have to do social distancing, you have to limit the time you're spending in certain places and that none of these various different safeguards is going to be enough to prevent covid. But when you do them all together, then you actually are able to prevent it relatively well.

Eve: [00:20:49] Make some impact. Yeah, yeah.

Diana : [00:20:51] So I think that's sort of the same thing with housing, which is like, you know, these accessory dwelling units, they're not going to solve everything, nor are duplexes, nor multifamily because they're not going to work in every kind of context, but we have to think about what works in a given context and think about how we might be able to update housing to better provide affordability or some of the kind of needs that people have today.

Eve: [00:21:17] So what about co-living or co-housing, which is an emerging affordable housing trend? And I've talked to a variety of developers and I worked with a variety of developers just tackling this in so many different ways. It's really fascinating.

Diana : [00:21:32] Yeah, so co-living was really picking up a lot of steam before the pandemic. And I have heard that there's continuing to be some expansion and kind of merging of co-living companies. And I think it is still continuing to be a viable product and will be certainly post pandemic. But co-living, you know, is this idea of people having their own private bedrooms but larger shared spaces with programming and a sort of intentional community aspect to the building or the house, what have you, behind it. And certainly there are a lot of advantages of it and ways in which co-living really responds to demographic needs. And that, again, is sort of one of the thrust of the book is that, you know, there are young people who are not interested in acquiring furniture, are not interested in long leases. They want experiences. They want, you know, an Instagram worthy meal. They want, you know, just different types of things. And this is not to say it's all people. And certainly it is a wealthier demographic of young people that tend to be living in these kind of traditional co-living spaces. That said, co-living has also, I think, de-stigmatized, shared living in a way in which we haven't seen in a long time. So the kind of idea that living in a small apartment but having a small studio but having access to all of these amenities and other people, that kind of makes it seem cool. But we've seen some developers like Common, for example, which has then now partnered with cities like New York and Atlanta to build shared living and co-living spaces for people who are lower income or who are formerly homeless. So it can transcend one market into another. And I think it's a really interesting housing type to get to address both some of the social needs that people have for actually connecting with people. You know, young people are like the loneliest generation, especially as more people spend time online. I think really value time in person as well. And so it's a great way to address some of that social need and also provide some of that density that is going to have economic and environmental benefits too.

Eve: [00:24:01] In markets, like New York City it provides an opportunity for someone to live there. I suppose if you want to call affordably, you know, in a place that really could not afford to live.

Diana : [00:24:11] Right. Yes, that is definitely I think part of the whole idea is that for decades now, people have lived in little shoeboxes in New York and San Francisco, you know, sharing a, say, two bedroom apartment among six young people or what have you. And it's kind of taking a little bit of that same idea. But but doing it in a more thoughtful way. And, yeah, like people are going to be spending a lot of money on rent anyways to live in a prime neighborhood. This is a way to do that and do it and actually sometimes like a more legal and friendly fashion.

Eve: [00:24:49] Right, right. Right. So are there any other housing trends that you believe are kind of really important for our future?

Diana : [00:24:55] Definitely think that multigenerational housing is one of the sleeper issues in housing that has not really gotten the attention of both the marketplace solutions and government policies. Multigenerational housing, so three or more generations under a roof, was on the rise in the U.S. and at the highest level since the 1950's, I think in 2018. When the next data dump comes out, I'm very interested to see. I'm sure that it is even higher now. Also, people living with kin has also increased. So not just multiple generations, but living with an aunt and uncle or brother or sister or cousin, that kind of thing. People can, of course, live all in a single family home together in a multigenerational fashion. But, you know, there are a lot of housing types that were traditionally available, like duplexes, like multifamily townhouses that worked quite well for this type of demographic that we could see the renewal of that being very important to support in multigenerational housing. So I think that's going to be a huge trend in the future.

Eve: [00:26:13] That's kind of 'the missing middle,' right?

Diana : [00:26:15] Mm hmm. Right. Yeah.

Eve: [00:26:17] We've touched on this, but what role should developers or communities or city government or even federal government play in building an equitable housing landscape?

Diana : [00:26:28] Well, I think it requires certainly all of these different stakeholders. And the role that developers can play is being willing to experiment with housing types, being willing to test out housing that might work for a niche demographic that actually is quite huge. You know, I think that's one of the things that we found with co-living, for example. Like, you don't need all young people to live this way because the millennial generation is the largest generation that exists. But even just a fraction of it is a huge market. So a willingness to look beyond the status quo is going to be important from developers. I think from the government side of things, a willingness to accept that we're not going to be able to simply create all the affordable housing that we need through the old standard measures of old government programs. It would be great if, as President elect Biden has proposed, that of making Section eight an entitlement that will do a lot to create more affordable housing. But I also think that government needs to recognize that there is a role here to play in changing zoning to adjust. Yes. What might actually flourish more naturally in their city if they adjusted the zoning.

Eve: [00:27:47] I mean, it's so expensive to change zoning regulations. I was part of a zoning regulation rewrite a couple of decades ago, and it was a huge project.

Diana : [00:27:58] Right.

Eve: [00:27:59] You have all these small places that where did they get the funds from?

Diana : [00:28:05] Right, and that's where I think some of the state reform is really powerful because then you don't have the same kinds of issues of small municipalities having to figure out how to change their zoning. I'm thinking more along the lines of larger cities that could adjust their zoning and have processes to look at their planning documents every few years. So I think that's definitely a way to adjust some of it.

Eve: [00:28:34] Right back to you. What are you currently working on?

Diana : [00:28:39] I sometimes marvel at the fact that I was able to write the book because I have two young kids and I have a full time job. And then there's been this pandemic which has made everything...

Eve: [00:28:50] Three jobs.

Diana : [00:28:51] Yeah, right. So, I think at the moment I'm really just trying to get the word out about the book and kind of get those ideas out there a bit more. I do have some ideas of what some potential next book could be. Very interested in the discussion about how cities are going to transform as a result of the pandemic and more rather than just the pandemic, the increase in online working and how that is going to change cities and the sort of ways in which retail had been troubled pre pandemic. But that has just been accelerated. So, something about that future of the city question and something I've written about a little bit lately, and I could imagine looking at that in a larger format.

Eve: [00:29:41] That would be really interesting.

Diana : [00:29:42] Yeah.

Eve: [00:29:43] I just wanted to go back to one other thing. You grew up in New York City and I think you live in Philly now, right?

Diana : [00:29:48] Yeah.

Eve: [00:29:49] What do you love about Philly and what do you think it needs to do better to become a 21st century metro area.

Diana : [00:29:56] Well, I think Philly is a fantastic city for so many different reasons. I think the reason that I love it currently, which is different than a couple of years ago, is just how amazing its cultural institutions are. I now run something called The Arts and Business Council. That's my day job, if you will. And so I work with people in the creative sector and also businesses who are interested in getting involved in the creative community as well. So that just makes me really excited about the city seeing how that plays out. I live not too far from many of its big institutions, like the museums and the library, the central branch of the library and some of its great parks. So just all of that kind of like cultural infrastructure is built into, baked into Philly, and that is fantastic. The other thing that I really love about it is that it is a city that is changing, but not at such warp speed. That was definitely something I felt in New York in my early 20's there. It just felt like the city was changing so fast and it was really disruptive. And so there's like a nice pace of change here. Where it needs to go in the future? I think it just needs to be a more brave to take a word from the book.

Eve: [00:31:16] Yeah. Brave. I love that word. Everyone gets to be brave.

Diana : [00:31:20] Yes, totally. So that's a little bit of a motto from the book is like, let's be brave. And, you know, it's amazing to see how we've closed down some streets for outdoor restaurants and taking up parking spaces for that and stuff like that. It's just exposed how we could reorganize the city to be more pedestrian friendly, more bicycle friendly, all that kind of stuff. And we've not had the focus on that. I also think, you know, just a huge issue is the school system here is facing a huge deficit as a result of the pandemic and just a recognition that this is like the top priority for the city and we have to figure it out and do it right, at this point. There hasn't been consensus around that, but I just don't see a way forward for Philly if we don't solve that. So that is going to need some bold action as well. You know, you can take these ideas and a bunch of different directions. I think we could do a lot more in terms of our transit, in terms of our housing, that would just be less about trying to recapture the status quo, but trying something new because we have no other option at this point.

Eve: [00:32:34] Yeah.

Diana : [00:32:35] Yeah.

Eve: [00:32:36] Well, thank you so much for joining me, Diana. I really enjoyed our conversation. And I want to learn more. And I think your book is now my reading list for the holidays, so I haven't had time to read it yet, but it sounds really fascinating. I can't wait to get into it. Thank you so much.

Diana : [00:32:53] Thanks so much. It was great talking with you as well.

Eve: [00:33:03] That was Diana Lind. "Let's be brave," she says, and brave we must be to solve this housing crisis. Governments must bravely tweak their zoning regulations so that new and affordable housing types can be easily built. Developers must bravely experiment with their next housing project. Banks must bravely finance new housing products, and NIMBY's must bravely accept some change. Together, surely we can make a difference.

Eve: [00:33:39] You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Diana, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:19] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. Daryl Scipio is a man of many talents. He's been deeply involved in community and political activism since his college days, taking on leadership of the Black law students, earning a fellowship to attend the Eagleton Institute of Politics for a year and working in the Community Law Clinic. After graduating law school, Daryl joined the ACLU of New Jersey, running the racial justice program there, and he spent the next few years working in the labor movement with Local 32 BJ Service Employees International Union. Justice runs deep with Daryl. And now he's applying that passion to a real estate project he's embarking on called Savers Village. He aims to help every tenant save enough for a down payment on a home. You'll want to hear more. Be sure to go to Evepicker.com to find out more about Daryl on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:51] Hello, Daryl, thanks so much for joining me.

Daryl Scipio: [00:01:54] Hi, Eve, it's my pleasure. Absolutely.

Eve: [00:01:57] So you've led an incredibly rich and varied life, as far as I can see. Dual degrees in political science and Africana studies, .com jobs, entrepreneur, political fellowships, launching a chess mentorship program, racial justice work at the ACLU. And as a lawyer and I'm wondering how and why all of this and what really drives you.

Daryl: [00:02:24] Thanks for the question and thanks for having me today.

Eve: [00:02:27] Yeah, it's a pleasure.

Daryl: [00:02:28] It's a real pleasure and an honor to be here. I have always had varied interests, and if something looks interesting to me, I would say to myself, I want to try that. I want to learn more about that. I'd like to see what that's about. Sometimes it's worked and I've had great success. Sometimes it hasn't and I've been like, get me out of here. But, you know, I've really tried to take life by the horns and live it to the fullest and have as many experiences as I possibly can while I'm here. So I think one of the threads, the common threads between everything that I've participated in or most of the things that I've participated in is a desire to help others and a desire to take the resources that I've been blessed with having access to and using the knowledge or the connections that I've gained to help people that don't have access to that resource.

Eve: [00:03:37] Yeah, I think I see a fairly solid strain of racial justice in your work as well. Is that correct?

Daryl: [00:03:45] That is correct. It's because I've always been impacted by race in America. And so I just thought that the right thing to do was to to fight for racial justice in one way or another. Racial justice has always been and race has been a central factor in my life. As a Black man in America and as someone that has grown up with mentors and adults that are important to me, that have given themselves to me and their time and their expertise and their mentorship. And the only thing that they've said to me was, now, when it's your turn, give it back to someone else and you know, there's been in this country, a lot more racial unrest that I've seen since, you know, in the past decade or so. And it is something that has placed itself into my life because of who I've been around and who I've been influenced by. When you see some sort of injustice, I was taught that you address it. Because we're all, I believe that we're all here to make this world a better place and the way you do that and when it comes to racial injustice, it's to create racial justice.

Eve: [00:05:24] Yeah, I have to say, I feel a little more hopeful after meeting people like you and the project that you've embarked on, which which I'd really love to talk about next. It's a real estate project in Newark, New Jersey, and I know it has a social mission, but let's talk about the structure first. So after all these other things that you've done, you're now turning your attention to real estate and you're planning to build a rather large building. You want to just tell us a little bit about the building itself?

Daryl: [00:05:53] Yes, the building will be on a plot of land that's about twenty six thousand square feet, a little over half an acre. We plan to build 39 units in an apartment building. And we'll have three bedroom units, two bedroom units and one bedroom units, and I'm not exactly sure about the breakdown. It'll probably be 15 one and two bedroom units and nine three bedroom units.

Eve: [00:06:27] Right. Do you have a timeline for construction? Where are you in the in the process?

Daryl: [00:06:34] We are currently in the process of acquiring the land and getting city approvals, we're anticipating that takes about six months, and then we will spend 18 months on construction, so we hope to open our doors at the end of 2022. Worst case scenario, beginning of 2023.

Eve: [00:06:59] And who are your partners in this?

Daryl: [00:07:01] I've partnered with a developer named Patrick Turborg. I've partnered with real estate professionals Frank Robinson, Stephen Aravilo. And my architect is Mark Best. My engineer is Brian Grant. And these are folks, honestly that have a lot more experience than I do. So it was important that my team knows more than I do about their about their specific areas of expertise.

Eve: [00:07:37] And if I'm correct, it's largely a Black team as well. A team of Black professionals, is that correct?

Daryl: [00:07:43] That is correct. One of the goals that I seek to make a reality is that not only do we help empower the residents of Newark, that and the members of Savers Village, but also the people that are building and developing and raising capital. And we want to help empower folks that look like me so that, you know, we can start to pass down that institutional knowledge to our children and they can do it with their children. And the only way to do that is through having the experiences.

Eve: [00:08:17] So you mentioned the name of the project, Savers Village, which is a really interesting name. And I know there's a bigger social mission behind this project. And what challenge are you trying to solve with these thirty nine units?

Daryl: [00:08:32] We are working to turn renters into homeowners with this project. Newark, New Jersey, where the project is located, has a population that has seventy five percent of the people that live there as renters, they rent from other folks and that's that's huge. As you can imagine. So there's a big push to turn those folks into homeowners. And the city of Newark supports this initiative because part of that big push to turn renters into homeowners comes from the city and from the mayor and his administration to start to create and build wealth for Black folks in America. Most of our wealth has come through homeownership and land ownership. So during the mortgage crisis of 2008, 40 percent of the Black wealth in America was wiped away.

Eve: [00:09:29] Interesting.

Daryl: [00:09:29] And when all those subprime mortgages defaulted and all those banks went out of business. So, you know, there's a social component of trying to help turn renters into homeowners, but then also try to help folks understand what it means to build generational wealth and start to save and start to create systems to support people that are going to be here long after you're gone.

Eve: [00:09:56] So in addition to the building, you're building some systems. What are those? How you planning to turn renters into homeowners?

Daryl: [00:10:04] Our plan consists of taking 10 percent of someone's rent and putting it into an account for them and save that money and invest portions of it so that after a certain amount of time, let's say anywhere from three to five years, and they can take that money and use it for a down payment on a new home and to cover any closing costs that may come up.

Eve: [00:10:35] Are you going to do this for all renters in the building? Do they have to commit to that?

Daryl: [00:10:41] Our goal is to do it for all renters. And yes, we want them to commit to that. If they change their minds midway, through living there, then there's nothing that we can do to stop them and that money is their's, they'll get that if they say, hey, you know what, I'm moving out and I'm going to Bali and I'm taking my money with me. Then we'll say, hey, here's your money, have a great time in Bali, sent us a postcard.

Eve: [00:11:09] And they might buy a shack there, you know.

Daryl: [00:11:11] That's right. Yeah. I mean, with the amount of money that they're going to save with us, they can buy a lot more than a shack in Bali.

Eve: [00:11:19] Yeah, probably. Yeah.

Daryl: [00:11:21] They can do really well down there. It's voluntary. But, you know, we're looking for renters that are committed to home ownership and starting to build generational wealth through home and land ownership, saving and investing. Part of what we're going to offer to the tenants is financial literacy, credit repair and first time home buying education.

Eve: [00:11:43] And how are you going to do that?

Daryl: [00:11:45] We're going to partner with local non-profits that offer those services and make sure that they offer it to our tenants and, you know, it can be in person or over Zoom, but our tenants will have to commit to taking those steps towards achieving that goal through the education.

Eve: [00:12:03] And so how are you going to vet and prioritize tenants who come to you? Like people looking for somewhere to live.

Daryl: [00:12:10] Mainly through our application process. We're going to do a deep dive into who the tenant is and really kind of understand what their goals are and see if there's a fit between the tenant and our project and find people that meet that criteria and let them know that, you know, this is a long term project, but will have long term consequences as well.

Eve: [00:12:36] Do you think there's an ideal person? Is there an avatar of a tenant that you'd like to see move into this project?

Daryl: [00:12:43] To be honest, I would say, you know, when I think about who would be the ideal person, it was it would really just be someone that wants to be a homeowner, someone that has tried to save for home ownership, but has been unsuccessful and is really committed to moving from renting to home ownership. There's two things that you generally need for home ownership. And the first thing is a good credit score. So someone that's committed to keeping a credit score above 700, ideally. And then the second thing is, you know, someone that has constant income, if you have constant income and if you have a good credit score, then you can give a mortgage to a bank and get a loan for a home. So folks that are committed to those things are ideal tenants.

Eve: [00:13:34] Are there any local banks that are interested in partnering with you? I wonder about redlining as well. And, you know, if it's going to be more difficult for some tenants than others.

Daryl: [00:13:45] There are some local banks that are interested. Investor's Bank has shown some interest in working with us. There's a community development, financial institution in Newark called Invest Newark that's interested in working with us. And New Jersey Community Capital, a nonprofit lender and developer, is interested in partnering with us on this project.

Eve: [00:14:11] That sounds really great. So you've also listed the project on Small Change, and I'm wondering why crowdfunding and what you hope to get out of raising funds for the project through our real estate platform.

Daryl: [00:14:26] Sure, it's been a real blessing to have the opportunity to list the project on a platform like Small Change. I'm a huge fan of crowdfunding. As someone that comes from the non-profit world I run a 501(c)(3) chess mentorship program and I think that crowdfunding is an awesome way to get donations and to raise money. I don't know if you're familiar with the philanthropic world, but there's a way to do things that are outdated.

Eve: [00:14:55] Oh, yeah, I'm very I'm very familiar.

Daryl: [00:14:57] Yeah, there's a culture of philanthropy that says, all right, we're going to choose you and we're going to give you everything. And and even though this other group might have a great program, we're not going to give them anything because they don't come to us. We don't know them. And so I think crowdfunding really levels the playing field when it comes to investing in real estate. And it gives folks that otherwise would not have the opportunity to invest in a project that's worth millions of dollars, it gives them a chance to invest in a project for as little as a thousand dollars or as little as five hundred in some instances. I really like crowdfunding for that. It allows you to market your project while you're fundraising for it as well.

Eve: [00:15:45] Yes. And that brings me to another point. You talked about building generational wealth, and I'm wondering how you think this might take hold in in Newark. If it's possible to get the word out there so that people might invest in a project at their own doorstep.

Daryl: [00:16:05] I think people will invest. I've been sharing it on my social media and I've been getting a great response and I think when we launched in late December, it was a very busy time in most people's lives. And now that we're out of the holiday season, then, you know, I do believe that it will start to come to the forefront in most people's minds. And I'll make sure to get it to the forefront of most people's investment through sharing it with my friends and family that are here locally and through my social media channels.

Eve: [00:16:43] Yeah, I mean, investing is yet another step in figuring out how to build wealth, and it's not an easy one so it requires some education.

Daryl: [00:16:52] Education and patience and largely trust.

Eve: [00:16:55] Yes.

Daryl: [00:16:56] There's a relationship that my community has had with the government, with banking, with insurance, where we place our trust in these institutions. And we would be treated differently than other folks that don't look like us. You know, Black Americans are being treated differently than white Americans historically. And it's not just in the private sector. It's been in the public sector as well.

Eve: [00:17:20] Yes.

Daryl: [00:17:20] And so there's a distrust there when it comes to investing and not just in real estate. Investing in the stock market, as well is another area where there's some distrust amongst the Black community. We have to do our part to overcome that, to change that.

Eve: [00:17:36] I think that's why I love real estate, because it's so tangible, it's so visible. It's right in the middle of your community. And I don't know, maybe it's easier to trust that.

Daryl: [00:17:48] I think it is. I think it is.

Eve: [00:17:50] So this is one building. What's your big, hairy, audacious goal?

[00:17:55] My big, hairy, audacious goal is to do 60 of these within the next few years with Newark being the first one and starting to build Savers Villages in Detroit and Houston and Camden and in Philadelphia and Pittsburgh and places all over the country where folks are facing the same challenges that Newark residents face with regard to moving from renting to home owning.

Eve: [00:18:27] 60 of them. Have you scoped out any of the next ones?

Daryl: [00:18:32] We we we started to look at a site in Philadelphia that may be ideal for this. But outside of that, no, we're pretty laser focused on Newark at the moment and just getting this one done. Yeah.

Eve: [00:18:49] Well, Darryl, I can't wait to see how this goes. I can't wait to see when it's built and I can't wait to see the first tenants become homeowners. I think that's an amazing goal. And I really appreciate you sharing this with us.

Daryl: [00:19:03] Thank you very much. I appreciate you joining us on this journey and supporting this initiative, with Small Change, so thank you.

Eve: [00:19:28] That was Daryl Scipio. He's led an incredibly rich and varied life. Degrees in political science, Africana studies and law, .com jobs, entrepreneur, political fellowships, launching a chess mentorship program, racial justice work at the ACLU and more. The common thread has always been social and racial justice. Now Daryl is turning his attention to his next endeavor, Savers Village, where he plans to help renters become homeowners and to build generational wealth. And he's listed the investment opportunity on Small Change because he believes that crowdfunding really levels the playing field for investors. You can find out more about impact real estate investing and access the show notes for today's episode at my website, Evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Daryl, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:19] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. What happens when three friends and kindred spirits start dedicating their Saturday mornings to the pursuit of more equitable development and democratized finance? Well, a lot.

Eve: [00:00:44] For years, Dutch MacDonald, architect and technologist, Josh McManus, entrepreneur and placemaker, have been rooting each other, and me, on in their respective pursuits. And then the pandemic happened. We substituted planes and trains with weekly meetings, and over time a picture emerged that there's an acute need regarding how to tackle real estate in the future. Developers, companies, foundations and family offices are all looking for counsel. Not the esoteric, academic brand of futurism, but real talk, real experience and real solutions to the problems facing people working to build places that work for everyone. And so, Small Change Advisors was born. We've an eye on reimagining the way that spaces and places work. And we have a wealth of collective experience amongst us. Just listen in to Josh and I and you'll get the picture. Be sure to go to EvePicker.com to find out more about our Saturday morning adventure, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:02:16] Hey, Josh, thanks so much for joining me today.

Josh McManus: [00:02:19] Hi Eve. Happy to be here.

Eve: [00:02:21] So, you and I talk a lot on Saturday mornings with our friend, Dutch MacDonald.

Josh: [00:02:26] That we do.

Eve: [00:02:27] We started doing that like maybe mid-last year? And what brought us there, why did we decide to do that?

Josh: [00:02:35] I think it was a unique combination of our ongoing realization that we all come to, a very similar set of shared beliefs, but from very different experiences and angles. And, you know, to give away your time on Saturday morning when you have a lot of other things that you could be working on, I think there has to be a lot of serendipity and symbiosis. And we seem to have found that amongst the group, that time always flies by.

Eve: [00:03:05] Yeah, I mean, I remember thinking I've known you for quite a long time now, right? Through CEOs for Cities and after that. So, you and I have had a lot of commonalities in the way we think about cities and do things. And Dutch, Dutch was the architect for my real estate portfolio, and then moved on to a slightly different world, business strategy and digital placemaking, I suppose. I don't know, I have always thought that together the three of us can be better than alone.

Josh: [00:03:37] Yeah, yeah, I totally agree. I think the more, and it's probably been, I don't know, 15, 20 years since you and I first crossed paths?

Eve: [00:03:47] Yeh, probably.

Josh: [00:03:48] But the further I go into this work, there's a very small set of people that I call, you know, at the Ph.D. Level that have been on the, sort of, the front lines of placemaking, community change, this sort of transformational development. And so, it gets harder and harder to find friends that you can have the right conversations with. And so, there's a certain solace in finding folks that you can talk about any of these problems and issues and opportunities with. But then each of us come at it, you know, you guys have a, very technical training. I have business training. Dutch has been doing a lot of work and consulting in the digital world. And so, I think there's a lot of magic that's happened, is collapsing our insights together and turning them into shared action.

Eve: [00:04:35] So, we each have a special superpowers, and I think that's what's always fascinated me. And also the thought of working with people who, as you said, think the same way, love the same things, are passionate about cities, want to make a difference. All of those things. It's hard to find people who really want to do that.

Josh: [00:04:54] Yeah.

Eve: [00:04:55] Anyway, so I'm going to ask you, what's the one thing you believe about real estate right now that others don't seem to believe in, yet?

Josh: [00:05:04] I think that we are seeing the radical transformation of real estate right before our eyes and that we should be surprised and amazed by that because it's a system that hasn't changed pretty much in the United States since our inception. And the thing that I believe about real estate that I don't know that others have completely come to terms with yet, is that I don't think the business model is going to hold. I don't think that the dollars and square foot, for many years at a time for commercial real estate, is going to be the way that business is done even a dozen years from now. I think there's going to be a radical imagination of the monetization for commercial spaces. And I think that we're getting a first look at it through the work of Small Change, and also through some of the work that I'm doing in these post-industrial cities.

Eve: [00:06:02] When you talk about that ... are you talking about 'demand pricing'? Explain a little more.

Josh: [00:06:07] Yeah, I think either brokers with a much broader toolset, or a displacement of the broker, which has happened in the insurance and the mortgage industry, and the toolset then becomes much bigger. So, I mean, demand pricing and pricing, that's also got the arbitrage for the amount of time that you want the space for. So, right now, it's really hard for potential tenants to find short-term lease offerings. But, you know, We Work, despite its failure, or despite its setbacks, started to chart that territory. And then you're seeing a number of other providers following those footsteps. But not just demand pricing. You're seeing unique revenue share models, a lot of retail, and food and beverage, is shifting much more to revenue share. Food halls are driving a lot of innovation around revenue models where risk and costs are shared by different entities. And so, I just see, you know, the ways that you can and use commercial space turning from a singular, 'it's about dollars, square feet and years,' into a much more broad and varied menu of offerings that are priced accordingly, that are staffed accordingly, and that are, frankly, much more mutually beneficial to both the landlord on the lessee.

Eve: [00:07:29] That's a really exciting concept. I have to tell you, I was thinking about that 15 years ago when I developed two buildings which had unusually small commercial spaces. Like little studios and spaces that range from about 400 square feet to under 2000 square feet. And I couldn't find a broker who wanted to take on leasing them. And the reason was, because the broker model is based on commission. And that broker model, really, I don't want to say it forces greed because that's a bad way to put it. I mean, people need to put food on their table. So so brokers, right? But it forces them to really pursue the bigger deals because that's how they get paid. And so, all the little ones get left behind. And yet they're the ones that are really important for building, you know, the next business, a creative and diverse economy. And I ended up marketing all of those spaces myself for that reason. But it is a very broken system. Very broken.

Josh: [00:08:32] Yeah, well ...we're seeing the radical disruption and displacement ... so AirBnB, you know displaced a whole set of brokers. You used to go to the beach and you dealt with a real estate firm that was set up to do short-term rentals. And now AirBnB is ...

Eve: [00:08:50] That's right.

Josh: [00:08:50] Vacasa and others. Yeah. And same thing if you look at under Warren Buffett's holdings at Berkshire Hathaway, a Geico, like, you know, just used to have your neighborhood insurance man, and you don't right now. You go direct when you're going with Geico. I was at Quicken Loans as part of my work with Rock Ventures. That's a 50 state sales-side operation. So, they're competing against banks who have brick and mortar locations in neighborhoods, and they have this sustained competitive advantage, in that they don't have that brick and mortar and they don't have that whole traditional brokerage model. So, I don't see any reason why it won't happen in commercial real estate. You know, it's in the process of arriving right now.

Eve: [00:09:31] Yeah, at the moment, really, Craigslist is the only option.

Josh: [00:09:35] Yeah, yeah ...

Eve: [00:09:36] For those little spaces ...

Josh: [00:09:37] ... and that's a sketchy option.

Eve: [00:09:39] It's a sketchy option. It's difficult.

Josh: [00:09:41] But I, I think it'll change quickly.

Eve: [00:09:43] Yeah, that's exciting. What's your biggest pet peeve in real estate? Aside from this one?

Josh: [00:09:51] Well, this one is a major pet peeve of mine. There's a philosophical one that I don't know if you and I have talked about before, which is, I think that all too often we look at buildings as warehouses for humans instead of as machines for the maximisation of human potential. And what I mean by that is, a lot of folks, when you were doing commoditized-type work, if it was piecework or sales work or light manufacturing, which is, where can we find some space that has basic amenities so that people can do their work inside of them. Now that we've moved to a much more knowledge work-based economy, you have to ask yourself, how do I help the people that are inside of those, which are our most valuable asset, be their most productive selves? And so, I still walk into too many spaces and I feel like they're trying to compete on the warehousing front. So, how many people can we warehouse in here for how many dollars and how many square feet?

Eve: [00:10:49] Right.

Josh: [00:10:49] And they're not thinking about this is a machine for maximisation of human potential. So, what happens in the public realm? The quality of the food and bev, the quality of the shared spaces, the shared amenities? I always say in the real estate project I work on, you can't austerity your way to prosperity. And so, I'm constantly peeved when I find people that are trying to do that.

Eve: [00:11:12] Interesting.

Josh: [00:11:14] What about for you, Eve?

Eve: [00:11:15] I've got a couple of pet peeves. One is banking. You know, I really and I'm not sure it's the fault of banks, but I really believe that banks are squashing creative real estate innovation in the way that they lend. Because in order to get a bank loan, you need to get an appraisal. And in order to get an appraisal, there need to be a couple of, like, kind projects. So, this means that some new idea or a first of its kind project in a neighborhood is not going to get traditional bank financing. And I think that's really holding back remaking places in a meaningful way. I think it's a really big problem. The second pet peeve I have, I think, is zoning. Same issue. I have a little cottage in this wonderful little place that was, really, a fisherman's village. It's a miniature little thing. And sometime in the 19 .. probably in the 1960s or 70s, some wanting the zoning department thought it was a really good idea to overlay a completely suburban zoning rule over that funky little neighborhood. Everything that was there is grandfathered in, but everything that's being built now looks completely different. It looks suburban with side yards and backyard setbacks that really are a completely suburban model. And I think that's a horrible shame. But, you know, I think contextual zoning is critical to keep places intact and characterful and interesting and to really maintain the culture of them. But on the other hand, rewriting zoning codes, not zoning law, is immensely expensive. And I really don't know the answer to that. I mean, small municipalities simply aren't going to be able to afford to address that. They're just not.

Josh: [00:13:15] Yeah, yeah. I see a regular friction with this, especially in post-industrial cities that have draconian old zoning laws, and they also don't have the municipal finance to even start thinking about how they decrease these barriers. There's an exciting piece of these pink zones or innovation zones, or they're sort of peeling back zoning temporarily to see what happens. And I hope that that leads to some mass scale changes. But it seems to me in general, you know, when a lot of this was laid out, you know, heavy industry was big and dirty and that's not even the case anymore. And so, all of the things that were being accounted for and attempted to be prevented, not to mention the things that were attempted to be prevented that were terribly racist classist or something else -ist, but I don't think it's the looming threat that it was when a lot of this came about. So, I'm hopeful that some of these innovation programs will chip away at it.

Eve: [00:14:14] Yeah, things like that have happened recently, like zoning overlay districts in the entire state of Oregon and California to permit accessory dwelling units. They're really good. Planners need to just go for it a little bit more.

Josh: [00:14:29] So you have this incredibly rich experience where you've worked on a lot of projects. And I'm curious to know of all these projects that you've worked on, and you've taken on some of the hardest to figure out buildings in some of the most needed urban places of all of them that you've ever done. Like what's your favorite project and why?

Eve: [00:14:50] This is like picking your favorite child. It's very difficult to do. Oh, favourites, that's really hard. So, They all have the pros and cons. But I would say ... I think the most challenging for me were the most fun. I don't know if I would call them my favorite, but that tiny house that I built in Garfield, 250 square feet of it, was the most challenging project I ever took on, by far. And it was challenging because it challenged zoning codes, building codes, financing. I mean, there were things I discovered along the way that we just never anticipated. I couldn't get an appraisal for it because it was the first tiny house on a foundation in the tristate region. Therefore, I crowdfunded the debt, because I was not going to get a bank loan. It was extremely challenging, and I enjoy that. It's solving an enormous puzzle and along the way you discover the pieces of it that you really need to address. I think I'm a design snob. I love great design and I love wonderful and beautiful buildings and places. But for me, I think the projects I'm proudest of are the ones that just didn't look like they would ever work. And I, I got them to work through sheer tenacity. Many of my projects have design features that people point out, which really are not design features. I live in a loft with a polished concrete floor because we couldn't afford to cover it with anything, you know. Three of the walls are concrete block for the same reason. Dutch helped me with these projects. So, he was an integral part of this. We used the raw materials that we knew we couldn't get away from, to turn them into design features because that's what the budget dictated. So, I don't know if I have a favorite, but I think that's my favorite part of building is really making something wonderful happen with the resources you have. Does that make sense?

Josh: [00:16:58] Yeah, absolutely. And that willingness to let the problem dictate the solution, in some ways flies in the face of probably some of the real estate advice you've been given along the way.

Eve: [00:17:11] Oh, yeah, that encapsulates it really well. That's what I really enjoy.

Josh: [00:17:16] So, what other real estate advice have you been given, or have heard other people giving, that you don't agree with? Because I love this contrarian line of thought.

Eve: [00:17:25] Real estate advice that I've discarded. I think probably the biggest one, and this may be a problem for me is that I fall in love with the buildings I buy. I really, I really love architecture and I love buildings. And so I become passionately entwined in my projects, which, you know, every big developer tells you never to do, you know? Be ready to walk away from a project if it doesn't work. That is really hard for me. I can't walk away. I spend a lot of time kind of pressing the challenge, trying to make it work. So, I think that's probably the biggest advice I've ignored. Don't become passionately involved in the buildings you choose to develop. For me, it matters. If I'm going to spend time on redeveloping a property, or building a new one, or maintaining it afterwards, managing it. I've got to love it. I really don't want to be doing that, you know, with a Microtel in a suburb. That would be painful for me.

Josh: [00:18:28] Sure. Yeah. That relates to the piece of advice that I've been given that I just, sort of, fundamentally reject, which is that, you know, often times I'm working with large organizations, you know, companies, sometimes entire communities, sometimes foundations, sometimes family offices, and there's still people who come to me and say, well, you have to understand that within that, real estate is a unique discipline. The buildings work differently and only developers understand how buildings work. And for me, again, a building is a machine for the maximization of human potential.

Eve: [00:19:04] I think that's right.

Josh: [00:19:06] And so, if I'm advising a company to say, well, let's not worry about what the lease is on this space, if you have 20 million dollars of payroll sitting in this building and the building could make those people 10 percent more productive, that will eclipse whatever the dollars in square foot price was at the bottom of the development deal.

Eve: [00:19:29] Right. It's about change making, right?

Josh: [00:19:32] Real estate is a tool for transformation. Yep. It is not a warehouse for human beings. It is a tool for transformation. And if you look at what companies and communities and foundations and family offices are willing to spend on other tools for transformation, to then walk up to real estate and say, well, we should use the 300 year old model about competitive, you know, commodity prices per square feet. I think that's just patently ridiculous.

Eve: [00:20:00] Well, you know, I think I bring that same thinking to small change the crowdfunding platform. I venture to say I'd be a lot further along with that business if I were willing to raise funds for any old project that came along. But I'm not. I've made it harder for myself, but also much more gratifying by insisting that Small Change is going to help transform places. And so, the projects we raise funds for really need to be making some change in some way, in the place they're in. I really hope that takes hold. I believe there are lots of people who think about it, but it's certainly not as many, and there's not as many big dollars invested as your everyday, you know, development that you see pop up everywhere that all look the same over and over again. There's far more money in those than these challenging little enterprises, right?

Josh: [00:20:59] Yeah. Yeah. Well, this might be leading the witness a little bit, but I'm curious, based upon that, if you had a magic wand and you could change anything about the development industry, overall, what is it that you would change? I'm sure it relates somehow to the projects that are getting done.

Eve: [00:21:18] Yeah, I mean, I think it goes back to the real estate industry. I think the zoning and financing are the key pieces for me. I wish there were a pool of funds, a bank, a group of banks that would support creative, ground-up projects that really offer the opportunity to stitch places and communities and cities together, and I wish they weren't so much money being spent on the wrong type of projects in suburban places where you have to drive to them, which causes further pollution, where they really don't face the street, that don't add anything to the community there ... as you said, warehouses for people. So, that's what I would like to see change. How about you? What's your magic wand? What would you like to see?

Josh: [00:22:11] For me on the magic wand, I feel like there is just a missing toolbox that fits between the landlord and the lessee. And so right now there's a very traditional leasing model that sits between most landlords and lessees. And there's about dollars and square feet and years. And I would create a much broader toolkit of options that says no matter what you need right now, here is a tool that might be able to help you as the entrepreneur and also benefit the landlord. And so, part of my background is working in creating entrepreneurial ecosystems. And so, I've worked with so many small businesses of so many sizes and stages of development, I know that most of them do one of two things. They either sign up for the wrong space and that becomes a particular detriment to them, or they avoid getting space for far too long. And that stunts their growth. And it's because they're terrified of, you know, they just got started five weeks ago and they're asked to sign a five year lease and they don't know what business is going to be like in, you know, five months, much less five years.

Eve: [00:23:26] Yes, I know.

Josh: [00:23:27] So, creating a much broader toolkit that allows you to nurture an ecosystem of tenants through the maximization of their potential. And I believe that tenants will pay for the arbitrage, like they'll pay for you to direct them. And we've seen this with the We Works and Industrious' of the world. They're realizing, like, people will pay for optionality and therefore the landlord can be made whole, and sometimes above whole. But I'm super excited for that toolkit. If I had the magic wand then I would accelerate that toolkit to where there was a whole suite of services available to every potential lessee from every landlord. And then it wouldn't be necessarily cumbersome or it wouldn't be, like, finding a unicorn when you're in a city trying to get a business off the ground.

Eve: [00:24:19] But then, you know, you'd have to work with me on my magic wand, because as the landlord, when I go to the bank with the building and I want to refinance it, the first thing they look at is the length of the lease. The leases that we have on the building. And so, if I have a building providing optionality and I've been in this position, even if I have a history with that bank and have never missed a payment, they probably won't come to the table with a loan. This is why I think, you know, some of these boring things like banking are really critical. So, if we were to develop that toolkit, I'd be right there looking for banks that would support it.

Josh: [00:24:57] I think the toolkit requires a new capital class, and that's the conundrum of it.

Eve: [00:25:02] That's right.

Josh: [00:25:03] But if we can make that clear, I actually do believe that there are capital providers that would be interested in that capital class. If you look at the impact funders that want to see the stagnation of small business development in the United States offset, this would be one of the ways to do that. Because you could better incubate small businesses if they had the appropriate arrangements and services in order to grow.

Eve: [00:25:29] Yeah, I think it's right. I think you just they're all so intertwined. It's not a small problem.

Josh: [00:25:36] No.

Eve: [00:25:37] But I have to ask you, like, we're forming this company, Small Change Advisors, the three of us together. What roles would you love to be involved in as a Small Change Advisor? How do you think we can help people?

Josh: [00:25:50] Yeah, well, I guess we kind of buried the lede from the audio side of things, which is we've been working together on Saturday mornings and we finally got to a point where we were like, hey, enough people are asking for these services that we've got to do something about it.

Eve: [00:26:04] That's right.

Josh: [00:26:05] So, we said, OK, well, the easiest thing to do is extend off from the Small Change platform and all the success that you've already created there, and the deals that you've helped people get done, and form Small Change Advisors. Because we are seeing these companies, these communities, these foundations and these family offices that are trying to figure this out. So, my life mission is to strengthen the humanity immune system. And what I mean by that is I believe the more people that are equipped and empowered to be agents of change, the better off the world will be. And I don't just mean individual people organizing in their neighborhoods. That's important. But I think that companies, communities, like entire communities, again these these family offices, these foundations can be equipped to be agents of change. And so what I hope we can do with Small Change Advisors is accelerate the amount of people that are thinking about real estate in these ways that you and I have been looking at it for the last 10, 15, 20 years, the same way that Dutch looks at it, which is, as a tool for transformation for communities, you know, as a great benefit both to the organizations that are doing them, but also to the communities that surround them. And as a overarchingly source of abundance for, you know, a lot of post-industrial places that we work in that have forgotten what abundance looks like.

Eve: [00:27:33] So what is a dream project? Look like them? Like an example of one?

Josh: [00:27:38] Yeah. So, I'm super lucky in that I get to work on a couple of dream projects right now. And the one that's public facing that I get to help out with is Ford Motor Company's work on Michigan Central and Detroit. And Michigan Central is a development that's anchored by Michigan Central Station, which is the Beaux Arts station that's been abandoned for about 30 years that is designed by the same folks who designed Grand Central Station in New York. And Ford is turning that into a mobility innovation district and a place of discovery for the future of mobility. And so, working to support a company and a community like Detroit, a neighborhood like Corktown, and to think about how you create new products and services, how you create jobs for a community, how you create a place that's more dynamic and attractive, like that's the sort of dream project. And so, I got to work in Downtown Detroit on similar stuff. I was at Rock Ventures and we worked on the acquisition and the transformation of over 10 million square feet. But that sort of size and scale is what I'm super fascinated with, because I'm seeing non-traditional actors in the real estate world intervene and say we're going to make our places better. We have to, it's table stakes for retaining and attracting the best employees. And it's also the right thing to do for the communities that we call home. And so, those are sort of dream projects that I get to work on now. I'm interested in that same question for you as well. And then I've got another question behind that.

Eve: [00:29:19] I've got a variety of dream projects. One of my big dream projects is that someone approaches Small Change who gets that it is a tool for them, to really remake an entire place. That they can raise a bunch of small raises with people from the neighborhood investing in a variety of buildings, maybe even, you know, your project in Michigan. You know, you open the door for neighborhood investors in each project that is built. But you can also do much larger raises and let much larger investors in as well. So, that over time the people who live there can enjoy the increased value of that asset. I would love someone to come along with something that scale and sort of realize the potential of how we can help to generate wealth over a long period of time. I'd also love to create a Small Change fund. So far we've been working on individual project basis, but there are some securities tools out there, Regulation A in particular, that I think could really be used to create a large fund which lets everyone over the age of 18 invest, and really puts our theories to work on where investments should be made, where they're not being made right now, to sort of build community. I think those are probably my two top picks. I have like little dream projects for real estate as well. But we won't talk about those.

Josh: [00:30:51] Yeah, yeah. Those are super exciting and I think we're lucky to be working on the projects we already are. And I can see these new things on the horizon. Beyond those projects they inform a larger, more audacious goal. And so much of what has attracted me to spend the time with you and Dutch every Saturday morning, and to want to be a part of Small Change, and that's a broader democratization. So, you referenced it that there and community participation. But could you talk a little bit more about that big audacious goal, what you'd like to see for real estate and investment overall? If we could fly back down in 100 years and look at the world, how would it be different because Small Change has been around?

Eve: [00:31:38] Well, I mean, Small Change is sort of tackling, we're right at the beginning of tackling the democratization of investment. And until these new securities laws were written in 2016, regulation crowdfunding, unaccredited investors could, or non-accredited investors could not invest. Investment in real estate was only for the elite, for the three percent that have a minimum net worth of one million dollars without their primary residence, or 200,000 dollars a year in income. And even then, that elite would have to know someone in the real estate business to be able to invest. So, the places where money was coming from was altogether very limited. And what I learned in my work in Pittsburgh is that people have a palpable need, a desire, to be part of improving their city and they look for ways to do that. I mean, this is one of the key things I learnt in Pittsburgh. It's extremely powerful. And I really believe that giving them an opportunity to invest at some small level is the right thing to do. In the long run, it will benefit the city and make it a stronger, more tightly-knit place. Does that make sense?

Josh: [00:33:00] Yes, absolutely.

Eve: [00:33:03] That's one, what the hopes are, that somehow Small Change can become a community banking system of sorts and fill in where financial institutions just don't want to go right now. Or can't go right now, for whatever reason. It's a big, hairy, audacious goal.

Josh: [00:33:21] Yeh, and it's also such a beautiful dream. And so I'm grateful to you for inviting Dutch and I into the fold. I'm super excited about us forming Small Change Advisors. And I do know from my days in fundraising that you don't get anything that you don't ask for. So, I guess as we sort of wrap up this first session, and I made a bunch of notes. It feels like we've got a lot more things to talk about. We should say to the folks that are listening, if you are a company, a community, a foundation or a family office, and you're trying to figure out a project that aligns with this dream of democratizing real estate finance and building better places through these progressive real estate projects, we'd love to talk to you. And also, if you are somebody that has built a tool, created a solution that you think may help along this goal, too, or you're interested in what we're going to do as a team, as Small Change Advisors reach out to us as well. Because this is a mission that about a lot more than a traditional company would have. And so we're going to need all the help we can get along the way.

Eve: [00:34:29] And I would say a final thing is if you have something that you'd like us to talk about, let us know. We plan a couple of conversations like this, and one of you out there may have an idea that hadn't occurred to us. So, please be in touch.

Josh: [00:34:44] Yeah. Yeah. So, on the horizon, space as a product versus space as a service, continuously variable financing, monetizing public amenities, and the specifics of involving the crowd in the finance stack are all things that are on my notes for additional discussion. So, again, thank you for the invitation to talk.

Eve: [00:35:07] Oh, thank you very much. I'm looking forward to the next one.

Josh: [00:35:10] Thank you.

Eve: [00:35:25] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with Josh and I today. There'll be more to come soon. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:10] Hi there! Thanks so much for joining me today for the latest episode of Impact Real Estate Investment. Wealth is created by owning assets that generate revenue and appreciate over time. And today, I'm talking to Lyneir Richardson, the CEO of The Chicago Trend Corporation, about his wealth creation strategy, a strategy that he is sharing with those who have missed out on wealth generation opportunities before. Lyneir is planning to buy 100 community shopping centers. He and his team have developed a rigorous set of criteria for finding and buying shopping centers that have solid cash flow and also added value over time. He wants to empower Black entrepreneurs and community residents to have a meaningful ownership stake in the revitalization and continued vibrancy of commercial corridors and Black shopping districts. And now he's onto the next phase of his plan with a crowdfunding campaign for a shopping center he wants to purchase in Baltimore, which everyone over the age of 18 can invest in. You'll want to hear more. Be sure to go to EvePicker.com, to find out more about Lyneir on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:54] Hello, Lyneir, thanks so much for joining me today.

Lyneir Richardson: [00:01:57] Thank you for having me.

Eve: [00:01:59] So, you've lived a life in economic development and I'm just wondering how you got there from your initial career choice of the law.

Lyneir: [00:02:08] I tell people all the time that hopefully life is long and the world is big. I started my career as a bank lawyer. I worked in a law department of 90 lawyers and every day we'd work on transactions where we were making loans of 50 million or a 100 million dollars to some big corporate institution. Every day in the afternoon, around two o'clock, I started to fall asleep on the loan documents. The work was boring. It wasn't until I had an opportunity to do a pro-bono assignment, which was making a 100,000 dollar loan to a local business on the west side of Chicago, and it was at that point that the work came alive. It was the same loan documents and, you know, mortgage and guarantee, and it was a 100,000 dollar loan as opposed to a 100 million dollar loan. But it was a lot of fun. And, you know, giving resources to people and places, that other people overlooked or undervalued, became my mantra. So, I've had a lot of fun with that. I left the bank shortly thereafter.

Eve: [00:03:17] Yeah. And what did you do after that?

Lyneir: [00:03:19] So, I went to a homebuilder who was building houses in on the south side of Chicago. I worked for him for a couple of years and really saved up some money. I was 27. I'd saved about 70,000 dollars of my own money. And I jumped out and I started my own little business. The first year I developed, built and sold, and I want to come back to 'and sold', six single-family homes in Chicago. I grew that business over the next maybe six and a half, seven years to about nine million dollars of annual revenue, building 80 to 100 homes every year.

Eve: [00:03:54] Wow.

Lyneir: [00:03:55] And it was, it was a wild ride. I was a 'Young Entrepreneur of the Year.' And I always tell people I'd won what we would call today a pitch competition. I won a business plan competition and I won a 100,000 dollar prize. And what they said was the 100,000 dollars was rocket fuel, but no one ever told me that rocket fuel is highly flammable. So, I had all the highs and lows. Couple of claims, the need to sell that business, in like, a fire sale. But luckily, I was able to keep my reputation and sort of figure out what my next move is, would be. And now it's sort of fun to talk about failure, and failure is necessary. And you learn it's only lessons that failure can teach. But I'm telling you, at that point, it was hard for me.

Eve: [00:04:41] Yeah, I'm sure.

Lyneir: [00:04:44] But I got lucky. I met a guy at an Urban Land Institute meeting who was being honored, you know, for real, in the real estate industry, a guy named Matthew Bucksbaum and who was the founder and CEO of General Growth Properties. He ultimately gave me an opportunity. I send him a letter and said, I'm trying to figure out what to do next. And it worked. I got an opportunity to work at General Growth and and work directly with the CEO to formulate an urban development group. Again, back at passion work. How do you get retail development in ethnic, urban and underserved areas was the charge. The CEO had a personal interest there. I formed a national group and I got the resources in General Growth to do projects in Baltimore, in New York, in Detroit and Birmingham, Alabama. Worked on projects in Milwaukee. It just was a lot of fun. So, you know, step two, I always tell people the career is long and winding road. In 2007, General Growth experiences the financial, was the poster child for financial, financial sort of illiquidity, had great assets, but couldn't refinance. It was the recession. And so, I left General Growth. Same way, trying to figure out what do I do next? And I moved to Newark and found this great opportunity working for Cory Booker and heading the Economic Development Corporation in Newark, New Jersey. And when the recession thawed out, we did two billion dollars of new projects, hotels, grocery stores, office towers for Panasonic and others. It just was a lot of fun. And then, when he became Senator Booker is when I started my current sort of career path. I lead an entrepreneurship center at Rutgers Business School and I am CEO of a social enterprise, again, focusing on development and getting capital to underserved, changing ethnic neighborhoods. So, it's been a lot of fun.

Eve: [00:06:44] That's really what we're going to talk about today. So, you founded and lead The Chicago TREND Corporation?

Lyneir: [00:06:50] Yes.

Eve: [00:06:51] And what does TREND do?

Lyneir: [00:06:53] So, TREND aims to empower entrepreneurs and strengthen neighborhoods. That's really our mission. We were formed out of a research assignment from the MacArthur Foundation and the Chicago Community Trust that really aimed to determine how retail impacted neighborhood change. And so, it was what every community kind of wanted, a grocery store or a coffee shop or sit-down restaurant. And the foundation at the time was trying to determine where to put its resources. They didn't want to put grant and investment in neighborhoods that didn't need it, that would act on it, would have that development on its own market forces. It also didn't want to do grants in neighborhoods where the project would fail. And so my co-founder and I, Bob Weisbord, worked on a process, a data analytic tool, leveraging our retail relationships and then ultimately getting capital. We launched in 2016 with about seven million dollars of support from philanthropically motivated impact investors: MacArthur Foundation, Chicago Community Trust. We subsequently raised another 10 million dollars from Fifth Third Bank and something called Benefit Chicago, and the American Baptist Home Mission Society, and a host of other, again, philanthropic impact investors. Really excited.

Eve: [00:08:20] What do you do with that money?

Lyneir: [00:08:22] We find projects. We've now invested about nine million dollars in projects really largely led by the Black entrepreneurs or nonprofit organizations. Initially, all of our work has been in Chicago. We're just starting to expand outside of Chicago. We invested in everything from, our first project was an urgent care and health care center, urgent care and a daycare center right next door to each other. A second project was relocating a historic restaurant in Southside neighborhood, literally across the street in a new building; a new restaurant in there. I think the restaurant was more than 70 years, 80 years old. And we brought in additional retail and African American UPS store franchisee, Military Veterans Doing Great Work. We've invested in land with the developer, two million dollars to buy land for a mixed-use project. We invested in a performing arts center. So, it's that type of work. The theory is retail can be catalytic and can either stem the neighborhood's decline or strengthen the neighborhood. That your first impression of a community is the commercial corridor, right? You drive in there, you see it. And so we try to use data and analytic tools to identify strategic commercial corridors where investment could happen. We then use a whole host of, we call it deal facilitation, relationships with URI, our relationship that ICSE, going to the shopping center convention and talking to the retailers, leveraging my old relationships at General Growth, but then ultimately finding projects and developers and investing 200,000 dollars to two million dollars on projects that have been our work up until the start of 2020.

Eve: [00:10:18] What are some of the challenges that you've been confronted with with this work?

Lyneir: [00:10:23] Well, this work again, I've been doing this since my time at General Growth in 2004. It is about perception, in some instances, that still redlining, retail redlining of neighborhoods. That's been a challenge in communicating that it really is income and market viability to sites and finding the right location that has components that will work for retail. Accessible and visible, and finding projects that work and assembling land. So, just the nature of real estate development and getting tenants attracted is a challenge. Of course, retail, the industry is changing. So, right now there's this thought about everything is Amazon, and Amazon sells everything. And so what retail is still necessary to communities are: restaurants, entertainment, necessity-type goods, health services and other things of that sort. And then finally, I always say it's the narrative in the numbers. It's sort of making sure that the project works, the project proforma works. There's clearly often a narrative around communities. Maybe it's a food desert, or a community doesn't have a sit down restaurant. But you got to find a place where the numbers work, both from a development standpoint as well as for the retailer or the entrepreneurs operating the business. So, intelligently identifying, structuring, using data to identify opportunity and invest in it, all of that's the challenge. Then just communicating and building relationships to get people to take a look at the projects.

Eve: [00:12:05] It sounds like up until now, in Chicago, transferral hasn't really been as development, but more investment in development projects.

Lyneir: [00:12:13] That's correct. That is correct.

Eve: [00:12:14] And so, now you're shifting gears a little bit because you've listed a project on Small Change.

Lyneir: [00:12:20] Yes.

Eve: [00:12:21] And it seems you shifted into development mode. And why is that?

Lyneir: [00:12:27] Yes, I'm really excited about it. So, you know, 2020, we all know it was the year of pandemic, of protests and a political pandemonium. That's what I call it, the PPP. And in Chicago, right after the murder of George Floyd, there was looting in commercial corridors. And as I, as I watched the news and sort of talked to friends who were on the ground, and community, people were lamenting the fact that we just got these stores open. We fought for everywhere to get a Wal-Mart open or Walgreens open in the community. And there was looting even to some of the Black-owned business. There was looting. I've just observed that, that my thought was a very few people of color-owned commercial real estate. People of color didn't have opportunities, sufficient opportunities to be commercial real estate agents or commercial property managers. And so, my thought was we should own assets. And as you remember, I talked about my initial business of developing, building and selling homes. Then, when I got to General Growth and met, you know, the Bucksbaums, when I got to Newark, I met a guy named Jerry Gottesman where they said, you know, we don't sell. That wealth is created by owning assets that generate revenue and appreciate over time. So, my thought was, why don't I start to buy assets? Commercial, small strip centers that generate revenue, have the potential to appreciate over time, are important to the community and provide services. And so, we bought our first shopping mall. It literally was our Chicago TREND business. You know, it was a pilot. So, literally, the first project, my wife and I put our own money alongside of our philanthropic capital. And one of the industry icons invest with us. And we bought the first center. And what we found is even during the tough part of the pandemic, the first center had non-Amazonable retail tenants. It had an MRI center, a carry-out chicken restaurant, State Farm dealer, Dunkin Donuts, a beauty salon. Right? So, those tenants, there were entrepreneurs. They were fighting and finding ways and finding grants to stay open. They paid their rent. They continued to provide services to the community. I say, essential services, and again, essential in the context of the pandemic is taking on different meanings. But these are places that people still went to that are, quote unquote, not Amazonable. And so, we bought our first one in the early part of 2020. We bought a second one in October of 2020. The second one we bought in partnership intentionally with local entrepreneurs and we decided that we could do that more. And so, that's the project we've listed on Small Change and we're really excited about continuing to grow this business line.

Eve: [00:15:41] Tell us about that particular offering that you have on Small Change. What does the building look like?

Lyneir: [00:15:46] So, we've put under contract a 47,000 square foot shopping center in West Baltimore. West Baltimore is a largely African American community, densely populated, median household income of a little over fifty thousand dollars a year. And we found a community essential services shopping center. Now, I want to brand the name. I want to call it SOCS, Service Oriented Community Shopping. Right, everybody needs SOCS. Everybody needs black socks, right? Service Oriented Community Shopping. You know, it's a small shopping center, nothing glamorous. But even during the pandemic, it continued to perform. It has a Save-a-lot grocery, RiteAid Drugstore, carryout pizza, Papa John's, a laundromat, a liquor store, all of those things, as you can imagine, even though the pandemic were still needed services for the community.

Eve: [00:16:50] Right.

Lyneir: [00:16:50] And over time, we're going to own it. We put a contract. We're going to invest. Initially, our plan was let's buy it. Let's talk to the city of Baltimore. But we intentionally have created this structure where we want to co-own with local residents and entrepreneurs and people that have some connection to the community. And so we create we create an opportunity. We're investing half of the money, up to 70, 80 percent of the money if necessary. With our Small Change offering, we're providing an opportunity for people with a little amount of money, anyone over the age 18 to invest with us and to co-own the asset with us.

Eve: [00:17:36] That's pretty great. What's the overall strategy? So, this is shopping center, number two, right?

Lyneir: [00:17:42] It would be number three, actually.

Eve: [00:17:44] OK, number three, what's the overall strategy?

Lyneir: [00:17:47] So, our goal, it depends on who you're talking to. Right? So some people only get excited by the big numbers and some people say, oh, big numbers are too, too aggressive, why be greedy? Our initial goal is we want to own 10 more shopping centers in partnership with local residents and impact investors, and sort of structuring these deals. We want 10 more of these in 2021. And the big business ... could we own 100? Could we form the first urban shopping center that's owned by people of color and have local investment? Can we make these assets better over time? So, imagine the conversation with the city is not just Lyneir and Chicago TREND saying to the city of Baltimore, you know, let's help us make the center better. But it's the community. It's sort of the crowd. There's power in the crowd. I believe in that. And then over time, just lastly, just measuring impact. Imagine if the neighborhood continues to get stronger. Imagine if more entrepreneurs found opportunity in the center. Imagine if the center becomes more profitable. The neighborhood becomes safer because there's ownership here. All of those big, old, dreamy impact goals really excite me.

Eve: [00:19:00] Yeah, it is very exciting. Wow. Who do you hope the investors will be? What what do you hope they will look like? Do you have some avatars in mind?

Lyneir: [00:19:12] Yes. But, I mean, literally, we started with the thought of could we find more people of color? Right? That right now there's a real conversation going on around racial justice investing and racial wealth gap closing. I firmly believe it can. I woke up one day with this sentence in my head, 'that wealth is created by owning assets that generate revenue and hopefully appreciate over time.' And by owning those assets over the long term and having a long term perspective, you have different opportunities. Maybe it's a redevelopment, maybe it's new tenant, maybe it's a new program that provides capital. So, I really would love to have a whole lot of local community residents .. open a shopping center in Baltimore, have some Baltimore residents own it with me, open a center in Cleveland or Pittsburgh or Greensboro or Columbus, Ohio, or more shopping centers in Chicago. That there's a place in our offering for local Black entrepreneurs so that they're learning about commercial real estate development and ownership and also benefiting from the appreciation of the income that might be generated from the asset. But then lastly, I'm hoping that impact investors, not just them, I'm hoping that people who want a good return, want to strengthen neighborhoods, want a project that has the narrative, what we're strengthening neighborhoods and bridging the racial wealth gap, but also has a return. So it doesn't just have to be Black entrepreneurs. It doesn't just have to be Baltimore residents or Columbus, Ohio residents or Chicago residents. It's impact investors who want to believe that a commercial asset, community owned, well managed, managed from an advantage point of social impact as well as profitability. People want to invest and get a return. So foundation programming officers, impact investors, small people around the country, outside of the country. Anyone who wants to help neighborhoods get better. That's my passion. I always tell you this this thing, you know, I have a younger brother who is financially much wealthier than I am, much more financially. But my goal was not to be because I never wanted to be the poor nonprofit executive. But I wasn't, I didn't want to be the billionaire either. Right. That was my first objective.

Eve: [00:21:53] Right. That's pretty clear when the 100,000 dollar deal excited you, right.

Lyneir: [00:21:58] Exactly. I never want to be the poor nonprofit executive, but I wasn't profit maximizing either. Right. So, it's about impact. It's about strength in the neighborhood. It's about the small deal that again, seeing value where other people say that's too small. You know, people will tell me all the time is just as easy to do a 60 million dollar deal or a 100 million dollar deal as it is to do a six million dollar deal.

Eve: [00:22:22] But do you feel as good about it?

Lyneir: [00:22:24] I don't feel as good about it.

Eve: [00:22:26] No, you and I are alike.

Lyneir: [00:22:26] So, I'm hoping that some of those people want to do the big deals, but know that it's important to do the little deals will also invest with us.

Eve: [00:22:34] Yeah.

Lyneir: [00:22:34] They'll say, all right, I see he's doing good work. I see that they're intelligent about it. They understand how to operate it. Again, this is not just about imaginary goals or, you know, we're going to close the laundromat and tomorrow we're going to bring in Starbucks and Cheesecake Factory. We're going to see opportunities. We're going to find things that can also work with the municipality, we're going to hopefully continue to own and improve the project in a way that both makes money and makes sense and is valued and appreciated by the community and by our investors.

Eve: [00:23:12] Yeah, it's a really exciting strategy. And I think sometimes these little projects are harder to pull off than being one so big is not necessarily better.

Lyneir: [00:23:22] Yeah, I want to do this 100 times. I don't know what you call that. I want to just bang my head against the wall. But I believe that local ownership, that if I can use the MacArthur Foundation, and Chicago Community Trust, and Fifth Third Bank, and Rockefeller Foundation, and Child Care Foundation and others ... Farash Foundation, I don't want to leave anyone out. They all invested in our little social enterprise to create capacity. And so, I'm hoping to use that capacity in other places around the country and further working in Chicago and in Baltimore and in Rochester, New York and other places to really make communities better to, you know, again, get resources to places that are overlooked and to help create wealth for people who, you know, who just haven't had as many opportunities as some other communities.

Eve: [00:24:13] One of the things I find most exciting about this is that, I don't want to call them unsophisticated investors, but investors who've never had an opportunity to invest in real estate before can invest right alongside people who do know what they're doing. And it's an educational enterprise as well.

Lyneir: [00:24:32] Yeah.

Eve: [00:24:33] Embarking on this idea of, put a little bit of money in and see where it takes you. And it's the beginning of a journey to create wealth. You know, along the way you can learn from the other people around you. I think it's an amazing opportunity.

Lyneir: [00:24:49] I started out, I went to law school, a great law school, but no one ever told me, hey, you know, you hold some assets, you try to let them appreciate.

Eve: [00:25:01] Right.

Lyneir: [00:25:02] You know, there's value in compounding, you know, you know, all those things. You know what really goes into the discussion with the retailer? So, it's not just Starbucks is not coming to our community or it's how do we create a structure that makes it attractive, the win/win for the community. And maybe it's not Starbucks, maybe it's a local entrepreneur. How do we get resources, but also shop there and patronize in a way that allows the entrepreneur to make money and stay open and continue to grow. So all of those things are byproducts. But first, it makes money, right? At first, it pencils.

Eve: [00:25:41] Right.

Lyneir: [00:25:42] Because of it doesn't pencil, what I learned in my early period of entrepreneurship, is while you can do passion work if you're not doing it in a way that's profitable, it becomes exasperating, you run out of energy. So, I want to do passion work profitably.

Eve: [00:25:58] Yes, yep.

Lyneir: [00:26:00] That's what this is about.

Eve: [00:26:01] So, there's one other thing we haven't touched on, and that is how you're planning to staff and fill these shopping centers. I know that's sort of an added value for the communities. Talk about that?

Lyneir: [00:26:13] So, literally the shopping centers that we are acquiring, first a shopping center we acquired, it was a little less than 70 percent occupied. And we initially identified an African American restaurant and signed a lease with them. It was a State Farm office, it's an African American State Farm owner. We signed a lease with them. So we would love to find other ways to have local and people of color becoming tenants in our centers. We love to have people of color leasing, doing property management at our centers. There are these opportunities again, that by owning and being able to lead the decision making, you know, you'll find opportunities, you'll deal with a more diverse tenants. Over time, Baltimore has a center that has some tenants that people might turn their nose up to, or can make the case that they're extractive, you know, things like check cashing and stuff, things like that.

Eve: [00:27:10] Right.

Lyneir: [00:27:10] Over time, we'll find new opportunities. So, you don't go in there tomorrow and say, OK, Mr. Tenant, we don't like, that's been paying rent that's been operating here for 10 years, that obviously is serving a customer, you don't go in there and want to say, you're out.

Eve: [00:27:25] Yeah.

Lyneir: [00:27:26] You go on there and say, is there a way to improve the operation in some way or can we make the case with another potential operator that may not pay as much rent as the extractive tenant?

Eve: [00:27:37] I've done that myself in a neighborhood where I had what I suppose you would call an extractive operator. And it really took me 10 years to be in a position to replace them with someone who paid less rent but added much more value at the street. And it's it's a really long haul. It can take a long time because you've got to stabilize the entire building to really kind of get to the point where you can afford to do that and not lose investor's money, you know.

Lyneir: [00:28:03] So that, again, that's the advantage, I believe, of our expertise and experience.

Eve: [00:28:08] Yes.

Lyneir: [00:28:09] So, from an economic development standpoint. So, my objective is how could I make the case to the city to, you know, the foundation community, to, you know, other government support sources, though, say, all right, we do want this tenant who we think would offer more goods and services and be, you know, a better asset or benefit to the community, but they'll pay 40 percent less than the tenant is there that we are not as happy with.

Eve: [00:28:37] Right.

Lyneir: [00:28:38] Can we find resources to structure that? The other thing is, again, this is long term work. All of the work, I've been doing this work now for, in June, I'll call it 28 years.

Eve: [00:28:51] Wow.

Lyneir: [00:28:52] This is evolution, not revolution. Right. That things get better progressively. We're trying to have long term ownership not going in here, buying the center, flipping. Our goal is can we create wealth by a pool of shopping centers. This is the third, the first outside of Chicago. I've had great conversations about other markets. I'm very optimistic about how we will grow. And I'm hoping that we'll do more with this crowdfunding approach of really democratizing investor interest and making opportunities locally, but also making opportunities available for people who are, you know, any place but want to have an impact. I'm really, this is our pilot test with this. And if it works, maybe we'll do it 98 more times, Eve. Let's do it ninety eight more times.

Eve: [00:29:40] I sure hope so. Well, thank you very, very much. I've really enjoyed getting to know you, Lyneir, and I'm just dying to see what happens with your offering. So, thank you. Thank you very much for everything you do.

Lyneir: [00:29:54] Great. Thank you again.

Eve: [00:30:17] That was Lyneir Richardson. Not only has Lyneir crafted a wealth creation strategy that could empower Black communities, he's also being purposeful about driving inclusively in other ways. He plans to assemble a team of Black experts to provide hands on property management, stay on top of issues, retain existing tenants and attract new ones to improve financial performance of each shopping center. This culturally informed team will have a positive community impact by employing black people and cultivating and incubating Black-owned businesses in these shopping centers. If you want to know more, check out Walbrook Junction at SmallChange.co. You can find out more about Impact Real Estate Investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today and thank you Lyneir for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:12] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Richard Rothstein, a journalist and researcher at the Economic Policy Institute. He is widely lauded as the author of 'The Color of Law: A Forgotten History of How Our Government Segregated America.' In this book, he explores how federal, state and local policy explicitly segregated metropolitan areas nationwide. And he argues that these policies violated the Constitution. Richard recognizes that many small steps are being taken today to remedy this, but the damage done by these housing segregation policies is so overwhelming that he believes a very big step is needed to jumpstart desegregation in a meaningful way – a new civil rights movement, one focused on housing segregation. Be sure to go to EvePicker.com to find out more about Richard on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:46] Hello, Richard, I'm really delighted to have this opportunity to talk to you today.

Richard Rothstein: [00:01:51] Well, thank you very much for engaging with me on this topic.

Eve: [00:01:54] Oh, yes, it's an important one. You're perhaps best known today for the research you've done on the history of housing segregation in the United States, and the really important book that you've written that's called 'The Color of Law.' And I've heard you say every metropolitan area in this country is residentially segregated. I'm wondering how we ended up in this very racially segregated landscape.

Richard: [00:02:23] Well, we have a national myth about how we ended up. That myth is flawed. The myth is that what we've got is something we call 'de facto segregation' that just have sort of happened by accident. It happened because of private bigotry on the part of homeowners and landlords and white neighborhoods who wouldn't sell or rent to African Americans. Or because of businesses in the private economy, purely private economic actors like real estate agents, banks or insurance companies that discriminated. Or maybe we tell ourselves it's because people just like to live with each other of the same race. It's all natural that way. You feel more comfortable if we do it. Or maybe we say it's because of income differences. African Americans on average have lower incomes than whites, not all, but on average, and so can't frequently afford to live in higher opportunity. White neighborhoods, all of these individual bigoted but personal decisions, not governmental actions, is what created residential segregation. And we tell ourselves that what happened naturally can only happen naturally. It's other nonsense. The reason we have residential segregation in this country is because of a network of racially explicit federal, state and local policies that were designed to ensure that African Americans and whites could not live near one another. In any metropolitan area, we have a totally unconstitutional system of residential boundaries. They were established in the mid 20th century in such a powerful way that they still determine where we live today.

Eve: [00:04:06] Wow. So what what are some of these policies? Can you be a little more explicit?

Richard: [00:04:13] Sure. I could go on for hours, but I'll mention just a couple of them. In the post-World War II period, the Federal Housing Administration and Veterans Administrations determined upon a policy to move the entire white working-class and lower middle-class population out of the urban areas where they were then living, into single family homes in all white suburbs that came to ring American cities. At the time, in the post-World War II period, low- and middle-class, working-class and even middle-class families were all living in urban areas. We hadn't suburbanized at that point. They were living there because we were a manufacturing economy and factories had to be located near deep water ports or railroad terminals. So did banks and other service industries that were servicing those factories, because they needed to be able to get their parts and ship their final products, in that way. And so, we had an urban population, both African Americans and whites, living in urban areas. But the federal government determined to move the whites, not the African Americans, but the whites only, out of those urban areas of the single family homes into all-white suburbs. Perhaps the most famous of these is Levittown, east of New York City. 17,000 homes in one place, single family homes. The developer, William Levitt, could never have assembled the capital to build a subdivision that enormous on his own. No bank would be crazy enough to lend him the money to do that. To be worth, as I said, the suburban country, at that time. The banks thought that it was a crazy idea that nobody would want to move there. The only way that Levitt could assemble the capital is by going to the Federal Housing Administration and Veterans Administration, submitting his plans for the development, the architectural design of the homes, the construction materials, he was going to use, the layout of the streets, and a commitment that the Federal Housing Administration, the Veterans Administration required, that he never sell a home to an African American. The Federal Housing Administration and Veterans Administration even required that Levitt place a clause in the deed of every home prohibiting resale to African Americans or rental to African Americans. But this was a racially explicit policy. It wasn't the action of rogue bureaucrats working in federal agencies. It was written policy. The Federal Housing Administration had an underwriting manual that was distributed to appraisers throughout the country whose job it was to evaluate the applications of builders to create new subdivisions or even smaller projects. The manual said you could not recommend, for a federal bank guarantee, a loan to a developer who was going to sell to African Americans. And the manual went so far as to say you couldn't even recommend for a federal bank guarantee an all white project that was going to be located near where African-Americans were living, because in the words of the manual, that would run the risk of infiltration by inharmonious racial groups. This was, I say, an explicit racial policy. Levitt, with that kind of a guarantee, built this large subdivision and builders all over the country did the same. They were inexpensive homes. These were returning World War II veterans, mostly who bought these homes. They sold at the time for eight, nine thousand dollars, perhaps. Today's money, inflation adjusted, that's about 100,000 dollars. Well, as you know, those homes not in Levittown, not in any suburb in this country, no longer sell for 100,000 dollars.

Eve: [00:08:09] Right.

Richard: [00:08:10] The value of those homes appreciated. The families who bought them gained wealth from the equity they now had in their homes. And as a result, today, African American incomes are about 60 percent of white incomes. You'd expect African American wealth to be similar. But in fact, while African American incomes are 60 percent of white incomes, African American wealth is only five percent of white wealth. And that enormous difference between the 60 percent income ratio and the five percent wealth ratio is entirely attributable to unconstitutional, federal housing policy that was practiced in the mid 20th century. I'm sorry. Go on.

Eve: [00:08:53] Now, that's OK. So, One of the biggest consequences of this housing segregation is just the loss of generational wealth that we're struggling with today.

Richard: [00:09:04] Yes, absolutely. Those, the white families who bought those homes and gained this wealth use the wealth to send their children to college. They used it to perhaps take care of emergencies, medical emergencies or temporary unemployment. You know, if you have wealth and you lose a job, you can weather the temporary unemployment. If you don't have wealth, and you lose a job, you're pushed further down the social and economic scale. And the white families also use it to subsidize their retirements, and most importantly, to bequeath wealth to their children and grandchildren ...

Eve: [00:09:39] Yes.

Richard: [00:09:40] ... who then down payments for their own homes. So, that's why I say that these policies are so powerful that they still determine the racial landscape of today.

Eve: [00:09:50] So, how many years did it take us to get where we are today because of those policies?

Richard: [00:09:57] Well, you know, the policies began, the federal government wasn't involved in housing at all until the New Deal of Franklin Roosevelt and the Depression, the federal government's first entry into the civilian housing market was at the beginning of the New Dealm the Roosevelt administration. When the Public Works Administration, one of the first New Deal agencies, beginning in 1933, built the first public housing in this country for civilians and everywhere it built it, it segregated it. Frequently, again, creating segregated patterns where they hadn't previously existed. In many of these downtown urban areas, that I described earlier, that, where both blacks and whites lived. You know, the great African American poet, novelist, playwright Langston Hughes describes how he grew up in an integrated downtown Cleveland neighborhood in the early 20th century. That's not how we think of downtown Cleveland today. But, as I said, we had the factory districts. The jobs were located in a central location, so the black and white workers had to live in roughly the same areas. But so, Langston Hughes describes how he grew up in an integrated downtown Cleveland neighborhood. He said his best friend in high school was Polish. He said he dated a Jewish girl in high school. It was an integrated high school in an integrated neighborhood. The Public Works Administration went into that neighborhood, demolished housing to build two separate projects, one for whites, one for African Americans, creating a pattern of segregation there that hadn't previously existed. And it did this everywhere it went as did subsequent successor federal housing agencies and local housing agencies. So, I've mentioned now two big policies that the federal government followed. One was its public housing program. The other was its subsidization of suburbanization for whites only.

Eve: [00:11:58] Um hmm.

Richard: [00:11:58] And there were many, many other policies as well, followed by federal, state, local governments, all racially explicit, all of which interacted to create the segregated landscape that we now have in this country.

Eve: [00:12:11] So, are we trying to fix this now?

Richard: [00:12:16] No, we're not. We're not. There's ...

Eve: [00:12:19] Oh, that's awful.

Richard: [00:12:19] Well, no, we're not. We, to the extent that there's any attention to this issue, it's the attention to the condition of the low-income, segregated neighborhoods in which African-Americans are concentrated. Not all of them, but many of them. I'm not in any way suggesting we shouldn't be paying attention to that and focusing on things like evictions and rent control and inadequate housing supply. But we are not paying any attention yet to the segregated nature of those communities or to the segregated nature of communities outside those low-income downtown areas where they're segregated on an all white basis. But we need to pay attention to it. Our democracy, I think, is under great threat because of the extreme polarization we have in this country, political polarization that largely tracks racial lines. And I don't think it's conceivable that we can preserve this democracy in a healthy way if so many African Americans and whites live so far from each other that they can't empathize with each other or understand each other's life experiences. So, I think it's urgent that we do pay attention to these racial boundaries, but we are not yet doing so.

Eve: [00:13:43] So, A couple of things that have been attempted have been like the Fair Housing Act and eradicating redlining. Have they have any impact at all on this polarization of the landscape?

Richard: [00:13:58] Well, of course, they've had a small impact. I mentioned Levittown earlier in our conversation, created as an all white suburb by the Federal Housing Administration in the post-World War II period. That community of 17,000 homes is now about one to two percent African American. The homes there now sell for 400, 500,000 dollars. There are African Americans who can afford to buy those homes at those prices. But the, Levittown is located in a neighborhood that is about 15 percent African American. So, the difference between that, the two percent that the Fair Housing Act, you know, was able to address and the 15 percent that you would expect if it were not for these policies of segregation, is the difference that the Fair Housing Act cannot address. Those homes, as I say, are now unaffordable to working class families of either race.

Eve: [00:14:58] What do you think it will take to correct this?

Richard: [00:15:01] Well, the policies to correct this are well known. No mystery about them. What's missing is a new civil rights movement that's going to be as aggressive in addressing residential segregation as the civil rights movement of the 1960s was in addressing public accommodations and interstate transportation and employment segregation. We don't have that yet. We are, I will say, having a more accurate and passionate discussion in this country now about the legacies of slavery and Jim Crow than we ever have had before in American history. We had Black Lives Matter demonstrations this past summer and spring that engaged 25 million Americans, demonstrating for police reform, for community policing, for the demilitarization of the police. They didn't address housing issues, neighborhood segregation, but out of that consciousness, it's possible that a new civil rights movement will emerge that addresses the underlying causes of police abuse of African Americans, which are largely the fact that African Americans are so segregated in low-income neighborhoods and concentrated there. So, I'm hopeful, not confident, but I'm hopeful that such a new civil rights movement will emerge.

Eve: [00:16:28] And do you, do you know any organizations really actively working to correct the housing segregation issues, in particular?

Richard: [00:16:40] Well, there are many, many organizations doing, taking small steps, and being successful in taking small steps. It's not that we're not doing anything at all. But we don't have a systematic attack on segregation. There are some communities that are beginning to look at their zoning ordinances and the way in which they function ...

Eve: [00:17:08] Yeah.

Richard: [00:17:08] ... to perpetuate this unconstitutional system of segregation. There are organizations that are sponsoring mobility programs for African Americans, giving African Americans who have housing subsidies, we call them Section Eight vouchers, giving them more opportunities to find rental units in the higher opportunity communities. There is some work being done, but we don't have a systematic effort. I am involved now with a group of national civil rights leaders who are creating something they call the National Committee to Redress Racial Segregation. And it's hoped that they will be able to launch that national committee in the near future. And the purpose of that National Committee would be to support and create local civil rights groups that will take the kind of action that's necessary to make it uncomfortable to maintain these segregated patterns. But we're not there yet.

Eve: [00:18:16] Yeah, I think for me, I mean, this is a lot to absorb and pretty shocking. How do you educate so many people? There's this trickle down effect, right? So, every bank, every local community bank, that lends money to developers or home buyers or anyone like that has to really examine their practices very carefully. I know enough about what goes on in racially segregated neighborhoods and banking to know that that in itself is an enormous task to just educate everyone to behave differently.

Richard: [00:18:57] My perspective is that our focus should not be on educating banks and developers and insurance companies. Our goal should be to create local activists who will put pressure on those banks and insurance companies and developers, realtors, to behave differently. If this is not something that can happen from the top down any more than the civil rights victories of the 1960s came about because we educated restaurant owners or bus companies to behave differently. It happened because we have an activist civil rights movement to force them to act differently. And I think if we think of that as a model, we'll be on a better path to understanding how we can have these changes. As I said, we're having a more accurate and passionate discussion now about this in this country than we ever have had before. So, there's the potential for creating such civil rights groups, but they haven't emerged as of yet.

Eve: [00:20:05] Yeh, it's a really big task. And one of the question for you. How do you deal with pushback, like that was only in past, or there are a few bad apples, or arguments like that in the face of what you've uncovered and what's the truth?

Richard: [00:20:22] Well, we don't have unlimited time today, but I did describe two big policies that the federal government followed, both in creating the suburbanization and in its public housing program to create the segregation. That wasn't just a few bad apples. If we had more time, I could go through dozens and dozens of these policies at the federal, state and local level, all of which networked together to create this segregation. So, it was not a, it was not a few bad apples that that this. This was a systematic government policy. As I said, the segregation we have today is unconstitutional because it violated the Fifth and the Fourteenth Amendments to the Constitution when government enacted these policies.

Eve: [00:21:11] This is really fascinating, and I do hope that this new civil rights movement emerges, and I'd love to hear more. I'm going to be reading your book in great detail, and I hope all our listeners do as well. Thank you very much for your time.

Richard: [00:21:27] Thank you very much.

Eve: [00:21:36] That was Richard Rothstein. A history of housing segregation in the United States is a shocking one, and we will be grappling with the damage done for many decades to come. There is a glimmer of hope this year as more open and concrete dialogue emerges between blacks and whites. Richard's hope is that activists will rise up to insist on change to propel change forward quickly, a national civil rights movement to ensure that we all get to reap the economic benefits of living in this rich and diverse country. You can find out more about impact real estate investing and access. The show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Richard, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:12] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Daniel Parolek. Daniel's an architect and rising star urbanist. His firm, Opticos Design, has been working in urban placemaking and master planning for two decades now. But Daniel is best known for framing the idea of "missing middle housing." Just delivering more housing is not enough, says Daniel. We need to think about how this housing reinforces a high quality built environment, and how to provide a range of housing for all segments of the market, including moderate- and low-income households. Daniel's new book, "Missing Middle Housing: Thinking Big and Building Small to Respond to Today's Housing Crisis," is a how-to book exploring these issues. Please listen in to our fascinating conversation, and if that's not enough, be sure to go to EvePicker.com to find out more about Daniel on the show notes page for this episode. You can sign up for my newsletter to access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:44] Hello, Daniel. I'm really excited to have you on my show.

Daniel Parolek: [00:01:48] Thank you, Eve. I'm really excited to be here.

Daniel: [00:01:50] Good. I wanted to dive right in and talk about what's wrong with housing and housing choice in the U.S. today. And you coined a phrase that's really widely used now, and that is "missing middle housing." And I'd love to know what that is. What is missing middle housing?

Daniel: [00:02:10] Yeah, it's a great starting point. So, it's a topic I'm obviously very passionate about. And the reason that I decided to emphasize, and and I coined this term back in 2011, is I wanted to help emphasize and frame a conversation about the broad range of housing choices that the market is wanting and needing, that the development industry is not delivering, in any market across the United States. And historically, right, we've done a really great job of defining policy, creating zoning, and creating development industries that can deliver single-family homes in large quantities. So, we've done a really great job with that over a series of five or six decades. I'd say over the course of the last couple of decades, starting in the early 2000s, really, in the United States, cities started figuring out how to plan for, and zone for, in the development industries and financial industries. Figured out how to deliver, the larger, you know, five, six, seven-plus story condos, a mixed-use or apartment buildings. What the missing middle is, is it's all of these housing types in between those single-family homes, such as a duplex, a fourplex, a cottage court, a small courtyard apartment, that existed in neighborhoods prior to the 1940s and delivered a broad range of price points and types of housing. And, really since the 1940s, put barrier after barrier in place for the delivery of these. So, starting in the 1970s, based on some research we, I did for my book, an American Housing Survey, there has been a steady decline in the percentage of overall housing that is missing middle since the late 1970s. And I think, in 2013, the missing middle housing, which I define, and it sort of ties into the categories of an American Housing Survey, as 19 units or less per building. But typically it's really kind of that eight-unit or less. Less than three percent of housing delivered in 2013 was missing middle housing. And so, what we're seeing is that there's a shift in demand in the markets and people want walkability. They want mobility choices. They want more compact living. They want access to goods and services around the corner from their households. But that sort of lifestyle in home is being delivered less and less.

Eve: [00:04:44] So, the question I have really is why is that? I mean, we, you know, I suspect some of it is financing, but ...

Daniel: [00:04:53] Yeah.

Eve: [00:04:54] ... why has it, you know, why has it declined so much?

Daniel: [00:04:57] One of the things I really enjoyed about writing my book is I got to actually sit down and do some research and write a chapter on the many barriers that are in place for the delivery of missing middle. And, you know, we could talk for a couple of hours just about those barriers. But I think the real starting point for a good conversation about why they're not being delivered really starts with antiquated zoning. We're utilizing a zoning system that was created over, as an operating system, that was created over 100 years ago.

Eve: [00:05:29] You know, the more I do these podcasts, the more zoning seems to be the root of all evil.

Daniel: [00:05:37] Yeah. I sort of often ask the question when I'm talking to an audience of like how many operating systems that are 100 years old are we still using? And there's very, very few of them. But zoning is one of them. So, actually, starting 20 years ago when I started my firm Opticos Design, one of our real focuses was pushing for zoning reform, because both with our developer clients as well with our clients that were cities, we were finding that everybody wanted the right kind of projects, but the zoning was in the way. Now, that's just one of many barriers, as I mentioned before, right? That's, there's everything from, right, there's construction defect liability that makes it really hard in many states, or risky, I will say, in many states for developers to build condos at the missing middle scale, just too much risk to sort of warrant taking that type of condo project on, right? It's really hard for developers to finance condos, and for households to purchase condos. It's just not an easy system that's set up ...

Eve: [00:06:45] Right.

Daniel: [00:06:45] ... in the same way as you can buy a single-family detached house.

Eve: [00:06:49] Yeh, I built a built an eight unit condo building years ago. And it was pretty miserable.

Daniel: [00:06:55] Yeah. And obviously there is, you know, community pushback from, you know, this whole NIMBY conversation that's happening, that there's just a lot of communities that are kind of afraid of anything that's not in single-family detached. I think a big part of why the missing middle concept has spread so broadly is that it's giving communities a way to talk about the need for a broader range of housing choices without using these intimidating and scary terms like density or multifamily or upzoning, but rather talking about a cottage court. Like how can a college court be that intimidating to somebody, and personalizing those stories. Because most people, when we're talking about this in communities to try to build support, have either lived in one of these types, they have kids that have lived, or are living in these types, or a relative or a good friend. Or maybe there's a duplex right around the corner on their block that some of their friends live in. So, that, we find that sort of shifting that conversation away from some of this terminology like density that brings really negative perceptions to people's minds is a really important way to kind of remove that community pushback barrier.

Eve: [00:08:11] Right. So, you talked about a decline since the 1970s, but I mean, these zoning systems were already in place. So, what prompted that moment in time for people to stop building that way? Because zoning had already been pushing against it for a while, right?

Daniel: [00:08:31] Yes. Zoning in the United States really started in the late 20s, sort of through the 30s and early 40s in terms of its initial application. And what I would say is I don't actually know and I don't know of anybody that's done the research to understand why there was such a specific threshold or turning point in the 70s to shift this. I mean, it must have had to do with federal funding or federal programs. But I don't, I don't actually know the answer to that. But it would be really, it's a good sort of research project for a graduate student to take on for sure.

Eve: [00:09:06] It does align with, you know, suburban flight, which was happening around then. Certainly, the city I'm in, and many others, 70s and the 80s were kind of that moment in time where people left inner cities and went to the suburbs where there are many more single-family homes. And so, maybe the demand just increased then.

Daniel: [00:09:29] Yeh.

Eve: [00:09:29] They left the inner cities, which probably had more of the housing types that you're talking about, the missing middle, right?

Daniel: [00:09:35] Yeah, absolutely. Many American cities by the, sort of, 1970s were in a pretty large state of decline or had seen several decades of decline and disinvestment. So, I'm sure that was part of that. And so, it was just a much more rational or easier choice for households to buy that single-family detached house in the suburbs. One of the things I like to talk about is that I feel that it's really time, just based on the affordable housing crisis that we're having across the country, this shift in demand and what households are looking for. Chris Nelson did a, some great research for my book and he wrote a chapter – he's a, he teaches at the University of Arizona – that found that 60 percent of all housing built between now and 2040 would need to be missing middle in walkable urban context to meet the demand.

Eve: [00:10:34] That was my next question for you, actually ...

Daniel: [00:10:36] Yeh.

Eve: [00:10:36] ... that was actually, you know, how much can that address the deficit? That's interesting.

Daniel: [00:10:41] Yeah. And we, you know, I think we can all acknowledge that the industry isn't just going to all of a sudden shift and sort of shift in delivering 60 percent of housing and missing middle and in walkable urban context. But that's what it would take. So, it's a pretty, pretty dramatic number. And I think it's just a really strong call to action for planners, for city decision makers, for federal housing policymakers, development industry, to just think very carefully and play their role in sort of this shift, this dramatic shift, that needs to happen. And really delivering what households across America want as home in the 21st century, which is very different than what households wanted in the 50s, 60s or 70s. And we're still kind of hanging on to that single-family detached home mantra, which is not what households are looking for these days.

Eve: [00:11:41] So, I'm wondering, like, what's the big fix? How does this shift really happen? I mean, you have a number of things that need to be addressed. How do you take that on so that you can start building these types of products again?

Daniel: [00:11:55] Yeah, I think that it's a little bit intimidating. There is a tremendous amount of change that needs to happen, right? It's not just a change in the development industry. It's change in city policy, city zoning, development industry, financial industries, federal housing policy. But what I would say is that there has been some tremendous progress in the last year and a half, that because cities have failed to make the changes in their policy and zoning that are necessary, so, like the state of Oregon last year passed statewide legislation, it's called HB2001, that allows up to three or four units on any lot, statewide, even those that are zoned for single-family. So, that was really a major milestone in sort of removing those barriers.

Eve: [00:12:45] Yeh, and I have been offering on my website that actually went live today that takes advantage of that zoning law.

Daniel: [00:12:53] Yeah, I think that's a tremendous opportunity. The city of Minneapolis did something similar city-wide, allow up to three units ...

Eve: [00:12:59] Yeah.

Daniel: [00:13:00] ... per lot. And state of Nebraska, even, my home state, recently passed the Missing Middle Housing Act, which will allow multiple units on all lots, across the country. So, that's happening, I would say that from the development industry standpoint, I see the most change from outside of kind of the typical players. I think it's new players coming into the real estate industry, a lot of it tech-influenced. I guess this whole prop tech influence, I think is likely what's going to have the most impact, because I see an inability or reluctance to change in a lot of the major development players, the reluctance or inability to change at a pace that is actually necessary. And, you know, there's a lot of innovation happening on alternative construction delivery systems, whether it's prefab or modular or, you know, like how do you deliver housing quicker, more cost effectively? And I think there's a lot of change happening. It's just a lot of it hasn't been proven yet, and is kind of having a hard time to scale up. So, I think all of those are interesting shifts that are happening.

Eve: [00:14:09] Yes. So, I want to go back to the statewide legislation.

Daniel: [00:14:13] Um hmm.

Eve: [00:14:13] So, when the state legislates you can now put up to four units on a lot ...

Daniel: [00:14:18] Um hmm.

Eve: [00:14:18] ... but zoning doesn't change. What does that look like? When you have typical single-family house setbacks and statewide legislation that now says you can squeeze more into the site? How does everyone manage that?

Daniel: [00:14:35] Yeh. So, as part of that legislation, as it requires the local jurisdictions to change their zoning by a specific time, in a specific time period. And so, like the state of Oregon right now is going through a large process where they're providing grants to local jurisdictions to change that zoning and they're creating a model code.

Eve: [00:14:54] That's expensive.

Daniel: [00:14:56] Yeah, and it's not simple.

Eve: [00:14:58] No.

Daniel: [00:14:58] It's not simple. And what I see is, and I noticed that there was, I think it was a podcast or blog post on your site about the barriers of parking requirements ...

[00:15:10] Yes.

[00:15:10] ... you can have on housing and the cost of housing. And I think it's going to be really interesting to see, because I don't think it was specifically part of the legislation that local jurisdictions had to remove or reduce parking requirements, and based on our work, both with cities and with developers, we found that it's absolutely necessary for cities to, ideally, remove and at least dramatically reduce their parking requirements to really make missing middle feasible.

Eve: [00:15:39] You know, I interviewed Donald Shoup.

Daniel: [00:15:41] Oh, yeah.

Eve: [00:15:42] Who basically says, you know, those thousands of pages of parking requirements and zoning laws should be replaced with one line. Parking not required.

Daniel: [00:15:52] Yes. Yes. Yeah. And I know you you focus and talk a lot about sort of mobility choices. And I like that your change index, that you use to score projects, really focuses on sort of these walkable, urban mobility-rich contexts, which is fantastic. And I feel like the demand for that walkable urban living, and I think that's a term Chris Leinberger coined, and I know he, you interviewed him ...

Eve: [00:16:20] Yes.

Daniel: [00:16:20] ... is, it's like a third of baby boomers, which is the largest market segment, and two thirds of millennial households, want this walkable urban living and, right, it's a really simple supply and demand equation that you have a really high demand and a low supply that's not really growing. Like it's a really, I'm not an economist, but it's a pretty easy, basic economic equation that sort of is going to, the response, or the result is going to be really unaffordable, high-cost housing in those areas that are delivering that walkable urban living. And we're working on a project right now called Culdesac Tempe, which will be the largest car-free community in the country when it's built next year. And it's in Tempe, Arizona. And the developers, our clients, their name is Culdesac, it's obviously an ironic name.

Eve: [00:17:14] Yes, it is.

Daniel: [00:17:14] They believe very strongly that there is a demand for this car-free living and they have more deposits from interested renters than they have units in the first phase. And they have, I think ...

Eve: [00:17:30] Wow.

Daniel: [00:17:30] ... something like 3,000 interested renters signed up to lease future phases. And so, it's proving that there's a really strong demand for choice. I think it's really about ...

Eve: [00:17:43] Yes.

Daniel: [00:17:43] ... providing a choice. And even in the Phoenix Metro, the one of the most auto-centric places in the country, that you can deliver this car-free living and people are super-interested in it, and it's ...

Eve: [00:17:55] Well, probably because the product they can afford to build is probably higher quality because they don't have to add in parking spaces, and the cost of those. And the person renting those apartments also doesn't have to pay for the cost of those. It seems like it's a win-win, if you can locate living units close to transit ...

Daniel: [00:18:16] Yeh.

Eve: [00:18:16] ... it's just better for everyone.

Daniel: [00:18:18] Yeah, it's along the light rail line.

Eve: [00:18:21] Oh, that's fabulous.

Daniel: [00:18:22] They're, you know, being very thoughtful about bikeshare stations, electric scooter stations, you know, pick up and drop off from the, you know, Lyft and Ubers of the world. And they're, you know, even getting funding from tech companies that are testing some of the technology within the project, things like delivery, you know, robot delivery, and, you know, delivery of groceries and things like that. So, it's kind of a testing ground of sorts. And yeah, it's, absolutely they're not having, so, you know, if they're having to build even one parking space per unit, right, you know, it would end up needing ...

Eve: [00:19:03] A lot of land.

Daniel: [00:19:03] ... a parking garage, a big expensive, at 30 or 40 grand per space, and a lot of land. And as the master planner of that project, you know, it just opened up so many opportunities to create the most high quality public spaces. 60 percent of the project is public space because, because cars are having to slice through the project or being parked on the project, and the housing types we were able to create our courtyard based. They're very responsive, both the plan and the housing types are responsive to the desert climate. And so, it's a really compact urban design ...

Eve: [00:19:42] Interesting.

Daniel: [00:19:42] ...and really narrow asseyos and courtyard housing that's focused on, you know, comfort in the hot season, but also fostering a really strong sense of community as well ...

Eve: [00:19:53] Wow.

Daniel: [00:19:53] ... which is a big goal of the project.

Eve: [00:19:55] So, is this typical of the work you do it at Opticas?

Daniel: [00:19:58] Yeah. So, yeah, it's, we're, about half of our work is with cities. And so, with those cities we're doing, usually doing urban revitalization, transit oriented projects, you know, downtown plan, corridor revitalization plan, new transit, sort of thinking about the impact of future transit and how a place might evolve. And that entails everything from, you know, the community participation process, the sort of visioning, sort of what's the defining the future form of the physical environment, as well as rewriting the zoning. And then the other half of our projects are with developers. And the types of developers we work with are, tend to be the more innovative, forward thinking developers who really want to do something that's not being delivered in a market.

Eve: [00:20:46] Um Hmm.

Daniel: [00:20:47] And so, the Culdesac Tempe project is a super exciting one. We're, we've also delivered the country's first missing middle neighborhood. It's in the Omaha, Nebraska, Metro in a small town called Papillion, Nebraska. And it's a 40-acre neighborhood created with buildings that are no more than eight units per building. And there's now 132 units built and the market is responding super well. It's performing financially very well for our client. And he is super excited. He can't build fast enough to keep up with the demand for it.

Eve: [00:21:22] Wow.

Daniel: [00:21:23] So, it's exciting to see that. And it's transforming a somewhat suburban context into a more walkable context. And part of that is we introduced a small neighborhood main street that has flex spaces on the ground floor of the live/work units that have incubated a small pizza shop, small yoga studio, sounds like a coffee shop may be coming shortly, sort of got stalled due to Covid. But it's just, we just get excited about those sorts of projects that can sort of move the bar. And that projects redefining what Class A multifamily can look and feel like. The Culdesac project is proving that car-free living, there's demand for it and, you know, like our, we did a project in the Salt Lake City region for one of the largest builders in Salt Lake City that basically enabled them to deliver a high quality for sale housing choice to entry-level buyers that they couldn't figure out how to deliver, and weren't able to deliver, even with a fairly conventional tuck under townhouse product type. So, yeah, we're having a lot of fun.

Eve: [00:22:37] It sounds like, it sounds like a lot of fun.

Daniel: [00:22:40] Yeah.

Eve: [00:22:41] So, what led you to this work?

Daniel: [00:22:44] Yeah, it's really interesting and sort of looking back at it and I sort of wrote the foreword to my book that sort of talks about the evolution of missing middle and my interest in walkable urbanism, sort of over the course of my life. And it's interesting because I do feel it really starts with growing up in a small town in the Midwest that was actually very walkable and very bikable and sort of kind of quintessential small town urbanism that functioned in a lot of ways, like neighborhoods function in larger cities ...

[00:23:18] Um hmm.

[00:23:18] ... a vibrant main street, you know, could bike across the town at the age of six or seven. And so, that planted the seeds. My grandmother,sorry, my great-grandmother, actually lived in a duplex, a block and a half from the small main street of my town. So, right, that was an introduction to sort of different housing types and housing choices. And I, you know, I have an undergraduate degree in architecture from the University of Notre Dame, and I was fortunate enough that it was one of the few programs in the country that, as part of the focus of the program, teaches urbanism and trains you in good urbanism just as much as architecture. And I've lived in a number of places across the country like Chicago, Park Slope in Brooklyn, that these neighborhoods that had a really great mix of these missing middle housing types ...

Eve: [00:24:07] Um hmm.

Daniel: [00:24:07] ... and ended up coming out to UC Berkeley to get a master's degree in urban design and just had a really amazing faculty here that, a group of mentors that enabled me to explore this, this concept of these housing types. And as soon as I graduated from that program, I opened Opticos, which, you know, in 2000, we wrote our first zoning code that had the, we didn't call them missing middle at the time, but it had cottage courts and courtyard apartments ...

Eve: [00:24:38] Um hmm.

Daniel: [00:24:38] ... that were embedded in that zoning code. And, at that time, the planners, you know, thought we were really crazy. They didn't know what we were, they were like how can, you can't do this. This isn't the way we do this. And at this point, I would say that the approach which is, in what we call "form based coding," is fairly common practice. A lot of cities are doing it. Cities are asking for it. Cities are realizing it's a more progressive and thoughtful way ...

Eve: [00:25:08] Yeh, yeh.

Daniel: [00:25:08] ... to approach zoning. So, I think over the course of my life, it's just that my understanding has evolved and it's been part of my daily life and part of the, our, my architecture and urban design practice, and even the neighborhood I live in now in Berkeley, California, about 20 percent of the lots have missing middle types. And what that does, it allows my son's first grade teacher to live in a triplex. Her mother lives in one of the other units and she's also a teacher at that neighborhood school. And the third unit is occupied by my daughter's middle school physical education teacher. So, right, it's, it's functioning and it's delivering that attainable housing choice in my neighborhood.

Eve: [00:25:53] Right.

Daniel: [00:25:54] And this is, it is just good to personalize stories in that way.

Eve: [00:25:57] Yeh, it is. So you've been doing this for a while and there's always things that work really well, better than you expect, and things that don't work so well. You have any stories about those?

Daniel: [00:26:07] You know, we found that it's actually a little bit hard for a lot of cities and their planners and sometimes their decision makers to make this mental shift to a conversation about form and scale and desired building types and away from density and FAR and these other metrics that zoning has been so reliant on. And it's, the transition hasn't been as smooth as I would have imagined when I wrote my book "Form Based Codes," I think it was in 2009 it was released. I would have hoped by now that this would have become, there'd be, you know, hundreds of really highly-qualified practitioners and planners out there writing really high quality form based codes. But it really hasn't. It's happened very slowly and so, way more slowly than it needs to be happening. And I think the same is it's, the level of change that's necessary within the development industry, it's hard, you know, we'll get clients that that call us and say, you know, we really like this idea of missing middle, but when push comes to shove, we're saying, well, you really need to be OK with only providing one off-street parking space per unit and letting the on street parking deliver that second space and they're just, sort of, it's just, takes them outside of their comfort zone to the point where it's not going to really deliver the choice and the quality of living that we feel is necessary or the type of living that the market is demanding.

Eve: [00:27:29] I mean, I really have to wonder how much of that is driven by, you know, pretty traditional financial institutions, and I'll probably sound a little bit like a broken record on this. But I know that, you know, when you go to a bank that hasn't seen a product like the one you're trying to build before, it's, it can be sometimes almost impossible to get it financed. And without financing, you don't have a project. So...

Daniel: [00:27:52] Yeah.

Eve: [00:27:53] ... is that kind of the last frontier? Banks? I don't know.

Daniel: [00:27:57] No, I think it is, because, right, you're right. If there's not a comparable project in the market, right, it's it's hard for a bank to go outside of their comfort zone to say we're going to finance that project.

Eve: [00:28:11] Yeah, they need appraisals ...

Daniel: [00:28:12] Yeah.

Eve: [00:28:12] ... and the appraisals need three like-kind properties. And then they need to see that you, you know, you have all the approvals and entitlements that you need. It's pretty complicated pieces.

Daniel: [00:28:25] Yeah. And I do feel that, you know, what you're doing with the crowdfunding at Small Change can really benefit the application of missing middle housing, because, you know, what those innovative small builders/developers that are looking for that capital, I feel like, you've provided that platform.

Eve: [00:28:46] Yeh, so we did, you know, one in L.A. that might interest you, that is a bungalow court project. Eight units in courtyard style. It hadn't been built, I think, since the 1950s and very much in line with this missing middle, except that they, they built it as homeless housing, which is also good.

Daniel: [00:29:05] Yeah, it's, I noticed that Bungalow Gardens project, and that's really at the heart of missing middle housing types. It's a really fantastic type that we delivered historically in neighborhoods that we, it's almost impossible and illegal to build in most cities, that ... it seems so basic. And, but there are so many barriers in place. And, you know, we launched missingmiddlehousing.com in 2016 because there was such a growing demand and interest on this topic. And, I can't remember what the numbers, but there's a large volume of visitors to that site, sort of on a weekly and a monthly basis. And it just shows that there's really strong interest in ...

Eve: [00:29:52] Yeah, yeah.

Daniel: [00:29:53] ... in this idea of exploring, you know, what are some of the tools that cities and planners and developers can put in their toolbox to address this gap between the type of housing this market wants, and I feel like one of those tools, definitely, especially for the delivery of missing middle, is and, I think this crowdfunding you're doing is great, so ...

Eve: [00:30:14] I hope.

Daniel: [00:30:18] Yeh, it's, and I think it's just, it's the type of innovation that, sort of rethinking the way we're doing things that, you know, needs to be happening.

Eve: [00:30:27] Yeah.

Daniel: [00:30:28] Yeah.

Eve: [00:30:28] Just out of interest. Are there any other current trends in real estate development that you think are really important for either the future of housing choice or better cities, things that you've been watching?

Daniel: [00:30:42] There's a couple of things. I think that we really need to figure out how to deliver walkable urbanism in new communities. And there, in addition to zoning, there's a lot of other barriers, starting with street designs, infrastructure, or sort of utility requirements. So, there's a long list of barriers. But I think that, you know, we've been talking about it for a while here in terms of more sustainable development patterns, but we haven't made a lot of progress. I would say we're still battling the same battles, project by project, that we were 20 years ago in terms of trying to remove some of these barriers – the zoning, the thoroughfare designs, push back from communities. So, we need to figure out a way to continue to make progress as more and more households either choose to rent or need to rent. I think we do need to figure out how to deliver a broader range of choices in rental housing. And like our Prairie Queen neighborhood in the Omaha Metro, I think it's showing there is a strong demand for a more sophisticated renter that's looking for a neighborhood, high quality living in a neighborhood, not just a multifamily project that's clustering housing together. And I think that's partly why the single family home rental market has taken off so broadly. And I think the primary reason is that renters aren't being given a choice other than the conventional multifamily ...

Eve: [00:32:06] Yeh.

Daniel: [00:32:06] ... or sort of the urban product type. And I think that missing middle can slip in there and provide a type of living that they're looking for. On the for sale side, I think we just need to figure out a way to deliver smaller scale condominium choices at this missing middle scale, and that fourplex, you know, eightplex, even cottage court scale, both in terms of financing, in terms of zoning, in terms of households getting mortgages. So, I think those are the things that I often, ...

Eve: [00:32:36] Yeh.

Daniel: [00:32:36] ... you know, reinforce as real needs out there to really respond to this, the growing need.

Eve: [00:32:42] Yes, yeah. Well, I hope I get to visit the car-free Culdesac project sometime soon. That would be a highlight for me.

Daniel: [00:32:50] Yeah.

Eve: [00:32:51] Sounds fabulous. And I can't wait to hear what's next for you. So, thank you very, very much for joining me.

Daniel: [00:32:58] Thank you. I've really enjoyed this conversation and I look forward to future conversations.

Eve: [00:33:23] That was Daniel Parolek. He's taught us all about the missing middle, broadly defined as housing in between single-family detached and large apartment complexes. We're talking about multiunit housing types such as duplexes and fourplexes, bungalow courts and mansion apartments, all of which were typically mixed in with single-family homes in pre-war city neighborhoods. Post-War developments, by contrast, focused on single-family zoning, driven by the growth of the suburbs and many cities ended up restricting the building of new multiunit structures. So, Daniel is a strong advocate for zoning reform to bring back that missing middle.

Eve: [00:34:19] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Daniel, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:11] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Max Levine, founder of NICO. A few years ago, Max noticed a very big gap between traditional home ownership and renting, and he wondered what might fall in between. At the same time, he wanted to explore how to create localized wealth and neighborhood equity, and he found the solution to his quest at his own back door. In Echo Park, the neighborhood he lives in, a highly diverse neighborhood, incomes average forty thousand dollars, yet the average home sells for nine hundred thousand. Max took a huge leap in order to bridge that gap by creating NICO, a neighborhood investment company, or REIT through NICO locals can literally invest in the place that they live in by buying shares of local properties owned by NICO. But Max doesn't want to stop there. Listen in to hear more. And be sure to go to EvePicker.com to read the show notes page for this episode. You can sign up for my newsletter so you can get access to information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:50] Hello, Max, thanks so much for joining me today.

Max Levine: [00:01:53] Yeah, thank you so much for having me. It's great to be here with you.

Eve: [00:01:57] So, I'm really fascinated to hear, because like me you've plunged into the fintech crowdfunding world to solve a problem. And I think you're NICO is sort of a version of Small Change, although a little bit different is we're going to discover. So, it's really nice to interview someone in the same industry.

Max: [00:02:15] Absolutely. Great to connect with you.

Eve: [00:02:19] First, I wanted to ask you what problem you're trying to solve.

Max: [00:02:21] NICO really started, NICO stands for the "neighborhood investment company" and we really started, really with an observation of just how broken housing in this country is. And initially, we sort of were focused on thinking about, you know on one hand, you have traditional home-ownership which is held up, you know, sort of the American dream and this example of what Americans should aspire to, sort of the responsible thing. But it's so out of reach for so many people. And, you know, on the other hand, you have renting, which is more accessible, lower barrier to entry, certainly more flexible. And for us, you know, housing as being this sort of, I'll use the word "choice," but it's not really a choice for so many people because homeownership is still out of reach.

Eve: [00:03:13] Yeh, that's right.

Max: [00:03:13] But there's these two options, right? And so initially we start to think about how could we play a role in creating the third option that sits in between traditional homeownership and renting, one that confers some of the benefits of traditional homeownership, you know, the opportunity for wealth creation and connection to place and sort of putting down roots. And on the other hand, you know, was sort of flexible and more accessible the way that renting is. And so, that was sort of the first observation is, you know, if you were going to design a housing system for today's world to reflect the realities of the real economy today, our thesis is the system would probably not look too similar to the system we have in place. And our, you know, vision is to try and create, you know, really a new product that is more in line with the way the economy is working today and specifically around access to capital and opportunities for wealth creation for folks.

Eve: [00:04:10] Right, Yeh, I always think of rental as not providing comfortable stability.

Max: [00:04:16] Yeh.

Eve: [00:04:16] For example, when places gentrify you can't be certain that your home won't be taken away from you, which is troubling.

Max: [00:04:23] Yeah, correct. Right. And I would say it's even deeper than that. You know, I think that's a big element. Housing stability and security is a big element of it. I mean, even the word, right? Even the words "landlord" and "tenant".

Eve: [00:04:36] Um hmm.

Max: [00:04:36] And those are words that are rooted in medieval servitude. Right? That whole paradigm and the whole way that that relationship is set out is one that is, you know, not rooted generally in equity or respect. Right? And so, I think there's also sort of an element where that relationship between, you know, residents and property owners or landlords and tenants, needs to be radically reframed. And I think housing stability and security is a big part of the outcome of what that could look like. But I think there are other ones as well. For instance, I think there's a real bias against renting as an option. I think it's viewed as being 'less than' homeownership.

Eve: [00:05:22] Right.

Max: [00:05:22] And I think that narrative that exists really broadly needs to change because the reality is, you know, renting is. If it evolves a bit, I think has the potential to be a better option than homeownership for a lot of folks.

Eve: [00:05:37] Yes. yup.

Max: [00:05:38] And that's part of the future that we're trying to build through our product.

[00:05:42] And I would say the other, you know, sort of big thing that we're trying to solve for is, you know, when you ask people where they live, where home is, you know, nine out of 10 times they'll say, I live in Echo Park or I live in Inwood or I live in Greenpoint. They'll sort of lead with the neighborhood, right? For us at NICO. The neighborhood as a unit of organization, to us, is sort of the most important of social organization that we have, right? Because it's larger than your family unit, but it's still close enough and personal enough that you develop really meaningful connections with folks in your community, whether they're neighbors or small business owners or organizations that you support or volunteer with. And so, for us in thinking about how to create a new housing typology in between renting and homeownership, it was really important to think about how we could sort of give the appropriate place and the appropriate role to the neighborhood. And NICO, which is the neighborhood investment company, is really sort of come out of both of those lines of inquiry.

Eve: [00:06:54] That's interesting. So, how does NICO work?

Max: [00:06:58] We have launched what we believe is the world's first neighborhood "real estate investment trust" or neighborhood REIT. And what that means is that, you know, we're a real estate investment company that owns a portfolio of income-producing properties and potentially other real estate-related investments, within a specific neighborhood. And so, the first neighborhood REIT is here in Echo Park, in Los Angeles. It's called NICO Echo Park Benefit Corp. And it's a company that has a share structure that owns portfolio property. Today, we own three rent-stabilized multifamily apartment buildings, one of which is a mixed-use building with some retail on Sunset Boulevard. And people can invest into the REIT through our website, mynico.com, and become shareholders in the company that owns this portfolio of property. And our vision with this and our, you know, what we're trying to sort of build is we want to create an opportunity for thousands of people within a community, many of whom, in the case of Echo Park, most of whom are excluded from being homeowners, we want to create a way for them to be able to build wealth, build belonging and sort of participate as primary financial stakeholders in their neighborhood through a responsibly managed, impact-focused, neighborhood investment company. And that's what it is.

Eve: [00:08:29] So, why Echo Park?

Max: [00:08:32] There's a lot of reasons why Echo Park, but I don't think that this concept is limited to Echo Park. I think some of the dynamics that are playing out in Echo Park and have played at in Echo Park are playing out in communities all over the country. Some of these reasons are sort of specific to Echo Park and some, I think, are speaking to the broader dynamic that we see in communities like Echo Park all over the country. So, the first thing I would say is that Echo Park is an incredible dynamic beloved neighborhood. Dodger Stadium is here. There's an incredible music and creative community that's been here for a long time. And, you know, people who live in Echo Park choose to live there because they love what this community is about, and it is speaking to them and it's the place that they want to call home. So, there's a lot of neighborhood love here. At the same time, you know, the median household income in Echo Park is approximately forty thousand dollars a year. The average home price is over nine hundred thousand dollars, and, you know, about seventy five percent of the households in the neighborhood are renter households, right? And so, that speaks to this huge gap where homeownership is really out of reach for a lot of folks, right?

Eve: [00:09:51] Yes.

Max: [00:09:52] And there's a lot of love and there's, you know, a desire to be more secure, qnd being a resident of this community and, you know, Echo Park has experienced significant amount of gentrification. It's a neighborhood that has experienced a lot of change over the last 20 years, I would say, you know, maybe especially over the last 10 years. And that dynamic creates, which we primarily view through a lens of inclusion or exclusion, right? Who is benefiting, who is accruing benefit from this change, who is being harmed by the change? And so, this dynamic where people love their neighborhood, they're excluded from being homeowners because it's just too out of reach, and the neighborhood is changing in a way that feels kind of out of control. You know, we want to create a way that over time, and this isn't something that can be sort of solved in six months or a year or even five years, but we think over 10 years or 15 years or 20 years, if you have a way for many more people, radically more people within the community to be able to build wealth in a fair, flexible, incremental way, we think that that could drive some very, very special outcomes relative to the current paradigm, if those people are able to build wealth through investing in their community.

Eve: [00:11:12] So, can anyone invest, or do you restrict investment to locals or people who live in Echo Park?

Max: [00:11:19] Yeah, so investment is open to local people and to non-local people. Within the REIT, we have two classes of shares. We have a class of local shares, Class L shares and a class of non-local shares. And so, it's open to both groups, though the local shareholders have some benefits on some concrete terms of the offering, like the redemption plan, which is how people would request to get their money out. Or, and also, and you know I'd love to talk a little bit more about this, we're a benefit corporation. You know, sort of at our, at a DNA level for our company, we have a legal responsibility to balance financial returns to our shareholders with social and environmental impact of our business on stakeholders, right? So, on a group of people beyond just our shareholders. And our local shareholders are one of the key stakeholder groups that we will count on to help inform specifically our non-financial objectives and our non-financial measurement and performance.

Eve: [00:12:19] Right. So, what percentage of your investors actually live in the neighborhood, to date? I know that might change, but I'd be interested to know that.

Max: [00:12:28] We launched the offering, and I should say the offering itself is a Reg A+ offering, which means that NICO Echo Park is a public, non-listed REIT. So, we're regulated by the SEC, you know, there's a lot of sort of robust reporting, audited financials, all sorts of stuff like that.

Eve: [00:12:49] Oh, I know it well.

Max: [00:12:50] Yeh. And what that allows us to do is, whereas many real estate investments, most real estate investments are only open to, you know, what the government calls accredited investors, which is another way of saying rich people, By being a public company, and using this type of offering, we're open to both accredited investors and non-accredited investors or non-wealthy people. And so, we've set our investment minimum at one hundred dollars, which is very low for this type of offering. And our, you know, objective in that is to make sure that as many people as want to, within the community and nationally, have the opportunity to support this model and participate in this model. We haven't publicly disclosed the breakdown between local and non-local investors, so far. I think that we'll probably do that on our supplemental filing. That'll be coming up pretty soon. So, I'm going to sort of hold on answering that question. It's a significant portion of the investors who've come through the offering.

Eve: [00:13:52] Yeh, yeh. Well, that's really good to hear. That's what I hope will happen. So, when when someone invests 100 dollars, what do they get?

Max: [00:13:59] Anyone who invests into the offering becomes a shareholder in the company that ultimately owns the portfolio properties. And so, you know, people who become shareholders, they own shares in NICO Echo Park Benefit Corp. And what accrues to them are, you know, sort of the pro-rata profit and appreciation that we expect to generate as long-term owners of these properties. And I'll also say that, you know, one question that comes up a lot is people want to know whether investing in this means they own a specific unit or a specific property. You know, the answer to that is, is no. They become a shareholder in the whole portfolio and the portfolio, you know, we expect to grow it pretty substantially over time. So, it's not just investing into the properties that we own today. It's also investing into the company that will own additional real estate assets within the neighborhood, as we grow it.

Eve: [00:14:56] So, they're really in it with you. And that's a pretty big responsibility for you, I imagine. That's how it feels.

Max: [00:15:02] We view it as a big responsibility, you know. And I would say the big responsibility is sort of two-fold, I should say, at least two-fold. One is, when you take investor capital, you know, they're trusting you to make decisions on their behalf, you know, and be stewards of that capital. So, I'd say that's one level of responsibility that we view. And I would say the other, you know, sort of major level is this approach to neighborhood investment through a benefit corporation structure, through a neighborhood REIT, this is really the first of its kind, right? In a lot of ways. And so, you know, we have a responsibility to be incredibly thoughtful and understand, you know, the context that we're coming into and, you know, in the neighborhoods where we'll be active in pursuing this model, and I think we've set a very high bar for ourselves, right? We've set ...

Eve: [00:15:55] Yes.

Max: [00:15:55] ... a bar where, you know, we are trying to balance financial returns to our shareholders. And we believe that the market-oriented solutions are an important part of, you know, what moving through this pain that so many people are in around housing in their community. We think more market-oriented solutions are a big part of that solve, and that balancing, you know, it's going to take some time to get right, right? And I think that we have sort of designed our, our impact framework and our product in a way that is intended to evolve with stakeholder input over time, right? So, we aren't making a claim that, hey, this is what it is and we're going to get it exactly right. I think we built it in a way that gives it space to evolve into what it needs to be in response to, you know, stakeholder input and feedback and sort of our community over time. And balancing all those things will be a challenge, you know, but that's the challenge that we've signed up for and that's the future that we're trying to create.

Eve: [00:16:57] Yeah, I mean, we have non-accredited investors as well on Small Change and I sometimes think that one needs to feel even more responsible for 100 dollars when it comes from someone who doesn't have a lot more. It's maybe more meaningful.

Max: [00:17:13] Yeah

Eve: [00:17:13] I don't really know how to put it, but that 100 dollars is a stretch for a lot of people. And so, there's this extra feeling of responsibility around it.

Max: [00:17:23] Yeah, we certainly feel that way.

Eve: [00:17:26] You know, under a Regulation A+ offering, you can, at the moment, raise up to 50 million dollars. Is that right or is it 50 million a year? I can't remember.

Max: [00:17:34] It's 50 million per year. Yeh, we can raise up to 50 million per year.

Eve: [00:17:38] And, is that what you hope to raise?

Max: [00:17:41] Yeah, so, you know, to date, we've raised, prior to launching the offering, raised about 30 million dollars of real estate, debt and equity capital. We used that to acquire the seed assets. Since launching the offering, we've added to that. And I wouldn't say it's my expectation that we're going to raise 50 million dollars, you know, in the first year or two, because I think the nature of the problem that we're trying to solve, or the problem that we're trying to be part of solving is, you know, that folks who have been excluded from wealth creation, they don't have 50 million bucks sitting around, right?

Eve: [00:18:17] Yeh. And it takes a lot of education. I think real estate investment is difficult and requires a lot of education as well. So, it is, it's hard. Yeh.

Max: [00:18:29] Yes. I would say we hope to make really good use of the offering, but our priority is less about how much money we bring into the offering and more about how many people, specifically how many local investors, are participating in the model. That's really our, you know, sort of North Star for the next couple of years.

Eve: [00:18:50] So, how long will this offering, or this REIT remain open?

Max: [00:18:55] So, again, I have to be a little careful about what I say with securities law. So, I don't want to sound evasive. My understanding is that we can keep it open on a rolling, permanent or semi-permanent basis, subject to renewing some of the paperwork. So it's out intention to basically keep it open.

Eve: [00:19:14] Ok, that's pretty exciting. So, can you tell me a little bit more about the buildings in the IT and how you're hoping to expand your portfolio? I heard you say that some or all of them are rent stabilized. Can you expand on that a little bit?

Max: [00:19:31] All of the buildings that we own today are rent stabilized. We're not limited at the REIT to only investing in rent stabilized buildings, but we like that asset class. We like that type of building a lot. When I say rent stabilized, I'm talking about in the city of Los Angeles, there's a rent stabilization ordinance, which is a very broad program. Any multifamily buildings, which I think is two or more units that were built prior to 1979, are part of this program, as a default. So, it covers, you know, a significant portion of the multifamily housing stock in the city of Los Angeles. And, you know, what that program currently does is basically puts very strong protections in place for existing tenants, right? And so, the amount that property owners can raise rents on existing tenants is capped at a rate set by the city, for example, and it's more regulated than market units. So, we really like, you know, those protections. And, you know, we are, as I mentioned earlier, we're sort of trying to reframe this relationship between, you know, residents and property owners where landlords and tenants, in industry speak, and we love the fact that we can invest in assets where strong protections for tenants are built into the asset price. We sort of love that as an asset class. The buildings themselves, there are three buildings that are all in core Echo Park. We have one at 1650 Echo Park, I have one at 1416 Echo Park, which is a block off the intersection of Echo Park and Sunset. And then we have a property at 1461 Sunset, which is a few blocks down Sunset from Echo Park. So, they're very proximately located, the portfolio totals 80 residential units and four retail stores, all of which are occupied by locally owned small businesses. And, you know, we are targeting future investments that are rent stabilized, some that are, you know, maybe retail investments, some non-rent stabilized properties, mixed-use properties. And, you know, our investment parameter is sort of, its geographic, like it's not limited to Echo Park. So, the way the offering describes our investment parameters are, you know, Echo Park, Silver Lake and proximate communities. So, that gives us a bit of room to look ...

Eve: [00:21:54] Ok.

Max: [00:21:54] ... beyond core Echo Park, though our initial portfolio is very concentrated, you know, historically significant, you know. All of the assets were built in the 19 .... I want to say the 1920s, approximately, though if we've got any history buffs on here, there might be, you know, 10 years plus or minus on that. But they're all sort of very recognizable buildings that have been part of the community for a long time. And, you know, part of what that, coupled with the protections under the RSO program does, it means that the buildings are occupied by a really socio-economically diverse set of residents. And that also is, you know, important to the type of product and community and inclusion that we're trying to build through our product.

Eve: [00:22:38] So, we have a rent stabilized building. Is it hard to make enough money to cover the expenses? And how do you cope with that? You know, you have pretty lofty goals here in keeping costs reined in is ... hard.

Max: [00:22:52] I would say that all of the assets, you know, like asset prices, just, this is more broadly than our building, but asset prices really reflect expected future returns, right. And so all of the properties are comfortably covering their expenses, comfortably covering their debt service. They're all conservatively financed with long-term fixed-rate debt capital. And the portfolio has been highly occupied since we acquired it. So, you know, we continue to manage to a high level of occupancy. And the pricing of the assets and the way these types of assets are priced and valued is reflective of the protections that are in place. And so, they're all doing great on a property level.

Eve: [00:23:36] So, I have to say, it's a lot, and kudos to you. You actually, three companies in one. Real estate development, management company and a crowdfunding platform. And that's a lot.

Max: [00:23:48] Well, I would say that we're not really a real estate developer. So, you know, we won't do, as we're currently set up now and under the terms of the offering, you know, we're really not set up to do ground up development or to do even substantial renovations.

Eve: [00:24:03] Well, real estate owner, then, which is different than property manager.

Max: [00:24:07] That's true. Yes. So, we're really an asset manager, a property manager. And then we have, you know, the offering and the sort of capabilities that go with managing that type of property.

Eve: [00:24:17] Yeh. So, how do you hope to scale?

Max: [00:24:22] Yeh, so we have ambitious goals for this company, and I would say that, you know, we hope to be doing sort of regular acquisitions into NICO Echo Park over the next number of years. I'm not sure exactly what that looks like from a number of units or a capital investment standpoint, but we believe that this neighborhood, you know, has the opportunity to grow pretty substantially and to grow our impact and grow, you know, the model. And then, you know, separate apart from that, we're actually in a in sort of a fourth line of business, which is, we have a non-real estate owning sponsor company, which actually owns sort of the functions that you outlined before. And through our structure, you know, we seek and expect to be launching additional neighborhood REITS in other neighborhoods around the country, probably starting next year.

Eve: [00:25:15] Wow. Okay, big goals. So, what's the biggest challenge you've had?

Max: [00:25:22] It's a great question. I mean, running a company through a pandemic has certainly been challenging ...

Eve: [00:25:28] Oh yeh.

Max: [00:25:28] ,,, Having a team that is, you know, very much in sort of the formation phase and, you know, team building phase have to go remote and get to know each other over Zoom, you know. We have team members who have not met in person. People who have joined our team since the pandemic started. And so, I think that's a challenge. And I think the other, I would say the sort of more macro challenge is that what we're doing is a bit counterintuitive, right? It's on a populist level, it's a bit counterintuitive. And so, what I mean by that is to say that the relationship that we are trying to realign, you know, at its core is really kind of the relationship between investment capital and what motivates it and how it defines success, with people in communities like Echo Park who've had a pretty negative relationship with investment capital, right? Because they've been excluded from it. And it's come in and I think the perception, which I believe is largely, you know, accurate, is that when capital comes in it typically means that there is risk to me as a long-time resident. Risk to me and risk to my neighbors as long-term residents. And so, I think that trying to start to solve some of these issues through being an investment company, I think that's a bit of a barrier for people to get over. And I think that's pretty fair and pretty deserved. But, you know, our model is such that we're really sort of taking that on, and, you know, I think the great sort of untold story of gentrification and neighborhood change is that real estate, you know, really was not an institutional mainstream institutional asset class 20, 25 years ago, right? And now it is.

Eve: [00:27:19] Yes.

Max: [00:27:19] It's a big part of the allocation. And so, I don't think that capital is the only sort of factor. I think the housing shortages is also one. And I think, you know, there's a lot of other ones. But, you know, the pressure that that huge, organized flow of capital has put on, you know, neighborhoods like Echo Park is really hard to understate. And so, to our view, to NICO's view and to our theory of change, until that powerful, large flow of investment capital can be realigned to actually be viewed as a tool and a resource for stabilizing communities, and including folks who are previously excluded in the wealth that's created through that investment, we're not going to be able to really solve, you know, these issues at a level, right? And so, I think it's a bit of a counterintuitive move for people who are used to viewing investment capital or a company or an investment company in a specific way, which is this feels like a threat to me and my neighbors, into something where this offering and this way of being can actually help to stabilize this community and help to drive the types of outcomes that are important to me, you know, in my own community.

Eve: [00:28:41] Yeah.

Max: [00:28:41] I think that's sort of a lot to get your head around. And we understand that that will take time. And where the rubber hits the road is sort of our actions and the way that we're managing this portfolio and balancing our various priorities. You know, are we doing that in a way that is genuine and, you know, sort of worthy of people's trust, right? And that'll take some time to to earn that, and that's part of our journey here.

Eve: [00:29:08] Yes, yeh. You know, just shifting gears a little bit, are there any other current trends or innovations in real estate that you think are really important to the future of cities or be a future of housing?

Max: [00:29:21] I think that the sort of renewed focus now on the equity or dis-equity that's built into the public realm, and also into the sort of planning process ...

Eve: [00:29:32] Yes, yeh. I've been watching that. It's interesting.

Max: [00:29:35] I think that conversation is super-exciting and has the opportunity to really reframe how people and how communities are able to have agency in terms of what happens within their community. I think public projects, public space projects, development projects, you know, we're certainly seeing and starting to feel within the sort of the real estate industry the pressure that comes with that, you know. And I think there's a genuine attempt by, you know, more and more private sector actors to take that seriously, and to legitimately and earnestly try and figure out how to be engaged with the community and to, beyond just sort of the tokenism of, hey, we'll throw in a garden, have a couple of feedback meetings or something like that, like I think there's sort of the start of a groundswell of, you know, we need to build equity into how we think about ...

Eve: [00:30:35] Right.

[00:30:35] ... development in the public realm. I think that's super-interesting and very important. And I hope we can play a role in that. And then I think things like technology that is helping to create more efficient, less expensive, quicker ways to actually generate, you know, new housing. You know, there's no path out of this housing crisis that doesn't come with building a lot more housing. That's not the business that we're in. But I think that construction is super-painful, and it's sort of in the Stone Age, right? In terms of how that process actually works on a deal level. And so, I think anything that makes that process, you know, more transparent, more noble and less risky, more scalable, will help to create a lot more housing. So, I'm very excited about that.

Eve: [00:31:22] Yeh.

Max: [00:31:22] And I would also say that the sort of, you know, more broadly, shift in focus by institutions and family offices and, you know, other sort of sources of that mainstream real estate investment capital toward strategies that are legitimately ESG strategies or impact strategies, I think that is super-exciting and very important. And for us, we always come back to what is that relationship between capital and what capital is seeking to do, and how is that aligned with the financial and non-financial impact of communities and people in communities, right? And so, I think that shift in awareness and that shift in priority towards strategies that are legitimately focused on ESG and impact, I think that's a great first step in starting to reframe that relationship at scale.

Eve: [00:32:18] Yeah, because in the end, without shifting capital, not much is going to happen.

Max: [00:32:25] Right. And if you think about affordable housing as a, as an example of this, like, we're pro affordable housing, you know, but the structural limitation of subsidized affordable housing ...

Eve: [00:32:38] It's huge.

Max: [00:32:38] ... is that it requires a subsidy, right? And so, like, the subsidy that it requires is limited. Right? And therefore, there's only so many tax credits that go out every year.

Eve: [00:32:50] And it's time consuming. It doesn't let you produce affordable housing fast, which we need to do.

Max: [00:32:56] Yeah, exactly. And so, we come to this place and NICO is really built around this theory of change, that until market forces of capital, right? Until market rate capital, which is a huge, you know, effectively it's an infinite pool when you think about how the capital gets recycled, until the priorities of that change, and until the structures around that change to be focused on delivering financial returns and acknowledging the non-financial impact that that capital has. Until that happens, the scale of any potential solutions that count on subsidy or philanthropy, which is a form of subsidy, it's, the scale of that potential impact is just limited when you look at the scale of the market.

Eve: [00:33:44] Yup.

Max: [00:33:44] So, we're excited to start to see that shift a little bit.

Eve: [00:33:49] Well, this is something that's been really interesting, and I've really enjoyed learning about NICO, and I'm especially looking forward to see what comes next. So, thank you very much for joining me.

Max: [00:33:59] Great. Thank you so much, Eve. And thank you also for all the work you've done over the years with Small Change, with impact real estate. We're huge fans of it and very appreciative for your leadership in our nascent industry.

Eve: [00:34:24] That was Max Levine. His life is focused on building equity through real estate. With NICO, he's working to bridge the gap between those who own assets and those who don't. If you live in Echo Park, you can invest in Echo Park, and what you invest in will ensure that the neighborhood remains available to everyone. For everyone. NICO's first three buildings are rent stabilized. It's a very big goal and Max is chipping away at it.

Eve: [00:35:05] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Max, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:09] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Atticus LeBlanc, founder of PadSplit, a technology platform dedicated to affordable housing. Atticus has been an affordable housing advocate and real estate investor for over a decade now, his company owning and managing over 550 affordable residential units. But he founded PadSplit with a much bigger goal in mind. He wants to dramatically change how we address affordable housing by using every space that is underused, in our own house or in a shared home. He doesn't care how. Every room is a safe, clean home for someone who really needs it. You'll want to hear more. Be sure to go to EvePicker.com to find out more about Atticus on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:26] Hello, Atticus. Thank you so much for joining me today.

Atticus LeBlanc: [00:01:30] Absolutely. Pleasure to be here, Eve. Thank you for the opportunity.

Eve: [00:01:33] Yeah, I'm really looking forward to that conversation. Because you're doing something pretty unusual. You started a company called PadSplit, and I'm wondering why you started it.

Atticus: [00:01:45] Sure. Yeah. So I think ever since I was a kid, I enjoyed solving problems. And maybe charging at windmills bigger than, bigger than where appropriate at any given time. And this has just been a really big windmill. I've been in in real estate my entire career here in the Atlanta area, going on 18 years now. And have been an entrepreneur for the last 15. And then in housing, specifically, for the last 12. As an entrepreneur in the housing space, I came to see a lot of what I felt was wrong with the industry, and the growing, let's just say, affordable housing crisis for lack of a better word, and lack of supply, and lack of customer discovery for people who were the front line workers within our communities. And folks who ultimately had to commute hours or several hours a day to be able to afford a place to live and get to their place of work. And so, when I got to a point in my career where I felt like I was comfortable financially and had built up enough of the real estate portfolio that could support my own family, this was kind of a moonshot endeavor to look at ways to really solve the underlying fundamental issues of housing, on affordability, not just in the Atlanta market, but trying to do so around the country, and potentially around the world.

Eve: [00:03:10] So, PadSplit splits pads, it's a great name. What does a PadSplit house look like, typically, after you've finished renovating it?

Atticus: [00:03:21] If we've done our jobs well or if our owners and real estate investors have done their jobs well, it looks from the outside like any other traditional housing unit, whether that's a single family home or apartment. On the interior, it's a little bit different. But essentially it's just geared to allow single person households or individual workers in our communities to be able to rent individual rooms rather than entire homes. So, because we, we're a marketplace and we align incentives with real estate investors who are generally looking for higher returns, one thing that may be different is you're typically going to see more bedrooms in a PadSplit home than you would in a typical home. And the reason for that is in a traditional rental home environment, or any home environment, you have a lot of inefficient, underutilized and unmonetized space. So, if you're going to rent a property, there's almost no cost included in the rent for the formal dining room, for instance ...

Eve: [00:04:28] Right.

Atticus: [00:04:28] ... or the home office. And there's no reason why, given the fact that we have a lack of housing supply, that these spaces shouldn't be utilized to actually house people. And so, what PadSplit does as a marketplace, it allows those spaces to be utilized on an individual contract basis with each one of those people who needs a place to live. And in doing so, also makes the home more profitable for those real estate investors. And so, the difference is you would see, instead of a formal dining room, you'd see that room converted into a convertible living area where you actually have a bed instead of a dining room table. And that owner is getting paid for it rather than not.

Eve: [00:05:11] So, by doing this, you can include traditional investors who get a return and you don't need subsidies, you're not relying on the government to produce affordable housing. Is that right?

Atticus: [00:05:24] Exactly. Exactly right. Yeah, and throughout my career I've worked with a number of more traditional affordable housing programs and have consistently been frustrated by ...

Eve: [00:05:35] Oh, they are so complicated.

Atticus: [00:05:37] Yeah, it, well, not just the complication, but the time. The time and energy and effort that goes into creating those units, and meanwhile, we have an abundance of outside opportunity. Right? There is ...

Eve: [00:05:52] I think also not just the time and energy. I've done some work like that, too, but it's an industry that kind of hasn't caught up to what people want today. So, it can be pretty inflexible.

Atticus: [00:06:03] Absolutely.

Eve: [00:06:04] About, you know, what an affordable housing unit should look like.

Atticus: [00:06:08] Yeah, I'd say there are two major issues with the affordable housing industry, let's call it. And one is the fact that virtually every program is designed to limit profit. And where profit is created or treated as an enemy. And instead they will pay as a percentage of cost. It's OK to get paid as a percentage of cost, but not as profit. And what you do is you misalign incentives there. Where an affordable housing developer who's maybe redeveloping a property, they have a home with perfectly good kitchen cabinets, but if they're getting paid on a percentage of cost, they are now motivated to spend those public dollars to replace those perfectly good kitchen cabinets with brand new ones, because they only get paid if they actually spend that additional subsidy. And I'd say, overall, in most of the programs I've worked with, they generally have that same ideology. That they need to pay a fee rather than thinking about what is the most efficient solution possible.

Eve: [00:07:15] Right.

Atticus: [00:07:16] The second issue is just customer discovery, in that if you look at the Low-Income Housing Program, for instance, which has been probably the most successful affordable housing creation program in American history, three million units over about 30 years, there's still no customer discovery there, where they're evaluating the needs of the individual residents. The rules that are governing what types of units are created are ultimately from a consortium of government officials with some private advice from developers, but almost never based around purely, OK, you are a person who is in need of housing – What exactly do you need and what is the most efficient way to create that?

Eve: [00:08:02] Right. Right.

Atticus: [00:08:03] And so as a result, you spend a lot of money creating something that isn't necessarily geared towards the end customer.

Eve: [00:08:09] What do you include in a PadSplit room, and how did you discover what your customers want?

[00:08:15] Yeah. So, what's included in a room, and really this goes hand-in-hand with what the customers want. Rooms are fully furnished. They include all utilities, Wi-Fi, laundry, telemedicine and credit reporting into one single bill. And that bill is charged on a weekly basis, or on individual pay periods when people get paid. And this came out of the customer discovery process when I was managing properties that I owned, and particularly in lower income apartments, I ran into situations where I saw people that would end up late on their rent and under eviction because ultimately they decided to pay a utility bill, a cable television bill, for instance, in the middle of the month, and didn't have enough money left over by the time the first of the month rolled around to be able to make that payment. And it was mind boggling to me, initially, that why would anyone ever choose to do that? And as I dove a little deeper, it occurred to me, well, wait a second, you know, we're obviously, we're almost at the end of the month now, but if I asked you or anyone else, what day of the week does November first fall on? No one, almost no one would know off the top of their head.

Eve: [00:09:40] Right.

Atticus: [00:09:40] But we all know that today is Wednesday. And if I get paid on Friday, it's very easy for me to budget around that.

Eve: [00:09:47] Right, right, right.

Atticus: [00:09:48] And at the same time, if I'm living paycheck to paycheck, then it's very difficult for me, and me personally, I mean, I've long put a lot of my stuff on autopay just because I know I won't remember. But if you don't have the financial capacity to do that and you have to really be careful about your budgeting, it's not easy when you have a cable bill that's due on the 12th and a water bill that's due on the 23rd and so forth and so on. And you start to compile all these bills. And people are just not spending their money as wisely as they should be because it's not top of mind.

Eve: [00:10:26] Right, right.

Atticus: [00:10:27] And the prioritization of those expenses is not anything that's easy to do. And then on top of that, as I looked at the traditional housing industry, and in a rental property where people would have to pay large upfront deposits, we all know that there's a huge portion of the population that doesn't have the money, doesn't have any savings ...

Eve: [00:10:48] Yes.

Atticus: [00:10:48] ... to be able to do that. And so you really want to just wait around for them to build the savings so they can get the deposit? Or do you want to figure out a way to create easier access? And so, that's really what we've done, is created lower barriers to entry for individuals who are in need of housing, but also kept the billings on a regular schedule that's easy to remember so that they can afford them.

Eve: [00:11:11] Right, right, right.

Atticus: [00:11:11] And they don't have to come up with those upfront costs to outfit their bedroom or apartment or house on the front end, that just further exacerbates their affordability issues.

Eve: [00:11:22] So, where you start your operations?

Atticus: [00:11:25] So, started here in Atlanta. I really kicked off my housing career, I've been in Atlanta now for 20 years, almost. I kicked off my housing career in late 2007, early 2008. Really a touch before that, but really just got into the swing of things before the crash had really been public, but it was clear that something was going on, and that home values were much lower than they should have been, although at the time I had no idea why, and no one could really tell me why. But it's been a long time coming. And we've been working on this problem for a long time.

Eve: [00:11:58] You started in Atlanta. How many units you have now and where they located?

Atticus: [00:12:03] So, we have about 1100 units today.

Eve: [00:12:06] Oh, wow.

Atticus: [00:12:07] And they are still mostly in Georgia, although we have a handful of units in the Texas market. And we've got some in Alabama, we've got some in Virginia. And we'll be making a larger push into, into the Houston metropolitan area, as well as a couple other markets here over the next several months.

Eve: [00:12:28] And what are your tenants look like? Who are they?

Atticus: [00:12:31] Here in Atlanta, our members, as we refer to them, average income is around 25,000 dollars a year. It's the cashier at your grocery store, the barista at your at your coffee shop, the security guard at any local retail establishment or hospital, Uber drivers, Lyft drivers, administrators in various government offices.

Eve: [00:12:54] That is shocking. Administrators and government offices.

Atticus: [00:12:57] Oh, yeah. Yeah, I mean, we've we've had police officers. We still have some teachers. Average age is, is just under 40, about 39 years old.

Eve: [00:13:04] Oh.

Atticus: [00:13:04] About 60 percent single women. And here in Atlanta, we're 97 and a half percent African-American. But yeah, I mean, I refer to this group of people really as the invisible population. But I challenge any of your listeners to just ask next time you're in some sort of retail environment, or heck, your Amazon delivery driver. But the folks who work in your community, whether that's a hairstylist or the, anyone at the grocery store, where do they live, ask them where they live. And I think you'll be intrigued to find the answer. But it wasn't until maybe five years ago or so, I really started to understand that you could be working full-time in this country and very easily be homeless.

Eve: [00:13:48] Yeh.

Atticus: [00:13:48] And just that there are almost no housing options available for people that earn less than around 35,000 dollars a year that are the traditional options without any subsidy.

Eve: [00:13:57] I always make a habit of asking Uber drivers,= if that's the full time job. And I'm, I've been stunned hear who has to moonlight, Uber driving ...

Atticus: [00:14:09] Yeh.

Eve: [00:14:09] ... over the years to make ends meet or to pay for groceries or to make the rent payment. It's pretty shocking ...

Atticus: [00:14:17] Yeh.

Eve: [00:14:17] Especially on the West Coast.

Atticus: [00:14:20] Yeah, definitely. I mean, even here in Atlanta, which is a relatively affordable city, we have a young woman who's now been with us for almost three years, who works as a pastry chef in Midtown. But before PadSplit, she was commuting an hour and a half each direction ...

Eve: [00:14:35] Oh, wow.

Atticus: [00:14:35] ... to get to her place of work. And then I remember the last time I was in San Francisco asking my Uber driver where he lived. And he lived with his family in Fresno, three hours away. But then four days a week, he shared a studio apartment in Daly City near the airport. And that was how he made it work. So that he could spend some time with his family in Fresno. It's incredible when you see the lengths that people have to go to just to find reasonable housing. And these really are people that our economy relies on on a regular basis, but really just go unnoticed.

Eve: [00:15:08] That's pretty heartbreaking. So, I have to ask one question as an urban designer and architect, what do the neighbors think ...

Atticus: [00:15:17] Yeh.

Eve: [00:15:17] ... when you renovate the house?

Atticus: [00:15:19] Depends very much on the neighbors, right?

Eve: [00:15:21] Right.

Atticus: [00:15:21] It would be no surprise to anyone that we have NIMBY opposition, you know, folks who say not in my backyard.

Eve: [00:15:28] Well, I've heard, Atticus, that quite a few people say, on my podcast the last month that NIMBYism is probably the biggest reason why we're in this predicament.

Atticus: [00:15:39] Oh, unquestionably. Yeah, I don't deny that at all, and it's frustrating. I mean, with with a lot of those those conversations where people say, OK, well, yeah, I think the person who works in my grocery store should be able to live here. And my question is always, do the people who serve your community deserve an opportunity to live there? And almost no one ever says 'no' to that question. Right? But they will say, well, yeah, but the government is going to fix that.

Eve: [00:16:11] Right.

Atticus: [00:16:12] And, or the cities are working on that problem. And I don't think anyone really has an idea of just the scope and the depth of the issue and how bad things really are. And the fact that if we as a society are not working to change these issues on our own, nobody's going to get anything done. And so, yeah, I mean, absolutely, there are lots of neighbors who, under the guise of, quote unquote, protecting the integrity of single family neighborhoods, which they conveniently forget, like all of those zoning codes were based in systemic racism going back a hundred years, that it's OK for all of this space to go to waste while you have people who are working full-time, that are living on the street or commuting three hours.

Eve: [00:16:58] Right.

Atticus: [00:16:58] And I mean, that's a real difficulty and something that I think we as the community or as a nation of communities and neighborhoods ultimately have to decide where the line in the sand really is. And at what point do you say, OK, in our country, everyone should have equal access to opportunity and housing opportunity almost goes without saying, but what are we willing to do to live out those ideals?

Eve: [00:17:27] So, you've thought a lot about affordable housing solutions. Why this one?

Atticus: [00:17:32] Well, for me, I was intrigued by private market solutions that didn't require subsidy programs. And don't get me wrong, I've worked with a lot of subsidy programs and particularly housing choices and still am an owner of a number of properties that work with housing choice participants. But just the time, right? It was, how quickly could I do something today that could create a groundswell of support and address the problem as expeditiously as I felt like it needed to be addressed. And so that's really the reason why I looked at private market solutions, was because I knew that if you could align those incentives to just create more efficient market opportunities, then I had already seen over the course of my career how strong some of those forces could be. Where here in Atlanta, I watched entire neighborhoods change over the course of just two or three years because of the actions and investments of not one large company, but tens or hundreds of independent individual real estate investors and entrepreneurs. Sometimes for better, sometimes for worse.

Eve: [00:18:43] Yeh.

Atticus: [00:18:43] And so, the idea was, OK, well, right now we are decrying the gentrification and displacement in a lot of these communities. And I agree, that I think in a lot of ways, the displacement especially, is heart wrenching and contributes to the same problems that we're seeing with people having to move further and further away from their places of work. But what if we could take the same group of individuals who really are just pursuing their own best interests, which we can't expect them not to. And you said, OK, well, instead of contributing to gentrification and displacement in these areas, what if I gave you another option for investing that allowed you to create more affordable housing? And if you could make affordable housing more profitable than the other alternatives that people had so that the best option available was also one that was a societally good thing and created positive social change for these largely marginalized groups, then those investors would absolutely pursue those. And that was really the thesis that led me to create that split in the way that we've done.

Eve: [00:19:44] How much do your tenants, or your members pay per month compared to a unit like what, that they would have to go out and get in the marketplace?

Atticus: [00:19:53] Yeah. And it's not apples to apples, because our units are all-inclusive.

Eve: [00:19:58] No, of course not. There're furnished, and electric and utilities and everything, right?

Atticus: [00:20:02] Exactly. Yeah. But it's about 600 dollars on average, across our portfolio, that people pay on a monthly basis.

Eve: [00:20:10] How much vacancy do you have, because that's always a good indicator.

Atticus: [00:20:13] Yeah. So, right now we have about 45 rooms or so that are available, so we stay pretty well full. Of course, back to the customer discovery and user question. What we found too is if you're new to town, if you come here and you've got a job, you don't really want to sign a 12-month lease, you're trying to figure out what part of town you want to live in.

Eve: [00:20:37] Yes.

Atticus: [00:20:38] And so ...

Eve: [00:20:39] It's like co-work, for housing.

Atticus: [00:20:41] Yeah, similar. Similar. Yeah. I mean, it's but so our terms are certainly shorter. On average, we still see nine months as an average term ...

Eve: [00:20:50] Yeh.

Atticus: [00:20:50] But we absolutely have folks who come to town and are trying to get their bearings or get their feet under them, or maybe they've just been through some sort of traumatic situation like a divorce or the death of a loved one. And they don't need something long-term. They need an affordable place to stay for three months.

Eve: [00:21:08] Right.

Atticus: [00:21:08] And so we see those as well. And that certainly contributes to the amount of vacancy as well. But, yeah, we stay pretty well full.

Eve: [00:21:16] And I have a feeling that you chose this path, as well, because it's a way to scale what you're doing. I'd love to hear your hopes on scale.

Atticus: [00:21:25] Yeah, I certainly had no business starting a technology company.

Eve: [00:21:30] Kind of like me.

Atticus: [00:21:31] I am a real estate Neanderthal. But I was intrigued by what I had seen AirBnB do over the preceding 10 years, in terms of, just how individual hosts around the world were able to take this model and run with it. And I wanted to do the same thing with much more positive social impact for affordable housing. And I wanted any real estate investor, or homeowner, candidly, or housing provider of any kind, anywhere, to be able to pick up these sets of tools and provide affordable housing in their communities, regardless of what their thesis may be. If they wanted to create housing for farmers or teachers or employees at a certain facility, that they would be able to use these same sets of tools to be able to do that. And that was really, the major reason why I started PadSplit as a technology marketplace as opposed to a real estate company, was because I certainly didn't fancy creating this mega-corporation that owned thousands and thousands of homes. And, oh, by the way, even if we did, that still wouldn't be near the impact that I was trying to create in the world.

Eve: [00:22:49] Do you own any of the buildings yourself at all or are they really ...

Atticus: [00:22:53] Personally, I have two. The first prototype and then I have one other one. But other than that, no. We have maybe 65 or 70 different owners of all the properties.

Eve: [00:23:05] Oh.

Atticus: [00:23:05] Anyone from an individual homeowner, all the way to institutional or sub-institutional investors. I do have one room in my personal home that I rent through the platform. We don't really count that one.

Eve: [00:23:17] So, how do you manage those building owners? Because I can imagine some bad ones might creep in.

Atticus: [00:23:24] Well, a lot of that is baked into the model. Right? Where we don't do traditional corporate leases the way that other similar companies have done, where we're the ones making the improvements. The owners are ultimately sharing in the profitability. So, they see a direct correlation between the quality of the unit and their bottom line. And that's really, I think, important about aligning those incentives. And they are the ones that are purchasing, maintaining and renovating those properties. And then also to maintain accountability, a big part of the platform, and this was absolutely from AirBnB, giving the residents in those homes or the members in our platform the ability to rate and review both maintenance and quality of those homes.

Eve: [00:24:05] Um Hmm.

Atticus: [00:24:06] So, kind of creating ...

Eve: [00:24:09] That's encouragements.

Atticus: [00:24:10] ... creating 360 degree accountability where not only are those posts motivated by the bottom line, but they're also accountable to the members inside those homes as well.

Eve: [00:24:22] You touched on systemic racism and I know you've written about this and thought about this. And I'd like to know what you think of some of the key examples of racism in housing policy that exist today and that have made this problem worse.

Atticus: [00:24:40] It's not really a question of what I think. It's just a question of a history lesson. And there are a couple of points there. One, if you look at any historic neighborhood today compared to what the population makeup was 100 years ago, or call it turn of the, turn of the 20th century, what you'll find is that there was a much wider distribution of family makeup in those neighborhoods then, and housing choices there, than than there are today in those same neighborhoods. Because since the 1960s, we've as as a nation really forced this idea of single family home. And that's been repeated over and over and over, where one family, one home, in spite of the fact that you look at 35 percent of the population as single person households. Today. And meanwhile, our home sizes have just continued to increase, even though family size continues to decrease. So, you had this this extreme mismatch. How that relates to systemic racism is this, in that, whether you're looking at as as Richard Rothstein analyzed in Color of Law and has been written about by a number of other publications, the foundation of these zoning codes, when things started to change in really, whether it's L.A. 1908 or Buchanan in 1917, they stemmed from trying to segregate neighborhoods based on race. Like, that was the foundation of zoning. And if you acknowledge that at any point in our history, regardless of if you believe that it's happening today, but at any point in our history, if our culture has contributed to wealth inequality on the basis of race, at any point, if that has contributed to our current inequality of income based on race, then you also have to acknowledge that because these housing policies are based around income, they're also based around race. And so if I say in a particular neighborhood, you who may be lower income and maybe a single person are not allowed to live here by virtue of the fact that the average home is going to rent for 3,000 dollars, I'm discriminating based on race, in that situation. And so, by limiting the diversity of housing stock and housing choices, we are absolutely discriminating based on race while we are discriminating based on income. And the great irony is, across racial groups, there are very few communities who have any concern about discriminating based on income. But very rarely do the same folks ever acknowledge that because you're discriminating on income, it also means that you're discriminating based on race, but it's just, it's just a fact.

Eve: [00:27:29] Yes. Yup. OK, so then what's what's the biggest challenge you've had?

Atticus: [00:27:37] Oh, let's say, the only, only one, huh? Yeh.

Eve: [00:27:41] One of them.

Atticus: [00:27:43] Listen, I mean ... It's a massive problem. And I'd say, the single biggest thing is, is anticipating and managing human behavior at any level of scale. Right? Whether that is relationships with members inside the homes, whether that is relationships between the members, or just the home and people in the neighborhood. And the sheer amount of effort necessary to maintaining all those relationships. Or the foresight to build in structures and processes that align behaviours appropriately. And we've done a lot of work on this and certainly put a lot of thought into it. I mean, listen, we sit at this intersection where we are involved in people's lives 24 hours a day, seven days a week, at the very base of Maslov's hierarchy of needs, in terms of just the need for safety and shelter.

Eve: [00:28:49] Yeh.

Atticus: [00:28:49] And so, it is about as big a problem as I think I could have ever tried to tackle.

Eve: [00:28:55] Yes, I'd agree with that.

Atticus: [00:28:56] And just the sheer complexity of those different interactions is the single hardest thing in my mind.

Eve: [00:29:02] So, what's your big, hairy, audacious goal with this, with PadSplit?

Atticus: [00:29:08] For me, it's always been that you can solve at least a significant portion of the housing crisis on a national and global scale. The big, hairy, audacious goal is that it becomes a household name that just becomes commonly accepted. That if you are in an apartment or if you are in a home and you have extra space, why on earth wouldn't you trust another individual to lease that space from you? In the same way that I think ride sharing to hitchhiking. Where 20 years ago you would never imagine getting the back of a stranger's car, whereas today we do it all the time. And those activities are not fundamentally any different. What's different is the fact that you, as a customer of that service, trust that stranger that you're getting into the back of a car with. And so, the big, hairy, audacious goal is that same paradigm exists for housing. Where you trust that you can use this platform and and allow someone else into your home without really missing a beat. And that's just obviously a wholesale change to the way that we think today about, quote unquote, strangers. And if we can empower access to those opportunities, both as a user of housing or as a provider of housing, and to empower those users to become providers eventually and build their own income and wealth, that's really what we're setting up for. And we want to make sure that those opportunities exist everywhere.

Eve: [00:30:38] Final question, but I think I read that you were looking for funding and you did receive a chunk of it, is that correct?

Atticus: [00:30:45] We did, yeah. So we closed ...

Eve: [00:30:48] Congratulations.

Atticus: [00:30:48] Thank you. Yeah. We closed on on our Series A round of financing a couple of weeks ago. So, we will be around for much longer.

Eve: [00:30:56] You'll be bigger and doing more of this.

Atticus: [00:30:57] Hopefully. Yeah. We just keep putting one foot in front of the other and are anxious to expand to new markets that are interested in solutions.

Eve: [00:31:05] Well, it's really been delightful talking to you and thank you very much, and thank you for tackling this very big problem.

Atticus: [00:31:12] Well, we're trying. But thank you for having me, Eve. I really appreciate it.

Eve: [00:31:31] That was Atticus LeBlanc. He wants PadSplit to take hold in a really big way. He can't see how we will ever be able to catch up and provide enough affordable housing quickly if we don't think differently. That empty spare room or that basement den can offer a comfy bed and a safe home to someone who really needs it. So, he's planning to grow the 1100 rooms on PadSplit today to many hundreds of thousands of rooms. PadSplit is his moonshot.

Eve: [00:32:15] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, Atticus. And thanks for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:13] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Scott Flynn, chief impact officer for IndieDwell. Scott founded and ran IndieDwell for four years, growing it from a one per quarter modular home manufacturing company to 10 per week. And it keeps on growing with joint venture manufacturing facilities planned all over the country. For IndieDwell, the focus has been on affordable modular homes made from recycled shipping containers, although that is about to change. Be sure to go to EvePicker.com to find out more about Scott on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing, and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:23] Hello, Scott. I'm really pleased to have you on my show today.

Scott Flynn: [00:01:27] It's a pleasure to be here, Eve.

Eve: [00:01:28] You build tiny, affordable homes in Boise, Idaho. And I wanted you to tell us how, how do you do that?

Scott: [00:01:37] Well, it's much bigger than just Boise, Idaho. I mean, we're starting to scale this across the country. We're scaling our impact with factories, with partners, factories across the country. Just to be clear, we don't build tiny homes. We build modular homes.

Eve: [00:01:57] Umhmm.

Scott: [00:01:57] So, you know, for just some background here, the difference between a modular and a manufactured home, there's a big difference. So, a manufactured home is built to lower quality codes, and that's where you get the trailer homes and the mobile homes come into that category.

Eve: [00:02:17] Ok.

Scott: [00:02:17] But a modular is the same as a site-built stick-built home. It goes on a permanent foundation. It appreciates with the market. That's the big thing here, the difference between these two.

Eve: [00:02:30] Umhmm.

Scott: [00:02:30] A manufactured home is considered personal property, so it depreciates over time.

Eve: [00:02:35] Kind of like a recreational vehicle.

Scott: [00:02:37] It's exactly the same ...

Eve: [00:02:39] Ok.

Scott: [00:02:39] Yes. But we build modular, so it's real property and therefore it appreciates with the market. And therefore, when you can get anybody into one of these homes, say, the underserved or the left behind, so to speak, they can start to build wealth.

Scott: [00:02:58] And you're doing that using shipping containers.

Scott: [00:03:02] That's true. Yes. We started this five, about four and a half years ago now, the idea came into my head and it just seemed like the right thing to be building with. And, you know, we're not builders, we're manufacturers, so, you know, there was 50 million shipping containers in the world. And now there's well, more than that. And half of them are sitting around being decommissioned, but still have the structural integrity in them, and I thought, wow, they're the, the structure's there. It's a resource. It's doing nothing. You can put them on flatbeds easy and ship them around. So, that's what we started building with.

Eve: [00:03:49] And that's amazing recycling story, right? Are you still building with shipping containers?

Scott: [00:03:55] We are. But I will let you know we are starting to phase out of them in about four to six months. We realize that they're extremely hard to work with.

Eve: [00:04:08] Interesting.

Scott: [00:04:08] Yeah, they're really complicated. Especially when you get into a commercial-type project where you have more restrictive codes. You've got fire codes you have to comply with, and boy, it can really become challenging. And, you know, we're in the business to put as many people in homes as possible, not try and build with the most complicated thing. Shipping containers are extremely difficult to work with, especially when you're doing a commercial project, so that means, you know, a multi-family, multi-story project. And it's, you know, we're not in the business to prove that we can build the most complicated home. We're in the business to put good citizens into a high quality, healthy home. And so we are in the process of switching into a steel studded frame system. So, the story is still there.

Eve: [00:05:12] Right.

Scott: [00:05:12] It's still steel screwed to steel. And there's still high performance and energy efficient and durable and sustainable, and healthy. It's just going to be packaged in a way that where, it'll just make our lives easier and we'll have more homes.

Eve: [00:05:29] Right. Right. So, a little more efficient to build. And what about cost-wise? Because I think, you know, these sound like they're pretty affordable homes.

Scott: [00:05:39] Yes. I mean, the new product will actually lower the price even more. Our base model is a 640 square foot, two bedroom, one bath, large kitchen and living room. We're offering that at 85,000 dollars. You still have to have your land and then you put in foundation.

Eve: [00:05:59] Right.

Scott: [00:06:00] But depending on where you are in the country, you could be on the ground for 100,000, plus your land.

Eve: [00:06:09] Yeah. You know, I built a tiny house in Pittsburgh and that's pretty well, what it cost me was a bit smaller, but the land was the killer because it was on vacant city land and that was an old basement for the house in the land. And we had to dig it out and remediate it. And that cost more than the actual house.

Scott: [00:06:30] Yes, that's typically the case.

Eve: [00:06:33] Yeh, So you have to plan carefully, right? It's great that you're evolving and with the goal of keeping prices down. And what do these homes look like? You said, there's a typical, did you say two bedroom, one bathroom ... or was it one bedroom, one bathroom house?

Scott: [00:06:50] The base model is two bedrooms. One bath.

Eve: [00:06:53] Ok.

Scott: [00:06:53] Has a full shower.

Eve: [00:06:54] Yes.

Scott: [00:06:55] And then it has a large kitchen area, and that leads right into the living room. So, when you walk in the home, you walk right into this 16 foot wide, 20 foot deep space that has your living room and kitchen in it. It feels very homey.

Eve: [00:07:15] Mmhmm. And what happens if someone wants extra bedrooms? How do they add them on?

Scott: [00:07:20] We just add another container onto it. We can get up to four bedroom, two bath.

Scott: [00:07:24] Ok, so that's pretty, pretty simple. And when you do the steel frame system, you'll have a little bit more flexibility, right?

Scott: [00:07:33] Yes. We'll be able to go a little bit wider. So, we're still deciding between a 12 and 14 foot module, but it'll make a world of difference.

Eve: [00:07:43] Ok, and who do you sell these to? I was reading that you only sell to organizations, not to individuals.

Scott: [00:07:50] Yeah, our goal is to partner with like-minded developers, foundations, possibly other builders. We go through so much effort to build a product that is high performance and healthy, and a business culture that comes along with that, and capping our margins. We haven't talked about that yet. We cap our margins to keep our pricing down.

Eve: [00:08:19] Mm hmm.

Scott: [00:08:21] And what we want to do is work with partners that are going to take the product from us and continue that impact all the way to the end customer. We don't want somebody coming in along the way and taking that margin that we worked so hard to keep down.

Eve: [00:08:44] Yes.

Scott: [00:08:45] So, That's why it's really important for us to align with like-minded people.

Eve: [00:08:51] So, what sort of organizations have purchased these so far? And I suppose they're purchasing them in bulk. So, who lives in the homes? Today?

Scott: [00:09:01] Our first two, and we're heading into our third and fourth with them, is a charity. LEAP charities, led by Bart Cochran. And Bart did something amazing. He built the first 'extremely affordable,' so, we're talking 30 percent AMI, it's the most underserved group of people in this country, with healthy, high performance homes. And then he made the community net zero energy by putting solar panels on all the roofs. So, he has demonstrated the ultimate community is possible, that we can build high performance, healthy communities and serve everybody in the income spectrum. It's beautiful. And so, we did a small community with him called Windy Court One. He built a Windy Court Two right next to it. So, he even made the community bigger. Right across the street, he's putting in, I believe it's a 12-block subdivision. And you can see he's just going to grow off of this.

Eve: [00:10:11] Mm hmm.

Scott: [00:10:12] That's the like-mindedness that we do our darndest to connect with.

Eve: [00:10:19] And so where else in the country, like what other organizations are you connecting with?

Scott: [00:10:24] Well, some of the biggest names are Chan Zuckerberg Initiative, are you familiar with Chan Zuckerberg? So they're one of our partners. Northern Trust, Gary Community Investments out of Colorado. Enterprise. And there are several more.

Eve: [00:10:44] So, it sounds like you're going to explode ...

Scott: [00:10:46] Well ...

Eve: [00:10:47] ... building these little things

Scott: [00:10:47] We have our second factory in Pueblo, Colorado, and it's actually four times the size of our first factory here in Boise. You know, our first factory is 20,000 feet. It only has one line in it. It's more of like our R&D line, as we like to say. But Pueblo is 100,000 square feet with four lines. And that's what we are modeling all of our factories off of. And we have a minimum of four to six other partners that are inches away from pulling triggers in Northern California, Southern California, Virginia and Florida. And others on the way.

Eve: [00:11:38] So, with all these joint venture factories, like right now, how many of these homes are you manufacturing, and how big do you hope your production numbers will grow?

Scott: [00:11:49] Well, right now, it's estimated that each line will produce about four modules a week, which is on the low side. And if you scale that across eight to 10 factories, that'd be about eight to ten thousand modules a year, which would be equal to about an average of, say, so half that. You start to put modules together, you know, four to five thousand homes.

Eve: [00:12:20] That's pretty good.

Scott: [00:12:22] Yeah.

Eve: [00:12:24] What's the biggest challenge you have in scaling like this?

Scott: [00:12:29] It's actually scaling the business. It's scaling the the inner workings and the processes and procedures of all of this, you know, as it scaled? That seems to be our biggest challenge. Here's the amazing thing. We have zero dollars in outbound sales marketing. Zero. We have over 700 million dollars in our sales pipeline.

Eve: [00:12:57] Wow.

Scott: [00:12:58] So the sales and the inbound traffic is not the problem. There's no problem there. Our product is in high demand. It's just getting all of the inner workings to flow a little bit better as we scale. But typical, I mean, this is the definition of, you know, a startup and scale.

Eve: [00:13:25] Mm hmm. So what led you to start IndieDwell.

Scott: [00:13:27] Oooo. Love this question. I've been in the construction industry for approaching 30 years and the last, well, starting in like 2003, I actually left my engineering career. I was a, I was a chemical engineer, for my passion in building and homes and architecture. And I started my own company, name of that company, Flynner Design and Build. And that company became the Boise Valley's, you know, green builder. Healthy, high performance custom homes. And I, because I coupled my passion for design and architecture and construction with chemical engineering, which is heat energy and mass transfer. Well, that's what a home does. A home is constantly transferring heat, energy and mass. And that's at the core of energy efficiency and comfort. That's what it is. And that's what drew me into becoming a net zero energy builder, and just known as a green builder. The Flynner Homes cater to say the top 10 percent. Right? I put a question on myself, what would it take to put everybody on the income spectrum into a Flynner home? And that's where IndieDwell came out of that question. And I had to figure out how to disrupt the typical construction business in ways to make that work, and one of them was how we incorporate as a corporation. We became a public benefit corporation. And really, that's the heart of everything here. It's, you know, typical corporations are inherently bound to maximize profits for its shareholders. That's its job. A public benefit corporation, we're still a for profit company, so it's still business 101 at its core, but we are here to maximize our impacts on all of our stakeholders, just not our shareholders. And so when we look at it through that lens, it just opens our eyes to all of the possibilities of what business can have on impacting society and the environment positively. And that's what's brought us here today.

Eve: [00:16:06] That's pretty great. You know, my husband also got a background in chemical engineering, but he ended up becoming a philosopher of science instead.

Scott: [00:16:14] Well, we could talk that, too, if you want, but ...

Eve: [00:16:18] So, careers are meandering, aren't they? And everything you learn is useful in the end. And so, like, how long did it take you to produce your first ten homes?

Scott: [00:16:32] Oh, my gosh, this is starting a manufacturing process from scratch ...

Eve: [00:16:40] I can only imagine.

Scott: [00:16:41] ... isn't the most efficient thing today. We measure our throughput in days. You know, how many modules can we get through a day. I think when we first got started, it was almost two and a half years ago, it was how many weeks, if not months, I think it could be months, to get the first ...

Eve: [00:17:01] Yeah.

Scott: [00:17:01] ... home through.

Eve: [00:17:03] Yeah.

Scott: [00:17:04] And I mean, you just look at our efficiency curve and we're being close to where we want it to be.

Eve: [00:17:10] That's fantastic. What's your big, hairy, audacious goal then?

Scott: [00:17:16] Oh, it's really to demonstrate that when you put all of your stakeholders first. All of them. That not only are you more satisfied, but everybody you touch is fulfilled. Right? And so, you don't have to be a manufac ..., you could build any widget or have any service to have a company that impacts every person and place and thing's life in a positive way.

Eve: [00:17:55] I mean, that's an interesting statement because, you know, I think that's probably the difference you're talking about between a public benefit organization and a regular corporation, because most people would have a goal, like 50,000 homes a year. But your goal is to put people first, right?

Scott: [00:18:17] Yes. And when you do that, all of the metric goals come out of that.

Eve: [00:18:24] Yes.

Scott: [00:18:24] Right. But this is the, this is the foundation, the human connection, the, that creates all of those metrics.

Eve: [00:18:37] Yeah. So, just shifting gears a tiny bit. Are there any current trends or innovations in construction or real estate development that you think are really important for our future?

Scott: [00:18:51] Well, being a building scientist, because I can couple my engineering with construction. So as far as assemblies go, is understanding how to use less material and achieve the same outcome. For instance, our container home, we've got, it's what is known as a double thermal break. It means that ...

Eve: [00:19:16] Mm Hmm.

Scott: [00:19:16] ... it's hard for energy to get insi ... from outside and in, and inside and out. And because of that, we get to shrink our wall down to four and a half inches instead of a typical five and a half inches that a two by six would deliver.

Eve: [00:19:32] Mm Hmm.

Scott: [00:19:32] Right? So how many more areas can we do that in? What is available to use less, but achieve equal or more?

Eve: [00:19:43] Right, because that translates into cost savings, right? And ...

Scott: [00:19:47] Costs ...

Eve: [00:19:47] ... material savings and everything else.

Scott: [00:19:50] That's, yes, absolutely. Less waste. You know, and on that front, it's, you know, generally, it's how efficient can you become and waste as little as possible, if not zero waste, which we're working towards that, too.

Eve: [00:20:09] I have to wonder, like, you're creating this enormous production line and, have you thought about anything else you might produce on it? You know, once you have a system in place.

Scott: [00:20:19] You know, we we have this book that we pass around. It's about manufacturing. And it's this particular book is specific to modular manufacturing. But the author in his first paragraph says, 'I've spent many time in all sorts of manufacturing processes like automation and pharmaceutical and aeronautical.' But he said, 'the hardest one by far is building homes.' So, are all of our efforts are going to be put into how to build the most efficient home in a manufacturing process. And for us to run other product through it is just not even discussed.

Eve: [00:21:00] Distracting.

Scott: [00:21:02] Oh yeh, plenty.

Eve: [00:21:04] Well, what's next for you? Besides focusing on this for the next few years?

Scott: [00:21:10] Well, you know, so I'm the chief impact officer. I ran the company for the first four years, say I was the CEO, and then we put an amazing person in my place, Christina Ortiz, and she's doing a fantastic job. I couldn't ask any more out of her. And I took the role as the chief impact officer. So, you know, we're looking at culture, going back to the people. How do you inspire the people? How do you, you know, we say that we have workplaces of safety, support and trust, and a culture of inclusion, diversity and equality, or equity. And so, my job is to make sure all of that is going into place, so that we do protect one of our most cherished stakeholders, which is our teammates, and I say teammates, because everybody at IndieDwell is an owner. We all have shares in this company. So, you can say it's an employee-owned company.

Eve: [00:22:16] Mm hmm.

Scott: [00:22:16] So, everywhere along the line is like, where can we add more inclusion? Is everybody being heard? And do they know that everybody from the top actually cares about them and cares about everything that we touch, and making sure that message is driven home. And we're not going to get it perfect all the time. There's a long road ahead to make sure all these trainings and programs are put into place, but, you know, we'll keep pushing forward and continuing to elevate it.

Eve: [00:22:56] Well, Scott, IndieDwell sounds like a fantastic company, and I can't wait to see how it grows and evolves. And it's very exciting. So thank you very much for sharing with me today.

Scott: [00:23:08] You are so welcome.

Eve: [00:23:19] That was Scott Flynn. His winding career has taken him from chemical engineer to home builder to home manufacturer. He calls himself a building scientist. But while Scott is focused on reducing building costs and unpacking the science of building homes, I hear quite loudly that first and foremost, he's focused on people. He wants to build homes that everyone can afford. But he also wants to build a company that makes a difference in each employee's life. And he's doing that by providing ownership for all employees in the company that he's building. You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Scott, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Annie Donovan, COO at LISC, an organization deeply rooted in the community. Annie has built a truly remarkable career in community investment by embracing a pursuit of fairness in economics and finance. She found her way to this mission through her roots in Pittsburgh, growing up in a working-class family where she was exposed to ideas of social justice early in life. In no particular order, she has served as a senior policy adviser in the Obama administration's Office of Social Innovation, as the CEO of the social enterprise, Core Metrics, heading the Community Development Financial Institutions Fund, and she spent two decades at Capital Impact Partners, all before taking over as COO at LISC. Be sure to go to EvePicker.com to find out more about Annie on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:39] Hello, Annie, I'm really honored to have you on my show and pretty excited to talk to a fellow Pittsburgher.

Annie Donovan: [00:01:46] Well, thank you, Eve. I'm very happy to be here and I'm always thrilled and delighted to talk to Pittsburghers.

Eve: [00:01:55] Good. So, the first question I have is actually about Pittsburgh. So, you grew up in Pittsburgh, and I'm wondering how that shaped the way you see the world.

Annie: [00:02:04] Thank you for that question. It very much did shape the way I see the world. Well, first of all, let me just tell you a little bit about my context. I grew up on the North Side of Pittsburgh. From an Irish Catholic family, I am the 10th of 11 children.

Eve: [00:02:19] Wow.

Annie: [00:02:19] My father's family, so he was first generation American. His parents both came from Ireland. They actually bought a house on the North Side. So, the way that my, my parents were actually able to afford to raise a family that big was because my grandparents passed their home on to my parents. And so they never had to pay a mortgage. So, yeah. So, that's how we sort of made ends meet economically, and, you know, were able to create some mobility in our family.

Eve: [00:02:58] What neighborhood was that?

Annie: [00:03:00] Brighton Heights.

Eve: [00:03:01] Brighton Heights. Ok.

Annie: [00:03:03] But the things about Pittsburgh, you know, when you're from there or when you've lived a long time there, you know, Pittsburgh can take a hit for, you know, being provincial. And that's certainly the case. I mean, in my parents' generation, my parents had an ethnically mixed marriage because, you know, my father was Irish, and my mother was part German. But in their generation, people even went to church based on ethnicity. So, you know, so there's a lot of that sort of ethnic pride and it can feel a little provincial. But Pittsburghers are also very unpretentious and very warm and open hearted, I think, and just possess a lot of resilience and, you know, grit. Those are qualities that I'm very proud to have had instilled in me growing up that I've relied on throughout my career.

Eve: [00:03:58] So, you know, I think also what I noticed in Pittsburgh and I heard stories about the steel mills actually purposefully separating neighborhoods into ethnicities.

Annie: [00:04:09] Yes.

Eve: [00:04:10] And that sort of prolonged that here.

Annie: [00:04:13] Yes.

Eve: [00:04:13] And it's made the city architecturally interesting ...

Annie: [00:04:15] Yes.

Eve: [00:04:15] ... because the neighborhoods are really distinctive and unique ...

Annie: [00:04:20] Yes, yeah, very much so.

Eve: [00:04:21] ... and look very different. It's fascinating. And then, of course, there's the managers neighborhoods and the steelworker neighborhoods, so you know ...

Annie: [00:04:28] Right. And you know, interestingly, what happened in my family, I grew up in a working-class neighborhood and it was very working class. My father actually went to school at night and earned a college degree from Duquesne, and he was the only person in the neighborhood who had a college degree. And he was an accountant. He worked for the Allegheny County. So, we had this interesting blend of, you know, when our country was experiencing sort of white flight. Right, so lots of white folks moving out to the suburbs.

Eve: [00:05:03] Yes.

Annie: [00:05:03] And those white folks moved out and then they went on toward more upward mobility. And we stayed in the working class neighborhood. But we were still, in my family, able to experience upward mobility because we owned our home. And my father had a college degree.

Eve: [00:05:21] A degree, yeah yesh, yeah. What led you into the world of community finance?

Annie: [00:05:25] I had always had, I think, a heart for social justice work. I thought a lot about poverty, and I thought a lot about the kind of injustices that were in my world growing up. Of course, I was born in 1964, Pittsburgh being, you know, not only ethnically divided, but lots of really hard lines around racial division, as well.

Eve: [00:05:54] Yeah.

Annie: [00:05:54] And I have to say, I have to hand it to my mother, because when we were growing up, this is probably the mid-70s and my brothers ... well, so, in my family, there are six girls, and then three boys, me, and a boy. So, it's almost like having two generations, you know. And I grew up with the boys. They wanted to start a street hockey league. And you know so, of course, I was out there playing street hockey with them. I'm a Title IX gal, and they were looking for a coach. And so they put an ad in the newspaper and a guy responded to it. And his name was Curtis. He was from the Hill District. And of course, the Hill District is the historically Black neighborhood. And so they signed him up and he came over to Brighton Heights, which was a very white place, and coached the street hockey team. For me, you know, they just got me thinking about, like, why why do we have these divisions? And I have these ideas of what people from from Black communities were supposed to be like. And he wasn't like that. He wasn't like my image. And my mother, you know, they'd play street hockey and it'd be time for dinner, and of course, whoever was around my mother invited in for dinner. So, often times Curtis would eat dinner with us. When we said Grace before dinner, the way he bowed his head and prayed, you know, it just struck me that everything I'd kind of learned about our Black neighbors I didn't see in him. And so this is what got me thinking, like, what was all that education about? And so I've always been on a quest to understand what these racial lines are, too, and what the class lines are. And so, you know, I studied economics in college. Early on in my journey there was a 101 economics class and we were learning about rational thinking and optimization.

Annie: [00:07:53] And I remember thinking, well, this isn't really a fair way to allocate resources across a society. And so I said that to my professor afterwards, who was, you know, a classically-trained economist who was like, Chicago School. And he said, well, this isn't about fairness, it's about efficiency. And that was like, OK, I've found my mission. And so, you know, and then I joined the Peace Corps, went to the Peace Corps after college. You know, lived in a very poor place. And then, you know, then it really sunk in because the people that I lived around were supremely resourceful and smart and really dirt poor. And so, what was that about? So, that's when I became sort of even more fiercely committed to it. And, you know, that's so, that's been the pursuit of my career since then, is how do we use the tools of economics and finance, and how do we rewrite them in a way that produces a more inclusive prosperity, because we are leaving a lot of talent on the table.

Eve: [00:09:10] Ok, so you've had some really big roles from the White House to the head of the CDFI Fund. And now you're at LISC. And I'm wondering, I'm familiar with LISC, I actually benefited from a loan from LISC years ago ...

Annie: [00:09:23] Good.

Eve: [00:09:23] ... for one of my projects. And I'm wondering what brought you there.

Annie: [00:09:28] Yeah. So, what brought me to LISC was, so after my experience at the CDFI Fund, I knew I wanted to go back into practice, because that's kind of where my heart and soul lies. And so, one of the characteristics about LISC is that it is very committed to local – 'local initiatives' is part of our name. And I wanted to be in a place that was toiling more closely to the ground. You know, we have local offices, we have 35 and growing, local offices that really are programmatically focused and focused on capacity building alongside lending. And so, that's where I saw the ability to more closely connect those pieces and not just be finance oriented. But to get deeper, closer to the community. And then the second thing was I saw in Maurice Jones, a leader in our industry who is boldly ambitious, is ambitious for the sake of impact, and I was attracted to that as well. So, yes, so that's what drew me to LISC.

Eve: [00:10:41] Then like about community capital, what does community development capital look like today versus 20 years ago?

Annie: [00:10:49] Yeah, that's a really good question. So, I think 20 years ago, if you think about, or even 25 years ago, you know, the sort of the history of community development or community capital, community investment ... The community investment world, really, it braids together organizations and institutions that come from different origin stories. So, there's the origin story of the black-owned banks and minority depository institutions that got underway right after emancipation, for Black Americans to build wealth. There is the credit union movement that was tending to people of modest means who wanted to come together and save together and, you know, have access to financial services that were owned and controlled by them. And then you had the nonprofit loan fund world that emerged because community development really took shape in the war on poverty and the commitment of the federal government to funding community development corporations. There was an era there where there's a lot of federal funding, and we can talk about urban policy and how that, you know, CDCs kind of shifted urban policy. But then in the beginning of the Reagan era is when the feds really pulled back. And that's when loan funds really started to emerge to say, well, we have to create new ways to finance the activity of community development. And that's when the loan funds really started taking root. And then when Clinton came into office, he created the CDFI fund. And that has been a really important policy innovation, still as a policy innovation today, that has been investing the kind of equity capital that the industry needs to grow, that you can't really get anywhere else.

Annie: [00:12:46] So, the industry has really blossomed, partly because we had good seed capital and partly because we just have been a bunch of people who have had a faith in the people and the communities that we're investing in and have found a way to work with traditional and non-traditional sources of capital, to blend them in a way that allows investments to work in, you know, places where, you know, my old economics professor would have said you wouldn't invest in because it wasn't efficient, the rate of return wasn't commensurate with risk, and all those sort of traditional measures, you know, that's the reason capital doesn't flow to some of the communities that we care about. And we are becoming more mainstream. And even though we're still a tiny percentage of the financial services sector, I think through, even through the pandemic, you start to see CDFIs emerge, getting more attention in mainstream media. And certainly LISC has gotten a lot of, we've been able to raise a lot of resources through this pandemic because there's a recognition, and we've not only done the investing and gotten the money there where people said it can't go, but we've done it financially in a fiscally responsible way. So, we've proven that the places and the people we're investing in are creditworthy. That has allowed this industry to grow. And I think it's going to continue to grow. I'm optimistic about that.

Eve: [00:14:19] Years ago, I helped found a CDC in Pittsburgh. And what was really fascinating to me, because I was pretty new here and I didn't really understand this lay of the land very well, you know, I sort of dropped in from another country. But, you know, all of the work we did was to get us to the same place as neighborhoods and places that were doing OK. And I've been in, I've been in this work for a long time and we never seem to get there. And so, I'm wondering, you know, because when you take a step forward with CDFIs, and maybe this is, you know, a really naive way to look at it, but you take a step forward with CDFIs, and you take a step back with banks who no longer really want to bank in or lend in communities, or want more equity or want, you know, more traditional products to lend in, and it's just this never ending catch up, so, how does it all get better.

Annie: [00:15:30] Yeah. So, of course, I, I've been doing a lot of thinking about this and I think a lot of, a lot of folks have been soul searching around this, particularly because of the uprisings, demanding more, you know, racial, that we address racial equity. And so, it does often feel like, you know, some days it really just feels like we are just doing the work of bandaid, you know, putting bandaids on things. And that's, that's where I think this the work right now is really important because we can't be satisfied with what we've done because it's clearly not enough. And, but I think we are in a moment that we have to take, make the best use of, because we can't do this on our own, as our, with our little bitty organizations. And even if we're a billion dollars or two billion dollars or 10 billion dollars, we're still to itty bitty to to create change on the scale that needs to be, that needs to happen. But that doesn't mean this stuff shouldn't happen. And it's, and it does have to happen because even over my career, you know, 25 years ago if somebody had said that you'll be working for a CDFI or you will help the, you know, build a CDFI, that will get to be a billion dollars. You know, wow, that would have been, because we, these loan funds were starting at, they just wanted to get to 10 million, you know.

Eve: [00:17:04] Right.

Annie: [00:17:05] And and we we wouldn't be we wouldn't have the opportunities that are in front of us now if we hadn't taken all those baby steps to get to here. So, over the long haul, you know, I hope that we can get there. But, you know, there's the bigger, we have to be able to impact the bigger picture. And, you know, for example, it was discouraging to me when I was at the CDFI Fund, and the second two years I was there under this administration that, you know, that a tax policy got, got enacted that just, you know, felt like it was going to undo everything that we were trying to do. So, there are these macro forces that, you know, that we have to try to turn the tide on.

Eve: [00:18:04] Yeah, that's depressing. But I know (laughter) but I know it's a really long patient game because I've been, I've seen that, you know, on things I've worked on that initially were like, what are you doing? You're nuts to now being, OK, this is mainstream. Like co-working or lofts downtown or revitalizing downtowns ...

Annie: [00:18:27] Exactly.

Eve: [00:18:27] ... or all of that. And we're actually ...

Annie: [00:18:29] Exactly.

Eve: [00:18:29] ... I think you're right. We're in a moment. All of the progress we were heading towards has been unbelievably compressed by everything that's happened this year. So, maybe that's a good thing, but ...

Annie: [00:18:44] Yeah, and I think that it's also very complex too, right? Because, even we see in some places tremendous progress running exactly alongside of things that feel like tremendous regression ...

Eve: [00:18:56] Yes.

Annie: [00:18:56] ... you know, so, and both of those things are happening at the same time.

Eve: [00:19:01] Well, what's ... I'm going to ask you, may not know the answer. But I really puzzle about what's happening in traditional financial institutions. So, you know, I have this crowdfunding platform and what's been startling to me and, you know, and our purpose is to help raise money for creative change-making projects and help developers get a little equity together, that seems to be a little more and more equity every year as banks change their position on what they lend for. Because we think that creative, those projects are important for making cities better. B

Annie: [00:19:41] Yeh, yes.

Eve: [00:19:41] But it seems to me that they're retracting even further because we're just being flooded at the moment, and equity requirements go up. It just seems to be harder and harder to borrow money, to do things, that are different than the things we have today. And we know we need to do things differently to fix some problems.

Annie: [00:20:09] Yeah, yeah. Well, the way I think about this and what I see from my perch is that I think that we have to, we have to start thinking about the world beyond banks, and, you know, think about and work hard on this, you know, the idea of having broader stakeholders. I mean, banks have been brought to the table on community finance because of the Community Reinvestment Act.

Eve: [00:20:45] Right.

Annie: [00:20:45] And so, so what are the ways in which, you know, there might be policy levers that need to be pulled to get more folks to the table. But also, you know, what the next generation of employees and employers, I mean, I think that we're in for change and I'm really hoping that we're in for change with the next generation of leaders. Because they have been raised with different expectations and they are already changing, corporate, the way ... corporations are reacting. And you see now, you know, we've been the beneficiary of, you know, almost a 100 million dollars in corporate contributions that are going out to small businesses, as, you know, in this pandemic, in the form of relief grants.

Eve: [00:21:44] That's pretty fabulous.

Annie: [00:21:45] And what we did was, the first one that came in, the first corporation that came in and said, can you do this for us? And we said, yes, we can do it for you, but we're going to do it in our LISC way. And that means we are going to get to community-serving businesses that are majority-owned by people of color and women. And they said, OK, cool. Go ahead and do it. So, you know, and then the next company that came in said we want to buy that, we want to buy, especially as PPP, the paycheck protection program and SBA, major piece of the the CARES Act, you know, was clearly written in a way that was just going to follow the old rules for how you distribute capital. And then people started saying, wait, wait, wait, there has to be other ways to do this. And so the work that we were doing was tipping the scales. We put our thumb on the scale in favor of community-serving small businesses and gave preference, and we're ending up with, you know, somewhere in the low 90 percent, of the businesses that we're funding, are owned by people of color.

Eve: [00:23:04] That's pretty great.

Annie: [00:23:05] And yeah, and in the paycheck protection program, we got to about 80 percent of our companies being minority women- and women-owned companies. And when you put together and in the, on the private sector side, our formula was where we're going to advantage certain census tracts. We're going to advantage minority ownership and women ownership, and we're going to advantage certain size. So, when you line all those up, it's not that hard to come up with lots of folks to invest in. And that's where our money's gone.

Eve: [00:23:43] So, another question I have is looking at the other side of it. If a real estate developer has access to community capital, what should her reciprocal responsibilities be to that community?

Annie: [00:23:59] I think that's really, really very important because, and we have to all get better at this as well, in terms of how we doing community engagement, and how we're bringing people into ownership of what happens at the community level. And so I think, you know, there are just these models and this seems to me to be what's out there on the fringe right now, you know, and it's always what's happening on the fringe that's eventually going to be where where we all go, hopefully. But what I see is, I've been been advising on a project that's being done by a foundation of philanthropy. It's not a traditional philanthropy. It's one of the newer philanthropies. And they are, they're going to do they're investing in a real estate project in a very, one of the most distressed census tracts in Washington, D.C. And they are bringing together community stakeholders to say, how do we create a vehicle for people who live in that community right now before the development happens? How do we create a vehicle for them to invest in it and to get ownership in it? And those are, I think, the kind of strategies we need to be thinking about. You know, how do we, because otherwise if you just let this play out via market forces, you get gentrification a lot of times.

Eve: [00:25:40] Right, right, right.

Annie: [00:25:42] So, you know, we don't want to go in that direction. And that that means giving people real ownership stakes.

Eve: [00:25:48] I mean, I agree. That's what we at Small Change, I'm having similar conversations with some very large developers who are starting to think about that ownership piece, in really humongous projects in D.C. and New York. And it's really exciting to see that people are thinking about it. It is hopeful.

Annie: [00:26:08] So, yeah. And if you think about like, so, another example, and this is not at the project level, this is at the fund level. But, you know, we're managing we're going to be managing money on behalf of Netflix. And Netflix went out, and this was somebody inside Netflix who said, you know, in their treasury department, why are we sitting on all this money and not thinking about where it's invested? Why don't we get this to black-owned institutions and, you know, and that, and that's when, so, you know, like back to your question, when are we ever going to see this get better? I mean, that's when it's going to get better, right? When that person inside that corporation goes to the CEO, and the CEO says, yeah, absolutely, why aren't we doing that?

Eve: [00:26:53] Yeh, yeh.

Annie: [00:26:53] And then you put it out there. And once, when Netflix put that out there and they made the investment in us, we had so many corporations respond to say, well, how do we do that, too? So, that's what we have to do. We have to create the bandwagon. But the bandwagon that's moving money in this direction.

Eve: [00:27:12] Yeh. Yeh, yeh. So, I mean, how would you define impact investing then?

Annie: [00:27:20] Ok, so impact investing to me, I always define it as it's a spectrum, right, because I like I think it's important for all of us to have a big umbrella and be inclusive. Right? And on one end of the impact investing spectrum are the folks that would say, you know, you can invest, and do good and do well at the same time. Right? And there's not really a trade off. And then the other end of the spectrum is, you know, where my work has always been, which is on the whether you call it concessionary or catalytic capital, where you're trying to, because on that that first end of the spectrum, you're not disrupting any kind of the market forces. You're sort of saying the market can do this, but there's something missing in terms of information flow. So, if everybody had perfect information, then you know that that would solve the problem. So, I've never bought into that because I don't think that it accounts for the systemic racism that exists in our society and in our economy. And so, I think you have to be more disruptive than that. And that requires capital that, that is, that can be designed in a, and stacked and engineered in a way that allows more people to get access to it, to do the kind of projects, to create the kind of businesses that are going to let them into, you know, more economic activity. So, yeah. And my dream is always in my work is always trying to think about, how do we get the people who are on one end of the spectrum down toward the catalytic end? Because if you want to disrupt poverty, you can't do it on the market end, purely market end.

Eve: [00:29:28] No. Interesting. I mean, impact investing has been growing, I still think it's small. Do you expect, I'm, I suppose I'm wondering if you expect this, the events of this year to rapidly increase interest in that, too. Well, certainly if you see it from Netflix.

Annie: [00:29:52] Yeah, I think I think it is. And I think the question is, you know, the question that's on our mind at LISC is how do we, how do we convert the short-term interest into long-term relationships. Because, and how do we get people to see? Because actually, frankly, in the short run, it's good for a corporation's brand to step up and do this kind of work.

Eve: [00:30:17] Oh, yeh.

Annie: [00:30:17] I mean they're ... Yeah, and there's not really much at stake there. And frankly, you know, they could direct, if they wanted to, they could purely direct this out of their PR budgets.

Eve: [00:30:28] Yes.

Annie: [00:30:29] You know, and so how do we, how do we, you know, convert people to the long-term play? That's the work that's in front of us right now.

Eve: [00:30:40] Right. So, Just shifting gears a little bit, how, you know, what do we need to think about to make our cities and neighborhoods just better places for everyone?

Annie: [00:30:55] Yeah. I think that we have to, we have to think comprehensively, first of all. So, I don't think, that's the other another reason that I wanted to join LISC is because I like the comprehensive approach. Because I don't think there's any one dimension to neighborhood life that is a silver bullet. Right? So we have to invest more in education and housing stability is fundamental to economic mobility. And so, we have to invest in all of these things. And, you know, back to, back to the big picture of tax policy and how we tax and spend. I do think we just, the thing is, we know exactly what we need to do.

Eve: [00:31:54] Yes.

Annie: [00:31:55] We just have to invest in it. Right? We know the payoff of early childhood education. We know the payoff of education in general. We know the payoff of preventive health care. So, you know, what more evidence do you need? We just need to have the will and the commitment as a society. And once that's there, I think everything else follows.

Eve: [00:32:24] Yeh. And I see physically, too, we know the payoff of neighborhood parks and better streets and better lighting and all of those things that everyone wants in their own neighborhood. And some people don't have.

Annie: [00:32:39] Right. And we have to develop we have to develop our collective will to say that that's not OK. That's not the world we want to live in.

Eve: [00:32:49] So, what community engagement tools have you seen that have worked that, you know, you mentioned that that's a critical piece of it and that's hard.

Annie: [00:32:59] It is hard. It's hard for a lot of reasons, one of which is that when community developers who don't know community, if they don't know the community, if you're coming in to this, you know, as a sort of professional, you may have certain assumptions about what people, and I think one of the things we make a mistake on this all the time, like what does the community want? Well, you know what? Not everybody in the community agrees on what they want, just like, and just like in your community, you know.

Eve: [00:33:35] Yes.

Annie: [00:33:35] So, I think starting with listening, and being open is really, really important. And so, I mentioned a, you know, the project where, you know, in Washington, D.C., where the funder was coming in and actually saying, OK, we want to do, we want the result of, to be that people have an ownership stake. But why don't we find out from the community what that means to them, how they would do it? What, is that what you, is that what's really wanted? You know, so I think, you know, good community engagement starts with listening, not making assumptions and and bringing people in and just providing the space for voices to be to be heard and listened to. And, you know, just having a faith in that. That that's, you know, that that's going to going to lead you down the right path is a good way to get people involved. And I think that also, you know, when I started my career, after I got back from the Peace Corps, I went to work for the Campaign for Human Development. And in that work, we funded a lot of community organizing. And the ability of communities to organize themselves is also an important piece of this. Like the, there's very little investment that goes into community organizing. And I think that's a really important component.

Eve: [00:35:24] You know, that's what I was just going to say, because I think about, like when you're a very large developer doing a large scale project, you can absorb that community organizing piece.

Annie: [00:35:35] Yes.

Eve: [00:35:35] But when you're a small developer doing like interstitial projects that are, you know, fit into a neighborhood, that becomes a pretty heavy lift in terms of resources ...

Annie: [00:35:46] Exactly.

Eve: [00:35:46] ... and there to help, and how do you get that done properly. It's really, it's hard. It's hard.

Annie: [00:35:53] Right. Right. And it's also, you know, and we need more philanthropy dollars in that because that's a really hard role for government to play. And we administer a lot of Section 4 money, and that's out of the HUD budget, and that's for capacity building of local organizations, and, tt's really hard money to work with.

Eve: [00:36:16] Yes. Yeh, yeh.

Annie: [00:36:16] You know, it's, so there's a need for investment in, of flexible dollars into neighborhood organizing and leadership development.

Eve: [00:36:27] Yeah, no, I agree. So, what's what's next for you and LISC? I mean, what do you think the next five years will look like in this pretty fast-moving time that we're having here?

Annie: [00:36:40] Yes. So. Well, I think that we are on a pathway, move, you know, moving to the next level of growth and scale. And for us, that's about how do we, how do we use the assets that we've built so far to get to the next, to get to that next level? And I think for us, you know, putting impact first, you know, the racial equity piece of this is really important. And I think, I am very hopeful that we are going to be able to do the deeper work there, that we're going to, you know, take, choose the pathway of doing the harder, deeper work. Because the long-term outcome is going to be better. And we're going to, you know, try to bring our partners along for that ride. And I think that we are through this period, we have greatly increased our capacity to reach small businesses, and to think about inclusive economic development. How do we build the infrastructure for more inclusive economic development? And ecosystems that support community, small community-owned or locally owned small businesses? And, you know, and we have to be thinking about how are we disrupting systems? So, because we're at the edges of them now, you know, in terms of their usefulness and we have to build something that's built to suit, for the next level of scale. So.

Eve: [00:38:41] Thank you very much. I really enjoyed the conversation. And I can't I really can't wait to see what you build and where LISC goes and where you go with all this.

Annie: [00:38:52] Well, thank you and I love the work that you're doing, every dimension, you know, that, every strategy that brings in more capital and the, you know, more of the kind of equity capital that you're pulling in and democratizing that, I think is a really powerful strategy. And I also wish you the best.

Eve: [00:39:17] Yeh, all takes ... Thank you, Annie.

Annie: [00:39:19] Yes. I can't wait to. I can't wait to see that happening.

Eve: [00:39:22] Bye.

Annie: [00:39:22] OK. Bye, bye.

Eve: [00:39:29] That was Annie Donovan. Annie thinks we need to start thinking about the world beyond banks. We need to find a way to let communities invest in order to change how we tackle development. To give them a real stake in their own future. Listening is key, as is providing the space for people to be heard. For Annie, impact investment needs to have a big umbrella and be deeply inclusive. She also understands playing the long game, saying that we know exactly what to do, but that we need to develop as a society, the collective will to invest in that knowledge. You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today and thank you any for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:10] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Charmaine Curtis, who's had a significant career as a real estate developer on the West Coast. She owns her own company, Curtis Development and Company, and she's focused on impactful housing projects trying to crack the affordable in the land of unaffordable. But we're not video blogging, so you probably don't know that Charmaine has two strikes against her. She's a woman and she's Black. And if you've ever wondered what that's like, here's a chance to learn. Charmaine says that she didn't know what she was up against until she was in her 30s, when reality struck. "How much more personal wealth would I have, she wonders, if I were a white man?"

Eve: [00:01:12] Be sure to go to EvePicker.com to find out more about Charmaine on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform. Small Change.

Eve: [00:01:36] Hello, Charmaine, it's just lovely to have you on my show.

Charmaine Curtis: [00:01:40] Well, it's really nice to meet you.

Eve: [00:01:42] Yes, I hope we meet in person some day ...

Charmaine: [00:01:45] Me too.

Eve: [00:01:45] ... when this silly pandemic is over, right?

Charmaine: [00:01:49] Yes.

Eve: [00:01:50] So, I wanted to ask by, start by asking you what, what drew you into real estate?

Charmaine: [00:01:59] It was a very serendipitous and intentional way. I got a master's degree in urban planning from UC Berkeley with every intention of being a planner and, you know, doing my part to save the world. And then I got jobs as, not counterplanner kind of jobs, which is, I think that most people think of planning, they think of people who are sitting at a desk in a municipal building and, you know, giving people information about what they are or not allowed to do on their properties. I worked for the redevelopment agency in Berkeley. But my first job, first of all, was working for Libby.

Eve: [00:02:35] Oh.

Charmaine: [00:02:35] Doing market studies. Yeah. You probably didn't hear that part.

Eve: [00:02:39] No.

Charmaine: [00:02:39] Yeah. Yeah. So, yeah, Libby was the first person I worked for out of grad school.

Eve: [00:02:45] For our listeners, Libby, Libby Seifal heads up a growing women's development collaborative that we're both part of. So backgrounds. Go ahead.

Charmaine: [00:02:54] So. I went to work for the city of Berkeley, for the redevelopment agency, and I was just a young whippersnapper who threw out into the wilderness when they were trying to expand ... into a couple parts of the city. And, so I got chewed up in that process with very little support and realized I was really not interested in being a public employee. But I didn't know what I wanted to be at that point, because I had just spent these years getting a graduate degree. And then I serendipitously was introduced to a developer who was starting his own company and looking for a young whippersnapper to come and work for cheap and help him build this company. So, that's what happened, that, you know I kind of fell into the business, not intentionally, but through that introduction, which, which was great because I got to work on some super exciting projects in San Francisco that were really pioneering. And I got to learn the business, at least that side of the business. It was, it was a for-profit company converting loft buildings or warehouse buildings into lofts, which was a new thing for San Francisco, a very old thing for New York, but a new thing for San Francisco. So, that's how I got into the business. And I did that for a few years and really got, you know, sort of trial by fire, learning that, you know, all about entitlements and actually worked on one of the first low-income housing tax credit syndications in the country.

Eve: [00:04:32] Oh.

Charmaine: [00:04:32] We did all kinds of, it was just, it was a wacky thing. You know, some of it was consulting work that we did for others. But so, I got, I got a real broad range of experience in that, in that company.

Eve: [00:04:47] Kind of always the case when you're in a small company, isn't it? You get to do everything because there's no one else to do it.

Charmaine: [00:04:54] Yeah, and small was me and him. That was it was just the two of us at the beginning. And it was really, it was a great experience. And then it was a challenging experience as the company was growing. And I kind of felt like I was not able to grow as much with it at some point because other people were brought in. And so I decided to move on. And that was in the early 90s. And I decided I really wanted to learn the affordable housing side of the business and build some affordable housing. I mean, I was sort of, back to, you know, my part and trying to save the world, and I got a job working with an organization, it was called Catholic Charities at the time in San Francisco, but was later acquired, shall we say, by the Sisters of Mercy, who were starting their own development, affordable housing development, company, which is now, as you probably know, a pretty large national company, a non-profit, and based in Denver. And so that was really an interesting transition from being part of the male dominated Catholic Church to moving into the female dominated part, which was a revelation. And so many amazing, I mean, the women who were, who started that organization, including Sister Lillian Murphy, who died last year, I think, were just extraordinary women in every way, just in terms of their true passion for providing affordable housing and alleviating poverty, you know, trying to make a dent in poverty, not just, you know, putting people in buildings. And just because they were brilliant, you know, any of these women could have run a successful for-profit development venture. But, you know, they were nuns, and so they put their talents into building an operation to build more and more affordable housing, which is, now it's just, it's, it is, as I said, one of the largest nonprofits in the country. And, you know, that was also super informative experience for me. Also a burnout, because, you know, if you've worked in affordable housing, you know that at least here in California what it takes to put an affordable housing development together is like 10 pieces of funding, small pieces of funding from, from multiple sources and then trying to marry those sources. And the brain damage and the transaction costs of affordable housing is excessive. I was also, you know, I was being a project manager, and then I was, I was managing people, and then also managing projects, which just totally a recipe for burnout. You just can't do both.

Eve: [00:07:52] Right.

Charmaine: [00:07:53] I decided to take a break, and actually decided to go to film school, which I did ...

Eve: [00:07:59] Oh wow.

Charmaine: [00:07:59] Which I did well. And I went to film school at San Francisco State, and for a semester, and during that time, I was also working and doing consulting work for Mercy and others, and to support myself. It was something that I was passionate about, but it was also something that, you know, I didn't feel I had the financial bandwidth to pursue.

Charmaine: [00:08:28] I grew up in a working class family and I wasn't really intending to be a working class person, myself. You know, the goal was to move beyond that. And to do my family proud, and to do myself proud in terms of being able to do what all generations want to do, which is just do better than the one before or the ones before, especially when you're your Black person in in this country. And I had opportunities growing up because I was recruited into a program called A Better Chance. And I left my home in Cleveland to move to Minnesota where I went to high school for three years, and went back home on vacations. That program is a program that was founded on the East Coast back in the late 60s, early 70s, to identify promising young people, kids in inner city areas who were in crappy schools and to give them an opportunity to go to, initially boarding schools on the East Coast, but it expanded to the school like I went to in the Midwest, which was a public high school in a really wealthy suburb. So, I ended up getting into Dartmouth College after that. And so, you know, I was a smart kid and I had these opportunities and, you know, and I seized them. But, you know, getting those opportunities and taking advantage of them doesn't mean that you kind of leave behind all of your, you know, the baggage of coming from a family that, where my mother, everybody worked two or three jobs. And my mother grew up picking cotton in the South. And, you know, it's really not until, I would say probably in the last 10 years of my life or so, that I've really been able to sort of think about the impact, the sort of generational impact of, of poverty and, you know, slavery and racism in this country.

Eve: [00:10:29] Yeah, well, it sounds like in one generation you've come a long way.

Charmaine: [00:10:34] Indeed. I mean, I'm the one who from my immediate family that left Cleveland and, you know, kind of made my way in this insanely expensive world of San Francisco. So, after that, I kind of did some consulting on my own, and then when I went to work for a company, there was a for-profit developer. But they develop both market rate and affordable housing, which was kind of the best of all worlds for me. And I ran the multifamily part of that company and under a really great boss who is still somebody who I'm really close to. Art Evans, who was a, I think, a real visionary in the, in the field. And who came out of a redevelopment background and held that vision of both doing well and doing good. And I would say probably more doing good, ultimately. Art, he did a lot of really great work and ended up getting clobbered like a lot of people in the, in the Great Recession of 2008, 2009.

Eve: [00:11:36] Yeh.

Charmaine: [00:11:36] And then, I just did the addition the other day. I've been out on my own as long as I've worked for other people in the business. I've been on my own since 2004, and started out doing my own development, building condos in the East Bay and working on some stuff up in Seattle. And at the time I thought I had a financial partner who I thought was going to back my business, but that ended up not happening. And so I really ended up on a shoestring putting these deals together, between my own capital, and back in those days before the recession, you could do really high leverage ...

Eve: [00:12:11] Right, right.

Charmaine: [00:12:13] ... with participating debt and other kinds of financial participation by investors. And so, anyway, that was, that ended up being a, not a wise thing under the circumstances, which, of course, no one could have anticipated what was coming.

Eve: [00:12:28] No one. No one. That was a disaster.

Charmaine: [00:12:31] Yeah. And so, I built a couple of really nice projects that were in, what I would call transitional neighborhoods, which was the focus of my business plan, which was looking around the edges of, and looking at, you know, where people in San Francisco were fleeing to, frankly. Which was parts of Oakland and Berkeley, and seeing that those neighborhoods were ripe for ...

Eve: [00:12:57] Yes.

Charmaine: [00:12:57] ... change and also wanting to build an entry level product, not trying to ...

Eve: [00:13:03] Not luxury.

Charmaine: [00:13:03] ... not luxury, not, I would, I've never been interested in that, which I think was ultimately one of the reasons that my potential financial partner decided that he didn't want to invest in me, because I wasn't thinking that way. I wasn't thinking huge and expensive. My interest really is much more in transformation of neighborhoods in a relatively organic manner.

Eve: [00:13:26] And isn't that in the end, a little bit more recession proof, or a lot more recession-proof.

Charmaine: [00:13:31] Oh my God, if that was exactly my thinking at the time. Yeah.

Eve: [00:13:35] In 2008, 2009, I had a number of buildings in Pittsburgh that I had redeveloped, sort of against the grain. They were transformational. They were, I don't want to say luxury products, but they weren't affordable because I couldn't, just couldn't get the numbers right. But they were different. And honestly, I barely felt the recession. It was very odd because they were in underserved neighborhoods and places that most people weren't looking at, just as you said, on the edges. Right?

Charmaine: [00:14:05] Yeah.

Eve: [00:14:05] It was an interesting learning experience for me.

Charmaine: [00:14:09] Yeah. You know, if I'd been at a different stage in those projects, I might have been able to pull it out. But one was not yet complete. It was about 75 percent done. And the other one was basically complete.

Eve: [00:14:21] Oh yeh, almost done, yeh.

Charmaine: [00:14:24] We were just starting sales. So, it was, you know, lenders were not feeling it.

Eve: [00:14:33] That's really painful.

Charmaine: [00:14:33] Oh my God.

Eve: [00:14:34] Oh, that's painful, you know.

Charmaine: [00:14:36] It was awful. And it really, I think took me a good 10 years to recover both financially and emotionally from it. Frankly, it was really, it was devastating. It was, you know, I talked to, I was talking to one of the local developers here who's done well and I think comes from wealth. And that, he said to me we were at a conference or something and he said, I personally lost six million dollars. And I'm like, oh, really? Well, I kind of lost everything except for my house. And so, you know, sorry, but our pain is not equal.

Eve: [00:15:09] Yeh.

Charmaine: [00:15:09] So, it, yeah, it's, that's the difference, you know for me in a way that crystallizes the difference between being a Black woman who comes from where I come from, with my sensibilities. Right? Not just, I didn't get into development, too, I mean, I think maybe initially I did kind of get into development to become a rich person and, you know, prove that that's possible for a Black woman to do that in the industry. But it's the difference between being, you know, someone who doesn't come from resources versus someone who does. And who is then able to build more races on top of those resources, that provide the cushion that you need when the shit hits the fan. So. It was a crystallizing experience for me that way, in terms of, the just the stark difference. Everyone was not impacted equally by that. What happened, for sure. Since then to, that my daughters were born in 2008. I was lucky to, you know actually marry later in life and have these two girls with my husband. And that was 2008. While the world was crashing down around me, I was also pregnant and with twins and ...

Eve: [00:16:20] Oh!

Charmaine: [00:16:20] So, they were born in late 2008 and I spent the next few years just rebuilding, basically, and working on a really interesting project I worked on exclusively for a few years, which is a master plan and community work and both, internal community work with this public housing project in San Francisco and, and the surrounding community to re-envision what was a 600-unit project over 39 acres into what would be, what will be a 1600-unit mixed-income project and ...you know, in addition to working all the physical planning, working with the community to get their buy in and support, and working with the folks who live in the public housing to help them envision a better future, and to bring a new way of working with very low-income people. That's ongoing, and that is really, I didn't do on my own, or at all. There were many other people involved in this community building effort and really, in recognizing the trauma that comes with generational poverty and all the, you know, the things that happen to people who live in poverty and that keep them down. And so, that has been, and continues to be, a reasonably successful effort to lift, not just rehouse people in better housing, but to sort of lift them up and provide, protect the developmental health of the littlest ones, in particular, by also helping their parents.

Eve: [00:18:06] yes.

Charmaine: [00:18:06] So, that was a really great opportunity for me to do this amazing work on what will be a transformative project in that part of San Francisco. And now I am doing development on my own or with others and co-development capacity. And I'm still doing, I'm doing development consulting work. That gig with the nonprofit, where I did the master planning work and all that other work, was a consulting gig. And so, you know, really just the last many years been about finding the balance between supporting my family in this insanely expensive town and reinvigorating my development career as a principal, which is where it's at for me because I like to create things, you know.

Eve: [00:18:52] Yes, I know that.

Charmaine: [00:18:54] And in order to create, you need to have some measure of control ...

Eve: [00:18:57] Yeh.

Charmaine: [00:18:57] ... which is when I started my business, in 2004, that was a moment when I was just on fire with, with passion to make buildings and be a part of transforming neighborhoods.

Eve: [00:19:10] Yeah.

Charmaine: [00:19:11] And I feel like I've kind of rediscovered that, that passion in the last few years.

Eve: [00:19:16] It's such a great thing to make, like something happen out of nothing.

Charmaine: [00:19:20] Exactly.

Eve: [00:19:20] It's so great. There's really nothing like it.

Charmaine: [00:19:22] Yeah. And it's, I mean, that's really, I'm just a very, you know, goal oriented, like I can see it and touch it and feel it at the end of it, I'm so happy. If I can't touch it, see it and feel I'm like, what am I doing? What is, what is this?

Eve: [00:19:35] Yes.

Charmaine: [00:19:37] So. I'm definitely a ... touch feel person and love, love to see the results.

Eve: [00:19:43] Oh yeah, me too. So, you are a Black woman in an industry that is incredibly, heavily dominated by white men, and I know that's impacted your work, but I'd love to hear from you ... how.

Charmaine: [00:19:59] You know, I will start answering that question by talking about a TV show I watched last night, which is a new show on Hulu called "Woke." And it's really interesting. I suggest you check it out. It's ...

Eve: [00:20:16] I will check it out. I'm writing it down.

Charmaine: [00:20:18] I think it just dropped last night. And it's based on the life of a cartoon artist, named, I think, Keith Knight, who invented these cartoon characters. And I don't know if the true story is butter and toast, but those were the characters, the cartoon characters in his strip, that he was, that this show was talking about. And how this guy, this Black guy thought that he was kind of exempt from, you know, the impact from being impacted by Blackness in this country until he was taken down by some cops and, you know, thrown to the ground and guns at his head because they thought that he was a mugger who had just been reported, and how that experience transformed him, and his thinking, and his perception of himself in the world. It's the first one, I just watched the first one, and I'm like, oh, my God, that's kind of me in my 30s, you know. I thought, oh, my God, I'm, I'm smart, I'm driven, I work hard, and therefore I will succeed in this business. And, you know, while there's always, you know, when you're a Black person who comes from poverty in this country, I think there's always another part of you that's back there saying, hh, that's not going to happen, Come on. But I, basically I would say I took for granted, for a very long time, what a disadvantage I was at being a Black woman in the business. I thought my smarts was enough. And it, you know, it's just not.

Eve: [00:22:01] And, It should be enough, right?

Charmaine: [00:22:02] Well, yeah. In a in a in a perfect world.

Eve: [00:22:06] In a perfect world. Yeah. Yeah.

Charmaine: [00:22:08] But, you know, in a way I, I think it was liberating to not see that limitation, like, at least not ostensibly. I probably felt it more than I saw it. And you know, and I, I built a great reputation here in this city and this region, parts of the region, anyway. But what I would say honestly and truthfully, and this is, this comes from somebody who was really hard on herself a lot of the time. If I were a white dude in this business with my skills, ability, talent, vision, I would be, you know, five times richer than I am. And have more opportunity thrown at me than I do. You know, it really just took me a really long time to actually come to that conclusion because I'm so driven, and have, and took so much for granted, frankly, about what my smarts and what my drive would get me. That said, you know, if I look sort of relative to where I come from, what my background is, you know, my mother picking cotton, my stepfather working eight thousand jobs to support us, I've done well, especially in this region where it's so hard to live. But would my career have taken a different path if I were a white dude? Absolutely. And I, I think there's a level of just not being taken seriously as a Black person in this industry. It's not even at that level. It's almost just like it's not not being taken seriously. It's just not being seen. And, and .... you're, it's not like you're invisible, but it's almost like you're invisible. Because there's a presumption that especially as a Black woman, I mean, there are some Black men in this industry in the Bay Area who've done well. Not many. I'm going to say three.

Eve: [00:24:17] Yes.

Charmaine: [00:24:17] But as a Black woman, I think it is just, it is just a given on a very subconscious level, for most people that you are not, you don't have what it takes to, you know, to do what white men can do in this business. And I think it's on some level that is something that I internalized at some point in my career. And in addition to, just all the internal stuff that Black people experience in this country, you know, from living in generations of the degradation of racism, that you see and that you don't see. Right? It's almost the unseen stuff that is worse than ... and you've heard, probably heard people say, I'd rather be Black in the south where the racism is just in your face than be Black in the north, where it's, it's implicit and unspoken, but very real nonetheless. It's hard to know, you know, what we were talking about before we started, you started to start recording, it's hard to know what you don't know. It's hard to know how your life and career trajectory would be different if you were who you were in a different body ...

Eve: [00:25:33] Right.

Charmaine: [00:25:34] ... in the body of a white man. So, it's, You know, it's complicated.

Eve: [00:25:40] It's actually quite heartbreaking.

Charmaine: [00:25:42] Yeah.

Eve: [00:25:42] You know.

Charmaine: [00:25:43] Even before the events of this year, I've been, and when I started out in 2004, it wasn't like I didn't understand that I was a Black woman in the business. I did. And part of what I really wanted to prove, and want to prove is that a Black woman, you know, a smart Black woman who is hard-working and can accomplish anything, basically, like no limitation. There are no limitations, you know, and there are, obviously. But there's still that drive in me to prove that a Black woman can be a serious success in this business. How I'm defining that, now, is probably different than it was then, because I am really about creating a different kind of world. I'm not, you know, when I was younger in the business, I was like, this is, I'm going to make a ton of money, I'm going to prove, because the measure of success in this industry is wealth. I've had this conversation with my husband many times. It's like, what a success look like in the development business. If you are a white guy, it looks like, or if you're anybody, it looks like how wealthy you are and how much money you've made. And the world is just the direction that we are moving in. I feel like it is really vital that people like me, and everybody, deploy their talents in the interest of the whole and not just themselves. That's the world I want my kids to be able to grow up in, is a world that's not a winner-take-all world, and so, that's really kind of how I'm thinking more, lately, is how can I deploy my talents in a way that's going to help to create that world where development can be a force for real transformation. And what needs to happen in the industry for that to happen? What conditions need to exist for that to happen? And there's so many different parts of it, I know that you are familiar with because you're a developer.

Eve: [00:27:48] you know what you're saying really rings for me, too, I think when I was younger, I always thought I would figure out a way to fit in to the structure of the world the way it is. And quite a while ago, I heard the first female three-star general of the Army speak, and someone in the audience asked her like, well, how do you fit into that power structure? And she, she drew a circle on a chalkboard and she said, OK, here's the power. And you keep the circle, and you keep trying to get in, and you keep trying to get in, and you keep trying to get in. And eventually you give up and you go over here, and she draws another circle, and you make your own circle of power. And I think that, you know, there are some people who are never going to change that first circle, but then there are the rest of us who want to do something different.

Charmaine: [00:28:35] Yeh, yeh, and it's really about building a movement and, or being part of a movement, and helping to build a movement to a more equitable way of developing ...

Eve: [00:28:44] Yes.

Charmaine: [00:28:44] ... our world. And I've been thinking a lot in the last few years about just how there's sort of two, especially here in the Bay Area, there's really two kind of extreme ends of the spectrum. Where we have a really robust nonprofit community on one end, which is largely, mostly comprised of white people, just as an aside, and a very robust market-rate world of development, which is mostly, also, white people ...

Eve: [00:29:15] Also white people ...

Charmaine: [00:29:15] ... more women on the nonprofit side, for sure.

Eve: [00:29:20] Yes, absolutely, because they paid less. Right?

Charmaine: [00:29:23] Yeah, exactly. And, and they are, you know, they're just, I don't know, I don't know what the difference is. There's so many differences between women and men.

Eve: [00:29:31] It's the same profile in Pittsburgh. I have to tell you ...

Charmaine: [00:29:34] Yeh.

Eve: [00:29:34] ... it's exactly the same.

Charmaine: [00:29:36] Yeh.

Eve: [00:29:36] It's really interesting.

Charmaine: [00:29:37] But there's a sort of middle ground that's not occupied. And I think that there is a middle ground. I think there should be a middle ground, and that it should be occupied by people like me who want to use their talents to develop in a more equitable way. Which means in a way that really is not profit driven, but in a way that is driven by market principles, in a way. Because I do believe, personally, and I, this may be a controversial statement, I think that the non-profit world is not driven by the same principles that the for-profit world is.

Eve: [00:30:14] Oh, no, I totally agree, I totally agree.

Charmaine: [00:30:16] I've been on both sides. I've seen it. I've seen how I treat my money, like actually my, you know, versus some ...

Eve: [00:30:26] No, absolutely.

Charmaine: [00:30:26] ... government entity that's like three, you know, three things removed from me. So, I do believe there is a real difference. And I've been on both sides, and I developed for my own account, and I know how to drive a deal and move in to reduce the cost to the lowest possible amount while producing something that I don't have to be ashamed of.

Eve: [00:30:49] Well, you're driven, you're driven by urgency, and much of the nonprofit world is not, because they don't have to worry about the costs and staying alive in the same way.

Charmaine: [00:30:59] Right. The cost or the time.

Eve: [00:31:01] Yeah. Yeah.

Charmaine: [00:31:02] And I'm not blaming anybody or anything. This is just the system that we have created.

Eve: [00:31:08] Yeh.

Charmaine: [00:31:08] And I really believe, I believe very strongly, and I've been talking about this for, you know, a few years now, that I believe that there is a third way to do development. You know, where I am not interested in trying to, I don't want to generate tons of profits for anybody else. And I don't want to generate, I don't need to generate tons of profit for myself. I would like to make money, a reasonable amount of money, that is commensurate with whatever the level of risk is that I'm taking. And the less risk I take, the less money I make. And the more, the less profit somebody else makes, the more we can use that for the benefit of the people we're developing for. And I've been thinking about that ...

Eve: [00:31:50] Yeh.

Charmaine: [00:31:50] ... largely here in the context of missing middle housing, which is truly missing, like, gone, like doesn't exist.

Eve: [00:31:58] Really.

Charmaine: [00:32:00] And I don't know how you do missing middle housing. It's really a fee-driven business. It has to be in, if your heart is in the right place and you're coming at it from the right perspective and in the interest of long term affordability, and not just, you know, a five, 10, even a 15-year old and then flipping and realizing gains ... I think you really you really are coming at it from that perspective of, this is a fee business, this is a fee driven business, which nonprofit development is too, but it's a fee-driven business that brings market-driven principles to the production.

Eve: [00:32:38] Yeah, so you produce something and then it has a life of its own.

Charmaine: [00:32:41] Yeah. And there are many, many elements to this. A lot of people are talking about, you know, modular is one aspect or building innovation, since we build buildings like cave people did, basically, to a large extent. And innovations in financial markets, which means really bringing people into financial markets who are not looking at achieving the, a typical kind of market return that you would get if you were investing.

Eve: [00:33:09] Yeah, well, that's that's the key.

Charmaine: [00:33:11] That is the key.

Eve: [00:33:11] That capital is less greedy.

Charmaine: [00:33:13] Exactly.

Eve: [00:33:13] Yeh.

Charmaine: [00:33:14] Taking the greed out of the bit, of this part of the business. And I'm a pragmatist at bottom. And so I'm like, we live in a capitalist world, in society. I'm like, that's, let's just say that, that's what we are. We're going to, that's always going to be a big part of who we are and how we live. And, you know, the nonprofits are doing God's work. But I do believe there is room for a third way to approach how we get stuff done. And we just have to bring, bring all of the all the, you know, creativity and passion, and bring others along into ... Being real about it. Because in the world of social impact investing, I, I hear about it a lot. I have not, I can ,I can't tell you that I've seen one development that I think benefited from whatever that is, at least the kind of development I'm talking about. There's like a new organization in San Francisco that is attracting, I think, real social impact capital. It's still money coming from wealthy people who expect a return, which I actually find that, slightly appalling, because I, I do think that if, you know, the one or even the five percent deployed even a portion of their capital in a way that was like, eventually give me my money back, and I don't expect you to give me any return on it, but I'd like it back someday.

Eve: [00:34:46] I don't mind a return that keeps up with inflation, but I'm with you completely. I posted on Small Change, I've listed projects that are affordable housing and heard complaints about the return not being high enough. And I'm actually, how can I say, unhappy with where we are, because I think the return should be as low as three percent ...

Charmaine: [00:35:08] Yeah.

Eve: [00:35:08] ... to really build affordable housing. And yet, I have to admit, I'm scared of listing a project with a return that low. I had a conversation with an amazing developer of a project just like that that really, you know, should be on that platform. And I don't know if anyone's going to invest.

Charmaine: [00:35:26] Yeah.

Eve: [00:35:27] Because it's not enough money for them. So, if they really want impact. I mean, don't people understand that the higher the return on equity, the less affordable the housing? Because, I don't ...

Charmaine: [00:35:38] I think some people do and some people don't. And I think there's a significant education aspect to this that has to occur so that people do understand that there is a direct relationship.

Eve: [00:35:50] Yeah.

Charmaine: [00:35:50] I think that we will eventually, hopefully be in a world where there is a concept of 'having enough.'

Eve: [00:35:57] Yeah, yeah, yeah.

Charmaine: [00:35:58] If you have a net worth of 100 million dollars, that's enough. And you can then use the rest of whatever you have in a way that is to the benefit of the general good. And those who don't have.

Eve: [00:36:11] Yeh.

Charmaine: [00:36:11] And that's really what we need. We need a paradigm shift in how we think about our individual responsibility as citizens of the world.

Eve: [00:36:22] Yeh, and then, of course, there are the small investors who've never had a chance to invest before. You know, where that 500 dollars ...

Charmaine: [00:36:29] Yeh.

Eve: [00:36:29] ... really matters, maybe even more than the millions of the billionaire. Right? And I want them to get a return. It's very difficult. It's very inequitable.

Charmaine: [00:36:39] Yeah.

Eve: [00:36:39] So my next question would be, well, you know, what would you change to make the real estate industry a more equitable place for Blacks and women? Maybe just ignore the rest of them?

Charmaine: [00:36:52] Yeah, you know, I mean, that's obviously, there's no magic bullet. There's no, I mean, we're seeing now in 2020 how deeply ingrained white supremacy is in our culture. A couple hundred years after slavery ended. So, I am not naive about the, and I don't like to be airy fairy and unrealistic about the possibilities. You know, I think that one thing I see in San Francisco happening is that, at least in the nonprofit world, is that nonprofits are making an active effort to hire more Black people on their staffs, which I applaud, especially if you are hiring people and then supporting them in the way that they need to be supported, and not just having people be window dressing. So, how do how do we change the hearts and minds of Americans who don't even perceive themselves as being racist, but who have, you know, probably relatively deep implicit bias, which is a lot of what I was talking about earlier that I have experienced with, that I didn't even know I was experiencing, right? Is the deep, implicit bias of people who think that Black people are not as smart and not as whatever, as others, as whites or Asians, if it is a true awakening or call to action or whatever that's happening now that's also, you know, both sides are kind of awakened. Right?

Eve: [00:38:13] Right.

Charmaine: [00:38:13] But if it's happening and this leads to a reckoning that is not, hopefully, violent, and that doesn't tear us apart, I think that this is a very good thing because I do see more white people that I know than ever before trying to examine their own racism and ... people who never thought of themselves as racist, which is very important because if you think you're not racist and you're white, you are not woke, you are not awake. And so it's very important for, and it's not a blamey thing, it's just like, this is the work. This is the work that must be done, if we're going to change this world so that Black kids have an opportunity anywhere near what a white kid can have in this country. And, you know, begins at that level of zero, you know, like birth and what you are born into. What happens to you between the ages of zero and five, how your psychology is, develops and it's impacted by that and other things, and your sense of agency and capability and power in the world. That's got to start at zero. It is remediable to some extent along the way. Right? And I'm kind of proof of that.

Eve: [00:39:38] Right.

Charmaine: [00:39:39] But, you know, that's like one level of what has to happen. And, and making opportunities or providing opportunities for more Black people and people of color consciously, and not just consciously in the hiring and then bringing in, but then once people are in, giving them what they need, helping them to succeed and not just taking for granted, we did the hire, now we're done. So, there's that level of building opportunity. And I think that we need more Black people in the industry and just getting more Black people in the industry and whatever ways that happens will be a good thing. I did not know until, maybe until I was in graduate school what a developer was.

Eve: [00:40:32] Yeh, I was a bit older, actually.

Charmaine: [00:40:34] Yeah, right. I mean, it's like, it is amazing how many people who I told them, when I tell them I'm a developer, they're like, what is that? Still. Right? So ...

Eve: [00:40:43] Yeah.

Charmaine: [00:40:44] So, teaching these little, kids at a very young age, what the opportunities are in life in general outside of the what everybody thinks of as being a doctor, a lawyer, you know, or a business person, in general, that there is this whole world where how our physical world is created, that is dominated by this industry.

Eve: [00:41:09] Yeah. And, you know, real estate surely should play a really big role in, in shifting generational wealth as well. I'm not, I've been thinking about that, and I think there are ideas, all sorts of ways that that might happen. I'm not exactly sure how yet, but wealth has to do with property ...

Charmaine: [00:41:30] Right.

Eve: [00:41:30] ... not just cash.

Charmaine: [00:41:32] That's right. That's why the wealthiest people own, families in this country up until recently, were real estate families, by and large.

Eve: [00:41:40] Right.

Charmaine: [00:41:42] Now it's tech. But ...

Eve: [00:41:43] Yeah. How do you teach that? How do you make that shift, make that happen?

Charmaine: [00:41:50] You heard me say earlier that, you know, and I have this conversation. I've been having this conversation with a guy I met recently who's a Black guy, who's doing some investing, and he is about, you know, sort of the wealth building, as a Black person in the, in the industry. And I get that, and I understand that, and I don't not support that, but I cannot really abide wealth building amongst a very few people, while other people are out in the cold.

Eve: [00:42:25] Yeh.

Charmaine: [00:42:25] That's not sitting right with me anymore.

Eve: [00:42:29] Yes.

Charmaine: [00:42:29] So, I'm torn about it. I mean, you can hear it in my voice. I'm torn about it because I do want to see more Black people succeed, but I want to see a lot more Black people succeed. You know, not just a few.

Eve: [00:42:44] Yeah, yeah.

Charmaine: [00:42:45] So how do we do that? We spread the wealth. You know, we have to find ways to spread the wealth. And that goes back to my comment about needing a paradigm shift in how we think about our responsibilities as humans on the planet, to each other and to our children and to other people's children. I'm interested in building wealth. I'm just not interested in building ...

Eve: [00:43:12] Uber wealth.

Charmaine: [00:43:12] ... yes, I'm not interested in being, you know (laughter) how many people in the world can have a net worth of ten million dollars? Can everybody? You know, is that a possibility? Is that a..

Eve: [00:43:27] It's an extra interesting calculation to do if you.

Charmaine: [00:43:30] Yeah. Is that a theoretical possibility even, you know? And ...

Eve: [00:43:30] That's really interesting. Or even a million, you know.

Charmaine: [00:43:38] Yeah. What are the, what are the trade offs there? And I don't know what they are. I just know that everybody can't be rich. So then, you know, then I back off, I keep backing away from that, what can everybody, what is enough? And I start with, I really start with, like housing. There's some things people should just absolutely, simply be entitled to. And housing, stable housing, stable, sanitary, decent housing is one of those things. And access to an education and the resources that you need to learn, that are not just about teachers and schools, but if you need, you know, help with your mental health or whatever you need help with to be somebody who's able to learn and be a real contributor. These are basic things. And then we, we do these basic things, we build a better world where there will be more of everybody, more opportunity for everybody.

Eve: [00:44:39] Yes. Well, you're going to make me cry, so I'm going to try harder. I hope everyone who listens will try harder, too. But I've really, really enjoyed this conversation. I feel awful ending it. But I'm going to now.

Charmaine: [00:44:56] Well, I'm looking forward to talking more with you. Yeah.

Eve: [00:45:00] I would love to meet you in person. And maybe there's some joint venture we can do. I love doing development and I love hearing about what, what you're working on. So, thank you very much.

Charmaine: [00:45:10] Thank you, Eve. It's really great talking and, we will be in touch.

Eve: [00:45:23] That was Charmaine Curtis, a real estate developer, a Black woman in a largely white, male industry. It's hard enough to be a real estate developer and make a living at it without those additional two strikes against you. But that is exactly what she is doing.

Eve: [00:46:03] You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Charmaine, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Daniel Dus. While Daniel has forged a career taking him to the top of the solar industry class, his heart is someplace else, in the Berkshires. That's where he grew up and that's where he's planning his next act. The Berkshires, Massachusetts, is rich with travel destinations and has an amazing inventory of luxury estates dating back to the 1800s. As industry collapsed, so did the use of these estates. Many of them stand dramatically underutilized today. And that's where Daniel and his team come in. You'll want to hear how Daniel is planning to reposition these estates for the sharing economy. Be sure to go to EvePicker.com, to find out more about Daniel on the show notes page for this episode. And be sure to sign up for my newsletter, so you can access information about impact real estate investing, and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:42] Hello, Daniel. Thanks so much for joining me today.

Daniel Dus: [00:01:44] Thank you, Eve. Great to be here.

Eve: [00:01:46] So, your career has been in the solar industry, and I would love to start by just hearing what you've accomplished in your career.

Daniel: [00:01:56] Yes. 15 years in solar now. I've had the pleasure of helping create and build some of the largest solar companies and projects in the solar space, in the United States, over the last 15 years. Currently, with a company, when I joined, had just completed its first solar project, and it's recently ranked the largest solar company in the world with 15.4 Gigawatts of operating and contracted projects.

Eve: [00:02:25] Oh, wow.

Daniel: [00:02:26] So, seeing growth like that in the space, which is really focused on carbon, SOx and NOx, emissions reductions, is really, really been exciting – to see the industry go from almost nothing 15 years ago, to now solar is number one in energy in terms of new, installed capacity year over year. So, just that transition, rapid transition, has been exciting to be a part of.

Eve: [00:02:52] Yeah, I'll say. So, what's your background? How did you get into the solar industry?

Daniel: [00:02:58] Actually came into solar out of a focus on real estate. I spent a few years developing real estate along the East Coast U.S., and that's where I was exposed to the trades, financially structuring projects, and ended up selling those assets, but it, this was right in the middle of the financial crisis. Nothing really made sense. Went back to get an MBA and launched my first solar company out of the Drexel business incubator, so ... and the rest, as they say, is history.

Eve: [00:03:30] Oh, very good. So, that brings us back to where you are today. Because I've gotten to know you for an entirely different reason. And that's your new company that you're starting up, called Shared Estates. So, why the name Shared Estates? Tell me a little bit about that.

Daniel: [00:03:45] We fell upon it as an exemplification of our primary objective, or one of our primary objectives, which is to bring these beautiful, historic, storied estates that in the past have primarily been in the hands of the wealthiest U.S. families, and bring those into the reach of the middle class. In many cases, our properties will cost less per person than a standard hotel room would, but with significantly different benefits and amenities. So, we really want the community to enjoy these spaces, use these spaces. One of the really fun things about the business is seeing families and friends create memories in these spaces. So, it's a major driver for us.

Eve: [00:04:30] Basically, buying and repurposing enormous luxury estates, and sharing them in the shared economy.

Daniel: [00:04:39] Yeah, that's exactly right. And our geographic focus offers quite a few of these properties. The Berkshires of western Massachusetts, also known as inland Newport, often, was developed in the 1800-1900s. Many of the wealthiest families built these estates there. They called them 'country cottages,' but these are often multi-100 acre, often over 10,000 square foot properties. And there's not as much of a market for these properties as single family, second or third homes today as there was then. And they often end up being very underutilized. I mean, talk about an underutilized asset. Often, they may be used a couple of weeks a year, a few weeks a year, by these families. And so, we're taking those estates and we're putting them into the shared economy where they can be much, much more accessible both to the local community, as well as to the tourist economy there.

Eve: [00:05:35] That's really interesting. How did you come up, upon this idea? Like, it's an unusual take on a real estate company.

Daniel: [00:05:41] It's a good question. I wish that I could say that I analyzed the market, that I did a bunch of market data research and saw that large group, short-term rentals was a rapidly growing subset of the short-term vacation rental market, and the broader tourism market. But that's not the case. I fell into it entirely. I was living in Manhattan and purchased a property in the Berkshires, which is where I was born and raised, and originally was going to use it for weekends, myself, and went through a deep rehabilitation process, and ended up taking a job in Philadelphia, so moved a little too far away to really use it for myself. And I put it on HomeAway VRBO, originally at, I think, $350 per night. And I figured if it rented 20, 25 percent of the time that it would cover its own mortgage and that would be a win. Well, it booked so much in the first 72 hours that I had to raise the price multiple times, and it now books for well over a $1000 dollars a night, and books 65, 70 percent occupancy. So, it's just such a phenomenal project that it really opened my eyes through the process of developing and listing the property to this underserved market, right? There are very few, if any, large-format, short-term rentals in urban areas, because if they existed they'd be exceedingly expensive. But, in rural America, there are a lot of these properties that are beautiful and really underutilized today. So, it, really fell into it.

Eve: [00:07:18] Was that first property the Playhouse?

Daniel: [00:07:20] Yeah, that's right. So, the Playhouse is a great example. It was originally built by George Westinghouse in the late 1800s. It was the first place in the world ever powered by AC electricity. He built an AC microgrid there to test what was really the theory of Tesla and the products being developed by Westinghouse and Stanley. So, we know that President McKinley, Tesla, Stanley, Lord Kelvin all visited the property. Westinghouse in the late 1800s had an electric boat; he had an electric car he drove around the property. It was really a leading point of innovation at the time. And this particular structure was called the Playhouse because he built it as a gymnasium, basically, for his children. 7000 square feet. He had a bowling alley in the building ...

Eve: [00:08:13] Wow.

Daniel: [00:08:13] ... and he later converted it into a theater space, for when his kids were getting older, and entertained there. So, it's a beautiful open floor plan building ...

Eve: [00:08:25] Yeh, I've seen photos of it. It's stunning. It's beautiful.

Daniel: [00:08:27] Yeah. And it was, when we took it, our architect told us that it was structurally failed. It was literally ready to fall over, and required a lot of structural work to maintain the open floor plan and to make it structurally sound. But in the process, we created a space that has really resonated with folks, where they can bring groups of families, family and friends, and enjoy each other and celebrate each other – weddings, anniversaries, birthday parties and other small gatherings like that.

Eve: [00:08:56] I think you told me that it was ranked number one, or is ranked number one place to stay.

Daniel: [00:09:03] That's right. Yep. It, on YVRBO, it quickly shot up to the most-booked, most-reviewed property out of over 500 properties listed in the county on VRBO.

Eve: [00:09:13] That's amazing. That's a great story.

Daniel: [00:09:16] It was. It was. You know, I love the space. I love the property. It means a lot to me and I love that folks get to make memories there.

Eve: [00:09:26] So, how does this fit in with your solar background?

Daniel: [00:09:32] Yeah, it's a, it's a good question and one I get often. Solar development, financing and construction is very similar to real estate development, financing and structuring. You're talking about zoning approvals, you're talking about geotechnical studies. If you're doing any ground work, you're talking about structuring projects for financing, financial modeling. You're talking about construction and ownership and operation and optimization of assets. It's all exactly the same in both industries. It just is that the asset itself is slightly different, but a lot of overlap there. I'm a Stanford-certified project manager, Villanova-certified Six Sigma, and that's because developing processes for execution of these projects is really at the core of these businesses. So, I think there's just a ton of overlap.

Eve: [00:10:24] Yeah, but I suppose I'm also wondering, what of your love for the energy industry are you going to bring to these properties, because they weren't built that way?

Daniel: [00:10:34] Yup. That's exactly right. And Shared Estates is also, to a large extent, a conduit for investment in a carbon neutral and sustainable asset. That's, all of our properties will be carbon neutral, offset by either on-site or off-site renewable energy projects, which we're very excited about. And so, we will bring that attribute to all of our properties.

Eve: [00:11:02] And I think probably some other features that I've heard about, but we'll go into that later. So, In the Berkshires, which you seem to be focusing on, how many underutilized estates are there?

Daniel: [00:11:14] There are a surprising number of them. Again, it was over the span of over 100 years of this economy developing and building, but also had an industrial heyday, itself. General Electric had a major presence there, thousands of jobs. So, there are dozens and dozens and dozens of these estates, in varying states. Some of them are really in rough shape, frankly. These historic properties really need dramatic investment to help bring them up into today's standards, with IT infrastructure, you know, sometimes structural upgrades, definitely bringing back their former glory and beauty. So, everything from landscaping to paint, new fixtures, etc, is all really critical for these properties. And we try to do that and maintain historic elements of them, as well. So, at the Playhouse, for example, we retained the original Westinghouse lighting fixtures from the 1890s.

Eve: [00:12:14] Oh, lovely.

Daniel: [00:12:14] And so, we do our best to keep the historic elements of the properties. But there are a remarkable number of these in the Berkshires. And frankly, nationally, there are a lot of large, rural farmhouses that are not in their heyday today that could use deep renovations, and other properties that really are, I think, historic to America and deserve to be rehabilitated and brought into the shared economy, which in my opinion, is one of the best possible uses for them.

Eve: [00:12:45] If I want to rent one of your estates how will it compare to holding a gathering in a traditional local venue like a hotel, just price-wise.

Daniel: [00:12:55] In my opinion, this is the core to our ultimate success. The macroeconomics of our properties versus the alternative. There's kind of no comparison in my mind. Our properties will often be less per person than a standard hotel room would be, but our properties will have ... in the next project we're doing, we'll have 40 acres of private space, it'll have a dedicated pond, docks. It'll have a five-acre vineyard, greenhouses, multiple living spaces, multiple dining rooms, multiple quiet spaces, an office, library. All for your own private use with yourself, your friends and your family. You just have to get a group of family and friends to travel with you. But, in terms of the amenities, there's just no comparison. These are the most luxurious possible properties. And with the right group of friends and family, on a per person basis, they could be less than a holiday.

Eve: [00:13:52] That's amazing.

Daniel: [00:13:54] Yes.

Eve: [00:13:54] So, this is really the shared economy in a very different way.

Daniel: [00:13:58] That's right.

Eve: [00:13:59] So, you have the Playhouse under your belt. You said, you mentioned the next property. You want to tell us a little bit about that one?

Daniel: [00:14:06] Sure. Yeah. We are calling it the Freeman Berkshires. So the Freeman is currently an 11,300 square foot brick mansion on about 40 acres, with a private pond, tennis court. We are going to deeply renovate, rehabilitate this property, new fixtures, new paint, add some square footage, hopefully. We're going to install a 500 square foot English-style greenhouse and extensive gardens, five acres of vineyard, and in-ground pool, and really bring this into 2020. Modern IT infrastructure. Games rooms and a virtual gaming room, so that there's something for all generations. The name, the Freeman Berkshires comes from a local woman, Elizabeth Freeman. She was the first African-American slave to sue and win her freedom under the Massachusetts constitution. And she was abused at the hands of her, quote unquote, Master's wife. And so, the property will be a tribute to her. We'll be installing a sculpture garden by local artists in tribute to Elizabeth and her story. And we'll be donating a percent of profits to the Elizabeth Freeman Center, a local nonprofit that's been operating since the 1970s, serving battered and abused victims of assault and sexual assault. And so, we're very excited, and that local nonprofit engagement is part of every property that we've done and will do. The Playhouse contributed to St. Jude's, Sierra Club and the local Humane Society on a recurring basis. So, we're very excited about the Freeman Center contract and we'll be closing imminently here in the next weeks. And so, we can't wait to get started on it.

Eve: [00:15:54] So, tell me a little bit about financing. I mean, I have been hearing over the last few months the difficulty that people are having financing anything unusual in the real estate market. And this is definitely unusual.

Daniel: [00:16:08] Yeah. And in fact, our biggest challenge, Eve, is that these are rural projects. They're all in rural America. And what I didn't realize before going to the market the first time, a couple of years ago, for commercial financing in rural America is that many banks will simply not finance projects in rural United States. They're very focused on urban areas, suburban areas. Commercial lenders like to invest in New York, Manhattan, Philadelphia. They basically red-line rural America, and in places like the Berkshires that really need economic development, that's a real problem.

Eve: [00:16:47] Did they just come out and say we don't lend in rural America.

Daniel: [00:16:52] Yeah. I have had dozen of lenders simply say, you know, we do not invest in rural properties. Which ...

Eve: [00:17:00] Wow.

Daniel: [00:17:00] It's kind of like red-lining. Right? I mean, I can't think of any other ...

Eve: [00:17:06] Yes.

Daniel: [00:17:06] ... comparison. So, it was pretty shocking, frankly. The local banks are fantastic and supportive, but they often have relatively modest caps on the amount of capital that they can contribute. And so, the value of Small Change really shines here in its ability to help bring capital into places like this, and frankly, to offer the ability of the local community to invest. As you know, traditionally, only accredited investors can invest in GP/LP-type structures like ours, and that's highly limiting, you know. The local community is not, on average, worth a million or more dollars, but they're the ones that, they deal with the tourist economy every day, they often work in the tourist economy, and so, they should be able to benefit from that economic activity.

Eve: [00:17:53] So how are you financing this project if you don't have the bank? How do you do it?

Daniel: [00:17:57] Yeah, this project is particularly unique. We've obtained seller financing for a large portion of the acquisition cost, actually 95 percent of the acquisition cost, allowing us to focus our equity on the rehabilitation and upgrade of the property and aesthetic improvements. And we will be conducting a Small Change raise. So, we're excited.

Eve: [00:18:20] Yes, we're excited, too. So, but how long did it take you to negotiate the seller financing? That's not an easy thing to accomplish.

Daniel: [00:18:28] It was almost a year, Eve.

Eve: [00:18:29] Wow.

Daniel: [00:18:29] Of what it was about 11 months of back and forth, and educating the seller on us, what we've done, what we plan to do ...

Eve: [00:18:38] Wow.

Daniel: [00:18:38] ... and ultimately reached a deal that we're really happy with and I think they're happy with, too.

Eve: [00:18:43] So, tenacious must be your middle name.

Daniel: [00:18:47] You have to keep that deals, right ...

Eve: [00:18:49] Yeh, yeh, yeh.

Daniel: [00:18:49] ... that's the nature of development.

Eve: [00:18:51] So, final question for you. What's your big, hairy, audacious goal? Where are you going with all of this?

Daniel: [00:18:58] For Shared Estates, specifically, I'm born and raised in the Berkshires. I love the Berkshires. I drove by these properties when I was a kid and fell in love with them. And the Berkshires is a really special place. The Boston Symphony Orchestra summers there at Tanglewood, has the oldest and longest performing dance center in the country, Jacob's Pillow. It has one of the largest standing Shakespearean companies in the world, frankly. And these beautiful bucolic views. It's just a phenomenal and special place. And I really want Shared Estates to contribute to the local economy, through taxes, through the nonprofit contributions we'll be making, hopefully through investments by the local community in the business. I want the business to be 'by and for' the local community. And I want it to contribute, honestly, millions and millions of dollars of benefit, both direct and indirect, to local businesses. Every one of our properties supports local businesses. We champion and celebrate local businesses. We have local gift baskets and literature, and we really try to get folks who sometimes travel ... they used to travel from Europe, now generally in New York and Boston, as those families are traveling more domestically. And we've seen a dramatic uptick, frankly, in our activity in rentals.

Eve: [00:20:19] Oh, that's interesting, yeh.

Daniel: [00:20:19] But we really want this to be a massive engine of growth for the local economy, and to be a benefit to the local organizations there. I mean, that's, that's really our goal.

Eve: [00:20:30] That's a pretty fabulous goal. And I hope you're incredibly successful. So, thank you very much for joining me today.

Daniel: [00:20:37] Thank you, Eve. It's been a pleasure.

Eve: [00:20:38] I hope I get to visit sometime.

Daniel: [00:20:40] Absolutely. Us, too.

Eve: [00:20:41] Ok, bye.

Daniel: [00:20:55] Bye.

Eve: [00:20:55] That was Daniel Dus. He's planning a comeback for the many underutilized luxury estates in the Berkshires. Daniel and his team plan to reposition them for the sharing economy. Not only will they be available for middle class families to enjoy, they'll be carbon neutral renovations, making them the ultimate recycling projects. And he's taking the democratization of these estates one step further by offering the opportunity to invest to anyone over the age of 18. These estates won't just be owned by the wealthy any longer.Eve: [00:21:42] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate, while building better cities. Thank you so much for spending your time with me today. And thank you, Daniel, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change

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Eve Picker: [00:00:13] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. Two years ago after a substantial career in economic development, Patrick Quinton co-founded a startup in Portland, Oregon. Dweller manufactures Accessory Dwelling Units with the goal of addressing the very pressing housing needs of that city. Patrick knew that the city had the most ADU friendly code of just about anywhere, a 32x14 foot ADU could be set into a typical 50x100 foot lot without hitting the setbacks, and without requiring city design review. And so, Dweller was founded. You'll want to hear more. Be sure to go to EvePicker.com to find out more about Patrick on the show next page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:35] Hello Patrick! Thanks so much for joining me today.

Patrick: [00:01:38] Thanks, Eve. It's great to be here.

Eve: [00:01:40] Great. So, a couple of years ago, you co-founded a company called Dweller to address the pressing housing shortage in Portland, Oregon. And you've had a pretty substantial financial and economic development career. So, I'm wondering what prompted you to move to the uncertainty of a startup life?

Patrick Quinton: [00:02:01] Yeah, I sometimes ask myself that as well. My most recent job, prior to this, was I ran the city of Portland's development entity. At the time it was called the Portland Development Commission. It's now called Prosper Portland. But, obviously in that role I had my hands in a lot of different, large-scale projects, and had benefit of lots of public funding, and so had an opportunity to have an impact in a way that, across a lot of different things, but when my time came to leave there and I was thinking about, not just kind of what I wanted to do next, but what type of role I wanted to have, I really felt like I wanted, you know, to use the cliche, roll my sleeves up and really be closer to the work. And in particular, I had been thinking a lot about private models of solving any of a number of public issues. And certainly affordable housing was at the top of the list. So, you know, I didn't leave with the idea of starting an ADU year company. I left to try and explore and think about, you know, what to do next. And my business partner, Brian, came to me with this idea, and at first I didn't think it was the right idea. I didn't think it had the opportunity to have as much of an impact as I had hoped. But the more I thought about it, the more I realized it really was the right opportunity to both build affordable housing, you know, to really have a direct impact, but also to prove a model that we both felt people had been toying with this, but really not making any progress. And so, it's always kind of a leap, and it's always, you got to drink a little bit of the Kool-Aid, but we really did feel like we were on to something new and kind of at the beginning. And so, you know it's been a fun adventure.

Eve: [00:03:57] Dweller manufactures ADUs, right? And for those who don't know who are listening, what's an ADU?

Patrick: [00:04:04] Yeah, so ADU stands for Accessory Dwelling Unit, which is an unfortunate name for something that we're trying to popularize. But it just means that it's a secondary, permitted unit on a residential property. It's typically referred to as a backyard cottage or a mother-in-law unit. But, in any form, it is a second living unit. And because it's a separate permanent unit, it can be used as a rental. It can be used to house a family member. Obviously, it can be used for somebody to have, you know, their TV room, but its power is in, it creates another housing unit on land that nobody assumes can accommodate any more housing. And so you're able to drop in additional housing supply without really having to acquire new land, or even disturb the kind of existing fabric of a neighborhood. So, it's backyard housing. I mean, that's kind of the easiest way to talk about it.

Eve: [00:05:04] So, it's a density play. It's really kind of utilizing expensive land in a more efficient way. Right?

Patrick: [00:05:11] Exactly. There's no way that anybody could develop housing on the land in these types of neighborhoods without this type of unit that didn't have to acquire land and can be built on a small scale. It's the ideal way to take advantage of this excess land.

Eve: [00:05:27] So, tell us about your model and how you arrived at it. Because I think there's lots of different ways of building ADUs.

Patrick: [00:05:34] Once we dive into the ADU world and you learn more about it, you know, and we're on the West Coast, so the West Coast has been doing this for a while, you look and you see lots of ADUs have been built. But, basically, what's been going on is people who have money have been building a lot of kind of cool backyard houses. And so while they've been proving that you can do this, it really hasn't been available to mainstream homeowners who aren't sitting on a ton of money. So, we really wanted to create a model that would get a lot of ADUs built, but more importantly, really open the market up to more mainstream homeowners. So, we wanted to bring the cost down for ADUs and then help them finance it. And we brought the cost down by developing standardized ADUs that are built in a factory. So, high quality construction, but we're just taking out a lot of the waste and inefficiency that happens with building a unit on site. And so, that's really made our ADUs a lot more affordable than your average ADU. And then the second thing is, we've created a way for homeowners to finance an ADU without putting any money into it themselves. So, those are the two main things we wanted to address. And we feel like with those issues solved, we think, yeah, now your average homeowner and thousands of similar homeowners can now put ADU on their property when, you know a few years ago, that really was impossible.

Eve: [00:07:06] Can you share with us how much it costs to build one of these pre-manufacturing units?

Patrick: [00:07:10] So, our typical project is about 120,000 dollars, all in. So, that means that, you know, a homeowner can come to us ...

Eve: [00:07:18] That's very reasonable.

Patrick: [00:07:19] Yeah, when you consider the average price of an ADU here in Portland is around 200,000 dollars. And the average price in other West Coast markets in California, and Seattle, is around 300 or higher. So, yeah, 120 brings it into the range of affordable for many homeowners. It's still a big financial decision, but it's definitely a lot easier for homeowners to get over that hurdle.

Eve: [00:07:44] Yeh, I'll say, that's pretty reasonable. And then, so, how many units have you built and operate to date, as a start?

Patrick: [00:07:51] We built 15 units in total, and then, you know, I know we're going to get into this, but we actually own nine of those. So, we operate nine of those as a small portfolio of affordable ADUs rentals and we rent those out to long-term rentals. So, local residents, and they're sprinkled throughout the city of Portland. The other units we just sold. There's homeowners who come to us and have the money and want to buy from us. And we're happy to do that. And homeowners who buy from us who have money, you know, they like the efficiency, the no-hassle aspect of it as well. So, it's not simply that, you know, homeowners can afford it. It's that ADUs have traditionally been a big project for a homeowner. It's, they become a mini-developer and most people just don't have the time to do that. Because there's a lot of pitfalls along the way. So, we also attract a number of buyers who just want to buy ADU like they buy a car, or some other big purchase. They don't want to have to learn how the car is manufactured.

Eve: [00:08:51] Right. Where are these located, the ones that you built?

Patrick: [00:08:54] They're located in residential neighborhoods throughout our city. You know, Portland is, like many cities is, has tons of great residential neighborhoods. And what people don't realize is that in most cities, even in the city itself, you know, you walk down any residential block and there's a nice big backyard in these properties.

Eve: [00:09:16] Yes, yeah.

Patrick: [00:09:16] And so when you look across the landscape in Portland, where most of the residential neighborhoods are, if you were to fly over them, you would see all this space that you really don't see from the street side. And a lot of them are really modest neighborhoods with bungalow-style houses and homeowners who, you know, they want to have the extra income. That's really the prime motivation.

Eve: [00:09:37] So, you are doing two things. You're creating affordable homes and extra income for people who need it.

Patrick: [00:09:44] Yup, yup.

Eve: [00:09:44] And the third thing I'm realizing as you're talking about this ... ADUs are built in places where there's already infrastructure. And so, they're going to be close in, and provide housing for people perhaps without needing a car because the developed neighborhoods have transit, etc..

Patrick: [00:10:00] From an urban policy perspective, that's one of the reasons why so many jurisdictions have been promoting ADUs, is because it's an easy win on the housing side. You don't have to fight over how you develop a big corner lot. You're dropping it in. You don't have to build new streets or sidewalks, like you're saying, and you get to take advantage of existing parks. And even, you know, schools. Like people ... this is an understated aspect of this. But when a household that typically rents gets the rent in a neighborhood that's primarily single family, owner-occupied houses, they're generally accessing better schools. And so, it opens up even that, for renters.

Eve: [00:10:40] Yeah, probably better shopping and proximity to grocery stores, etc..

Patrick: [00:10:45] Exactly.

Eve: [00:10:46] Yeah. So, what do they look like? Do you have a number of models?

Patrick: [00:10:50] We do now. You know, as like any company, we started off with one model. You know, we really were trying to work out the kinks, but also just kind of see where customers are. But we generally sell units that are between four and 500 square feet. It looks like a one bedroom apartment. There's a lot of talk about tiny homes these days, which is another really great form of housing. But ours are bigger than that, and most ADUs are, and they look more like apartments than what people will see in a lot of these tiny home images. So, they have full bedroom, full bathroom, usually a shared kitchen, living space. ADUs can come in all sorts of architectural forms. But what's interesting about it is a lot of them have, what they call a shed roof or mono slope roof, which is different than most houses which have the peaked roof, gable roof. So, ADUs tend to have a little bit of a different feel there ...

Eve: [00:11:41] It's a little bit more of a shed aesthetic, like the garden shed, yeh?

Patrick: [00:11:46] Exactly. When you look into the back yard, you don't see a mini house. You see a structure that looks more like a larger shed.

Eve: [00:11:54] Yeh.

Patrick: [00:11:54] But inside it's built out like, you know, any apartment that you would see in a big apartment building.

Eve: [00:12:00] Right. I've lived in a 450 square foot unit and loved it. It was the perfect size and there were two of us. So, if you don't have too much stuff, it's great. What makes them affordable? This is a loaded question, because I know you're also striving for affordability, just through your mission. I suppose the question is not what makes them affordable is small and well-thought through manufacturing, but what's your affordability mission beyond that is, I suppose, what I'm asking?

Patrick: [00:12:31] I do want to actually just talk about one thing that, about affordability, before we get into making them affordable rentals is, and there's a lot written on this. You know, the average cost of a new housing unit is, you know, if you're talking about an apartment building or something like that, here, it can be 300 to 400,000 dollars, a unit. In California, the Bay Area, right, they're talking about 700 to 800,000. And ...

Eve: [00:12:56] It's crazy, yeh.

Patrick: [00:12:58] The mere act of building a new housing unit has become so expensive. And when governments and other organizations that care about affordable housing are rounding up dollars to build new affordable housing, they have to find a lot of money to build a number of housing units of any scale. So, to say I can build a housing unit for 120,000 dollars, regardless of what the purpose is, that's a big deal. And there are other companies doing this. So, the ADU industry is positioned to add a lot of housing supply at a price per unit that almost no other aspect of the housing industry can achieve. And, you know, one of the main savings is we don't have land cost. Right? So, it's not magic. It's not like, you know, somehow we've figured out the magical way of building that takes out of the cost. It's that we're leveraging existing land. So, basically, if it's a homeowner, the homeowner is kind of contributing that land to this transaction. But it's not money that we have to find. And then we generally, because we build small units, and if you are building the way we build in a standardized fashion, then you can take out all these inefficiencies, as I mentioned earlier. So, that's like this whole powerful part of the ADU world is ...

Eve: [00:14:14] Yeh.

Patrick: [00:14:14] ... if we really can figure out how to get thousands of ADUs built, we're going to be building those units at a lower cost per unit than pretty much any form of housing.

Eve: [00:14:26] I mean, when you look at a multi-unit building, you're talking about fire sprinklers and stairs and elevators ...

Patrick: [00:14:32] Exactly.

Eve: [00:14:32] ... and, you know, accessibility, really expensive.

Patrick: [00:14:36] Yup.

Eve: [00:14:36] And all of that has to be subsidized to keep it affordable.

Patrick: [00:14:39] Yeah.

Eve: [00:14:40] So, tell me about the ground lease and, you know, who's interested in it. And what sort of success you're having finding people who want to do this.

Patrick: [00:14:49] And so, as I mentioned earlier, we really wanted to help address the financing challenge for homeowners, and just a bit on that. So, basically an ADU is typically a project. It's taken on by a homeowner and the homeowner has to not only manage it, but pay for it.

Eve: [00:15:03] They have to hire an architect and probably an engineer.

Patrick: [00:15:05] Yeh. And so when homeowners go to pay for things like this, they typically are going and getting home equity financing. I mean, obviously, there's people out there who might have that money just sitting at the bank. But that's, that's typically not most people. So, they go and get home equity loans, and I think the home equity loan has certainly become pretty widespread over the past 20 years. So, everybody gets that that's out there. But when you really dig into the numbers, lots of people are sitting on small amounts of equity. Very few people are sitting on a lot of equity, certainly enough that's going to allow them to pull, you know, 120,000 dollars out in our case, but for the average cost, you're talking about a lot more.

Eve: [00:15:48] Right.

Patrick: [00:15:48] And even then, you're asking people to take out what is basically the bulk of their life savings. It's you know, the statistics all indicate that most people have their net worth tied up in their home. So, like, that's the ADU financing challenge is, it's all home equity based and most people don't have it, and the ones who do have to make this massive decision and ...

Eve: [00:16:11] Oh yeh. It actually turn them into mini developers. You're asking homeowners to be real estate developers and work through all the issues around that. That's a lot.

Patrick: [00:16:19] And so, that's just a risk profile that you're not going to find in your average homeowner. So, we wanted to figure out how do you finance this in a way that takes out all of those obstacles. And so we came up with, we didn't invent it, but we're one of the first ones to really try it, is to use what's called the ground lease. Under a ground lease we lease a part of the homeowner's property. So, we generally lease a defined part of their backyard. And then by doing that, we then have the right to develop on that part of the property, and then we develop the ADU ourselves using our own capital. So, we're building the ADU on the homeowner's property at no cost to them. And then we own the ADU then and we're able to manage it and rent it out. And then we share a percentage of the rent that we collect each month, back to the homeowner. And that's essentially our lease payment to them. So, once again, we're tenant in their backyard because we've leased that part of their backyard, so we owe them monthly rent. And so we pay them that as a percentage of the rent. And then the homeowner has the right to buy us out of that lease at a prearranged price at some point during the lease.

Patrick: [00:17:33] So, in essence, the homeowner is getting the ADU on their property at no cost to them, and then they can, when the time is right for them, choose to pay us back. Right? So, it operates like a loan, but it's not a loan. It's, you know, it's us going in and building and owning the ADU. And we think this is a particularly well-suited type of financing vehicle for ADUs, because not only does it overcome these challenges that we're seeing for homeowners who want an ADU but can't finance it or can't pull the trigger on taking all their equity out. But it also puts these ADUs immediately into the rental market, because we're owning it and then we're managing it like any other long-term rental. So, not only are we getting ADUs built, but we're getting them immediately available to local renters, which is one of the big policy objectives for promoting ADUs, is to have more affordable rental units. And then when the homeowner buys it out, they can decide if they're going to keep it as a rental. But for at least some period of time, five, 10 years, it operates as a rental unit in neighborhoods that really need it. So, it's just this kind of unique way of looking at how to get over the financing hurdle that has all these ancillary benefits.

Eve: [00:18:53] So then, you're launching a crowdfunding campaign to raise equity on my crowdfunding platform, Small Change. And why are you doing that?

Patrick: [00:19:04] The financing challenges don't go away just because we're building on aground lease. Somebody still has to fund this. And so, that financing challenge then gets pushed onto our shoulders. And so we've tried to figure out how to fund the development of new ADUs using a lot of traditional financing methods. And so, if you think about a real estate transaction, you know, you have some equity, you go out and you borrow money from a lender, and usually you can kind of piece together the right capital sources. But this structure is unique in that we don't own the land and we don't have rights to the land. So, you're asking lenders and investors to really bet on this structure and the stream of income from it. And even though I would argue until I'm blue in the face, how secure this is and what a great investment this is because of the regular income coming in, it doesn't look and feel like what lenders and investors are used to seeing. And so, it doesn't fit in one of these boxes. And so, we've tried to look for traditional lenders, non-traditional lenders, all sorts of folks who fund even affordable housing projects. And we just haven't found lenders who are willing to do this with an eye towards scale. And so, at the end of the day, we felt like there's a lot of interest in this type of housing. There's a lot of people that we talk to who love the idea of ADUs, who really want to see more ADUs built. These are average folks who want to help with the affordable housing crisis. And so, we actually have always thought in the back of our minds, you know, this would be a great crowdfunding opportunity, but we really thought, you know, we should be funding this in a traditional way. And we had to beat our heads against the wall for a long enough time before we decided, you know what, let's actually look into crowdfunding because we feel like there's a really strong interest out there for what we're doing.

Eve: [00:20:58] Yeah. So, the challenges never end. Right? So, you've got a product that sounds like it's scalable, that may really help the affordable housing crisis. And yet you've not been able to find a lender to, at least lend, yo know, 60 percent of the cost of building these, even if you have to go find equity, which I personally find really shocking ... that we don't have lenders in this country that can think a little bit out of the box. I mean, there are, as you said, non-traditional lenders, lenders that are focused on affordable housing, nonprofit lenders with a mission to help affordable housing. What has to change for this to work?

Patrick: [00:21:39] Yeah, this is multi-layered. So, the first thing is that I think that everybody can point fingers at each other. So, I think your actual lenders would point fingers at regulators and their auditors, and say, if I put this loan on my books I am going to get killed when audit comes around. Or they're going to say, point to actual, you know, this is how we have to underwrite them. So, you have that. I do think you have, regulators and auditors might come back and say, we don't say they can't do this. They just have to kind of make the case and show us how it's collateralized. So, I think some of it is this, like, you know, do I want to take this fight on as a lender when I can go look for another deal? So, I think there's a lot of this, like, who's self-interested enough to make it happen. And so, that gets to the second layer, which is getting scale on this proves it out, and then it will give, I think it'll begin to open up the eyes of lenders. So, I do think we need to prove out that there's a market for not just a lot of ADUs getting built, but also for folks with money that folks who deal in much bigger numbers with more zeros than we do right now, say, hey, I can put 10, 20, 50 million dollars to work right away, into this market. Now, I'm interested. So, I think we're in the chicken/egg classic stage. We've got to prove it out, get some scale, and show people not just that it's safe, because I think that's actually the easier argument to make. It's really can this thing be scale, can achieve scale, and can it really end up putting a lot of money to work? And so, whether it's a regulated lender or a group of lenders that come in and do this, or whether it's some more of a kind of investment banking type of approach, I think that scale is going to unlock, you know, one or both of those eventually to get more money into this market.

Eve: [00:23:31] Or maybe crowdfunding is, if enough investors ...

Patrick: [00:23:33] Crowdfunding, right. You're more the expert. I'm new to this. My natural inclination to think its smaller scale. But you're right, that, you know, the beauty of crowdfunding is maybe it is.

Eve: [00:23:44] There are other platforms that have gone fairly large scale ...

Patrick: [00:23:47] Right. Yeah, exactly.

Eve: [00:23:47] ... but they have a very traditional real estate projects. Again, they're kind of following the model. So, I think Small Change is a bit unusual in that it will help developers like you with unusual projects that are awkward to finance is the only other way to say it, like awkward to finance, because we think that in the long run it's the right thing to do. So, I'm really excited you're doing that on our platform.

Patrick: [00:24:11] I have one of our early investors, friends of family, this is a long time friend of mine. She does a lot of investing and she was one of the people who was really nudging us to explore crowdfunding. And she thinks just like you do, she thinks, like this is the way to scale, like she thinks this is just going to grow, and she has money to invest, so lots of options as an investor and she is sold on crowdfunding. So, she's in a lot of different crowdfunding deals. She believes this is the way to go. So, you, I think you're right.

Eve: [00:24:42] Yeah. I mean, its, instead of investing your money in a bank or mutual fund, you invest it directly into what you care about. And that's a pretty beautiful thing.

Patrick: [00:24:52] Yup.

Eve: [00:24:53] Hopefully, there are enough affordable housing advocates out there who want to invest in affordable housing that will help you, and maybe we can find them. What does scale look like for you?

Patrick: [00:25:04] I think scale, obviously, it involves not just numbers, but I think multiple markets. We operate on the West Coast, so we see the housing crisis really clearly, you know, and it's all relative. So, sitting in Portland, Oregon, we have a housing crisis. But then what we hear about in California, or up in Seattle, we know it's even more challenging. And then we know that communities across the country are all experiencing this. So, I do think that we want to see us being able to offer this ground lease product in other markets. And, you know, the beauty of what we're doing, and I think what's happening in the ADU industry, is that we don't have to be the builder. We can work with other builders and help them serve more customers in their markets by bringing this financing product to them. And we're seeing a lot of growth in new ADU builders who are building more affordable units in other markets. So, the issue is not going to be capacity. It's going to be how do we bring more financing options to homeowners? So, we think that's where the scale comes from, is being able to partner with builders in other markets.

Eve: [00:26:13] And I agree. So, I have to ask, are there any other current trends or innovations that you think might help this crisis or might help construction costs come down, that you've been tracking?

Patrick: [00:26:28] I'd like to be more optimistic. I do believe in cycles, so I think we're going to get out of this current moment. Where in the construction industry where costs are rising and we do have backlogs. The timber price goes up, there's no way to, you know, the housing costs go up. So, we're definitely in a challenging cycle there. I think that the more efficient that we build, the less waste that you have in the construction process, I think the less susceptible you are to those price changes. We're just going to get more and more efficient and there may be alternative timber products that are able to also drive the cost down there. I think the other issue, which kind of gets in a little bit into the weeds, but building a prefab or factory built AU, however you want to call it, you know, there's challenges in getting that unit into the backyard of an existing house. So, you can imagine a regular residential street in an urban neighborhood, or even suburban neighborhood. It's not like you can just back the thing in the backyard. It's usually not enough space. So, we're using cranes and all sorts of things. We have power lines. We have ...

Eve: [00:27:36] Wow.

Patrick: [00:27:37] ... lots of obstacles. So, there's a lot of properties that have space, the homeowners ready to go, the whole thing, and we can't get there. So, we're seeing a lot of innovation on how can you basically take the house and be able to, like, construct it on site. So, house-in-a-box. So, there's prefab walls and things. But how can you make that process as efficient as building it in a factory, but eliminate a lot of the installation challenges that we have? If you can, if we could figure out how to get those types of units into pretty much any property, regardless of how much space you have to install, or what obstacles in front, I think that itself is going to open up ...

Eve: [00:28:17] Right, right.

Patrick: [00:28:17] ... the ADU market. I think that innovation will happen. I think it'll happen more quickly than the financing innovation will happen. It'll make the financing challenges even more acute because you have more homeowners who are ready to move forward and they're looking at a, you know, 100,000 dollar ... And the other thing I'll just say which, every industry in the world can say this, but, you know, Amazon talks about selling these houses and you have an Airbnb, you have all these companies out there with massive scale that may or may not be able to carry through on this, but we should probably assume that some company of prominence is going to come forward with a solution as well. And I think it's good for the market, assuming they do it responsibly. Amazon says I can sell you a 20,000 dollar house, that's not, it's not it's an irresponsible thing. But it could really help with innovation, it could help with efficiency, those kind of things. So, I do think we're going to be seeing that in the next few years. We're going to be seeing some large companies that you wouldn't expect to be in the middle of this, are doing it.

Eve: [00:29:25] I think it's a great idea, and I wish you all the best of luck. I can't wait to see how you grow and I hope you make your way over to the East Coast sometime, as well.

Patrick: [00:29:37] Thank you, Eve. We do, too. We love the West Coast, and there's certainly a lot of work to be done out here. I get a lot of phone calls from folks in your neck of the woods. Atlanta, D.C.. We really do hear from people all over the country who want to see our model there.

Eve: [00:29:50] So, financing, we've got to figure it out. Thank you very much.

Patrick: [00:29:54] Thank you, Eve.

Eve: [00:30:02] That was Patrick Quinton. Patrick launched Dweller to help address what he thinks is the most pressing issue in Portland, Oregon, right now: a critical lack of affordable housing. He applied focus to the problem and decided that in order to scale, he needed to deal with some key friction points. The first is the complexity of building an ADU, which most homeowners can't and won't tackle. And the second is finding financing to build one, which most homeowners don't have. By entering into a ground lease with the homeowner, and building and financing the ADU for them, Dweller has made the process as easy as can be. But now Patrick must struggle with an industry in its infancy and lenders who are not quite ready to go down the path of financing ADUs built on a ground lease. These are the growing pains of a company that is first in the marketplace.

Eve: [00:31:06] You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me, today. And thank you, Patrick, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:10] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Heather Hood, VP at Enterprise Community Partners and Market Leader for Northern California. Heather works to ensure low- and moderate- income residents have access to affordable, quality housing in Northern California. She's written influential pieces on housing issues, helped to create technical assistance programs and co-chaired Oakland's Housing Cabinet. Heather believes there are a few reasons why we are in the affordable housing pickle we are in. NIMBYism has failed us. Construction costs and the cost of land have soared. We need to permit higher density. And it takes far too long to get permission to build a building – the production line needs to be sped up, dramatically. You'll want to hear more.

Eve: [00:01:13] Be sure to go to EvePicker.com to find out more about Heather on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:40] Hello, Heather. I'm just delighted to have this opportunity to talk to you today.

Heather Hood: [00:01:44] Well, thank you, Eve. It's nice to be here. Good morning.

Eve: [00:01:47] Good morning, well, midday for me, but good morning to you. So, you're working on perhaps one of the most difficult challenges of our time, affordable housing in California. And I was hoping we could start talking about how our real estate industry has failed everyday people. And why is there such a huge gap between housing available and the need?

Heather: [00:02:14] Ah, well, I'm not really sure ..

Eve: [00:02:18] It's a difficult first question.

Heather: [00:02:18] Yeah ... it's a complicated one to unpack. I want to back up there a little bit and question that it's the real estate industry that has failed the population. I think we've all failed. And we do not have enough homes for the population. And that's just a simple question of math. There are millions of people who need homes, but we've grown, in our state and with our economy, with jobs, too much and too fast without having a housing production keep up with it. So, that's got our whole system out of whack. We don't have enough housing at any level of affordability, and especially for low- and moderate- income people.

Eve: [00:03:02] Yeh.

Heather: [00:03:03] The way that that has happened, really ... the reason I was questioning your frame that it's the real estate industry is because there's been many proposals all around the state for housing to be built, in the last 30 years. And our population, especially homeowners, have resisted letting it be built. And so that NIMBYism, "Not In My Backyard," has crimped our production line, construction line, to the point where we're choking now without enough housing.

Eve: [00:03:34] So, really, we've failed ourselves, right?

Heather: [00:03:38] We failed ourselves. We failed to see beyond that thing we, some of us may not have wanted on the end of the street. And we thought, oh, it's going to cause traffic or change the character of the neighborhood or invite too many kids into our schools or whatever it was. We, the big We, were nervous about it, and wouldn't let it happen.

Eve: [00:04:00] So, one of the key things going wrong is, is NIMBYism. And, you know, I thought for a long time developers were really focused on building housing for particular markets. Like, you see a lot of these platform projects with small one-bedroom studio apartments aimed at millennials, that isn't ... you don't think that's part of the problem?

Heather: [00:04:25] Sure, I think that there are multiple problems within the big problem. The big problem is we don't have enough housing. And the construction costs have gotten so darn high with fees and materials and labor and so on. Cost of land, because land is at such a premium, that our private developers feel forced into figuring out how to squeeze the most profit out of each piece of property. And one of the ways to do that is to have the smaller and smaller and smaller units.

Eve: [00:04:57] Yes.

Heather: [00:04:58] And that only meets one segment of the market. And in addition, there's been a push to have lots of amenities, and those tend to get expensive. Dogwashing stations and roof decks with heat lamps and, and jacuzzis, and those sorts of things to create the edge for a particular property, to entice those segments of the market ... They, are targeted. So, it's, in short, called luxury housing. In some parts of the world, it would simply be called regular middle-income housing, but because it's in such stark contrast to low-income housing that is not subsidized and tends to often be poorly maintained, it appears to be very luxurious. In fact, it is barbells, different types of housing types, it's a big problem. We're not building anything, enough in between.

Eve: [00:05:49] The missing middle, right?

Heather: [00:05:50] Well, I'll call it the missing middle. But to be clear what I mean of the middle is a pretty darn big middle. I mean, most people between 80% to 150 ... I mean, the middle of between 30 percent of the area median income, up to 200 percent of median income, a big middle.

Eve: [00:06:06] That's a very big ...

Heather: [00:06:07] A big doughnut hole there.

Eve: [00:06:08] Yeah.

Heather: [00:06:09] Yeah. Tough to build all of that.

Eve: [00:06:12] What's it going to take to correct course, I was going to say, take to correct these things, but I'm just going to say, you know, to correct course.

Heather: [00:06:23] There are a myriad of things. I think the first of, to, for the zoning, to allow for higher density. And some time limit on how long projects can be held up. And conversely, some better process for stakeholders to be able to influence the outcome. Right now, there's just kind of this, you know, this rote and very legal ... process that doesn't invite much conversation or compromise. So, I, something in the zoning. We need to do something about the construction costs, and maybe the answer there is manufactured housing. I hope so, because a lot has been invested in that direction. It also would mean conceiving of projects as being a mix of unit types and income types, where we might start to see some cross-subsidy from the pretty big profit that does, actually, end up being made off of these risky projects, and cross-subsidizing some of the lower income living. Either through getting that to a housing trust fund in the city or county, or by including affordable units.

Heather: [00:07:35] So, that would help ... I'd also emphasize something that our industry probably will start maturing and leaning into, which is the preservation of existing buildings that are affordable. So, where there are, especially near transit or other sorts of neighborhood amenities, there are small, medium and large properties that will likely, in the next economic downturn, be for sale. And that's a really wonderful opportunity for publicly-motivated entities, whether they're cities or nonprofit developers, to purchase them and renovate them, make them that much healthier and permanently affordable for the folks who live there now. That would help a great deal with the displacement challenges. And that sort of technique is cheaper than building new construction. We can leave the new expensive construction to the, some affordable housing developers and the so-called luxury housing developers.

Eve: [00:08:36] Makes a lot of sense. Do you know of people or organizations that are taking these course corrections? I mean, we've all heard about ADUs, which is one way of mixing the market. Right? But that's only one little way.

Heather: [00:08:53] Yeah. I'll mention a couple that I've worked with. One is East Bay Asian Local Development Corporation. It's a community development nonprofit developer in Oakland, California, who has been purchasing properties where people live now. These are once-dilapidated apartment buildings with 30 or 60 units. Or sometimes, in the case of one portfolio, scattered around the city, a very different, small and medium properties that they bought from existing owners, maybe they were kids who wanted to get out of the inheritance of owning ... different stories. And they've been renovating them, bringing them up to code and working carefully with the residents to help them figure out where to live for a little bit of time while the renovations are getting done. And then they end up being much more handsome properties, and less blight in the neighborhood, and appreciated much better by the tenants who know that they can stay.

Eve: [00:09:53] Well, I'm sure, yeh.

Heather: [00:09:54] That's one organization. There's another one called the Oakland Community Land Trust. And land trusts actually are doing this more and more. These are, tend to be smaller organizations, like, one to five staff, who tend to be buying just one little building that's maybe got a cafe on the ground floor and two units above, or a few single family houses in the neighborhood as they come available. This is something where the land remains in the holding of the nonprofit organization and the building itself gets owned by resident or commercial owner. And they've been looking for those kind of opportunities for a good while.

Eve: [00:10:34] Yeah, OK, this is, it's an organic process that looks like it's going to take a while to correct course. I mean, that's in California. I don't know if it's happening anywhere else.

Heather: [00:10:47] Of course ... New York is much more mature as an industry in what we would call preservation. You know, in the three P's: producing housing, preserving affordability or protecting tenants. The second 'P' is, of preservation, is a more mature technique in other parts of the country. But I think we have the potential in California to shift our industry to add this technique at a much bigger scale to our toolkit. And now is the time to do that.

Eve: [00:11:18] Interesting.

Heather: [00:11:19] Yeah.

Eve: [00:11:20] So, what about financial institutions? You know, what sort of role are they taking? I mean, this is an especially difficult time to find financing of any kind. What are you seeing in that, aside from your own organization?

Heather: [00:11:37] So, that's along the lines of things that could shift to change the outcome?

Eve: [00:11:42] Yeah, I mean, along the lines of, you know, are there financial institutions that are taking a stake in this affordable housing problem and shifting more funds towards it, making it easier to borrow money for that type of project, any of the above.

Heather: [00:12:00] Yeah. So, many of us are. I work at Enterprise Community Partners, and that's what we wake up and do every day, is finance policy and technical assistance. On the financial team, whether it's a nonprofit community development financial institution like ours, or others, or a bank, I think what this moment in our history has done is sort of rattle the, you said, you know, what we've got to do is take more quote unquote, risk, in projects. So, there's an, what they call underwriting, which is to figure out if the proposal of a project makes financial sense, if the borrower has the chops to carry it out. There's a safety net that's been built in so that if things that could go awry, there's a cushion. And all that is in the interest of making sure, and the various investors will eventually get their money back, and the project gets done and people get to live there. There, in the underwriting process, there are scores for risk, and in order to get a development done in a, in certain geographies, that would be quote unquote risky, or cities that are quote unquote risky. For some developers who are newer to the stage, especially new affordable housing developers, just ... naturally some scrutiny, but we could probably all relax just a bit to make sure that more projects can flow, and the dollars flow. And I'll have to say that this moment is forcing the financial industry to really look at itself and see that back to the 60s and 70s, the financial institution, through redlining and blockbusting, really made it their version of risky. It's what was quite racist and is what led to creating some of the marginalization that you see in neighborhoods today that are hot neighborhoods. So, it takes some responsibility, sort of an interesting form of reparation, to see to it that the neighborhoods get a much better chance and the people in them get a much better chance to determine their fate and develop ...

Eve: [00:14:17] Right.

Heather: [00:14:18] ... as they would like them to.

Eve: [00:14:20] So, it's going to take some fairly major shifts in a variety of industries to really solve this problem. And then, you know, I wonder what the role of government is in all of this. I mean, zoning definitely has cramped everyone's style, but ...

Heather: [00:14:37] Yeh. Government can do a lot. My perspective on government, and it's not all government, so I am going to make a .... but I'll just make a generalization. That through various tax codes, especially in California, Prop 13, we've, through those sort of ... larger policies, we've forced government, local government, to be looking for those things that would create tax bases. So ... wanting commercial private development, because that's where you get taxes in order to do the things that cities want to do, take care of parks, take care of public works, ensure safety and services, and summer camps and all that kind of good stuff. So, the cities are forced to have to find that through commercial development, and to dissuade residential development, to some degree. So, different cities have responded in their own way to that reality. But if we had a different tax code and cities were not forced into that kind of cattywampus position, they could get back to balancing the various interests, whether they be mission-oriented or private interests.

Eve: [00:15:53] Interesting.

Heather: [00:15:54] Yeah, so they wouldn't have to be sort of pretending to have this, putting lip service to the public good, but having, in to order to execute on that, do a lot of gymnastics, which capitalism ...

Eve: [00:16:08] So, This problem really runs really deep, doesn't it?

Heather: [00:16:11] Yeah, it does. We can talk at the surface level, but that's what really, let government be government, for the people and all the people, of all the, with all the interest.

Eve: [00:16:22] Right. I want to shift gears a little bit and just ask you about yourself, because I noticed that you trained as an architect, like I did. And then as an urban planner. And I'm just wondering what prompted that shift?

Heather: [00:16:35] Oh, well, I'd love to know your story, too. But I'll tell you mine. It's a little bit of a long story. I'll try to make it short. I wanted to be an architect since I was a little girl. I loved designing and spatial relations and 3-D things. And so we drew little floor plans for fun, starting on summer vacation, because my parents wouldn't let us watch TV. And then it just kind of grew into admiring buildings where I grew up in Philadelphia or on trips that we were lucky enough to take. I got to go to architecture school twice, because I was sure that's what I wanted to do, except that when I practiced it, interning or working in ... positions at architecture firms, it really seemed as if the architects were the last ones called ...

Eve: [00:17:26] Oh yeh! Absolutely.

Heather: [00:17:28] ... the early 90s and mid 90s, and I just thought, now wait a minute, I don't want to be the last one called in, you know, when you're under 30 as an architect, you tend to just be sitting at a CAD machine. So, I thought, well, this isn't the life I want. As much as I love my colleagues and the buildings, and the construction process and all that good stuff, I just love it. I mean, I'm looking from my window right now and I see five cranes in the air and I just love watching buildings get built ...

Eve: [00:17:55] Yeah.

Heather: [00:17:55] ... just love it. Endlessly entertaining. So, I happened to be at UC Berkeley and I walked down the hall at the College of Environmental Design from the architecture to the city planning department to sign up for a course. And it was, I think it was Women and Planning, and Betty, Professor Betty Deakin, was teaching it and she just had other women from the field – landscape architecture, architecture, industrial design, city planning – come in and ... I got really jazzed about city planning. I thought, oh, this is what I want to do, I just didn't know what to call it.

Eve: [00:18:32] Yeah.

Heather: [00:18:33] I wanted to make neighborhoods in cities with wonderful buildings for people, and then, ok, that's called city planning. So, it was as simple as that.

Eve: [00:18:42] Yes.

Heather: [00:18:42] Got to go to Berkeley for a couple more years and chase that dream.

Eve: [00:18:48] And then you shifted into finance. Sort of.

Heather: [00:18:51] Sort of, yes. I was lucky enough to work for UC Berkeley doing campus planning. Mostly on the urban, off-campus urban side, and then to be on some boards that were involved in things that affected social justice in cities. And was lucky enough to get to work on an initiative called the Great Community Collaborative, at, based at the San Francisco Foundation, which was a really wonderful way to work with 25 organizations and 14 funders to figure out how can we in the Bay Area make sure that there's higher density and more community benefits surrounding our transit nodes in the region. And that takes a lot of organizing and envisioning and technical stuff. And so we banded together to make that happen, and I got so excited about that. It was hard, but wonderful sorts of people, and important wins along the way. Except I got into it long enough to know that if there wasn't money for what was being planned ...

Eve: [00:19:51] Yeah.

Heather: [00:19:51] ... that things were not going to happen.

Eve: [00:19:55] Yes.

Heather: [00:19:55] It was great to make sure that the density was approved by city council, or that more affordable housing would be built in a place, or that in the building there would be a minimum number of jobs. And that's all great, except if there wasn't the financing in place to, underpinning that, there, things would be stuck. And so, I just thought I've got to learn how this works and pursued a job at Enterprise, which was the only organization that was a financial institution that I wanted to work for, because ... I shared the values and I loved all the things they did around the country, and I was incredibly fortunate to have been hired to take that job. That was the moment. And I'm still learning a lot about financing, right? Endless amounts to learn. I'm not all the way there.

Eve: [00:20:47] Yes.

Heather: [00:20:48] It's going to take the rest of my life to really get it.

Eve: [00:20:51] Well, I always think that architects are uniquely trained to think through challenges. In architecture school we're trained to take an idea and to turn it into something, and I, in a very creative way, and I can't think of another profession where you can really quite do that. So, I love to see architects kind of littered across the landscape in different roles because I, I also think architecture schools fail our students. The students who need to understand that they have so many more options because they have such, I think, special training.

Heather: [00:21:25] Yeah.

Eve: [00:21:25] I actually started as an architect and then went and did a masters in urban design at Columbia, for similar reasons. I was really fascinated by cities more than iconic buildings, and I wanted to know how cities sort of worked together. And when I moved to Pittsburgh, I worked for a planning department as an urban designer, and loved that job. But I worked for an architect for a while and always felt like, you know, we were at the end of everything. There I was sitting doing stair details, whereas, you know, I really wanted to understand how you did development projects and put it together. So, I went to slightly different route and started doing my own projects, and figuring out financing and, and yeah, it is all about money. Unfortunately.

Heather: [00:22:15] So, you became a developer?

Eve: [00:22:16] Yeah, I became a developer. And then when, and then when the funds dried up, they sort of shifted after the Bush administration and the bank meltdown, I sat back and sort of tried to figure out what to do next and then launched Small Change, really, this real estate crowdfunding platform to fill in those pieces of financing that I think are so important to creating new ideas in the physical landscape. They're the ideas that generally are not financed. So, anyway, this is way too much about me.

Heather: [00:22:56] Oh, no, it's fascinating. I love hearing how people make decisions to curl into the next ... especially when I think of younger generations as I mentor people and people call and ask, what should I do next? Which, I'm not sure how to think about this, and there's a great deal of worry people have about ...

Eve: [00:23:14] Oh, there are so many things.

Heather: [00:23:14] ... Yeah. Or they start off their career, and how do I get from here to there? And the truth is, everybody's career is fairly curly.

Eve: [00:23:21] It is curly, yeh.

Heather: [00:23:22] And you don't really know the best path from here to there. You might change your mind.

Eve: [00:23:28] Yeh, and you should enjoy the journey, you know.

Heather: [00:23:29] Right, us planners have to be more relaxed with improvising. I certainly am learning that.

Eve: [00:23:35] Yup. Certainly, there was a period when I really worried about people looking at my resume and thinking, she can't stick to anything. You know?

Heather: [00:23:44] Uh huh.

Eve: [00:23:44] I think that time has passed. And I think now, you know, people are in jobs for much shorter times because there's really a much wider array array of opportunities, which I think is really fascinating.

Heather: [00:23:57] Yep.

Eve: [00:23:58] Thanks for sharing that. I wanted to ask you, what do we need to think about to make our cities and neighborhoods better places for everyone?

Heather: [00:24:07] Oh, goodness, that's a (laughter) really big question.

Eve: [00:24:11] Well, in terms of, even financing, you know, how can we make places more equitable and better places for everyone? Because we know that's, we're far, far from that, right?

Heather: [00:24:21] Yeah. Well, I had the good fortune of studying in Denmark and living in Copenhagen for only six months in 1988, but I have never forgotten it.

Eve: [00:24:30] Oh, lucky you.

Heather: [00:24:32] Yeah. Yeah. I was supposed to go back this May, just for ... and I can't because of COVID, but absolutely in love with the Scandinavian way thinking about this. Where you've got big taxes and they carefully pour them back into the public realm, in both services and in the physical landscape. And so what we have here, it seems like we just think in terms of, maybe, you think of all the properties as being separate, and maybe there's some design codes and zoning codes that keep things what we think is harmonious, but we still think of them as separate. And the only thing that ties things together is the streets. And did you do know that about 25 percent of most urban landscapes is streets. And in suburbs, even more.

Eve: [00:25:15] Oh, yeah. And they're very highly occupied by cars, instead of pedestrians.

Heather: [00:25:20] Yeah. So those are the things that hold us symbolically, if you think about that, that cars and concrete and, or not concrete, asphalt is what ties all these things together. And that doesn't set the mood the right way. So, if we thought of these places as for everyone and we put much more emphasis in the public realm, that would be a really good start. But what do we want to put there? Asking the people who are there and really listening to them and learning from other places. And getting ideas and making trade-offs and so people don't think that they're going to get everything, but make conscious decisions about what they prefer. I think that would be a great way to start. In order to execute we need those public dollars. Goodness gracious, I don't even know, 10 times the scale that we have now, to, to have that. Yeah.

Eve: [00:26:10] People have spoken about that. If you think about the Open Streets program ... I launched an Open Streets in Pittsburgh, and it's been wildly successful. People just love it. That is a lineal park for one day a month. It really should be a lineal park the whole time. But they flock to events like that all over the country, all over the world, and that's kind of speaking to what people want, right?

Heather: [00:26:37] Yeah, well, when I took my son to Disneyland, I was fascinated at how much Disneyland had so much public space and walkability and water features and cafe-like settings. And I find it fascinating that we are, as a culture, willing to pay enormous amounts of money to have that experience as if it's an entertainment, rather than to pay enormous amounts of money into our own environment, to have that same sort of actual feeling on a daily basis ... with the Open Streets and the way that cafe culture has come back and outdoor beer gardens have come back, where you can see that there's a hunger there. I think we just haven't quite figured out how to go beyond the property line.

Eve: [00:27:28] Yeah, but Copenhagen sure has.

Heather: [00:27:31] Oh yeh.

Eve: [00:27:31] Get easily run over by a bike there. A beautiful city.

Heather: [00:27:36] I love it.

Eve: [00:27:37] One other questions, what community engagement tools have you seen that have really worked?

Heather: [00:27:41] Oh ...

Eve: [00:27:42] You talk about really listening.

Heather: [00:27:44] Yeah. So, Eve, I'm calling that into question myself and I have seen people demonstrate what's possible using apps, for stakeholders to put in their preferences, or to note where there is a click it – fix it, kind of, I see a pothole or speed bump problem or whatever, or a tree is dying ...

Eve: [00:28:04] Yes.

Heather: [00:28:05] ... those things seem pretty good.

Heather: [00:28:08] Admittedly, my planning thesis in grad school,1997, was about how planners could engender democracy through better participation. And I had a particular angle on how that could happen, which was making sure people had the information that they need, and a forum for conversation and decision-making. I stand by that, except I don't know what the best technique is. I've been searching for that for over two decades. It is not an evening meetings ...

Eve: [00:28:38] No, for sure.

Heather: [00:28:38] ...in a dank community room with somebody with a mic and people sitting in cold chairs with cold food and no child care and no language translation, listening to somebody say here's, responding to a plan that's already been pretty well baked. It's not that. It's not endless council meetings that go until 1:00 in the morning. You know, there's a private organization that I've been inspired by, called SUDA it's the developer Alan Jones and Regina Davis, who are doing a really interesting project in West Oakland. And to hear how they got community feedback was really interesting because it wasn't necessarily these meetings. It was spending a good deal of time, and I mean years, in a community like West Oakland and listening to what people were saying on the streets and going to barbecues and churches and hearing what it was that was on people's minds, and forming relationships with people more in the immediate surrounds of the West Oakland BART where they're going to be doing four blocks of development. So, that they were building up a sensibility for what the community said it wanted and building the trustful relationships to then eventually present an idea, and respond to that in an iterative basis. So, something along the lines of actually really listening, and taking your time with it, and not just doing an app, but some face-to-face activity seems to be on to something.

Eve: [00:30:22] Yeah, yeah. That's a lot of work for tiny developers. I think, you know, we've got to figure out something better.

Heather: [00:30:29] Well, the city planners who are doing the neighborhood planning or the district planning could be doing a lot of that over time and then let the smaller developers who are filling in hear all about it, take the time to do that.

Eve: [00:30:44] Yeah, I'm hoping that equity crowdfunding can play a little role too, because you know my platform, anyone over the age of 18 can invest, and I think if people can have a stake in development in their own neighborhoods, that's certainly what I learnt in Pittsburgh, that people wanted to have a stake. So, it doesn't have to be very big. It's just, meaningful.

Heather: [00:31:05] Yeah.

Eve: [00:31:06] And then someone else talked to me about 'power mapping,' which I thought was really interesting as well. An interesting idea to kind of understand where the power in a neighborhood lies and talking to those people, and really, I suppose, I'd want to say enlisting their help, but that, it's like almost like a pyramid, reaching everyone in the neighborhood. I thought it was really fascinating.

Heather: [00:31:31] There's 'power mapping,' and there's 'em-power mapping.' Because in the power mapping we tend to want to go to the people who hold the power to make the shifts and create the influence we need. But we also have the opportunity to figure out, well, who doesn't have power who should.

Eve: [00:31:47] Oh, I think all of that.

Heather: [00:31:49] Yeah, yeah, it's hard to do. All of this takes a great deal of time, and in our lives when everybody's rushing to get things done. Like we all do ...

Eve: [00:31:59] Yes.

Heather: [00:31:59] Or rushing to sort of make sure that things are going to pencil out. It's very hard to slow down a little bit and do that, although it can really go a long way. I'm excited about the crowdfunding you're talking about. I mean, at one level, real estate always been crowdfunded, it's just bigger chunks and formal legal entities, and to have it available to the individuals. It sounds so neat and interesting, I can't wait to see it where it goes. It also seems like we don't learn about design, often, or construction, or how cities are made or all the systems that go into that, in our American school system. And so, kinda no wonder we haven't really built up a sensibility for it. And I'm thinking that maybe through crowdfunding, people will feel more connected to whatever it is that they have invested in.

Eve: [00:32:46] Perhaps. It requires a lot of education, but I suppose everything does. So, what's next for you? I mean, the big project, that you can talk about or anything that's got your interest at the moment.

Heather: [00:33:00] Well, I have a team of about 15 people in the Northern California office at Enterprise. We have, typically we have a San Francisco office and a Stockton office, but right now everybody's home. I am excited to have, to work with such a great team and we've organized ourselves around a couple different big principles. And so just getting to organize ourselves and be clear about that is important. And we have two things. One is strengthening community resilience, and the other is building sustainable neighborhoods. So, one is about making sure that we're sort of holding ground in neighborhoods and help people figure out how to stay where they are, if they want to stay. That's through renter protection work or preservation work, like we talked about earlier. And work in public housing, and then also in resilience, and by that I mean both community resilience in a cultural way but responding to all these disasters, the fires and earthquakes and all the stuff that is happening in California. So, it's sort of having gotten clear with the team about that's what we're about. In that body of work it's about strengthening community resilience in a myriad of different ways. And then the other part is creating these big new systems. Like, I'm really excited that my team and I had this idea that there really ought to be a regional housing entity, that the little city, the many cities just don't have the bandwidth or chops and finances to execute that they mean well to do for affordable and market rate housing. But at the regional scale it makes more sense. And so feeling very, very happy that this has been accepted by the state legislature and the governor and we're actually doing it here in this region with the Metropolitan Transportation Commission and ABAG.

Eve: [00:34:46] That's fabulous.

Heather: [00:34:48] Yeah, it is. And it's just a fantastic group of people who really want to see it happen. So those things are exciting for me. I also think that there's something exciting happening, in general, which is that maybe one of the silver linings of this awful pandemic that is so awful for so many people. And it's ... going to bring down potentially our whole economy. In all of that ...

Eve: [00:35:16] Yes.

Heather: [00:35:17] ... we might get a chance to rethink zoning and think about how, you know, you can't shelter in place if you don't have shelter. Therefore, it's in all of our self-interest to really make sure that everybody has a home. So, I'm excited that maybe this has been a real wake up call that will help my industry hurry up and figure out how to get out of our own way and make sure that people are not homeless and people have safe places for their souls to rest that they can call home.

Eve: [00:35:52] Yes, I think that's a really exciting end, and I really enjoyed our conversation, and hope your work meets great success and I'll, I'll be following it.

Heather: [00:36:03] Thank you, Eve. It's really nice to hear your story too.

Eve: [00:36:16] That was Heather Hood. She's fully immersed in the affordable housing crisis, working to help solve it in Northern California. Heather believes that NIMBYism has failed us along with zoning, too. We need to permit higher density to fill the need, and it takes far too long to get permission to build a building. The production line needs to be sped up dramatically. Heather's also astonished that we'll spend a fortune visiting places like Disneyland, where we can enjoy walkability, but we won't spend that on the places we live in. I'm right there with her. You can find out more about Impact Real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:37:18] Thank you so much for spending your time with me today, and thank you for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE

Eve Picker: [00:00:17] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Christopher Leinberger. Chris has had a singular career working on urban land use issues, as a strategist, teacher, developer, researcher and author.

Eve: [00:00:47] Growing up in the 1960s and 70s, Chris was actively involved in community affairs and social change issues. He learned the value of connecting coursework and theory with hands-on community engagement early on. Although he first put his business degree to work in the corporate world, Chris found he wanted to run his own organization and opted to take over management, and then ownership, of Robert Charles Lesser & Company, now RCLCo. At the time, it was a one-office, real estate consulting firm in Southern California. RCLCo became one of the largest real estate advisory firms in the U.S., with four offices nationally, by 2000. Chris's new venture is a startup – Places Platform. This is a project he audaciously hopes will become "the Bloomberg of real estate and the built environment," developing tools and methodologies to measure economic, social equity and environmental conditions in cities and metropolitan areas. Be sure to go to EvePicker.com to find out more about Chris on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:02:25] So, welcome to the show, Christopher. It's really nice to have you here.

Christopher Leinberger: [00:02:29] Really pleased to have a chance to chat with you.

Eve: [00:02:32] I read some of your bios, and the common theme in your development work is the one you discovered when you were eight years old, the value of well-developed, walkable urban land. And I'm wondering how that theme came to take center stage in your professional life?

Chris: [00:02:50] Well, it took me about 20 years to realize that that was what was driving me, from the age of eight – how we build our cities and why are certain blocks, certain places, vital and other places are not. And I didn't know that at age eight. But that's the basis of urban economics. But I thought that was just kind of a childhood fancy. And after business school, I went to work for two corporations and found out very quickly that I make a terrible employee and went to work with a small consulting firm in Beverly Hills, California, that I eventually bought three years later, Robert Charles Lesser and Company. And that, basically, was a firm that I could now explore how we build our cities and what makes certain places vital and others not so.

Eve: [00:03:47] And what did you discover along the way? It must have been pretty difficult setting out on this path.

Chris: [00:03:55] Well, certainly, this is back in the early 80s, and drivable suburban development was the thing in vogue. And in fact, this consulting firm, which did market studies, financial feasibility, I introduced strategic planning for both real estate companies and places, like downtowns. And I expanded the company from just a West Coast operation to a national, in fact, you know, we did a lot of work abroad, until I sold the company in 2000. It's still very active today. It's much bigger than when I was running it, back in 2000. But it was a little depressing to look at the fact that the market seemed to only want masterplanned communities and subdivisions and, you know, strip malls. And that's what we were doing in the 80s. The market studies and the financial feasibility were all about, you know, this drivable suburban stuff that we in this country invented. But then towards the end of the 80s, it really kind of started with a project I did in Downtown Chattanooga, which was a strategy for Downtown Chattanooga, the first downtown strategy I've ever done. And we pulled this strategy together with the city, with the place manager, River Valley Partners, and the county and the banking community and all sorts of ... and the great civic sector, just a remarkable civic sector. And we put together a strategy. 14 points to it. And within three years, 13 of the 14 were done.

Eve: [00:05:37] Wow.

Chris: [00:05:37] And it was off to the races. And so, I've stayed in, I've stayed involved with Downtown Chattanooga for the last 30 years. It's just been a remarkable turnaround. So, there I found that, good lord, people actually may want this walkable, urban stuff that, that really was so attractive to me when I was eight.

Eve: [00:05:55] Right. Yeah, I think I always dreamed about living above a coffee shop in a downtown.

Chris: [00:06:04] I always dreamed of living on a penthouse of a 1920s apartment building, you know, condo, co-op, whatever, and having a deck all around you and having the cage elevator take you up to it, and so ...

Eve: [00:06:21] Fabulous.

Chris: [00:06:22] Anyway, I got the cage elevator. The building I live in, it's five stories on Mass Ave, and it has the oldest elevator in town, which is a cage elevator that comes right up to our floor.

Eve: [00:06:35] How about the deck all around? No?

Chris: [00:06:38] No, didn't get that. The 'deck all around' is just about to become about 108 solar panels.

Eve: [00:06:45] Oh wow, and I got the coffee shop after about 20 years of trying so ... Just an aside, I'm especially in awe of your advisory role in Walk Score, which is a tool that I use every day, apparently with four million other people. So, that's an amazing tool that's emerged out of your interest, as well.

Chris: [00:07:06] Yes, I was on the initial board of Walk Score before, and then, of course, it was bought by Redfin, so that board went away. But I have loved the folks at Walk Score. I still use them, you know, in my research at Brookings and George Washington University. And now, in my next phase of life with Places Platform, which is my startup, that is basically Sim City for real, and Walk Score is foundational to that.

Eve: [00:07:37] So, I use it. I developed a Change Index for my crowdfunding platform, Small Change, and I use it to identify, you know, where projects are that walk in the door are located, like every day. It's a fabulous tool.

Chris: [00:07:51] It's remarkable. And the other thing that a number of us have found is that in walkable urban places, Walk Score above 60 yields tremendous value enhancement. You know, here in D.C., on the for-sale residential side, one Walk Score point above 60 yields about a 10-dollar-per-square-foot increase in value of a house or a condo.

Eve: [00:08:22] That's pretty amazing.

Chris: [00:08:22] That's huge. Places Platform just did our beta test in Grand Rapids, Michigan. So, this is a Midwestern town, small Midwestern town, not exactly a bi-coastal sort of place. And in the office market, one Walk Score point increases office valuations by a buck a square foot.

Eve: [00:08:44] Wow.

Chris: [00:08:45] And that's, again, for a town that an office sells for 180 to 200 bucks per square foot, one Walk Score point equals a one percent increase in valuation. That's pretty significant.

Eve: [00:08:58] So, I'm proud to say my Walk Score is, I think, 99.

Chris: [00:09:01] Wow, well that's impressive. My Walk Score's 92. I live within about four blocks of Dupont Circle.

Eve: [00:09:11] I live downtown in Pittsburgh, so you really, no, that's pretty simple.

Chris: [00:09:14] Yes, it's great.

Eve: [00:09:16] You know, I first became aware of your work when, when I was struggling with a capital stack for a little catalytic development project. And I heard about the Albuquerque project and 'patient money,' and those of us who do this sort of development know that it's very difficult to get traditional financing to accomplish groundbreaking projects. And I just love you to talk a little bit about how you approached that when you started that project, and, in general.

Chris: [00:09:45] It starts with an understanding that there is no such thing as new ideas. As you may have also seen or heard, my favorite urban movie is "Back to the Future," and it's the most important urban movie ever made that is popular because it shows the two ways of building: drivable sub-urban and walkable urban, in three different time periods. The 1950s, which was really a reflection of the early 20th century, 1985 when the movie came out, which showed how we completely disinvested in our downtowns and all the energy, and all the money, shifted to regional malls and business parks, and, of course, subdivisions. And then the near distant future, that again this 1980s view of the near distant future, which showed downtowns coming back. And the suburbs going into decline, and who'd have thunk that ...

Eve: [00:10:46] Yeh.

Chris: [00:10:46] ... in the 1980s. Well, that near distant future was 2015. So, these writers of the movie nailed it, and none of us in the 1980s were thinking that the cities were going to come back that quickly and that well. So, you look at how we used to finance, and much of the money in the capital stack... You know, the capital stack is going to be comprised of two basic categories – equity, you know, cash at risk, and debt, money you get from banks at very cheap interest rates. So, by definition, the equity is the risk capital and it goes in first and comes out last. And with a 'Back to the Future' financing approach, that, you've got to have 40, 50, 60 percent of your capital stack being equity, and most of that being 'patient equity.' It's not looking for an internal rate of return of 25 percent. It's going to be put in. It's going to get paid back when the project matures. You know, don't bother measuring it. Just recognize that it's there for the mid- and long-term. And if you realize that, in walkable urban real estate, you can make a bloody fortune. But you just can't make it in three to five years.

Eve: [00:12:18] But we have pretty impatient investors right now who want to make that sort of return quickly. Two years.

Chris: [00:12:25] Oh, yeah, oh yeah.

Eve: [00:12:26] That's frustrating for me with my platform, because, you know, some ... these projects that I think are so important for the future have a very hard time getting equity.

Chris: [00:12:41] So, you have to be creative, of course, and most the important thing to be creative about is making sure that the land invested in your deal is invested patiently. So, the best example... I'm in partnership with Robert Davis in my development company. Now, we're both, at this point, limited partners with our development company, which is called Arcadia Land Company, based in Center City, Philadelphia. But Robert's best known for the project, Seaside, on the panhandle of Florida. And it's the first New Urbanist project. And Robert got 80 acres from his grandfather as his inheritance on what was then known as the Redneck Riviera. This is where the country boys from Alabama would go down to the beach and drink. And Robert looked at this as a patient equity investment, and slowly but surely came up with a great urban plan, and slowly invested in the infrastructure, block by block. And he sold his first one eighth of an acre lot for ten thousand dollars. He sold his last one eighth of an acre lot for two million dollars ...

Eve: [00:14:02] Oh wow.

Chris: [00:14:02] ... 25 years later.

Eve: [00:14:04] Wow.

Chris: [00:14:04] And he still owns Downtown Seaside. It's worth a bloody fortune, with condo prices at 1,500 bucks a square foot. That's what the ancients knew how to do. And that's what the Grosvenors in London knew how to do 400 years ago. They were just, you know, farmers that happened to own this farm that became the West End of London. And they never sold the land. They just had long-term leases, and became one of the top 20 wealthiest families on the planet because they invested long-term. So, we have lots of examples, just not that many currently, as we have this 'get rich quick' mentality

Eve: [00:14:49] We really do, don't we? Interesting. What's your favorite project that you've worked on?

Chris: [00:14:56] My second project. I was still running and owning Robert Charles Lesser and Company and got hired by a Seattle family to redevelop a shipyard in Kirkland, Washington, right on Lake Washington, right across Lake Washington from Downtown Seattle. They built Liberty ships there during the Second World War. And this family also happened to own the Seattle Seahawks at the time, and they had their practice field there. And so, they asked me to figure out what to do with it. And we came up with this pretty, at that point, wacky idea of high density, mixed use, walkable urban – a new marina, office, hotel, retail around a plaza, rental apartments, condos, and from day one, decked parking, highly expensive to build, so we could get the kind of density that we needed. And the east side of the Seattle metro area, at that point, you did not charge for parking. So, this was an incredible investment with zero return as far as the parking goes. And everybody, you know, Urban Land looked at it and said, you're crazy. And I mean, even the office brokers who have no skin in the game, said this is crazy. And we came up with this set of recommendations. And the family, the Skinner family, old mine family up in Seattle, said to me, great idea! Now can you build it? And I said, holy smokes, I'm a consultant. What, do you want me to do something? So for about two years, I was the fee developer and it came out of the ground, it just ... to this day, it gets the highest office rents and rental apartment rents in the northwest of the U.S.. Because of its high density, walkable, urban nature.

Eve: [00:16:57] Wow. And you were hooked, right?

Chris: [00:17:00] Oh, yeah, I saw the power of it. It was just really impressive. And, you know, this is your ultimate doing well while doing good. And you can feel really proud of Carillon Point, which is what it's called ... because it's a long-term keeper. And I asked the family, so, you know, why do you want to do something that's, that's so unconventional from the finance point of view? And they said, well, we've been around Seattle for 100 years. Our family's going to be around for at least another 100 years. We're building with 100 year perspective.

Eve: [00:17:30] Wow. So, then what led you to launch Places Platform?

Chris: [00:17:35] This is kind of a culmination of all the work I've done, going back to age eight. You know, I mentioned earlier, it's the Sim City for real estate and place management and city management. It also could be viewed as the Bloomberg of real estate. Michael Bloomberg, with his original company that made him worth 40, 50 billion dollars, basically created a data set, a database of all the stock and bond markets back in the 70s and 80s, that ... and so on one screen in front of you, or actually two or three screens, you could understand anything about any stock or bond that was being traded on public markets worldwide. And that was a huge step forward. Well, real estate is worth about twice as much as all the publicly traded assets in this country, of all the publicly traded companies. And we are not yet at that point, but we have 100 percent database of all the real estate, we're real close, and that's what Places Platform is creating. Working with Walk Score, working with Co-Star, working with Zillow and Collateral Analytics, and a variety of other databases that are in their silos, we're bringing them all together. And we're looking at it from an economic performance point of view ... meaning we can do gross regional product, GRP, at the place level, at the city level. At this point, we can't get GRP below the metro level, at least officially, you know, throughout the country. But Places can take it down and tell you what the GRP is of Downtown D.C.. We look at the net fiscal impact, how much does the city net at the place level? How much does Downtown D.C. make for the city of the District of Columbia? The revenues coming in from property taxes and income taxes and sales taxes and all the rest, minus the cost of services, the net fiscal impact. And these walkable urban places almost always make the bulk of the money for a city to pay for public schools, and to pay for welfare and other social benefits. And then, of course, we look at the real estate valuations for all the real estate.

Chris: [00:20:05] We also have three other metrics. One is social equity. What does it mean for somebody who is a low-income household? We also look at it from a public health point of view, and particularly with COVID. And the fourth one that we have not yet developed is, of course, environmental. So, what Places Platform is trying to do is to have a quadruple bottom line. To analyze public policy, infrastructure investment, major real estate development, and understand and quantify what the economic, social equity, public health and environmental, you know, hopefully benefits, are from those investments.

Eve: [00:20:47] Is your hope that this information will propel cities towards the right sort of development?

Chris: [00:20:57] That's it. I've come to realize in my career that there's either a downward spiral for cities or an upward spiral. And the 80s and into the 90s was the downward spiral. No matter what you did, no matter what federal program, whether it be UDAG grants or Model Cities or you name it, redevelopment, there was a downward spiral that no matter what you did, no matter how much money you spent, it would not change the downward spiral. Well, we're now in this upward spiral, with, you know, the market share gains for walkable, urban development is just through the roof, and the price premiums are two, three, four times the price per square foot of drivable suburban places. So, we have this upward spiral. And I have found that the upward spiral, if you have correct public policy, can both give you economic returns and social equity returns and public health returns and environmental returns. And this will be a measurement tool to make sure you are achieving all four of those returns. You do not have to sacrifice social equity for these economic returns.

Eve: [00:22:15] So, then I have to ask the dreaded question, do you think that COVID-19 is more than a blip on that upward spiral?

Chris: [00:22:25] To be flip? It is just a speed bump, it is just a blip that, you know, a year or two from now we'll look back and just say, that was kind of a weird couple of years. But having said that, I'm not saying that a lot of changes are being sped up. Changes that were in place ...

Eve: [00:22:46] Compressed. Yep. Yep.

Chris: [00:22:48] The head of global research for Cushman and Wakefield asked me a couple of months ago to work with them to help figure out what's the 'future of office' in the U.S.. And so we're in the middle of that work right now, and certainly there's going to be an impact, particularly on the office market. There's going to be, in my mind, it's pretty clear, that there's going to be a repricing, i.e., a reduction in value of offices. It's going to affect different metro areas differently, and we're going to be looking at it, looking at the 30 largest metros to figure out what the impact will be in each of those 30 metros. But, like with every crisis, there's opportunity, and the opportunity, if we see a repricing and a reduction in occupancy in the office space as more people work from home, and, you know, it's not going to be 100 percent work from home. We know that. But it will be more than what we had, which is about 11 percent in 2018, according to the census, worked from home during the most recent week that that survey was conducted. It'll be higher than 11 percent.

Eve: [00:24:07] Yeh, yeh.

Chris: [00:24:07] So, those offices will experience a lot of pain. And the other thing is, that then allows that office space, which is in remarkably great locations, particularly the walkable urban space, to be recycled, probably as residential.

Eve: [00:24:28] Yeah.

Chris: [00:24:28] We are short anywhere from seven to 12 million housing units in this country. That we've not allowed the real estate development community to build. We have mandated that they could not build them. And that has created this horrendous affordable housing and homeless situation. And so a lot of those office spaces, as well as a lot of the hotels, are going to become assets that we can convert into housing in great walkable urban locations.

Eve: [00:25:03] Right, right. Aside from that are there any other current trends in real estate that you believe are most important for the future of cities?

Chris: [00:25:12] Yeah. We collectively in real estate and the built environment, you know, urbanists, in general, we really need to address, forcefully, the need to 'up-zone.' Up-zone land, and in particular, in cores and corridors. The cores are walkable urban places, both in center cities, but in particular the urbanizing suburbs. Probably 50 percent of new walkable urban development will be in urbanizing suburbs. Metro D.C. is leading the way, not just in this country, but worldwide in the urbanization of the suburbs in Arlington and, you know, downtown Bethesda, Silver Spring, Reston Town Center, National Landing, National Harbor. But it's a massive up-zoning battle ...

Eve: [00:26:07] Yeh.

Chris: [00:26:07] ... fought by NIMBYs. NIMBYs are the most pernicious force in urbanism right now, and I am quite ashamed of my generation, I'm a baby-boomer, that are leading the NIMBY charge and it's the most selfish movement ever. And they're basically saying, you can't come here. And if I stop you from coming here, my house is worth more. And it's all in the land. So, we need to flood the market with more up-zoned, walkable urban land. But it's only going to be a small percentage of total metro land. Here in D.C. only two percent of the metro area is walkable urban. That's it. Two percent. And that's where all the action is.

Eve: [00:26:55] You know, you're probably familiar with this, but over the last 10 years or so, I visit Melbourne, Australia regularly, and they up-zoned their key commercial corridors in the way you're describing. And it's been really interesting to watch it. Are you familiar with that?

Chris: [00:27:10] Very much so. I've been to Melbourne quite a bit.

Eve: [00:27:13] Yeh, yeh.

Chris: [00:27:13] You may have run into Mike Day, who's the leading urban planner in Australia, who's based there, and he has an urban planning firm that is the largest in the country. And he and I have been working together, particularly in Melbourne and Sydney. Yeh, they really need to up-zone. I mean, they obviously, you know ...

Eve: [00:27:32] Oh yeh, Melbourne is sprawling badly.

Chris: [00:27:34] Oh, god, it is horrendous. And the same with Sydney. But, you know, their downtowns are among the top five on the planet.

Eve: [00:27:43] Yeah, they're fabulous.

Chris: [00:27:44] When you get out of the downtowns, and it's just suburban hell.

Eve: [00:27:47] Not all of it. Like Melbourne has a really great train network and a wonderful bike network that really connects some of the neighborhoods around downtown, really, pretty well, which is, you know, one good thing.

Chris: [00:28:01] Well, the downtown and the downtown adjacent places are tremendous in Melbourne, as you know better than I, you know, the region of Melbourne is comprised of, like in the U.S., many, many, many jurisdictions. And so the center city is one jurisdiction, downtown and downtown adjacent. So, then all those suburban jurisdictions just don't get it ...

Eve: [00:28:27] Yeh.

Chris: [00:28:27] ...and they are beginning to get it. A lot of efforts going into it. So, I have no doubt that they're moving in the right direction.

Eve: [00:28:35] Well, a city like Melbourne, too, I think it's one of the fastest growing metros ... It's certainly the fastest growing in Australia, and ...

Chris: [00:28:42] And it's such a lovely place. It is just ...

Eve: [00:28:44] It's a lovely place.

Chris: [00:28:45] Charming as can be. Remarkable people.

Eve: [00:28:49] Ok, then, do you think equity crowdfunding can play a role in building communities for everyone? We're talking about social equity and how people can get a stake in their own community.

Chris: [00:29:02] I think it's a critically important trend. And again, it's 'Back to the Future.' This is how we used to build the great real estate. I always used to wonder back in the 80s when I was really trying to noodle through how did the ancients of the late 19th, early 20th century build these buildings that were so well built? They were over-engineered. They were architecturally significant. They were built for the ages as opposed to the junk that we were putting up in the 80s and 90s that were, you know, just slam bang, thank you, ma'am. Throw them up. Assume that in 10, 12 years they're going to become a slum, and you didn't care because you got your money out. And it was because of crowd funding. And it was local folks coming together to build, in particular, you see this with hotels that, every city needed a glamour hotel that would show off the best of that city. And all the business folks would come together and put in money to build this hotel, to demonstrate that this city has come of age. And those hotels are with us today as the grand, marvelous anchors of our downtowns. Every city throughout the country has one. But the same thing applies to much of the commercial real estate, that a lot of small investors came along and dropped in the equivalent of a thousand dollars and they owned a little piece of their community. And that did a lot of things. One is they would economically benefit from the vitality. They would walk past it and they could say to their friends, I own that building. Point of pride. That's the great thing about real estate, is that, you know, unlike software development, which is viper ... just vaporware, you can point to a stick and brick building and say, I own that. Great pride, great emotional return. And it also gives you a reason to care about and patronize your hometown. It's the ultimate doing well while doing good.

Eve: [00:31:10] Yeah, I think you've described exactly why I started a crowdfunding platform. In Pittsburgh, you know, in the neighborhood I lived in for a long time, some of my neighbors would just band together to buy a vacant house to make sure that it wouldn't fall into a slumlord's hands. And, you know, that was exactly in that era. And I was, I was pretty impressed with that. I thought it was pretty fabulous.

Chris: [00:31:36] Yeh, yeh, I've seen that kind of thing happen throughout the country. Chattanooga, again, my favorite small town, has an organization called Chattanooga Neighborhood Enterprises that has redeveloped low-income neighborhoods surrounding downtown with zero, zero displacement.

Eve: [00:31:56] Wow.

Chris: [00:31:56] And it's just remarkable. You know, there's so many great examples out there now, over the last 20, 30 years.

Eve: [00:32:04] Well, I've really, really enjoyed talking to you. And I can't wait to see how your new venture evolves. Thank you very much for joining me.

Chris: [00:32:11] It's been very good to catch up with you.

Eve: [00:32:13] Thank you. Bye.

Chris: [00:32:13] Bye. Bye.

Eve: [00:32:26] That was Chris Leinberger. His fascination with cities started at a very early age and evolved into an astounding career working on urban land issues as a strategist, teacher, developer, researcher and author. He built an enormous advisory company and then moved on to focus on development as a co-founder of the Arcadia Land Company, a progressive New Urbanist development company for which he is still a managing partner. I hope you enjoyed listening to this interview as much as I enjoyed recording it. You can find out more about impact real estate investing and access to the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:33:20] Thank you so much for spending your time with me today. And thank you, Chris, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:10] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:17] My guest today is Ken Weinstein, the CEO of Philly Office Retail, ordinary by name only. Ken has built his company into one that serves the neighborhood it invests in, always tackling underutilized and blighted properties and turning them back to good use. But that's not quite enough for Ken. He launched a boot camp for wannabe developers in his neighborhood, called Jumpstart Germantown. To date, he has trained 850 of them, and a half a dozen other neighborhoods have started their own program using his open source program information. Still not satisfied, Ken has also launched a loan program and lends to developers that cannot get bank financing. He's a powerhouse. Listen in.

Eve: [00:01:10] Be sure to go to EvePicker.com to find out more about Ken on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:35] Welcome to the show, Ken. I'm really eager to talk to you.

Ken Weinstein: [00:01:38] Thank you, Eve.

Eve: [00:01:38] You are a very prolific developer by the sounds of it and also a prolific entrepreneur, I really want to hear about everything you're working on. Maybe we could start with your real estate projects. I'm wondering what led you to tackle the very challenging work of restoring vacant and blighted properties?

Ken: [00:01:57] Yeah, it's been a passion of mine for over 30 years now and I started part time for first 15, 17 years, of my real estate career. And for the first 10 years, I started exclusively in renovating vacant residential properties for the first, you know, mostly single family duplexes, triplexes, and then about 20 years ago switched over to renovating vacant commercial properties, which is what we still do today. But my passion over the years has been blight removal. I grew up in the suburbs of New York City and North Jersey, and we didn't have blight. So, when I moved to Philadelphia, which is a community I very much love, I couldn't understand why and how there was blighted properties and I set out to do something about that.

Eve: [00:02:53] Oh, that's interesting, that's kind of the way I see it. I grew up in a pretty suburban area as well, and we didn't have blight, so moving to Pittsburgh was pretty much the same experience of you moving to Philly, I think.

Ken: [00:03:06] Sounds about right. Yeah, I came here in the late 80s and have not left.

Eve: [00:03:11] You know, what's your key development focus now and what neighborhoods you focus on?

Ken: [00:03:16] Well, over time, like a lot of developers, our projects got larger and larger. So, you know, we used to do train stations and storefronts and small mixed-use projects. Now we've moved on to schools and churches and former factory buildings. We find that we now have the expertise, of course, to get those things done. But it also takes the same amount of time to buy and renovate a storefront, a vacant storefront, as it does a larger, either former office building or factory building. So, we've tended to go towards the larger projects. We focus almost entirely on what I call 'middle neighborhoods,' not your most struggling neighborhoods that are hard to rent at the end of the day after you renovate, and also not the hottest neighborhoods. In Philadelphia that means everything sort of surrounding Center City. Those areas have already been largely gentrified; there's less need for us to come in and try to maintain and improve the community in which we're working. So, we're focusing on those middle neighborhoods, which are probably about 50 percent of Philadelphia.

Eve: [00:04:36] Wow. OK. Tell us about a favorite project that you've worked on and what it looks like.

Ken: [00:04:41] Yeah, there are so many. Hard to pick just one, but a couple of years ago, there's probably been a few years ago now, we took a vacant St. Peter's Church campus in Upper Germantown, which is a neighborhood that I've particularly focused on. And it's about a one and a half acre campus, a total of four buildings, three of them historic, from the late 1800s. Historically designated properties, so there was a lot of requirements on what we could and couldn't do to the property. But it had been sitting vacant for about 10 years. Two of the buildings in particular were very close to coming down on their own. So, it was very tired and risky project. We purchased it for less than $500,000, put about six million construction dollars into the project, saved these four wonderful historic structures, and we did a long term lease with a Waldorf school ...

Eve: [00:05:49] Oh, nice.

Ken: [00:05:50] ... which continues to occupy the property five years later. So, it's a classic win-win-win strategy that we've used over time to save this property that otherwise would have gone under if we hadn't bought the property.

Eve: [00:06:07] Yeah, yeah. So, what's the most important thing you strive to accomplish with every project you do?

Ken: [00:06:14] You know, like I said, my passion is blight removal, so, you know, to me it's relatively easy to buy a vacant piece of land and do new construction. It's more difficult and more needed to renovate and do adaptive reuse on an existing building. So, that's what we try to focus on. But more than anything, we try to do, you know, what's now a common term, PPP - People, Profit, Planet - also sometimes referred to as Triple Bottom Line investing, and try to create, just like the Waldorf example, a win-win-win for the developer, the community and the tenant. And I'm not going to tell you all of our projects benefit all three, but most of them do. And that's what we strive for. The developer should make a reasonable profit and cover overhead. Otherwise, we're not going to get commercial loans to do our projects. The community should see jobs, should see a better quality of life, should see blight removal. The tax base should be increased to pay for services for the city. There should be amenities involved, you know, people in the neighborhood should enjoy whatever tenant is coming into the property. You can't just improve the property, you also have to improve the neighborhood at the same time. And then, lastly, and what a lot of developers, I think, miss, is the tenant also needs to benefit from the project. There needs to be reasonable rent. We are unique in that we offer a 100 percent fit out for a lot of tenants so that startup tenants, in particular, can come into our properties. We help our tenants with initial marketing. And we also help to place them in the right spot, you know. Just because someone comes to us and says, I'm a startup restaurant, can you find me a location? We're going to put them in a location that we think makes sense because we know and understand the community.

Eve: [00:08:20] Great. So, what's the biggest challenge you've had?

Ken: [00:08:24] Over time, that changes sometimes or very often, the biggest challenge is finding tenants in the past that has held us up a lot. Currently, I would say, a challenge is construction. Construction costs are going up ...

Eve: [00:08:40] Yeh.

Ken: [00:08:40] ... Hard to find experienced carpenters, in particular. So, it's held us back. You know, that we have tenants that are waiting for their properties to be fit out and we need to make that happen more quickly. Another challenge right now is, you know, during the pandemic, is financing.

Eve: [00:08:59] Yeh.

Ken: [00:08:59] Financing seems to be fairly easy for multifamily housing, but most of our projects are commercial in nature ...

Eve: [00:09:08] Yeh.

Ken: [00:09:08] ... and financing is not so easy. I am fully confident that will come out of this and financing for commercial will be a lot easier a year from now. But until then, we're going to have to fight and get a little more creative.

Eve: [00:09:22] Yeah, I've been hearing the same thing from many people. That's really interesting. So, now I'd like to dive into the other things you do because all of that doesn't seem to be enough for you, in that ...

Ken: [00:09:35] Never enough (laughter).

Eve: [00:09:35] No, no, I wonder when you sleep (laughter). So, in 2015, you started a really fascinating program called Jumpstart. I'd like you to tell me a little bit about it and why you developed it.

Ken: [00:09:52] They are very excited about this project. And, you know, like a lot of projects, you see a need and you respond to that need and you don't know if it's going to make it or fall on its face. And, so here is a project that we started that just excelled and took off beyond my wildest dream. It's called the Jumpstart Germantown, and now Jumpstart Philly. But what we set out to do is train, network, mentor and loan money to a new group of real estate developers that have had trouble breaking into the industry. We started this, like you said, in 2015, and it really came out of a lot of people knocking on my door and emailing me and calling me, and saying, "Hey, I love what you do. Can you show me how to do it, too?" And of course, we all love to pay it forward, so, we say yes and we sit down with people for an hour at a time, and ... but at the end of the day, I just felt like I was their cheerleader. "Hey, here's how I got started. You can do it, too. Good luck. Stay in touch." I wasn't helping anybody get started in real estate development. So, what we did, I started to say 'no' to those requests and instead put together a 12-hour curriculum that I can take people through, hand them off to a mentor after they graduate from our program, and then loan them money to get started with their first, second, third project. Because we all know that traditional banks don't like to lend to newbie developers without a lot of experience. So, it's just been incredibly successful. We have graduated 850 people so far through our ...

Eve: [00:11:37] Wow.

Ken: [00:11:38] ... Jumpstart Germantown program. We have lent them over twenty million dollars ...

Eve: [00:11:43] Oh wow.

Ken: [00:11:44] ... for 200 projects. And then, it's been so successful, and we've made all of our resources and our workbook and other materials 'open source,' that other neighborhoods have picked up on this model and have run with it. So, there's now six other Jumpstart programs in Philadelphia that other people run and there are Jumpstart programs in Norristown, Pennsylvania, and Wilmington, Delaware, that will be starting this fall.

Eve: [00:12:15] Wow.

Ken: [00:12:15] So, we're just really excited that people see the value in this model. And we have changed a lot of lives and removed a lot of blight from the communities in which we serve.

Eve: [00:12:26] So 850 people, who are they and why do they want to become developers?

Ken: [00:12:32] That's a good question. You got to be a little crazy ...

Eve: [00:12:34] Yeh, you really do.

Ken: [00:12:34] ... to become a developer.

Eve: [00:12:37] Yes.

Ken: [00:12:37] And part of what we talk about in the beginning of the training program is what is real estate development and who is best apt to do it? You know, what traits are needed to be a successful real estate developer? And one of the things we talk about, or one of the things we focus on, is risk. Because that's what is true of every real estate developer. If you're not willing to take risk, if you're not willing to take the last 20,0000 dollars you have in your bank account and put it into a project, you probably should not be a real estate developer. And that's OK. No judgment. Real estate development is not made for everybody, but it does attract a certain group of people. And once people get a taste for it, it's addictive. You know, people keep going with projects ...

Eve: [00:13:22] That's for sure.

Ken: [00:13:24] Yeah. Some people have done, gone through Jumpstart and they were intending on doing one project and they liked it so much, they're now going to do one a year. Or we've had dozens of people who have quit their day jobs and gone into real estate full-time.

Eve: [00:13:39] Oh wow.

Ken: [00:13:39] But there's no one group of people for Jumpstart. When I first started it, I thought, oh, you know, it'll be young people, the next generation. Turns out it's everybody. It's contractors who retired who want to benefit from the fruits of their labors. It's realtors who know how to source properties, but don't know the other six steps of real estate development. So, it's just a variety of people. But one thing has been really wonderful is that more than 85 percent of our graduates have been women or people of color who are traditionally left out of the real estate development process.

Eve: [00:14:22] That's fantastic.

Ken: [00:14:23] So, it's great that, just organically, that we've been able to attract that group of people.

Eve: [00:14:29] That's really pretty fabulous. So if you can hammer one thing into new or an old developer's head aside from risk, what would that be?

Ken: [00:14:40] It's knowing what you're doing, willingness to take risk, but a lot of what we also cover ... You know, there's a lot of get rich quick kind of schemes out there, and people that show you how to flip properties quickly. The reason why our Jumpstart program is different, and something that I say to everyone who wants to be a real estate developer, is keep the community in mind when you are developing properties. There's a lot of developers out there, as you know, to get started, they put their head down, and they literally walk to and from their properties as quickly as possible. They park right in front of their property so they don't have to interact with neighbors or talk to people. No. We're teaching you park a block down from your project when you visit your project. You go door-to-door, initially, when you start your project, introduce yourself, tell people what you're doing, why you're doing it. Interact with the community. Don't be like that elected official that waits till it's election time to go door-to-door and ask for people's support and vote. No. Introduce yourself to the community, get to know the community so that when you do go through zoning or you need support from a community member, they already know you, they already trust you. And definitely, as I said earlier, think about the impact that you're having on the community as you develop. Because you can't just do it in order to make a profit. You really need to do it in order to improve the community in which you're investing. And then you'll invest and benefit much more in the future.

Eve: [00:16:29] Yeah, that's a great thought. Great advice.

Ken: [00:16:32] Thank you.

Eve: [00:16:33] So, are there current trends in real estate development that you think are the most important for the future of our cities?

Ken: [00:16:41] Yeah, it's ... interesting, obviously, with the pandemic trend is an interesting topic right now. Because there's trends, I think, that will exist for the next year that will not be long-term trends. There's a lot of people suggesting that everyone needs larger houses and people are going to move to the burbs because of the pandemic. I think that's all short-term. I think, and what I'm hearing is that long-term, the cities are still going to be the place that people want to be, that people will return to public transit, that people will want to live and work within walking distance of a train station. So, those are the things that we're still focusing on. Again, they may not be true for the next year during the pandemic, but they are certainly trends that had started a few years ago that I believe will continue, and developers should pay attention to that.

Eve: [00:17:41] So, stay the course, right.

Ken: [00:17:43] Stay the course. Exactly.

Eve: [00:17:45] Yeah, I feel pretty much the same way. But I think at the moment people are so scared of the unknown that it's difficult to predict the next year.

Ken: [00:17:54] Right.

Eve: [00:17:55] So, your whole life is wrapped up in what really is impact real estate development. Do you think there's a best approach towards impact real estate development and investment? Is there something that we could be doing better? People talk a lot about impact goals, but I really wonder how many people actually follow through.

Ken: [00:18:15] Yeah. And it's hard because banks in particular push you or force you to think about the financial bottom line.

Eve: [00:18:25] Yes.

Ken: [00:18:25] And if you're a caring person, you want to think about something larger than that. So, you really have to buck the trend in order to continue to think about the community. Is there any one way to do impactful real estate? No. I'm the last person to say you got to do exactly what I'm doing if you want to be impactful. No. There's a lot of ways to be impactful. We are all sort of watching each other and learning from each other. And we all know who are the impactful developers within a community. We can learn from each other, but there are lots of different ways of being impactful, and it really depends on what your goals are, what your niche is, and what resources you have. So, some of us have more funding than others. So, I know that you're very involved in crowdfunding, which is awesome. And if you have less dollars, you need to focus more on crowdfunding, which certainly has its benefits.

Eve: [00:19:27] Yeah, I really wonder when we reach a tipping point, because it's really still so many buildings going up that do not benefit communities.

Ken: [00:19:35] Right.

Eve: [00:19:35] I mean, the large majority of them, I think, developers like you are still few and far between. And I'd love to be able to imagine 10 years from now it'll tip the other way, but I'm probably too hopeful.

Ken: [00:19:50] Well, that is, you know, I didn't say it, but that really is one of the goals of the Jumpstart program, is by showing newbie developers how to be impactful, how to care about the community while developing, up front, we're hoping to turn that trend. I would agree. Right now, most developers are not focusing on how to be impactful. But I am hopeful that if we can train newbie developers and aspiring developers in a better way, that will change five or 10 years from now.

Eve: [00:20:26] Yeah, it's almost like you need a Restart program ...

Ken: [00:20:31] Yes.

Eve: [00:20:31] ... for the old developers.

Ken: [00:20:32] Yes. Well, funny you mention that because we are starting up a what we're calling Jumpstart 2.0, which is taking developers that have done 10 or more residential properties and helping them through a 21-hour program, graduate to commercial real estate, which is a specialized niche, as you know.

Eve: [00:20:55] Interesting.

Ken: [00:20:56] So, yes, in some ways it is a reset because we're going to show them how to be impactful in commercial neighbourhoods.

Eve: [00:21:04] Well, that's great. How do you think we can build better cities and neighborhoods for everyone, aside from all the work you're doing? I mean, I think you're pointing towards a way to do it, but is there anything else we're missing?

Ken: [00:21:17] Yeah, there's a multitude of answers to your question, of course. Part of it which we're starting is training, mentoring, networking and funding for women and people of color, in particular, so we can diversify the network of real estate developers. But part of it is that government needs to step in, not in an obstructive way, but in a way that's relatively easy, to help keep tenants in their apartments and houses so they don't get displaced when neighborhoods become hot. Better loan programs for homeowners, so, again, that they can buy and stay in the neighborhood of their choice. Government needs to help us make sure that neighborhoods don't get gentrified while we're improving neighborhoods. So, it's not just up to the developers to get it done.

Eve: [00:22:15] Yeah, I always think about people on a fixed income, when a neighborhood gentrifies, and they own a property and they're forced out. That really is within government's purview, to change the way that property taxes are implemented.

Ken: [00:22:29] Yeah, that's absolutely right. Although I do focus more on the tenant because tenants are much more quickly and immediately ...

Eve: [00:22:39] Displaced, yeh.

Ken: [00:22:39] ... displaced. Exactly.

Eve: [00:22:41] Yeah. Yeah yeah.

Ken: [00:22:42] Homeowners are much more slowly displaced.

Eve: [00:22:46] Yes. That's a really difficult problem.

Ken: [00:22:49] And then again, it's up to the developers or government. But we should not be encouraging what I call 'urban renewal,' you know, the knocking down of a whole bunch of properties in order to build new. We should be focusing on the reuse of properties, in particular, the adaptive reuse.

Eve: [00:23:09] Right, right. Right. And then, you know, you mentioned crowdfunding. Do you think, you know, I have noticed over the last few months a real uptick in developers reaching out to us. And I've heard them say that banks have basically shut down. And yet we need creative new solutions right now more than ever. I mean, how do we deal with that? Banks are really retreating and we need these projects. Can crowdfunding really play a role?

Ken: [00:23:39] Yeah, absolutely, and I have not used crowdfunding yet, but I am, like I said, the developers watch each other. So, I'm watching Philadelphia projects done by Mosaic Partners ...

Eve: [00:23:53] Oh yeh.

Ken: [00:23:53] ... Leslie Smallwood and Greg Reeves, who speak highly of you, and you know how they've been able to use it. But again, I want to, I do want to make clear that I think the financing issue right now and the lack of banks wanting to finance is short-term. Right. And as soon as we move out of this pandemic, those funds will keep flowing again.

Eve: [00:24:15] It hasn't been short term for projects that make a change, like, let's talk about a first time investment in a neighborhood after 10 or 15 years. That's the sort of project the bank has been veering away from for the last decade, at least, if not longer, because they want to see an appraisal, they want to make sure the project is going to cash flow. If it's something new and innovative, they're not comfortable there.

Ken: [00:24:40] Right.

Eve: [00:24:40] That's been the case for a long time.

Ken: [00:24:44] Yeah, right now, we're in a totally different world, to be honest. It has totally clamped down. So, that's why I'm distinguishing now versus a few years ago. There has absolutely, banks don't want to use the word redlining, but we all know that illegal redlining continues, even though it is officially, on the books, illegal. But we do catch banks and insurance companies that veer away from middle and struggling neighborhoods when they shouldn't be.

Eve: [00:25:17] Yeah.

Ken: [00:25:17] And to me, more of how they do it, and the crime is that they veer away from aspiring developers and newbie developers ...

Eve: [00:25:28] Yeh.

Ken: [00:25:28] ... who are focusing on these middle and struggling neighborhoods. So, they're blaming it on lack of experience when many of us know that the real reason why they're rejecting it is where the property is located. So ...

Eve: [00:25:44] Yeah, yeah.

Ken: [00:25:46] ... it's absolutely a problem. But crowdfunding, as you said, is one way to break through that and to raise equity for projects that are otherwise not being funded.

Eve: [00:25:58] Or maybe your Jumpstart loan program, which sounds amazing.

Ken: [00:26:01] Yeah, it is very much geared towards providing those loans that the banks won't do. If someone can be bankable and can get their own loan, please go out and do it.

Eve: [00:26:13] Yeah, yeah, exactly.

Ken: [00:26:15] We're not looking to do every loan because we have limited resources. But if you are unable to get a loan because you lack experience, or because your credit is not good enough, or you are developing in a neighborhood that's not attractive to banks, then absolutely, we want to fund those projects.

Eve: [00:26:37] Yeah, yeah. So, what's next for you, besides all of this?

Ken: [00:26:42] You never know. I think our projects continue to get larger and larger. We're looking at a 150,000 square foot school building right now that we plan to renovate into multifamily housing. But I think Jumpstart also continues to grow, both in Philadelphia and around the country. We've heard from folks in Tulsa, Oklahoma, Milwaukee, Chicago, you know, probably a dozen other cities that are interested in starting a Jumpstart program. So, I think it's a matter of time before this idea goes national and really helps a lot of urban neighborhoods. So, it's sort of, the sky's the limit.

Eve: [00:27:31] Yeah, well, I love it. And you may be hearing from someone in Pittsburgh soon. So ...

Ken: [00:27:35] Awesome! That would be great.

Eve: [00:27:37] Thank you. I've really enjoyed talking to you and thank you very much for sharing all of this with us.

Ken: [00:27:42] Great. Thank you, Eve. It's nice to be on your podcast. Appreciate it.

Eve: [00:27:54] That was Ken Weinstein. He's a developer and he's a teacher, too. He's trained 850 everyday people on how to develop their own properties. They live in his neighborhood and more often than not, they are Black or women. And he's lending them money too. "We can train and mentor aspiring developers all day, says Ken, "but if you can't loan the money, they're not going to get very far." You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today.

Eve: [00:28:54] And thank you, Ken, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:13] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:20] My guest today is Katie Faulkner, an architect with a 25-year career. She has traveled a long and winding road to find answers to the design issues she cares about - that design and architecture should be accessible to everyone, regardless of budget, and that all projects should have a net positive outcome. Starting with a master's in architecture degree from Harvard, she added in an MBA and a stint with Kattera diving into the technological aspects of mass timber construction. Her work has earned her many awards. You will want to listen in.

Eve: [00:00:20] Be sure to go to evepicker.com to find out more about Katie on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:29] Good morning, Katie, I'm really excited to talk to you today.

Katie Faulkner: [00:01:32] Good morning, Eve. Thanks so much for having me.

Eve: [00:01:34] Yeah. So last week I was absolutely spellbound by the fabulous presentation you gave to our lovely Women's Design Collaborative on the four ways in which COVID will forever affect design. And that presentation, for our listeners, is posted on the Small Change blog roll if they want to take a look. But I wanted to ask you, what inspired you to research and prepare that presentation?

Katie: [00:02:00] Sure. So, Rebecca Martinez and I did this together. Rebecca is located in L.A. and I'm in Boston. And both of us have lost our jobs during this COVID pandemic so we've had some time to really focus in on member advancement for the Women's Development Collaborative. And that's been great for me because it has opened up a world of development that I've long wanted to participate in, but actually as a designer and architect, haven't done a lot of directly. So, Rebecca and I were brainstorming with Libby, who, you know, is our leader for WDC. And we had been talking about an open letter and a video that Sheryl Durst, who's the CEO of IIDA, had put out there on the future of design. And she made some pretty bold predictions and so Rebecca and I started debating some of them, and that was really fun.

Katie: [00:02:50] We noticed that designers have been prognosticating since March. Some of the prophecies have seemed kind of silly. Some have been extremely elegant. All have called into question the way we go about our lives, how we interact with our fellow human beings, what we consider to be dangerous, what we consider to be fair, how we support one another. And we found that a lot of the changes that we were seeing had been things that had already been in motion before the pandemic. And what we were witnessing was some kind of acceleration. So, I think you've had some of the guests on your show in the past. Even before this you've had MASS Design on. They came out early with some restaurant guidelines and some health care standards. Other firms have done the same. The magazine Architizer, the online magazine, had all these articles of sort of X ways that COVID will change Y, you know, how housing will change, how office will change. And then, of course, I always like to give the last word to The New Yorker, which had this article on how the coronavirus will reshape architecture. So, Rebecca and I kind of sat down and we thought about it from our perspective on the West Coast and the East Coast, what were we seeing?

Eve: [00:03:55] And so, what did you find? Maybe the question should be: what are like the most ground-breaking things that you found, the most interesting things you found?

Katie: [00:04:03] We were all over the map because we felt, like, that we could base our one-hour presentation on so many topics that we found interesting, even if we just looked at how she saw L.A. and how I saw Boston. But given where we were in our careers, given that we were really trying to work with women and women in development, we decided to divide the presentation into four areas. Into work, into home, into the ground floor of what I'll call mixed use development and then in terms of how we were seeing changes on the street. And so that's how we started, and we began to pull together some studies that maybe had already been underway pre-pandemic but were now really being looked at. People like Heinz Development and CBRE were making some predictions about office. And we were seeing other architects kind of talk about the home. One of the things I think we zeroed in on immediately were how changes of work, our preferences in work. We did a poll of our own group, of our WDC membership, and I think you were there. Not one person in that group felt, like, that they would be going back to the office full-time even after a vaccine. I think that was the most startling discovery we made as we were pulling the presentation together.

Eve: [00:05:23] Interesting. Moving forward in your work, how are you going to act on what you found?

Katie: [00:05:30] Well, interesting. I mean, personally, as I'm launching a firm myself, it's really given me pause to think about what to invest in. In a normal situation, I would have run right out and subleased some office space as I have a number of friends and colleagues who have small offices who have been great about offering me desk space and resources. But I haven't needed it because so many of my colleagues and the people I'm collaborating with are not going back to the office. They have families, they've got reasons to stay home. So, I don't think I'll do that immediately. I've spent more time investing in my home office. I've spent more time investing in my technology platforms and learning new tools so that I can produce work by myself or produce work with a series of collaborators. So, it's a little bit of a different model. Again, the technology platforms, I think, were things that we were already all using, but we've really accelerated our investment in ways that we might not have seen before.

Eve: [00:06:33] Yeah, and I think in the same way we've seen acceleration of businesses that were maybe dying. It's almost like a compacted 10 years, isn't it, during this pandemic of things that have changed?

Katie: [00:06:46] Yeah, another thing that surprised us quite a bit was retail. I don't think anybody is surprised that retail is being challenged during this time, because I think we've been watching, over the last decade, retail try to adjust to online competition. But I do think that what we found in a McKinsey report was that, it's thought that we're pushing 10 years early in the acceleration of consumer penetration on digital platforms. And by that, I think they mean that there has been this gradual movement to people doing a lot of business online, even things like their health care, more than just ordering groceries or products, actual real penetration to digital platforms. So suddenly, in three months, we've moved 10 years forward.

Katie: [00:07:36] So what does that mean for our own mixed-use development? I mean, you and I have talked about this before, that in housing developments, there's going to be this assumption that there's an activated street, right? That there's a ground floor that's dynamic. Well, if that's not going to be retail, if that's not necessarily going to be small business, what's it going to be? So that, I think, caused Rebecca and I to really take a deeper dive into things like omnichannel retail and what does that look like? Who's likely to take ground floor? Or maybe things like ground floor housing, maybe? What does that look like? So, that's interesting. And of course, not everybody is in a highly populated urban area, but I think that still does cause to call into question kind of ground floor housing models. So that was a bit of a discovery for us.

Eve: [00:08:23] And what do you think is going to happen with offices on the whole? I mean, we hear people want to go back to office. They want to go back to work. They don't like working in isolation, but also isolation might be a little bit safer and cheaper and all of those things.

Katie: [00:08:40] Yeah, that was confusing. I think for me, I'm still on the fence on how that's going to go. If you look at CBRE or a recent article that I read about Heinz, people in commercial are predicting a decrease in overall office demand for sure. But it seems like they're predicting, kind of, a small decrease that I've read as low as two percent. And the reason they say that is because they think that there'll be an overall demand for more space in your office. Maybe offices aren't going to bring the whole group downtown, but when they do, people will want 15 percent more space than they had. I don't know about that. I mean, it isn't that I don't believe people want more space, but the open office was already kind of well underway. That kind of studio model that architects and designers have been used to was really taking over all kinds of office sectors. But that being said, I don't know that everybody, I'm going to go back to that informal poll that we took just with our own group, I think most of my colleagues don't think that they'll go back every day. That maybe they'll check into their office hub once a week, but they won't be showing up every day. Now, that begins to call into question things like the nine to five schedule, right? So many of us work in different time zones and we have colleagues that work maybe overseas. Why limit our work to nine to five? If I've got parents or children or other pressures, I can get just as much done, but maybe I'm restricted by school hours, et cetera. So now we're thinking like, whoa, what about the weekend?

Katie: [00:10:20] It's a really interesting question to begin to think about how we structure our workday. If we don't have to be in that physical office space, that the Headquarters becomes more of a network and less of a physical space to be, I'm not so sure. I mean, we've listened to other people talk about this kind of glut of office space going into the housing market. So maybe two problems get solved at once. I mean, it's all very fascinating. I don't know that the data is there yet, but it certainly gives one pause in terms of how we think about how we're going to structure our work life balance.

Eve: [00:10:54] You know, I couldn't really answer that poll because the question for me would have been, were you going to the office 9 to 5? I mean, I lived two floors above my office, and so my schedule was already sometimes at home, sometimes at the office. And that's going to continue. And I've been using Zoom for years. So, for me, it's really not much of a shift.

Katie: [00:11:17] I have the same issue. I had been practicing with a firm that I co-founded for almost 11 years, and then I'd taken a job with a West Coast construction company with the understanding that I'd move out there when my youngest son graduated from high school. So, from the time I started that job, I was completely remote. I'd go to Seattle a week a month, but otherwise completely Zoom-focused. Because of their West Coast time zone, I'd also adjusted my schedule to match theirs. So, I was already quite comfortable with that as a way of working and it really gave me a sense that people could work almost anywhere as long as they could find the time to come together. So, I think what you're pointing out is something that was already happening. I mean, the real reasons why we're not going to the physical office anymore, but I'm not so sure that we actually have to go back, at least in the way that we did. I think people will feel safe eventually when there's a vaccine, but there'll be other reasons why we'll call into question, I mean, why would I battle traffic? Why would I kind of expend that carbon footprint to drive in if I live out of the city? It begins to not make a whole lot of sense.

Eve: [00:12:24] Yeah, yeah. You're an architect and you obviously care about design very much. And I just wanted to understand why it's important to you and why you think, I believe you think, it should be important to everyone?

Katie: [00:12:36] Oh, that's, yeah, so I have been practicing since the late 90s and almost since the beginning have had a real fascination with prefabrication in construction and the ability for construction to be much more efficient in a way that had a much lower carbon footprint. This was, I think, back before, I think even then we all knew that we had a real responsibility to the climate but maybe the climate as a crisis wasn't screaming at the top of our agenda the way it is now. I think we've always, as architects, had a Hippocratic Oath to do no harm. And as time has gone on, it's been clear that we, as an industry and construction, actually contribute to a good deal of the carbon emissions globally. So even though we, I think, have always been trained to make the world a better place, and I really do fundamentally believe in the power of design to do so, as we've matured as designers, as I think data has been made more available to us, we realize that we've been as much of the problem as any other industry, if not more so.

Katie: [00:13:48] And I think that we cannot alone, as designers, make a change. But if we begin to look at the way we deliver projects, if we begin to look at the materials that we use and the way that we work as industry, developers, manufacturers, we could do a great deal better in in reducing carbon footprints to the point where our buildings would have not only a zero carbon footprint, but actually would have the ability to be productive. And we've seen people do that. What's been the challenge is that it's expensive. It's not for everybody. I think as I've gotten to what I think is probably the sort of, you know, final yards of my career, the sort of next 20 years, it's so important to me that the work that I do be moving us all in a positive direction. And I know that most of my colleagues feel the same way. We're all looking at issues of storm surge. We're all looking at issues of climate. We're all looking at the responsibility of making the world a more sustainable, a more fair and inclusive place. And I'm definitely not alone in that. I think designers kind of bring that passion. I hope so anyway.

Eve: [00:15:00] But I think you've gone a little bit further because you worked with, for Katerra, right?

Katie: [00:15:05] I did.

Eve: [00:15:05] On timber housing solutions.

Katie: [00:15:09] That's right.

Eve: [00:15:10] What is mass timber construction?

Katie: [00:15:13] Oh, well, I'm happy to talk about that. So, in 2011, I launched a firm with a couple of partners called NAADAA. One of them is the designer, who's fairly well known, Nader Tehrani. And that practice was really focused on design excellence, but design excellence with a really profound engagement with the materials of construction and how construction, kind of the means and methods of construction. So, we were very interested in mass timber when people started talking about that. And it has been a common material in Europe for decades. There are housing, there are examples of schools. Europeans, Austrians, Germany in particular, have done a magnificent job in turning that into an affordable and sustainable way to do all kinds of construction. The US has been behind that, meaning lagging, in that our zoning codes, our building codes did not necessarily make it easy for us to use the material. It's also not been cost effective. What it is, is mass timber incorporates everything from cross-laminated timber, which is a series of what we'll call lam stock, general old two by four construction, glued up into layers and then layered upon layers so that it becomes a pretty robust material that can compete with concrete.

Katie: [00:16:31] It's also glulam which is very typical. Lots of people have been using glulam for years, which is again another glued-up means of using just regular timber stock into something that has a lot more resilience, both structurally and with fire protection. If done well, mass timber can be very sustainable and work very well with forestry management and actually help bring industry to parts of the country that have not necessarily had productive forest for a long time but have a lot of timber. There's a whole wealth of research that's being done by the Carbon Leadership Institute or the Carbon Leadership Forum. There are companies like Katerra that have been founded on bringing cross-laminated timber into the mainstream of construction.

[00:17:20] It can be done as a hybrid. It can be done with steel, it can be done with concrete, and even then, still very much lowers the carbon footprint. It isn't just the material itself, but it's the ability to do a lot of the fabrication offsite. So, when it comes on site it can get erected relatively quickly. We at NADAAA put together and successfully delivered the first mass timber student residence for Rhode Island School of Design in Providence. That is a hybrid. It's not completely mass timber and by that, I mean the structure itself is steel, meaning the columns are steel, but the slabs are cross laminated timber. So, you can leave those exposed with certain construction types so you get beautiful ceilings and you can really appreciate the natural wood. Goes up very fast, has much less dust and waste than concrete. It's a wonderful material and we could do a very deep dive on that in this podcast. I know we've talked about the WDC doing something on it. There's no shortage of information on it. It's a really fascinating material and I think the challenge now is to find ways to bring it into the market so that everybody can access it, so that it really can be cost effective for housing, for schools, for all kinds of typologies that really need not only carbon with a low footprint, but with a cost price point that that makes it accessible to everybody.

Eve: [00:18:44] You know, I was interviewing an architect in Amsterdam, Superlofts.

Katie: [00:18:49] Oh, yes.

Eve: [00:18:50] In my podcast. And he also brought up another aspect of mass timber that I thought was really fascinating from a design point of view. He was designing communities where he expected people to want to change their spaces, you know, add maybe another unit or subtract a room over time. And mass timber gives you the ability to break through and change the space that someone occupies much more easily than other materials, which I thought was really interesting.

Katie: [00:19:21] You know, we talked a little, we've talked a little bit about this, that, again, just getting back to this discussion of acceleration, pre-COVID if we were talking about housing, I would have said the biggest challenges to housing in the next decades are social justice, the delivery method, and then, of course, climate. I mean, those three things could be put to just about any construction type. But that social justice component it's exactly that. That way that we could deliver housing to people that would give them the flexibility to grow so that maybe when you're just starting out, it's just a small household. Maybe it grows to have a family or have a multigenerational component where parents move in or people stay.

Katie Faulkner: [00:20:05] And you're completely right, mass timber allows for that because it's this, kind of, terrific almost plug and play kind of construction that you can have the slabs put in place would have structural integrity themselves and have a pretty decent span. And you can kind of leave it as a shell and then outfit it as time goes on with either a timber construction or a hybrid construction of something that's more of a lighter frame. And it is exactly that. It's extremely flexible. So, you can build this kind of grid system that's quite elegant, that allows itself to be a studio, a one bedroom, a two bedroom, a three bedroom. It can be townhouses. So, we're not yet doing a lot of that here and again, I think that the barrier is market driven. It's that it's not yet cost competitive with other construction types. But I think that that's coming. I think you're going to see that in housing, this ability for people to get a housing unit, a housing type, and then grow into it. So, your Amsterdam architect is spot on and I think the U.S. will catch up.

Eve: [00:21:10] Yeah, cool. Shifting gears, do you think architecture offers the same opportunities for women as men?

Katie: [00:21:19] I do. I'm very optimistic about architecture, where I'm less optimistic is architecture within the integrated delivery process. So, I really, as an architect coming up, feel that I had a lot of opportunity to grow. I had a lot of support, even though I would often find myself the only woman at the table. When we would get on the job site, as soon as the project would leave the office and expand into the what really is, I guess if I could back up, what really is a project has a great deal more than architecture. Architecture has the ability to bring some vision and really help clients see the potential of their project. But you can never do that without engineers, without the funds, whether that be developer funds or client funds, and certainly without contractors. The world of construction is not necessarily as supportive of women as architecture has been. Architecture is by no means without problem. But I think that if you look at where we are, there are a lot of women in leadership positions and more all the time. I have a lot of role models in architecture who have been women who I've looked up to, both well-known and not. But as soon as we leave the office and we go into that world of project delivery, whether it be development or construction, it's discouraging.

Katie: [00:22:54] I think that I've wanted, my leaving NADAAA was difficult to do because I loved it. I love architecture but I really wanted to make an impact and I thought the best way, I think the best way to do that, is to somehow move a little bit more directly into construction and development. That has been extraordinarily difficult as a middle-aged woman or frankly, as a woman at all. That is challenging. And I'm frustrated. I think that women in development, there aren't very many, you and I have talked about this before. If we really want to look at women run projects, there are great examples where a lot of the leaders are women. But if you dig deep, they're often backed by firms that are led by men. I'm not saying that that's a bad thing. There are plenty of very enlightened men. But for women to have these opportunities, I just think that the barriers are huge. We often don't even really know about development. And when we get there, I don't know. there's just, this topic is so rich, but the short answer is, is it's a challenge for sure.

Eve: [00:24:03] You know, for quite a long period of time I think that was the only female developer in Pittsburgh, which was a little startling to me.

Katie: [00:24:11] That doesn't surprise me at all. I mean, that's frankly, before I even knew about WDC, I had researched you and had seen a project on Small Change and gotten really excited about you as a woman developer. I mean, I've contacted women developers all over the country just to meet them, just to kind of find out more, to see how I can get started. Fortunately, I mean, what I will say is that when you do meet people in development who are women or who want to see women succeed, there are a lot of tremendous resources for us. Finding those, though, is difficult. And kind of finding the capital and the wherewithal to start a project, as you know, is challenging.

Eve: [00:24:54] Yes, but don't give up because it's a lot of fun.

Katie: [00:24:57] Well, I'm trying, I do, I'm very optimistic and I'm extremely grateful for WDC and for our members because there's a lot of support there.

Eve: [00:25:05] Yeah, it's great. Well, I'm going to shift gears again and ask you, I think I know the answer, do you think socially responsible real estate is necessary in today's development landscape? Essential, not necessary?

Katie: [00:25:19] Oh, I think it's essential. It really is. I mean, I don't think that where we are today with our issues of equity and diversity and inclusiveness, I don't think that's any accident. I think that the tragedies that brought it to the forefront, that brought people out to the street, that was just something that was waiting to happen. There have been so many challenges to housing, to work, to various industries. I just cannot see that the social challenges and the environmental challenges that we have are not inextricably linked, that when we build anything, we have to look at the neighborhood that it goes in, the group that it is meant to serve. You cannot come into an area as a developer or an architect or a constructor without having the very people that the project is meant to serve at the table. And you cannot but think about the impact of the building on the neighborhood and the neighborhoods of the neighborhood, it's just not a question anymore.

Katie: [00:26:26] You know, you put something up and the hope is that you make the place better than it was, that you're giving people opportunities that they didn't have. We talk about kind of a scorecard, right.? And sort of, how do we look at a project? There's the environmental component, there's a jobs component, there's an inclusiveness component. There's just such a complex, three-dimensional web. We cannot not do that, no matter what it is that we're building - a factory, a distribution center - it's long past time. And I think that as developers, as architects, as builders, we can only do so much. We're going to have to take a really good look at our land-use restrictions, at our zoning requirements, at the building codes. There's going to be a lot of work. But I think that the louder the conversation is, the more people that are standing up and saying, hey, wait a minute, I think this is an extraordinary time. I think in many ways we will look back at 2020 as being a year of sea change, a real pivotal year.

Eve: [00:27:29] No, I agree with that. But I think probably my biggest frustration is still finance and...

Katie: [00:27:35] So true.

Eve: [00:27:35] You know, what's happened in the last month, it's a very odd phenomenon. Over a period of four months, things were pretty quiet as people grappled with their own situations around the pandemic and whether or not to move forward with their projects. But now, all of a sudden, everyone's gotten very busy. And I had a conversation with a developer yesterday who is doing a really interesting, worthwhile little project, not so little, actually, and wants to raise money for it. And the proportion of money he wants to raise is actually pretty high. So, my first question is always, can you get a bank loan? Because bank financing is the cheapest money you're going to get. You should always look for a bank loan before you look for equity. And he said no. The banks here have stopped lending, there's nowhere for me to go. So, we're in this time of change, right? And we need to be thinking about the new next things and the way we're going to live. And our financial institutions seem to be shutting down. That's big.

Katie: [00:28:47] That is big.

Eve: [00:28:48] They were already not amenable to new ideas because money is lent based on performance of projects just like it before. So, if you're doing something new, it becomes very difficult to finance something. And we need new now, right?

Katie: [00:29:04] Yeah, I second that. I find that the most frustrating part, well, one of the most frustrating parts about trying to launch new businesses, there is a lot of lip service to supporting new businesses, small businesses, women-run businesses. There aren't a lot of financial resources there. And you're right, the first place I would go would be a bank. But if you haven't done a project before, if you don't have a track record as a developer, even pre-COVID, you're just not going to get that loan. So, I don't know how to solve that problem. I mean, I think that, again, there's all kinds of places that I can go to offer me training, to offer me, kind of, coaching but where to get the money? Difficult. Very difficult.

Eve: [00:29:54] Very difficult. So, at Small Change we try to do a little bit of that, but it's a really big problem to solve. As big as zoning and everything else. Now, I feel really depressed.

Katie: [00:30:05] But you shouldn't because I actually think that you have stood as an example of what's possible. I mean, you know, all of these things that crowdfunding brings opportunity to people who a) might not have had access, even just to the equity, but b) wouldn't have the wherewithal to know how to do it. So even though I think it's challenging and we're looking at, we have ambitions maybe to do bigger projects, the fact that you have allowed a group of people who might not have even had access to it, the notion to better understand how to get a project developed, that's huge. And if those rules change, I mean, that's really something.

Eve: [00:30:44] Yeah. Yeah. Well, final question. What's next for you? Well, you're in the next, right?

Katie: [00:30:51] I think so. I mean, I'm really trying to make lemonade. I, again, I was, it was a little bit of a, well is very much an unplanned shift. I had joined Katerra, which was a big change. I mean, I've been an architect in conventional practice for, I like to say over twenty-five years, because as we get to 30 years, that's starting to sound kind of ridiculously old, but it's been a long time. So, the notion of moving to a construction company was a really big change and for a number of reasons that didn't work out. So, I'm trying to go back to kind of what my ambitions always were, were to do an impactful, sustainable, socially responsible architecture and development. I think that architecture as an art can only go so far. And to really be impactful, I'm going to have to enter the world of development and that's new to me. So, I've spent most of the last four months trying to learn more about development, trying to partner with others who are small enough to want to kind of take on a collaboration. It's very, very challenging in Boston. But to begin to maybe look outside the well-developed metropolitan areas to some other Opportunity Zones that are well served by public transit. It's been a learning curve for sure, but I'm optimistic. It's also an incredibly exciting time. I think people are motivated. As you said, we need a new new. That being said, it's a bit of a, it's a bit of a cliff that I'm trying to scale. So, let's check back in a few months. But I'm hopeful that we'll see some progress.

Eve: [00:32:27] We should try and do a project together. And if there are any, anyone else out there that wants to join us, that would be amazing.

Katie: [00:32:33] It would.

Eve: [00:32:34] My big dream is, sorry gentlemen, but an all-woman-run development project would be just amazing.

Katie: [00:32:45] It would, it would. I think we have a shared ambition there and I believe, I believe we're going to see it. I'm going say in 2021. So, let's cross our fingers.

Eve: [00:32:53] I hope so. Well, thank you very much for joining me. I really enjoyed the conversation.

Katie: [00:32:58] Oh, thanks for your interest. It was a pleasure.

Eve: [00:33:07] That was Katie Faulkner. Many architects stay within the confines of prescribed architectural roles. Katie has really stretched herself and now she wants to stretch herself more. She sees real estate development as the ultimate way to take control of the physical landscape. And I'm right there with her. Let's hope she succeeds and brings her wealth of knowledge and compassion to the real estate development world.

Eve: [00:33:42] You can find out more about impact real estate investing and access the show notes for today's episode at my website, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:33:59] Thank you so much for spending your time with me today and thank you Katie for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:10] Hi there. Thanks, so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:18] My guest today is Patrice Frey, the president and CEO of the National Main Street Center. Through the Center, Patrice and her team offer programs and guidance on placemaking, local entrepreneurship, facade improvements, crowdfunding and green habs, all in service of revitalizing commercial main streets in both big cities and small towns alike. Their network is very big with eighteen hundred members. If you want to hear why main streets matter, listen into our conversation.

Eve: [00:01:04] Be sure to go to evepicker.com to find out more about Patrice on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:35] Good morning, Patrice. I'm really looking forward to our conversation today.

Patrice Frey: [00:01:39] Hi, Eve. Thanks for having me. I'm looking forward to it.

Eve: [00:01:42] Good. You have a pretty big job. The National Main Street Center now has eighteen hundred members. Is that right?

Patrice: [00:01:50] It is, yeah. Eighteen hundred members all across the country. Every state in the union, I think, except maybe saving Hawaii.

Eve: [00:01:59] Ok. That's pretty big. How has it grown under your watch? You've been there since 2013, is that right?

Patrice: [00:02:09] Yeah, I have. We launched as a subsidiary of the National Trust in 2013. Before then, we had been a program embedded at the National Trust for Historic Preservation and we have been very fortunate to see a strong membership growth in the last, in the last seven years or so. You know, those 18 hundred members are located all across the country. It's a really good mix of rural programs and more mid-sized and then quite a bit of representation in some larger cities as well. When we took over in 2013, the team had a real focus on reaching out to folks that had been members in the past and maybe they had lapsed. And we've also just put a tremendous focus on developing new content and new resources that have helped to, I think, attract people, attract people to the organization. Yeah. So, it's been really gratifying. We're so proud to have such a large and strong membership.

Eve: [00:03:10] So I have to ask, I suppose the main question is why Main Streets?

Patrice: [00:03:16] Well, great question. You know, Main Street is important, I think, in at least two ways. The first is they truly are in the heart of a community and people tend to feel about their town, the way they feel about their downtown, which is to say you've got a healthy, vibrant, thriving downtown. I think that's a real sense of pride, provides a real sense of pride and helps shape the identity, a positive identity for a community. And the reverse is true as well, where if you look at downtown and there's nothing happening, I think that can help sort of create a sense of distress and incredibly challenged. So, psychologically, we know main streets are extraordinarily important. They're really important for the quality of life factor, you know, providing restaurants, dynamic shopping experiences, all of that good stuff. But we also know that they're key to economic competitiveness, right? Because as the economy, we've seen these seismic changes in the economy in the last 10, 20 years, we know that people are more mobile and they're often picking where they live and then choosing a job. And that means for those employers, for local leaders, it's extraordinarily important that there are high quality places in those communities and downtowns have those qualities in abundance.

Eve: [00:04:40] So that's what's going to be my next question. Why is it important to save them? So, one reason is that it offers an option for people. But what if they didn't have that option? Why is it really important to save main streets?

Patrice: [00:04:54] A couple of reasons come to mind. The first is that often if you're looking in some of our more stressed areas, cross country, whether that's in rural or urban areas, other than the people, that commercial quarter is often the single greatest asset that that community has, right? It tends to be affordable, stay flexible, it's adaptable, it's walkable and we know more and more people are really appreciating the benefits of walkability. So, it really is an approach to asset based economic development that leverages what you already have. The other thing is main streets, particularly those, you know, those truly that were built like before the 1950s, you have just such a beautiful sense of character. They really reflect the local culture. They were built in a human scale. They're super, and I've already talked about adaptability, but that is extremely important, 5the fact that you can adapt these places, you know, you can do like light manufacturing, you can do a restaurant, you can do standard office. You can, you know, turn upstairs into apartments or condos. So, it's important and for many communities, this is the single biggest asset they've got.

Eve: [00:06:13] Yeah, I always find when I go to a small town or borough with a charming main street, I feel very comfortable with the scale. It's kind of very easy to relate to, which is a bit of a relief sometimes, I think.

Patrice: [00:06:28] It is, it is. And it's so funny because, you know, with Covid I've been spending a lot of time at home and I have a four-year-old son and we had checked out a book from the library on Roman design, Roman construction. And it's just, you know, looking at the sketches was just reminded that, you know, this is an urban form that has existed for millennia. And I think it's existed for a reason. It's certainly existed for purposes of transacting commerce, but it's also been a place that people go to connect with each other. And I think Covid is making us realize how much we appreciate having places to go.

Eve: [00:07:09] Yeah, and how much we miss it, right?

Patrice: [00:07:11] Yeah.

Eve: [00:07:12] So a hard question. How do we bring equity to small towns? This is the other pandemic, right?

Patrice: [00:07:21] Yeah, no, no, no. And yes, equally as concerning, if not more so. I think the first thing is acknowledging the problem for what it is and speaking openly about it. You know, in many communities, there is a legacy of African Americans being excluded that dates back to Jim Crow where African Americans were really only allowed downtown on certain days, during certain times to complete their shopping. So, I think some of it is really just acknowledging that in many ways main streets were, just have extraordinary histories of exclusion. And my own thinking is you only fix that by a truly intensive community engagement process where you are committed to reaching audiences and meeting members that you haven't had traditionally part of downtown and then programming in a way in which those communities, particularly African-American community, feels supported. We, at the Center, do a lot of work on entrepreneurial ecosystems, and we're taking a fresh look at that in terms of really understanding and helping communities embed within their work practices that really create for more diverse representation downtown.

Eve: [00:08:53] Yeah, I think exciting time about this moment is everyone I am talking to is really thinking about this issue very constructively. And I'm not sure that's ever happened before. It's going to be really wonderful to see, you know, what a year of thinking brings, right?

Patrice: [00:09:11] Yeah, it will. And I think now we've got to do the work, right? It's getting past the talking and acknowledging that, yeah, that we have a problem. And, you know, we're certainly, I personally am really committed to it, and then the organization, Main Street America, are very committed to it as well. You know, I think we're going to have more tools and resources, support our communities in this conversation in the coming months and I would also say, you know, we're eager to intensively engage in places where they're ready to have this conversation and, you know, they want to make some changes.

Eve: [00:09:50] Yeah. Yeah. What are the primary activities of the Main Street Center? How do you help communities?

Patrice: [00:09:57] So, we're the leading national revitalization organization nationally. So that means we can provide training, technical assistance, grants, networking opportunities. All of that good stuff. But we're probably best known for something called the Main Street approach, or the four point approach, which is a revitalization strategy that's been used now by about 2000 communities to help them really identify their values, identify their vision for downtown, and then program in a way to really make that happen. It's a very comprehensive approach. A lot of times what we see in economic development is, you know, kind of the one-shot wonder where you build the stadium, or you build the museum or a baseball park, and expect that that will automatically transform an area. That is very rarely the case. Instead, what we know makes a big change, big differences, is small steps, incremental change over time in a way that really takes into consideration the design of the place, economic vitality, the strategies, how you're, what kind of place you're actually trying to create and how you are attractor helping those businesses. And of course, promoting it, marketing, marketing it, all that good stuff.

Eve: [00:11:19] Right now, what communities have you been working on?

Patrice: [00:11:24] Well, we do a lot of work in communities. Up until Covid, right?

Eve: [00:11:28] Yes. Yeah, yeah.

Patrice: [00:11:29] We have our field services team that I think was in 200 communities...

Eve: [00:11:35] You know, Covid19, I'm just astonished at the trickle-down effect. Every time I talk to someone there's another impact I haven't thought about.

Patrice: [00:11:45] Yeah, yeah. So, our field services typically visits, will visit at least 200 communities a year. And we have transitioned a lot of those services online. But particularly when you're talking about place, it's really tough work to do. Place and relationship building. It's really tough to do.

Eve: [00:12:11] Impossible remotely, right?

Patrice: [00:12:13] I won't say it's all impossible. I will say a lot of it is extremely difficult. Yeah.

Eve: [00:12:19] Yeah. I mean, you can only go so far.

Patrice: [00:12:22] Yeah. Exactly. So, you know, it's hard for me to pick a place where we're doing work, but, we're in so many places, but Ohio, we're doing some really exciting work there in a few of the heavily coal-impacted areas in terms of supporting the development of entrepreneurial ecosystems in that place. And I would say that work is almost certainly shifting off, because of Covid, to be focused on recovery as well.

Eve: [00:12:54] I suppose the question is, you know, how are you shifting your thinking because of this pandemic?

Patrice: [00:13:01] Well, yeah. So, I actually have great hope for main streets on the other side of all of this. I think the reason I'm so hopeful is because I think they, you know, like we talked about, they're so adaptable. And even though I think we're going to see the marketplace change a little bit, I think the space to sort of inherently, you know, we can do it, right Eve?

Eve: [00:13:33] Well, you know, I think main streets have a future because I think there are going to be a lot of people who want the calm, peace and space in places that have small main streets. Unfortunately, I think we're going to go through a period of time where downtowns in larger cities might be scary for some people. And that could be to the advantage of smaller communities.

Patrice: [00:13:59] Well, I think that's right. And I think we are also seeing where so many of our big cities were reaching peak unaffordability.

Eve: [00:14:07] Oh, yeah, there that too.

Patrice: [00:14:09] Yeah, that combined with the dynamic of, you know, people wanting a little bit more space and realizing that they can work from anywhere. I do think that bodes well for rural towns. I just feel like Americans have reconnected with the value of walkability in recent years. And, you know, I think that persists on the other side of this as well. Even though the economic impacts are going to be severe, we're going to have vacancies, storefront vacancies that we're, you know, going to be challenged by, overall, I think, we come out for the better.

Eve: [00:14:44] Yeah. So, storefront vacancies were happening before the pandemic, right? Because retail was really shifting dramatically.

Patrice: [00:14:52] Yeah. Because we're so massively overbuilt in terms of commercial space especially.

Eve: [00:14:57] And I think because retail activities have changed so much in the last few years.

Patrice: [00:15:02] Absolutely.

Eve: [00:15:02] So, what does that mean for main streets? I mean, hasn't it changed so much in small places? I mean, I like having my groceries delivered from Whole Foods or Costco or somewhere, but I don't know if that's possible in a small town, so...

Patrice: [00:15:17] Yeah, yeah. From what I've seen, probably not. I guess maybe there have been some changes. Maybe there will be some changes. We are seeing where, particularly larger retailer vacancies, were really starting to be a problem. My impression is that those tended to be in places, maybe central business district downtown, the malls, the lifestyle centers, et cetera. But I don't tend to see those national retailers concentrated quite so heavily on our main streets, at least in the type of communities that we're working with. So, I'm a little bit, you know, less concerned about that dynamic there, because we were seeing, people were really being extraordinarily creative in creating an experience at customers. And whether that was a restaurant or retail. Yeah. And so, again, I think, you know, none of the fundamentals have changed. And so, I see that continuing on the other side.

Eve: [00:16:18] Yeah. So, it's maybe a shift towards slightly different retail types. Which is kind of exciting to think about.

Patrice: [00:16:26] Yes, it is, it is. I mean, I don't know about you, but I, I am sick of like trying to online shop for clothes.

Eve: [00:16:34] Oh, I hate it.

Patrice: [00:16:36] I want somewhere I can look at them, you know, like touch them, feel them, like, you know that sort of human want, you know. I think that it's real and doesn't go away.

Eve: [00:16:48] So, I'd love to hear about, like, an accomplishment you're really proud of or a project that you thought sort of exemplified what you do at the Main Street Center, something that's, that you love.

Patrice: [00:17:01] Yeah. Well, I love that you ask that question, thank you. We are working on an advocacy campaign right now to ask for congressional support for, I mean through organizations, and so, I have been so heartened and just thrilled to see the way that our network has really rallied behind this cause. Unfortunately, state and local Main Street Programs are in peril. We know fiscal budgets, which are a big source of funding for these programs, are badly endangered. And so, we have been rallying and approaching Congress about what sounds like a large number to me, but I'm told is actually a small number. We've been rallying around a 100 million dollar ask to ensure that we can sustain these main street programs when small businesses need them most. You know, these Main Street Programs, the leaders of these programs are the folks on the ground who are helping the small businesses with their PPP application or they're directing them to local community foundations for grants or making sure they understand what might be available through the state. They're also sometimes in the room negotiating with landlords for rent forgiveness or forbearance. In this moment, what I'm most excited about, most proud of, is the way that folks have rallied to Main Street's defence. And I'm pleased that Congress seems to be listening. We have a long way to go yet, but I'm feeling good about it.

Eve: [00:18:44] Awesome, that sounds fantastic. So, I'm just shifting a little bit to you. What's your background and how did you, what led you to this role?

Patrice: [00:18:54] Well, it was a meandering path. So

Eve: [00:18:57] They're always the good ones.

Patrice: [00:19:00] Well, you know, some people, some people know. Like my husband, you know, knew in third grade what he wanted to do and he's doing it today. So, I, to make a long story short, I ended up at Brookings Institution. That was the Center on Urban and Metropolitan Policy at that point. And right after, soon after college, because I just love cities and, you know, I was sort of leaning towards the idea of a planning degree. And then I ended up on a tour in downtown Tacoma, Washington, with my dad. And, you know, we had this tour guide. Michael Sullivan, very well known locally, who captured my ardent attention. He just took us down, through downtown, telling the stories of the buildings. And I thought, OK, well, this is what I want to do. So, from there I, because I had really been interested in policy and really interested in architecture, and so I figured, OK, this is preservation is really a melding of those two things. So, from there, I took my time, but I ended up in grad school at Penn for preservation in the Design School. And I did my thesis actually on the greening of older historic buildings and ended up at the National Trust working as their research director. And then it's it was a lot, I had so much fun in that job working on sustainability and older buildings. And then Main Street came along and I thought, well, you know, there are a lot of parallels between, a lot of threads, between sustainability and main streets. And so, I threw my name in the hat and here I am.

Eve: [00:20:50] That's fabulous. So, you get to run this really pretty unique organization.

Patrice: [00:20:56] I love it.

Eve: [00:20:57] And spend time on main streets.

Patrice: [00:20:59] When times are normal, I get to see some of the most beautiful, most special places that I think people often never see. So, I am really grateful for that.

Eve: [00:21:11] So what's one of the most beautiful, most special places you've seen?

Patrice: [00:21:17] So, a couple come to mind immediately. One is Emporia, Kansas. And I wouldn't say it's like beautiful in the way that, you know, you might think about a landscape or something. But it's a city of, I think it's twenty-five thousand, it's near nothing, right, which is to say, I think Kansas City is a good two and a half, three hours away. And they have done such an extraordinary job of nurturing entrepreneurship there and have had just like success story after success story. I want to say that the Main Street Program has helped to support something like 70 or 80 new business starts there. They will allow good stuff with housing downtown. Just extraordinarily dynamic leadership. Great community. Yeah, just, just...

Eve: [00:22:11] In an unexpected place, right?

Patrice: [00:22:13] Yeah. Yeah. And then, you know, the other thing that I realize is, well the other, to one of the other key lessons I've learned, it's from place called Edenton, North Carolina, and it's an absolutely charming downtown. But sometimes with the preservation lens you can look at a place and say like, "oh, that facade isn't", you know, "that facade isn't quite right", "those windows...", etc., etc.. And there's a lot of what I would describe as imperfect preservation there, but I say that with no judgment. The thing I realized is, you know, it's really not about the way it looks, it's about what's happening at 2:00 p.m. on a Tuesday afternoon, which is: Is this vibrant? Are people using this space? Are they getting what they need? And, you know, Edenton is absolutely just incredible.

Eve: [00:23:06] Oh, I'm going to have to put them on my bucket list.

Patrice: [00:23:08] Yeah, it is right on the water. It's a beautiful, beautiful place. I'm probably getting my history wrong, but I think it was very briefly the capital of North Carolina.

Eve: [00:23:18] Fabulous. So, do you think socially responsible real estate is necessary in today's development landscape?

Patrice: [00:23:26] I think it's absolutely essential. I'm pleased to see that, you know, there is a bit more attention on it than perhaps in the past. My two big concerns when it comes to real estate are, well really three, building in a way that truly supports the community, is in line with the community's vision. The second is building with time in mind. Meaning, I think so much of what gets constructed today is just utter crap.

Eve: [00:23:57] Oh, yeah, I agree.

Patrice: [00:23:58] And it will, it will not stand the stand the test of time either design wise or, you know, the fundamentals, the physical structures are so poorly constructed. And then the third thing that is, again, just kind of how I look at the world, is the reuse factor. You know, I tend to really gravitate to projects, you know appreciate projects, that are making use of an old building in some form or some fashion because they, the research I did early on in my career regarding the carbon impacts associated with new construction, was kind of formative in my thinking about this. I mean, there are just massive, massive impacts associated with constructing new buildings and tearing down old ones. And it's just critically important that we're giving that our full attention as we're designing these places.

Eve: [00:24:52] Yeah, and, you know, I've done a lot of reuse projects and I find people really love the idea that they're living in or occupying something that has a history. So, it's a shame to eradicate it. It's useful today.

Patrice: [00:25:09] Yeah. And Eve, you are a hero, a true champion among the development community for the work you've done on.

Eve: [00:25:19] Oh, thank you.

Patrice: [00:25:19] Yeah, and reuse. I think you're right. I mean, I do think there's an element of the human psyche that finds it very important to connect to elements of the past. And that's what building reuse allows us to do. I mean, unfortunately, so much of what is being constructed today, you know, has so little value that, yeah, it's hard to imagine 50 years from now that people are going to be fighting to save those places.

Eve: [00:25:46] Yes. Yep. Shifting gears again, what community engagement tools have you seen that have worked best? I know you talked about going further with them in the future, but I'm just wondering what works?

Patrice: [00:26:02] Yeah. So, I mean, there's certainly the you hold a meeting and you see who shows up and you create the space for them to, for everyone to have a voice and to talk. And that's very important. But there are two engagement tools in particular that we've had some success within recent years. One are surveys. I mean, obviously, that's a little bit different and limited because you're not having a dynamic conversation with someone. But that can be extraordinarily helpful in reaching a larger community group about and engaging them in terms of how they want to see their downtown evolve. And the second, and this is really important, is going to where they are, right? So, which is to say, if you have groups that just tend to not engage downtown and yet, you know, there's a festival happening or there's some sort of gathering, churches, what have you. That can be a great place to go and engage directly, you know, hand somebody a survey and talk to them at the same time. That's been extraordinarily valuable.

Eve: [00:27:04] Oh, interesting. And then I have to ask this question. Do you think equity crowdfunding can play a role in building main streets? I'm hoping the answer is yes.

Patrice: [00:27:15] Money? Absolutely. Absolutely. And I think that crowdfunding, is probably the most exciting thing I've seen come along and real estate, I'd say full stop. Precisely because I think it creates a foundation for better community engagement, literally community buy-in.

Eve: [00:27:35] Yes. Yeah, that's the important bit. Yeah.

Patrice: [00:27:37] Yeah. And that is, you know, that's what it's all about.

Eve: [00:27:42] Yeah, so they get to vote with their dollars. I mean, they also get to see the upside.

Patrice: [00:27:49] They do. They do. Yeah.

Eve: [00:27:51] Yeah. That's what I love about it. So final question, what's next for the Center and what's next for you if you're looking five years ahead, like what are the big goals?

Patrice: [00:28:03] Oh boy, I can answer the one for the Center pretty easily.

Eve: [00:28:07] Well, the 100 million for sure, right. That's a really big goal.

Patrice: [00:28:10] After we get our 100 million and I go on vacation...I will not go on vacation. In terms of what's next for the Center it is a renewed focus on diversity, equity and inclusion. You know, we've recently been doing some strategic planning that we've completely, I think, rethought our strategic plan to be aligned with goals of enhancing equity on main streets. I don't want to be Pollyanna-ish about this and say, you know, we're going to be able to snap our fingers and massive changes overnight but I do think we're going to focus on creating tools and partnerships that will really support communities who want to have this conversation, are committed to creating a more diverse representation downtown. So, you're going to see more resources come from the Center focused on the diversity issue. You know, the five-year question, Eve, is a really hard one because I'm spending all the time with Main Street. So, every year sort of presents a new challenge and you never know what's coming down the road for you. I hope that, you know, five years from now, we've got double the membership and that we honestly have really engaged on the diversity issue in a really meaningful way.

Eve: [00:29:38] Yeah, I think that's a good goal. And I hope there's quite a few more main streets with less vacant storefronts.

Patrice: [00:29:45] That's a good hope as well.

Eve: [00:29:48] Well, thank you very much for talking to me today. And I'm really looking forward to seeing what else, what else happens.

Patrice: [00:29:54] Thanks Eve, great to talk to you as well.

Eve: [00:30:08] That was Patrice Frey, the president and CEO of The National Main Street Center. Patrice impressed on me the importance of main streets. These commercial corridors are often the single biggest asset that a neighborhood or small town has. They are the center of commercial activity, often full of well-built, historic buildings, and they are the heart of their community. It's important that they thrive. It's important that they are saved and reused in ways that befit the way we live today.

Eve: [00:30:47] You can find out more about impact real estate investing and access the show notes for today's episode at my website, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:31:04] Thank you so much for spending your time with me today. And thank you, Patrice, for sharing your thoughts with me. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:07] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:13] My guest today is Bruce Katz, co-founder of New Localism Advisors. Over the last 25 years, Bruce has established himself as one of the foremost policy experts working on urban and metro areas. He founded the Metro Policy Program at the Brookings Institution and is credited with reshaping and revitalizing several cities in the U.S. More recently, he co-wrote several books shifting his thinking to how cities can thrive in the age of populism, what he calls the new localism.

Eve: [00:00:52] Be sure to go to evepicker.com to find out more about Bruce on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:13] Hello, Bruce. I'm so pleased you could join me today.

Bruce Katz: [00:01:16] Well, thanks for having me.

[00:01:18] Yeah, it's really a pleasure. So, I would really love to talk about your current work and what you call the new localism. And first, I just wanted to know what that means.

Bruce: [00:01:29] Well, I think the new localism is the way we solve problems in the world today. Cities are networks of public, private, civic, community institutions, intermediaries. They're not governments. And I think the kinds of challenges we have today require multidisciplinary and multi-sectoral solutions. And so, cities have become the places where you can do that. Whether it's around transportation or housing or small business or any number of other significant challenges we have today.

Eve: [00:02:10] How do you see this trend emerging?

Bruce: [00:02:12] Well, I think it's been emerging for quite some time. In the United States it's emerged partly to fill the vacuum left by a dysfunctional and erratic federal government. In many states, also, which have ceased to function in any effective and efficient manner. I mean, obviously, you've seen this play out during the Covid crisis in the United States. So, I think what has happened is governments at the higher levels, quote unquote, of our societies have become hijacked by partisanship and have been divided by ideological polarization. And so, the only place where pragmatism and problem solving is the order of the day is the local, is the city level or county or metropolitan level, because that's where you have different stakeholders who come together to collaborate to compete and collaborate to solve problems. So I think this is partly as a response to the growing partisanship in the United States and around the world, and partly just because 21st century solutions, which are enormously complex, require multi-sectoral horizontal solutions rather than one agency, one bureaucracy, which is more the way government is organized, resolving the issue.

Eve: [00:03:38] So, yeah, I'm not sure whether I find that comforting or scary. So, if the federal government is letting us down, we have to rely on each other locally that could be really good in a way that that could really promote innovation and entrepreneurism that's probably impossible at the federal government level.

Bruce: [00:03:59] Well, I think for, you know, the mid 20th century is when we saw national governments balloon up in the United States. It happened in the aftermath of the Second World War. And there's a purpose with national governments. They play a very important role around the safety net, around, obviously, universal health care and, you know, other essential supports for families. They obviously, the defence role they play around the military and so forth. I mean, there are certain things that a national government does that local networks can't do, and they should do that job well. But they are not the full sum of a nation, you know, and the United States is a federal republic with enormous amount of power and capacity and resources distributed and decentralized. And so, really what the new localism is about is about harnessing and leveraging all this incredible, innovative power that we have in our country to solve problems and push forward. And the national government can be a platform for that and be a participant in it. But we shouldn't be looking to that level to solve issues that, at the end of the day, require so much local interaction and local networks.

Eve: [00:05:33] That makes a lot of sense. So, I mean, what does this mean pragmatically then, for cities and metropolitan areas, at least in the way they are organized and might reorganize themselves moving forward?

Bruce: [00:05:48] Well, first is recognition that cities are not governments and metropolitan areas are not government, so you shouldn't be thinking the way we think about government. When we think about government, we say, well, what's the Department of Transportation going to do? Or what's the Department of Housing going to do? Very bureaucratic, very vertical, very hierarchical. Cities are networks so we should be thinking about, if we're going to solve our congestion problem or solve our housing affordability problem or grow Black- and brown-owned business. What's the network way of doing that? How do we knit together different kinds of sectors, different ways of thinking, different sources of capital? It's more likely that those solutions that are horizontal rather than vertical will be more sustained over time.

Bruce: [00:06:37] So, you know, thinking through network governance, right? Not just who do we elect to be mayor or county executive, which is very important, but really, how does universities and health care systems and corporations and entrepreneurs and the public sector philanthropies, how do these work together around solving specific concrete, tangible solutions or problems? I mean, what I'm trying to basically put forward with the new localism, which I co-wrote with a close friend of mine, Jeremy Nowak, is a completely different way of thinking about how we solve problems in the 21st century. And it's to get away from 20th century thinking about government and silos and compartments as a way to do that.

Eve: [00:07:29] So, you know, I have I have a couple of questions around that and one is what brought you to this thinking?

Bruce: [00:07:36] Well, I spent my professional career moving from the federal level to the local level. I was chief of staff at HUD, the federal Department of Housing and Urban Development in the United States. I was chief of staff, staff director of a U.S. Senate subcommittee on Housing and Urban Affairs. So, I, I spent 10 years in the federal government working on issues of importance to cities but coming at it from a top down perspective. Then I left to start a city think tank at the Brookings Institution in Washington, D.C., and really spent the next two decades working with cities all over the U.S. and around the world and beginning to work out a different theory around bottom-up nation building, essentially.

Bruce: [00:08:24] And so I've traveled a pretty long circle here of starting at the federal level, wanting to work on cities, but then really trying to work with cities and think through different mechanisms, different approaches and fundamentally different, more transformational outcomes that we're trying to achieve. So, you know, we're in an odd moment now because of these multiple pandemics that we're facing in the United States and beyond. The health pandemic, the race pandemic. But at the end of the day, I think success will occur ultimately when communities, cities, counties, metropolitan areas are able to operate in this in a very radically different way than they’ve operated in the past.

Eve: [00:09:13] Interesting. So, you know, are there some cities that have emerged that are shining examples of this new power shift or new localism?

Bruce: [00:09:24] I think many cities actually have, and the crises that we're going through have forced more collaboration across multiple sectors. In the book, The New Localism, we wrote a lot about Pittsburgh, which is sort of an informal network of philanthropies, universities, hospitals, corporations, government, community, to sort of lift Pittsburgh from the depths of a industrial collapse, which happened back in the late 1970s. Pittsburgh today is seen as that incredible vanguard of the innovative economy, partly because of.....

Eve: [00:10:04] I have to, I have to say full disclosure. You're not just saying that because I'm in Pittsburgh, right?

Bruce: [00:10:10] No, not at all. I didn't even know you were, but.

Eve: [00:10:12] I'm in Pittsburgh, so I've seen that transformation firsthand. It was pretty interesting and mind blowing to watch. But please, please go on.

Bruce: [00:10:24] Pittsburgh was a normal older industrial city in the United States. It would have been left for dead. I mean, most were, right? I mean, the comeback of Pittsburgh is because of local leaders understanding their distinctive advantages, investing in them for decades without any significant returns. And now, as the economy restructures and we move to the next generation of technologies, Pittsburgh has the ability not just to be a competitive city, but to be an inclusive city. So, Pittsburgh has an informal network that has been operating for decades. Indianapolis, which we also talk about has a more formal structure where the corporations and the universities and the philanthropies came together and set up an entity called the Central Indiana Corporate Partnership to literally help steward the economy for several decades. And what distinguishes Pittsburgh and Indianapolis is the ability to think long term. The US is a very short-term culture. Someone once said to me their idea of planning was lunch. We have a culture that looks at, you know, the corporations look at quarterly returns. You know, people watch stock market gyrations on a daily basis. The key here is to think in these 20, 25, 40-year cycles, just that's how long it takes to really restructure economies and to have them have full inclusive effect.

Eve: [00:12:01] That's really interesting. So, you know, I've actually seen that myself as I invested in properties in Pittsburgh maybe two decades ago. And now the city is, I don't know if I would say booming, but it's certainly in a very different place. But, you know, one of the things that we haven't done well here in Pittsburgh and I'm sure is probably mimicked in other places, is the race issue where I think Black people have been left behind for a whole multitude of reasons. And, you know, the affordable housing which affects every city certainly becomes worse when a city gains more value. So, are local leaders really thinking about that well enough in advance?

Bruce: [00:12:48] Well, I think this is a, you know, this is an interesting thing about the United States and the other story we tell of the new localism is around Copenhagen. And how Copenhagen was able to move from an older industrial city where manufacturing collapsed to really one of the wealthiest cities of the world in a 30-year cycle. They did that because they established a public asset corporation that was able to use the land and the buildings that were owned by the public sector to basically grow a very different kind of economy and then to generate revenues as the economy grew so that they were able to reinvest in infrastructure. So, there was a public benefit to growth. In the US, the benefit to growth only accrues to the private sector, right? In Northern Europe, in Germany and the Netherlands and in Denmark and the Nordics there is a public benefit. The public has a piece of the pie, so to speak. So, as the pie grows, you're able to generate revenues that can benefit a much broader segment of the population.

Eve: [00:14:00] That's interesting. Yeah, the other place I've been watching with interest is Australia, because I've been gone from there for a long time, but they really lack an affordable housing policy and they're.... it's a very wealthy country. And from what I've seen, they've done a very poor job of transferring any of that wealth for public benefit. So, I don't think the US is the only place with this issue. Don't know if I'm right, but that's my guess.

Bruce: [00:14:31] Well, I think it's, again, I think of the US. The US as quite odd because in the United States we tend to localize education policy and to some extent, nationalize housing policy. The rest of the world operates in a completely different way. They tend to natutionalize education policy and localize housing policy, right? So, the reason why Hamburg and Copenhagen and Stockholm are able to grow very robust economies but continually invest in affordable housing is because it's localized in these places. They're not looking to their national governments to somehow solve the housing problem. They're basically baking in affordability in the way they grow. And so, a lot of what really applies to cities is to think at a system level but to also think at a global level, because somewhere in the world there's a city that's cracking the code on whatever the issue that bedevils you. And that means that there's just a very broad sort of pool of cities to draw from.

Eve: [00:15:42] Yeah, interesting. Do you know of any cities in the US cracking the affordable housing code, so to speak?

Bruce: [00:15:50] I think they're mostly sort of at the edges of the affordable housing problem because I think it'll take a radical systemic change. I mean, I think it'll take what essentially is more of a German or Danish model and applying it here. We're doing bits of that, but we're not doing it at the scale they're doing it. So, I think we haven't quite broken out of our own failed system to tell you the truth. You know, on the other hand, you know, the Germans and the Danes and others could learn a lot from our innovation ecosystem, right? The US is hard wired around technological innovation and the rest of the world, you know, some parts of the world are obviously very competitive with us, but we have basically built the very unique U.S. innovation ecosystem. Built, by the way, on federal research and development like at Carnegie Mellon or Pitt, or etc. But we're quite good at that and we're quite terrible at these other things.

Eve: [00:17:00] Yeah. So, and then, how do you think this pandemic, the health pandemic, might change the trajectory for these rising cities, the cities that are actually doing a good job of new localism?

Bruce: [00:17:15] Well, personally, it just depends how long this going to go on for?

Eve: [00:17:20] A yeah, we know it's going to go for a little while, right?

Bruce: [00:17:22] I'm very concerned as we keep cycling through this. So this is a moment where you really do need the national government to step in and sort of catch everyone if they fall, catch people through unemployment insurance, catch small businesses through capital that's fit to purpose, catch local and county and state governments because of the loss of fiscal revenue. This is the role the federal government, right? This is why we have a federal government. They play this role during natural disasters like hurricanes or floods. Well, this is a hurricane happening everywhere, for an uncertain period of time. And what we really don't have at the national level at this stage, curbing the spread of the virus or responding to its economic effects, is any kind of functional, predictable, reliable partner. It's just partisanship. We're know nothing-ism, you know, on steroids. So, I am worried that the aftermath of this pandemic is going to be with us for a long period of time because of the centrally federal malpractice. Other countries have already come out of the pandemic like the Nordics, and they were smarter about how they supported their workers, their companies and their cities during the entire process. So, I'm very worried about the decade long effect of the corona virus. And on top of it now, we have civil unrest following the death, the murder of George Floyd and we need systems change in the US. And that's the only way that we're going to accelerate any kind of inclusive growth recovery. And it's going to require some real soul searching about why the economic performance and prosperity we had pre-covid was not shared by large segments of our population. So, there's no return to normal here. And normal was not getting us the kind of outcomes we wanted in the first place.

Eve: [00:19:39] Yeah, exactly. No more is not getting us the outcomes. You know, the question I have is how, there's so many answers to this, how do you make cities more equitable places for everyone? Because they are inequitable in a thousand and one ways. And yeah, I could see that networks of people are perhaps the only way to solve it. I don't know. It's a very big problem.

Bruce: [00:20:05] Well, we do take what we're good at. We're very good at innovation in the US. It's partly because we have an ecosystem in every major city. Take Pittsburgh, we have advanced research. We have the companies. We have start-ups and scale-ups. We have capital to commercialize research, you know, with angel loans, seed money, series A's, Series B, we have incubators we have accelerators. We have an ecosystem. If you move that over to, how do we grow Black-owned business or Latino-owned business or even women-owned businesses. There frankly is no ecosystem.

Eve: [00:20:40] No, there's no ecosystem.

Bruce: [00:20:41] We have a, we have sets of goals. Sometimes we have set asides, but we don't really have this deep infrastructure, intermediaries and different kinds of capital that fit the purpose. So, I think that's what has to happen. We should take what we're good at and begin to apply it more broadly. We're never going to be the Danes or the Germans or the Israelis or someone else. I mean, we need to take what is exceptionally American, this network of sectors that tend to come together and collaborate to compete globally, we need to build on that because that is what makes us highly distinctive in the world.

Eve: [00:21:24] Yeah. On a slightly different track. Do you think there are any current trends in real estate development that are important to the future of cities? Keeping in mind the pandemic as well, I think about this a lot. And, you know, I own real estate with restaurant tenants, and we talk about whether they will survive or not and what it's going to look like.

Bruce: [00:21:49] Well, to some extent, what you're describing is that a lot of landlords in the US are really small business, so...

Eve: [00:21:56] Oh yeah, they are. Absolutely.

Bruce: [00:21:57] So, there's a domino effect to this crisis as we just shut down the economy. The first that were affected were the face-to-face businesses like restaurants and bars and hair salons. But all of those businesses are ecosystems unto themselves. They have lenders, they have landlords, they have suppliers, they have workers, they have customers. So, this whole crisis has exposed the intricacy and the complexity of our economies. I've been working on this idea about a new kind of intermediary that we're calling regenerators, you know, in our main streets, where many of our face serving businesses are co-located and concentrated. And over the course of the next several years, I think what we need to do is have entities that can refill vacant buildings quickly, maybe pop-ups that can provide master leases. So that we don't see a collapse in the real estate sector, essentially looking for an intermediary that can stabilize important cadres and business districts and main streets in our cities until we really begin to see businessman come back to where it needs to be. So, I think part of the issue here is just the need for different kinds of business models. If we think that every small business is going to snap back by itself, I think we're delusional. I think we need more collaborative, cooperative models, particularly around retail and particularly around these business districts in which a lot of enterprises co-locate. And real estate's a big part of that.

Eve: [00:23:47] Yeah, it is.

Bruce: [00:23:47] Another cost of the equation.

Eve: [00:23:50] Yeah, definitely. I am also very worried. But I'm pretty sure we're going to get through it one way or another. So, what what's your hope for cities and metros maybe in the next five or 10 years?

Bruce: [00:24:06] You know the imperative, I think at this point, is that cities and metros begin to grow in very different ways, right? The kind of growth that we had in the US pre-crises was not sustainable and was not inclusive. I mean, the US was not making the kind of transition to a carbon neutral future that needs to be made. Copenhagen is, Stockholm is. But our cities were not. At the same time our cities were not really growing income or wealth for large portions of their populations due to a whole complex set of reasons, some deeply rooted in our history. So, we need a different growth model in the US. And there's a lot of commitment to, quote unquote, inclusive growth and quote unquote, sustainable growth. But those are slippery terms. They're vague terms. So my hope in the next year or so is that U.S. cities and metropolitan areas commit to some audacious goals for the next decade and then use this period to sort of back cast the kind of more ambitious initiatives and system change that's necessary so that they can achieve those goals. And if the federal government can be a partner, fantastic, they should be. If states can be partners, great. But the vision for what our future should look like should be essentially designed locally.

Eve: [00:25:46] Oh, I can't wait to see that.

Bruce: [00:25:47] These are systems or communities with radically different pasts and different priorities, and they should, so, every major city in Metro of the US should be going through this kind of process.

Eve: [00:26:01] It's an exciting thought. And so, final question, what's next for you? You said you're very busy.

Bruce: [00:26:09] I've been spending a lot of time thinking about this question about, and, you know, first of all, looking at the current set of data that we have in the US around Black-owned business, brown-owned business, and trying to think through what would be a step change. You know, only two percent of employer firms in the US are owned by Blacks today. They're 14 percent of our population. There's a whole set of reasons around that. So, the question is, if over the next decade we were going to double that share or triple that share and also have Black-owned businesses participate in sectors of the economy which tends to pay higher wages, have higher benefits, higher revenues. What would that take? And I think that's the kind of system building that I'm really interested in working on, perhaps with the next administration, should that come to pass in this election, but also really growing from the local level on up. So, intensely focused on building what I call community wealth in the US as a antidote to the kind of deep racial and ethnic disparities on income, health and wealth we have today.

Eve: [00:27:31] Well, I, I really can't wait to see what comes of it and I really appreciate the time you've taken today. Thank you so much.

Bruce: [00:27:38] No, thanks for having me. I really appreciate the.

Eve: [00:28:00] That was Bruce Katz. Bruce thinks we should stop thinking about cities as governments and instead think of them as networks. The question is, how can we knit together lasting solutions to improve our cities from a network of leaders, both public and private? Transforming our cities requires long term thinking. It will take a 20 to 40-year cycle. But Bruce believes this is an imperative. We need a different model in the U.S. for growth so that it is sustainable and inclusive.

Eve: [00:28:40] You can find out more about impact real estate investing and access the show notes for today's episode at my website EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:28:58] Thank you so much for spending your time with me today. And thank you, Bruce, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:18] My guest today is Michael Lee of BLDG BLOX a civic technology company dedicated to empowering neighborhood stakeholdership. Their goal is to help shape better, more resilient and inclusive cities. In this podcast, we're diving into Michael's current primary focus, an online platform called BLDG. It's a platform for neighborhood collaboration and it's picking up steam. So, listen in to learn more.

Eve: [00:00:57] Be sure to go to evepicker.com to find out more about Michael on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:21] Hello, Michael, I'm excited to have you here today.

Michael Lee: [00:01:25] Hi Eve, thanks for having me on. I'm very excited to be here.

Eve: [00:01:26] It's a pleasure. So, you’re a wayward architect, much like me, and you've built a very cool app, which I'd like you to tell me a little bit about.

Michael: [00:01:36] Absolutely. So, you mentioned the background in architecture. Just a little back story. I was trained as an architect. I moved towards public art and cultural consulting. And back in 2016, my co-founder introduced me to a lot of developments that were happening in the blockchain space. And so blockchain can be very complicated with cryptocurrency and things like that but for the sake our app and this conversation, essentially, we were looking at decentralized technologies. Ways that we could create and distribute more value, track it and, with our background in architecture and urban design, we saw an opportunity for that to impact the way we do real estate, the way we deal with communities and community growth. And so, we created a company called BLDG BLOX and for the past few years we've been developing this app. We just launched it at the beginning of this year before everything happened with covid. It's called the BLDG app, it's live and the app is a online bulletin board to manage projects with your community. So, these are real estate projects, these are coworking spaces, mutual aid groups, non-profits. Any organization or new initiative that is looking to build alongside, build consensus, build value with the communities that are involved.

Eve: [00:02:53] Okay. So, you use blockchain and do you use other technologies on this app? I'd love to know a little bit more about the technology.

Michael: [00:03:02] Sure. It's a web application, so you don't have to download anything. You go to bldg.app, BLDG app and it's all online. Similar to how you use Kickstarter, Instagram. So the front end is fairly user friendly, you can use Google or Facebook to log in and on the back end we're starting to implement and integrate everything that goes on in the app. Typically with a lot of social media apps, web applications, you don't really know where the data is going and what's being tracked. On ours we are starting to link it to the blockchain. So, all the activity is very transparent. And our goal is to be able to make all that data transparent, compile it in a way that other organizations, whether it's, it can be investors as well, can start to see how a project, in this case a real estate project, is acting, what kind of value it's distributing, how people engage it and start to value, again, in this case, social impacts in a way that can be measured more dynamically. So, we're starting to use this transparent ledger system as a way to create a new foundation for impact. That's kind of the way we're seeing it.

Eve: [00:04:12] How interesting. And who will have access to that ledger and all that information?

Michael: [00:04:17] When the blockchain information becomes live, when all these transactions become live, anyone can see the information. And on the application, itself, when those metrics are up, we'll have a much more user-friendly UI for people to understand: OK, this project is involving this amount of people this is not a value transferred, these are the number of community members involved in a project. This information will all be tracked holistically in the app as people use it, and we'll present it to different project owners, so they know how much impact. however they define impact, is going into the project.

Eve: [00:04:55] Well, that's really interesting. So, I'm going to change some of the questions I was going to ask you. I was going to ask you, how is this different than other social media apps like Facebook or perhaps Nextdoor or Meetup? But, you know, the data collection that you're doing is pretty radically different than any of those, right?

Michael: [00:05:16] Right. That's generally the ethos of a lot of people who work with this new technology, with blockchain. And what you see with a lot of applications is you don't really know what data is being collected and how it's being used. We generally know that it's monetized privately with adverts and things like that. We want to be able to open up, democratize, the power of data and open it up so that people can use it in all different ways. In this case, and this is really the long term vision of this first app and other functionalities or apps that we produce under the umbrella of BLDG and BLDG BLOX, is that we can start to track data dynamically and then use that for, for example, driving certain people to invest in certain projects or to decide which projects they think are really impactful for their community and be involved in those. Data can be used in a lot of different ways that I think we just haven't gotten to that point yet. And this new infrastructure really motivates us to expand and explore those possibilities of data and make more informed decisions, more empowering decisions.

Eve: [00:06:24] I did play around with the app a little bit, and I see when you go to some of the communities, they have sort of slightly different functions. So, when you create a new page, what are your options? How do you set up a community? What sort of communities can you set up?

Michael: [00:06:40] So you can log onto the app right now and create a project page. It's fairly straightforward, takes about a minute or two to create one. And then the idea is you would send that page just like an Instagram page to anybody that you think is part of the community or wants to be part of that community. They can sign up and join right away and then everybody involved can start to post questions or polls or ideas or different things that they want to offer. There's different tags for events, for polls, for ideation. And the idea, again, is to allow anyone to bring to the table whatever they want to and start discussions or start voting or start to see if they can gather the resources, they need to push that particular project forward. And so we're already starting to see projects that are more university-based or socially-based with mutual aid groups, especially now during Covid under the quarantine, and the projects are fairly diverse and everyone is on there basically to try to pool resources, help one another and make decisions together. And that's really what the app is geared towards.

Eve: [00:07:48] Interesting. So, could you use this as a community engagement tool if you're a real estate developer?

Michael: [00:07:55] That's definitely the goal. We've already started to work with co-working spaces where the owner of the coworking space is the real estate developer or the one that developed it. And the idea, and our thesis here, and we want to get deeper with the real estate industry and with prop tech and people that are looking at more of these impactful ways to do real estate, is integrate this application with their development process and allow, and we're starting to see real estate firms do this more and more, allow people who are maybe the tenants of the building or people who live nearby where the community board that is involved with the decision making of that building to be involved and help make further decisions, help maintain the project, help gain equity in the project, whatever that might be in both financial and non-financial ways, and generally nurture this idea of community buying and stakeholdership with the people that are involved, which I generally believe, my thesis behind all of this is that the more people that are involved, the more doors that are open for a community to have buy-in and participate, the more successful a real estate project will be in the long term. And so that's really our ethos when it comes to how this impacts the real estate sector.

Eve: [00:09:11] You know, I have Small Change, which is a crowdfunding platform. And because we are members of FINRA and use a crowdfunding regulation that permits anyone to invest, we're highly regulated and we can't really host discussions on our website. So, what sort of page would you create for Small Change that might help people educate themselves and talk to other people? What would that look like?

Michael: [00:09:38] So, Small Change is a great example because you can look at it as an organization that houses projects under it. And so, with Small Change itself, you can use the page to interact with the people who are crowdfunding on the page, host more evergreen information. So, tutorials or tips that will help anyone that wants to engage with Small Change. And then, on a secondary level, all of the projects, because presumably any project that is crowdfunding on your platform wants to have meaningful impact not just in this crowdfunding process, but also likely once the project is erected and live, and people are occupying it. They want to make sure that their project lives on in an impactful way and impactful stakeholders are part of it and it continues to have that kind of general consequence with the neighborhood that it's being built in. And so, each one of the projects could have its own page and then people can continue to support the project financially and non-financially, which is a big emphasis on our platform. If certain projects need help with physical aspects of the building, with the architectural design, with the construction documents, that's one thing they can solicit, and members could offer. If they need help with programming or maintenance or they need help with integration with local organizations and institutions to be involved in their project. That's the type of, sort of playground, as some of our users have put it, that these types of projects could create so that their constituents can come together and contribute things that typically have been very difficult to contribute in the past beyond the financial aspect. And we're already working with some crowdfunding platforms to see if we can expand the initial financial support that has been opened up to a larger audience and then see if they can continue, that audience can continue to support those projects in non-financial ways as well, with their expertise, with their network, with their in kind donations and categories like that.

Eve: [00:11:34] Interesting. You know, there's always sort of a push pull with real estate developers who are, that's kind of an evil would at the moment isn't it, developer? How they communicate with the community. It can be very difficult and there can be a lot of friction so it sounds like this might help bond some relationships.

Michael: [00:11:57] That's precisely what we want to hit on. We understand the friction there. I myself, I go to community board meetings and I see, I live in Bushwick and Backstein, New York City and Brooklyn and there's development happening all the time. And when you go to these meetings with developers and the community, it's very palpable, the tension there. And our approach to this and our understanding is, because there isn't a good way for communities to collaborate with developers, for that communication to actually scale and take place, the resulting situation is one of great tension and opposition. And we're seeing that. We're seeing a rise in NIMBYism, a rising neighborhood opposition. Just last year, we had the whole fiasco around Amazon's HQ2, in Long Island City. And so, we're looking at projects like this. And we see that not just at the highest, at the very top with Amazon, Google, Facebook, where their campuses have been consistently opposed, but also at a much smaller scale. So, with mixed use housing in New York, that's a big point of tension. And there's always this negotiation, which tends to be very tense, tends to be not so good-willed, or at least get to that point.

Eve: [00:13:10] Right, very confrontational.

Michael: [00:13:12] Very confrontational. And we want to transform that environment. And I really believe that if we had the right tools, that environment would be different. And if we can transform that environment to one where people feel like their voice is being heard, they're participating in it, we can turn it into a from a lose-lose situation, into a win-win. Because currently there's so much risk on the side of real estate developers because they understand that, with all these tools of social media and the way communities are mobilizing, it's very easy to oppose projects. And on the other side, communities are struggling with the idea because they want to see meaningful and impactful development, but because they're not able to come to the table with developers in a meaningful way, those tend to become very risky for them and it's easier to oppose. And so, it's currently a very lose-lose situation. But if we can insert the kind of right tools and the ways for people to communicate, we're hoping we can flip that on its head.

Eve: [00:14:05] Have you thought at all about, and this is a really difficult question so I apologize in advance, but have you thought at all about communities that poorer, have less investment, may not have access to computers and, you know, an online app and how this would fit into those communities, how you would make it accessible?

Michael: [00:14:27] That is definitely a difficult challenge that we're struggling with on an ongoing way. And part of our answer, at this point, goes into design of the app. So, we didn't want to have a downloadable mobile app. We think that creates another point of friction. It's just a website you go into, you can sign in with any email. And so, we definitely want to make it technologically as accessible as possible. The other way that we're trying to get over that is working very closely with the organizations that sign up for the app. And so, presumably anybody that creates a project page, there're a real person or real organization. They have a physical presence wherever they are, and their projects are mostly physical. So, spaces and buildings and such. And so, we constantly communicate with them to make sure that we can bring in even constituents that don't use a computer or device very often. We can bring in their input, we can have a way to capture that data, that advice, those comments, different ways that people who aren't on the computer all the time can contribute. And so, this is a way that we're dealing with the issue. But we definitely see that as an ongoing hurdle. We want every demographic to be involved. This is even more sensitive in places that people don't have access to those resources. And this is what makes the Covid19 situation so unfortunate. Before everything happened, we were constantly holding workshops, we were showing people how it was done, we were pairing people who do use the computer fairly often with people who weren't, trying to make this engagement as digital as it was physical. And now we're trying to adapt to the situation and make sure that even, you know, if you aren't as technologically fluent or don't have access to those resources, your information and your voice can make its way to the application. That's definitely a very sensitive and difficult point and we're always working on that.

Eve: [00:16:18] Unfortunately, that pandemic has disenfranchised those communities even further. It's really pretty sad. So, tell me again how you arrived at this app. Your background, you're an architect. You've gone to a pretty unusual route.

Michael: [00:16:36] We have gone an unusual route. And the one thing we've always interested in is the process. Even when I was studying architecture and practicing architecture, the process in which buildings were designed and created seemed very linear, depending on what was being created. It didn't take into account the community that was being impacted the most. And this, of course, is a common theme in real estate as well. And so, the concern is how do we bring as many people into the process as possible? And when we looked at the current tools, at the time around 2015 and 16, we just came to the conclusion that no matter what you did with things like Facebook pages, or on Slack, it's very difficult to scale decision making, engagement, to exchange resources and distribute resources. And that's how we came to this idea of creating a new digital tool. And again, we were lucky because it timed well with the emergence of blockchain and decentralized technologies to explore this. And if you look at the blockchain sector, we see a lot of people with real estate backgrounds actually exploring this as well. So, you have groups like Elevated Returns and HARBOR, RealBlocks. These are real estate firms that are introducing ideas of fractionalized, equity. And starting to use real estate equity more like corporate stocks of shares, making them more liquid accessible. And my ultimate goal is to introduce this idea of sweat equity into the real estate market and any general organizational market. And that's kind of how we got to this idea of the application and starting off with one that brings communities and organizations together.

Eve: [00:18:22] Interesting. So what other projects are you thinking about? You said this is one of, you know, one of a number.

Michael: [00:18:30] Well, so, we want to start, and we are starting with the BLDG app as the first step. And within the app and around the app we want to create more functions and more components. For example, right now on the app you can create a project page and start to engage with the community, distribute responsibility, you can see what backgrounds your community members have, whether they're an engineer or a marketing person and so forth, and start to bring those resources together to try to drive and motivate those project further. We're going to implement more of that blockchain data system that I just explained and have it so that other companies, other investors, can look at these projects and make decisions on their own behalf based on this data and what's going on. And whether that's in another app or in this one, we want to continue to grow out more functions where people have more opportunity to engage in their local real estate projects, to contribute to them, to help make decisions and then eventually get to the point where people can earn sweat equity in those real estate projects based on their contributions to those projects, not just the financial contributions, but also, like you see in start-ups or in general any corporation, people can earn equity based on their commitment or how long they've been there or their general value to that company. We want to get to that point. And so, we are constantly going to expand on the tools that real estate companies that investors that community stakeholders can use to determine that value for any given local project.

Eve: [00:20:04] Interesting. So, then I have to ask you, what's the big, hairy, audacious goal for this app? Like, where would you like it to be in five years or in 10 years?

Michael: [00:20:13] In five or 10 years I would like it to be a place where new products are born or existing ones are continued and everyone involved is, quote unquote, rewarded for their contributions. That's the type of economy that myself and my team are really working towards, that no matter how small scale the project, no matter how new or no matter how big and burdensome, like a large mixed-use project for example, people's contributions allow them a level of equity or a level of buy-in to those projects. And people who are involved are constantly discovering new opportunities as they commit themselves to those projects. Because we all understand, to a certain degree, that the success of a real estate project is based on so many multi valuable factors. The environments, the general safety of it, the vibrancy, the culture that's there, the diverse community that's there and we want to be able to quantify that value in a way that's constantly evolving and anyone that helps contribute to those forms of value are rewarded with something that allows it to have buy-in to those projects.

Eve: [00:21:22] So has that happened yet at all, in any form?

Michael: [00:21:26] To my knowledge, we have not seen that happen financially in the real estate sector. There are social impact, real estate firms that are experimenting with, for example, reduced rent based on if you help maintain the property that you own. We're seeing different kinds of economic deals being put into place that are trying to incentivize people who actually have equity to maintain it and they can get some value back with its reduced rent or other opportunities like that. I would like to see that pushed and evolved even further where, you know, you're the doorman that lives in your building, or maybe the person who, the tenant that has a educational business in your building, these people can continue and are incentivized to contribute and earn an actual financial stake in the project in the long term. We understand that these are the types of people and programs and activities that give a building or a city the value that it has. And we should be able to recursively reward the people who are actively contributing to that value, not just see it as a mutually exclusive thing that happens within our buildings.

Eve: [00:22:34] Yeah, yeah. Interesting. So final question for you. What's next for you? You sound super busy and I know what it's like working on something like this, it's all consuming. Covid19 has shifted things a bit, so what's next?

Michael: [00:22:50] So definitely. Bringing up Covid19, you know, we are all struggling with this transition to a more remote environment. And I think, like you mentioned before, the disenfranchised communities are suffering even more now. They don't have access to all of these tools. That's another reason why we wanted to create this space. We didn't want to create another just hammer or tool for the digital environment we wanted to place where people can bring their Zoom conversations together or they are resource sharing on Google Drive to one place. Our goal for the near future is just to help these communities, one by one, transition to the site, make use of all the tools and try to get their community together, because this is a time when communities are kind of just being torn apart naturally because we are physically distinct from each other and distanced. We want to help rebuild this community, or these communities, by transitioning them to these online tools. We're very excited and very hopeful. We're already getting a lot of feedback from people saying that, you know, the current tools are very unscalable. There are 10 or 20 different tools that they have to manage all at once. And it's very difficult to scale on that promise to their constituents that they'll stay involved, that they'll keep them involved in their process.

Eve: [00:24:04] Very difficult. Very difficult.

Michael: [00:24:07] Right. And we want to be able to push a bit of that momentum and help support these communities. Anyone that signs up to the site organically, we reach out to and we say, hey, can we help? You know, tell us about your organization, what are the challenges you're struggling with? Is there any way we can help any features you think we could implement? Because the app is constantly evolving. And we're also constantly reaching out to organizations that we think we can help. We're seeing everywhere, you know, people who are less active on Facebook or their own websites and media channels because we know that internally they're struggling with how to transition into this new environment, especially now. And we are constantly trying to outreach to them and say, look, we know you're struggling. We know you need different kinds of support and these tools were doing OK when you were meeting in person or working in person but now that we've transitioned, it's very difficult to keep things in order and keep everyone involved. So, at this point, we just really want to help as many organizations as possible transition and make use of the resources available. And we want to be one of those stable resources.

Eve: [00:25:15] Well, I think it's a terrific idea and I'm going to start by suggesting it to a couple of developers who raised funds on Small Change and are perpetually struggling with how to relay progress to the investors. So, I think it would be a great way to create a little community of investors. So that's a starting point for us and you and I will be talking more about how it might work for Small Change, I'm sure.

Michael: [00:25:39] Absolutely. That would be fantastic. I mean, anyone that's raised on Small Change or is hearing this and thinks that this might be interesting, social impacts, real estate investing is, is definitely interesting because when I speak to a lot of real estate developers, they are all interested in this idea or already committed to this idea. And yet it's difficult to find places where you can communicate with other like-minded people, share those resources and in terms of impact real estate investing, we definitely want to help foster that type of conversation and that resource sharing.

Eve: [00:26:11] Maybe that's the first page to start?

Michael: [00:26:13] It might be. That might very well be.

Eve: [00:26:15] Something around this podcast page. And I just did a retrospective for the year and in the first year I recorded forty-nine podcasts, which is probably why I'm so tired.

Michael: [00:26:27] Well you're doing something incredible for the community and we definitely want to build on that momentum. I mean, there's so much experience and lessons to be had.

Eve: [00:26:37] That's what I was going to say. The people I interviewed are, each and every one of them, a rock star doing their own thing. And that's a that's a lot of experience, too, corral. It's really interesting. So, I'll definitely be in touch. And thank you very much for taking the time to talk to me today.

Michael: [00:26:53] Thank you Eve. Thank you for having me on.

Eve: [00:26:59] That was Michael Lee of BLDG BLOX, a civic technology company dedicated to empowering neighborhood stakeholdership. His online platform bldg.app is currently in its beta phase. Michael's goal is to help civic organizations, communities and companies build community and scale decision making. The app is designed to support community building in a myriad of ways. It can be a tool for organized public engagement for new projects, it can support initiatives with campaigns that mobilize their communities or local causes, or it can even serve as a shared workspace. I'm excited to see it unfold.

Eve: [00:27:45] You can find out more about impact real estate investing and access to the show notes for today's episode at my website evepicker.com While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:28:04] Thank you so much for spending your time with me today. And thank you, Michael, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:15] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:22] My guest today is Cynthia Muller. She's the director of Mission Driven Investment at the W.K. Kellogg Foundation. Cynthia doesn't see herself as a leader, but she is. She's been described as a thought leader of the impact investing ecosystem and a trailblazer in the field. Cynthia has been at Kellogg since 2016, first serving as a program officer with their mission driven investment division, then as its director. There she is wholly focused on their core mission to deploy investments that help to dismantle the root causes of racial inequity. She's taking action.

Eve: [00:01:18] Be sure to go to evepicker.com to find out more about Cynthia on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:41] Hi, Cynthia. I'm just really delighted to have this opportunity to talk to you.

Cynthia Muller: [00:01:47] Me too, Eve. It's been great, it's great to connect and I've been a huge fan of the podcast and I'm really excited for our conversation today.

Eve: [00:01:54] Oh, that's lovely to hear. OK, so I like having fans. So tell me, just to set the scene, what's your background and how did you become a leader in impact investing?

Cynthia: [00:02:11] I honestly, I didn't set out, by any reason, I certainly don't think of myself as one now. I'm really just a practitioner and I have the fortune to work for the W.K. Kellogg Foundation, where I lead our Mission Driven Investment program, which is about 13 years old, focused on impact investment. We do both MTRIs, our mission really did invest in market rate investments, as well as concessionary investments known at the foundation as program-related investment. And it's a small 450 million but it's really exciting because that pool has really been a tool for us at the foundation to learn how do we invest with a more equitable lend? How do we invest understanding that not only are we achieving a financial return, but we are also targeting demonstratable, tangible social impact?

Cynthia Muller: [00:03:02] And so, 13 years ago when our board approved this, they also declared us an anti-racist organization. In that same year in 2007, our predecessor, previous president of our foundation, as well as board members who are currently and of the past, had, knew that there were opportunities for us to think about how do we use tools differently, how do we think about systems differently? And so, 13 years later, it's all culminating now this intersection between understand that there would be systems that people operate in and even though these systems are built for everyone, they don't work for everyone. And I think what I'm heartened, despite this is a terribly difficult time to see what all of the loss of life, as well as the challenges that many folks are facing, and in particular, the poor Black, native and other marginalized groups that were already systematically left behind who now, yet have a double whammy to try and catch up.

Cynthia: [00:04:08] But that is also an incredible opportunity for groups that we fund and that we partner with. These are groups that are in communities. These are groups that, through their advocacy, lived experience and continued representation of the communities, know exactly what tools, what resources they need in order to build the community that will work truly for everyone. So, I'm so excited about that, this work and about the ways in which we can think about these systems, right? Because we're in such a period of inflection. We, in philanthropy, you know, obviously we, like a lot of other industries, are going through our own reckoning and how we navigate the non-profit sector and social impact and even how we navigate being complicit in some of these practices of white supremacy in these systems. So, for me, it's really helping to figure out how to use these tools to unlock and really help to support our folks in developing resources, tools and funds, models that truly could be resonant and sustainable for communities in the long term.

Eve: [00:05:12] I read somewhere that you said, you talked about approaching racial equity, not with guilt, but with an impact lens, which I love. I think that's a really meaningful shift in understanding for me, I suppose. And I wanted to start talking about, like, this is a really huge subject we all know but I'm in the little real estate industry section of it and I wanted to start talking about, you know, how the real estate industry fails people of color and what you think are some of the key things going wrong.

Cynthia: [00:05:47] Sure. And, I want to couch my remarks carefully, because, again to the point, I don't want to guilt, you know, folks in these conversations. These conversations are really to help illuminate, right? Illuminate how people actually experience working in these systems. And I think, in real estate industry in particular, I think is interesting, obviously built off our understanding of what it means to own land. Our, I should say, Western understanding of what it means to own land. And that's derived from obviously the theft of land from Native Americans several hundred years ago.

Cynthia: [00:06:25] And so, the start was there. The start with our fundamental understanding of what it means to land. And so, when you have a society that has been built on taking land from folks already there and then re-giving it out, well of course you're going to have flaws in the system several hundreds of years later because it perpetuates this idea of who owns the land and who has the right to decide on it. But that's not to say that for 2020, I think in the ways that real estate has left Black communities behind, I think it's similar to how the finance industry or even the entertainment industry has left Black communities behind. They leverage the work, the creativity of folks in use of their land. And it really started with slavery, with the renaming of the 40 acres and a mule. And so, folks who had nothing coming out of reconstruction where they were promised this land and they had it for a couple of years before it was unfortunately taken back and given to other folks, and in that case, those who have resources. And so, I think compound that over generations. Right? Every time there was an opportunity for black and brown people to build an asset, to build wealth, unfortunately and systematically, it was taken away through, either through force like we saw in, you know, in many examples that we've been learning about, but we also learned through other means, through legal means, right?

Cynthia: [00:07:53] And for me in my own journey, in understanding how these systems work, and even myself being complicit and working in organizations that didn't know, or to understand how, you know, we continue to perpetuate this divide through our financing structures, through how we even underwrite our deals, who we consider deal-worthy, even by zip code. And so I think all of that's to say that we all operate in this environment of a real estate where we understand who owns things based on who it's passed down to, the legal structures, but as we have learned through great reporting like The Atlantic and The New York Times and others, there have been generations of folks who've been losing their land. And one of the greatest examples right now is the great Black land theft. There's a great, great piece in ProPublica on just that. Basically, the systematic theft of Black land that's been left to families through generations. And unfortunately, the families that they gifted this land are unable to, for a variety of reasons, maybe they don't have the assets to find a lawyer or understand how to reach the appropriate folks to document ownership. And so, this creates more vulnerability and predatory behavior by others who see it as an opportunity.

[00:09:11] And so, I think that's all to say that's how the system works. We see how the money comes in. We see who is getting financed, how these big real estate funds are able to amass all this property through systematic purchasing. And we see how this plays out in local communities where there are a handful of individuals or families that own the real estate, right? And so, unfortunately, for folks who, like myself, my father was in Vietnam, came back from the war, settled in Alaska and worked as a civilian on the Air Force base for many years and was ultimately able to buy his own property. But that was after a lot of handwringing. He had to jump through a lot of different hoops, thinking about financing in different ways because traditional banks were going to put him through extra steps that he wasn't willing to go through. So, every time we talk about creating wealth for people, that's great. But it's not that everybody has the same access and opportunity to create that wealth. I think that's, quite frankly, how real estate fails black and brown communities. That lack of recognition is very much obviously focused on the bottom line and that exchange of the assets and who owns and how much revenue we can glean from it but we never systematically just sit down and think about who actually is benefiting from this and who is it benefiting from this?

Eve: [00:10:37] I mean, that's just a huge problem. And, you know, and the predatory behavior is continuing today in different ways. So, it isn't like it's stopped. So, what would it take to correct this? We're talking about banks that won't lend to certain groups of people. We're talking about people who go into poor neighborhoods and purchase homes for less than market value. We're talking about all sorts of, kind of, failings that ultimately impact people who don't have the resources to deal with it, right?

Cynthia: [00:11:13] Mm hmm, that's right. So how do we, how do we help them, right?

Eve: [00:11:16] How do we start, right?

Cynthia: [00:11:20] So now that we've painted this dire... What's out there? There are some incredible areas of opportunity and great work. One of those is really around community development finance. This is an industry that's been around for 40-something years. This really came out of church groups, non-profits creating loan funds all over the country to do justice, to be that bridge finance or for, in those places and those communities, for those people who are being overlooked. And so, there are several thousand CDFIs across the country, they're all kinds of shapes and sizes. Some of them are national, some of them are in places, some of them are thematically structured, but they're all in the service of deploying capital. And a lot of them are very much active in the real estate market because a lot of great programs in the 80s and 90s and then the aughts have really allowed the industry to flourish. New market tax credits to various CDFI fund programs, healthy food financing.

Cynthia: [00:12:24] I do think the CDFI space has done a tremendous job. We've got a great history and track record of these transactions. I think the challenge is that the industry is a little dispersed. Obviously, it's all over the country and each CDFI has its own individual strategy. And I think further, the CDFI industry has been really, really thoughtful about scaling up and figuring out how do we start to do larger deals so we can be a more significant player with the larger banks. And I think we've proven that case. I think, unfortunately, though, we have veered a little bit away from providing capital to the folks in the most need.

Cynthia: [00:13:05] And I say this because when we, as we have been trying to marry this impact and finance, I think this field is borne out of a number of different things and I think the folks that have come to it have brought all of this incredible insight and talent and resources from a lot of the institutional finance investment. Some of those folks came from banks, they came from investment banking, they came from equity, venture capital, the whole industry. Now if you think about it, what are those industries lacking? A lens into these communities, a connection into these communities. And unfortunately, I think that it still comes out in different ways. And so, I'll say that while we have incredible groups that are providing capital to low-income communities, we're still not hitting the most marginalized. We're hitting cities, we're hitting gentrifying areas. And so, if you actually look at some of the loans across the country, we are, we're actually, we're doing work but we're hitting the wrong areas.

[00:14:02] And so for me, it's really helping to illuminate what these other opportunities look like and that CDFIs and others have the opportunity to really bring their lens and this 40 years of working in low income communities to the space, and to provide that capital. That quite frankly, and it's already happening in so many ways. In the news recently, we're hearing about groups like Netflix and PayPal who are deploying tens of millions of dollars into CDFIs and community banks to help folks address these needs. And PPP, the subsequent round after the first round, they made sure to include CDFIs because, obviously, they realized really quickly that there was a whole flock of folks that were being left behind. I think CDFIs aren't the panacea, but I do think they are a huge partner, along with other asset holders that help to influence how we structure the practice.

Eve: [00:14:55] Yes. I think developers., OK let's talk about developers. They're often, you know, that's often considered a bad word in underserved neighborhoods, while there are, I think, quite a few developers who really want to do the right thing. So how we train developers to fully understand the consequences of their projects? And can we do that? Can we really, like, look ahead 20 years and understand what might happen in a neighborhood?

Cynthia: [00:15:27] Yeah, I think we can. I think we got a little bit of a lesson with Opportunity Zones. While.... hold out with me here. Opportunity Zones obviously a lot of challenges. I personally have a lot of challenges with them in the way that the program is structured, and I think folks have talked about this in detail. So, I don't think I have anything else to add. But I do think there were a number of my peers who were really trying to figure out just that. How do they help to show, demonstrate, the practice of making these investments in communities with that land? Right? Because that was the general intent that I think that a lot of folks had expected and unfortunately the program did not have enough accountability metrics to really allow for that to really play out.

Cynthia: [00:16:15] And so we've gotten what we've gotten, you know, a lot of deals that didn't go into high need communities. However, the work that Kresge Foundation funded really around, how do we look at these transactions with that lens? I think that was the most valuable piece of what we learned from Opportunity Funds so far, is that we can go in with a good intent, right? We know that the idea was to bring in new money, right? But we also realized that, unfortunately, capital markets need some accountability, you know. And I know that there's varying degrees of how we can play that. But it's clear to me that had we been clear about when you're going into these communities, here are kind of the criteria. How are you engaging with the community? What's the community's voice? Does the community have an actual equity stake in this development? If so, how? Right? So how do we get past this rubber stamp where people hold community meetings to say they did it and say the community's involved, right? How do we actually push for meaningful?

Cynthia: [00:17:18] I think the answer is pretty simple. I think the answer is that communities have a voice. And a voice that I think that people have been so surprised and shocked by. And it's been social media. Think about what we are able to see now right outside of the news. When I was growing up, you saw the news and that was your world view, right? And whatever news you've watched? And now your world view is not just the news you watch, it's the social media system and the people you connect with. And so, think about communities you see all over the country right now with, you know, Municipal Boards and cities debating and hearing the community talk about how they're being failed. And that is raising the visibility around a lot of the gaps. And I think that's really where the opportunity is. Because when you have a community that engaged, that community is willing to be involved and willing to go with you on that journey. And also, it means that there is an accountability there, that you can't just come into that community and say you're going to do one thing and not follow up.

Cynthia: [00:18:19] And I think that, quite frankly, developers, unfortunately, have a reputation. And I think this is an opportunity for them to work in a meaningful way, because I think in the long term that actually benefits them. If they have a community that's bought into, right? It's going to compound the prosperity of that asset, of that community and the longevity of that community, right? And bring in more folks. And so, you want that compounding effect, but you have to spend the time to do it. And unfortunately, underwriting, due diligence, structuring doesn't allow for that. So how do you do that in a meaningful way that still allows folks to get their deals done to set up these projects to house, provide services to folks without going through a two-year journey of learning this community? And I think the answer, quite frankly, is that the community has to be involved in the development, right? It means that we have to think about their engagement differently. And it's not just the developer who's developing, it's the community who's developing their own community. It's a very deep philosophical shift, but it's one where I think where it's the time for us to be having a conversation.

Eve: [00:19:23] Yeah, no, I agree. But I think, you know, it's a very different conversation when it's a small developer versus a large one. It's about resources and what's possible and it's a huge industry doing a lot of different things. It's difficult.

Cynthia: [00:19:40] When you talk about small, like, the small developer, and I'm thinking about, you know, obviously there's the developers in New York and L.A. and then you've got developers in the Midwest and in these smaller cities. And there are different dynamics there, right? There's a little bit more, obviously, insular, you know. It obviously depends on who owns what assets, the political leanings of folks in power and whatnot. But I do think, given Covid, given the Black Lives Matter uprisings, we're in a place in time where that's our leverage. Right? Because we all want to build stronger communities. We all want to live in safe, strong communities. And I think that's the message for us, right? Where we've been living in the last four months in Covid and all of this. And there's so much fear and people just want to get to their communities. And so, it just feels like, if there were a call-out to developers, it would be now. You have an opportunity to rewrite how you show up in communities, how you develop communities, who you develop communities with.

Eve: [00:20:50] So, I want to go up the food chain just a little bit more because it isn't just developers. When developers look for equity, which, you know, over the last 15 years they have needed more and more of as banks have retracted the amount they will lend. You know, when you need to find 35 or 40 percent of the development cost as equity, you have to pay for that. Now we're in the market where there's investors who are seeking a return for the risk they're taking. And I think, more than anything, that return drives what goes on, right?

Cynthia: [00:21:26] It does.

Eve: [00:21:27] And I think there are expectations of return in real estate that I've heard, you know, are 25 percent internal rate of return. How can you ever build anything affordable for a community when that's the equity that you have access to? You know I have Small Change and I've been trying to raise money for meaningful projects, and this is this is the question I always get from developers. How much return do I have to give to investors to raise the money? And I don't really know the answer because I think there is kind of the level of greed and I wish that were kind of reduced right now, but I don't know the answer. I don't know if you have thoughts about that.

Cynthia: [00:22:12] While impact investing or social mission investing or whatever folks call it, I think we're in a moment. There's enough of us now, we're in major investment banks, we have our own celebrities now and I think our practice out there. Listen, like Netflix dedicating 100 million to Black banks all over the US didn't happen overnight, right? These funds that are 200-million-dollar impact funds didn't happen overnight. There are investors who understand how to manage risk and how to manage impact. I think the challenge is in creating a better flow between those investors and to folks that are raising those dollars. And that's the piece that I think we constantly run up against. What's nice is, through the global impact investment networks, through groups like SOCAP and Confluence and others, we have these great anchor organizations within our field that are really able to connect folks to the deal. So, for instance, at Confluence I just think they do a fantastic job, really kind of digging in in specific things and bringing their investors together. So, like any investor that has an interest in an area can go in. And in with other folks that have been looking at similar deals and to engage. I think it's really creating more visibility and awareness around that practice.

Cynthia: [00:23:36] And one of the things I think that it's already being seeded, it's been seeded, is that we are in so many business schools right now, there's so much impact investing being baked in into MBA programs, into graduate programs all over the country. We are also, we have a dearth of folks who are interested in the space and not enough jobs. And so, I think that I would put it out to developers to really start to look at that. There's a whole dearth of folks that are coming into the industry with this orientation. Hire them, engage them, especially if they're from these communities. Because what I have found is that a lot of these students and the young folks, the way that they're coming up in the world is not in these silos, the way that the world is so much more fluid. And so, it makes so much more sense, the why. For them this is, this integration, is much more, is a no-brainer. Unfortunately, we're on the other side of it or trying to reorient our infrastructure, our approach, our lens into that. And so, I would say for investors and for folks, for developers, smaller developers, looking for this type of investor, I that that with the impact field in the regard that we have community foundations in every major city in this country, we've got family foundations, we've got private foundations, and we've got a lot of individuals, like a lot of your listenership and your partners, right? And so, we have to start to message that and get that out more. And I think it's starting to take root. It's just, it's a lot. It's a lot in this environment, right? To introduce in a completely new framing.

Eve: [00:25:12] It is. Yeah. And then, you know, there's also redlining, which was supposed to be gone, right?

Cynthia: [00:25:21] No, yeah, no it never went away, never went away.

Eve: [00:25:24] It never went away. So how does that get eradicated? How will that go away?

Cynthia: [00:25:31] So familiar. You know, there are recent reports of some of the cases, and current cases of redlining are still there. And so, I think this is also a finer point, right? So, while we are being aspirational, working in this new normal, we still have to recognize we have vestiges of this old practice. And I think that for many groups that are wanting to engage, and what do I do now, it's really continued to let up and figuring out how do we support those communities. Look at the communities that haven't been, who haven't had any investment. And it's not easy, it's not hard to find them, right. And you can see exactly who has been flown over and the bank does, or what have you. Start looking at them.

Cynthia: [00:26:16] So, whenever folks come to us and they're like, oh, my gosh, we got we've got 50-million-dollars, which we do. All right. So, I ask them to look at their issue areas, look at and think about who's benefiting and who isn't, and then really focus on who isn't. And that's your baseline. And then you build from there you look at, all right, so if this community does not have access to housing, we're like, well, OK, well what other alternatives, right? Is a smaller housing unit? Is it partnerships with other groups? It's really helping them to reframe their lens instead of how the deals fit within the future is, to look at what the actual deal is and how you look for the opportunity.

Cynthia: [00:26:56] And I think that given that this recession will hit us very much in places different than the last recession and in a sense, because, look how Covid is hitting us now. The wave will be similar. So, I think the developers in those places that will be in a tremendous amount of opportunity and need for creativity.

Eve: [00:27:22] Yes.

Cynthia: [00:27:22] To help to buy up some of these properties, to help them ensure that they maintain affordability, that they are owned by Black and brown community. And so that's where I would go. I would look at that and start to think about how do we, how do we help reinforce these communities.

Eve: [00:27:38] Right. Oh, OK.

Cynthia: [00:27:43] Sorry, we said we'd go heavy and deep.

Eve: [00:27:48] I know, it's hard work, isn't it? Just shifting gears, a little bit, how much money is being deployed in impact investing at the moment and how much you expect that to grow?

Cynthia: [00:28:01] Yes so impact investing has, over the last few years, has grown a tremendous amount. And so, in the most recent global impact investment report, I believe that the size, and they, every year, they do a survey of self-identified impact investing and impact investors, that every year it's been going up. And so, this year, I think we're up into several trillion. And what's really exciting is if you actually look at the impact investing, if you look at that survey, do it every year, you can see, year over year, exponential growth of the folks that are identifying in this space. And even more so, if you look here in the US, you can see more and more folks that have, who have investable assets, who are very much interested. So, the signs show that there is interest.

Cynthia: [00:28:44] I think the challenge is like, OK, what is that interest, right? And how do we translate that interest into capital and into these deals? And I think that's the piece that, what we do in our grant-making and with our peers in the impact investing field, it's where, how are we creating new vehicles, whether they're investment vehicles and organizations or even thinking about the fintech infrastructure, right? So, there's a lot of conversations around that. And how do we attract investors to participate in, kind of, this fintech revolution or should we in some cases? And I think that's all to say, that there's a momentum and it's just connecting that momentum with folks who have capital. And the folks who have capital are very much interested in that. A least based on my schedule calls.

Eve: [00:29:34] You said the folks that have capital and that that's actually what interests me most because everyone has a little bit of capital. I think about how everyone could be involved. And, you know, when you build a new project in a neighborhood that is funded through foundation funds or government funds or new market tax credits or however, you basically increasing, eventually, the asset value of that neighborhood. And then there are people who are left behind. We call that gentrification. I think there's probably some good things about gentrification. You can't, you know, not leaving neighborhoods in deplorable states is one of them. I think investments have to be made. But how do you make sure that the little people also get to be part of this, maybe even get to invest?

Cynthia: [00:30:27] Yeah, and I think the more that we can democratize investing, I think the better. The same way think about social media, the way that we've democratized people's voices. Some would argue there's a downside, and there definitely is...

Eve: [00:30:42] Yeah, there definitely is.

Cynthia: [00:30:44] I will not deny that. But think about it. Think of the voices we've been able to hear; think of the things that we've been able to see.

Eve: [00:30:52] Yes.

Cynthia: [00:30:52] Think about the deals. Now translate that to investment. Think about the deals we'll be able to do as a result of people's voices and perspectives who outside of our industry. And I think there'll be a reckoning for us around what does risk actually mean? When you think about the risk of National Guardsmen coming into your city and bringing, and all of the chaos that could come with that, right, because some of these protests? And so, I think risk is really what's on the table, is like, how do we, a free market, define risk? And that's what's really happening, because it's clear that people have defined risk in ways that have been self-serving to one group or groups over others, right?

Eve: [00:31:36] Yes.

Cynthia: [00:31:36] And so, and that's where we're at. That's where we're at. But wait a minute, you didn't have, you know, how many folks were like, wait a minute, you know, why couldn't you waive our rent? These are all issues that are based on the system, but we can dictate the system based on what the need is in this given moment. And I think that that's really caused a lot of consternation in folks, and particularly those folks that are coming, that are growing up, progressing in their careers and realizing they're not going to have the same opportunities as the parents.

Eve: [00:32:11] Right.

Cynthia: [00:32:12] Or the grandparents. Are you even remotely, you know.

Eve: [00:32:17] So, a completely different question again. What community engagement tools have you seen that have really worked?

Cynthia: [00:32:26] Power mapping. It's probably one of my, the best tools in the sense of really, if you are an investor who wants to, you want to make sure that you're engaging in community in a sufficient and a meaningful way and, be real, like the Black community, right? And often folks especially, say a white developer, or white-led organizations don't know how to navigate that. So, I would encourage folks to look at things like power mapping and helping them to understand why some communities will be so resistant to developers. This takes reflection and really understanding around the barrage of issues that these communities are facing. And obviously, place is paramount, but now on top of that, access to health care, access to jobs. And so, when you think about that and you have developers that are coming in, we're going to fix your lives with this new development and then not deliver. And then rinse and repeat. That bears out, that really shows up in the community. I encourage folks to always go into understanding power. How has it been stripped from this community? You know, in the past, how has it enabled the community? You learn about the history, right? It really helps you to understand, how do you find a project, or structure a project, that will get through and be meaningful and beneficial to the community. So, I always start with power mapping.

Cynthia: [00:33:48] I also start with, you know, there are a lot of really great local data and analytics there. Folks who are just totally crunching the data for the communities, right? And really using that to program. Look at them. A lot of folks like to bring in national groups and they're great, too but I think these local groups have access to data, they have the nuance of this data, that I think is far more powerful and insightful to folks who are thinking about a comprehensive project. That's the data that helps to tell the story of that community. And so, so many stories of communities have been forgotten or reframed. And so, I would also think about them, making sure you're getting an understanding of that community, not the, you know, not the one that's told you by folks who are selling it, but really the community. Right? And so, you know, when you're going in, you know what you experience with blockers in that development.

Eve: [00:34:46] That's really, that's really fascinating. OK, so, where do you think the future of real estate impact investing lies, like 10 years from now? What does this all look like?

Cynthia: [00:34:57] Gosh. Hopefully, it means we see more community making decisions about what businesses are there and more deep engagement, right? I think we've seen a lot of national chains that go into various communities and doing a lot of extractive practices, unfortunately. And so, I'm hopeful that we see a little bit of a rightsizing of that, right? And I think where we see much more meaningful and thoughtful engagement from a lot of our national corporates who are a critical partner to community development all over this country. I also hope that we have better models for underwriting these projects and ensuring that we're thinking about risk in the proper way. And then we are also, we're comfortable with a different form of return from some of these projects we'll take. We all, many of us, are long-term investors, right? But we all, we say we're long term investors, but that's not how we act. And so, I think that'll be an interesting piece, I hope that it helps us to shake out a new framing around that.

Eve: [00:36:05] And so what's next for you? What are you working on?

Cynthia: [00:36:10] A couple of things. Something that I'm really excited about, well as much as you can be excited about trying to systematically eradicate racial injustice in the capital markets, is really some of this ecosystem building. So, for instance, like I said, you know, this recession is going to be so localized and so for, in my mind, that it creates a lot of opportunities with a lot of our local leaders and a lot of folks are about to become local leaders. And so, there's the conversations that are happening in some of these cities around that and thinking about innovative financing structure. So, I'm really excited about that, Eve. I'm also excited about getting a little more visibility to many of our under-banked and under-financed regions, most notably in the US south. The US south are going to have like 45 percent of our population, is probably the most impoverished counties and cities across the country. And yet we barely have banked them. We barely have community banks and other resources to help these communities, kind of figure out the tools and structures that would work for them and so, for me, it's really connecting those dots and really helping them build those eco systems and driving more capital and connecting investors to those burgeoning opportunities and businesses and funds.

Eve: [00:37:36] Well, I think you'll have your hands full, in fact, I think we're all going to have our hands full, but it is, as you said, an opportunity. Thank you so much for talking to me today. I really enjoyed our conversation. Hope we continue it.

Cynthia: [00:37:55] Likewise, Eve.

Eve: [00:37:55] That was Cynthia. Every time there has been an opportunity for black and brown people to build an asset, to build wealth, says Cynthia, it's been taken away from them. Who do we consider deal-worthy? Cynthia thinks we are in a moment and so do I. This may just be the moment where we should all sit our guilt aside and just take action.

Eve: [00:38:22] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:38:39] Thank you so much for spending your time with me today. And thank you, Cynthia, for sharing your thoughts. We'll talk again soon but, for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:12] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Today marks the first anniversary of this podcast, something I am immensely proud of.

[00:00:36] A year ago, I didn’t know that our audience would grow as it has. In fact, a year ago I wasn’t sure we would have an audience at all. And I certainly never imagined that I would have the opportunity to talk with so many extraordinary individuals, leaders and movers in their respective fields, all doing remarkable things.

When we started the podcast, I thought we would focus on real estate and the impact it makes. But I’ve discovered that “real estate” is a very broad industry. I’ve found a horde of people working in fascinating niches around this one big central theme – the built environment we all occupy.

[00:01:26] These people work in city planning, on affordable housing, in impact investing, on mobility issues, in fintech, as architects, on sustainable development, on community capital, on equity in communities and in many other niches, pushing the boundaries of the built environment to be better for everyone.

The range of work that is being accomplished, is quite frankly, astounding.

[00:01:59] I learned how big, visionary thinkers make cities better. Like Josh MacManus in How to leave places better than you find them. He’s spent quite a lot of time rebuilding downtown Detroit.

Or Tom Murphy, past mayor of Pittsburgh, who showed incredible fortitude in shepherding Pittsburgh from abandoned to reinvented in How to transform a city.

And most recently, Avra Jain, who tells us all to look past the working girl on the corner in Beyond the Vagabond. When she looked she saw the future of Biscayne Boulevard.

[00:02:45] Other guests have reminded me of the power of zoning, architecture and design starting with Liz Faletta in By right, by design. Her in depth research on the impact of zoning on housing in Los Angeles provides unexpected insight.

In Atlanta, Eric Kronberg convinced me yet again of the importance of salvaging architecture in The zoning whisperer.

Christine Mondor reinforces the idea that architects can influence the future of cities in The power of design.

And Lorenzo Perez’s creativity as a real estate developer in Phoenix caught me off guard in Real estate artist. His approach to transforming ugly desert architecture into beautiful community spaces is wildly creative.

[00:03:44] Let’s not forget the housing crisis. Lots of my guests are all in looking for big solutions. John Perfitt and Jason Neville are tackling homeless housing in Los Angeles by re-introducing iconic architecture, in Hungry for disruption;

Molly McCabe describes the unusual approach of the Lotus Campaign in Capital is just a tool.

Jonathan Tate takes an architect’s approach by focusing on the value of odd lots and the houses you can build on them in Lead by example.

Scott Choppin is tackling multi-generational workforce housing in The contrarian developer, an important niche that has gone unnoticed by other housing developers.

[00:04:31] Matt Hoffman is focusing instead on how technology might solve the crisis in 7.4 million short.

Rebecca Foster, in San Francisco, is busy saving existing affordable housing through financial tools on Accelerating affordable housing.

Brian Gaudio has a modular housing solution in Scaling up.

And Thibault Manekin (T-bo) of Seawall Development is focusing on specific communities, affordability and astounding preservation efforts in Choose your own rent.

[00:05:22] Across the Pacific Ocean, Australian architect Jeremy McCleod has figured out how to deliver Sustainable, affordable and beautiful housing in a market that most people can’t afford.

Fellow Australian, Kris Daff, is tackling the same problem in a different way. He’s Assembling communities and offering them a path to home ownership.

And across the Atlantic Ocean Marc Koehler is turning the architectural design process upside down by first curating communities and then designing a building around them in his Superlofts project. It’s super fantastic!

[00:06:08] Community development and social equity have moved into the foreground this year, and I expect will even more so next.

Brian Murray is Embedded in community in Philadelphia, working on projects that provide equitable opportunity for everyone.

Josh Lavrinc has spent his career squarely focused on Advancing community development, through capital raising and real estate development

Emerick Paul Patterson is busy experimenting with inclusionary community tactics in New York. Listen to his love of diversity in Delicious Urban Soup.

[00:06:47] In West Virginia, Brandon Dennison is experimenting as only an entrepreneur can, on how to end generational poverty in A bold experiment in coal country.

John Folan, who heads a department of architecture, wants to make sure that the next generation of architects understand the meaning of equity. For John, Equity is the thread.

Majora Carter has gone from Revitalization strategist to barista in her efforts to bring equity to the South Bronx, one of the poorest zip codes in the country, and where she lives. “Nobody should have to move out of their neighborhood to live in a better one,” says Majora.

Sadie McKeown, in Political will and community, has seen firsthand the influence of good and steady political leadership in building better communities.

[00:07:43] Justin Garrett Moore has a day job ensuring the quality of public space in New York City. But on the weekends, he’s knee-deep in redeveloping the community he grew up in. Hear what he’s up against as a black man in Black, white and red(lining).

Adam Sgrenci is showing communities how they can control their own destinies, andn educating developers on how to Co-create.

Adrian Washington has been developing in Opportunity Zones before they were a thing. He decided a long time ago that Greenfields are boring.

And Katie Swenson is the quintessential community architect. Home is the most important community development concept for her.

[00:08:43] For insights into economic development and financial inclusion hear Kimber Lanning who is Striving for justice in Arizona or Brian Beckon explain how to raise community capital in Share the wealth.

Jorge Newbery is using Fintech to keep people in their homes. He’s saved 10,000 and counting, while Ommeed Sathe sees Big Change in his role at Prudential, helping them to build a billion-dollar impact fund.

Lance Chimka who leads an Economic Development Department believes their role should always be First in. Towards growth.

Christina Marsh has given herself over to the remaking of Erie in Of service. In Erie.

Melissa Koide is researching and advancing ideas on financial inclusion. With Fintech.

And Lyneir Richardson, wants to help 1,000 urban entrepreneurs grow their business.

[00:09:55] I’ve learned about mobility in cities, and how it touches real estate and equity, from Karina Ricks, who heads a newly energized Department of Mobility, and from Gabe Klein, a mobility rock star, who convinced me that the future of mobility will be enhanced by data in Mobility is pretty pedestrian.

Harriet Tregoning is taking on a leadership role with NUMO, the New Urban Mobility Alliance, and explains why in The reluctant planner. And let’s not forget Donald Shoup, parking czar, who believes that parking is over-rated and under-compensated in Parking not required.

[00:10:38] Others think about investment in ways I never imagined. Janine Firpo is on a personal journey to ensure that every dollar she invests does good. Listen to her explain why in She’s all in.

Laura Callanan is squarely focused on Connecting impact and creativity.

And Mark Roderick, a crowdfunding attorney, explains how the Securities and Exchange commissions are opening the doors for Democratizing investment. And why its a huge step forward;

[00:11:12] For innovation in the building industry listen to Jennifer Castenson, who surely has her finger on the pulse of new trends, in Living the Jetson life;

Or maybe you want to learn about blockchain? Listen to Sandy Selman explain how it might be applied to real estate in Digital twins; and if you are ready to embrace sustainability and saving our planet in the most wholistic way, Sandy Wiggins may just be the one to listen to in Let’s change our mindset.

And if you think we need to get back to a former time, listen to Jim Kumon of the Incremental Development Alliance talk about The lost art of small-scale development. He’s teaching small-scale developers how to get back there all over the country. [00:12:01] Phew. That’s a lot of podcasts. I’ve enjoyed every interview with every person. I’m in awe of them all. But it’s time to take some time off to rest, enjoy the weather and just step back from the extraordinary last few months that has rearranged all of our lives.

We’ll be back refreshed in September with many more amazing people for you to listen to and me to learn from.

Thank you so much for joining me. Now go forth, invest a little in your community and make some change!

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Eve Picker: [00:00:15] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve Picker: [00:00:21] My guest today is Avra Jain, co-founder of the Vagabond Group. With a career path that has taken her from bond trading on Wall Street to developing properties along some of Miami's trendiest streets, Avra has earned a reputation for identifying the next IT neighborhood. Her remake of The Vagabond Hotel on Biscayne Boulevard in the historic MiMo District of Miami changed the course of that neighborhood forever.

Eve: [00:00:58] Be sure to go to evepicker.com to find out more about Avra on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:23] Hi Avra. Thank you so much for being on my show.

Avra Jain: [00:01:27] Thanks so much.

Eve: [00:01:28] Very nice to be here, yeah. I love this quote from your website, which says, "We operate from the perspective as storytellers, allowing history to take center stage and create a genuine sense of place". And I would really love you to tell us a little about what that means.

Avra: [00:01:46] Well, that really has come from the work that we've done. We, kind of, we got there. We, I'd like to think there were people that actually, sort of, do it and then rather than talk about it. So, I can say that that actually, actually came from the work that we're doing. My team is three architects, one of which was, has a master’s in historic preservation. And so, when we start a project, or we do a project, the first thing that we do is that we study the history of the community, of the buildings themselves, architecturally, culturally. And so, we always sort of start from the story. And if there isn't a story, we don't do the project.

Eve: [00:02:36] Oh, interesting.

Avra: [00:02:37] Yeah, so we actually, so that quote really came from how we really operate. So that's a real reflection of the work.

Eve: [00:02:48] So what sort of stories do you look for?

Avra: [00:02:52] You know, it varies. So, in Miami there's a section of, there's a historic strip from the 1950s and 60s called MiMo which stands for Miami mid-century modern. So, there's a boulevard, Biscayne Boulevard, which used to be US1. So, if you were driving down post-World War Two in your 57 Chevy and you were going to Miami, the Magic City, you would have driven on US1 or Biscayne Boulevard. And there is a section that had these old 50s and 60s motels and, you know, with a big neon signs, and so, we came up here, one of the projects, larger projects that we did, that we're known for is the preservation work. When we renovated the Vagabond Motel to Vagabond Boutique Hotel. And that was the tipping point for the historic boulevard. So, we bought about 10. The neighborhood at the time was all drugs and prostitution. And, you know, it had been a neighborhood that you would've just driven right through with, you know, the shades down next to the baby seat, you know, but there were some spectacular, you know, vintage mid-century architecture, which I know you're an architect so you can appreciate.

Eve: [00:04:17] Yeah, I know. I took a look on your website. They are stunning.

Avra: [00:04:21] Yeah. So well, these were buildings that were up for demolition. And they were in disrepair, you know, SWAT teams were coming in once a month to empty them out because of, you know, drugs and things that would go on. And so, we knew that in order to, and this was a neighborhood that used to be Main Street, Biscayne Boulevard used to be Main Street. If you couldn't afford to stay at the Eden Roc or the Fountain Blue, you would've stayed at the Vagabond. Same architect that did the very famous Delanoe Hotel on Miami Beach. So, we knew what it once was. So, it was about, you know, bringing it back. There are other times when we actually, you know, neighborhoods, right, where we go into warehouse districts and create neighborhoods. This was a neighborhood that was so all we do was bring it back. And there was actually some really affluent neighborhoods nearby and surrounding neighborhoods that were also original from the 1930s and 40s. So, it was really a beautiful project to do both architecturally and for what it did for the community. The thesis was, if we bought enough of these motels that were 20 dollars an hour, you know, sixty dollars a night. The hotel that we bought next to Vagabond, in the lobby the sign said: "no refunds after five minutes". And it originally said ten minutes and they whited it out. That was the neighborhood and so we bought six of these old motels. A couple of them were abandoned and the rest of them we shut down. What happened was we thought is, if you shut down where people were actually doing these bad things, could the neighborhood find itself again? And it did.

Eve: [00:06:20] What gave you the courage to do that? And what sort of resistance did you feel for these projects?

Avra: [00:06:28] Oh, no resistance. Oh, my gosh. The city was like, the mayor, you know, we when we opened the Vagabond, we had nine hundred people. Everybody, all the arts, everybody. It was like a really big deal. This was, you know...

Eve: [00:06:40] I suppose I meant from the point of view of, because opening is easy. But what about the financing? I mean, how easy....

Avra: [00:06:47] Oh yeah, yeah, yeah. I was going to say, we had no community resistance. In fact, people continually thank us all the time. But the resistance, yeah, sure financing, couldn't get any.

Eve: [00:06:58] Yeah, I'm sure.

Avra: [00:07:00] Yeah, no, I mean you know, you've done this enough times, Eve. So in fact even my traditional real estate investors, I had done a lot of adapted use in New York City and other places and a lot of my investors which go all the way back, you know, twenty five years to New York City, even some of them were like, ah, you've done a lot of crazy things, but they just could not get past the working girl on the corner. They couldn't get past it. They could not see the architecture. They could not see, they couldn't see the history, they just couldn't see it. They couldn't believe that it would come back. And so, a lot of, in this particular case, a lot of the money for that particular project was myself and my partners, you know, my spouse. I mean, we put up, I'd say 40, 50 percent of the money. So, it was really a cash project. But we found some very clever financing opportunities, financial opportunities. So, we did, I did my homework. I always tell people, you know, part of real estate is doing your homework. Understanding zoning, understanding the community and doing the outreach. Understanding building codes, a lot of homework. Well, I'd done my homework and I knew that there had been an ordinance set up in 2010, where you could sell development rights for historic properties. So, you know, in New York City, we knew that we could do this. We call them transferable development rights.

Eve: [00:08:32] Right. I'm very familiar with them. Yeah.

Avra: [00:08:34] So in Miami, for this particular strip, because it was historic, they down zoned it, meaning they limited, they did a height restriction of 35 feet. They took away buildable rights for the property owners. In exchange for doing that, they offered the property owners the ability to sell those development rights. So, floor area ratio, you know how much you could build. And then later they adopted a policy that also allowed you to sell the density. Like how many apartments you could build. The number of doors we call it, right? So, I was able to arbitrage that and the value of the transferable development rights for the Vagabond was three million dollars.

Eve: [00:09:24] Wow.

[00:09:25] And the purpose of those development rights and the ability to sell them is also to incentivize property owners to preserve and invest in the historic preservation of the property. So, you can sell those rights, but you have to reinvest them into the property and meet historic guidelines.

Eve: [00:09:43] Interesting.

[00:09:44] Yeah, it's not a little project. Actually, I think that, you know, in order to get historic preservation to work, you really have to give people incentives because it's very expensive. For those of us who build, doing historic preservation it's more expensive. It would've been cheaper for me to knock the building down and build it again than it was to actually preserve the existing Vagabond. So, they have to give you incentives otherwise... there's a reason why developers let those buildings go into disrepair and

Eve: [00:10:16] because they're expensive, yeah. Historic tax credits help as well. I don't have Florida has a state credit as well, but I've used those in the past and they certainly help to fill the gap, that's for sure.

Avra: [00:10:29] Yes. We qualified. We nationally designated the Vagabond Hotel. We met those standards and got the federal tax credit. So, we got 20 percent of our investment into the property. Yeah, every state's different. Every state's different. Every municipality is different.

Eve: [00:10:47] This really took creative financing and the, since then, you said you bought six of them and how did the financing change one you opened the Vagabond Hotel?

Avra: [00:10:57] Well, once we opened the Vagabond, sold the development rights, we were able to, get banks to give us some financing. But most of the projects we did, we did cash. We did cash and we financed after. It was just still, even now it's easy, you know, but I took rents, rents on the Biscayne Boulevard for twenty, twenty-five dollars. The Starbucks leases from me for 70 dollars, triple net. So, now it's very easy to get financing. And the Boulevard has a lot of cachet, but it

Avra: [00:10:57] It's very difficult, yeah. I mean, this is actually why I started Small Change because, you know, banks almost squash the creativity out of what needs to happen, the creativity and innovation out of what needs to happen in cities, because you can't, they want to only finance what's been done before. So, how do you tackle a place like this if you can't get financing and you don't have the cash?

Avra: [00:12:00] Yes, it's almost, I would say, it's almost impossible. So, you know, you rely on friends and family. A lot of it's your check book. But that's also the opportunity. Those are the properties that are also undervalued, right? The property that trade that are most expensive, are really a function of financing. You know, Multifamily trades at a tight cap rate because that is the darling with the lenders. Banks really, and part of it is the regulations, banks have to fund based on cashflow, income from properties. The regulations almost mandate it.

Eve: [00:12:36] Yes.

[00:12:37] So, lending on land or lending on an abandoned building and for adaptive reuse, which is unfortunate because in a lot of the underserved communities you need.

Eve: [00:12:48] That's exactly what you need, yeah.

Avra: [00:12:49] And what you lose because these are buildings that need a lot of work. Of course, they're not income producing, nobody should be living in them. And some people do live in properties like that and shouldn't be there. So, you know, the banking industry does not set up to be helpful. You know, what has happened, short of being able to fund yourself or have enough track record to to attract funding, is that there's a, sort of a hybrid lending space now. Used to be you could only get bank financing or a bridge loan or, you know, hard money loan you call it, right? 13, 14 percent which makes projects also unfeasible. You just, you give away all your profits in interest costs. But there's hybrid money out there now, that is more flexible, and you can get, you know, between six and nine percent depending on the project and you’re, and the sponsorship. We've been able to get hybrid money for projects like this. And it's really because of our track record. And it's all personal guarantees, right? I have to sign personally on everything.

Eve: [00:13:58] Oh yeah, yeah, yeah, yeah. I sign my whole life away.

Avra: [00:14:02] Until the projects completed. You know, it's very hard for people to get into this business from the developer's side. You know, I have three architects that work for me and they didn't want to be in a firm, just, as you guys would call being a cad monkey. I think, you know where you're just drawing all day, right? And so, they wanted to be developers. And so, they came and worked with me. And they're learning development really is about money. So, when you think about what does it take to be a developer? We're not licensed. Architects are licensed, builders are licensed, right? Your electrician's licensed. Even the real estate agents are licensed. Developers are not licensed. You can call yourself a developer as long as you have a check book.

Eve: [00:14:52] Yes. So, what would you tell other women who want to be real estate developers?

Avra: [00:14:57] You have to love it. Well, first of all I'd ask, what does developer mean to you? So, if I asked you Eve, define developer, what, how would you define it?

Eve: [00:15:07] Well, for me, it's all about the buildings. I'm very passionate about buildings and places and using architecture to make better places. So being a developer for me is the opportunity to really make some significant change through the money that I invest, or I put together to make buildings better.

Avra: [00:15:34] And then there's a lot of people that would like to do that, right? So how do they do that? Right? And there's, I think there's a lot of people with vision and, so, you need the money, right? And then you have to be able to execute. And so, a lot of what goes right or wrong is in the execution. So, you know, you have the vision, but it's the, now is the execution. You know, how well do you budget, the quality of the work, the team that you can assemble. And you know the surprises, right. You know, we say we're in the problem-solving business, really, especially with more adaptive reuse or historic preservation. You have no idea where you're buying. You know, we've gotten pretty good at it now and I can tell you every time it's different.

Eve: [00:16:24] Oh, yeah, it's a challenge. But that's the fun of it. But listen, why? You know, you're a female developer, I'm a female developer. There are very few of us. Why is that? Because, you know, women are very good at team building.

Avra: [00:16:40] Well, I think a lot of women are doing it. They just don't have the title, right? So, in my particular case, I'm the founder and, you know, I know I run the company, but a lot of women are doing it. They're just not, I think the front person. Interesting. You do your work, you're the front person. You're doing it but the women that work for me, they all work, you know, I give, I empower them, they all have their own projects within, within the Vagabond Group. They all run their own jobs, they do the architecture, they do the expediting, you know, of course, all under. And they've been with me long enough. They know at first, you know, tightly under my watch and now, you know, call me if you need me.

Eve: [00:17:25] But still, that's a little bit different because they don't have access to their own money. And that's, I think, you know, as you said, the deciding factor. So, where I live there's very few women who kind of can plan their own destiny as real estate developers. I actually don't know of anyone else at the moment. So,

Avra: [00:17:45] It's money, so that's it. You've really defined it. But I will say there's a couple of other things. So, you know, because people have asked me Avra, why, you know, why aren't there more? Well, one is money. And a lot of that money comes with track record. You know, I wouldn't give a first-time person, developer money. I mean, you know, you really have to have experience in order to gain that. So, when I first did my first projects, it was mostly my money.

Eve: [00:18:11] Yes.

[00:18:11] You don't want to lose somebody else's money while you're learning, right? So, there's a learning curve here and so, as you learn and you'd have track record, you can get sponsorship, but you really have to have that, you know, especially in what we do, right? So, what you and I do, we find these. It's easy buying a multi-family, lipsticking it up, creating value. OK that's one thing. But to actually go in and create place, that's different. And that requires mostly cash investments. The returns usually reflect the risk, they always do. I mean, I don't, you, know people, you know, people go "I get two times two times my money". And people are happy getting two times their money in four to five years.

[00:18:59] I can tell you that isn't, that would never be a deal on my desk. If I don't think I'm making four to five times equity, in five years, I don't do the deal, which is why I'm able to get sponsorship. So, part of it is discipline. You know, there's a lot of projects I'd like to do, but I look at them and go, you know, I just can't I can't pencil it. And then, those projects that I can't pencil, which is like affordable housing, I just do myself and I'm OK. But those don't make money. I'm OK that they may or may not make money because I'm doing those for different reasons. Those are for social reasons. But when I'm doing deals where I'm taking in investment money, you know, the returns for the type of deals that we do, at least the perceived returns need to be much higher. But I do that for myself. I mean, a lot of this is my own money and I treat everybody's money if it's my own money. I also don't take fees. I'm not a fee developer, so I get paid based on success. So, I don't, I don't take fees.

Eve: [00:20:03] Ok. So, you right alongside equity investors who risk their money, then.

Avra: [00:20:09] Right alongside. So, I don't make a penny until you make money. And I think that's part of what, the other way that I've been able to raise money. Now, not everybody can do that. That's not realistic for a lot of people. But I've been able to do that because I set myself up for that. I saved enough money. I don't want to get paid, which is why I've been able to get, you know, the investment I get. Because people want to know that your interests are aligned and there are a lot of developers out there, they're really in the fee business. They're just, they're in the fee business period. And I don't think that that makes us aligned.

Eve: [00:20:52] So, tell me a little bit more about the 50s motels that you're converting to affordable housing?

Avra: [00:20:58] Yes, we I did one, we did one in Little Haiti, not too far from the Vagabond. So, if you couldn't afford to stay at the Eden or at the Vagabond, if you couldn't afford to stay the at the Vagabond, you would have stayed at Superior, Superior Motel and Apartments, which is west, further west and 1950s. It's a more modest property. You know, in some of the more modest neighborhoods then historic properties are more modest, but it doesn't mean they're less important. And I bought the building to do affordable housing. The person that runs affordable housing for the county, Mr. Lu, he would say, he actually stalked me into doing this. He wanted to put a new face to affordable housing in the projects that were being done. So, I started by giving him suggestions on what I would do and how I would go about it and then he said, then he just asked me to do something and I did. I can tell you that it was a horrible experience. Working under the administrative aspects of affordable housing. You know, they wanted to give me a small sur-tax loan. That was a half a million dollars sur-tax loan. And then by the time they were ready to give me the loan, I said, I don't even want it. It'll be the most expensive money I've ever gotten because I've spent fifty thousand dollars in administrative costs to get a 500,000-dollar loan, right. There was like a 10 percent cost. You know, every draw request was like the size of a Bible. I said, you know...

[00:22:28] No, that's right.

[00:22:29] I said, Mr Lu, I can do the work, but I can't handle the administrative aspect of this. I wouldn't get a draw for, you know, a draw request. I don't know how sophisticated everybody is on the podcast so I'll try to be a little more descriptive, but, every time you build a building and it's time to, and you have a loan, you do the work, you turn in your invoices, so to speak, and you're supposed to get reimbursed. Well,

Eve: [00:22:57] Quickly, right? Quickly is the idea because you'd need the money to keep going.

Avra: [00:23:00] Well, six to 10 weeks.

Eve: [00:23:03] Yes, I've been there.

Avra: [00:23:05] Which means that in you know, that if a guy doesn't get paid for six weeks or would anyway, if you weren't getting paid six weeks after you've done a job, you'd leave the job site.

[00:23:16] Yeah. So, it costs a lot of money in time because you're,

[00:23:19] So I ended up floating the entire job, meaning I paid everybody myself and then getting reimbursed, you know, six, twelve weeks later. And again, that's not feasible for most people. And that's why affordable housing doesn't work. And that's why, when you drive around and you see these, sort of half-completed buildings, is because you have to have the means in order to get through those projects. And I ended up, I probably have a half a million dollars of my own money in the project making zero return. So, because the cost to do it right versus the rents that you should charge. It doesn't mean, I can charge higher rents but truly affordable rents, you cannot build affordable housing in Miami. If you gave me a piece of dirt and said Avra, build affordable housing at 80 percent of the averaged income, I would tell you I couldn't do it.

Eve: [00:24:15] You can't do it anywhere, actually. You can't do it anywhere in the world, I don't think. So, oh, maybe some places, but it's a standard problem, yeah.

Avra: [00:24:22] Right, so it has to be subsidized, so you have to get grants. So, the reason why we were able to do historic preservation was because of the, you know, the entitlement programs to sell entitlements. That allowed us to grant ourselves some moneys to do these, what I called public benefit projects, historic preservation of the benefit. And you're saving time, you're saving moments in time, right. And then, same thing with affordable housing. You cannot do affordable housing without subsidies and grants. It's impossible. So, those are instances. And people think, oh, well you can get financing for it or people will do impact investing on these things.

Eve: [00:25:02] No, you can't.

Avra: [00:25:03] A bank doesn't lend to the same criteria where there's a public benefit or not. It's not to say they don't want to, but they can't.

Eve: [00:25:12] Yeah, so non-profits become very important in this equation. It's very difficult. How successful has that motel been and have you built other ones that are affordable? Do you have a waiting list?

Eve: [00:25:22] Oh yeah. Well that project, it's called, it was a motel and efficiency apartments. So, there's all apartments, most of them efficiency apartments. Very successful, 100 percent occupied. When you can charge a...And we were able to lease to more high risk candidates, you know, maybe people who've a felony in their past, you know, not a violent crime or something, but we're able to lease to people and not take security deposits. And a lot of, you know, our employees, one of the reasons why we started, we did, we started to do some affordable housing. When we opened the motel, or the hotel, Vagabond Hotel, because we realized our staff were taking two or three buses to get to work, and they were single Mums. So, we actually started subsidizing housing for our employees, early on. We bought an apartment building close by and then we realized that obviously this was not just a Vagabond issue. This is a national, well certainly a local and certainly a national issue. So that started our efforts in affordable housing, was sort of subsidizing for existing employees. And then, when we did the other ones, we're very conscious about trying to fill the void. We can do that because it's a personal investment. We're not a large institution doing affordable housing we've seen. This is not a money maker. I think there's a way to do it where you could get, you know, you can you know, people go, well can you do impact investing and get a five or six percent return? We can, because I don't take developer fees.

Eve: [00:27:04] Right.

Avra: [00:27:05] And we self-perform a lot of the work. So, I'm able to do that. So, on the project I did after this, I took in two small investors who wanted to participate in impact investing. So, we did one in Little Haiti and then we did their next projects in Overtown. Forty-four units in Overtown. And we're in the process of renovating that. Also, a 1950s, late 50s, so it's a combination of preservation and affordable housing, which we think is important. You know affordable housing is not bricks and mortar, it's about people and the qualities of their life and how they feel about themselves. We say we're really in the self-esteem business. You know, how does a single mother feel in their house? The stress level, you know, knowing if her kids are in a healthy environment or not in a healthy environment. The projects we're just in the process of doing, we finished two of five buildings so far, we keep everybody on-site and we rotate them. So, nobody leaves the property, they're not relocated. So, people are not, their lives are not disrupted. They stay where the kids go to school, where they went to school. Their friends are still their friends. They go to the same church, you know. So, we think it's important when you do affordable housing to keep communities intact. That's one of our prerequisites. Even when we did the property in Little Haiti, we did two units at a time and rotated people. So, they did not have to move. So, in the building we just finished one of the, in one of the buildings was a single mom and her child was having a lot of health issues and DCF was going to take the child away because they didn't think that the mother was giving the child the asthma medication and everything, because the child was suffering. And the minute we moved her from the apartment that she was in to one of the new apartments, the child was fine.

Eve: [00:28:59] Wow.

Avra: [00:29:00] She almost lost her child because of the housing, the quality of the housing she was living in.

Eve: [00:29:06] That's pretty shocking.

Avra: [00:29:09] It's shocking. It's unacceptable. I mean, so, most of the buildings that we, so all these buildings that we bought in Overtown, I mean, they should be condemned buildings. I mean, I'm surprised people didn't, well apparently, they had. Some people had fallen from the second floor into the first floor. I mean, the people live in those conditions because they can't afford higher rent and they don't want to move. You know, these tend to be closer to core locations, right? They're older buildings, closer to where they work, it's where their communities are and they don't want the landlords to fix up the apartments because if they do, they know they have to raise the rent and then they might get kicked out. So, people choose to live in these really, you know, sub-human conditions because they can't afford the rent if it was renovated. So, in that particular project, we teamed up with the CRH, the Community Redevelopment Agency in the area, and because they had seen our work in Little Haiti, they had asked us to do a similar project in Overtown.

Avra: [00:30:16] And my, my response was, no. I said, it doesn't work. I go, it doesn't work. I can't afford to subsidize all these projects. So, I said, you know, I told them what they needed to do. One, they had to remove all the administrative. No good developer would operate under those administrative restrictions. And two, I said you're going to have to pay for it. And if you want the rents truly affordable, you're going to have to pay for all of it. Because if you want a seven-hundred-dollar rent, I need to be in that unit for seventy thousand dollars. And by the way, it costs eighty-two-thousand dollars to buy the apartment. And it's going to cost you another fifty-thousand-dollars a unit.

Eve: [00:31:03] To renovate it.

Avra: [00:31:05] So if you want me to do it, and I'm not going to wait, I'm not going to take draws, you're going to have to give me five hundred thousand dollars every time I start a building. Because I'm not going to, I'm not going to chase you down. I'll do open book. Open book, come anytime you want, knock yourself out. But I can't do the work and meet all the typical requirements. And so, they, they said Avra, yes. Do it.

Eve: [00:31:35] Wow.

[00:31:36] It went all the way to Commission. Commissioners voted on it and I did the project. So, they basically bought down the rents and people are living in two- and three-bedroom apartments, beautiful two- and three-bedroom apartments. When I say beautiful, you're an architect. You know, I floated the walls. I did resilient channels for the wall boards for sound. Wool between. Everything's copper piping. We don't, you know, rebuilt from the inside out. If you'd walked in, you would have fallen through to the studs, to the studs on the floor and you would have seen the roof two ceilings up. So totally rebuilt, you know, with all the right quality materials. No, everything mold-resistant, every, you know, impact glass safety, all those things. So, people are living in really beautiful apartments. And, so think about what that's like. For them. For them, they're people, right? The pride, how their kids feel to come home, to work, the family gatherings. Remember it's, we don't build buildings. You build buildings, but it's really the quality of the experience in the building. It's how people feel. Otherwise, buildings can be nice to look at, right? Right? What are they really? I mean, building to me, they're made of organic materials, I mean, buildings live. And as builders and developers, we have to, you know, we feel that, we think about that. You know, so lots of times I get a building and it just doesn't feel right. It doesn't have the life. And our job is, that when we do these projects, these adaptive reuse and historic preservation projects, whether it's for, you know, an adaptive reuse or for affordable housing, you have to think of it as how do people live? How are people going to feel when they're there, when they're inside? And that’s, you know, sort of, that’s sort of how we operate.

Eve: [00:33:48] That's how it drives you. So, these products, I know we've talked about them a lot, and they're clearly your passion projects. You also work on very, very big projects.

Avra: [00:33:58] Yes, so that I can afford to do the passion projects.

Eve: [00:34:02] Yes, that's the bread and butter work, right?

Avra: [00:34:05] So and those, you know, are more traditional, you know, I do. By the way, they're very good local community banks here that I work with in... we're very fortunate during Covid and everything that, you know, my friends that had the large banks, you know, had a lot of trouble getting, having to work with them and work with their tenants. But the community banks in Miami really stepped up and were the first to say, you know, what can we do? How can we help? So, I've good local banking relations, banks that have lent to me for 20, 25 years that support, you know, that support my projects. Even if they're slightly out of the box they, again track record, they support the project. So, I'm able to do, I'm getting ready to do a large adaptive reuse project towards 50,000 square feet of adaptive reuse in a warehouse district. There might have been a day where I wouldn't get financing, but I will get financing for that, 50 percent loan to cost, and then I'll have the capital stack of my own investors. Then, you know, on some bigger projects, I'm getting ready to do a project on the Miami River. That's a big project to earn, it's a new build. Two hundred fifty-nine apartments,200,000 square feet of office and retail. It'll be almost 180-million-dollar project with 120-million-dollar loan. I'M partnering with a very large developer, Property Market Group, PMG, they build really well. I'm really excited to have a chance to work with them, there are developers that you respect and then there's the other developers that you would really like to work with, and this is one of them. And they're both. And so, they build beautifully. So, they, we're teaming up. They're going to do the residential portion and I'm going to keep the office and retail. You know, without them, they're providing that completion guarantee. I mean, I wouldn't have, I wouldn't have the balance sheet. We're talking financing here, right? I wouldn't have the balance sheet to guarantee a 120-million-dollar construction loan. So, you know, so that's very limiting to do big projects. Problem. You know, I don't do, one reason why I don't do a lot of big projects is because of the financing. It's just by the time we bring in the capital stack and everything, you know, and then when you do that, you lose, you give up a lot of control over the integrity of the project. People start value engineering everything out of the project. And so, you know, the vision gets lost and all-of-a-sudden it's work and it's not fun. You know, it's one reason why I don't do a lot of large projects. So, whereas on the smaller projects, we can keep control. So, you know, so, yes, I am doing a large project because it's a spectacular site with a spectacular vision. But I don't do that as often. The risks are high and the loss, I think more than anything, is the loss of, you know, the vision. I mean when you do big, big projects. You know, what I always say you have to have two things when you, when you partner with people. You have to have the same vision, but you also have the same have the same values. Some people can have the same vision but then if they don't the same values, it is not the same. So, lots of times that happens when you do these, sort of, bigger projects.

Eve: [00:37:36] Yeah. You know, I've always stuck with smaller projects for much the same reason. Because I can finish them the way I think they should be finished and no one's egging me on to do something different.

Avra: [00:37:47] Everyone wants you to cut corners. Hey, it's already sold. Hey, it's already leased. You know, then, who cares, you know, it's a, if it's a 10-year paint or a fifteen-year paint? Well I care.

Eve: [00:37:58] Yes, I'm with you.

Avra: [00:37:59] Those decisions that get made, you know, again, the more people that are involved. For developers that have cut those corners, it's short-sighted because then, why do they come and lease my building instead of their building? Because people can feel the difference. They can feel the difference in quality. So, you know, it's interesting right now in this market and during Covid, and people are consolidating and deciding which offices to keep or which ones not to keep or which neighborhoods to be in or not be in. And I can tell you I have two very large tenants that had offices across the city, and they chose to consolidate. And both of them chose to be in my buildings and give up other spaces. And it really is because of the quality of our buildings, the uniqueness of our buildings. It speaks to their brand. And this was a time when spending the money and having your building be special, having there be a story to the building and the neighborhood that is in mattered. Because lots of times you can't spreadsheet this stuff. Anybody in finance and in the financing world wants, you know, a spreadsheet, right? Well, let's do a spreadsheet, right? You can't spreadsheet the quality of a space. You can't spreadsheet cool and placemaking. There's no spreadsheeting that. But when there's stress in the market and you see how people move and what they choose to keep and where they live or work, how, where rents are more stable or whatever, you see the performance. But when I'm doing a spreadsheet and presenting it to a bank, there's no way to quantify that.

Eve: [00:39:45] Yeah. Just shifting gears a little bit, are there any current trends in real estate development, especially around the pandemic, that you think are most important for the future of our cities?

Avra: [00:39:58] Well, we're staying the course. I mean, our mindfulness, our thoughtfulness, it hasn't changed. If it's before the pandemics, during the pandemic, or the after-pandemic. So, we've always practiced sustainability. Even in our new building, everybody's talking about these new air filtration systems and water systems. We had already designed that into our building before Covid. So, you know, it was like we were already there. We already felt like the wellness trend was, we already got on that bus a while ago. Now the tenants are going to be asking about it and insisting on it. We were already on that bandwagon by. My team is architects and so we are always looking at what's new, what's cutting edge and hopefully somewhat cost affordable so we've already, we're adopting a lot of those. So, I think those things will become more mainstream now. Good. And maybe that will even make them more cost effective. So, we haven't changed. Again, our mindset has always been, you know, we need to adapt to reusing. You use existing buildings. I mean that's the ultimate in sustainability, right?

Eve: [00:41:07] Yes, I agree.

Avra: [00:41:09] It's like fruit shopping, right? The most, the best thing, people don't realize how many CO2s go into building a building. And you knock it down, you spend more CO2s and then you rebuild it and spend more CO2s. There is a really great study out there, and I don't know if you've read it, on green building. And it was put out actually by the historic preservation community but if you were to take a building and knock it down, build it back, using green, let's say green technology, all the new Green Technologies, Sustainability, LEED certified, whatever, it would take you 80 years to make up for the damage done. 80 years to make up for the fact that you knocked down a building. So, we think, you know, so we are all about keeping existing building,

Eve: [00:41:56] Keeping, yeah, yeah.

Avra: [00:41:57] Absolutely. And it's interesting. We, and we do it, you know, we don't stop and think, oh, my God, we're saving the environment, right? But we know that it's important to the sustainability story. But we also know that it's important to the cultural story, to the story of community and social resiliency. When people talk about resiliency, but they talk about it like, you know, well, how high is your sea wall, or whatever. Resiliency, by definition, is your ability to bounce back. It does not say how high is your seawall, it's your ability to bounce back. And that is a social, that is a social response, not a building response, not a civilian engineering response. So, we think that focus, that part of social resiliency is part of keeping community. And part of keeping community is to try to save and do adaptive reuse with existing buildings. Again, we're back to why we build our business around this story. We think without the story we, it doesn't, it isn't going to get us where, we won't be interested. And it's got to be a story that, when you do projects that have a story, people want to be a part of it. People want to be a part of it. People want to work on it. People want to help build it. And then people want to live in it and people want to do their business in it. You know, I think builders, developers underestimate the market.

Eve: [00:43:37] Yeah, I think you're right.

Avra: [00:43:38] I think they underestimated them. They know the difference. And they know how it feels. And if they have a choice to spend a dollar here or a dollar there, they're going to spend it where it also feels good.

Eve: [00:43:51] Yeah. So, one last question for you. And that is, what's your big hairy goal?

Avra: [00:43:59] Gosh, you know, I guess just, you know, I'm living it every day. You know,

Eve: [00:44:06] That's a great answer.

Avra: [00:44:07] Yeah, I just, you know, we just keep doing what we're doing, and I think, you know, we talk about, you know, always wanting to learn, right? And knowledge is empowering, but it doesn't give you power unless you use it. So we are, you know, we're always learning, always curious. We're always helpful to other developers. Very transparent. We open source. So, if you go on, I think you've been on, our website. If you go onto VagabondGroupConsulting.com and you hit open source, we open sourced our affordable housing project. You get all the money we spent, all the inspections, all the time, all the materials, everything. The things that went well, the things that didn't go well. I think that one of the goals would be to hopefully encourage more developers and especially people in the public benefits space. Anybody'd be taking public dollars for sure, to open source their projects so more people can learn and so that more, more thoughtful developers can hopefully...

Eve: [00:45:16] That's a great idea. I'm definitely taking a look. And I'm super jealous of all of fabulous 50s motels that you're renovating. It's a fabulous...

Avra: [00:45:26] Here's a question for you. So how, in your platform, can you help developers like me?

Eve: [00:45:33] Well, if you want to start raising money from a broader group of people, from the community, that's really what investment crowdfunding is about. And I see there's a, how can I say this? I landed in Pittsburgh unexpectedly and one of the really big things I learned here is that people really want to be involved with their community and making it better with their city. It doesn't really matter where you go, people are very connected to the place they live in. And I was working with dollars that dried up in the late 2000s and started thinking about crowdfunding to replace them. You know, also working with banks that became more and more skittish and wanted to do less and less innovative project lending. And so, all of that kind of led me to investment crowdfunding, which really lets the crowd decide. So, you could, very soon you'll be able to raise, there's actually upgrades to the rule under way, but very soon an issuer, a developer, would be able to raise up to five million dollars a year from anyone over the age of 18.

Avra: [00:46:47] Wow. No, no subscription agreement.

[00:46:50] No, no, there's subscription agreements, but we handle all of that electronically online. So, if you go to a funding portal like Small Change, we are registered with the SEC and members of FINRA and it's a very heavily regulated rule. We kind of manage all that. And you basically create a disclosure package which we help you create, register it with the SEC and then everything else is handled electronically as people invest. So, I think the most meaningful thing for me is that if you want to bring along people in your community, you normally don't have a chance to invest and create wealth based on what's happening in their own community. This is a way to do that.

Avra: [00:47:38] So, I think it's a great idea. I actually went on your webpage and I thought about it. So, in in the affordable housing project that we did in Overtown, we actually, one of the partners, because we were getting large grants, they asked, they basically assigned us a local CDC, a community.

Eve: [00:48:00] Right, a development corporation, yeah.

Avra: [00:48:02] Yeah, to be part of the ownership. And it was Mount Zion, which was actually the oldest church in Miami, I think. They're a part-owner, you know, less than 10 percent so the lender has no issues. And I was neglecting again, it was more control thing, it wasn't a money thing because we're not making money. Right, so.

Eve: [00:48:24] Right, but they can bring grants to the table that you can't as a for-profit developer, right?

Avra: [00:48:31] But the reason why I don't put myself in a non-for-profit space is because I know, I see a lot of the people, in non-for-profit space and it's not non-for-profit, OK? It's actually, I call it, so, I'm in the no-profit space. So, I'm like, so I won't put on a non-for-profit space because everybody pays themselves salaries and things. We don't pay. We don't pay ourselves.

Eve: [00:48:53] Well, that's right.

Avra: [00:48:54] So the CDC came in and they've been great because they helped, you know, that was the thing. I said, well, as long as everybody understands nobody's getting paid, I'm happy to have a community organization. And I said, so they have ownership, so certainly down the line this, you know, we have a 30-year covenant and down the line there will be some value there. But I thought that it would have been great if, even instead of the CDC or in addition to the CDC, what if everybody in the community, so I get a grant from this CRA. What if every family that lived in that community all got a piece of the project? Instead of this CDC?

Eve: [00:49:37] Yeah, I've thought about this a lot. I've actually thought that, you know, in a poor community, wouldn't it be fantastic if there were even a foundation that matched investments made, or to increase the value to people who invest, you know, maybe even 100 dollars?

Avra: [00:49:54] Yes. So anyway, we got a three-million-dollar grant, just so you know. But I mean the three-million-dollar grant, and you'll see and, you'll like to see the math in our open source, the three-million-dollar grant will save the residents eight million dollars in rental cost over the 30 years. So, that's a huge benefit to the tenants with subsidized rents but if everybody in the community was given, let's say, a thousand-dollar ownership, assigned a thousand-dollar ownership, right? I mean, as long as I don't have to deal with, you know, a thousand investors, you know, I'm happy to have them own a piece of the project. You know, as long as me as a developer I can do what I do, you know? So, any time there's a grant made into a project, why isn't that grant, which is community dollars, community dollars, taxpayer dollars, why not have that grant be a crowdfund investment?

Eve: [00:50:57] Well, it can be. I just think people aren't quite there yet.

Avra: [00:51:00] Well, let's do it.

Eve: [00:51:01] Yeah. I'd love to do it. I've thought about raising a pot of funds for a community, for example, where someone, maybe you partner with a community development financial institution or a community bank, and someone manages the money, but it's programmatically distributed in the community as well. So now you have, maybe not just your project improving the community, but you're benefiting other people directly. Let's just say you're below a certain income and you need your roof replaced, you can get a loan for zero percent.

Avra: [00:51:38] Miami does a lot of that. I have to say, there is a lot of things we do. America Build does that. We have these twenty-thousand-dollar grants. If people know where to look that is made available.

Eve: [00:51:51] I know. But I'm thinking really community specific, you know. You pick a community that you're working and you, kind of, really try to build it up and make sure that people who are not wealthy in that community come along for the ride when developers do make investments and the community is improved. So, I mean, it could happen in any number of ways but, you know, we all think about what happens to people who are left behind, right? So, there's something there. I'm not exactly sure what it looks like precisely, but I have tools in my toolkit, these SEC regulations that I understand very well that could be deployed in that manner. Absolutely.

Avra: [00:52:34] Yeah. I think there's something there and I think, so, you know, we should talk about that Eve because I'd like to explore that. I think that, I think there's the political will to do it in Miami. I think there's enough. Again, you know, the thing is, is if we do one, right, we do one project and it works, it becomes the model.

Eve: [00:52:57] Yes, absolutely.

Avra: [00:52:59] So our study, the one that we did for Vagabond Group Consulting, that open source, has become sort of a case study. You know, I get calls from all over the country. People.

Eve: [00:53:10] Yeah. That's very important.

[00:53:12] You know, and that's what we need to solve some of these problems we need the transparency. We need to have conversations like you and I are having. And we all need to share and figure out best practices. We need to find a solution and it's in the developer's best interest that we find these solutions. I try to challenge some of my big developer friends and say, listen, guys, we need to be part of the solution here. This is really our, becomes our problem. You don't think it becomes your problem, but it does, because if the restaurant in your building, even if you don't want to do it for all the right reasons, you know, you should understand how it affects you, because if the restaurant in your building can't find employees because there's no place for them to live, you know, they're having that problem on Miami Beach and they're having trouble hiring people because nobody can afford to live on Miami Beach. So that affects your ability to rent your space. I mean, you know, so I tried to encourage that, show them even financially why this is in their best interest. That we all, we all don't do well unless we all do well, right? So, how do we incentivize developers to do that? There needs to be policies in place for that as well.

Avra: [00:54:26] In Miami, we have something where we, where developers can write a check. Like you're building a building and you write a check towards public benefits. Well, you know, make the developer build the affordable, do the public benefit. You know, sometimes writing a check is easier than doing the work.

Eve: [00:54:44] Yeah, no, I agree. Well, this has been absolutely fascinating and I'm going to be in touch soon. But we should wrap up and I really enjoyed talking to you, Avra.

Avra: [00:54:56] Yeah, this has been fun. I look forward to seeing your work. So, you have to send me some of your some of your work.

Eve: [00:55:04] I will.

Avra: [00:55:04] Share some stories.

Eve: [00:55:05] Thank you. Absolutely.

Eve: [00:55:13] That was Avra Jain, a wildly creative Miami developer. Avra and the Vagabond Group have built projects that range from converting a 100,000 square foot warehouse, to luxury loft condominiums in New York's Tribeca neighborhood, to the remake of The Vagabond from motel to hotel on Biscayne Boulevard. But Avra's passion lies squarely with the personal project portfolio she's building. The conversion of abandoned and historic motels into reimagined, affordable housing communities. She's leveraging her past success to tackle both the restoration of significant architecture and the making of affordable housing in a very unique way.

Eve: [00:55:59] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:56:16] Thank you so much for spending your time with me today. And thank you, Avra, for sharing your thoughts. We'll talk again, too but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:13] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:19] My guest today is Thibault (Tee-bo) Manekin, the founder and CEO of Seawall Development. Seawall is rolling out the red carpet for teachers. They are building high quality, affordable housing, which in itself is a big task. Layer that with the inclusionary design process they employ and the fact that they are creating this housing by restoring large and stunning vacant buildings and seawall is altogether fantastic.

Eve: [00:00:55] Be sure to go to evepicker.com to find out more about Thibault on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:15] Hi Thibault, I'm really excited to talk to you today.

Thibault Manekin: [00:01:20] Hi Eve, I'm excited to talk to you, too. Thank you for having us.

Eve: [00:01:23] It's a pleasure. So, you started your company by building quality, affordable housing for teachers, and that's a really targeted mission and I'm wondering what led you to this work?

Thibault : [00:01:36] Yes, I probably have to go back a little further than that. When I first graduated from college at around 21 years old, I helped, with two buddies, we started an international non-profit organization called Playing for Peace. It's called PeacePlayers Today. And the idea is that we would go to war-torn countries and we would use sports to get kids from two sides of a conflict, meet each other, finding common ground and eventually becoming friends. So, we raised about eight thousand dollars and was enough to get on a plane to Durban, South Africa, at the time, where we were going to try to get, use sports to get black kids and white kids post-apartheid meeting each other, finding common ground, becoming friends. And it had an amazing run with that organization, really grew it to be quite international. We had a program in Northern Ireland with Protestant and the Catholic kids, Cypress, the Middle East, with Israeli and Palestinian kids.

Thibault : [00:02:36] So in all of my travels with PeacePlayers, one of the reoccurring things that I continued to notice was that real estate had done more to tear us apart than bring us together, especially with my experience in South Africa, seeing what the apartheid government had done with townships and informal settlements. And then, as I would make trips back to my home city of Baltimore, seeing the negative effects of redlining. So I came back, I think it was around 2006 and I asked my dad, who's a hero of mine, to go out to dinner and I pitched this idea of starting a company, a real estate company, but with the idea of really reimagining the real estate industry all together so that everything that we did used buildings and the built environment to empower communities, unite our cities and help to launch really powerful ideas. You know, I had seen the impact of reimagining the sports industry to bring people together, especially young people, and I wanted to do more with it. And if real estate was indeed the most powerful connected industry on the planet, then truly reimagined, there'd be the opportunity to bring people together in ways that possibly hadn't been done before.

Thibault : [00:03:53] So, we launched this company. And, you know, we had an amazing dinner conversation around what we were going to focus on first. And my dad did spend a long time in real estate but was really passionate around education. And he had done a ton of listening to all of these new teachers and first year teachers that were showing up to Baltimore, maybe for the first time, and were having a really tough time figuring out the city. Figuring out where to live, figuring out who to live with, figuring out their classes and jumping into arguably what's the hardest profession on the planet, educating the future generation. He basically was like, there's a great opportunity to continue to listen to this community of educators and provide them what they're asking for, which at the time was collaborative, affordable, well located, funky housing that would take the mystery for them out of where to live, provide them the ability to live some place special with like-minded people, which hopefully, over time, would translate to them agreeing to stay in the classroom for longer, falling in love with education, falling in love with our city of Baltimore, and maybe even making a permanent investment in buying their own home once they had a better lay of the land and been able to save some money as a result of staying in one of our projects.

Eve: [00:05:20] So, basically really supporting the pool of teachers who serve our city and, our cities, and really can't afford to live in them anymore.

Thibault : [00:05:29] That was the idea behind it. And we coupled it with a similar thread that we'd been listening to, which was that there were all of these non-profits focused on kids and education and supporting the school system. Programs like Teach for America and Playworks and Wide-angle Youth Media and Baltimore Urban Debate League. They were spread out in dozens of buildings all over Baltimore all essentially doing the same kind of work around kids but with no ability to really deeply collaborate. And so, these non-profits who focused on kids and education and come to us and said it would be amazing if we could all be located under one roof, if we could share resources and have free conference rooms and training facilities that we don't need all of the time but that we need throughout the day at different times. And so, our first project ended up becoming called the Center for Educational Excellence. We've always looked for a cooler name than that but that's the one that's kind of stuck. And it was a adaptive reuse of one hundred thousand square foot collapsing old factory building that got turned into about 40 apartments for teachers and thirty thousand square feet of collaborative office space for the non-profits underpinning the success of the school system.

Eve: [00:06:43] That's a pretty big project to tackle for a first project.

Thibault : [00:06:46] It was funny. Yeah, we look back on it and, you know, when we first started the company, which is called Seawall, we weren't sure if it was ever going to make it. And we had kind of said that we would, you know we'd been listening to teachers for so long, we'd probably buy a little four-unit row home and converted it into four apartments for teachers and that would be the first thing that we would do, which would probably cost four or five hundred thousand dollars. And our first project ended up costing 20 million dollars and we had no business taking on a project of that scale. And, you know, we can get into the movement that came as a result of it and what really propelled us forward. But that was, yes, that was our first project.

Eve: [00:07:31] How do you involve teachers in the process of creating these buildings? You've done three now, right? Three for teachers, is that correct?

Thibault : [00:07:39] We have, we have. So, everything that we've ever done has been built inside out. And what we mean by that is that we start with the end users, the people that are going to be living and working in our buildings. It's important for us that they have a sense of pride, of authorship and ownership in what's getting created. So, we start out by deeply listening to those people that are going to be occupying our spaces. And we let them drive the direction and the program of the space. We don't ever pretend to have any of the answers. Our job's to be quietly behind the scenes, asking the questions that held their thinking forward in a way that results in a finished product that makes them really proud and allows them to be more successful in whatever it is that they're doing.

Thibault : [00:08:29] So in the case of the teachers, we assembled a group of, a focus group of about 10. We walked them through the collapsing building as we first bought it. They worked with our design team over the course of twelve months to design every square inch of their apartments. We let them pick their own amenities they needed like a resource center in the building that had access to copiers and laminating machines and staplers and hole punchers, so that they could plan their lessons within the building and not have to run out to Kinko's in the middle of the night. We did the same thing with our non-profits. We let our teachers choose their own rents based on the salaries that they had and what felt like an affordable rent for them to be paying. And we really spent a ton of time with both the teachers and the non-profits from day one, letting them design what is their building.

Thibault : [00:09:19] I want to add something to that, because there are two other levels that we really focus on. As important as the teachers are, and whoever the end user is for any specific project we're working on, equally as important is the community that we're working with that. At the end of the day, they're the ones that have been staring at these dilapidated, collapsing old buildings and it's critical that they have a seat at the table in helping to shape what those new buildings are going to get turned into.

Thibault : [00:09:50] One of the things that developers are famous for, kind of going into a community and telling the community what they're going to get, and we take the complete opposite approach. In the case of the first teacher housing project, we went to our first neighborhood association meeting, introduced ourselves and explained that a bunch of teachers and non-profits had this idea of creating the first Center for Educational Excellence and that the building that seemed to be a good fit for that was this one building in their neighborhood. And they loved the idea. And for the most part, everyone was thrilled.

Thibault : [00:10:24] And I remember this one young man stood up and raised his hand, kind of defiantly, at the end of the meeting as if he was going to oppose the project and he, he said look, as great as this is, what you're missing is a little cafe or coffee shop on the corner of Howard and Twenty Sixth Street, which is where the project was. And there is no decent place to get a fresh sandwich or a good cup of coffee in this neighborhood and that would be an amazing thing if you guys could figure out a way to program a cafe into the corner there. And then he continued to say that if we brought in a Starbucks that they would throw rocks through the window at night when we weren't there, that it was really important that it be locally owned.

Thibault : [00:11:06] So I'm sitting there, and I think that what this guy is suggesting is a terrible idea. The corner of Howard and Twenty Sixth Street is, at the time, was not a corner that anybody would feel safe walking to. We had programmed a two-bedroom apartment for a teacher to go in, for teachers to go in there. And that seemed way less risky than putting a coffee shop that we really had no control over and just didn't feel like a retail type of location. But the community had spoken up and everybody kind of clapped and applauded and thought that it was a great idea. And so, we listened, and we took out the two-bedroom apartment, made space for a little thousand square foot coffee shop that ended up being one of the most powerful things that we did.

Thibault : [00:11:50] A local co-op started. They called themselves Charmington's, and they opened up this rad little cafe that just was the place to meet in the community. It was the place to have a affordable cup of coffee, to come and chat, big communal tables and just a really beautiful vibe. So inspiring was this little cafe and the co-op and ownership behind it that, jeez, I guess, five or six years ago I was in it and unannounced, President Barack Obama showed up to speak with the owner and they had been working on something together and it was just such an inspiring moment. And it kind of goes to show the power of giving up control of the perceived ownership and authorship of a project to the end users in the community and the momentum that that can build in a project, especially a really complicated project coming to life.

Eve: [00:12:54] So, and I suspect it did more than just give something to the community. It probably added something pretty spectacular to the teacher community, having that.

Thibault : [00:13:03] Yeah, yeah. Charmington's was amazing. You know, they committed to opening up at 6:00 a.m. so that the teachers on their way to school in the morning could stop and get a cup of coffee. One of the things that our management team is, we ended up setting up a property management company to manage every one of our properties because we've interviewed all these third-party property management groups and it felt like if you were about to have a baby, or had a baby, and you were going to give it to somebody else to raise. Like, nobody was going to love it as much as we would. And so, we set up this property management company. One of the things we did is, once a month at like five thirty in the morning, we would post up at the entrance and exit to the building and we'd be there with Charmington's coffees and muffins and bagels and fruit. And we would, like, serve the teachers a cup of coffee and we'd walk them to their cars with their books if they had too much to carry and just kind of send them on their way with like a big hug and a warm smile and a fresh cup of Charmington's coffee.

Eve: [00:14:03] That's a very nice story. So, I have to ask, every developer has stories about putting in an amenity like a roof deck that everyone says they want and then no one uses them, right? So, did that, has that happened at all? The teachers who were involved and the amenities that were requested, have they been used?

Thibault : [00:14:26] Yeah, so look, so the amenities include like fitness centers and lounges and free gated parking. The one amenity that's evolved is the idea of a resource center, right? The room where the teachers can make their, plan their lessons and photocopy. When we first built the building in 2008 or 2009, when it opened, teachers were still going to Kinko's to make photocopies of their lessons. The evolution was that the classroom got more digital and people stopped making photocopies and printing hundreds of pages to hand out to students. And as that trend started, the need for the resource room, for the most part, went away entirely.

Eve: [00:15:19] So amenities evolve, right? And needs evolve it's pretty fascinating. Going back to something you said earlier, which was that you allowed tenants to basically choose their own rent. How did you fill the inevitable financing gap? Because you can't possibly restore a building like that and provide affordable housing without some sort of, I suppose, funny money, right?

Thibault : [00:15:44] Yes. This is a beautiful story and really a learning moment for us. You know, we had set off to do a project that would cost about five or six hundred thousand dollars to start. And we kept striking out. And eventually, a friend of ours pointed us to this collapsing old factory building that was way past our ability to wrap our heads around at the beginning. And we worked with the teachers and they told us what their rents needed to be. And the non-profits the same thing. And then we kind of backed into how much debt we could afford. And so, the number based on the net operating income was that we could afford about six million dollars’ worth of debt. And we went out and had a architect and contractor help us figure out what it would cost to build, this being our first project. And the price tag came back at 20 million dollars, all in for the project. So, we had a 14-million-dollar gap in our capital stack, which to most would have felt insurmountable but we were so driven by this, this movement of providing amazing space for the people doing the most important work in our cities that we were never going to give up on it.

[00:16:54] And we called a good friend of ours from Enterprise Community Partners, Bart Harvey. Enterprise was the brainchild of the late Jim Rouse, A total urban visionary. And we toured him through the building. Most of the people who we toured throughout the building told us we were crazy and that the idea would never work. And we toured Bart through the building and we went out for coffee afterwards and we told him about this fourteen-million-dollar gap and he said, Guys, I know just what to do. You're in good hands now.

Thibault : [00:17:25] And I'll never forget that moment. He started to tell us about Historic Tax Credits, which is a program that for every dollar you invest in keeping a historic building, rehabbing it, the federal and state government give you a tax credit for that which turns into actual equity into the project. There is also something called the New Market Tax Credits, which we knew nothing about, which encouraged commercial investment in low income census tracts. And so, Bart starts telling us about all this and he starts making introductions around the country. And before you know it, the phone's ringing off, ringing off the hook with all these great community-driven lending institutions who want to be a part of the first Center for Educational Excellence. And with Bart's help and Enterprise's help we ended up closing that gap with all of those tax credits. We were still short about a million and a half dollars and we went to the city and state and just pled with them of the importance that this project had to the education community and to the neighborhood that it was going to be located in. And they collectively came up with that last million and a half dollars of, you know, fairly soft money. Certainly, we would owe it back at the end of the day, but the terms were super flexible. It allowed the building to, kind of, really ramp up and stabilize. So, when you kind of have the vision set for you, as hard as it's going to be to get there, there's always a way to push it forward. And it was an incredible learning opportunity for us around really not giving up when things got complicated and pushing forward. no matter how challenging the situation was.

Eve: [00:19:18] Yeah, I've done projects like that, they're extremely challenging but very fulfilling. So, have you been able to stick to the choose your own rent mantra? Like, what happens now that the building, I suppose the first building, is stabilized?

Thibault : [00:19:30] Yeah. I mean, look, for sure, you know, the first building's been a great success as a result of that and I'll say, I will point out that when we started leasing the property, the entire building was fully leased nine months before we finished construction. And by the time we finished, there was a waiting list of over 300 teachers waiting to get in. There was clearly a demand for it. I mean, I think that was driven by all these teachers spreading the word and have it go viral organically.

Thibault : [00:20:03] You know, we've got this crazy developer that let us choose our own rent and pick our own amenities. He's building this brand new building for us, it will probably never work, but if it does you've got to get in. And as a result of, kind of, the collective success of the first projects we got invited to do another one in Baltimore, and then we were asked to replicate the model in some other cities across the country. And yeah, across the board, we've held our rents low for teachers. They've certainly crept up. it's been kind of maybe 12 or 13 years since the first project was completed. But we've actually had to artificially freeze the rents, even though expenses continue to go up, to remain committed to the teachers and what seems affordable to them.

Eve: [00:20:49] And so how many units have you built to date?

Thibault : [00:20:52] I think we've probably built around 400 apartments to date.

Eve: [00:21:01] OK, a hefty number.

Thibault : [00:21:02] Yeah, it's a huge number considering where we started. You know, the original goal was to start off a little four-unit apartment buildings.

Eve: [00:21:11] Very different.

Thibault : [00:21:11] We've ended up doing about three hundred million dollars of really transformative, collaborative real estate projects over the last decade.

Eve: [00:21:20] So I have to ask, is there another group of needy tenants that you'd like to serve beyond teachers? It's really interesting because I see that the very targeted mission has actually helped market the projects for you.

Thibault : [00:21:34] Yeah, look, we get a lot of requests to figure out a way to do some sort of similar housing for nurses, right. And first responders and police officers, many of whom can't afford to live in the districts that they're working in. And we've been evaluating that over the years. I think one of the things that's been really fascinating to us is the impact of retail on communities and especially locally owned small businesses that reflect the demographics of the neighborhoods that they're in, or not. Small retail, especially in today's e-commerce world, is increasingly challenging. And finding really creative ways to provide space for these social entrepreneurs and small businesses to take real risk and to get their ideas out in the open is something that I think is really critical, a critical next step and something that we're really studying very closely.

Thibault : [00:22:44] We've done a couple projects around that. And the more we learn and the more challenging we understand it to be, the more inspired we are to figure out ways to continue to push that forward.

Eve: [00:22:57] So what other projects are you working on right now? I think I read somewhere, a market building that you tackling?

Thibault : [00:23:04] We organically happened in to the food hall world. We don't like to think of it as a food hall. About five years ago, a group of chefs in Baltimore approached us and asked us to do for them what we had done for teachers, which was to provide collaborative plug-and-play space at affordable rents where they could focus 100 percent of their energy and attention on what they do great - cooking, good food - and leave the, like, back-end side of running a restaurant to us. And we launched a project called R. House (R period House). It was incredibly successful, and we had 10 chefs open up. We had over 100 chefs apply for the 10 spots and we really looked at ourselves as a launchpad, not as a food hall but a launch pad for creating community and for helping chefs launch really inspiring ideas.

Thibault : [00:24:03] As a result of the work that we did with that, of the success of that project, we were invited to apply for RFP for the redevelopment and really the saving, of the oldest, longest continuously running public market in the country. A project called Lexington Market in Baltimore City that at one point was the place to be in Baltimore. My dad tells stories of taking the trolley down there on Saturdays with his father and literally, you didn't start a weekend before showing up at some point at Lexington Market. That area where Lexington is in, has suffered from significant disinvestment and it's really a shell of its former self and the market was at risk of closing. And so, we responded to the RFP with this idea of, on a citywide scale, doing the deepest listening that we've ever done and helping to breathe a new life back in, in essence, transforming Lexington Market into something that would work for the entire city of Baltimore. It's the largest, most complicated, riskiest project that we've ever taken on. But it's also the most soul fulfilling one that we've ever done. It literally checks every box of things that interest us as a company. And it's pushed us so far out of our comfort zone that the amount of learning that we're doing on a daily basis is so inspiring and I keep telling everybody that asks about it and I keep reminding our team that it's impossible that we're going to get this right the first time, even with the deepest listening that we're doing. A project of this scale and magnitude is going to continue to grow organically. Our job and our role is to set it up, to evolve to be what all of Baltimore expects it to be and wants it to be as they close their eyes and dream of what this project should be.

Eve: [00:26:08] It sounds pretty fabulous. I cannot wait to visit it. When I travel, the local market is always the first place I go because I think it's kind of the life and heart of every city. They’re always fascinating places, I think, so it's really great to hear that it's being revived. Have your plans for housing or housing amenities or the market changed at all with the pandemic? That's a tough question, but I'm going ask - it's a pretty tough time.

Thibault : [00:26:36] It's a beautiful question. We think about it and we talk about it every single day. The challenge with the pandemic is that a plan you make one day is no good by the time you wake up the next morning just because, like, everything is changing so rapidly. I think we're in a really fortunate place because all of the work that we've done has been around providing affordable, kind of, workforce, discounted apartments. And I think there will always be a need for that product.

Thibault : [00:27:11] We are watching it really closely. We're trying to wrap our heads around how we can be even more helpful and supportive in these rapidly changing times, especially as it relates to how people live and interact with each other. But we don't have any of the answers yet, and we're just continuing to ask the questions that help us wrap our arms around what role we can play in that.

Eve: [00:27:35] Yeah, I worry very much about places like the little coffee shop surviving this and I have a number of tenants myself and I've been, sort of, we've been limping through this disaster trying to figure it out. So, it's a big question but let's move on to something happier and that is like, you know, what's your big hairy goal. Where are you going with all of this?

Thibault : [00:28:00] Yeah, look, a lot of people ask us that question for me and for us it's somewhat simple, right? Like, our goal and the work that we do is almost 100 percent driven by the communities that we work in. We want real estate to put the power back into the hands of the communities. So, this neighborhood where we did our first project for teachers, the neighborhood's called Remington in Baltimore City. As a result of the relationship that we formed with the community associations that are there, they came up with this master plan of other things that they wanted to see happen in their community.

Thibault : [00:28:41] And we worked with them, we did a lot of listening and we've slowly but surely been chipping away at that master plan. We've helped to bring the first bank to the community. We've helped to bring the first pharmacy to the community. We've helped to bring the first dry cleaner to the community, the hair shops and hair places, the gyms. And all of it's been done in an incredibly inclusive way where we've just, kind of, continued to ask what else, what else could serve you guys and what else do you guys think that you're missing?

Thibault : [00:29:14] So in large part, our work's been driven by the communities that we're in and the cities that we're in and what they collectively think that they're missing. And what role real estate and what role our company Seawall can play in helping them realize their dreams.

Eve: [00:29:30] It sounds like you're having fun. I have to ask; do you think socially responsible real estate is necessary in today's development landscape?

Thibault : [00:29:40] I don't know that necessary is the right word. I think mandatory should be the right word, especially with how quickly the conversation has been changing and especially with how aware we all must be around the inequalities that real estate has spread throughout our communities in our country. To sit on the sideline and pass blame on previous generations for how things are and hope that somebody else is going to fix it, is no longer an option. Now, more than ever, we are fully aware of it and we all have a responsibility to ask what role we can play in helping communities, especially disenfranchised communities, use real estate and buildings to help them achieve what it is their they're after.

Eve: [00:30:35] Yes. So, are there any other current trends in real estate development that you think are most important for the future of our cities? Maybe things that you're not working on?

Thibault : [00:30:48] Look, I think transportation is such an important part around the real estate and urban planning conversation and the cities that have gotten it right, and who are getting it right, are the ones that we all need to look to. Without adequate and exceptional public transportation, so much of this work that we're all doing is just going to have its growth stunted. And I think that's one of the most important things that cities and urban planners need to be thinking through, is exceptional public transportation.

Eve: [00:31:28] Of course, that's shifting rapidly at the moment too, with the pandemic. So, we don't even know really what that will look like. But perhaps the ideal is that, you know, the next time you build a building for teachers, they won't need to have on-site parking. They'll have transit that can get them to their jobs. So, whatever that looks like. Yeah, I totally agree with you. And what community engagement tools have you seen that have worked best? It's always very difficult for most developers to contemplate how to engage a community.

Thibault : [00:32:09] Look for us, it's been really important to come into a community as neighbors and not guests. And we've lived our entire professional career that way. And I think that's really one of the differentiating factors around connecting with communities. Not just, kind of, coming in and being one and done, but spending real time there, sitting on people's front porches and stoops and listening to what it is that they want. Those are the really important lessons that we've learned along the years, over the years, as we've worked in the communities where we have.

Eve: [00:32:52] Yeah, I can see that. It's perhaps not part of the original job description for a developer, but it's certainly a really important one. So, I have one final question, and that's what's next for you?

Thibault : [00:33:08] We've been asking ourselves what's next for us for some time now, and I think that conversation has been amplified given what's going on in the world around us. One of the things that we're really aware of is the unintended consequences of successful development. You know, when we set out to do the first teacher housing project in that neighborhood of Remington, fully supported by the community, it was all high fives and hugs. And then when we worked with the community to start to chip away at their master plan to bring in all of these resources in retail and apartments and office space, all kind of things driven by the neighborhood, you know, hundreds of millions of dollars later, that little, somewhat forgotten community had become one of the premier destinations and places to be in the city. And as a result of that, the gentrification conversation became very real. And one thing that we're really aware of is that we cannot run from it. We are responsible for it. And in hindsight, as well-intentioned as we were, we would have done more from the very beginning to make sure that if the neighborhood succeeded, people that had lived there for generations, the legacy residents, would never be displaced. And there's been incredibly hard lessons learned along the way.

Thibault : [00:34:43] And so, our mandate, and one of the things that we think so much about today, is now that it is what it is. It's not too late. And how can we creatively work with the community to continue to find ways for them to attain their development goals? But in a way that is going to really limit displacement and make sure that nobody's ever kicked out of their store or their office or the home that they lived in for decades. And that's really hard work.

Eve: [00:35:18] It is, it's really hard to balance.

Thibault : [00:35:21] Yeah, it's really hard to balance and it's incredibly vulnerable. But it is something that we're committed to and as we approach new communities and new projects, we're even more aware of it going in at the early stage so that we can plan and get ahead of it if the development projects succeed.

Eve: [00:35:21] So, do you think, I mean I think about this a lot too, do you think government has a role in this?

Thibault : [00:35:44] Yeah, I'm hesitant to pass the blame on to...

Eve: [00:35:49] I'm just saying, you know, by the time a community is feeling the pain of gentrification, it's too late. It's over, right? So, I think a lot about what you could put in place decades before to encourage good development and investment in neighborhoods that need it, and safeguard people who are already there. It's hard to think about. But I think you have to think about a long time before you show up.

Thibault : [00:36:19] You do. And you interviewed a friend of mine, Brian Murray, in Philadelphia that's done things a little bit of the opposite way as us with Shift Capital. They went in and bought millions of square feet of projects with the idea of having gotten in early enough, bought it at the right price, and being able to have the community involved every step of the way as the neighborhood starts to meet its goals.

Eve: [00:36:47] And controlling real estate so they could control what happened to it, right?

Thibault : [00:36:51] Yep. You know, ours has been a little bit of the opposite. We've just been kind of, like, piecemealing things together totally unintentionally, just driven by what the neighborhoods wanted. But as a result of that, and it'd success, now other landlords are taking advantage of the rising tide and not doing it in an inclusive way that honors the people that have been there forever. So, it's a little too late, it's hard to buy anything in that community and invest in it in a way that would keep it affordable. And that's the challenge.

Eve: [00:37:28] It's a huge challenge. I'd love to know what strategy you come up with for your next community. I think it's a really important challenge because not doing anything is bad too, right? These communities need investment because they're disintegrating, and they haven't been invested in for a long time and then when you invest, you become an unhappy player in the gentrification game, which is not what we intend, right Very difficult.

Eve: [00:38:00] Ok, well, thank you very much for this conversation. And I'd love to hear what you're doing next. You're tackling some really huge projects, and I really appreciate what you're doing.

Thibault : [00:38:13] Yes, thank you so much. I've enjoyed listening to some of your past episodes, and it's certainly a little bit of a niche market but you're asking all the right questions. And I've enjoyed learning from your past guests over time so keep up the great work!

Eve: [00:38:29] OK, thanks, Thibault. You have a really great day. Bye.

Thibault : [00:38:32] You too. Thanks so much.

Eve: [00:38:45] That was Thibault Manekin, Seawall believes in reimagining the real estate development industry. They want the built environment to empower communities, unite our cities and help launch powerful ideas. Seawall's projects tackle three things. First, they want to save large, historic and blighted buildings. Second, they want to create affordable communities with rents that are customized to pay checks. And finally, they strive to be inclusive in the communities they work in.

Eve: [00:39:19] You can find out more about impact, real estate investing and access to the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:39:36] Thank you so much for spending your time with me today. And thank you, Thibault, for sharing your thoughts with me. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:00] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:06] My guest today is Donald Shoup. Dr. Shoup is a distinguished research professor with a focus on economics in the Department of Urban Planning at UCLA. He began studying parking as a key link between transportation and land use with important consequences for cities, the economy and the environment. His book, The High Cost of Free Parking, turned an otherwise academic topic into a significant policy issue. A second book, Parking in the City showed that parking reforms can improve urban metro areas, both economically and environmentally.

Eve: [00:00:47] Be sure to go to evepicker.com to find out more about Donald Shoup on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:08] Hello, Donald. I'm really delighted that you've been able to join me today.

Donald Shoup: [00:01:13] Well, thanks for inviting me to Dallas.

Eve: [00:01:15] Yes. You've spent your career deeply immersed in parking and land economic issues, both of which are really hot button subjects right now. So, I'm wondering, first of all, how did you get interested in the economics of parking and why?

Donald: [00:01:33] Well, like everybody in parking, I think I backed in. Nobody wants to grow up to be in the parking business. They say, well, I was doing my PEC Dissertation in economics. I was working on land economics. So, I came to it from that angle looking at development and the value of land. And later on, I noticed that the market is the single biggest user of land of American citizens, the curb parking and the off-street parking. But it had almost no interest from any academic or even a lot of other professionals of the parking industry. But they were looking at it from the view of land economics. So, I had the field to myself for a long time.

Donald: [00:02:29] Universities always strongly advocate equality and equity, but they are very rigidly hierarchical in their own operations. Everybody has different titles like Chancellor or the Vice Chancellor or the Deans and the Professors, and the Associate and Assistant Professors and lecturers and even the students, you know, the seniors and juniors and sophomores and freshmen. So, I think it's not just that we're hierarchal, but the things we study are also hierarchical, like international affairs are very important and national affairs are too. But state affairs are very, a big step down and local affairs are parochial. And then I think the lowest status topic, you know, even in local government would be parking. So, I was a bottom feeder for about 30 years, but there was a lot of food at the bar. And that's, that's how I got into parking. It was so easy to discover new things that nobody, well not many people, have been paying attention. But now there's almost a feeding frenzy. A lot of people are getting to study, at least among academics, or just studying parking and its effects. I think that's what you're interested in, not parking itself but how it affects the real estate of the city and the economy.

Eve: [00:03:58] Yes, and housing, right? So, you said it takes up a lot of land in American cities. How much land does parking take up on average?

Donald: [00:04:08] Well, nobody knows. It's highly regulated but the, no city, except San Francisco, has any census of parking that... You couldn't go to your city council or city planning department and say, how much parking is there in Dallas? They don't know. Although they regulate it very heavily on every site, there's no aggregate number that applies to all cities. But people who have looked at it in various ways think that, oh, maybe about 30 percent of the land is used for parking.

Eve: [00:04:48] Which is a lot of land. One of the statistics I read was that New York City, which has really high housing costs, actually is the eighth most affordable city out of 20 because the land is used really economically and there's less parking. The two certainly go hand in hand, don't they?

Donald: [00:05:10] Well, New York is a very special case, but most cities are like it. Several, the Department of Urban Planning's estimated there are about three billion on-the-street parking spaces in New York and nobody knows how many off-street parking spaces. But of those three million...

Eve: [00:05:29] That's a lot.

Donald: [00:05:29] …on-street spaces, only three percent have parking meters. So, 97 percent of all the car parking in Manhattan, in all of New York City, is free to the driver. So, of course, a terrific competition for it and it's a nightmare trying to find a parking space in Manhattan because it's free and lots of other people want it. So, there's an incredible amount of cruising around, hunting for parking. Seinfeld often talked about it. I think one time in an episode, George is coming to Jerry's apartment and Elaine is in the drivers, is in the passenger seat, and they can't find a parking space. And she said, well, let's park underground at the building. And he said, no, I never pay for parking. Paying for parking is like going to a prostitute. Why should I pay if, when I apply myself, maybe I can get it for free?

Donald: [00:06:31] So, I think that we've all been trying to get it for free for as long as we've had cars. And everybody wants to park free through to you and me, but we have twisted our cities is totally out of shape and real estate development totally out of shape with parking requirements that ensure that every new development has to have plenty of parking. So that won't overcrowd the free curb parking. So, I think that I've seen studies. I think, yes, the Department of Commerce did one study saying that: What is the biggest impediment to real estate development? Is it property taxes? Is it leverage issues? And almost everybody says it was required parking.

Eve: [00:07:17] Yeah. And have you seen a shift at all, over time in the last decade or two, the attitude towards parking?

Donald: [00:07:25] Oh, I think so. I've recommended three basic things. One is to charge the right price for curb parking, which is the lowest price that cities can charge and still have one or two open spaces vacant. So, nobody can say there's a shortage of parking because everywhere they go, they'll see one or two open spaces. But like real estate that's valuable, it won't be free. And then to make this politically popular, because drivers don't want to pay, is that the cities dedicate the meter revenue to pay added public services on the metered streets. You know, fix the sidewalks, plant street trees, clean the sidewalks, extra, well I shouldn't say police patrol right now, but, extra security. And some say to give free Wi-Fi to everybody on the block that has market-priced curb parking. So that people can see the benefits of charging for parking. Instead of having the money disappear into the general fund. So that's one policy to charge the right price and the second is to spend the revenue on added public services. And then the third one is to remove off-street parking requirements.

Donald: [00:08:39] And you've seen, all three of these happening in various cities. Houston just recently increased the share of the city that has no parking requirements. Houston is famous for having no zoning, but it has very elaborate parking requirements, just like any other city. Except for downtown, that they recently increased the area of Houston that doesn't have any parking requirements. And some cities have removed parking requirements entirely. San Francisco removed all its parking, off-street parking requirements, and Buffalo did, Hartford and London and Mexico City. It's spreading. I think that I and other peoples have preached the gospel that parking requirements do a lot of damage, that they raise the price of housing, they increase traffic congestion, they increase air pollution, they even contribute to global warming.

Donald: [00:09:43] So, I've never heard anybody, planners say: no, minimum parking requirements do not have these effects. The opponents of parking requirements are proving with study after study saying how it reduces the available land for development because so much of the space has to go for required parking. And it does increase housing prices at, and the prices of everything, because the cost of parking is hidden in the prices of everything else. Parking requirements make parking better, but they make everything else worse. And, as I said, I've never heard any urban planner say: no, parking requirements do not have these bad effects. I don't think you could find any professional in the planning industry or development industry who would say: no, parking requirements do not have these effects.

Donald: [00:10:39] So, I think some cities have begun to remove their off-street parking requirements. Others have begun charging, you know, what I call the right price or demand-based price, based on the demand for this scarce land. And they're spending it all on the, spending the revenue in the immediate district. So, I think all these three things are happening. So, I think the future of parking's here is just not evenly spread.

Eve: [00:11:08] Right. So, you know, Covid19, the pandemic, has probably accelerated a bit of this thinking. I've been watching news about cities like Milan in Italy, grabbing street back for pedestrians before they're fully occupied by cars again. And I'm wondering if you believe any of that will sort of help accelerate a move towards less parking, more purposeful use of valuable land.

Donald: [00:11:40] I'm sure it will. Covid19 has opened our eyes to a lot of things and one of them is a transportation. People are saying cities with very few cars, but a lot of pedestrians, and a lot of cyclists, and people eating at outdoor restaurants on the curb lanes, they could see that this is a lot better looking than having all the curbs completely jammed with cars and other cars hunting for, to find spaces being vacated. So, I think that it will lead to big reforms and it already is. Many cities have suspended the requirements of parking that the required parking lots have to be used for parking. They say, oh, you could use them for restaurants, outdoor restaurants with widely separated tables.

Donald: [00:12:34] But now in Dallas and every other city, they would say, if you want to have more outdoor city, you have to have extra parking for it. Most cities don't allow parking to be converted into outdoor restaurants. Everybody wants to eat outdoors. But you can't allow the required parking spaces to be used for a restaurant because that's against the parking requirements. So, I think that cities are experimenting. I have no idea if Dallas has done it, but a lot of cities have allowed restaurants to expand into their parking lots for outdoor dining. It will show people that there are better uses for land than storing empty cars. And, even if they're used for storing empty cars, they're still vacant most of the time.

Eve: [00:13:21] They are, they're vacant.

Donald: [00:13:22] If there's all those building where the parking spaces are empty during the evening, schools -- the average car as parked ninety five percent of the time so there have to be an awful lot of parking spaces wherever you go, because how can you drive somewhere, where there isn't plenty of parking? But if we think, we thought of parking as free parking and, even in downtowns like in Dallas, a lot of the people who drive to work get free parking. Is it paid for by the employer? You get free parking where you work?

Eve: [00:13:57] I don't park. I live downtown and my office is two floors below where I live. So my commute is very short, and I rarely, rarely drive.

Donald: [00:14:08] But in your apartment, are there a parking space or two available to you?

Eve: [00:14:13] Well, I have a tiny little building that has two spaces for the entire building. It's a building I built so it's a bit unusual, it's probably not a fair comparison.

Donald: [00:14:23] How did you build it without a lot of parking?

Eve: [00:14:26] Because it's downtown and in downtown Pittsburgh there's no parking requirement for residential.

Donald: [00:14:32] Oh, you're in Pittsburgh?

Eve: [00:14:33] Yes, I am in Pittsburgh.

Donald: [00:14:35] Oh, I thought you were in Dallas.

Eve: [00:14:37] No, I'm in Pittsburgh. So, downtown Pittsburgh for quite a while has had a zero parking requirement for downtown residential.

Donald: [00:14:45] Yes, yes.

Eve: [00:14:46] Not that the market didn't demand parking, right? That was when the market, the downtown market started here for residential. It was very hard to get going because people wanted to park their cars downtown. But I think in the last 10 years, that's really shifted. But I can't say that's extended to other neighborhoods. Somehow people feel entitled to have a car and a parking space.

Donald: [00:15:11] Pittsburgh does a lot of things right. The director of your parking authority is very famous in the industry, David Onorato, and I think they have some very good ideas. Say around Carnegie Mellon University, the university is the one who pioneered the policy of charging demand-based prices for curb parking. You know, they monitor the occupancy rate and they recommend the price that should be charged. So the best spaces have higher prices, than the distant spaces. I don't know if it was in Pittsburgh, whether it was just an idea or whether it happened, but, in some city, say, a grocery store will have a meters by the, spaces near the front door.

Eve: [00:16:00] Oh, interesting. That's interesting.

Donald: [00:16:01] You pay for, at a meter. The rest of the lot is free, and the meter money goes to pay, to charity. So, when you put your money into the meter you know that it isn't going to programs, but it's going to a local charity and they say what it's going to. So, I think that's another way to slowly bring prices into managing and parking.

Eve: [00:16:26] Yeah, that's really interesting. You know, you see a lot of strip malls where, you know, you have a sea of parking out the front or even in small main streets where there are parking requirements that really, kind of, force architecture that's overwhelmed by vehicles. And I worked at the planning department for a while, and I know what it takes to change a code, you know, a zoning code with the requirements, it's a mammoth and expensive exercise. And so, we have many smaller boroughs all over the country that have pretty old zoning codes now that require parking, and I really wonder how they're going to shift into, sort of, this new thinking.

Donald: [00:17:14] Well, it is very difficult to reform zoning for parking piecemeal that often on individual developments the developer will ask for a variance and say that "I don't need so much parking as you should require" and they to get a consultant show that this is true. There's so much study goes in to say, "If we if we reduce the parking requirement, well what should the new parking requirement be?" because it's all pulled out of thin air, there's no science at all. I mean students learn nothing about parking in their graduate studies because the professors have nothing to teach them. But they do learn that whenever they have a development project of their studios, the thing they have to worry about most is the parking requirement.

Donald: [00:18:02] So I recommend that cities should just remove off-street parking requirements. As I say, in Buffalo they had pages, like Pittsburgh does, pages of parking requirements, and it was replaced by one sentence and the zone goes: there's no work parking required for any use. That was so much easier than saying, well, let's have a study and say should they be cut by 20 percent or 30 percent or maybe the parking for a nail salon is too high, or something like that? That it's better to, to just say there are no parking requirements except for handicap spaces and specially what they should look like - the landscaping of them, and the water run-off and the location. The quality of the parking is what planners should regulate, not the quality. But in the U.S. we have a huge quantity of very low quality urban designed parking.

Eve: [00:19:05] Why do you think there's so much resistance to that? I think it's a brilliant idea because a real estate developer who has financial risk in building a building is going to think very hard about how much parking they need to market their building.

Donald: [00:19:19] Of course, and they know how much a parking space costs. The ramp parking space will easily cost fifty thousand dollars. And whether we talk about the need for parking, they're not talking about how much, whether people are willing to pay that much. I don't want to get into today's particular issue about Black Lives Matter. One of the things that I did through the years, I pointed out the fact that parking requirements strongly discriminated against low income people. Now we have measures of the net wealth of the population, you know, all your assets, minus all your liabilities. And of course, many young people have a negative net worth because they have student debts and no assets. Maybe a car or a cell phone. But I have looked at the median net wealth of Black families is about seventeen thousand dollars. Where for white families another hundred and sixty thousand, I think now. But cities are requiring for apartments for low income people and for Black people, two parking spaces per residence. That makes, the parking spaces could easily cost more than 17,000 dollars each. And then there has to be parking at all the restaurants, and all the theaters and all the grocery stores and every place else. So, planners are willy-nilly requiring wildly expensive parking spaces that low income people cannot afford.

Eve: [00:20:53] Yeah.

Donald: [00:20:54] Can you think that one parking space is worth more than the median net wealth of the Black population in this country? And yet it is. You're saying oh, well, you need 10 spaces per thousand square feet for a fast food restaurant. They have no knowledge of how much parking spaces cost or what it does to the looks of the building or who can eat there and things like that. So, I think that everybody probably looks at systemic racism through their own lens but I think in planning for parking there is a bias against low-income people in general and because Blacks are a lower income, it's a it's a bias against Black.

Eve: [00:21:33] Yeah, I think you're probably right. So, I've been working with an architect in Australia who has been developing workforce housing for service workers like schoolteachers and firemen and policemen. I mean, the cost of housing is so high there they've been driven further and further away, which means there is a bigger and bigger requirement for them to own a vehicle, right? Which is expensive. So, they actually built a building with 30 units and every person who was going to buy a unit signed a petition, because this building was right next to a train station and a bike, and a bikeway right into downtown. And every person signed the petition saying they weren't going to have a car. They were going to give up their car. And all they wanted was a bicycle. So, and the town planning, you know the town council there agreed that they could just build a small bike garage, which saved them a lot of money because they didn't have to build those 20,000 or 30,000....

Donald: [00:22:33] As you point out, that if we have parking requirements everywhere, it'd be hard for low-income people to get an apartment close to where they're going to work because the whole city is spread apart, because, to make room for the parking.

Eve: [00:22:50] That's right.

Donald: [00:22:51] And I think that if a low-income person has to buy a car to get a job, which is mostly the case, that they have to support the car. They have to pay insurance, for repairs and everything else. So, I think we have systematically favored the car through parking requirements. It's something that more cities are beginning to look at and maybe, I hope, some of your listeners will think hard and say, well, yes, it's a house of cars, these parking requirements. What you asked a planner say, well, how was this parking requirement set? They can never tell you. They can tell you what it is when you go to the planning desk and say, I want to build a nail, you know, open up a new nail salon, they'll tell you how many parking spaces you have to have. But they have no idea where that number came from.

Eve: [00:23:42] Interesting.

Donald: [00:23:43] Or how it was derived. How would you set the parking requirement for a nail salon? And you probably know much more about real estate than most urban planners.

Eve: [00:23:53] Yeah, it's really tough and so, now with this pandemic, you know, we kind of got to take another look at mass transit as well. You know, how are people going to get around when they're worried about catching a virus?

Donald: [00:24:07] Well exactly? I think so. I think that well, that's a slightly different policy that I'm recommending but as related to it, that, at least in L.A. and I suppose, in Pittsburgh, that we were amazed at how little traffic there is during Covid when people are staying at home. You could drive anywhere in Los Angeles.

Eve: [00:24:30] Yes. Here too.

Donald: [00:24:32] You never would have gone there before because you'd know that the traffic congestion was so terrible. Say, we have a city of Long Beach, which is south of Los Angeles and adjacent to it, has express buses to UCLA, it's about a 30 mile trip. And the schedule before Covid it was, it took about, I think, 90 minutes or something like that, at an average of 15 miles an hour on the freeway. And now, during Covid it was a twenty-seven-minute trip. And so, how are you going to maintain that? And one of the things I recommend is, what we already have is called hot lanes. Do you have these?

Eve: [00:25:19] Yeah, yeah. We actually have a dedicated busway which is fantastic.

Donald: [00:25:24] That's what we need more of.

Eve: [00:25:26] Yeah, I know. I can get from downtown to the airport faster on the bus for $2.50 than I can possibly drive, and it drops me right out the front door and it's really pretty fabulous.

Donald: [00:25:39] Well we have, we have these high occupancy vehicle tollways. There's HOV lanes that solo drivers can buy into it, if they pay a toll. But there's an incredible amount of fraud on them. Because we have to have a transponder if you use the lane and if you say that you have three people in your car, you don't pay any toll. I've seen the estimates that 30 percent of all the solo drivers in the tollways are saying that they're a three-person carpool. So, they pay nothing and that bogs down the HOV lanes because they don't perform the way they should. So what L.A. is just about to try is to say we're going to change it that everybody pays on the tollways except vehicles that have five or more passengers. So, if you're a two-person carpool or a three-person carpool or four-person carpool, you still have to pay. Of course, you get a discount on a per-rider basis - four people in the car, each person only pays 25 percent of the toll. It would be very easy to police the requirements that there be five people in the car. It's very hard for the authorities to put cameras to look and see, to check whether you actually have two or three people in the car. So, but if it's HOV5, as they're calling it, I think our freeways will begin to work really well and that buses will be able to go at high speed. If you could have an express bus from Long Beach to UCLA, and it might take half an hour instead of an hour and a half now.

Eve: [00:27:20] Isn't that great?

Donald: [00:27:21] So that it's more land economics. The streets, your very valuable land and we're giving it away free. And any, any time something's very valuable and you're giving it away free there'll be a lot of competition for it. That's why there's this terrible congestion. And that leads to air pollution, fuel waste, global warming. I think I've been invited to Pittsburgh maybe only once.

Eve: [00:27:47] Oh, we'll have to invite you again.

Donald: [00:27:51] I really enjoyed it. It's a wonderful town, of course, and I think a lot of people are moving there, from New York... I remember one time there was and interviewer from New York and I had a nice event with him and then later I wanted to get in touch with him. It turned out he had moved to Pittsburgh because it was so expensive in New York and he thought he got a much better lifestyle for the price in Pittsburgh.

Eve: [00:28:17] Yeah, it's nice city. It's small, but there's one of everything. But listen, I have another question for you, because if I were an economist ,I'd be figuring this out and you probably already have. So, with all that extra toll money and meter money, what would you do with it? And what could you do with it? How much extra money? I mean, how could that make other people's lives better, or people who walk or bike or?

Donald: [00:28:44] You mean how could removing parking requirements?

Eve: [00:28:46] No, no just increasing the cost of those valuable spaces and the freeways, like charging more in tolls and charging more at meters and..

Donald: [00:28:58] Well, I think the key to it is to tell people that if we install, you don't have to install meters because you could pay for parking now with your cell phones. And some people, some new cars have that app right in the dashboard of the car, that will be much more common in the future that your car knows what is the price of parking, if it's a new one, knows from the web how much parking costs, off-street and on-street, and it guides you to a good parking space. And so, I think it'll be cashless for paying for parking in the future and frictionless and when you find a parking space you just touch a button on your dashboard and you're paying for parking because the car knows where it is and what the price of parking is and then when you leave it automatically stops paying for parking. It'll be more like making a long-distance telephone call in the old days when you just paid for how long you've talked, where you called. So it will be like charging just the market price, the lowest price that you could, the city could charge for one or two open spaces. When they do that, if they spend the money in the metered area, the people will understand the meters are really helping because, say in a business center, because many people from outside the district who are paying for parking. It's not, it's not a tax on the merchants. It's like putting a cash register out at the curb and the neighborhood gets the revenue.

Donald: [00:30:38] I think there was one place in Pittsburgh they were thinking of running the meters in the evening and people said no, and the city offered to run an express bus to downtown for free if...with the revenue. And they, that persuaded people, well, maybe we should run the meters in the evening if it gives us a free shuttle bus to where we want to go. I think that people ought to think of parking like, on-street and off-street, like real estate and you ought to allocate it. Why do we have expensive housing and free parking? We've got our priorities the wrong way around. We've just been doing the wrong thing for 100 years. And I think that it's catching up with us now and we have different issues. We have global warming to worry about and clearly, requiring ample free parking everywhere is not going to slow global warming. And I think that when you remove all street parking requirements, it'll mean there'll be a lot of land available for development.

Donald: [00:31:43] The New Urbanists recommend liner builders, I don't know if you've seen them in Pittsburgh but it would, it's an important issue here in California where there will be an office building in the center of a giant parking lot, or a mall in the center of a giant parking lot, and if you built housing or even offices around the perimeter and turned some of the required parking into the housing, the land is already assembled, there's no assembly problem. There's no remediation needed, and you wouldn't have to build underground parking. So, I think that some of these giant parking lots, when there's liner buildings built around the parking lot, as you walk down the sidewalk, it will look like a real city. It's only about 25 feet deep but behind it is what's left of the parking lot. But people will have to start paying for parking both on-street out off-street for this to work. I think there is a lot of land right where we want to have it, ready for development, especially for work-adjacent housing. I think if you want housing / job balance, having the, building housing right on the parking lot of an office building is a great way to get it.

Eve: [00:33:04] And so, what's next for you? What are you working on? More parking or something different?

Donald: [00:33:12] Well, a couple of things. There is a thing I think I sent you. It was a new kind of zoning, zoning for land assembly. There was a problem in older areas, yes well, Pittsburgh is a good example, but L.A. has a lot of old development but there are a lot of very small parcels. Very small businesses, or small houses and now they're near a rail transit stop and it's very hard to assemble that land to build high density housing because of the hold-out problem. Everybody thinks that I'm going to be the key parcel that, if I'll hold out for a high price to get my share of the of the gain when they build a 10-storey building on this land. But if everybody thinks that way, everybody holds out and it's very hard to assemble land. Well, there was a new idea that was pioneered here in Southern California, that there was an area that had in Simi Valley that had very narrow lots but very deep because it had been an equestrian subdivision from the 1920s. So, each lot was about an acre or two but they were fairly narrower along the street.

Eve: [00:34:35] Interesting.

Donald: [00:34:36] They wanted to redevelop it but it was very hard to assemble the land because it had been with various families since the 1920s. And I think it was the mayor who thought of it, he said, well, let's say if you have more than five acres, we'll double the allowed density. And everybody began to think, well, you mean if I'm part of a land assembly the zoning will go up? And if I hold out it won't? And so, people began talking to each other, saying should we participate in a land assembly? And then people began to fear them being left out. That if some of the neighbors were beginning to agree to sell their land, some of which was vacant, there were no housing on it, some of which were vacant, if they sell their land and I can't be part of a new five-acre development I'll not be able to get this high density. And within a year after developers, maybe like you, real estate dealers had tried to organize land assembly that had never happened, within a year they'd assembled all but about three pieces of property. And within two years later, they have two hundred and seventy single-family houses at very high density over this county where there had been 13 before. So, I think this is, it's called graduated density zoning. The larger your parcel, the higher the density that's allowed so that people will begin to cooperate. Should we cooperate? And that means that the landowners will get a good deal for selling the land. They know they're selling for a higher-density developer. So, the people bidding for the land will have to offer them a price which is appropriate for land that will be rezoned as soon as the assembly happens. So that's, it's been spreading. Not as fast as I had hoped. But I think for older areas, for where the city wants land assembly, for more housing and certainly for more tax revenue, I think this graduated density zoning, as it's called, is a good idea. So that's one of the ways that's really not parking oriented. But also, it's easier to provide the required parking on a big piece of land, say, that any older buildings, like the one you're in, couldn't have been developed with a parking requirement because you can't get the parking and the building onto the same small site.

Eve: [00:37:18] Yes, you can't.

Donald: [00:37:20] So I think that this land assembly is, where the city wants it and where were the neighbors agree to it and they realize that, well, this is, what is the term, under-improved is that a term that's used in real estate? You know where there's just a shack on valuable land, but that shack is somebody's home. And if they have to move, they'll have to get something else unless they can sell their under-improved land for, to make way for a higher, higher density. And if the city provides, you know, requires some affordable housing and I guess they're giving away an increase in density they can then require affordable housing in some of the units. So, I think there are some good ideas out there.

Eve: [00:38:12] Yes, definitely. So, I especially like the no parking requirement idea. And I hope it takes hold really soon. And thank you very much for chatting with me.

Donald: [00:38:24] Ok, it was fun talking to you and I'm happy to be reminded of my happy visit to Carnegie Mellon.

Eve: [00:38:32] Ok. Thank you so much.

Donald: [00:38:34] You're welcome.

Eve: [00:38:35] Bye.

Eve: [00:38:36] That was Donald Shoup. He has a simple fix for the chaotic and varied parking requirements in U.S. cities. Remove the many, many pages of complicated parking regulations and replace them with one short sentence instead. No parking required. In the end, developers know best how much parking, if any, is needed. Parking, as Dr. Shoup points out, is an expensive use of our land. New York City, for example, has three million on-street parking spaces and 95 percent of them are free. If people paid for parking, those funds could be put towards making streets and sidewalks more attractive with more amenities for everyone. That sounds like a great plan to me.

Eve: [00:39:26] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:39:44] Thank you so much for spending your time with me today. And thank you, Donald, for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:06] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:12] My guest today is Kris Daff, a fellow Australian. Kris is a developer with two companies. The first, Make Ventures, is a more traditional development company focused on urban infill. It's the second, Assemble, that Kris is wildly passionate about, and that passion is wildly contagious. With Assemble Kris is building uniquely personal, affordable housing products and solving the very many problems that low to moderate income earners are confronted with when looking for a stable, permanent housing solution in Australia. And Kris plans to do that at scale.

Eve: [00:00:54] Be sure to go to evepicker.com to find out more about Kris on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:21] Hello, Kris, thanks so much for joining me today.

Kris: [00:01:24] Hi Eve, thanks so much for having me. Looking forward to having a chat.

Eve: [00:01:27] Nice to hear a similar accent. Anyway, so you're a real estate developer and you have two companies Make Ventures and Assemble, which are both great names, by the way, and I'm wondering why you have those two companies and what each is focused on.

[00:01:46] Sure. So, I'll start with Make, and Make's a very traditional real estate development and investment company. I established Make about five or six years ago to focus on the acquisition of real estate for large scale urban renewal projects in Melbourne. And we were successful in that pursuit of those projects and they've sort of been the longer-term planning processes. And one of the things that came out of all of that was we ended up with a sort of forward pipeline of a lot of housing for that business, you know, sort of several thousand apartments across multiple locations.

Kris: [00:02:24] And one of the things that I'd sort of worked out for myself, personally, is I've become very disenfranchised with the traditional delivery mechanism of housing in this country, which is, housing which is delivered via an off-the-plan sales approach. So, and, so the typical approach is, you would go and set up a display suite, sales suite, appoint a real estate agent to come and do a whole bunch of marketing and spend a whole bunch of money on all of that and you'd get investors and essentially some owner occupiers and, sort of, whoever would turn up and pay a 10 percent down-payment and then sign a contract, would sort of have a, get a right to buy an apartment off you at the point at which the building was finished.

Kris: [00:03:11] And it was a very impersonal relationship between a developer and their clients, which then not the residents, because typically you would have all the investors, typically you'd have a real estate agent managing that transaction for you. And I could sort see, you know, that that sort of writing was on the wall a bit with that model. And I think that model will still be an important model moving forward in this country but it was obvious to me that with the emergence of our superannuation investment industry, so the fourth largest pension fund market in the world, so, a huge volume of capital available from those sources, that institutionally owned housing as we would typically see it in mainland Europe, North America and some other geographies internationally, would emerge as a very important asset class in Australia where it hadn't really existed previously. And I think there's a few reasons for that, is, one that, sort of, hadn't needed to exist because whilst off-the-plan hadn't been perfect as a delivery mechanism, it had done a reasonable job of keeping up the supply of housing this country needed.

Kris: [00:04:20] So what I then embarked on was a, sort of, international sort of approach, research thesis on saying how does housing get delivered internationally, and housing that's of large scale but owned in one line then offered for, sort of, long term secure rental for residents for whom ownership may be difficult, what does that look like internationally? And I think the sort of lessons for me is, from North America I took commercial models and taxation settings and some other things that I think that market is super sophisticated in, and from Europe I took, and particularly locations in mainland Europe and particularly places like Netherlands and others, I took an approach to the development of long tenure housing, the development of community in that setting and, you know, the sort of housing co-operative type approach and the sort of self-curation of community by residents. There's been, a sort, big lesson from that geography. So, all that got me to a point at which I understood the sort of secret sauce, if you like, to what is the approach to the management of large scale institutional housing projects, was really the key to their success and providing an infrastructure within a project in a future neighborhood to let your residents have a very good, productive, sort of wholesome life there.

Kris: [00:05:47] So, we basically acquired Assemble which was an existing development business that was doing a very good job of community occupant-centric type projects and transitioned that business and its approach to the development of contemporary and engaged neighborhoods to be our multi-family housing platform so, or will-to-rent platform, as we call it here. And now, you know, Assemble's really the face of everything that we're sort of doing and Assemble will be, sort of, partner, the housing partner for all our clients and future residents moving forward. So, it's really exciting.

[00:06:27] So, we only do very low, low, and middle-income housing. So, we don't do what I, sort of, call juiced-up multi-family, like I've, sort of, seen in New York. So, we don’t have a pools and gyms and indoor driving ranges and saunas, and we don't have someone that will do the dry cleaning for you and put it back in the closet upstairs and all that sort of embellished life. I don't believe in any of that, which is I guess, more that reference back to the, sort of, a more sort of simple life. The people get a much deeper level of support in one of our buildings than they will in a traditional Owners Corporation type arrangements.

Eve: [00:07:02] You know, what I've learned about Australia is that it's really a for-sale market and most developers build housing products for sale, and yet they're so expensive. I don't know how someone gets into that market when they're a civil servant or they can't afford, as you said, that sort of embellished lifestyle.

Kris: [00:07:24] Yeah, they can't. And I guess the systemic problem that comes with that. There are some better value options around but traditionally that's been found in the far reaches of outer suburban Melbourne, which is a sort of systemic problem with our housing market where you've got the people that can least afford to be located 40 kilometres from the CBD or place of work, at a hospital or whatever else, all the people that make our city run get dislocated to these areas and they need to have two motor cars and, you know, they've got to have access to public transport and don't get to see their families as often. So,

[00:07:59] That's a very American problem, too. Definitely.

[00:08:02] Yeah, yeah. So, we sort of researched again, so, home ownership, given how expensive housing is in Australia for some people it's just going to be very difficult, if not impossible. What we started researching then is saying: well, if you can provide ten-year certainty, so long-tenure housing, across the spectrum of incomes, how would that make people feel about their housing future? Because one of the things that we identified is the thing that people really crave in Australia is, and need is, sort of longer-tenure housing options.

[00:08:40] And the issue that a lot of Australians are facing who are likely to be long-term renters is that they are stuck in a year-to-year leasing cycle and the fact that they're only getting twelve months lease at any one time doesn't allow them to put down roots in a location in the same way that you would if you were in a position to be able to purchase a property. And that lack of, sort of, tenure certainty results in significant levels of housing anxiety. So, people are just nervous about what their housing future looks like. And the extension of that is just, well, if you're stuck in a year-to-year leasing situation and the landlord's got the potential to just sell the property or kick you out so they can move their kids in or whatever, who are at university age, for example, might be a good example. So, how does that make you, sort of, feel about your housing future? What's your propensity to really engage in that neighborhood, in that community? Are you as likely to volunteer or join the local gardening group or, you know, do you get nervous about this warming relationship with your neighbours and other people in the community for the fear that your landlord might kick you out at the end of the year and you've got to move three suburbs over? So, what's the point? So, how do you get your children into school and make sure they don't have to move schools halfway through their primary school education, for example? All those things together create a lot of nervousness in our housing market for people that are struggling to access ownership place.

Kris: [00:10:10] What we've done is, Assemble's delivering multiple options to the lower/middle income Australians one of which is we give people a five-year lease and then the option to purchase their property at the conclusion of that lease. They're not obliged to do so. And we provide them with a supportive program of financial coaching and cost-of-living savings initiatives. So, we do a lot of bulk-buying, for example, of sort of household cycles in the like and try and bring down their cost of living to put them in a better position to save for a down-payment on the property at the end of the lease and to just get people sort of more familiar with the concept of ownership. And that's been the very popular program. So, we've got 10 or 12,000 people registered their interest in being in one of our buildings now, And then, so, we've got about a thousand apartments in the pipeline for that part of the business in Melbourne.

Kris: [00:11:05] And then separate to that, we've got about 2800 apartments which will be delivered as wholly owned communities in a sort of multi-family approach. So, they'll stock properties that are only available for rental, and never an opportunity to buy your individual apartment. But that's catering to a different part of the market. And in those projects, we'll be able to deliver about 20 percent of the housing to very low-income Australians. So that's social housing type rentals who would qualify for Commonwealth assistance and the like for their rent.

Eve: [00:11:38] So does the government provide you with any assistance in building these out, or do you just, do the only provide assistance to the renters?

Kris: [00:11:47] In our circumstance we're not getting any direct financial assistance from government. Quite interesting, actually, so I've spent a lot of time with our different layers of government. The, sort of, State Government and parts of the Federal Government and I've always premised all our commercial models and investment models on not requiring significant taxation change, and the like, to affect our project outcomes. So, I'll go and have a discussion with, say, a State treasurer about what we're doing and say: "You know we're building this, and we don't really need your help financially" and they're always trying to find an angle in. They'd say: "this is really fantastic. This is the sort of housing that we want. Are you sure we can't be involved?" So, I think that's important for us. And to be honest government's got some very important roles to play and for us, mainly, it's about planning consent, and the like, that we would sort of seek to lean on them to maybe get that happening a bit quicker than it might traditionally. But I think getting deep financial support from governments to deliver our projects is something that we've always tried to avoid because having government in there is a sort of as a counterparty can add complexity to the, unnecessary complexity to the transactions. So, we've focused on our sort of partners that we have - our community housing sector partners, for example, who do some extremely good work in very low-income housing. And then partnerships with our biggest superannuation investors to provide the capital required to build and own these assets long term.

Eve: [00:13:21] So, you said something that you glossed over, but I thought was really interesting, in that you help these tenants who might eventually own, you kind of teach them how to become homeowners. I'd love you to elaborate on that.

Kris: [00:13:34] With the option where people have got their half-a-decade lease and then the option to purchase a property at the conclusion of the lease. So, we allow those future residents to enter into those agreements in advance of construction starting. So, typically it would take us about two years to build one of our buildings from the point at which we start on site. So, they've got two years of construction plus a five year lease, so seven years in total, to be able to get themselves organized into a sort of regular savings pattern, to be able to be in a position to purchase their property at the conclusion of the five year lease. And the reason that seven-year period is being selected is, we did a lot of work with a couple of our large retail banks here on saying, assuming someone's sort of started from scratch, how long would it take them to save a deposit to be able to purchase a property, based on different income bands, and the like? And about seven years is about the period that we arrived at. But what we did realize is, it's very hard to change behavior without support. So, we employed an in-house financial coaching team to work with the residents from the day they sign up with us, so in advance of construction starting. So, we've got a multi-stage program that they can participate in adopting. So, some people are very comfortable with numbers and they understand savings and they know how to do a household budget and all those things. And some people just find that a bit more challenging. But at the moment, we've got about and 80 percent participation rate from households from our, sort of, future residents in the program. And it's not, sort of, financial planning. We're not doing, recommending investment options for them and those type of things, it's more about how do you form a household budget? Tips and tricks about setting up a separate account to direct deposit some money into each month so that you can't, sort of, access via a debit card or something that's just sort of savings account. How to get better value on energy, data, these types of things.

Eve: [00:15:33] This is spectacular, ‘cause all that stuff is pretty overwhelming if you're tackling it for the first time.

Kris: [00:15:39] I sit through all the sessions and I've learned a lot myself. So, I've got some better habits.

Eve: [00:15:47] I get bombarded by energy, data, and it's like, oh no, how am I going to figure this out?

Kris: [00:15:52] And we'll offer that too, so, through our buildings where people aren't even on that homeownership pathway model, for people that are just long-term tenants of ours then they'll have access to that program as well. So, it's not just about supporting people ultimately, sort of, buying the property from us at the end of the five-year lease. But with other buildings that we're doing, which are just long-term rental, we'll also give them access to that team because we think the sort of lessons and, sort of, financial skills and things that Sarah and her team can give to people, just applicable whether you're working towards ownership or whether you just sort of want to save for your grand holiday that you've been wanting to do for your whole life and you haven't been in a position to save enough money to do, so.

Eve: [00:16:40] What's the ultimate big, hairy, audacious goal for Assemble then?

Kris: [00:16:45] I think where we're positioning ourselves, in terms of the businesses, what the team's working towards is to be the pre-eminent affordable housing developer in this country. And we've got a very large pipeline of projects, as I said, now. And it's not about, sort of, being a megalomaniac, it's about saying this country needs solutions at scale. So, for me to sort of be mucking around and sort of doing 20 apartments here and thirty apartments there was never really consequential enough for me. So, we're doing large neighborhoods of significant scale - you know most of our projects are between 100 and 1000 apartments in a single location. We don't do towers and things but we've got some large sites that have the neighborhood of maybe a dozen buildings of eighty apartments each, for example - is to be able to demonstrate to government and other stakeholders that more affordable housing solutions are possible in this country and that we can deliver returns to institutional investors that are efficient, to sort of get them off the bench in housing. And we think that's really important work.

Kris: [00:17:54] But, ultimately for me, I like the fact that we're aligned with our future residents. So, when someone can sort of hand the keys back and say "oh thanks, Kris, you know you sort of told me this was going to be a super place to live and it was going to be, you know, warm in winter and cool in summer but, you know, it's sort of not performing as well as I'd hoped it would." It's a sort of different type of alignment with your future community compared to a traditional development approach. So, you know, the things that I'm finding really enjoyable about the organization here is, we get a lot of people who want to work with us and be part of the team who wouldn't otherwise be interested in participating in a development company. So that's sort of purposely.

Eve: [00:18:40] You said you've got a thousand apartments in the pipeline, and one of the goals is to make sure these assembled living spaces are close to jobs. How do you select sites and are your tenants able to manage without a car? Because, of course, that makes housing more affordable, etc.

Kris: [00:19:01] Yeah, we select sites on a bunch of sort of different metrics so, typically access to heavy rail connections, strong public transport connections, putting them in locations where there's an existing high level of sort of community and urban infrastructure in place, you know, retail, supermarkets, parks, community based infrastructure, sort of, health care services, employment services, those types of things.

Kris: [00:19:27] In terms of personal transport, we have a significant over provision of bicycle storage in our buildings, for example. We do have car parking available, but at a very much reduced rate to what you would traditionally see in a project in Melbourne. And we provide that to people on a needs-basis. So, you've got mobility issues, or you've got a dedicated work vehicle, or you've got young children, all those types of things then you would qualify for a car park in one of our buildings. If you're otherwise sort of fit and well and just can't be bothered walking 400 metres to get your groceries, then you wouldn't get a spot. You wouldn't get allocated a bay. Because we're not strata titling most of our projects, we design those spaces to be - 'cause we get that car use will change over time and it already has, and the way that people get around will change - is we design those spaces to be able to be retrofitted to perhaps, if the buildings has got 50 car bays, for example, and in 10 years’ time the community is only using 30 of them, turn 10 into a music room that we can install into the basement or another workshop space, for example, for the residents to do little projects. So we design in to the inherent flexibility and the re-use of that space because there's a lot of big buildings in Melbourne built 10, 20 years ago in the Southbank area, for example, where the recent City of Melbourne carpark survey says only about .4 of the bays that exist in those buildings are actually getting used, and it's all being broken up into little chunks of building in strata titling and things and it's really impossible to do anything meaningful with that space long term.

Eve: [00:21:11] So, like, what are your occupancy rates like compared to other buildings like this, or are there no other buildings like this?

Kris: [00:21:18] So we've got our first project under construction. So, we don't have occupants yet, but it's been fully allocated to future residents. So, we're fully committed for the next project we're doing, which is in Kensington, in Melbourne, in Thompson Street. There's two buildings of 100 apartments each there and I think we've had 7800 people register their interest in that building. So, we've got, you know, a lot of demand, so but, that's sort of saying you're really interested in this. What that translates into, people that actually formally want to commit and sort of, you know, it might be sort of 10 or 20 percent of that number, but still a significant over subscriptions. There's a lot of demand, I think, for housing and I don't think it's so much, obviously the access to the housing model is there and more affordable and everything else is, is something that people are very interested in and focused on in Australia where they feel like perhaps the housing market is not with within front of mind. But what's more important, I think, is our approach to the development of the neighborhood within our buildings is just as important, if not more important to most people that interested in being in an Assemble building in the future.

Eve: [00:22:41] So what is the approach to the development in the neighborhood?

Kris: [00:22:44] Pretty organic. So we'll have full-time on site staff at each location, but they'll be, so, in our hospitality space downstairs in each building, for example, like the cafeteria, the cafe space and grocer, is all the front-of-house staff there will be trained in our system so, you know, they'll be able to log a maintenance request or let you know when the next yoga class is going to be happening in the communal spaces, but, is an approach to say, well we've got a much more personal interface with our staff. So, the stuff that I've seen in other locations internationally is very much like hotel type concierge services. So, there's a few issues with that for me. Personally, I think that embellished lifestyle's just not a particularly sort of Melbourne style of living.

Kris: [00:23:30] Then the second thing is that that's an expensive way to sort of resource a building. That would put pressure on our ability to deliver affordable rents and prices. We have staff that provide a sort of infrastructure and an approach to living somewhere with organized walking groups, yoga classes, gardening groups. But the idea is that we're more in the sort of European housing co-op style of living, trying to transition the residents to be more self-managers of their little neighborhood, their little communities. The idea, from my perspective is, I'd much rather give half a dozen residents 40 bucks a week off their rent each and they look after all our gardens, than paying some contract gardener to come and, Jim's Gardening or whatever, to come and do the weeding and, you know, pick the vegies or whatever for me.

Kris: [00:24:22] So that approach is going to take a while to sort of transition into. And I think what we'll find, in our neighborhoods of, say we've got a hundred homes, is there'll be 20 homes of that are hyper-engaged in the building community and sort of wanting to sort of do everything with your neighbors and everything else. And then there'll be 60 homes that are sort of in the middle somewhere who are happy to do it but they want to be doing the gardening every single Saturday morning with their neighbors, for example. And thern there'll be 20 people, 20 homes that have residents that, you know, just want to sort of come home and sit on the couch and watch The Voice or something and aren't that engaged. And that's, each one of those groups is fine. That's just society cross-section, right?

Eve: [00:25:05] Yeah, that is typical, yeah.

Kris: [00:25:07] So you don't have to be a green thumb or be an expert in fixing bicycles or whatever else to sort of be in one of the buildings. So, we're not trying to engineer a social outcome. You know, it's a random ballot to get a spot and one of our buildings.

Eve: [00:25:20] Interesting. So, what's your background and what path led you to all of this?

Kris: [00:25:26] So by trading I'm an engineer, a civil structural engineer and I've got a geology degree also. So, engineering and science background but moved out of that sort of consulting engineering space very early in my career into sort of project management and then into more traditional development businesses. So, delivering developments where, you know, section one of the report each month on how the project was performing was always about, sort of, how's the profit looking? So, it was always about the shareholder return, our investor return, and never so much about the sort of long-term outcomes that we're generating with our projects. So, working in a few businesses, and did some projects I'm still very proud of, in that part of my professional life but found myself, as I said earlier, checking out of that delivery mechanism for housing, you know, sort of four, five years because it bought up such a large portfolio of projects, started investigating other ways of deal with the housing that was more aligned with our residents.

Eve: [00:26:29] Interesting.

Kris: [00:26:31] Yeah, so look, I learned a lot of good skills and things over the journey that are definitely applicable to this space, but plenty I'm finding it a lot easier to sort of get out of bed and go to work in the morning.

Eve: [00:26:45] Well, that's good. That's important. So, are there any current trends in real estate development that interest you or you think are really important?

Kris: [00:26:54] In Australia, in housing, I think the biggest emerging trend is going to be in social affordable rental housing. And that's institutionally owned whole residential real assets. So that's buildings and of scale, buildings in between 100 or 200 and 300 apartments, of which a large proportion's very low-income housing. So, social rental, and that's analogous to the United States market of the low-income housing tax-credit type component within a mixed tenure, mixed socio-economic buildings. And I've seen some very good examples in L.A. and in New York of the sort of mixed tenure outcomes that you can generate. And there is a limit to the amount of ultra-low-income housing you can sort of integrate comfortably with a, within a sort of market scheme.

Kris: [00:27:41] But I think in Australia, that asset class, particularly focused at the affordable end is going to be a sort of huge focus for investors and developers by the lot. But we're positioning ourselves, I guess, to be a bit of a leader in that space. And I think that's…

Eve: [00:27:57] That's exciting.

Kris: [00:27:58] …really important work because they're the people that are finding housing the most difficult. We're doing a project in Coburg where we're going to do 50 homes for older women fleeing domestic crisis, for example, and it's the fastest emerging group of homelessness. So, you know, there's some pretty bad sort of societal issues and housing is at the front of a lot of that. And no one's shying away from it. Everyone knows it's a big issue and everyone knows we need industrial-scale solutions to housing, and we think we can't do all that, but we think we've got a role to play in guiding industry on models that can deliver moderate returns for investors. And the upshot is they're going to get on and deliver at scale some housing solutions for the people who are finding housing the most difficult.

Eve: [00:28:46] What is a moderate return for an investor in Australia? What are you shooting for there?

Kris: [00:28:50] So, for our long-term rental housing we're in the sort of mid-single figures for an equity return. That's a levered return. You know, up to maybe the sort of high single figures depending on the mix. And then for our homeownership part-way products, more sort of in the high single figures. In equity returns, you know, I'm very familiar with what sort of returns pension fund investors get in North America, sort of similar asset classes. And we think we outstrip any large industry sort of transitioning relatively rapidly to international return level expectations. But it's very difficult for a Superannuation Fund investor who's there to represent the interests of their members. So, we've got millions of working-class Australians who have charged them with the responsibility of managing their retirement savings. So, to move first in a new asset class that's not established yet, and things, has a whole bunch of inherent riskiness. But I've been very proud of some of our Superannuation Fund partners in how brave they are being in capitalizing us, to allow us to deliver housing solutions that have not necessarily been included before in this country. Yeah, and that's generally because they believe it's important work. And, in a lot of cases to be fair, Industry funds, so union-based pension funds, is where it's particularly applicable to their members who may be in that sort of lower middle income. Probably got good jobs, good stable employment, but just don't earn lots of money.

Eve: [00:30:27] Right. So, what is the next five years look like for you?

Kris: [00:30:31] We've sort of been going for five years now and the next five years for us is really transitioning, starting from the first half of next year into a pretty flat-out delivery phase. So, next year, we'll look to sites, so start construction of about fifteen hundred homes across around six locations. And, so the last sort of four or five years is been spent getting capital support, getting planning consents, piloting, doing a small project in Kensington, which is 73 apartments, which is under construction and due for completion in May next year, to a phase where we can start to move into that industrial sort of scale delivery phase where we're delivering extremely large neighborhoods across multiple models and getting to the solutions that are at scale and projects that are at scale for our superannuation fund investors because they need this sort of certain level in scale to make a project investable for them.

Eve: [00:31:32] Right. Maybe thirty thousand units in the next five years? Fifty thousand units?

Kris: [00:31:38] Wow, I don't know. I think we're looking at a stabilized portfolio, at the end of five years, around five to six thousand units. I think it would be a sensible objective, to the extent it, sort of, grows beyond that then I'm not sure. My nervousness is, you know scales useful for the provision of housing solutions, at scales extremely useful for Australians, but who are sort of seeking that tenure-certain housing at affordable rents but how do you hold onto the DNA of our offer and how do we make sure that our neighborhoods, you know if we've got forty of 50 of them, are being managed in a way that are sort of true to where we started? And that's a good challenge, I guess, if you sort of get to that point and we become a very desirable housing partner for Australians. And then I'm sure I'll be able to sort of find solutions to be able to keep the offer what we want it to be.

Eve: [00:32:36] It's totally impressive and I can't wait to see the outcome next year and the next time I'm in Melbourne I really love a tour, if you'll give me one. You yourself have really impressive goal.

Kris: [00:32:48] Thanks, no worries. It's been good. Doing new things is always challenging, particularly new things that are expensive, so like building buildings. But I've got a really great team here, we've got about 30 office staff now, we've had six new starters during the shutdown.

Eve: [00:33:06] Wow.

Kris: [00:33:06] Which has been challenging, but I've been extremely proud of the whole team. It's interesting, actually, it's a fascinating sort of study on ways of working and probably the majority, actually, of the team, I think, have sort of upped production for the same worked hours compared to what they’re doing in the office. So, not having the sort of distraction of the sort of coffee machine or overhearing conversations and whatever else. In the office environment, for some people that sort of focused work time's really useful. So that's been quite interesting. But on the other hand, the whole team are desperate to get back to the office because they're sort of craving human connection.

Eve: [00:33:43] Yeah, we all are. You've had an easier time of it in Australia than we have over here. Thank you very much, Chris. And I really can't wait to see what comes of all of this.

Kris: [00:33:55] Thanks Eve.

Eve: [00:33:56] Thanks for your time. Bye.

Kris: [00:33:57] Good on you, bye.

Eve: [00:34:11] That was Kris Daff. Wow. Chris is tackling an enormous housing problem in Australia head on, and he wants to do it at scale. His company Assemble is gearing up to build affordable neighborhoods that solve many of the problems low to moderate income earners have in Australia. But first and foremost, Assemble offers a long term and secure housing solution for those who need it most. You can secure a home in an incredibly expensive housing market by buying a unit after five years if you want to and Assemble will offer you all the support you need along the way.

Eve: [00:34:53] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:35:10] Thank you so much for spending your time with me today. And thank you, Kris, for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:16] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:23] My guest today is Adam Sgrenci, the founder of the Center for Infrastructure and Society. As a start-up Center's work has evolved over the last year into an organization focused primarily on human capital. While affordable housing is still at the top of the list, instead of just helping to build more affordable housing, Adam leads conversations on how to build human capital. Conversations that encourage communities to plan their own destinies through co-design, co-creation, co-production and co-ownership.

Eve: [00:01:10] Be sure to go to evepicker.com to find out more about Adam on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:42] Hello, Adam. Thanks so much for joining me today.

Adam Sgrenci: [00:01:45] Thanks, Eve. It's a pleasure to be here with you.

Eve: [00:01:48] Oh, good. So, I was sniffing around on your website. I saw the following statement: We design and launch large scale housing projects that address the global housing shortage. And that's the mission statement on the home page of your organization, Center for Infrastructure and Society. And I was wondering if you could just tell us a little about that mission statement.

Adam: [00:02:13] I'd love to. And of course, it's going to come with a caveat, because in the world that we live in today, things move fast, and things continue to evolve. And so, for us, I might even add a, an updated version of that, which is still similar. So, what we're sort of, kind of rebranding ourselves right now and saying that we're essentially regenerative design and development organization, which means something similar. We accelerate the positive impact on local economy, local society and local environment through regenerative housing projects.

Eve: [00:02:56] OK, so slightly different, pretty much the same idea, though, still housing, right?

Adam: [00:03:01] Right, absolutely. It's housing and just to be clear, you know, housing is a part of a large eco system of infrastructure. That's where that the broader approach is starting to take shape. But, you know, as we as we talk today, I'll be glad to share, you know, how we learned and how we've grown.

Eve: [00:03:19] Tell me a little bit about the Center for Infrastructure and Society. I think it's a pretty new organization by the sound of it.

Adam: [00:03:26] Absolutely. Yeah, I know the sound is resonating well because as we continue to grow, we, you know, we start to learn more about all the opportunity that's out there in the housing space. And this is something that I believe Small Change understands very well. This path essentially started for me 10, 15 years ago as a young carpenter coming up, building homes, as a contractor, then as a project manager. You know, you start to see some of the vulnerabilities that exist from the housing development real estate sector. And for me, one of the biggest things that was sort of a glaring vulnerability was the focus on human capital investment.

Adam: [00:04:08] So, I'm talking about workforce development. So, this has a direct relationship with skilled labor shortage and the global housing crisis. And so, my ascent here into trying to roll out with, which ultimately became the Center for Infrastructure and Society, was the need to bring this understanding of construction, of infrastructure and development to this place of, of empowerment. Those were sort of the two worlds throughout my career that I was always interested in. And so, that ultimately led me to creating a new organization that initially started by guiding mass housing builders in underbuilt environments on the things that, and by the way I'm am based in Silicon Valley, so here in Silicon Valley, it's very common to hear conversations about you know workflow and KPI and, you know, career trajectory.

Eve: [00:05:09] Sure.

Adam: [00:05:10] So, where does that, yeah, and where does that sit and how is that situated within the context of the typical trades-person or the overall real estate space? That was the initial foray that that Center for Infrastructure and Society took into the world.

Eve: [00:05:27] Maybe you can explain a project that you're currently working on.

Adam: [00:05:31] Sure, love to. For example, back in October, I took a series of trips. I was in Nigeria and I was in India and all I was really doing was taking that consultancy approach to working with builders to kind of help analyze training in the workforce and how all of these things can sort of be brought in-house. Well, we've seen the rise of the con tech in the prop tech companies over the last, say, five or six years especially, in the real estate space. And so, what they were sharing with the world was, look, we can vertically integrate all of this. Design, engineering, but everything down to manufacturing the product. So my kind of approach was to work with some people that I knew that were already working in mass housing in some of these places and start to inquire about what it is that they're looking for and what the, you know, where are the vulnerabilities that they've identified to their own growth. And to solving their own local housing crisis. And so what that evolved into was digging in to KPIs and workflow and how you might be able to bring manufacturing in-house to vertically integrate, similar to some of the larger companies in the world.

Adam: [00:06:55] We actually started to take a step back and look at, like, what we call in regeneration, you know, the whole ecosystem. So, right now in Nigeria, for example, we're working with a mass housing builder to help them, who already has some of these technologies in-house, so they're not stick building or they're not building with block, they are actually already using panel systems, which is great. So, they're manufacturing that, so they've reduced some aspects of that supply chain. Though we are recognizing that one of the things that development tends to ignore, at least conventional development and I know in many of your projects, you guys do this as well, and it's the partnerships with local community. It's co-designing with people who are actually going to live in these places so that when the project is over, at least when it's installed, now there's a foundation for perhaps social enterprise for those folks that are living in the new community. There is, you know, maintenance programs to keep these projects standing strong and looking great. So, that's one project that we're doing in Nigeria. It's advising a mass housing builder to...

Eve: [00:08:10] The co-designing thing. you know, I was at a co-creation conference last week and have to admit I found a pretty overwhelming because, you know, there's a lot of people involved who had everything from absolutely no skill, no understanding of the real estate space to people who've had quite a lot of experience. That's really difficult community engagement to do.

Adam: [00:08:37] Absolutely.

Eve: [00:08:37] So, when you're in a place like Nigeria with a company that maybe wants to introduce co-designing, is what I thought I heard you say, how do you go about doing that?

Adam: [00:08:48] That's a great question. Ultimately, for us, it comes down to having a model and a framework for the discussion because that helps guide everyone into at least a direction. We start out with workshops and you know, where you might consider a town hall as an opportunity to explore relationships in the community, town halls tend to be a kind of space that is just as, let's say, conflict ridden as the typical fragmentation of our, of our industry, where everyone's sort of protecting their own idea. And so, with a model in place, we've got a four-part model. And so, it's broken down into benefit capital, regenerative technology, community engagement and strategic partnership. And so, we sort of give some context and background and we kind of set the stage for the conversation. If it's initial conversation versus, even if it's you know, we've been doing this now for two weeks or three weeks with a specific group, we're at least all coming from a similar perspective and that helps keep us focused on what you very astutely observed, that it's actually quite overwhelming. We're talking about an ecosystem, right? Who's in the ecosystem? It's governments and it's corporations and it's labor unions and it's non-profit organizations. And yeah, to your point, very correct.

Eve: [00:10:23] So you have a structure that you've thought through that can sort of help guide people and companies to some sort of commonality, by the sound of it.

Adam: [00:10:33] Absolutely. That has helped us at least get us to a point where we're all able to, you know, align on next steps.

Eve: [00:10:43] Right, interesting. That's a pretty difficult job you're tackling there.

Adam: [00:10:49] Yeah, hence the sort of rethinking of how we work. You know it happened in Nigeria, honestly, when I was interviewing and, you know, just doing assessments and talking to different builders and, you know, the reason that I had traveled there was because there was an interest for this vertically integrated approach to running businesses and having business models that didn't depend on too many suppliers, and, especially in other parts of the world, or even it happens here in the US, there's always an opportunity for details to get lost and things to happen on development projects.

Eve: [00:11:28] That's for sure.

Adam: [00:11:29] And so, what we realized early on was, our clients didn't only want the advisory, but they also wanted access to finance. They wanted to be able to grow. They wanted access to stronger relationships. And so that also helped influence us on how we present a model. My partner, Peter Coughlan, has been working in the world of regeneration. Prior to working with me on infrastructure specifically, he had started to develop a similar model in regenerating oceans and regenerating the coral reef and in soils.

Adam: [00:12:11] And that, he found, was, while very interesting and obviously much needed, it was hard for investors to get behind that and understand where the return on investment was coming or how it was coming. So, we partnered up when he noticed how focused on infrastructure I was and recognizing that infrastructure is actually quite bankable. Why is it that we have such a mature real estate development system? Anywhere in the world, you can go and these, and this is something that you know probably much better than I, it's because infrastructure is easy to see a return on. It's what's the next step after that right? How do we care for these properties that are built and how do we care for the lives of the people that are living within them?

Eve: [00:12:59] Yeah, how do you make sure the infrastructure that's built is appropriate for them as well, right?

Adam: [00:13:04] Absolutely.

Eve: [00:13:05] Yeah. Interesting. So, you’re a start-up and you're evolving quickly by the sounds of it, which is great. Start-ups need to be flexible or they're doomed, I think.

Adam: [00:13:16] Yep, yep.

Eve: [00:13:18] I mean, if you were to talk about your big, hairy, audacious goals for the next five years, what would they be?

Adam: [00:13:24] That's exciting, yeah. To go from working from the workforce development advocate role to now, where we want to be our own fund, has actually happened very quickly. But that's ultimately where we're going because we recognize that, and I think a lot of other organizations that are in the regeneration space and in the social impacts space, recognize how important it is to be able to fund the projects and the partners that you're starting to work with.

Adam: [00:13:57] And so until we get there, we are advisors and we're connecting great projects to great investors. But in order to do that and because it's the world of regeneration and those are the funds that we're targeting, so social impacting yes, regenerative impact funding. There's not a lot of projects that are at least considered regenerative and so, there are a handful of organizations that are trying to help these projects become regenerative. And I say that from a collaborative perspective, right? So, I recognize that there is a competitive way of looking at this in a collaborative way and honestly, we're talking about things like skilled labor shortage or the housing crisis. Rather than be competitive, we'd much rather be collaborative and so, we spoke to a fantastic organization called Metabolic based out of the Netherlands just earlier this week, and they're much further along than we are, at least from the, you know, the regenerative acceleration perspective. And it was just great. Yeah, go ahead.

Eve: [00:15:08] Explain to me what regenerative means here, the way you're using it.

Adam: [00:15:13] I've been using it and I've been writing some articles about it and trying to campaign these ideas, at least in a way that my clients, which were all like builders, so it would resonate with them. And so, I was using the term as regenerative housing. So, a regenerative housing project is a housing project that produces positive impact on local economy, environment and society. So, what does that mean? So that means that, let's say we build a development and there are 60 homes in it. Maybe they're multi use, maybe they're multifamily but it's the housing project. And so, one of the ways that we can have positive impact on the environment, and many of your listeners are probably very familiar with sustainable building practices, so essentially using materials that don't hurt the Earth any more than it already has, right? So, using lighting that doesn't use as much electricity or, you know, using insulation that doesn't, you know, overuse energy as well. There are great technologies that can be used that actually rebuild. So, for example, there's concrete that can be used that actually sequesters carbon from the air, right? You can have a micro-grid in a development that produces enough energy for the whole development. These are just examples. But that would be positive impact on the environment.

Adam: [00:16:45] In the same way, you'd have positive impact on society. So, you can have positive impact on society by using a housing project as a means of training local folks who had not known how to do any of these tasks to build this project prior to the project. Now this society walks away with a positive impact. Now they had training and they've been up skilled. And likewise, I had mentioned maintenance before. Maintenance is huge. And I think for a lot of builders and developers, it's not always, or at least it hasn't traditionally been, a part of the conversation. It was like, build as much as you can, build the best product you can, but then pass the keys over to the new tenant or the new owner and go after the next one.

Eve: [00:17:32] Or a property manager.

Adam: [00:17:33] Or a property manager. Absolutely. So, what we're proposing is, for example, every housing project should also come with creating a new market. So, a new market for home maintenance, let's say, or perhaps there is a social, you know, an incubator for social enterprise that was created for housing projects. Yeah.

Eve: [00:17:54] We can think of buildings and real estate as things that can just spawn all sorts of other good things if we just are thoughtful about it, right?

Adam: [00:18:05] Absolutely. Yeah, that's the idea.

Eve: [00:18:07] I think I heard you say you want to build your own fund as well. Is that right?

Adam: [00:18:12] Yeah. And I am not a finance person. I'm not an investor. And so, for me to say something like that is pretty ambitious. Fortunately, I'm surrounding myself with some smart folks who understand that world. But I very much come from the, you know, the operations side of things and the strategy side for builders. You know, like I said, when I first met our current client who's based in Nigeria now, they first said Adam, you know, one of the biggest things we need is, is access to money. And that was like, yeah, no, that makes sense. And so, who knows where that'll take us?

Eve: [00:18:49] Well, it took me to Small Change because I was pretty much in the same. But maybe it's not about access to money, it's about access to the right money or money that understands these projects.

Adam: [00:18:59] Oh, yes. Very good point.

Eve: [00:19:01] That's a little bit harder, right?

Adam: [00:19:03] Absolutely. You know, like I mentioned, I'm in the Silicon Valley and here the D.C. culture is pretty strong. It's, it's very pervasive and it is sort of how people just think in general, you know, what a successful investment is or what a smart investment is. How quickly can you grow your users? And when it comes to development, especially social impact, you can't really take that lens. So, you're right, you need a different category of investment or socially minded investors.

Eve: [00:19:38] That's right. OK, so what's your background? You touched on it. I'm wondering how you got to this place.

Adam: [00:19:47] You know, I was a student of economics and geology and local economic policy, economic development policy as an undergrad. After school, I taught English and traveled and got into construction much later. I did social service, you know, social, I did case management after 9/11 in New York.

Eve: [00:20:09] It's all coming together now, right?

Adam: [00:20:13] Exactly. And so know, I grew up in a family of builders. My father's and electrician, grandfather a carpenter, you know, there'd always been that understanding. And I, I missed out on it as a young person, although I was always around it. And so, yeah, after college and while I was in grad school, after I was doing social work, I took a job as a carpenter's apprentice and it, it really took off. The Bay Area, as you must know, is a great place to be in the trades because there's a huge demand for housing and construction and there's actually quite a low supply of skilled workers here, at least skilled construction work.

Eve: [00:20:56] I think that's true everywhere. So, you know, I've been a contractor myself and finding good anything is really difficult.

Adam: [00:21:04] Yeah, I actually had worked for a prop tech company just a couple years ago that was based in Toronto, and I helped them launch their San Francisco office. And what they had noticed right away, though, was still quite a difference between quality of responsiveness by contractors and subcontractors here in the Bay Area, you know, the demand is so high, people don't even have to be that responsive. And yet the rates are so high that you don't have to try that hard to, you know, report on the progress of your work or have any kind of budget update for people, because you there's too much work.

Eve: [00:21:45] Wow. Yeah, that's kind of a sad statement.

Adam: [00:21:48] It is a statement. And I certainly any local carpenters that are in the Bay Area listening to me don't get offended. But I mean, it's just a simple fact. There's so much work.

Eve: [00:22:00] Do you think socially responsible real estate is necessary in today's development landscape?

Adam: [00:22:06] I mean, I think so. If we're hoping to reduce the kind of vulnerabilities that we're all quite aware of now, you know, all being in shelter-in-place for the last couple of months, every one of the clients that I work with here in the Bay Area has been rethinking strategy. So, one of the assumptions, or one of the conclusions that people are coming to is that, the general like extractive approach of just producing as many products as possible and getting as much volume of work done as possible is not...you know, because once things shut down or, you know, once there's another market shock, you know, if your only tool is to, is volume, well, then you've got, you're little bit vulnerable. But if you are building relationships and are able to leverage those relationships to activities, you're likely going to be in a just more resilient place. And that's, that's where the social impact piece really needs to be a part of people's business models.

Eve: [00:23:08] Yeah, I do agree. So then, are there any current trends in housing development that interest you the most, or you think might have the most legs for rapidly filling the current affordable housing need?

Adam: [00:23:22] Well, there's two I would say. I love seeing the new technologies and the companies that are bringing the vertically integrated solution to the market. It makes them more agile and they're certainly able to bring a sense of client experience to the whole pipeline and the whole process. The other piece, though, is what I mentioned earlier about the need for projects to never really end. And so, you had mentioned property management and the more and more we see builders working with, or developing their own in-house property management, or even their own in-house development arms, that lifecycle really shouldn't be ending when the project is done. And we're starting to see that happening. There's a great company out of San Mateo called VEEV. And, you know, they're their own investor, they're their own builder, and they're their own clients. So, they'll never not own these homes. Or if they do it, maybe it's a co-ownership approach. They're always going to be caring for these places.

Adam: [00:24:29] And so, there's new models to ownership that are also happening. There's a great organization called EBPREC, East Bay Permanent Residents, or Real Estate Collective, I think they're called, and they're trying to force the conversation about what homeownership means. And is it possible to have land without landlords? And so, these are signals, I think, that the trends towards long-term ownership of the project by, let's say, a builder or a developer and real ownership by people as opposed to just affordable housing that is ultimately just cheaper housing, is certainly a healthier way. And the conversation around resiliency, that's, those make me feel pretty positive.

Eve: [00:25:15] Yeah, I think I'm hearing a theme here. Everything co. Co-designing, co-creation, co-ownership. Yeah, that's definitely a pretty strong trend at the moment. And then like, we touched on investment and I'm just wondering if you've had thoughts about how we might incentivize investors to invest first and foremost in impactful projects and housing.

Adam: [00:25:41] So I think that if we're talking about encouraging traditional investors, conventional investors to consider social impact investment in housing, is that kind of where you're going with your comment?

Eve: [00:25:56] There's a difference between an investor just wanting a return and an investor who cares about the triple bottom line and impact and that their dollars are making a difference. I think the first group is still much larger than the second group, right? And for you, your fund to be successful, you need to find investors who care as much as you do.

Adam: [00:26:20] So, there are probably two ways that those kinds of investors might be motivated and encouraged. One is, unfortunately, scenarios like the current pandemic and other market shocks. But even prior to that, I've heard of investors who just say: Oh, you know what? We were going to invest this project when we thought the market was telling us this. But now the market is telling us something else. So, we're actually not going to fund your company anymore or we're not going to fund this initiative, which we've been guiding you on for so many years. And that's traditional economics and I think the more and more they recognize that market shocks continue to present themselves, they should probably realize that these external forces are sending a message that maybe the quick return is not wise and it's more about the long return. And so that's one there's the external influence of the market shock.

Adam: [00:27:19] And I think the other is campaigning and education and conversation. And I use the co word there so, I think you'll probably recognize again with my trend here, but.

Eve: [00:27:32] A couple more co's, right?

Adam: [00:27:33] It's, it's honestly, though, it forces us to recognize that there is an ecosystem where a lot of interdependencies exist. Everything from air to water to power to shelter to education and health and wellbeing. And how all of these depend on each other actually presents, I would think, great opportunities for investors because we no longer have to rely on the network effects of one product. Rather, you can rely on the natural interdependent effects of the larger ecosystem. But again, that comes through co-design and collaboration.

Eve: [00:28:18] Yeah, that's right.

Adam: [00:28:19] How do you get an investor to, to be open to that. It will probably take some time.

Eve: [00:28:24] Yes, yeah. So, I'm going to go back to the beginning where we were talking about housing and just ask you a couple wrap-up questions. And one is, you know, the big one. Where do you think, I think I know the answer, but where do you think the future of affordable housing really lies? I mean, we have a huge problem to solve and I just got a lot bigger, unexpectedly.

Adam: [00:28:46] Yeah, I know. And I'm glad you mentioned that, because I've also seen people, you know, online kind of touting that the pandemic hasn't affected housing and that, you know, where the strongest, most resilient industry. And so, I'm glad you brought that up. I think when we talk about affordable housing, what we often see in, Oakland is an example but there, I'm sure there are plenty of other examples out your way and in other parts of the country that you're aware of, while, yes, affordable housing is important, the way in which affordable housing is happening in the mainstream tends to still be quite extractive. And so, that approach is, OK, I'm going to put out an RFP and I'm going to, you know, maybe as a city government, and I'm going to receive a bunch of proposals. I'm going to look for the cheapest or I'm going to look for the one with the best return and we're going to go along with that project. And then you get a whole bunch of people protesting or you don't get re-elected as mayor or city council because you backed a, you know, an affordable housing developer who ended up actually just building something for entry level tech professionals.

Adam: [00:30:02] And so, I guess that would be one of the key factors there for, you know, what's to come. How open are some of the local governments to rethinking what affordable housing really means? It means accessibility to housing. And one suggestion is using a model similar to ours. There are other models out there that are great, but aligning the investor with the technology that's being used, with the community that it's supposed to be serving, with partners who are going to be involved and looking for, it's not a zero sum game, you're looking for a win-win all the way around.

Eve: [00:30:45] That's had work but worthwhile, right?

Adam: [00:30:48] Right, that's what makes it worthwhile, I think.

Eve: [00:30:50] So then, final question. What's next for you and for the Center as things evolve.

Adam: [00:30:57] Gosh. Well, call me next week and you might get a different answer. No, I hope not, because I am getting a little bit of, there is some fatigue with the rethinking but it's all a part of the process, I guess. I think over the next year, there are five projects that we're on right now. India, Nepal, Nigeria, Venezuela and California. There are five projects that are in a very initial stage of building the model and bringing everybody together and looking at the investor relationships. And so, within the next year, you know, we would love to be actually moving forward with the introduction of the social enterprises, the locally informed and locally co-produced campaigning of education around the regenerative projects in these places. And obviously, the building of the. The building tends to be the shortest segment of a project in a regenerative project. And so, we certainly would love to see that.

Adam: [00:32:03] And at the same time, we're exploring this idea of what we're calling a regenerative core, or a re-gen core of a youth program that can be brought into universities, high schools, where we can spark this similar conversation about how might you be able to get involved in a social enterprise start-up in your community that helps bring more access to housing? You know, that's on the agenda for this next year. And along the way, we'll be gathering lots of data and hopefully using that data to influence great next steps along the way.

Eve: [00:32:48] Well, it sounds like you'll be really busy. And thank you very much for joining me. I'll be really interested to see some of the outcomes soon.

Adam: [00:32:57] I would love to, to keep in touch with you, Eve and the work that Small Change is doing, I'm so impressed with, seen some of your old videos and speaking in different places around the world and the projects that are coming up. So, I do hope to stay in touch with you guys as well.

Eve: [00:33:15] Well, that would be fabulous. Thank you so much.

Adam: [00:33:18] All right. My pleasure. Have a wonderful day.

Eve: [00:33:34] That was Adam Sgrenci. Adam is building a new organization focused on human capital. Instead of just figuring out how to build more affordable housing, the conversations he leads are meant to encourage communities to plan their own destinies through co-design, co-creation, co-production and co-ownership. You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:34:18] Thank you so much for spending your time with me today. And thank you, Adam, for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:13] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:20] My guest today is Christina Marsh, chief community and economic development officer at Erie Insurance. Erie insurance has played an unusually large role in their community. In her role, Christina has helped to create a community development corporation, an equity fund that is now at 27 million dollars and has also been involved in the purchase and development planning for four blocks of Erie's lovely downtown. Christina, first and foremost, sees her role at Erie Insurance as one of service to the community they are located in.

Eve: [00:01:02] Be sure to go to evepicker.com to find out more about Christina on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:26] Hello, Christina. Thank you so much for joining me today.

Christina Marsh: [00:01:29] Hi Eve, thank you. Thanks for having me.

Eve: [00:01:32] I've heard and wondered about Erie Insurance and the company's role in economic development in a boom that's really underway in Erie and I wondered who's behind it? Is that you?

Christina: [00:01:46] There's many of us actually behind it. And what I can say about Erie Insurance, I've actually worked with Erie Insurance for over 25 years now, and just a couple of weeks ago we celebrated our 905th year anniversary as an organization. Our founder, H.O. Hirt, always instilled in our core values and belief system in being, above all, in service and not just service to our agents and our customers and employee to employee, but certainly to the communities that were a part of. Erie is our namesake and our hometown and has been for 95 years so we have a very strong historian, civic leader, community advocate in our chairman of the board, Mr Tom Hagen, who's certainly behind a lot of the visionary efforts that are happening here in Erie and certainly on behalf of Erie Insurance. And our CEO, Tim NeCastro, this is his hometown. He became our CEO a few years back as all of this new energy, this renaissance, was beginning. So really, the timing was right for Erie Insurance to come in and take a bit of a leadership role. We are now the largest employer in Erie County and the only Fortune 500 company that's headquartered here so we take that responsibility very seriously.

Eve: [00:03:10] And so what's, what's your role at Erie Insurance?

Christina: [00:03:14] So, I am the community and economic development officer and when Tim came into the role as CEO, he and I had worked together over the years in all different capacities, even at Ernst & Young before we both joined the Erie Insurance many years ago. And he invited me in to help with all that was happening in the community. We do a lot of convening and coordinating, not just of our time, but of our resources with others so this way, as community leaders, are collaborating like never before, on public and private sector sides, that we're also able to multiply the impact of all the investments that we're making as well.

Eve: [00:03:54] Wow. So, just tell me a little bit about Erie. Actually, I've been there. I know a little bit about it, but not a lot. Anyone is listening may not have been there.

Christina: [00:04:02] Sure. You know, Erie, Pennsylvania, is the fourth largest city up in this north-western corner of Pennsylvania. We are the only port here in Pennsylvania with a beautiful lake and bay-front, which is one of our greatest assets that we're leveraging. We've had quite a bit of investment, private investment, over the past several years, Erie Insurance being one. We are located right in the core, downtown. We have over 40 acres there. There's a beautiful public square right in the core that we consider the beating heart of the region. It's called Perry Square. It's been beautified, lots of investment has been made there as well. So, it's really centered on a strong core. We have two health systems that are strong, Allegheny Health and UPMC. UPMC is anchored right downtown as well with Erie Insurance, as well as Gannon University on the west side of the square. So, we have three strong anchors in our downtown. So, we have four universities and one of the largest medical schools, LECOM, here in Erie as well.

Christina: [00:05:08] So we have many rich assets, a mayor who took office in early 2018 that has a strong vision for Erie being a community of choice. So, he's leading that effort with a strong balance of embracing the diverse cultures that are here. We have, in the city, we have about 20 percent that are new Americans, those that have resettled here. So, we're embracing those communities that are, you know, starting their own rich cultural aspects, as well as ensuring that we create and continue to build upon a strong and healthy and vibrant downtown and bay-front. We do have a lot of rich assets and things to do here in the community that's very generous and a lot of grit to it. We've certainly seen some of the decline, though, as many Rust Belt communities have over the years. We've lost, you know, 40,000 people in the city of Erie over the past six decades for various reasons and so some of the infrastructure over the past few decades has certainly declined. And we are working now to really reinvest in that infrastructure, whether it be our public schools or our streets or buildings that have really cool and unique architecture.

Eve: [00:06:30] So it's a pretty typical Rust Belt story. Loss of jobs, loss of people, loss of tax base and declining infrastructure as a result.

Christina: [00:06:40] Absolutely.

Eve: [00:06:41] You didn't mention one of my very favorite assets in Erie, and that is Presque Isle, which has to be one of the most beautiful state parks I've ever been to, one of my favorite places.

Christina: [00:06:51] You're right, it is. I think sometimes, you know, I'm not from Erie originally, I grew up in Long Island and when I had family and friends come and visit, then we go to Presque Isle or look out over the lake there. They don't imagine it to be as beautiful as it is. Of course, you know, it's a free public park, which is also amazing.

Eve: [00:07:11] Yeah, it is amazing.

Christina: [00:07:12] And the traffic isn't nearly what it is on the Long Island beaches so it's a great surprise and certainly, yes, a beautiful asset.

Eve: [00:07:21] It is. I've enjoyed it for many, many years. I think the state parks in Pennsylvania are altogether gorgeous, but that has to be the most beautiful. What's a typical project that you might become involved in, in Erie?

Christina: [00:07:34] The first one that we took a leadership role on was the creation of the Erie Downtown Development Corp. We had eight community leaders in late 2017. They really took the Erie Refocused plan to heart. We had a comprehensive plan at that time that the community had built together with a consultant, Charles Buki. There was something called a Metro 100 at our Jefferson Educational Society, it's a think tank here in Erie. And our CEO was there, Tim NeCastro. Afterwards, he spoke to Buki and said, you know, here's six hundred million dollars of, you know, work ahead of Erie and this comprehensive plan for the city, where do you even begin? And Buki recommended, of course, starting in an area of strength, which is our core downtown, and build out from there and stay focused. He also suggested that that group take a look at 3CDC in Cincinnati. And so, there was a small contingent called the Cincinnati 8 of our business and community leaders, our Erie Community Foundation leader's been a strong partner in this, and off they went to Cincinnati to talk with Steve Leeper, who I believe you would know from Pittsburgh days.

Eve: [00:08:53] Yeah, I do and there is the Tom Murphy connection, right?

Christina: [00:08:58] Exactly. Steve Leeper's been very generous with his time and resources so that we could accelerate creating a similar model here in Erie. Definitely a different scale and a different starting place from where Steve was at that time. That's where, for the first year and a half, Eve, that's where myself and my team spent most of our time in helping to bring leaders around the table, create the model for the Erie Downtown Development Corp., a non-profit, and then really began raising funds to help fill gaps, particularly in these early days as we patiently await the building and the return of the market. You know, we raised over 27 million dollars. We knew that we needed collaboration, Erie Insurance could not do this alone. We needed the support and buy-in from the community. We really needed to create new hope for Erie. Our mindsets, we're still very down on ourselves. We had a lot of national press that was really taking advantage of the Rust Belt story in the negative sense and we really wanted to turn that around to create hope and optimism for our community and change the mindset around to: it's not only okay to love Erie, we do love Erie and we're ready to do something about it, and do something about it for everyone for generations to come. And that's really a lot of what we did in those early years.

Eve: [00:10:20] So the Downtown Development Corp., if I'm correct, actually has purchased a block, maybe a block of property, to do a rather large development in the core of downtown, is that correct?

Christina: [00:10:32] That's right, Eve. Actually, there is a block, it's right on North Park Row. So, Perry Square that I referred to earlier, that is right on Perry Square. But they've also purchased properties in, actually, a four-block square in that downtown corridor right on our main thoroughfare of State Street, which is really key. So, yes, and that first project that you're referring to is on North Park Row. It's a beautiful, older, historic building, comes with some challenges because it does need a lot of work. At the same time, we are in one of the poorest zip codes in the state and in the country. It is in a designated census tract for Opportunity Zone. And so, we know that it's also in a designated food desert. It's intended to be first floor food hall, urban market to create food supply and resources for those that live and work right in the downtown area and become a destination, we hope, for those that want to come downtown and visit it and be a part of the revitalization effort.

Eve: [00:11:39] You have the buildings. You have the funding. What's the timeline? What's the plan for starting construction?

Christina: [00:11:46] Yep. So, construction has begun. The EDDC actually began really pulling out a lot of what was in those older buildings and starting to repair and ready them for the food hall on the first floor. Not much has been done on the upper floors yet, the apartments and so forth. But they invited an application process of having vendors apply to be a part of one of the vendors in the food hall.

Eve: [00:12:14] Oh wow.

Christina: [00:12:15] And they received over 20 applications and they're interviewing now to narrow down to nine. They really wanted to be diverse. We've done many surveys and community meetings and trying to study what the residents that live there today and employees that work, you know, that come downtown and work every day, are most interested in and are really trying to meet the diverse needs of our community. So, yeah, by first or second quarter of next year, we should have an opening of our first food hall right downtown. So, we're very excited about that.

Eve: [00:12:52] That is very exciting to see a dream, sort of, become reality, right?

Christina: [00:12:56] Absolutely.

Eve: [00:12:57] I think, what I've seen of the Erie plan, it's a big plan and what are the hoped-for outcomes?

Christina: [00:13:04] One of the beautiful things about this role, community and economic development for Erie Insurance, is that we participate in many different aspects of creating a vibrant community. And, you know, some of the overall goals are ensuring that we have jobs and access to jobs ready in the next three to five years through the work that our Chamber of Commerce is doing under new leadership. That we are creating a ready pipeline for workforce so this way, those in the communities that might not be ready or have access to education or a hands-on training, can have that access and are ready when the jobs are ready. So, we're matching the needs of the employers with those that are in our community today. You know, success for us looks like just an overall improvement in the quality of life. And that's measured in so many different ways, not just the vibrancy of the downtown, the buildings are the tools to support that. What's the human experience? What are our community members really experiencing? While we're growing for the new and bringing in new businesses and the targeted industries to really leverage the assets that we were just talking about that are right here in Erie today.

Eve: [00:14:21] Well, this is not a small task that you've taken on. And I'm, I'm wondering what background led you here?

Christina: [00:14:30] Well, it's been very interesting because it's not one, you know, that my, you know, 20-year-old self would have imagined in any capacity, I'm certain. But, you know, all of the experiences that I've had in the past, whether it was through my finance role at Erie Insurance, Ernst Young or otherwise, through my people role, you know, leading H.R. for a Fortune 500 company, certainly teaches you a lot about appreciating that people aspect of what we do every day and, you know, our culture is built around being, above all, in service, and we only do that through the human touch. So that's an important element of who we are as an organization. So, you take all of those experiences and learnings and, and I love learning and building new, that's what I've done in my career. So, to give back to a community that I've been a part of and have raised three children in, my husband and I, I mean, it's been such an exciting time for Erie and certainly personally in my career.

Eve: [00:15:32] I'm smiling over here because it sounds great. So, you know, what I'm most interested in is impact and socially responsible real estate. And I'm wondering what socially responsible means to you, and especially in this context.

Christina: [00:15:50] We actually, we talk quite a bit about that, Eve, because we've used the phrase that you hear a lot "the rising tide lifts all boats". And we say that, and I think in the beginning it sounded like, you know, if we could redevelop the downtown core and have that ripple effect through other neighborhoods and certainly out throughout the region, that that would be great for all parts of our community. And that's true. At the same time, when our mayor came on, Mayor Schember, he shone a light on where there were disparities and where there were deep-rooted strongholds within different minority communities. And he actually launched an initiative called the People's Supper Initiative. And these types of suppers occur through, all throughout the country. We participated in that with himself and his administration. He was serious about understanding some of the root causes of some of the hurts and perceptions and realities of different communities, the African-American, Latino and new Americans, and really rallied behind let's have suppers and understand, you know, where we are as a community and let's build trust, so that as we move forward as a community and building the new, that no one gets left behind. And that's been a serious attention spot for him and if you were to ask the mayor what his number one priority is, and we are hoping he has his 12 years in office as he would like, that he wants to eliminate prejudice and disparity in areas. And that's a that's a tall order, we understand.

Eve: [00:17:43] A very big goal, yeah.

Christina: [00:17:44] Very tall. But because we come at all of this development, whether it's the chamber on the economic development side, whether it's for the EDDC on the real estate development side or other organizations, including our own, we come at it with a balanced perspective of, yes, we know we want a world class downtown and bay-front. Yes, we want to create a community of choice for everyone. But we do it knowing that we also need to embrace our diverse cultures. And I think that balance point always has given us pause to think, do we have the right voices around the table? Do we have our traditional leaders? Where do we need more input from the neighborhood centers, from those civic leaders? How are we ensuring that we are bringing the entire community forward through all the efforts and all the investments that are being made? So, it's something that's important to us. I wouldn't say we have it all figured out yet.

Eve: [00:18:47] Well, does anyone?

Christina: [00:18:48] But we are paying attention to it.

Eve: [00:18:52] Well, that's great. That's a difficult problem to solve anywhere in the world. Are there any current trends in economic or community development that you're following or that you think are very important?

Christina: [00:19:04] One of the trends that we think for us is important is ensuring that we stay true to Erie Pennsylvania. Honoring our past and all the assets that we have to leverage, while building for the future. We hear a lot about, yes, you know, we have access to federal and state resources and, you know, look to those at the right time, but really taking a local approach. We follow Bruce Katz quite a bit. You know, he, of course, talks a lot about the New Localism. He also has been a strong partner the past few years. But really taking that local approach to: what assets do we have, where are our challenges, where are our opportunities and how can we move Erie forward with those assets in mind? And not trying to be something that we're not. We expect that that will help us be more successful. We've learned a lot over the last several decades, certainly over the last several years. We continue to study other communities like Pittsburgh, like Cincinnati, Buffalo, others in our region. But we do think that that local approach and collaboration is going to be key for us.

Eve: [00:20:18] Do you think it's a moral imperative that large companies like Erie Insurance get involved in building better communities where they are located?

Christina: [00:20:28] Yeah, absolutely. And, you know, it's always been part of our DNA from our humble beginnings 95 years ago that we would be, above all, in service throughout the communities that we're a part of. At the same time, the market is demanding it. So, we see that, even for employees now that are coming in, that they themselves want to be active citizens of the communities that they're a part of and they expect that the organizations that they work for. So that purpose-driven, balanced with the profit-driven, is becoming more and more important but thankfully for us, that's just the way we've always operated. So, it's, it's an easy way for us to think about it, quite honestly.

Eve: [00:21:14] And so, how do you think we need to think about our cities and neighborhoods overall, so that we build better places for everyone?

Christina: [00:21:23] For how we think about it, we think, you know, involving those that are in the community today is really important. You know, when I first came into this role, I thought, well, let's study these other communities and that worked really well there, let's bring that here, you know. But people live in neighborhoods today, and each neighborhood is very unique. And to talk with neighbors and understand their needs and build for, you know, a future for them and how that then ripples out to other parts of the community, I think that's one of the better ways that we can do that and be sure that the resources are available to those that don't typically have access to resources that they need to move their communities forward. At Erie Insurance we have what's called the service corps. And we have volunteers at the ready. And non-profits and other organizations make requests for events or even just help in painting a library at a school. And we'll send employees out. You know, employees are willing and ready, you know, to be sent out to help wherever the need is. So, we've really leveraged that as a strong platform.

Eve: [00:22:34] Yeah, that's really lovely. I also think, sometimes when you look at best-case studies, it can derail you a little bit. I think looking at where your community is and how it should grow can be much more powerful.

Christina: [00:22:50] Yeah, yeah. That's what we're finding.

Eve: [00:22:52] Yes. So, I have to ask what's happening in Erie during this horrible pandemic?

Christina: [00:23:01] For Erie, like many if not all other communities, our first priority was response. Response to those that have some basic needs, because of the loss of jobs or, you know, businesses stopping. And so, we actually participated with our Erie Community Foundation in seeding a Covid19 emergency response fund. To meet child-care needs, basic food needs, shelter for organizations that are on the front lines providing that to our community members. We ended up, in a very short time, being able to support 40 different non-profits with over $670,000 as a collective fund. So, that was our first priority, was certainly the response to those basic needs. Now we're pivoting to, so what do we look like coming out of the recovery? You know, for all that's been invested, we had this great and still have a great spirit of collaboration. And thankfully, the health systems, Erie Insurance, we're weathering this. We're being very thoughtful about the safety and stability and health of our community members and our employees. At the same time, we don't want to lose sight that there's much more ahead for us on the positive. And so, our Chamber is leading a Restart Task Force. We had our first meeting last week and we have, again, through a sense of collaboration, we have non-profit organizations, universities, manufacturers, other business groups at the table with working groups gathering data, baseline data, to figure out where our priorities need to be as we start emerging and recovering from the impacts of this pandemic. So, we're not standing by. We're not standing still and we're working together through it.

Eve: [00:24:51] That's pretty fabulous. So that, you know, none of us really know what the path forward will look like. I'm sure things will be different, but we're not exactly sure how. So, I think that's the best you can do. So, the big final question is, what's next for you in Erie and Erie insurance?

Christina: [00:25:10] That's a great question. We are paying attention to what our community is asking for through the work of our community foundation, our Chamber, all of the transformational efforts that are taking place. And we're sort of taking the lead of the community and we're the next big need may actually be. We created our 50-million-dollar Opportunity Zone Fund last year. So, we've been, actually, taking a look at deals related to start-ups that are another part of the engine of a vibrant community. We ourselves, at Erie Insurance, we were a start-up, you know. 95 years ago. H.O. started this insurance company and look at where we are today. So, we know that there are many examples like that across the country and we hope to be a part of restarting the economy for generations to come. So that's, that's where we will be.

Eve: [00:26:09] That's pretty fabulous. Well, thank you very much for talking with me. It actually sounds like you're having a lot of fun in amongst the challenges, because challenges are fun, right?

Christina: [00:26:18] Yeah.

Eve: [00:26:21] I really hope that continues and I, every time I go to Erie, I do see change and I'm looking forward to seeing more. Thank you very much.

Christina: [00:26:28] That's great. Thank you, Eve. Appreciate the opportunity. Alright, take care.

Eve: [00:26:41] That was Christina Marsh. In a recent interview Christina said "I love building new. In my career it's all about building new. It's about helping others build their own competence, their own capabilities, helping other women succeed in business and growing their own leadership. There is always that teacher in me." Christina's skills, which are formidable, are cloaked in her humility. First and foremost, she sees her role as one of service to the community.

Eve: [00:27:14] You can find out more about impact real estate investing and access the show notes for today's episode at my website, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:27:34] Thank you so much for spending your time with me today. And thank you, Christina, for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:17] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:24] My guest today is Katie Swenson. Katie joined MASS Design in 2020 as a senior principal after having worked for many years on affordable housing with enterprise community partners. There she was, a vice president of Design and Sustainability. Her role at MASS, a design practice that embraces issues of economic and social equity, is to help them to define Mass Version 2.0.

Eve: [00:01:06] Katie's career has spanned both arts and design, from comparative literature to modern dance. When she finally decided to attend graduate school, she chose architecture as her discipline. And that's when the magic really started to happen. "It allowed me to become a community-based architect," she says, "one who brings ideas to the local level and works with the city and community to make things happen."

Eve: [00:01:37] Be sure to go to evepicker.com to find out more about Katie on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:02:00] So hello, Katie. Thank you so much for spending some time with me today.

Katie Swenson: [00:02:04] So glad to be here. Thank you, Eve.

Eve: [00:02:07] I'm really fascinated. You've built a career around this question: How do we create an equitable, sustainable, affordable city? And I'm just wondering how you would answer that very big question.

Katie: [00:02:20] Yes. Thank you for that question. How do we create an equitable, affordable, sustainable city and communities, I would say, as well.

Eve: [00:02:30] Yes.

Katie: [00:02:30] You know, my work has taken me into communities mostly across the United States, both large cities and small cities, rural communities and tribal communities. And I think at the base of everything that we've been trying to do is to understand how people can create lives for themselves and their families that give them the opportunity to become and be the people that they want to be, to live lives with purpose and dignity and have the resources and abilities to contribute to the world at large and to their families. So I think that has to happen and in all kinds of environments, certainly so much of the focus of both the sort of economic engines as well as a lot of the environmental work has been around densifying cities and creating cities as urban centers where so much of our work and life can happen. But I think it's also important to understand the broad spectrum of communities that we have throughout the United States and understand that we need to address critical issues around housing and jobs and health and education resources for everybody in the country.

Eve: [00:04:01] Basically, one one size does not fit all, right?

Katie: [00:04:04] You know, America is much more diverse, I think, than we necessarily give it credit. I've had the incredible opportunity over the last dozen years to really travel quite a lot throughout the United States. And last year, I partnered with a photographer named Harry Connolly and the two of us have been working on a book that we called 'Design with Love at Home in America'. And we went and revisited 10 of the communities where we've been working in partnership for many years with local community development corporations. And the experience kind of re-revealed for me how diverse America really is, from border communities to very rural tribal communities. We worked in geographic diverse locations from the Mississippi Delta through Yakima, Washington, which is sort of the breadbasket of America for produce and fruit production, through inner cities in Baltimore and elsewhere. So, I think one size does not fit all in some ways and in other ways, of course, there are so many common themes that unite best efforts throughout the country.

Eve: [00:05:33] Yes, I think about one size does not fit all, I immediately think about, you know, the very typical residential project that developers will build, which really seems to be one size for all. And what you're describing is something very much more diverse.

Katie: [00:05:53] Yeah, I think that communities need to grow to reflect themselves. That's the essence of place-based attitude towards building MASS Design. We have talked too often about the provenence of a building. You think of, let's say, wine that comes from a certain region and is grown from a certain type of soil. And buildings and communities also have the opportunity to be grown from their place and to be designed, really, in concert with the values and ambitions and aesthetics and goals of the people who both are responsible for creating them and then will live and grow their own communities. So, yes, I think it's really important to understand that diversity is not an abstract goal, but is the result of, sort of, expression of an environment and that of people and community values that create something that's unique and individual to a place.

Eve: [00:07:09] Yeah, I love that thought that a building has a provenance. I think that's great. So, the question of the architect's role within community has sort of continued to grow and change in recent years, but I don't think it's fully formed yet. And how would you like to see that role continue to evolve?

Katie: [00:07:28] You know, through our work with the Enterprise Rose Fellowship program, we've learned a lot about a role that an architect can play in local communities. So, just to give a little bit of context, I worked for almost 15 years at Enterprise Community Partners. Back in 2001 to 2004 I participated in a program called the Enterprise Rose Fellowship Program and as an aspiring architect, I was partnered with a community-based development corporation. And the goal was to bring an architect or designer on to the development team of a community development group. The Community Development Group could use the resources of a dedicated designer, and the designer would be able to learn the ins and outs of not only affordable housing development, but also community engagement processes and the regulatory processes that contribute to the creation for affordable housing. So, over these past nearly 20 years, Enterprise has partnered 85 Rose Fellows with community-based groups, and it's been an incredible privilege to be able to witness the growth that has happened through these partnerships. Each one has looked very different. In all cases, there are definitely some sort of underlying values. The architects who are attracted to this work and who succeed at it are generally very humble people who approach the work with the desire to uplift, first and foremost, the goals of the community, but also have to be able to be both brave enough and resourceful to bring the best resources from the architectural and design communities to sort of bear in the local work. So, it's been wonderful to watch these relationships and partnerships grow over time, and each one has resulted in very different kinds of outcomes.

Eve: [00:09:49] Do you want to give me some examples? What should a community architect be thinking about that's perhaps different than a rock star architect might be thinking about?

Katie: [00:09:58] Absolutely, I'd be happy to share a few examples. I think I would start back in the early days, maybe in 2001, when David Flores was partnered with a community group in San Ysidro, California, called Casa Familiar. A local non-profit that is now about 50 years old and has been working as a kind of community organizer in San Ysidro for many years, helping families navigate life on both sides of the border and provide affordable housing and other community development resources in San Ysidro. And David Flores was a member of my class of fellows, so we both started work in 2001. At the beginning, David started building what he called Casitas, small houses along some of the alleys in the historic part of San Ysidro. But I think he quickly started to realize what the larger challenges that families were facing at the border, including, of course, the border itself. And as the San Ysidro land port of entry has expanded and increased its, I guess, militarization of the border process for crossing, it also took up more space and land space in the community, more energy and also, because of the long wait times to cross the border, was creating environmental effects from stalled vehicles. So David, not only has been working as the design director at Casa Familiar, he was there for almost 20 years working to oversee the development of affordable housing in the neighborhood, but he also joined, for a time, he led the Planning Commission efforts and he got involved in the design and planning of the border control station so that it would be more receptive and welcoming to pedestrians and people crossing each way. And he got involved in environmental studies and testing air quality in the region.

Katie: [00:12:16] So I think that architects and designers like David show that an architect's job is not only on distinct projects, that, absolutely he's been involved in helping to realize some very beautiful pieces of architecture including a project which just opened recently that Teddy Cruz and Fonna Forman designed for Casa Familiar, a longtime project in development. But that these building blocks of housing and libraries and parks also need to be knitted together into a larger point of view and larger ability to help a community, as a whole, feel supported and able to grow a family's life and capabilities in some of the most stressful, you know, environments that we have here in the country.

Eve: [00:13:16] That's a lovely story. So, I'd really love to hear about how you came to be such a powerful advocate for equitable cities and communities and where did that passion come from? I think you started life academically in a very different place by the sounds of it.

Katie: [00:13:32] Yes, I was asked recently who one of my architectural mentors was and, as a child, and I said my mom and the response was one of surprise, actually, and I thought it was so interesting because my mom was a professional, but she was also a home maker. And I've been thinking about these words, not homemaker, one word, but home maker, maybe two words. And I think in many ways, I grew up with a very strong attachment to home, the idea of home, the physical reality of home, how both the design and feeling of your home as well as the stability and platform that your home kind of provides you is just a critical piece of this formation of who you are. And I think in high school, while I had a very stable and wonderful home, I also had the chance to volunteer for what started as a month engagement and ended up being a little over a year and a half at a homeless shelter in Boston. And I think that in the mid-eighties, when homelessness was starting to, kind of, take hold of America and we had, kind of, a high point in the mid-80s, I realize now that actually has not dissipated much. So for me, as a high school student, sort of understanding this dichotomy, not just the power of my own home and what it meant for me, but what happens when you don't have a home and how slippery a slope it becomes and how quickly life can fall apart without a stable home. So I think that this has guided so much of my passion for my work and while it hasn't necessarily been a linear path in terms of my career, I studied comparative literature as an undergrad and I have spent time as a modern dancer and I've done a lot of different things throughout my life, but some core essence around the importance of home and making homes, making my own home and making homes for others has been something that has driven me as long as I can remember and to this day.

Eve: [00:16:12] You also sound like you've had a lot of fun. And, you know, I think people have this idea that your life should be linear. But I think, you know, all of those interesting things that you've done must surely feed into what you do now and the way you look at the world and I love that idea. I wanted to talk a little bit about the pandemic as well. It's taken me a while to get my brain around it, but I'm starting to think about what does it mean? And what does our world look like when and if it comes to an end? And if it wasn't already bad enough, the affordable housing crisis just got a lot worse with the onset of the pandemic and many people losing their jobs. And I don't even know how to begin to think about how the U.S. can tackle this monster problem and I'm wondering if you have any thoughts about that.

Katie: [00:17:04] Oh boy. Well, I wish I could say that I was able to get my mind around what this is going to mean for all of us. I think we're still in this period of profound uncertainty. And I am really grateful for the wide-spread activism that I've seen from the housing community, first and foremost, on protecting renters and working to stop evictions and understand that that's one critical base of all of this is, again, I guess, the importance of having a home right now. We talk about stay at home, right? Stay at home.

Eve: [00:17:43] If you don't have a home, how do you stay at home, right? Yeah.

Katie: [00:17:47] Oh, my goodness. I mean, that means very different things for different people. And the importance of home has maybe never been so, kind of, revealed, right? I heard Governor Cuomo talking about the subways in New York, ridership is down 92 percent and they were going to start to close the subways in the mid-morning hours because many people were in many ways taking up residence on the subways.

Eve: [00:18:16] Oh wow.

Katie: [00:18:16] So this kind of crisis around home, whether it's becoming increasingly unaffordable because you're out of work, whether it's a place that is not safe, perhaps. I mean, not everybody is living at home in a safe environment or you have no home. So, we think this moment, certainly we all want to, kind of, understand what is the future of, you know, our public transit system, what is the future of our work spaces, what's the future of the restaurant and food industry? There's so many questions, but I think one of the most elemental questions is going to have to be what is the future of our housing policy and are we going to use this moment when it could not be more clear how important it is, both for each of us as individuals and for all of us as a society, to be able to safely house every member of our community?

Eve: [00:19:26] Yeah, and more, you know, you can't really say that home is just a roof over your head because there's so much inequity around who has a computer and who has broadband, and if you even have a place to work in your home. And I think all of that, surely, has to come into play as well. If we're really looking at schools being closed, and I know my husband's a teacher and his university is already talking about online classes only in the fall, all of that is going to really matter quickly. I mean, as an architect, I'm grappling with, you know, what does that mean in the way we even design homes and cities?

Katie: [00:20:07] You know, in some ways, you're right in that this is sort of exciting time to think about home, right? I think everybody's looking around and going like, oh, my goodness I have to sort of expect so much more of this space. And I hope that that notion of expecting more from our buildings and our spaces is one of the things that will come out of this time. You know, the idea that our buildings need to keep us healthy is an idea that really attracted me originally to MASS Design Group who started during a tuberculosis epidemic and designing hospitals with the goal of having the hospital itself, the building itself, participate in enhancing the health of the staff and patients and visitors who experienced it. That the buildings have such a role to play. Buildings shape us, they shape our experience. They shape our health outcomes. And so, I hope that this will be a moment where we are understanding that we need to ask more of our buildings and participate in a greater spatial awareness and spatial literacy to understand the profound effects that the built environment in general, and the buildings that we occupy in specific, have on our health outcomes and our quality of life and productivity outcomes and that we gain a sort of awareness and capabilities around our ambitions for the built environment.

Eve: [00:21:59] Yeah, and that, you know, the buildings shape cities. And I think cities, too, will need to be re-thought in terms of how do you make them safe places for larger groups of people? You know, some cities in other countries are starting to think about changes to their transportation patterns or, in Lithuania they've given over all public spaces to outdoor restaurants so restaurants can operate again. I mean, these are kind of baby steps but in amongst the misery of all of this, it's interesting to watch how creative people can be. That's encouraging, I think.

Katie: [00:22:37] It's hard to talk about silver linings at this moment. I mean, I think people are going to be experiencing so much grief of all kinds from lost loved ones to lost, you know, hopes or experiences. So, there's going to be just a wide swath of, kind of, having to recover from this moment but, as you say, there's also a lot of opportunities that are being revealed. Like in New York City, where they're coming up with strategies to re-occupy the city streets in a different way, I think that's so exciting. And I think it's really important, I mean, if home is important, though is. I guess, you know, the old words home and garden, right? Home is as equally reflected in the sort of outdoor space. and I think our ability to kind of get more creative about understanding how we can use our outdoor spaces more effectively is really important.

Katie: [00:23:39] I also think that different kinds of projects. We have just been involved in a project in a community in West Baltimore where neighborhood leaders started leading the charge to create a park where there had been three homes which, over time in a disinvested area of Baltimore, had been first made vacant and then started to deteriorate and eventually were taken down and the lots that were left had become a dumping grounds. And one of the local neighbors, so a block leader, a block captain on his block, his name is Donald Quarles, started working with one of our Rose Fellows and his neighborhood group and the Bon Secours Community Development Group to clean up first this lot and now turn it into what has become this incredibly beautiful small pocket park that they call Kirby Lane Park. And the process has taken about two years and we figure that in the end, it's been mostly volunteer labor, but the hard costs have been less than one unit of housing costs to create in that community. And it's provided this outdoor space, a kind of backyard or a front porch, whatever you want to call it, for this community at large. So I think from big ideas to how do we re-occupy city streets and city parks and beaches, to small ideas of how to prioritize and re-integrate smaller outdoor spaces into our day-to-day lives, there are lots of models and ideas that we need to be working on simultaneously at different scales.

Eve: [00:25:41] I think what excites me is the people I talk to who are incredibly creative and they're all going to put the brainpower to this. I can't wait to see how they make things better. It's fascinating to me. But, in the meantime, I would just like to ask you one final question, and that is what's next for you? You have a brand, new job with MASS Design Group and where's that going to lead you?

Katie: [00:26:06] Oh yes, it is so exciting. I started at MASS Design on February 3rd. I've been a friend and sort of champion and cheerleader to the organization since 2010 when I first met them and then had joined their board. So, I came on full-time in February, thank goodness, really just in time to be able to participate in this moment with this incredible group.

Katie: [00:26:34] So, the very first morning that we, sort of were all getting on our first Zoom call with one hundred and twenty five people from around the world at nine a.m. Eastern Time on Monday morning, one of our design directors, Chris Scovel, had gotten a call from one of our partners at Boston Health Care for the Homeless, saying that were going to be putting up some makeshift tents to be able to test and treat people without homes in Boston and would we look at the plans? And so, Chris and a team got on to making really makeshift design recommendations. We're not calling them designs because it's not about designing a tent or creating something ideal in any way, it's about trying to apply our experience and design for infection control that we've learned over many years through, not only tuberculosis, but also Ebola and cholera, and to understand with our medical partners how Covid19 is manifesting itself and what can we do from a spatial guidance to help limit contagion and keep health care workers and patients healthier. So we started in on this immediately and realized that if one group needed it, as one partner needed it, probably so did others. So, we set off on this kind of larger understanding about, how can we use our spatial cues, spatial literacy, to help respond in this crisis? You know, I think that obviously architects are not on the frontlines of this crisis. Health care workers are on the frontlines of this crisis and make no mistake about it, but the rub is that our buildings are on the front lines. And so, we need to be there, showing up to understand how do we need to adapt? What are the retrofits that we need to do? How can we learn from this experience so that our buildings are able to support health care workers, to be able to support our communities, getting back into our lives in so many ways, but to do it safely?

Katie: [00:29:04] It's been an incredible process and I feel very, very lucky to work not only with an incredible team at MASS, but also such a robust network of amazing partners both in the medical fields and in all of the sort of social service fields.

Eve: [00:29:22] Well, I really can't wait to see what comes next. And thank you very much for spending this time with me today.

Katie: [00:29:30] Thank you. Really a pleasure to join you and we'll look forward to having this conversation evolve and thanks for highlighting all the creative efforts. Appreciate it.

Eve: [00:29:41] Thank you.

Eve: [00:29:56] That was Katie Swenson. I loved that her early professional years meandered through the arts from comparative literature to dance before she landed on architecture. Her trajectory shows that climbing the ladder is not necessarily the path to success. Her career as a community architect started later than most but that didn't stop her from becoming a star in the field. And she brought with her creativity and a human passion for making better places for everyone.

Eve: [00:30:27] You can find out more about impact real estate investing and access the show notes for today's episode at my web site, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:30:44] Thank you so much for spending your time with me today and thank you, Katie, for sharing your thoughts. We'll talk again soon but for now, this is EVe Picker signing off to go make some change.

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Eve Picker: [00:00:12] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is the energetic Lyneir Richardson. In all that he does, Lyneir is razor-focused on helping urban entrepreneurs. He straddles two roles in two cities, Newark and Chicago.

Eve: [00:00:32] At Rutgers University in Newark, he is the executive director of the Center for Urban Entrepreneurship and Economic Development. There he is intent on helping 1000 diverse urban entrepreneurs grow their companies. And he's also an entrepreneur himself. He co-founded and is CEO of the Chicago Trend, a social enterprise providing resources to real estate developers and retailers to promote investment in Chicago neighborhoods.

Eve: [00:01:05] Be sure to go to evepicker.com to find out more about Lyneir on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:01:38] Hello Lyneir, I'm really excited to have you here today.

Lyneir Richardson: [00:01:42] Thank you for inviting me. I'm looking forward to our conversation.

Eve: [00:01:45] Yeah. So, you're a man with a mission and I'd really love to talk about that today. And like, firstly, in your role as the director of the Center for Urban Entrepreneurship and Economic Development at Rutgers University, and that's quite a mouthful, you've set a goal there of helping 1000 urban entrepreneurs grow their businesses. And I'd really like to hear more about that.

Lyneir: [00:02:09] Great. Well, I have been at Rutgers Business School for six years. In October of 2019 we celebrated the 10th anniversary of the Rutgers Center for Urban Entrepreneurship and Economic Development. During that 10-year period, we really focused on helping a diverse set of entrepreneurs get to, quote unquote, the next level, and that's how we always talked about, and then made the connection between entrepreneurship and economic development. Let me tell you a little bit about what I mean. We can point to the fact that we directly assisted over 400, now probably almost 500 entrepreneurs, 70 percent are entrepreneurs of color, African American or Latino largely, over 62 percent are women. 40 percent are right in the city of Newark, New Jersey which is an urban city that's been really revitalizing through local municipal leadership and corporate support. And of those firms we've taken now a little over 160 above a million dollars a year in revenue. So we're really excited about.

Eve: [00:03:22] Fabulous, yeah.

Lyneir: [00:03:23] That was really my, you know, first 10 years of work. And so the next, as we thought about it, all right, we've completed our 10 years, what do you want to do next? We really focused on this initiative we're calling a thousand million. And as you mentioned, the focus is, can we help, you know, a thousand diverse entrepreneurs get to and exceed a million dollars a year of annual recurring revenue? The reason why that's important for us is, you know, the million-dollar revenue mark is not the end all be all, but it's an important threshold, it's when an entrepreneur typically can start to think about either borrowing money or taking on investors. It's at that point where they have some employees beyond themselves. It's at that point where they hopefully will start to be able to consistently have some owner's compensation or some profit to share. You know, they have customer validations and that type of stuff.

Eve: [00:04:21] They're at the beginning of growth mode, right?

Lyneir: [00:04:24] The beginning of growth mode. And so, while we work with, you know, micro-entrepreneurs, you know, initially doing a hundred or two hundred thousand dollars of revenue, as long as they were in business for two years and we won't, you know, discontinue working with them, we sort of turn to an intentional effort to take firms who are in the two to three, six hundred thousand dollar range and try to focus on getting them to the next level. That's been fun.

Lyneir: [00:04:49] That's our Rutgers Center for Urban…, and Rutgers has been a really supportive university environment because typically entrepreneurship centers at universities are, you know, internally focused. Helping students pursue entrepreneurial activity and helping alumni. Rutgers here, because we have this Chancellor, Nancy Cantor, who's really made publicly engaged scholarship a strategic priority and a mission, she's a national spokesperson for it, as well as the dean of our business school who made social impact, you know, one of her top initiatives and priorities we are able to open the doors of the business school to a community of entrepreneurs, many or most of which are not Rutgers students, and they're not Rutgers alumni, you know. It's just a community around us, the local coffee shop or the professional service provider in the area, in our state or region that we really are helping to accelerate and grow.

Eve: [00:05:53] Cool. How long is it going to get to a thousand of them?

Lyneir: [00:05:56] You know, it's interesting. So, if you think about it, it took us 10 years to get 400 entrepreneurs in our program 160, I think by, you know, intentionally focusing, we're hoping that over the next five years you will start to reach that goal. So we're talking to a number of corporate partners, we've talked to some of the big philanthropy about both making, you know, our in-person courses, expanding them out some, but obviously not just because of the pandemic, but even in advance of it, using online tools so that we can expand our reach. So, yeah, we're hoping that over the next five years, you know, we'll start to see more, you know, more entrepreneurs across the threshold. We're going to research it and track it and celebrate it as well.

Eve: [00:06:43] So what does an urban entrepreneur look like and where are they located? What sort of businesses are they?

Lyneir: [00:06:49] Yep. So it's interesting. So, you know, urban entrepreneur is, it's an interesting term. Urban is an interesting term, right? So, you know, what's urban? Is it, in most instances place? Is it about density of place? I've been most passionate about urban with a racial lens. Racially diverse, economically, you know, challenged ethnic and underserved areas. So, in a lot of respects, my urban is really focused on here in the US, who have not been able to realize the full promise of our American dream, right? They have been subjected by, you know, systemic racism and that kind of stuff. So the question is, can I help them get resources and opportunity, you know to folks who have been overlooked and undervalued, right? So that's really the focus of the urban we do. Distressed urban neighborhoods where we'll create jobs and create wealth in communities. And then the economic development impact's all-around quality of life, right? You know, will crime decrease? Will there be better educational outcomes, you know, more amenities and neighborhoods, you know, that type of work, right? And that's the things that we measure, right? And so, our view is these urban entrepreneurs, as they become more successful, will be community anchors. They support the Little League team, you know, and civically active and employ locally and, you know, that's the big dream and the vision for it all.

Eve: [00:08:20] Can you give us some examples of the sorts of businesses you've helped?

Lyneir: [00:08:24] So, a wide variety. I'll talk about a few that we're proud of.

Eve: [00:08:29] Surely, you're proud of them all, right?

Lyneir: [00:08:33] Right, we're proud of them all. I just did it off the top of my head, You're right about that.

Eve: [00:08:35] It's like your children.

Lyneir: [00:08:37] Well thank you for that, you're right.

Lyneir: [00:08:38] We have four categories or signature program, sort of, lanes. One we call, which is our bedrock program, the Entrepreneurs Pioneers Initiative. It's for first generation entrepreneurs. We have a program for media and art in entertainment industry entrepreneurs. We have a program that focuses on helping retail and restaurant entrepreneurs. And we have done a lot of work recently with people of color forming technology ventures and accelerating, you know, those ideas. And typically, after school and on the summer, we will do some youth entrepreneurship programs.

Lyneir: [00:09:17] You know, we have a really cool - I'll just go walk back up the ladder - so we have a really cool technology firm called WearWorks that have started to raise capital into a number of strategic partnerships. This product is a haptics, sort of a navigation device for people with visual disabilities. Their recent accomplishment is using their product - a blind individual ran the New York Marathon for the first time without any type of seeing eye dog or, you know, used that tool to do it. We hope that they're going to continue to grow and get resources and use their tools for training and for all types of health outcomes as well. We have put the local right down the street from our business school. We have a number of restaurants and coffee shops. Black Swan coffee, Green Chickpea is a restaurant. These are local businesses that we've either helped get contracts with the university, you know, one is soon to announce a second location. You know, the coffee shop I love because the donuts are so great, right? So, you know, I would I should be avoiding the donut shop, it's really cool right down the street. A lot of professional services firms, PR firms, accounting firms.

Eve: [00:10:33] That's a really wide variety.

Lyneir: [00:10:35] Yeah, very exciting.

Eve: [00:10:36] So, I wonder, how do you identify these entrepreneurs? What's the bar they have to reach to be able to get into a program?

Lyneir: [00:10:43] Our initial requirement was in business at least two years, and one hundred thousand dollars of revenue is the threshold for most of our programs. The technology ventures, you know, we knew they were start-ups and, you know, it was, do we believe they could have some type of traction? Either they've gotten some other investment or been admitted into some other accelerator programs or, you know, have some indication of probability of success. But the goal really is, is to take people on, you know, a rung of the ladder and help them get to the next rung of the ladder. You know, at the state university where we view ourselves as an anchor, that's going to be here. And so, we provide resources over many years. The entrepreneurs is not just in a program. You know, we give people student consulting teams over multiple years. We invite them back to universities over multiple years. So, you know, we're in it for the long haul with the entrepreneurs in our funds.

Eve: [00:11:40] That sounds fabulous. What's your background and how did you get here?

Lyneir: [00:11:45] Well, I started as a lawyer. I grew up in a family of entrepreneurs. My dad owned a restaurant and bar. We owned popcorn stores., we owned five popcorn stores. So, you know, like, our dinnertime conversations were around, you know, we got a new location or lease, or a truck broke down, or someone didn't show up. You know, what are you going to do? And I, growing up as a teen, I was a D.J., a clean-up person, a delivery person, so I had all of those roles and saw business firsthand. I went to law school and practiced law initially as a bank lawyer.

Eve: [00:12:19] I have to ask, a family that owns popcorn stores begets a lawyer? How did that happen?

Lyneir: [00:12:25] Well, you know what? Yeah, our parents believed in education, right? And they believed, you know, in the value of education to continue to advance the family. What was interesting in being a bank lawyer was to de-mystify banking. I remember as a child, we'd always talk about how difficult it was to get a bank loan or, you know, and the narrative is, I was probably drawn to be a bank lawyer, and 90 lawyers in the law department there. But I remember every afternoon around 2:00 p.m., I'd start to fall asleep on the bank loan documents. It wasn't until I got an opportunity to do a community pro bono project of loaning, instead of loaning one hundred million dollars to an airlines or a public utility, I got a project to loan one hundred thousand dollars to a little entrepreneur, a local entrepreneur who was buying the building that I think he was operating his barbershop from. And it was the same documents, promissory note, loan agreement, guarantee, minus three zeros. Instead of one hundred million it was one hundred thousand.

Eve: [00:13:27] Right, I'm very familiar.

Lyneir: [00:13:29] But I loved it, right? It was, all of a sudden, I could see the connection to the work. And, you know, being on that court or in a struggling neighborhood not far from where we initially grew up. Then that community development work became my passion, right. Getting resources to those type of entrepreneurs into the communities, that became my passion.

[00:13:50] I worked as a bank lawyer. I became an entrepreneur myself in Chicago. I developed, built and sold well over 300 single family homes and town homes, mostly in underserved areas, was Young Entrepreneur of the Year in SBA many years ago, right 25, almost 30 years ago. But then I had all the highs and all the lows of entrepreneurship from, you know, the cover of the Crain’s Magazine and the awards to the doors of bankruptcy court. I ended up selling my company in a fire sale after a tough period. I lost, got fired on the job, we over-extended ourself on a contract, you know, I had, you know personal, you know, the mother died, you know, I had this period of just needing to restructure. But I was able to get a job doing the same work, heading a national initiative with a publicly traded company that was focused on doing retail development in urban neighborhoods.

Lyneir: [00:14:45] And so by now, I start to see this pattern. I was a bank lawyer and found passion and lending in urban neighborhoods. I then started as an entrepreneur building homes in urban neighborhoods. Then I found this big corporate position that had a national focus on getting retail to urban neighborhoods. And then, when the recession hit in 2007, I got this opportunity to work with Cory Booker and head the Economic Development Organization in Newark, New Jersey. Cory Booker, as you may know, very charismatic mayor of Newark, New Jersey, ultimately became Senator Booker. And because of his charisma, we had this opportunity to position Newark as a city that would be a national model of urban transformation and started to do projects. So, we did grocery stores and office buildings and new restaurants in the city – it became a lot of fun. And when he became Senator Booker is when I moved to Rutgers. So that's the long sort of career journey.

Eve: [00:15:45] I mean, there seems to be a lot happening in Newark. I keep running into people doing...

Lyneir: [00:15:49] Very good. I mean, even now, phenomenal current leadership. Senator Booker is working more at the national level, but we have a phenomenal local mayor who's galvanized both the business community, the residential community, and really done phenomenal work here. So, a lot's going on. The last thing I just want to mention is, what initially started out as a research project in my first year at Rutgers has now morphed into a social enterprise that we're. you know, really excited about. I'm also CEO of a social enterprise called Chicago Trend. It's a real estate focused social enterprise that now has about 15 million dollars of capital investing in the same neighborhoods, trying to determine when commercial real estate development and retail amenities and services and performing arts, and we've been investing two hundred thousand, two million dollars into various projects with the mission of strengthening the commercial corridors that will ultimately strengthen the neighborhoods. And again, Rutgers has been very good in allowing this research work to be in synergy with the entrepreneurial activity in Chicago. So, for me, I am at a high point in my career, both sides of the brain. One side is teaching entrepreneurs and being a champion and cheerleader of entrepreneurs in Rutgers. The other side is, I actually get to put money into ventures and, and trying to make an investment return. So, it really is a fun time. A fun career.

Eve: [00:17:24] Exciting. It sounds like you’re very busy.

Lyneir: [00:17:27] Absolutely. But, when it's passion work, even though it's busy, you know, it doesn't hurt.

Eve: [00:17:32] No, I totally agree with you. So then, what, you know, what does socially responsible real estate look like to you?

Lyneir: [00:17:39] So, again, my focus has been getting resources to people in places that other people overlook and undervalue. And for me, that is, every city has a part of town, again I headed economic development in Newark, so there was a part of town where crime is higher, where there's more blight, where, you know, educational achievement is not as great, where there's adverse health indicators. That's the part of town that I believe, a focus on real estate development and a focus on commercial corridor, inclusive ownership of property, getting amenities, day-care, dry cleaner, urgent care center, grocery store is what people often talk about, sit down restaurant. Those type of investments can change and strengthen a neighborhood. And people also will change, I'm concerned about gentrification. It's always not bringing Neiman Marcus in, it's bringing the amenities and services that improve the quality of life for the residents who have decided this is where I want to live, but to also continue to add economic diversity to a neighborhood as well. Additional income so that middle income families and, you know, people with additional educational achievements can say: I grew up here, I have some connection to this neighborhood and I can make this a place where I choose to live because of its conveniences and its history and, you know, be a part of its continued progression.

Eve: [00:19:22] Yeah, I mean, I think the gentrification line is very difficult because we can't leave places like that without investment. So, you have to find a way to invest respectfully, I suppose it's the way.

Lyneir: [00:19:35] Exactly right. And doing it inclusively. So this is, you know, the capital we've invested. It's with people of color who have some connection to that neighborhood. It's helping residents open a national franchise in a neighborhood. Again, it's getting capital to help residents and local entrepreneurs own and drive the revitalization, own and drive the economic growth. That's what's fun for me.

Eve: [00:20:05] So the fund, the fifteen-million-dollar fund that you're using, how did you raise that?

Lyneir: [00:20:11] It initially philanthropically motivated impact investors. It is, the MacArthur Foundation in Chicago provided the initial five million dollars of what they call the program related investment, a very flexible, patient capital which allows us to invest it into projects in a patient and flexible way as well. We've had a second investor, five million dollars of venture called Benefit Chicago, which was, includes the Coward Foundation. And then most recently we announced a five-million-dollar investment from Fifth Third Bank, you know, again a flexible capital. And we have, some of the religious organizations have also made some. The American Baptist Home Mission Society has provided some equity capital that we're using also, so really excited about it.

Eve: [00:21:04] So, you know, my next comment is going to be, you know, what about crowdfunding? Letting everyday people invest?

Lyneir: [00:21:11] Again, when I read about your work, it's something that I would love to figure out how to do. We haven't and it's certainly, we want crowdfunding to be a part of our menu. And again, now that we have made investments, have a track record, you know, this thought of can I create vehicles that will allow more local ownership alongside of our investment would be phenomenal. So,

Eve: [00:21:37] Well, we should talk 'cause you don't need to figure it out 'cause I have.

Lyneir: [00:21:40] Great. We should do something together. I love it.

Eve: [00:21:43] Yeah, it really is an impact fund with impact investors who care about what you're doing. It's pretty great stuff. Yeah. So, I have to ask, we're in the middle of a pandemic and we're both at home doing this interview, how are you supporting your entrepreneurs through this pandemic?

Lyneir: [00:22:05] Phenomenal question. You know, we have done a few webinars initially asking people, how is the pandemic affecting you? How are you thinking about your business model? How can we be supportive? So, you know, first thing was, instead of just responding, we started to talk to the entrepreneurs and try to understand from our customers how we could best support them. We've done a number of webinars and servers around applying for the available resources, as well as thinking about how to innovate business model to a more aligned and my favorite was, one of the entrepreneurs in our program operates a dance studio. But, you know, they're doing their jazz dance programs via Zoom now. And the one question she wanted us to help her figure out was, you know, do I have legal liability? And, you know, how do I, you know, either get some consents because they're not in my spaces, if someone gets hurt? So, you know, that those type of strategic questions, right?

Eve: [00:23:05] That's interesting, yeah.

Lyneir: [00:23:06] That's really been the nature of the work. Where I am spending a lot of time is on a program that goes deep, right? So, I think right now, everybody is having, rightfully so and thankfully so, there's a lot of announcements about new programs and small grants, local, municipal, federal, corporate, even philanthropic, to help entrepreneurs sort of survive. I really am spending a lot of time thinking about, and we've designed a sort of, I call it entrepreneurial management consulting to help entrepreneurs really think beyond the first three months of opening. But to think about, you know, the economic reality over the next year and two, you know. How do you change your model? How do you create new revenue streams? Is this the time to reposition? Can you raise new capital in addition to, you know, accessing all of the survival and recovery capital and strategies that are out there? How do you really think about this as a moment to become stronger?

Eve: [00:24:16] Yes. The interesting thing is, like, entrepreneurs are wired that way, right? They're people who think things up and work through challenges and are flexible and figure out how to get through unexpected challenges and it could be a really good opportunity to make a business stronger or different or add some programming to it or whatever. And I have noticed amongst people in general, there seems to be a clear divide between people who say, well, we're just gonna get back to normal and others who say, well, what's normal going to be? It's going to be different. It's very interesting to me. And you're clearly one of the people thinking about a different normal, right?

Lyneir: [00:24:58] Absolutely. And again, I think entrepreneurs are thinking about that as well. I guess there's two categories. There are some folks who say this is the time for me to reposition or to do entrepreneurship, either in a different way or to think about that this is not fun, right. And then again, there's a lot of parts of entrepreneurship that are not fun. And, you know there's late nights and there's accounts payable and, you know, and chasing, you know, opportunity. And so, I think there'll be some folks who will say, this may be my time to exit or to leave, right? But there's another subset of entrepreneurs that I believe are, even right now, thinking where's the new opportunity? How do I get new capital to pursue that opportunity? They're sitting back at home and thinking about what do I need to do to create a stronger business, additional wealth, you know, when we all are back outside again in the new norm?

Eve: [00:26:03] Yeah, interesting. So, a final question is, what do you think that the Center will look like in a year? Have you thought about that?

Lyneir: [00:26:14] Yeah, so I mean, again, we have already pivoted to all of our capacity building programs now are virtual. And the thought of being able to have a broader reach. You know, we won three of four awards for the effectiveness of our programs. And to be able to have a broader reach because of technology, and it being accepted, that's the cool thing about using all of the Zoom and WebEx and other tools is before, it always was sort of, well it was a second option, the technology was always sort of clunky. You would never make that even part of the first consideration. I think now our Center's going to have a whole lot more reach and impact by using, and leaning into, and the acceptance of the virtual tools. And we're also, you know, embarking on a campaign to endow our Center which will allow us to be, you know, not raising money program by program, to name the Center and to be able to continue to impact entrepreneurs along the scale. From youth to technology to the coffee shop down the street.

Eve: [00:27:30] Well, I really can't wait to hear, see what happens next and you and I are going to have some coffee on Zoom sometime very soon. Thank you very much.

Lyneir: [00:27:42] What a phenomenal opportunity and thank you.

Eve: [00:27:46] OK, bye.

Eve: [00:28:02] That was Lyneir Richardson, while Lyneir's work straddles two cities the goal is the same in both places. He's searching for ways to level the playing field for entrepreneurs and real estate developers in economically disadvantaged neighborhoods. In Newark he's helped 400 diverse entrepreneurs, growing to a thousand, grow their businesses. And in Chicago he provides resources to real estate developers and retailers to promote investment in disadvantaged Chicago neighborhoods.

Eve: [00:28:35] You can find out more about impact real estate investing and access the show notes for today's episode at my web site, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

[00:28:52] Thank you so much for spending your time with me today and thank you Lyneir for sharing your thoughts with me. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:09] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:15] My guest today is Melissa Koide, the founder of FinRegLab, a pretty new research organization. Melissa describes herself as a policy entrepreneur. While working in government she saw the critical need for an independent research organization, an honest broker of sorts, to test financial methodologies and new technological tools. Through FinRegLab, Melissa hopes to inform policymakers and financial institutions. Their ultimate goal is to advance financial inclusion.

Eve: [00:00:58] Be sure to go to evepicker.com to find out more about Melissa on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:21] Hello, Melissa and thank you so much for joining me.

Melissa Koide: [00:01:24] Good morning. Thanks, Eve, for reaching out to me. I'm looking forward to our conversation.

Eve: [00:01:28] Yeah, me too. So you launched a company called FinRegLab with the goal of helping to create a more inclusive and safe financial marketplace and I'm wondering how Fintech - because I think that's what FinRegLab does, financial technology - helps to meet the unique needs of the unbanked and the underbanked.

Melissa: [00:01:52] Absolutely. I'd love to tell you a little bit about why I stood up FinRegLab, if you'd like to hear a little bit of the origination story.

Melissa: [00:02:02] I was in the U.S. Treasury Department, in the Obama administration, and my office was the Office of Consumer Policy. And I jokingly say, being the head of the Office of Consumer Policy meant that I got to engage in virtually any and all policies that touched people, which meant that we had an important role to play across lots of important policy areas, which was a priority for Treasury and the administration at that time, which was really around financial inclusion and thinking about how public policy and the financial sector could be ensuring support of access, or financial inclusion, for households and families and small businesses who lack access to safe and affordable financial products and services. So that might show up in our financial inclusion agenda, it would very much show up in the work that we were doing looking at some of the consumer protection policies that were being developed. This was after the creation of the CFPD, but there were still a lot of developing policies that the administration was very thoughtful about in the consumer protection area, whether it was housing and mortgages, auto financing all the way to the other end of the spectrum that Treasury focused on, which was making sure that our financial system was safe from bad actors, whether it would be bad actors trying to use a financial system for fraudulent purposes all the way to really bad actors who, you know, would potentially be trying to fund things like financing for terrorists through the financial system. All of those different policy areas were under the purview, or are under the purview of the Treasury Department and all of them, in fact, have real implications for people because people are clearly who make up and who use our financial system.

Eve: [00:04:13] Probably, you know, Small Change and what I built it on comes right out of those policies.

Melissa: [00:04:20] Say more.

Eve: [00:04:21] Oh, the Jobs Act, I mean, the Jobs Act of 2012 and the Regulation Crowdfunding which allows access to anyone over the age of 18 to invest, is pretty much part of opening up that whole financial system to everyone.

Melissa: [00:04:36] That's exactly. Yep, that's absolutely right. And you're putting your finger on another important aspect of what the work we were doing at Treasury and then what was the impetus for creating FinRegLab. So this was back in 2012, 2011, when this notion of something called Fintech was really just coming online and it was post the Dodd-Frank Act but it was definitely something that was thought about in the Jobs Act. And that was: wait a minute, how can new technologies and new data uses potentially enable the creation of access to financial products and services that can be delivered to individuals who may be harder to serve, may be more non-traditional? I can talk about examples around this, but, whereas tech and data potentially able to level the access to the financial sector especially for individuals who may, for a variety of reasons, not be able to get into the more mainstream financial system. And whereas tech and data enabling the innovative and creative new providers of financial products and services who may not be banks, they may not be depositories. We saw the rise of new marketplace lenders who are generally non-bank financial institutions, who in the beginning, and it sounds like you know this well Eve, really doing a level of matchmaking with data between those who were interested in providing resources and funds for borrowers and then the borrowers on the other side who were in need of funds for a variety of purpose. And it was these intermediaries that really, sort of, were at the forefront of this onslaught of new types of non-bank actors. What we now, shorthand is Fintech firms, who are bringing in access to things like credit where that kind of access hadn't been available especially, I think it's an important distinction, credit that is affordable and non-predatory. And it doesn't mean that there aren't predatory marketplace lenders, there are some of those out there, but the use of the technology and the data, I think, helped to really create a ecosystem of providers of credit that are doing it at a much more affordable price for consumers. And small businesses, actually.

Eve: [00:07:17] Yes. That's been your background and then, how does your organization FinRegLab play a role in all of this? You launched 2017, right?

Melissa: [00:07:28] Yeah, and so the punch line in terms of, you know, what I was doing at Treasury and what's FinRegLab is, what we didn't have while I was sitting at Treasury for four and a half years, was any independent organization that didn't, frankly, have a particular advocacy agenda. While sitting at Treasury we would hear from the banks, we would hear from consumer advocates, we would hear from merchants, we would hear from Fintech. And everybody had a vested interest in how policy evolves in light of any particular data or technology use. And that's completely reasonable and understandable. But as policymakers, what we needed, and what policymakers still require, is an independent, non-advocacy, empirically-driven resource or answers that are empirical and non-advocacy driven. That really help to evaluate what are the implications? What are the implications for people from a new type of data use? What are the implications for the financial sector when a new data use might be brought online? And what does that then mean for public policy? What does it mean for the existing rules and laws that we already have in place that may need to evolve and may need to change in light of what a particular new data application may mean for consumers, small businesses and the financial market? And so, while sitting at Treasury, we didn't have any independent organization to turn to to just get that empirical evaluation.

Melissa: [00:09:09] And so after leaving Treasury at the end of the Obama administration, I spent some time for about six or seven months talking to my policy colleagues who I had worked with, especially the regulators, about this idea of standing up. Would it be valuable to them and what would they like to see evaluated? But to stand up a non-profit research organization that could go about, in a fairly sophisticated way, creating actual empirical evaluations of particular data or technology applications and then, importantly, providing a space for the dialogue for all of the different stakeholders who both need to learn from what the empirical research offers, but then they have a dialogue about what does that data use, now that we understand from an empirical standpoint, what does that mean in terms of the evolution of our policies and our laws? And so that's, after six months talking with the regulators in particular and identifying a host of particular data applications or technology uses that would be of value for us to study, I then began to explore some of the different philanthropic funders who would be interested in supporting this kind of organization. And we found the Omidyar Network was particularly interested in being supporting for a non-profit to do this kind of research.

Melissa: [00:10:45] I then stood up FinRegLab to go about, frankly year one - and it sounds like, Eve, you've run a nonprofit too - year one, what sort of proof of concept is the idea that we're putting forth, you know, will it succeed? Can we deliver what we're promising to deliver? And so year one, year one and a half was really first test case. Can we get industry to share the type of data that we need in order to do a genuinely independent empirical assessment? Will we be able to get the regulators to join in the dialogue discussions and all of those industry stakeholders, consumer advocates, the big banks, the Fintechs? And so it was a really exciting year for both building this new organization and undertaking that research. And I'm pleased to say it was a really productive project.

Eve: [00:11:38] I want to maybe know in a little more detail how these projects work. What happens in your lab?

Melissa: [00:11:42] Sure. I'll tell you some of the projects that we've done and some of the things that we have underway that I think are pretty important for the moment that we're in today. The way that we work is, again, we engage the regulators, consumer advocates and the broader financial market to identify what are emerging data or emerging data uses or emerging technologies that those may have real scale effects for the financial sector? But importantly, and this is FinRegLab, our true north, but that also may have real benefits and power for advancing financial inclusion. We are talking to the financial sector, the Fintechs, the banker, the investors, the regulators constantly to really keep tabs on what are trends in the market in terms of data that are being used or that are being thought about being used, or that present as having real scale effects potential? And then we go about essentially constructing a research project that would enable us to be able to then get the level of data or the access to the technology that we need in order to then evaluate it. And so I'll use our cash flow research as a sort of tangible way to explain it. So there is a lot of conviction, for very good reason, that we need more affordable and safe credit access. There's also a fair bit of, I think our research bears this out, concern that our existing credit evaluation process may not sufficiently evaluate the credit risk of underserved consumers and small businesses. And so this may be, in this country alone we have between 40 and 60 million Americans who are considered, that they have insufficient credit history or they have no credit history at all. And therefore, because we rely on credit history, the current approach for underwriting isn't able to successfully evaluate their credit risk.

Eve: [00:14:00] I actually went through this years ago because when I moved from Australia a long time ago, we just didn't use credit cards there in the way that they were used here. We didn't have any credit history.

Melissa: [00:14:11] Exactly.

Eve: [00:14:12] And the mortgage lenders were completely baffled. They didn't know what to do with us. It was a bizarre experience.

Eve Picker: [00:14:17] How did you find your way through that?

Eve: [00:14:20] I think, my husband had a job with the university and they were supportive in the background. They provided some hand money. You know, this was a long time ago. So somehow we convinced the lenders that we were a reasonable risk. And honestly, part of that is we're white. I think that when you're a minority in this country, perhaps that convincing isn't as easy, right?

Melissa: [00:14:49] Yep, yep. Yep. There is definitely, you know, we see a lot of access issues, especially among low to moderate income communities and individuals who also happen to be minority. So, it is absolutely a need in this country to make sure that financial access is extending to minority communities and minority communities, especially who are low and moderate income. So, absolutely.

Eve: [00:15:18] And that redlining goes away, because it still exists. It exists strongly. And it's astounding to me that it still does. But there it is.

Melissa: [00:15:28] Well, just to digress on that point for a minute, back in the 70s, we had significant redlining in Chicago, across the country. But there was research that, empirical work, that clearly identified the type of redlining that had been happening in this country. And we ended up with a law put in place, the Community Reinvestment Act, which, in essence, it sounds like you're familiar with it, says, you know, if you are going to be taking deposits from these communities you need to be serving these communities. With credit, in particular credit access. And I think it's a really interesting question to bring it back to technology and data today. There is a general belief that that law is too dated in light of how financial products and services are delivered now, where people are going to get and sign up for bank accounts to credit access. And there's also important questions around, that law specifically covers are depositary, our banks. Should that law be updated so that some of these new types of financial service providers are also included, right? I mean, there are questions around should non-banks who are providing financial products and services have some obligation around that. There's a lot of complexity and things that have to be considered but I think the general notion of where people are getting their financial needs met, what then are the obligations in terms of the financial system and making sure that people are fairly served and accessing credit and other, ultimately what are wealth building opportunities, right? Credit and your...

Eve: [00:17:16] Yeah. But the problem is, the poorest people who need that credit, it costs them the most. So the opportunity to build wealth becomes even harder. Whereas the more you have in this country, the less it costs you to make more money and to get better credit. And that's that's really scary.

Melissa: [00:17:40] Yeah. Yeah. We thought about this a lot while sitting at Treasury and we thought about it, I think it's important also to be thinking about it, quite holistically. For one, in the financial sector, in the credit decisions, as I said, we've got 40 to 60 million people who are quite possibly credit-worthy, but we just can't tell from the existing way that we evaluate them. And that's what that cash flow research looked at. And we actually did find that other types of data, in particular bank account transaction information, is able to distinctfully evaluate credit risk, distinct from using a FICO Score or a VantageScore. So just put a pin in that, right? That there are other ways to evaluate people who really are credit-worthy, who haven't been able to get the credit under traditional means. But this bigger, real problem that is in front of us is, it's not just the credit system that has to be astute in tackling access issues, we also have much bigger, more foundational needs that would help to lead down the path, if we could fix these issues, for equality. And that means thinking about our higher education, and what does it take to get a good education? And can we deliver a good education with how...strapping people down with debt that may encumber their ability to then be able to acquire other things like a home, as a for instance. Income. Huge issue, right?

Eve: [00:19:21] Right.

Melissa: [00:19:21] Are people getting their basic needs met, are they able to do so with the income they make? And that list would go on. I mean, there is that tax system to think about. We spend a lot of time thinking about how we could be potentially driving savings in a way that is very efficient, very streamlined at virtually no cost. And when I was sitting at Treasury we built a product called the myRA, which was the starter retirement account. This was a Roth-structured IRA product that we set up for the millions of households who aren't able to save in a traditional employer-sponsored retirement plan. So I think that there are other really important levers like retirement, like higher education financing, like really focusing on income that are so critical to giving everybody the opportunity to have some financial security and financial stability, which, let's face it, all our families need.

Eve: [00:20:27] Small business lending and I consider, you know, small real estate development to be small, small business as well, is very difficult and really geared towards a very distinctive population. White men. You know, all these businesses that are built on credit cards, which is very expensive, you know, by women and minorities or immigrants. I know we've tried to shift that, but that is a really big hairy goal. Like, I'll give you an example. My parents were immigrants to Australia, and when they arrived, they were refugees from the war. They had absolutely nothing. You know, I grew up with these people who worked really hard to build a life and to make sure their kids had a good education. In a sense, immigrants like that are self-selected because they are driven enough to pick themselves up and go to another country and make something happen to better their lives. So I'm puzzled why we treat them so badly, you know, and that's around lending for small businesses. Is that a credit issue? Is that, you know, is... I don't know.

Melissa: [00:21:41] Yeah. I think that there are some presumed limitations on being able to serve immigrants and undocumented individuals that aren't there but, you know, maybe sort of inhibitors that people decide to put in place themselves.

Eve: [00:22:03] Well definitely with undocumented, but there are plenty of immigrants who are documented, right?

Melissa: [00:22:10] Yep.

Eve: [00:22:11] Anyway, now we're going down a very different path here. It's the culture around lending and credit and everything that..

Melissa: [00:22:19] It sounds like you've actually, sort of, studied this particular area in terms of some of the decisioning and the culture around lending for small businesses.

Eve: [00:22:27] Well around buildings. But that's a slightly different culture, you know, that is around...I don't know enough about banking to really be able to understand this completely, but over the last 15 or 20 years, first of all, the number of banks has been greatly reduced in this country - I think it was 15,000 and now it's under 5,000.

Melissa: [00:22:49] No, we'r a little under seven.

Eve: [00:22:51] In a sense, community banking has been a little squashed, right? And along with that, what I noticed in real estate, and I'm sure it's true in business, is that if you're doing a project that is slightly different in an underserved neighborhood, let's say it's the first 10 affordable housing units, or retail on a street that hasn't had any new investment in 10 years. banks just really shy away from that. They want to appraise it. They want to see that it's happened before, you know, at least three times. And they want to be really comfortable with a product that they completely understand. And in my mind, that squashes innovation and an improvement in our country, because if you keep supporting the same, how do you grow better?

Melissa: [00:23:43] Yeah, we haven't studied the real estate market, but we did do a deep dive study looking at small business lending by marketplace lenders. And we did do some level of, sort of, where are the banks relative to the marketplace lenders? I think one of the interesting takeaways that has some resonance in light of the concerns you're raising are, as we are moving to, and I think this environment with Covid emphasizes this even further, as we're moving to a much more online and data driven decisioning process and even a more autonomous evaluation process, including for small business lending, I think generally it's perceived that's going to help in terms of any type of bias or explicit sort of discriminatory perspectives or behaviors that lenders would apply, right? Because it's all about what's the data tell you? On the other hand, it also puts a lot of pressure on, do the data tell you enough? And I think one of the things that I hear you're asking is, is there enough openness and risk-taking by lenders and banks in the financial sector generally, to allow for and appreciate the diversity that may be coming through, depending upon what the particular small business may be selling, who that small business is, what the geography is that the lender is sort of evaluating. I think it's a, I think you're absolutely putting your finger on an interesting question is, you know, that sort of risk taking, are we clamping it down further? We may be mitigating some of the explicit discriminatory bias that we have seen historically, because now it's really, you know, how long is that business been a business or what is that, sort of, expected small business planning to do? Now we have the ability for lenders to think about a small business idea of, look across the country to compare what's that business endeavor look like in another marketplace? And what are the factors then that you would want to consider when making a decision to make a loan? On the other hand, is it further driving away the willingness to take risks? And clearly lending and small business is a lot about risk taking, right? I mean,

Eve: [00:26:26] Absolutely.

Melissa: [00:26:26] A lot of small businesses, you don't make it. And no doubt we have, you know, too many small businesses right now struggling.

Eve: [00:26:34] Oh, it's awful.

Melissa: [00:26:35] But yeah.

Eve: [00:26:36] And this is the rise of equity crowdfunding, which is really barely an industry at this time. It's very nascent but, you know, the fact that people will take a risk in other people rather than a financial institution between them is, is a really direct and interesting idea because, you know, people in my neighborhood would band together and buy a house to stop it falling into the hands of a slum-lord.

Melissa: [00:27:03] In Australia?

Eve: [00:27:04] No, no in Pittsburgh, in Pittsburgh.

Melissa: [00:27:06] In Pittsburgh? That's great.

Eve: [00:27:09] That's a very direct relationship with a place you're in. Maybe it's a direct relationship with a developer. Maybe it's a direct relationship with a business, you know?

Melissa: [00:27:19] Well, and what's interesting about what you just said there is it's all human relationships too, right? It's your relationship with your neighbor, your sort of shared interest and commitment to taking a risk together all the way to having a relationship with somebody who's a developer in the neighborhood who's going to join you in, yeah, taking some level of risk. Yeah, it's a good question, Eve, I think, you know, how do we make sure that we don't both lose the sort of human aspect of this, the willingness to take risks because there is such importance and diversity of who the small business owners are, what they provide. Who gets to take advantage of whatever they happen to be building or selling?

Eve: [00:28:05] So what's your big hope for, big hairy goal for FinReglab? How do you think, or how might you like to change the world?

Melissa: [00:28:14] Goodness. We know to be, we are a small and mighty team,

Eve: [00:28:23] Small and mighty, I like that.

Melissa: [00:28:25] But we are taking on, I think, some of the big and important questions when it comes to technology and data being used to make decisions in consumers financial lives. Our ambition is to sort of be looking around the bend and really, sort of, keep an eye on what are the technology or data applications that will have real scale impact for bringing more people into the financial system? And also being really careful in recognizing there are real risks, too, potentially. We want to grow up and we want to be effective at informing across the entire financial marketplace. I think we have been quite good so far. We're still pretty little, pretty young. But I think we've been good at, sort of, being able to spot what are trends where there is real opportunity, but also the need to assess the risk. Cashflow data was one particular type of data. And I think we did a good job of that evaluation. We're now actually turning to look at some of the technologies and in particular some of the algorithms, the more sophisticated machine learning algorithms that are being considered for credit underwriting, right? This gets to this whole question of, to what extent is the decision engine for who gets credit and who doesn't q black box??And so we're really honing in on this question of, well, is that black box explainable?

Melissa: [00:30:01] And so we've embarked on a research project. We're partnering with a team from Stanford to evaluate some of the explainer technologies that may help to determine how was a credit decision made, if it was a machine learning algorithm that was applied? Is the information able to be explained to a consumer, right? How is the information, is it able to be explained to a regulator? And then, really importantly, how is what's coming out of that machine learning algorithm understandable for making sure that we are not perpetuating bias? And differences between protected classes and non-protected classes. And so, again, there is, the academic literature suggests there's real promise in using what I call fancy math. We also really need to make sure that we are able to assess it and understand what comes out of those black boxes so that our policy objectives, our societal objectives are able to be met. So one day at a time for us, but..

Eve: [00:31:18] It sounds like you're shooting for the stars and I can't wait to see what comes out of your...

Melissa: [00:31:24] Oh, thank you.

Eve: [00:31:25] ...Small and Mighty Team next. And thank you, thank you very much for talking with me.

Melissa: [00:31:31] Absolutely. Thank you so much for reaching out to me. I'm glad we've done this.

Eve: [00:31:54] That was Melissa Koide. FinReglab is tackling a fundamental issue, the need to create a more inclusive and safe financial marketplace for everyone. Melissa believes that technology can solve some of the problems of the inequitable marketplace we operate in now. And she wants FinRegLab to be looking around the bend to identify technology that can advance financial inclusion. While her team is still small, they are tackling a mighty big problem. Small and mighty is how she describes them.

Eve: [00:32:36] You can find out more about impact real estate investing and access the show notes for today's episode at my website, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:32:53] Thank you so much for spending your time with me today. And thank you, Melissa, for sharing your thoughts. We'll talk again soon but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:16] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:22] My guest today is Harriet Tregoning, the director of NUMO, the New Urban Mobility Alliance. As a self-described "planning geek" and "transport nerd", Harriet is a veteran, smart-growth advocate. She has been wrestling with issues of planning, mobility, disaster resilience, housing and community development issues for over two decades. In her work, she has focused on resilience in the face of disaster and challenge, including the changing climate and equity in transportation and access.

Eve: [00:01:06] Be sure to go to evepicker.com to find out more about Harriet on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:27] Hello, Harriet, I'm really honored to have you on my show today.

Harriet Tregoning: [00:01:31] It's my pleasure. I've been really looking forward to it.

Eve: [00:01:34] Great. You know, you've said for many people, change is a really difficult topic. And you actually said I can't say I love it myself in my own neighborhood. And it sounds to me like change has been a theme in your career from planning director in DC to director of HUD's Office of Economic Resilience and now heading up the new Urban Mobility Alliance. So you wrestle constantly with what could be better and what should come next. And right now, the huge change we're all confronting is driven by this pandemic. I'm wondering what the thread is that you see emerging around Covid19, this pandemic, and transportation issues.

Harriet: [00:02:17] Well, I think the link has been really, really an important one and I think the pandemic has revealed both the vulnerability of our transportation system and pointed out who is not being well served, how transit is vulnerable and yet essential, but also highlighted that while there are some risks to being close together, that is also essential in many ways, to have things and people that you need near you. So I think in many ways you could see the pandemic and its impact very much through the lens of transportation and, you know, even our development pattern and how that affects what people can get to easily or not.

Eve: [00:03:13] Yeah. In Pittsburgh, we have a pretty active bus system, which is all about, you know, cramming people onto this moving box, right? And that's the exact opposite that you want right now. What other way can these can people get around right now?

Harriet: [00:03:32] Well, I think what it highlights maybe, Eve, is not so much even that that type of transportation is that, is an optimal right now. I think it suggests that we need redundancy in our transportation system. That we, there are many occasions, you know, global pandemic or not, where one mode of transportation isn't suitable for you, but yet you're trapped if that's the only mode you have, whether that's auto mobility, whether that's transit, whether that's, you know, maybe you have mobility issues in general and it's hard for you to do other things like walk or bike.

Harriet: [00:04:14] But, you know, one of the great things I got to do when I was at HUD was really work on resilience from disasters. And at the same time, in D.C., I had a firsthand experience with being a local official during the last great, you know, during the Great Recession and an economic crisis. In both of those roles I got to see first-hand how important those transportation choices and options really are. Think of evacuating Houston in the advance of a predicted hurricane. Now, despite having more lane miles and freeway than virtually any other U.S. city, things were utterly grid-locked and people couldn't get out. We had an earthquake in D.C. in 2011. The federal government and all the governments in the area told people to go home while they check the stability of buildings at exactly the same instant and the gridlock was unbelievable. But if you were on a bicycle, you had not just a normal commute home, but you had a space commute because no other vehicle was moving. And so you didn't have to worry about speeding cars or things like that. So, that redundancy is really, really an important thing. And what we're seeing is that we don't have that in the US in most cases, that people have at best, they have one choice and when that choice is no longer suitable for whatever reason, they're really stuck.

Eve: [00:05:47] How do you change that? How do you design that redundancy into a transportation system in s city?

Harriet: [00:05:54] Well, one of the great things, you know, that's true about the moment we're in right now is both the technology and some degree of electrification have provided us with a lot of additional choices that can either substitute for or better complement the transportation that we already have. We're a long way away from a perfect intermodal system, but e-bikes, e-scooters, e-mopeds are recent additions to many cities across the globe and those additions can cover a range of trips from, you know, a few hundred yards to, you know, to on an e-bike you could easily go seven or ten miles without breaking a sweat. Those options are really, really new things in cities and a lot of ways and so, having those to help you get more easily to a transit stop or help you get from a transit stop to the place that you need to go, bikes can be great because they can carry cargo and probably electric cargo bikes are one of the fastest growing types of of individual transportation that's out there. Some places, Germany for example, have seen unbelievable increases in e-bikes. I have to say, I'm a proud bike owner myself as of last summer. It's really game-changing and super fun as a way to get around. So I think that making provisions for walk, bike and and micro-mobility on our streets where people don't have to be in fear of their lives from fast moving vehicles is really critical.

Eve: [00:07:38] Probably in my mind that's the real issue, you know, these solutions like e-bikes and e-scooters and e-mopeds are all fabulous, but it's the traffic on the street and a cultural shift that really has to happen, maybe as much as these solutions, right?

Harriet: [00:07:55] You know, you've really hit the nail on the head with that comment. It's absolutely true that there's a lot of latent demand for that sort of transportation, that people are totally fearful about riding in mixed traffic with automobiles, and so I think it's really up to city planners and transportation departments to provide those safe facilities and, you know, it's absolutely been demonstrated that if you build it, people will use them. Those things are really important. I could give you another example from when I was a local official during the recession. You know, we saw hundreds of cars drop off the DMV rolls in D.C. I was afraid people were fleeing the jurisdiction. But it turns out they were dialing down their transportation costs because they could. So, they were getting rid of a car. So they were a two-car household they were becoming a one-car household. I'm sure in their minds, temporarily, right? Just a temporary step to lower their costs. [Right.] And some one-car households became no-car household. Again, maybe they thought of it as a hardship, but there were other options that they could use so it was absolutely doable for them. As a consequence. we had very little bankruptcy, very little foreclosure in the district because people could manage those economic hard times and it was similarly true for the other inner ring jurisdictions, Arlington and Alexandria. But in the same jobs and housing market, which was the Washington metropolitan region, the jurisdictions fared extremely differently and so did households. If you didn't have those transportation choices, you were stuck. And those communities saw so much more bankruptcy and foreclosure, so much more, so much higher declines in property value. There are still some parts of our region who have not fully recovered. Whereas the places that had these choices, the market and the budget debt, but they didn't plummet and the rebound was so rapid that this was really a case where those jurisdictions sprang ahead in terms of their resilience. They didn't just recover, they did better. They improved on their share of the region's job and housing growth post-recession. I know in part because of the lesson of those choices and what they can do for the resiliency of households and of jurisdictions.

Eve: [00:10:19] I was in Beijing a few years ago and was really struck by, you know, first of all, they have a pretty wonderful subway system. But the stops are really far apart and whenever you go to a subway stop, there are literally thousands of bicycles parked outside it. Thousands. So, the culture there is very much you have an old battered bike and you get yourself to, you know, the next bit of transportation which gets you where you want to go faster. And so it's sort of this connected string of things that get you to places, not just one type of transportation. I thought it was pretty fabulous. I'm afraid China's probably going the other way now. The other thing in China that I thought was really amazing was, if you watched bicycles on a street with cars it was almost like a dance. They just sort of respected each other and the bikes would keep going and the cars would move around them. It aas an entirely different arrangement then in our cities here.

Harriet: [00:11:22] I think that that's a good point, too. And I think that you see, when bicycles become a visible and significant part of the transportation picture, they are treated differently. You know, I've been in Shanghai and been in a mob of cyclists. I mean, the largest group of cyclists I've ever been in and it wasn't an organized ride. People were just, you know, riding, you know, going about their business and, you know, and they took up lanes, you know, travel lanes, general purpose lanes, you know, for the bikes. And it didn't, you know, it wasn't causing an outcry. And in places like Amsterdam and Copenhagen, the cyclists easily outnumber the vehicles on any given day and they've given over more and more of the right-of-way to accommodate cycling. You have to wait through several light cycles in some places, you know, on your bike in order to get through an intersection because there's so many cyclists. So, yeah, that makes a difference.

Eve: [00:12:20] Why are we not there in the US? Like, why are we sort of lagging behind all these other countries?

Harriet: [00:12:25] Well, I know that you're all about real estate. I mean, I think the answer is the real estate issue. We, in the U.S., with the advent of the automobile, you know, more than a hundred years ago, we started making decisions that, more so than any other western country, we started substituting auto-mobility for proximity.I mean, think of how much proximity was valued and how, when we didn't have an automobile for transportation, you know, things were close together. You know, neighborhoods had almost everything you needed, you know, in walking distance. Even the streetcar suburbs, which is one of the earliest examples of transport and real estate kind of going together, a lot of those early streetcar suburbs were actually owned by property owners and developers who wanted to open up land for development, even though distances weren't very far. But with the automobile, you know, our U.S. cities in particular really bent over backward to accommodate the automobile and accommodate those who wanted to use auto-mobility in order to access what was largely cheap, undeveloped land, you know, to put factories, to put office parks, to put housing and to use cars instead of walking or biking or streetcars to be able to get people there.

Harriet: [00:13:57] And what's happened increasingly is that auto-mobility is out of the range, the price-range for many households and that means that they don't get access to really important things that are part of economic mobility. They can't get or keep a good job because their transportation is unreliable. They can't access health opportunities, educational opportunities, you know, without a lot of time and effort. So it's really created a bifurcated society. And I think one of the things about this crisis that we're in globally, is that some of the workers that we most value, that we most rely on, who are part of the food chain, the supply chain for our food, who re-stock grocery stores, who clean, ICU's, these low wage workers are really struggling to get to their jobs and to keep doing the important and at this point, even dangerous things that they're doing to serve the rest of us. And, you know, that is part of the example of why and how our transportation system is not serving us.

Eve: [00:15:04] And I think also in terms of real estate, 30 years ago people did not live in cities. So cities have really seen a pretty, pretty significant comeback. And in places like San Francisco, especially, it is out of reach of those workers to be living in the city. So they're being pushed further and further and further out, which means that transportation becomes an ever bigger problem, right?

Harriet: [00:15:32] This whole conversation is really about transportation and land use, like, these two things have to happen together. That's an example of where the land uses and the provision of housing isn't keeping up with the provision of jobs. And in California, part of that conversation is really about their tax structure. But yeah, I think in every place we have that mismatch, that spatial mismatch that we need to solve and I'd rather solve it with land use and real estate than providing lots of additional transportation infrastructure that's costly to maintain, costly to access and keeps people further apart.

Eve: [00:16:13] Yeah, I mean I read an article recently in Strong Towns, I think it was a an old one, but about the parking requirements for a retail space, which sort of drives that space to become a little bit of a strip mall. And obviously the more parking a small retail space has to provide, the more they seek cheaper solutions, which, again probably further out of the city. All of those decisions, all the parking requirements, all the decisions that are sort of burdened on land use just make the problem exponentially worse. If you waive those parking requirements for a small business so that they could locate in the heart of a small main street, then they'd be within walking distance of a lot of people and...

Harriet: [00:17:03] I think that's right, and I think that parking, the parking requirements, which, you know, one of my heroes is Don Shoup, you know, who's written a wonderful book called The High Cost of Free Parking, you know, and his researchers, the students and graduate students at UCLA have basically identified that there are six to nine parking spaces for each and every automobile in the US, which is horrifying to, kind of, contemplate and that, you know, at any given moment that parking isn't being used, right? You know, and when retailers provide parking, what they want is, you know, parking for, you know, Black Friday. You know, they want the peak of the peak parking, which means that any other time, it's mostly not being used.

Harriet: [00:17:56] So I think smart cities, you know, are lowering parking requirements, requiring shared parking, you know, so that the time of day usage can be shared. So an office building and an apartment building, you know, might be able to share parking or a movie theater and, you know, and an office might be able to share parking. And there also de-coupling the parking. So, if I don't want to have to pay as part of my apartment rent for a parking space because I can get by without a car, I don't want to have to have that parking included. And I don't want to have to buy a house or a condo where that is necessarily included either. I'd like to be able to purchase those things separately only if I need them.

Harriet: [00:18:40] So all those things that cities are doing to de-couple parking and to be smarter about it means that they're producing less parking going forward. And almost everyone who's looking at the future of travel is also thinking that we will have less individual car ownership in the future and also less need for parking. Because right now, you know, not only is parking wasteful, but we don't drive cars that much. You know, our average in the US is 5 percent of the time, on average, the cars are being driven along, 95 percent of the time they're not being driven. If you're in some other business, yeah, you'd say, oh, my gosh, that's not an asset utilization that's very good. I should be trying to be more efficient. So, I think that's also the future.

Eve: [00:19:30] And then, of course, as parking requirements are reduced, you're freeing up land. Much needed land for affordable housing and other things like that, that are close in to jobs. So, they're really big issues. So, yeah. So, what's your background and what path led you to all of this?

Harriet: [00:19:51] So, I studied civil engineering in school, but I've been, you know, I've been essentially pretending to be a planner for more than 20 years, really. And I have to say I was probably a reluctant planner. I admired planners very much but, you know, I wasn't necessarily trained in it.

Harriet: [00:20:10] And my first job, my first official planning job was actually to be the secretary of planning for the state of Maryland. I worked with an organization you might know, the Urban Land Institute.

Eve: [00:20:22] Oh, yes.

Harriet: [00:20:23] When I was at the Environmental Protection Agency to help create a national smart-growth movement, because, from my perspective sitting at EPA, we were kind of swabbing the deck of the Titanic to worry about what was smaller and smaller amounts of pollution coming out of tailpipes and smokestacks and utterly ignoring the changing use of the land. That more and more land was being converted to roads and driveways and parking lots and making watersheds impervious and causing lots of runoff, and even though automobiles were getting more efficient in terms of fuel and economy and pollution, that people were driving more every year. So, and EPA was doing absolutely nothing to address those issues. So, from a pollution perspective, I thought if we could figure out a way to have more compact developments, so in the course of doing that I actually became completely impassioned about the idea of returning to a historical development pattern that was six thousand years old, you know, the walkable neighborhood, and that so many people would benefit. If we had more walkable neighborhoods, it wouldn't be a rarity and an expensive amenity that only a few could afford but if we had it for everyone we'd be healthier, our transportation would be a lot more affordable, it wouldn't be nearly so expensive to serve people from a government perspective, and maintaining infrastructure, we'd save farmland and forests, we would reduce pollution and greenhouse gases. I mean, there were just tons of reasons from so many stakeholders' perspectives why it was better, that it really did grow into a movement.

Harriet: [00:22:02] And so, ever since, I've been doing something having to do with this. I mean, the good news, the bad news is that there are so many reasons why we have the development pattern that we do in the US than in other parts of the world, that any one change, any one job can't fix it all. There are hundreds of jobs, hundreds of things that would need to change and have begun to change to make a difference. So that there are lots of jobs that I could be in and I'd play a role in that change and have held a lot of those different jobs, whether it's doing disaster recovery at the federal level or sitting on the board of our transit agency or being the head of planning for a state or for a city, and now at an advocacy organization that really focuses on all the different stakeholders in transportation.

Eve: [00:22:52] Yeah, no, I agree with you and I'm doing my little bit at Small Change and trying to support projects that make a difference in the same way. You know, I've been fortunate with this podcast to, to interview really amazing people tackling these issues in so many different ways it's absolutely astounding. So, do you think we'd better off than we were when you started thinking about this decades ago?

Harriet: [00:23:16] I think we are. I think that, as you mentioned, the comeback in cities, the increase in walking and biking in a lot of our cities, the increase in transit use, you know, relatively speaking I would say we've hit the peak and declined and obviously transit is on life support at the moment with this particular global pandemic. But transit of the value-add for real estate has also been amazing. You know, I find it wonderful that there's now something like walk scores that people look at when they're deciding where to site an office or where to buy a house or rent an apartment - to look at what's the stuff within walking distance?, how convenient is my neighborhood going to be? So, yeah, I think that we're definitely making progress.

Harriet: [00:24:02] We have a, we have a long way to go to make it normative in the US for these choices to be ubiquitous and everyday. But I think every crisis that we've had, whether it was the Great Recession or what we're in the middle of now, point to some of the benefits of proximity and I think we'll see more of that when we come out of the health part of this crisis and start really looking at the impacts on the economy. And my hope is that we can do more to provide that infrastructure that will make it safe and comfortable for people to use the transportation choices that should be available to them - the walking, the biking, the micro-mobility, the transit - that we'll continue to think about trying to put the things that people need closer to them. And I think telework is going to be a much bigger part of our future employment picture and that also means that on any given day in any ostensibly residential neighborhood, there's gonna be an office building's worth of workers, you know, in that neighborhood needing coffee, needing a place to meet people for lunch, you know, needing a place to get out of the house and do some work and hopefully that will encourage more mixed use in even those currently residential only neighborhoods.

Eve: [00:25:24] Yeah, so a real loosening up of zoning as well that can really help make better cities for everyone, right?

Harriet: [00:25:31] Yeah, absolutely.

Eve: [00:25:32] So I have a question for you and that's what's next for NUMO?

Harriet: [00:25:37] Well, NUMO is definitely looking at both responding during this crisis, but also looking at what's coming. You know, a lot of the micro-mobility that have entered market in the last couple of years, you know, have brought some new choices to residents, but they have come in as pure market players when in fact micro-mobility might be a great thing for employers who can't fill certain types of jobs to be offering to those workers. It might be that cities are interested in using micro mobility to help people better access transit or to be a substitute when transit isn't running for whatever reason and really think of more integration of these new choices with the existing public transportation system. So I think those opportunities are there. Those have not been the business model that a lot of these new entrants have been using. But we're working with some folks right now to talk about how employers, hospital employers, grocery employers are really interested in helping their workers get to their place of work and that having dedicated fleets of micro-mobility vehicles, whether those are e-bikes or e-scooters or e-mopeds. Those might be really great choices for them and I think they'll find that that's true, not just in the crisis, but after. And I think that's also true for transit agencies. You know, if we could integrate the payments across different types of transportation, you pay once and you can take, you know, you can have a number of choices for how you get from the place where you are to the place you want to be, even if those trips involve an e-bike and then a train and then a scooter at the other end. If those were all part of a seamless transportation experience, a lot more people would be doing it and you could bundle trips in a way that really create value and incentives for the rider for the person needing the transportation.

Eve: [00:27:45] So this is sort of a perfect storm for transportation and technology and maybe this horrible pandemic will kind of move a little forward more quickly and we'll see something good come out of it.

Harriet: [00:27:56] Yeah, and I think the data that all of these new options are generating is a whole nother thing that we haven't been getting from, you know, we don't know nearly as much about any individual car movements as we know about transit and about these technology-enabled micro-mobility devices. So that tells us a lot about who's traveling where and when and where there are big gaps where people don't have access and how that access, you know, that access this crisis has really highlighted how really important that is. Whether it's two grocery stores or to hospitals or to critical places of work. So that's, that's the thing I think we're gonna be focusing on.

Eve: [00:28:41] Well, thank you very much for talking with me today. I can't wait to see what comes next.

Harriet: [00:28:45] Thank you so much. It's really been a pleasure. I'm really happy to have done it.

[00:28:52] OK, thank you. Bye.

[00:28:56] That was Harriet Tregoning, the director of NUMO, the New Urban Mobility Alliance. While she calls herself a reluctant planner, planning has been the full frontal focus of her career as she has tugged and wrestled with issues of how to make our country better, more sustainable and more equitable.

Eve: [00:29:20] Harriet believes good transportation policy is good land use policy. We can't fix up transportation woes without addressing the root of the problem. Development patterns that have allowed auto-mobility to be the substitute for proximity. I'm right there with her.

Eve: [00:29:44] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:30:01] Thank you so much for spending your time with me today. And thank you, Harriet, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve: [00:00:08] Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:14] My guest today is Jim Kumon who heads the Incremental Development Alliance, which is based in Minneapolis. The Alliance began in 2015 as a collaboration between two small-scale developers who found that people kept asking them the same question: how do I build a small building in the place I love? They joined with Jim to create an organization with the goal of resurrecting the small developer. And they built a suite of classroom-based coaching tools and scaled them across the region and the country. In the first year they did big camps in Portland, Dallas, Providence, Fayetteville, Washington, D.C. and Detroit.

Eve: [00:01:12] Be sure to go to evepicker.com to find out more about Jim Kumon on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:42] Hello, Jim. I'm really happy to have you on my show today.

Jim: [00:01:45] It's great to be here and actually to see a little bit of Spring coming around the corner here in Minnesota, so it's actually where I'm at, so it's good to actually get out to the world and see some things. So, glad we can connect here and talk about stuff since I haven't been able to leave the house much currently.

Eve: [00:02:04] Right, we're all kind of stuck. But, you know, I've been really fascinated by your organization, the Incremental Development Alliance for a few years now and your work is pretty squarely focused on small-scale projects and small-scale developers, which I really love. So I wanted you to start by telling me a little about why the Incremental Development Alliance exists.

Jim: [00:02:29] Yeah, well, we're coming up in about five years now of our work as a nonprofit organization. We work nationally to support implementers of small-scale real estate development projects and the ability for local places to have those kind of real estate projects happening in their communities. And so we exist in large part to be able to essentially re-enable and re-share the information that we used to have as a society. All real estate development was largely small-scale development for, you know, really centuries up until really post-World War 2, for the most part, and we did some things in the skyscraper era, you know, the early nineteen hundreds, but for the most part, small-scale, small-lot development was the traditional development pattern. And so, one of the major reasons we exist is essentially trying to re-learn and re-share information that we used to know across a broad spectrum of our society. And it's now been complicated by the fact that we have had 50 or 70 years of real estate development that has largely become specialized and become highly, highly tuned to scale and largely to scale finance. The kinds of developments that we see in this country are in large part due to the financial mechanisms we have. We see the things we have because they're easy to finance. And so the traditional pattern that we've had up until that point in time in the mid century nineteen hundreds is, is actually the unusual thing now. We can build big box stores and subdivisions and office parks and industrial parks, but the idea of putting a duplex on a 50 foot wide lot is actually pretty foreign in most places. And so we're trying to help put the knowledge back together within the 2020 framework and not the 1920 framework of what you have to do to follow rules and to get things financed, to make real estate transactions happen. And so we do so.

Eve: [00:04:38] Why is it important?

Jim: [00:04:40] It's important largely because it's a lost art. People think it's, especially when we first started out, in large part people think it's almost impossible. Like, well, how can we not do this? How can we not be able to do this for so long now? Large part is a) people really hadn't tried or if they looked into it, they gave up because there were so many barriers. And secondarily, there are places that really want to see this kind of development happen, but they're missing the know-how within their human resource, their human capacity of a community that's both public, private and nonprofit sectors. And so really, our organization started as a network of doers who were comparing notes and a couple of my co-founders in particular who were essentially mentoring people on the side. And it got to the point where you couldn't have that many one-on-one phone calls and still do your job, to make major money. And so, you know, we essentially bound together to help essentially take that wisdom that's sort of hard earned from the field, in-practice wisdom, and put it into a format that can be shared more widely and both in sort of beginners terms, as well as more advanced work that we have to do, either in markets that are disinvested or in markets that are too hot, they're over-invested. And so we see the conditions across the US in one or the other. And how you get real estate products done differs greatly, obviously, depending on if you're in a hotter market or a colder market.

Eve: [00:06:16] How do you help like small-scale developers or places that want to introduce interstitial small projects into their urban fabric?

Jim: [00:06:26] When we started the training work out, we realized that the two biggest issues were: one, the process. Being a small developer was sort of unknown. You had lots of people who are involved in the development industry, people who are contractors or real estate agents or architects. People, sort of, a known kind of related industries to real estate. And so those folks who were in an industry, you know, largely had a sense of the process, but really just knew they're one stop along the way. And so, many people may have some of the skill sets to put a real estate transaction together, but didn't have a complete working set, right. And no-one knows everything about each aspect of a development project, there's too much to know. But you have to know a little bit about each part of the process and know how to find other people who can help you with the things you're weak at. And so, the ability for us to help, essentially teach people, what is the process and how does it work and particularly how does it work for small scale projects? And we define those projects, you know, 1 to 20 units of housing - they could be mixed use residential or commercial and usually under 15,000 square feet, that's sort of the max-sized project and really...

Eve: [00:07:40] I fit squarely into that group.

Jim: [00:07:42] Yeah, and we're usually more talking about buildings between, you know, 500 and 5000 square feet, you know in reality. And so, those buildings are the ones that are overlooked and kind of caught in the the seams, in the cracks and crevices of our regulatory system and our financial system, because the rules change. So one of the things that we teach people is how to line up the financial regulatory system and banking system, how to line up the land use system that actually controls what you can put where and the building codes. And so, the thing is, is for larger projects, most projects fall under the same set of rules. Like there's certain zones of a city, there's the international building code, which is basically everything over three units of housing and largely commercial buildings. And the, you know, the financial mechanism of the commercial mortgage, right. The rules are largely the same for big buildings. And what makes it hard for small projects is they straddle an intersection of all three of those elements where the rules shift, right? One in two family zones are different from three and up in zoning land. There's a completely different building code that regulates one to two family buildings from from how you build a building in its construction. And then we have a financial mechanism for residential buildings that allows for one to four unit buildings. And you have to make sure that you know how those pieces intersect, because otherwise you find out, usually at the most inopportune time, that you've got a discongruent operating requirements, right. Hey, I didn't know that when I went from a duplex to a triplex I need a sprinkler system now. And that's not the kind of thing you want to find out on accident because sprinkler systems are not cheap. And so that's kind of how we got people.

Eve: [00:09:40] I've had this sort of experience myself when I built a small, it was supposed to be a four residential unit building in downtown Pittsburgh, and I got all the approvals, everything, permits, everything, started building. And one day on-site, the building inspector said, hold on a second, you can't do four units without an elevator. Because one has to be handicapped accessible. So we had to really on the fly completely redesign a couple of the units because it's a tiny little site and we could not put an elevator in. So, it seems to me that not even the city kind of really understands how difficult they are for small buildings.

Jim: [00:10:23] Well, and the question, in large part, probably was who is the last person before you tried to build a new construction four unit building? Probably a long time. Yeah. And a lot of folks who are alumni are exactly that person that you were. Right. They're the first person broaching these subjects within their building departments and zoning departments and with their local officials and their neighbors.

Eve: [00:10:47] This could be my entire career in development that you describing.

Jim: [00:10:54] Right, you did it all the hard way, didn't you Eve, yeah?

Eve: [00:10:55] Damn, it was fun.

Jim: [00:10:57] Yeah, well, and that's a part of this shared wisdom that we're trying to...We don't have enough time with, especially in the housing sector, we've got a lot of housing to build in this country and we don't really have time for everyone to make the mistakes and to to go through the vagaries that that you went through yourself and others who are faculty members went through, right, to find all this stuff out the hard way.

Eve: [00:11:21] Small-scale development could be perfectly efficient and make developers money except for all of this. Like when you have a banker telling you, oh no one's going to live downtown and they just won't give you a loan because you happen to be the first to the loft development in a downtown, that's a problem even beyond the written regulations that we're talking about. That's now a cultural issue that you've got to also break through, right?

Jim: [00:11:47] It's much harder, actually, the part between the between the ears is a way more difficult issue, especially given that even though if we were talking about the US, while we're one country we're many subcultures. And so, the way that different parts of this country and different real estate markets in different parts of the country behave, and the way that people believe that their communities should be, is vastly different. Tinkering with your zoning code is pretty straightforward, it's mostly numbers and a couple of pictures, if you're lucky, I can sit down with someone's zoning code and help them remove things that are barriers fairly quickly. But, you know, banks, neighbors, even people in the construction industry. I was, we were, there were some small houses that one of our faculty was looking at some small houses with one of our alumni in, in Tennessee. And the local building culture in that city basically was like: two by six construction, well, we don't do that. That's gonna cost more, I mean, if we gottta take this one stud off the truck and it's a different size than what used to, that's just gonna cost way more than putting in a two by four, I mean, obviously, you know. And you're just like, what?

Eve: [00:13:04] I had a really bizarre issue in Pittsburgh, when I was building a tiny house here and, when a lot of people left and houses were abandoned, people just sort of collapsed them into the basements, so you end up with land that's pretty unbuildable. And I was talking to Jonathan Tate in New Orleans and he said, well, we just have these little trucks with pile drivers that drive around and drive piles past all of this stuff, right, which is brilliant. But not in Pittsburgh. I couldn't find a small pile driver. It would have been a very large rig that would have been deployed for a tiny little project. So, from region to region you have like these weird issues popping up.

Jim: [00:13:48] Basements, no basements, right. You don't put a basement in Louisiana, right, cause you'd be...

Eve: [00:13:53] You had to do something with the ground, so it was like...

Jim: [00:13:58] Years ago I worked in, in a city in, outside of New Orleans, it's further out, further afield in the state and so a little bit swampier land of the states. And so, there was a local joke about some infrastructure projects was, you know, "my daddy used it to fish for crawfish in your basement" which, of course, there was no basement. Which is to say you built your house in the low ground. You shouldn't wonder why it's flooded over and over and over again.And so these, these kind of, you know, climate and regional issues is what is another thing that kind of makes our approach different than most real estate training and technical assistance is that our our commitment to urbanism, our commitment to neighborhoods, and that's really where we operate, the neighborhood scale, all of our cities and towns in this country are really just increments of neighborhoods.

Jim: [00:14:54] And so what's important from our perspective is there's both small scale as well as incrementalism. Those two things go hand-in-hand, but they're really separate. And one of the things that ties them together is the idea of time and scale. And so, you can be thinking through how something, a process, works in a place for how you build a building. But you have to think through the ways that those technical elements fit together and what's, how it's really going to work when you, when you set out. So for us, thinking through a housing project for a small building, you have to really take it into its parts and you can't strip out the financial piece from the physical piece. And so, most of the real estate training that I took and other people took that are involved with our organization, they were so strictly focused on the financial pro forma. If you can make the numbers work, somebody else would figure out how to make a vertical three-dimensional building out of that spreadsheet later, right. If we could just get these rents and the costs isn't over this, it'll be fine. And it's like, no, actually, you know, what goes in that building matters. If you build the building, that, as you found out, unfortunately requires an elevator, that's not, that's not an inconsequential thought process. So our belief that the built environment and its regulatory framework has to be front and center and iterative in the process, along with the financials, along with the the most usually forgotten part, which is the humans, right? Who is the occupant of this building and how is this building achieving needs of humans? And, as I was an architecture student as an undergrad, I always kind of thought that, and in my time when I was in school, I was looking at inspirations like the rural studio. People who were actually going out there and trying to build things and think about the humans, you know, part and parcel and the economic conditions that they were a part of, in that part of the country. And so, to be able to actually look at these things and say, know what? we can't separate this idea of the financial part of this building from the people and the actual built edifice, we have to think of them together.

Jim: [00:17:23] And small scale buildings are so critical because it's not, it's a jewel-box, right. I mean, our buildings, our built environment, is largely an aggregation of many, many, many small buildings. The big building is actually the outlier, the exception in the built environment we have. And so, one of the challenges we have in this country today is that we forgot how to build neighborhoods. We know how to build complexes. We know how to build parks right, of.. the office parks and industrial parks. But the idea that fine-grained elements that differ in use and size can fit together, that's a skill we lost post-World War Two, in planning, design and construction. And so, being able to teach people how to use that part of their brain, how to use that part of the thought process, is the critical missing piece in implementation, right. We have the ideas, we have desire. We were missing the actual how to. And that's why we created the Alliance was to sort of fill in that void.

Eve: [00:18:23] Really, what I'm hearing is, and I know this to be true, that small-scale is incredibly challenging, is, you're sort of up against, you know, the same issues as a large scale development, but maybe even more because of cultural beliefs, because of the way the banks like to lend, because of zoning codes that aren't really geared towards small. So it can be a lot more challenging than something large and efficient.

Jim: [00:18:51] Yeah. And we like to say and this is one of the, one of the old analogies by one of my co-founders, John Anderson, who said that small developers operate on the economy of means, as opposed to large developments, which really are, as you say, the economy of scale and efficiency. And the economy of means is largely about relationships and time. There's a finite amount of people and resources that a small-scale developer has. And so, what is important to understand is that small-scale development isn't inherently hard, it's only hard within the context that our American society has built its habits and practices about how we finance, value and built. And so what is important and what were some of the ideas that we hang our had on about, you know, what can you do with a 30 year mortgage? That was a question that came out of the last recession, as I'm making the broad assumption here that we are already in a new recession. With the last recession, is, was a question of what if commercial finance, as we know it doesn't come back? And so, John was one of the people who was staring, looking at this and saying, gosh, what could I do with a federally backed mortgage product? What does that allow for?

Jim: [00:20:15] And so being able to look at something very basic and very simple really shows what the power of that is. Because if you think about the millions upon millions of 30 year mortgages we have in this country today, it's a ubiquitous tool, except that there were features of that tool that were underutilized. And so really we were exploring and trying to cross-pollinate what could you do with 1 to 4 units if that was your framework? And so, one of the things that we've developed over the last three to four years and my colleague, Grayson Johnson, and co-founder, this is one of her big pieces and contributions to our work, is helping us catalog. And my background comes out of the built environment in architecture and I did housing in California in the boom years and saw all kinds of crazy things that were going on when you could build a courtyard apartment building, which has got 42 units, which is like 42 custom homes like stacked on top of each other and beside each other, all selling for, you know, six hundred thousand dollars. This is sort of the the rarified air of Southern California real estate in 2007, right? And you get down to this, you know, like, wow, this is an amazing building type that no one's done in 40 years, 50 years. And you realize, gosh, these are all these different ways we could do this. And so that idea of a building type from something very complex, like a courtyard apartment building, multifamily house to something as simple as a duplex or a triple decker as we have in the Northeast or all the various kinds of cottages you find in the south where you're trying to spread out and keep air between buildings, right, and battle humidity. All these different building types that are from a climate perspective and a local culture perspective akin to a place.

Jim: [00:22:11] And really because we're a national organization, we gathered up all these different types that largely had a start in a local place and have, you know, regional sort of preferences or regional sort of ability to, you find them often, right. And we said, look, well, how can we use these building types in many places? And so we created this idea called Step Buildings, which would be a way to help people organize through these important thresholds of finance, building code and zoning code and Step Buildings is an important idea, largely because we're having to reintroduce things that are in plain sight in many places in this country, but we don't recognize what they are. And the term STEP is also an acronym. It stands for Small-scale, Time-enhanced, Entrepreneurial and Purposeful. And really, the ability for us to understand what these buildings are, and having spent time in Pittsburgh, I love, especially in the working class neighborhoods, the just sheer variety of sizes of building, right, and attachments and additions and that incrementalism of, before we had the 30 year mortgage, we only built as much housing as we could afford, which was not very much. And if we have kids or a family or parents, you know, we made these little additions and, you know, cultivated up a structure. And so as humans, we had all kinds of ways to house ourselves. They just didn't fit into the model we started doing after World War 2, which was a single family house stamped out in great scale and volume in, sort of, cookie cutter tranches of financial thresholds, right? Like, well, this subdivision is going to be for houses that will cost between two hundred and ten and two hundred twenty five thousand dollars and we'll build a hundred of them. And then get another plot of land next door and build one hundred that are between three hundred and three hundred ten thousand dollars, right. Somehow we went from this fine-grained ability to house people at different points of their life cycle to, you have to pick up and move yourself to a new hunk of land every 10 years in order for, you know, your housing type, that need that you have, to happen. And so, we're trying to catalog all the different ways that you can mix and match buildings together and be able to explain them to people who may not realize that they live in a place that has all these things.

Eve: [00:24:44] Can you share an example of a project or a place or a developer that you helped through the alliance that you are proud of, or you think is particularly interesting?

Jim: [00:24:55] Well, there's a couple different conditions by which we end up coming to a place, Now, first of all, we don't just show up in a town and do a training class. We only go places that invite us and our sponsoring spills through their hustle and through their financial support. So we go to places that want us and want this type of work. If you don't want this type of work, it doesn't get anywhere. And we've been to a couple of places who said they really wanted this and then when we got there, they weren't really all that serious, right. They were checking a box, they were, you know, throwing something, throwing a bone to a neighborhood that's been overlooked. And they weren't really serious. There were some people on the ground there who really cared about their place. But the people who brought us, or maybe who paid the bill, not so serious. And so people ask me a different version of the question you just asked me, which is, you know, who's, what is success or what happens when someone makes it? And the challenges right now is that there's a lot of people who want to get something going, and for some of things I've already mentioned, can't, right. There are some deal-breaking issues that stop people from getting going. And so, one of the things that's important, and why we do work that's both for the individual as well as for the city, is that they need each other. right. Cities, we talk to people in government all the time like, gosh, I would love to make sure that we can legalize cottage courts and then sometimes they go off and do it. And then, like Jim, so we went changed our zoning code and tinkered with a couple of local practices for our infrastructure and, gosh, you know, cottage courts should just be no problem. And I'm like, does anyone know how to build them? And so. Like, has anybody had the idea of putting five small single-family houses together in one lot? Does anyone understand how that fits? Don't like hah, no, I guess not. Well, that could be why no one's building them.

Jim: [00:26:43] So, we're at an interesting point in time where there is now, you know, especially compared to five years ago, a much larger acceptance of a lot of great ideas that could happen and could happen in your place. And so, we're working through trying to figure out what's the path of least resistance. And so I can describe a couple of those examples of people who are are finding that first step in their place.And we have a couple of longer-term relationships with places, which I think is where our best examples come from, from alumni. We have a bunch of, up on our Web site, we have incrementaldevelopment.org, we have a bunch of little alumni stories about people and projects. So I'll just cherry-pick a few of those. But it is a project, a couple places that we're working that we have some really exciting products going on, one of which is South Bend, Indiana. And we've been working on and off there now for a little over two years, specifically on the northwestern and western parts of the city. We are brought in typically for two reasons to a place. One, because there is uncontrolled or unhealthy growth, right, which is to say the place is a little too hot, that the real estate market is too hot. People are being either displaced or threatened to be displaced. Or we have the opposite. The place maybe got the wrong end of a bulldozer for a few decades. And the question is now what? How do we piece this back together? And so, interestingly enough, the tools by which we bring to the table are the same, but the the math in many cases is the part that's really different.

Jim: [00:28:25] So in South Bend, you've been brought there by, we were originally brought there by the private sector, a gentleman who really used, he's a retired professor and really just cared about the area adjacent to where he lived. And he was kind of right a the cusp between two neighborhoods and, sort of, a typical, especially Mid-western legacy of segregation, you know, the white neighborhood and the black neighborhood, he lived kind of right on the edge of it and was like, why is it that right across the, sort of, main street here that I live next to, there are, you know, half the houses are torn down and gone. And on my side of the street, you know, largely the neighborhood's intact. And so, when you have a neighborhood that is, you know, economically in a down cycle, you know, the first thing you have to do is start the rehab project. And so he came to one of our early training classes and began to understand that, well, rehab is where I have to start.

Jim: [00:29:19] But he originally said, well, I don't really want to own and lease buildings. I just want to fix some things up and sell it off to somebody else and have them be able to gain wealth. But then he realized that the math problem of when you fix up a building, sometimes it doesn't appraise for the amount that you've now put into it, to buy it and to fix it up. And he realized he couldn't sell it and couldn't finance it. You know, he had to kind of hold it for a while and lease it and try to kind of nurse it back into financial health. And this is true of both a couple of residential products and a couple of commercial buildings that he and a few partners bought. And so, the thing that was different about him and is different about the approach that we espouse, was that, while there are a lot of really difficult physical things to overcome - most of the houses in this neighborhood were over 100 years old, many of them were beset with typical issues of neighborhoods of that age where you have a lot of lead paint or other environmental things - and so, you know, these are definite headwinds to doing even rehabilitation of buildings, you know, cheap ones. Not even getting too fancy, but just enough to make it a decent place to to live. And so, I think the story there was that he began to build friends, not only people who were doing work alongside him, but folks who might want to move to that neighborhood, who might want to rent in that neighborhood, people who want to start businesses in cheap commercial spaces that have been largely left vacant.

Jim: [00:30:42] And so, when all else fails with math and with the physical rules, relationships are the thing that bind us together, that helps us overcome when we have issues with rules. And so he's been slowly building a group of people in the neighborhood to begin to help him. He didn't want to be the hero. I don't want to buy up every lot in the neighborhood. And then I have to be responsible for everything that happens. He wanted to have many people share in that work and to support each other. And so, I think His name's Mike Keane. Mike is one of the success stories, not only of getting a couple of projects off the ground, rehabbing a few things and now he's working on, probably will be one of the first few non-subsidized, deeply-subsidized new construction buildings in the neighborhood in probably 50 years. And so, you know, but none of that work would be possible unless he'd started with picking up trash in the neighborhood and building relationships with his neighbors and buying a couple of buildings for cheap and fixing them up and finding a few people who would be in them to bring life to those buildings. That's, that's one of the places that we are starting to see that the compounding effects of many people like Mike, who are now working there, both in the private and nonprofit sectors.

Eve: [00:32:03] So just generally, how do you, how do you think we need to think about our cities and neighborhoods so that we build better places for everyone?

Jim: [00:32:12] Well, first of all, neighborhoods are living organisms. They're not static things. And that's one of the key aha moments that we have to have with government officials and particularly planning and economic development and housing department folks. They're largely in place to disperse funds and make sure people follow the rules. We like to reframe their job descriptions as: you are stewards of resources and you're responsible for creating a productive tax base because, you know, that's really what our public sector has to do for us. Our public sector has to create a ability for services we want to provide as a place and we have to have a tax base for that, we have to have a productive economy and a local productive economy, not one that's relying on state or federal subsidies to make it's ends meet. And so, one of the ways that we need to do that is that we have to make sure that our place is constantly evolving and it's wherever it's at now, there's another place that it can go to to be either economically or socially more welcoming and more accessible. And so, the building types and the Step Building thought process is we actually have little cards we've built that essentially have a picture on the front and on the back explain, hey, this building is in the, this building code type and, is largely found in these kinds of zoning codes or have these kind of attributes. These buildings require sprinklers, these ones don't. These buildings are financeable by a 30 year mortgage or they, or they're not. And it gives people a sense also for what's possible, right. An owner-occupied duplex is like one of the most accessible building types you can put in any neighborhood. And yet, you know, most of those types you're going to find are buildings that are over 100 years old. We don't have a mechanism that is widespread in this country that takes advantage of the fact that you can build a building that has someone living into it through the wall for maybe you as the owner that's helping pay the mortgage and also allows us to have a finer-grain control over what rents are charged in a neighborhood. And, because we're not looking, you know, you, as an owner occupant probably have a day job. And, you know, you're using this as income or maybe as a long term retirement strategy, right. And so, you don't need the top-level rents over time. Now, you probably need decent rents upfront, though, because our financial system, unless you're independently wealthy and can build a duplex out of your own pocket via cash, requires certain amounts of money upfront and requires a certain amount of, of conservative cost estimating.

Eve: [00:34:57] Well, this is something that you and I need to talk about because you've been fixing on a 30 year mortgage. But while you've been building the Incremental Development Alliance, equity crowdfunding has been [indeed] gathering steam. I really believe that we're going to see different types of financing available more readily for projects like this. And I don't know if you've been thinking about that at all.

Jim: [00:35:24] Well, I think there is a fantastic role to get into a little bit of of wonkishness for folks who maybe have not, don't have any background in how a general real estate transaction works but typically, whether you're building a new building or an old one, you have two components, right? You have debts, right, if you are going to buy a building and finance it, you have the loan, you're doing it from the bank and you have what we call equity, which is essentially your skin in the game that you or someone who is investing with you provide to basically have a stake in the game. And that is sort of, you know, that the bank security, that somebody has the financial wherewithal to be supporting this project.

Jim: [00:36:09] And so I think where there is a great opportunity for crowdfunding and small dollar funding in terms of aggregation, isn't that equity piece because, you know, people typically show up and when they come to our class before they go through it and we disabuse them, this idea is that, gosh, I don't have enough money to be a developer.Well, do you have enough plywood to become a developer and build a building? Well, what do you mean? Well, you say you don't have enough money. Well, do you have enough plywood? Do you have enough screws? Do you have enough, you know, do you have all the things necessary upfront? No, you don't go out and buy a truckload of plywood just to have it on hand, right. When you need plywood, you go to a lumber yard and you buy it. That's the same way loans work. The trick is to get a loan, you need to bring money with you. And so that is the case, right? You do need to have some money, but people have money.

Jim: [00:37:07] What we lack in small development, and this is what our one day workshop, which is sort of our flagship training is focusing on, is actually teaching people A, there's a process B, this is how the process works and C, one of the biggest things that we lack to make small scale products happen is someone who knows how to put together the "if I could, would you?" proposition, largely in writing? If I had 20 percent down of whatever cost it would take to build or to buy a building, could I get a loan at this rate at this..so much. And so, what we lack is people who actually know how to put the transaction together. We can find people who have money and it may come through one deep-pocketed investor. But it also may come through 10 or 20 neighbors pitching in, you know, five hundred or fifty or five thousand dollars a piece. Now, what's tricky about that is this little thing called a loan guarantee. This is, this is a tip I can, listen to, leave with your listeners today. If this is the first time you're hearing about real estate transactions and how they work and why we don't see the things that we think you should see, one of the tricks about figuring out good ways for us to be able to use small dollar capital is this problem we have that banks want somebody on the hook if something goes wrong, just want a kind of a loan guarantee. And so somebody who has enough net worth to functionally backstop, you know, all of a sudden all your tenants not paying rent or something else going out bad financially. And so, small-dollar capital, while we might be able to amass the capital necessary, unless you are the person who has the balance sheet necessary to backstop a large loan, we need other mechanisms to be able to make that loan guarantee work.

Eve: [00:38:52] Yes, but small-dollar equity can help a developer like Mike Keen do, want a project or another. He may have the balance sheet. He just may not enough to get it going.

Jim: [00:39:01] Indeed. Yes. Absolutely. Yeah, it is, it is absolutely way more accessible to normal people with normal jobs. My wife and I, we know we have two incomes. We don't either of us make a ton of money, you know, we just, you know, we have a regular, you know, two regular, you know, white collar jobs. But yet, you know, we would be, we would have enough, between some retirement savings that we have, we don't have very much debt, which is important, especially for qualifying for a 30 year mortgage out the backside is having a low amount of debt and we don't really have any but the house we own. And so, you know, that's enough to get a fourplex going, you know? So for most of these buildings you would finance for a 30 year mortgage, you don't need really that much and there are people you can find who have it if you don't. And you can just pay for that purpose as well.

Jim: [00:39:52] We're also finding if you, if you're working in a neighborhood that is maybe disinvested, though, that's one of the great places that we're working to try to get local governments, foundations and institutions, whether they're hospitals, universities or corporations who are civically minded, to be a part of that because if, and we're working on a project in Memphis that is sort of structured this way, we're essentially creating a consortium, kind of an umbrella for, as sort of a master developer who sort of say, hey, you know what, we're gonna create an ecosystem by which many small developers, of which we've trained through the Alliance, can actually have the backstop where they don't need to go get, you know, a huge loan guarantee, right, where, there's going to be capital and we're going to be able to know that when we're going to build five or 10 or 20 buildings at a small area, because there's a bunch of empty lots and they're controlled by property owners, we can use one at a time, help each other build up the value in those buildings so that they do regain their value. The first one's going to be difficult to get the right appraisal for. The second one, less difficult. The third one less. And hopefully by the fourth or fifth or sixth that are all on the same block or nearby to each other, we overcome some of those structural problems that we have in disinvested neighborhoods.

Jim: [00:41:09] And so, I think the biggest thing that we stress when we come to a place and we talk to people in both public, private and then sometimes nonprofit sectors, is that you're all gonna have to come to the table and think a little bit differently, right. We can band together as neighborhoods and as neighbors and put together enough capital to have the downpayment to buy that house on the corner that Miss Mary used to live in but, you know, she passed and the house got boarded up because people were breaking into it and now it's sitting vacant but what a great house that was. But, there's a couple of things we have to overcome and so, being able to have a have a community dialogue about how do we help a bank make a loan in a neighborhood it's supposed to be making a loan in anyways, but banks are regulated. We have to make sure that banks can check their boxes, too. Well, how do we do that? So community resources being able to bring together different aspects. Governments don't want to be responsible for buildings, right. But they can provide balance sheets. They can provide downpayment assistance. They can provide facade grants. So if everybody comes together and understands the process, they can figure out how to work it out.

Eve: [00:42:20] Yeah, they could provide relationships with banks and banks to the table. They could provide a lot of things. This has been really fascinating but I want to ask you one wrap-up question before we finish for today. Or actually two, I have to say, and that's what's next for you and what's next for the Alliance?

Jim: [00:42:37] Well, two things. Myself, personally, my wife and I have a small development company called Heirloom Properties. So, we have been evaluating both opportunities we have on our own lot, we have a single family house on a lot that at one point in time, in the past before we bought it, had a garage on it. And so as rules in Minneapolis have changed over the past couple of years, you know, we were looking into an accessory dwelling unit, a backyard cottage. And then, and now with the new rules we're contemplating, hey, why just stop with a backyard college? Why not a backyard duplex? And so we started thinking about that. But in the meantime, as that happened, we were saving some money up to work on a project like that. There was another vacant lot in our neighborhood that we are pursuing to build a small multiplex. And so, my wife works in affordable housing and so she does project management for big projects. But even, even affordable housing these days is not what it used to be. And so she's spending a lot of her time trying to figure out how to provide housing for folks who are not at the lowest of low income levels, because at this point, most of our federal and state subsidies are going toward the lowest of low income levels. And that's great. And that's desperately needed. But the challenge is, is that's not enough to house the rest of the folks need to house. And so both her projects at her day job, they're a bit larger, maybe 60, 70, 80 unit buildings and then some of the products that we're looking at that are 2 or 6 or 12 units that we're looking at personally in our in our neighborhood are kind of getting at that in-between scale that we luckily now, as a city, have come to a conclusion that we're actually going to allow again, we're actually going to make sure that it's possible to put more than a single family house on, you know, 60 or 70 percent of the land in our city that was previously allowed to only have one unit on it.

Jim: [00:44:31] So we're seeing in the last five years that the Alliance has been around, we're seeing places start to get some of those pieces of the puzzle right. And we're happy to have been a part both politically as well as from a technical perspective of some of those changes here in Minneapolis. But the work is is large. There are a lot of lot of places that need both cultural and technical changes to the way that they look at real estate, especially at the small scale of buildings, and so the Alliance is kind of doing a couple of things moving forward. We are expanding our services to support governments and non-profits and institutions, many of which have neighborhoods directly, either target neighborhoods if they're a city or if they are an institution where they have a neighborhood adjacent to the place that they maybe have their campus or facilities. And so, largely those places are trying to help jumpstart a real estate process and/or if you're, if they're in a hotter market, provide housing. If you're a hospital and you employ a massive cross-section of humanity in terms of income levels and household sizes and you're trying to make sure your workforce is nearby and doesn't have to commute an hour one way, there's probably a lack of housing of some type. And so we're trying to help those places create or recreate a viable housing market in the neighborhood. We're also helping to make sure that there are neighborhood services. So just because you have housing doesn't mean you have all the services you need that make it desirable to live there. And so, we're doing mixed use buildings, especially older ones that you can rehab, which is its own sort of trick in itself. How do you help those pieces come together and in assisting in that way? So, sort of, master developers as well as we continue to expand our services both electronically as well as in person to help cities get their rules right and get their processes to re-legalize, in many cases, the developments they already have, the neighborhoods they already have which have 30 and 40 and 50 foot wide lots and small buildings that don't quite conform to the rules that were created after those buildings were built. And so we're unwinding a lot of things, but we're also starting to create really fun new things. And one of the projects that we're gonna be working on here this Spring, especially as we have a little downtime, as many of our in-person events have been postponed, is working on getting some of these technical tools to all line up, to have the right financing tool box, to have the right building and zoning recommendations and policies, to be able to use the tool Step Buildings to help people envision the kinds of buildings they want, not just the buildings that someone has figured out maybe they can make some money at doing and we'll just keep doing it over and over and over. But to say, hey, you know, we want these kind of buildings in our neighborhood. How do we make those happen, and how do we join together as neighbors to maybe do it ourselves if no-one's going to come for us to do it? And that's largely the case. No one's coming to your neighborhood to do the real estate development you want to see, most likely. If they were, they'd be there already. And so we're trying to help democratize the information so that people can use their relationships and create the local systems to encourage the kind of things and to make them happen, actually just to make them happen. You know, we're here. We can run around the country and as an organization and just train people all day or give them advice. That's not what we're here to do. Our goal is really here to actually help people learn the skills, but to use those skills to actually make the buildings happen, to rehab them, to make, to build them new. That's that's what we're here to do. We're not here just to talk about this. We got plenty of advocacy and policy organizations. And so we hope that those of you who may be listening to this hearing about us for the first time. If you're waiting for someone to come, that person you're waiting for might be you and your neighbor. And so, think about what your role could be as a small developer and even if that's not your role, we need champions for many of the changes we need to re-legalize our places, to make them vibrant, to make them, and especially in the wake of our current crisis, ant-fragile. To be able to grow in strength through adversity, not just survive. So we think small-scale development is probably the way forward, once we get over the near-term humanitarian crisis of warding off a virus. We're still going to have the very same housing challenges, the very same economic challenges that we did six weeks ago. And so how do we deal with that as a country and as our neighborhoods?

Eve: [00:49:11] Well, this has been really, really fabulous. And I think that in the next five years, we're going to see a whole lot more incremental developments. So thank you very much for your time. and I'm sure we're gonna be talking again.

Jim: [00:49:22] Appreciate the opportunity, Eve. Thank you so much.

Eve: [00:49:27] Bye.

Eve: [00:49:27] That was Jim Kumon who leads the Incremental Development Alliance. The alliance is focused on helping locals strengthen their neighborhoods through small-scale real estate projects. They provide training and technical assistance to anyone interested in tackling projects that you are probably all familiar with. Housing, retail and mixed uses projects on main streets and in neighborhoods. Projects typically range from one to 20 units. These were once everyday development exercises, but have been pushed aside in favor of larger, more efficient projects of scale. Today, it's a challenge navigating zoning codes and financial institutions to get projects like this built. And that's what the alliance focuses on.

Eve: [00:50:34] You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:50:51] Thank you so much for spending your time with me today. And thank you, Jim, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:17] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:23] My guest today is John Folan, head of the Department of Architecture and Design at the University of Arkansas. John is probably best known for his recent work in Pittsburgh. As founder of the Urban Design Build Studio, he has used design processes to work with underrepresented communities on the development and implementation of a variety of interesting projects. And in 2011, he co-founded PROJECT RE_, also in Pittsburgh, which was geared towards creating entrepreneurial opportunities for local communities with a three part mission: re-use materials, rebuild communities and restore lives by teaching trade skills to help people secure a living wage.

Eve: [00:01:16] Be sure to go to EvePicker.com to find out more about John on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:40] Hello, John. It's just lovely to be able to chat with you today.

John Folan: [00:01:45] It's great to speak with you, too.

Eve: [00:01:46] Yeah, it's been way too long.

John: [00:01:48] Yeah.

Eve: [00:01:49] So, you are now the head of the School of Architecture at the University of Arkansas. But I've known you, I knew you through your tenure at Carnegie Mellon University and saw you launch the Urban Design Build Studio there. It's pretty rare to meet an architect and teacher who is so squarely focused on public interest and equity. And I wanted you to tell me a little bit about the Urban Design Build Studio and the goals you have there.

John: [00:02:19] Well, the Urban Design Build Studio is still alive and well, actually, I've carried it with me to the University of Arkansas and it's now at the Fay Jones School of Architecture. We're on the initial phases of the first project down here, with promises of many more to come, even in the context of the changes that we're experiencing with the pandemic. The focus of the Urban Design Build Studio is really to focus on public interest design issues. The clear objective is to use collective intelligence so that the work benefits from the perspectives of multiple entities, multiple individuals, people of multiple expertise. And what we're trying to do is develop work ... tangible outcomes, tangible impact that is replicable and appropriate for the circumstances being addressed. So, it's quite often that Urban Design Build Studio projects start without having an idea of what the project is, but they emerge more organically out of conversations with community stakeholders and community leaders.

Eve: [00:03:41] So, tell us a little bit about the first project that you're doing there. Or, maybe a past project that you did in Pittsburgh, but one that you think is really a good example of what you're trying to do.

John: [00:03:51] I think probably the best example of the one in Pittsburgh, and then I can talk about what we're starting to do here. The projects in Pittsburgh have ranged in scope from a fabrication facility to a cafe to housing proposals and all sorts of projects in between. Mobile advocacy projects, as well. Probably the one that demonstrates the underpinnings of the Urban Design Build Studio best would be Cafe 524, which is now the Everyday Cafe in Homewood. That project was initiated with ...

Eve: [00:04:34] Everyday Cafe?

John: [00:04:36] Yeah, Everyday Cafe, which is right there on North Homewood Avenue, in Homewood, and that project emerged out of a chance introduction to Dr. John Wallace at the University of Pittsburgh and is a native of the Homewood neighborhood, and working with students. By virtue of the suggestion of the Urban Redevelopment Authority, we started working in Homewood and and started with some community engagement, met Dr. Wallace and really focused on this notion of a "third place." And he had put together a group of people who were interested in establishing a third place and a business opportunity for local residents, and put together a team with Operation Better Block and obtained a license agreement for the property, and then ultimately stuck with that project. And Dr. Wallace has now run that facility for about three years. So, that's the type of project that probably best exemplifies an organic path to coming up with something that's meaningful and sustainable for a community.

Eve: [00:05:53] A little bit of background for our listeners. So, Homewood is one of the neighborhoods that kind of suffered most, I think, when Pittsburgh lost half its population, and really hasn't come back. I don't know about, I don't know the demographic numbers there, maybe you do, but it's very poor ...

John: [00:06:12] Yeah, it's one of the most economically challenged neighborhoods in the city, if not the most, depending on the sector of the neighborhood that you look at. It is, it demonstrates the most challenged characteristics in terms of median income levels. So, there are a number of factors that the significance of that project and the significance of having stakeholders who are really invested in the community, and want to sustain something. So, you know, the work of the Urban Design Build Studio, we're bringing design services to a group of individuals who may not have had access to those services otherwise. And to achieve something that they might not achieve otherwise. By virtue of affiliations with a research university, there's an opportunity to spend longer periods of time and working on the projects with those stakeholders than might be possible in a traditional market rate scenario.

Eve: [00:07:13] So, your projects are then in pretty underserved neighborhoods where people are in serious need economically, or affordable homes, or any variety of those options, right?

John: [00:07:27] Yes.

Eve: [00:07:29] Okay. And so you also launched PROJECT RE_ in Pittsburgh. And I don't know if you took that with you as well. But what was that about?

John: [00:07:37] PROJECT RE_ was a way to expand the efforts of the Urban Design Build Studio. I'm still the executive director of PROJECT RE_. PROJECT RE_ was focused to address regional issues in Allegheny County and Pittsburgh, focusing on restoring community, rebuilding lives and re-use of materials. So, it was a transactional entity and a physical space that has been put together to bring design expertise ... You submit materials that are extracted from building deconstruction associated with blight that exists, in Pittsburgh, and then involve efforts of job skill training in the creation of the projects. So, it's a, the space is about 20,000 square feet in size. There's a large community meeting center. There's a gallery in there. There's a small studio. There's an industrial fabrication shop that has CNC technology as well as a wood shop. And then there's an assembly area, and welding training centers.

Eve: [00:08:49] Wow.

John: [00:08:50] Since 2012 that's been the main working space for the Urban Design Build Studio in Pittsburgh. And we plan to use that space, now that I'm in Arkansas as the head of the Fay Jones School, the intention is to use that space in the summers for design build projects with a number of universities around the country and potentially around the globe, to work on projects that are more targeted in nature, and bring people to Pittsburgh. And then during the year, we're planning on moving forward to have a series of fabricators and artists and residents who work on projects and initiatives that they're interested in.

Eve: [00:09:41] That's pretty extensive. So, how do you hope these initiatives will impact architecture, and architects as citizens, in general? This is not what most architecture schools do, right?

John: [00:09:54] No, it's not, but I think that there's been a growing awareness of it. I would say it's become much more common now. There's a much greater awareness of the benefit that people can have. I think that, you know, when we talk statistically, if you reference the Cooper-Hewitt Museum exhibition from a number of years ago, you know, they always talk about the other 98 percent, that two percent of the population can afford to use the services of an architect. That statistic is not really correct. The language, more precisely, should be to two percent of population elect to use the services of an architect. And so if we take a look at that, that 98 percent sector is enormous. There is a large portion of that sector that simply don't value design. And so there needs to be greater awareness.

Eve: [00:10:53] I used to always say that people would spend more time picking the sneakers they buy then choosing an architect, right?

John: [00:11:00] True. Yeah, they will. And so there's a culture that has to be cultivated around that and and an appreciation for that. So, the intent here is not that every student emerges wanting to be a contractor, or wanting to build their own work, or that they pursue public interest design as a full-time endeavor. But it's more that we're elevating their awareness, more that we are helping them to become better citizens, helping them to understand opportunities and how to navigate the context of projects to help them be innovative in ways that are appropriate and have impact to broader communities.

Eve: [00:11:41] You know, I've always thought that architectural training is really unique because it teaches these kids to take nothing and turn it into something in a very creative way. And it's a training and problem solving that I don't think, I don't think you can really match in another profession, but maybe in engineering, but perhaps not so creatively there.

John: [00:12:04] No, I agree entirely. I think that it's an enormous skill set. And most of the students who are successful in migrating the whole way through a curriculum possess a great deal of passion, and a great deal of persistence, as well. And I think those sensibilities and those attributes become so important. And I think that we undervalue ourselves ...

Eve: [00:12:30] Yeah, I agree.

John: [00:12:31] ... quite clearly. And, you know, and it's interesting, too, this trend towards project-based learning that has been adopted across academic circles. You know, it's really interesting, that's been embedded in architectural education since its inception. We never seemed to value it. But now other academic units find enormous value in it. And it's something that's always been inherent, what we do.

Eve: [00:12:57] So, you know, I'm an architect by training and I've morphed over the years into now ... I'm a fintech expert! And who knew? But I would say that, you know, early on when I was young, I had a very hard time thinking about leaving architecture because it felt like a waste of training. But I've realized over the years that's absolutely not true, and that training has helped me in innumerable ways. So, I wonder whether architecture schools are getting better at showing young architecture students the possibilities of what they can do with this training. They don't need to just go work for a, you know, a starchitect somewhere, but there's sort of endless possibilities for what they can do.

John: [00:13:45] No, I think that students emerging today are so much more aware. I do think that schools are being far more successful in terms of providing opportunities to students that suggest the full spectrum of things, that they might branch out and might explore professionally after they leave the academic setting. It's really interesting. I've always been amazed at what you've accomplished. And I think in a way you're sort of the poster child for ...

Eve: [00:14:19] The wayward architect, right?

John: [00:14:20] Well, yeah. I mean, but not really. You've always come back and you've been an advocate for design. And I think that, I think where there's now greater awareness of what architectural education can do is evidenced by programs that are not necessarily professional programs. Like four year programs that are really elevating the awareness of young individuals about the potency of design, what design has to offer. And what happens is those people who graduate, say, with a bachelor of science that will not position them for professional licensure, they're merging and entering other disciplines, allied disciplines and allied fields. Allied fields are as important, as you know, to the implementation of innovative work as design. I mean, so, yes, I think that the schools are much better now at getting students away from navel-gazing. You know, where you just sit in isolation and try to develop things in isolation. I think that there's much more emphasis placed on collaboration, team building. I think you see that across the board.

Eve: [00:15:37] Yeah, that's pretty fabulous. So, as head of the architecture school there, what do you think is the most vital now for the next generation of architecture students, then?

John: [00:15:49] Well, I think it's probably the same thing that it's always been, is agility. And I think that's probably a lot of what we've been discussing today, is the the ability of somebody to adapt to a situation, to understand a situation, to bring different levels of expertise and to orchestrate that expertise in a positive way. It's also knowing when to be a soldier and when to be a leader. And I think that those are important things, important sensibilities. And of course, with climate change being such a significant factor, I mean, that has been part of the conversation. We're starting to see much greater awareness in the area of social justice and equity. That will need to continue as well. So, I think, again, this training is a problem solver. It's really just the critical thinking skills and being agile that you really want to have somebody emerge with. They don't feel that they're indoctrinated, in a way that they're equipped with a series of tools that will allow them to adapt and grow and change ...

Eve: [00:17:01] Yeah.

John: [00:17:01] ... as they move through their career.

Eve: [00:17:03] I'm jealous that they're learning that so young. Because it really wasn't a possibility when I went through school.

John: [00:17:08] Yeah, no. Same for me. There was one way to do it. And you kind of had to find your way after you got out.

Eve: [00:17:16] We had to butt our heads against it, right?

John: [00:17:18] Yeah.

Eve: [00:17:19] So, what's your background and what ... You've spent a life kind of fascinated with equity in architecture and in the physical environment. And I'm just wondering how you got there.

John: [00:17:29] Well, I'm always proud to tell people that I'm from Chicago, if they're willing to ask and if they can't discern from my accent. So, I had, you know, I'm also old enough that when I was young, there were a number of significant buildings that were being constructed at the time. And I was fortunate enough to have the opportunity to see those buildings being built and was just fascinated by construction and the physical environment. And so I really can't remember a time where I did not want to be involved in architecture, professionally. It was always a an interest of mine and something that I thought would be a great privilege to be involved with. I think as I got older I started to develop an interest in affordable housing and equity, just by virtue of circumstance that I had growing up. Then my career took me about as far away from that and as you can get and I went to work for a couple of starchitects and worked on large projects, significant projects. And then I was principal for a large, well-known firm. And when ... I hit a point in my career where I was not addressing things necessarily related to equity and not related to issues in neighborhoods that I felt needed help and made it a sea change in my career and focused on nonprofit work ... an extension of that. So that's kind of the path I took.

Eve: [00:19:07] Yes. We know that you care about socially responsible real estate, but are there any current trends in real estate development that interest you the most? And perhaps the second question is, given what's going on with the coronavirus right now, how might an architecture change to address things like pandemics and keeping people safe?

[00:19:33] Those are really interesting questions. And, you know, it's interesting that you're asking it because the answer, probably .. well, it might have been same a few weeks ago, but it's ... you know, given the perspective that we all have at this time. Of course, it's changed all of our perspectives. Things that are interesting in terms of real estate; I think that there's much greater awareness of how market rate development can be leveraged to advantage mixed-income development and provide an opportunity for communities where fixed income residents can be part of a successful neighborhood. I think that there's an enormous amount of advocacy that is still needed with regard to that. Issues around gentrification. I think people are very keenly aware of some of those issues, but a lot of what's perceived as gentrification, it is byproduct, in fact, of misinformation many times. That there's a perception that somebody will be pushed out rather than understanding that there's a mechanism for long-term residents to stay in an area. So, I think advocacy there becomes really important. The things that Small Change is doing by allowing people to invest through crowdsourced funding is incredibly important. I know the range of projects that you have that are demonstrated through the website really illustrate the potency of groups of people coming together to impact change in areas where it would probably be risk averse in terms of taking on opportunities. So, those are probably the areas in development. In terms of response to the pandemic, I really am at a loss on that.

Eve: [00:21:28] I am a little bit, too. But I've been thinking a lot about Small Change. And first and foremost, I have this tool that lets everyday people invest. And yet, you know how many people filed for unemployment in one week, this ...

John: [00:21:43] Yeah.

Eve: [00:21:43] ... last week? You know, and I can't really kind of reconcile the two at the moment. I think we're going to have to wait and see.

John: [00:21:53] Yeah. Yeah, no, I, You know when I think, with the pandemic, I think I probably, I haven't been thinking about it in terms of the investment side. But the point that you raise is really important. My mind tends to shift more towards the practicalities of one's physical health. And then, of course, I of the work of MASS, things that they've done with Dr. Farmer, and just simple things.

Eve: [00:22:21] We're going to see a sea of technological changes as to how you open doors for example.

John: [00:22:28] Oh yeah. No, that's right. Yes, it will it will transform those things that we take for granted. So, fundamentally. Yes.

Eve: [00:22:35] Yeah, it's a bit crazy. And of course it's having an impact on your school because the teamwork that is clearly really part of what you're doing is sort of being shut down at the moment, right? With the students and how they work together. Or has it? Or are you finding other ways to do that?

John: [00:22:53] Well, we're still in the first weeks. I think unfortunately ... what struck me ... You know, it's interesting if I just relay a story. When we made, when they first made the announcement they were going to distance learning, and anybody who knows architects knows how, understands the intensity of the educational process and studio culture. The younger students in the school happened to be outside my office and I heard this eruption of laughter. And, you know, they're quite happy that they might gain relief from the demands of the curriculum. And then, when I went up to visit my studio, because I work with students who are further along in the program the kids were in tears. And it was at that time that I really realized the impact that it's having on those who are emerging into the profession. They understood the gravity of the situation at that time by virtue of the fact that they understood that was probably gonna be the last time they were going to see their classmates as a large group. That was, you know, the celebrations of graduation were clearly going to be suspended, at least for a while. And then, immediate concerns over what it meant for viability of their professional future ... the immediate viability. So, I think your perspective, depending on your age ...

Eve: [00:24:30] Yes. Definitely.

John: [00:24:30] ... changes and your understanding of the impact.

Eve: [00:24:39] Yeah, and then, I asked the current terms question in other interviews and a month ago, you know, people are talking about co-working. And this month, I have to wonder if co-working is dead. You know, it's very, very difficult ...

John: [00:24:57] Yeah.

Eve: [00:24:57] ... It's difficult to imagine. Anyway, now we're down this depressing path, so.

John: [00:25:01] Yeah. Well, I think to think about it optimistically, you know, going back to what we said. This is a wicked problem. And it's not a wicked problem. It is illuminating thousands of wicked problems. And I think that the opportunities will emerge out of what we understand. And I think right now it's so early in the process, as we start to come out of this, as the virus is controlled and contained, and we start to plan for the future. I think that will open up all sorts of avenues. But what those are I don't know, and I really haven't had time to speculate.

Eve: [00:25:47] But, you know, I think architects might be at the center of some solutions, I'm sure. So.

John: [00:25:52] Yes. Yeah.

Eve: [00:25:53] So, it's actually a very interesting thought. How do you think we need to think about our cities and neighborhoods to build better places for everyone?

John: [00:26:04] Well, I think we've been on a rather positive trajectory. When I was a, you know, again, going back to when I was a child, when I was a child cities were horrible places. You didn't want to be in cities, you know, unless you were really serious about urbanism. We avoided cities. And I think that the perceptions of cities really didn't start shifting until the early 90s. And it really hasn't been until, I would say, the last decade that we've seen the benefits of positive urban thinking, and consideration of new models of development. Yeah, I think that the cities are making strides towards being much more inclusive in terms of both social and economic platforms. And so, we still have to move the meter a lot further in terms of that. You still have, you know, there's still issues of segregation. There's still issues of economic disparity and concentrated poverty. So, I think that where urban environments need to start moving is towards deep concentration of those negative attributes. I think that it has gotten significantly better in recent history and I think we are on a path forward. And again, I think crowdfunding in support of developments is a significant component to that continued success in the future. I do think it's interesting, we always talk about density being ... and then, of course, in cities like Pittsburgh, where there been a population loss, you know, the term that was developed was "right sizing." I don't know if the pandemic is is going to lead us to start thinking about what appropriate levels of density are or how that ties into the general health and well-being that's to be determined in the future.

Eve: [00:28:16] Well, I really enjoyed this conversation, and I'm excited to see how you and your students put some thought to the post-pandemic problems and the future that we're all looking at. It's going to be really interesting to see.

John: [00:28:31] Well, thank you. I really enjoyed the conversation. This has been a great conversation.

Eve: [00:28:37] Ok, bye John. Bye.

John: [00:28:37] All right. Bye Eve. Thanks.

Eve: [00:28:44] That was John Folan, head of the Department of Architecture and Design at the University of Arkansas. John is an architect and teacher like no other I know. He frames his work around issues of the environment, social justice and equity. Not only is his own body of work significant, but he is dedicated to teaching students to be the next generation of thoughtful architects, makers and citizens.

Eve: [00:29:21] You can find out more about impact real estate investing and access, the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:29:38] Thank you so much for spending your time with me today. And thank you, John, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:14] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:21] Today's guest is Gabe Klein. Gabe has invested his life and career in all facets of urban mobility, both as an entrepreneur and within halls of city government. That's made for a very interesting point of view, from Zipcar to bike sharing to transportation commissioner to book and now to Cityfi, Gabe has left a mark on mobility in this country.

[00:00:50] So, listen in and be sure to go to EvePicker.com to find out more about Gabe on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:18] Hello, Gabe. Thanks so much for joining me today.

Gabe Klein: [00:01:20] Thanks for having me, Eve.

Eve: [00:01:22] So, you've done so much, I really don't know where to begin. Zipcar. Bike sharing. Transportation commissioner. A book called 'Startup City.' And my personal favorite, On The Fly, your own electric-powered, organic, food truck chain.

Gabe: [00:01:37] That's correct.

Eve: [00:01:39] And, of course, now you wrap that all up in your company called Cityfi. I'm wondering how you got there and why transportation issues matter so much to you.

Gabe: [00:01:50] Yeah. Well, you know, I grew up in the 1970s, actually, as a kid, and 80s, but I grew up during the energy crisis, and I remember the rationing of fuel and it inspired my dad to get into the bicycle business. And so from the age of, like, five years old, six years old, I was always around bicycles. We had skateboards and we had mopeds in the stores. And we used these things at home, too. And my dad actually commuted by bike, many days. And so I grew up looking at these quote unquote alternative modes of transportation, actually as normal ways of getting around. And, by the way, we lived in a rural area. So, we would commute all the way from our rural home into the local town on these busy roads. And so, as I got older and I was, so, you know, in the bicycle business, even post-college, I realized that in urban areas there was this huge opportunity to rethink the way people got around. And I had moved to Washington, D.C., in the mid 90s, and, you know, our major arterials were speedways. People were doing 65, 70 miles an hour ...

Eve: [00:03:04] Oh, yeah.

Gabe: [00:03:04] ... completely out of control. And yet, we had all these people moving back to our cities. So, I met Robin Chase, and that was around 2002, and she hired me as an executive at Zipcar, and I helped build that business, and it was really instrumental in me understanding the relationship between public and private sector, and how important the public sector was in empowering small businesses like ours, and tying them in to the existing infrastructure in the city, in the space, in, you know, in terms of giving us parking spaces, in terms of tying us into the transit system. And it was really the key to our success, I think. And so, ever since then, I've been really focused on, you know, how do we do good, make money and enhance the lives of people in our urban areas.

Eve: [00:03:59] From those early beginnings, because things have changed a lot since Zipcar, right? Zipcar has waned a little bit because other things have popped up instead. What is the mobility landscape look like to you in the U.S. today by comparison?

Gabe: [00:04:13] Yeah, well, look, I think businesses always need to evolve, right? I mean, look at Amazon. It started out as a bookstore out of a garage, right? So, I think that there's been a lot of evolution related to the technology that we have in our hands. The GPS technology that allows us to geolocate where things are. Solar and electrification. Obviously, the backbone of it all, the enhanced cell phone networks. And that's what's really powered the transformation in mobility. At the same time, what we find is we have all these new modes, and they're really exciting, and it's actually gotten a lot of people on bikes, which I love.

Eve: [00:04:50] Yes.

Gabe: [00:04:50] Right? But on the other hand, things are pretty pedestrian. And what I mean by that is, like, there's a basic way that we've been getting around for a couple 100,000 years. You know, we've been walking, we've been riding the horse. Then we start riding bikes, taking streetcars. And fundamentally, you have a sort of geometry problem, and you have, sort of, movement of people and the geometry of how you move them, and it's really about volumetrics. And so, in a dense urban area, you can only move so many people so quickly. And so it becomes about bigger things. It's about, like, what creates a healthy city, what creates a safe city, creates an equitable city, or town, by the way, it doesn't have to be a big city. And so, you know, my time in government was really instrumental in seeing that the levers that we had that could really change the quality of life for people. And now we're talking about things like universal basic mobility. We're having conversations in the public square about, you know, because mobility and transportation are so closely tied to land use and real estate, and because so much of people's income goes to those two things, that if you can create a system where people don't have to use a very complex transport system, and you don't have to make a capital investment in the transportation, they can afford to live in a place ...

Eve: [00:06:16] Yeh.

Gabe: [00:06:16] ... that they want to live and they can do it in a way that they have a higher quality of life, and more access to jobs. And so, that's ...

Eve: [00:06:22] Solving the mobility issue actually makes housing more affordable.

Gabe: [00:06:29] Well, look, if you shed one car like, let's say you're a two-car family, you shed a car, that's 150,000 dollars more real estate you can afford.

Eve: [00:06:36] Yes.

Gabe: [00:06:37] Right?

Eve: [00:06:37] If you're a worker who needs to get to a job every day and there is, you can walk to pick up your groceries, and there's a train or bus near you that gets to work, you can shed both the cars.

Gabe: [00:06:50] Right. Right. I mean, look, people say like D.C., San Francisco, Boston, these are the most expensive places to live. However, you know, in D.C., car payments are less than 10 percent of people's income, right? And you look at a lot of other, like Sunbelt cities, it's 20, 25, 30 percent. In a low-income neighborhood, over 50 percent. My household? We've gotten to, because we have an apartment downstairs, one, two, three, four, five, six, seven people. And there's one car, ...

Eve: [00:07:17] Yeh.

Gabe: [00:07:17] ... you know. And so, actually, our cost of living is relatively low.

Eve: [00:07:23] Yes. Yeah. So, you know, interestingly, I mean, I think about this. So, while technology has been advancing some mobility solutions, we're really kind of still stuck in how to model the physical landscape, right?

Gabe: [00:07:38] Oh, absolutely. And that's what I was getting at when I was saying, like some of the problems are very pedestrian. I was trying to be funny, but it's like, it's really about the reallocation of space, right? It's like, you can only move so many people if you allocate all the lanes to cars that carry one or two people, what we call single-occupancy vehicles. And so, there's a big movement, like, if this technology and these new modes are going to be successful, like scooters, for instance, and shared bicycles, you've got to give space to them or people won't feel safe. And if they don't feel safe, even for a small portion of the trip, let's say they're driving, or riding, excuse me, from home to work, and it's a five mile trip and there's two blocks that feel terribly unsafe. That mom may not make that trip, the entire five mile trip, because of those two blocks. And so, it's really about creating a safe system for people.

Eve: [00:08:28] I know that the public sector is thinking about this. Is the private sector thinking about this? Who's more advanced in their thinking? Are they talking to each other?

Gabe: [00:08:40] Well, that's actually why I wrote 'Startup City.' When I went into the public sector, I had never worked, I mean, and I came in running the agency, I had never worked in government in my life. And so I had a very different perspective. And I'm really fixated and focused on this exchange of ideas between public and private. Because, to be honest, to solve the climate crisis, our affordability crisis, all the major problems of our time, we're not going to do it without the two sides working together. Now, government has a very strong arm in terms of regulation and setting the tone, which I think they are going to need to flex. But the more we can work with the private sector, understand the private sector's, you know, business models, their motivations, their, the outcomes that they're looking for, and we can inform the regulatory environment and policy, then we can come together and make change a lot more quickly. And to be honest, in the situation we find ourselves in, particularly with climate, we need to move a lot faster.

Eve: [00:09:38] So, do you think that the public sector can somehow be infused with the urgency and energy of a startup?

Gabe: [00:09:47] Well, that's what I did. I'd like to think I did. I mean, I ran these two agencies as if they were well-funded startups. And, you know, there were some people that thought I was crazy.

Eve: [00:09:59] Ha.

Gabe: [00:09:59] And, you know, one of my mottos is, like, if you're, if somebody is not calling you crazy, then you're not working hard enough. You know, like, if somebody doesn't think that your ideas are a little crazy, then you're not challenging the status quo enough. And I think the government can work on behalf of taxpayers, move a lot faster, and also, to be honest, be fiscally responsible, and in some cases, share in profits, or losses, with the private sector, which is what we did with some of our bike share programs. I think the private sector needs to be much more open to working for the greater good, taking a long term view versus the short term view. And looking at the long-term sustainability of their business, and sustainability of the planet, and the urban environment that they're operating in. And if we can get the two thinking alike, and I work with a lot of companies and governments, it is just amazing what they can do and the speed that they can do it in. A lot of it comes down to ... tried and true old school relationships, and understanding and trust. And that's what we try to build.

Eve: [00:11:02] Yes. Yeah. Yeah. So, Then how should equity play into transportation solutions?

Gabe: [00:11:11] Yeah. I mean, there's so much to talk about here.

Eve: [00:11:14] Yes.

Gabe: [00:11:14] But it's actually, at the end of the day, and I hate to say something like this as an entrepreneur, but transportation doesn't make any money. I mean, like how many transportation systems, you know, that consistently make money. Like Pepsi does, right? Almost none. Uber lost almost eight billion dollars last year. There are a couple of transit systems that are profitable because so many people use them, like Hong Kong and Singapore. There are some private sector companies that make money some times, like some of the airlines. But fundamentally, it is not a big moneymaking business. And so, we need to think about the outcomes that we want for our people, We need to think about creating equitable outcomes around all the elements that make up quality of life, or the happiness index, for instance, and then figure out how do we fund transportation to make that work. So, Uber today might be funded by venture capitalists, and long term it may be partially funded by the government ...

Eve: [00:12:08] Yes.

Gabe: [00:12:09] ... for certain types of trips. For low-income people, late at night, hourly workers, when the bus isn't running, to make it home, you know? So, I think the business models are going to change and shift. We saw this around the turn of the last century where there were so many streetcar systems built by developers, funded by developers, so that people could reach their new streetcar suburbs. And then over time, as the automobile came up and you had such a fractured marketplace, you had the consolidation of them, and then you eventually had the collapse of them, and then they became public sector entities, and then they were killed by the car companies. I mean, it's a little bit of an oversimplification, but that's sort of how it went down.

Eve: [00:12:47] Yeh. Pretty correct.

Gabe: [00:12:48] Right? And so, I mean, you know, everything's cyclical. We're going to see a lot of interesting high-flying startups. We're going to see a lot of consolidation. We're gonna see mobility service systems, where you see, like, Spin scooters and Argo autonomous vehicles, and the bus. And you're gonna see a lot of public-private partnerships where good actors, that want to share in risk and reward with the government, will be given concessions to operate various types of services. And that's, I think, how it's going to shake out in the long term.

Eve: [00:13:21] Yeh, also last week, and I'm trying to remember where this was, I read an article about a town, city, that had done the analysis on what it will cost them to upgrade their fare structure. And they decided it was cheaper just to make it free for people who ride the bus. Where was that?

Gabe: [00:13:39] You're probably thinking of Kansas City?

Eve: [00:13:40] Yeah.

Gabe: [00:13:41] I have, actually, I was out there a few years ago. One of my partners was the chief innovation officer there. And I went out and met with the city manager, years ago, and he wanted to do this and they finally got it done. And the argument was, look, you know, we're spending five million dollars a year to recover eight to 10 million dollars of farebox, right?

Eve: [00:14:07] Right.

Gabe: [00:14:07] So, you have a net positive of three or four million. You know, what if we just made it free, how many more people would ride? What kind of friction would we reduce? How many cars we take off the road? How much more equity would we create with low-income people that need to take the bus and maybe a dollar or two every trip is a lot. I think that's really interesting.

Eve: [00:14:29] I think it's fascinating, but I'm wondering why it took them so long to come to it, to, you know, to decide to do it. It seems obvious.

Gabe: [00:14:36] This is why we need more rebels, right? In government and in the private sector. Like people are very critical of Elon Musk, particularly in my sort of urban, you know, transportation world. And I get it. And I'm critical of him, too. But at the same time, we need people pushing the envelope, even when we don't agree with that. Even when we think that some of their ideas are crazy. Because sometimes the application of things – like the Boring Company, for instance, you know, tunneling – the ultimate application may not be what they're selling today, and it could be very, very useful. And let's face it, the Second Avenue subway that took 100 years to build in New York. We can do better. So, we need to take disparate ideas, different types of people, put them in the mix, be patient, have some tolerance, and try some things.

Eve: [00:15:24] Yes. So, failure could be a good thing, right?

Gabe: [00:15:27] Absolutely. We ...

Eve: [00:15:28] People don't like failure in the United States. We gotta try, right?

Gabe: [00:15:33] Well, we're either obsessed with failure and think it's a good thing, it's a horrible thing. It comes down to, you know, government risk aversion vs. private sector risk acceptance, right? And we have two very different cultures. And so, when you try to bring the two together to work on things, this is actually one of the big issues that keeps them from understanding each other. One is trying to keep their name out of the paper. One is trying to not get noticed. One is trying to do good for the citizens, look out for the greater good, but not make a big splash, typically. And you have the opposite on the private side. And these are generalizations. Sometimes it's the opposite. But if you get the two to understand how they can benefit each other, and the value that they each bring, and the leverage they can get out of each other, it's amazing what could happen.

Eve: [00:16:18] Yeah, so, the interesting thing is what you're talking about, you know, is that's really the way I developed my real estate portfolio, in partnership with the city of Pittsburgh, and the Urban Redevelopment Authority. And we both fully understood what we were bringing to the table and how we could help each other. That was in real estate. And I thought that was an amazing opportunity for both of us. And the city understood that, and I understood that. So, it's kind of puzzling why ... why this doesn't extend to other things, I think.

Gabe: [00:16:49] I agree 100 percent. That's why people like you, me, and many others are important in pushing that envelope. Pittsburgh is a really interesting city, and we're doing a lot of work in Pittsburgh right now, trying to create a first-of-its-kind, mobility-as-a-service offering, basically, for the city. So, unlike Lyft and Uber, which are creating their own, like, walled gardens, and I don't fault them for that, but they're creating their own sort of systems within their app. We're saying, how about if you bring best in class providers together?

Eve: [00:17:23] Yes.

Gabe: [00:17:24] From all different walks of life. And then let, aggregate the services in one app, transit app ...

Eve: [00:17:29] Right.

Gabe: [00:17:29] ... and let people use them, and create a physical installation, right? Near real estate. So, create a physical mobility hub, and there'll be like 50 of them. So, you get some of that enhancement around real estate like you get from a TOD metro stop, but then also have to be virtual, too. And give the city some level of access to data and some level of control ...

Eve: [00:17:55] Right.

Gabe: [00:17:55] ... versus being 100 percent private.

Eve: [00:17:58] I actually interviewed Karina Ricks on these little mobility stations. It's a very exciting program. And, you know, you just led me right into my next question, which was how do you think data can help to formulate better solutions?

Gabe: [00:18:17] Oh yeah. Data is really important. And it's really evolving and changing. And there's all kinds of arguments, you know, within our little nerdy world about privacy and, you know, very important topics, but at the end of the day, this idea that data that's generated by citizens belongs to somebody, is sort of misguided, right? I mean, at the end of the day, it really belongs to the citizen that's generating that data. And you could argue in some sense that it belongs to nobody. But the data is now being shared a little more widely with cities. So, that cities can plan more effectively for the future. So, that they have a sense of what's happening on their street. And we're really moving from an analog system of operational control of how the city signal system works, for instance. We started moving to GPS about 10 years ago, where we started to gather a lot of data from GPS trackers on our buses and our taxis, like in places like Chicago. We could start to estimate for our constituency what congestion was looking like in real time. But now it's becoming more about operating, than just planning for the future. So, it's like, how you operate day to day, a very complex system where Waze might have better data than the city does? And so, it's really interesting how it's playing out. And the Open Mobility Foundation, which we worked with LA DOT and other consultants on helping to set up, is a really interesting place for a lot of these ideas to germinate, and a lot of the cities to work together and figure out with the private sector, by the way, how to share data, effectively, how to be very respectful and careful about privacy, and how to look at both planning, as well as day to day operating, utilizing these very rich data sets.

Eve: [00:20:12] Can you give me an example of a solution that was crafted from data that you think is fabulous?

Gabe: [00:20:18] Sure, sure. Well, look, scooters have been very controversial, right? Some people love them. some people just despise them. And that goes for politicians as well. So, you know, you go to a place like D.C. or L.A. and you have, you know, very smart, bold leadership. And they see the potential with an electric scooter to displace fossil fuel-powered car trips. So, they want to go big. But they know that you have elderly people that need access to the sidewalks, and disabled people, and children. So, if you don't have some level of control, then what happens is it doesn't work. And it ends up, you know, flaming out.

Eve: [00:21:00] We're rubbing up against the physical landscape again, right?

Gabe: [00:21:03] Exactly.

Eve: [00:21:04] Yeah.

Gabe: [00:21:05] But often people who have not worked in government don't understand it. They understand it theoretically, they understand the data side, but they don't actually understand how this plays out politically in a city. And so in a place like L.A., we have council members saying, hey, I don't want any of these in Brentwood. Right? The ability to geofence, and to then know if, like, not just to say we're gonna geofence scooters out of this council member's ward, but we're actually going to be able to know and validate if the scooter company was able to get people to adhere to that. That's very important. You know, that's how L.A. went to 30,000 plus scooters, because the council members ...

Eve: [00:21:49] Wow.

Gabe: [00:21:49] ... and the people felt comfortable that LA DOT actually had the tools to manage a program that large. In Dallas, where it was a total free for all, they had no data, and they told people to just do whatever they wanted, it was a disaster.

Eve: [00:22:05] Oh, interesting.

Gabe: [00:22:05] And so I think it what ... yeah. So, what we've learned is that, and the private sector has learned right along with the public sector, is like, oh, we need a common data standard. We need to share data. We need to be more transparent. Or the public and the politicians will rise up and boot us out of here. And so, it's very much, actually, the folks that are running the DOTs that are trying to help a lot of these new companies be successful.

Eve: [00:22:31] Wow. Is there a current trend in transportation that holds the most hope for you?

Gabe: [00:22:38] When you say trend, do you mean a mode per se or do you mean ...

Eve: [00:22:41] I mean a mode or, you know ... even like, I'll give you something that I've been reading a lot recently. And one thing that I read that I thought was fascinating was a couple of cities and states taking a look at their very wide roads and very heavily trafficked roads and actually deciding to give them a road diet. I think this is an example in New York State of one of the most heavily trafficked roads, and rather than widening it, they decided to narrow it, which I think is really an interesting trend. Because it opens up space in an unexpected way and it controls traffic in a very different and unexpected way, as well. So, I don't really know what the outcome will be, but I've noticed, I suppose, experiments like that, more and more.

Gabe: [00:23:34] Right, uhm, no, I would say the number one thing I'm excited about is the reallocation of space that we're finally starting to see on our streets. The closing of Market Street in San Francisco. You know, I put a bike lane down the middle of Pennsylvania Avenue, and, you know, there's a real movement towards serious reallocations of space, as was as the idea of actually implementing congestion pricing in cities. So, I think that's a very positive movement. And then, obviously, on the private side, the venture capital investment and efforts in active mobility, you know, and bike share and scooter share, I think these are very positive movements. You know, not to say that all the companies will be successful, but the realization that the majority of urban trips are less than one to three miles and that there's a big market there, and that cities also want to get people out of cars. So, I think, you know, these are the things that that give me quite a bit of hope.

Eve: [00:24:35] Yeah. And then there's some fallout that I just personally find very interesting. I had a conversation with someone last week who said, you know, in the next five years, we're going to be figuring out how to repurpose parking garages. And I thought that was like, that's really fascinating.

Gabe: [00:24:50] Well, yes. And the important thing is to build them in such a way that they can be repurposed. Flat, right? That the ramps are on the exterior. That you run the ductwork for the electrical and HVAC when you build the garage. So, the smarter people are about what the potential is, the more they can build into their developments, and I have a lot of funny stories about conversations I've had with folks over the years that were building buildings and, you know, feeling like I should have been paid for my 15 minute conversation that saved them millions of dollars. Because, I mean, I'm sort of kidding. But, you know, shared parking facilities, not building parking facilities and convincing cities to move more towards parking maximum, shared parking zoning and ordinances, creating mobility wallets to give people access to mobility instead of incenting people to use parking. There's so many interesting things that we can do and a lot of it comes down to carrots and sticks, both for developers, for cities and for individuals.

Eve: [00:25:53] Right. I'd love to know a little bit more about the sort of you tackled through Cityfi.

Gabe: [00:25:57] Yeah.

Eve: [00:25:57] It's a great name.

Gabe: [00:26:00] Thank you. So, we do a lot of different types of work. I'll say that about half our work is public sector, mostly cities. And then about half is private sector. And we do some foundation work as well. We've been working with the Knight Foundation on autonomous vehicle piloting and outreach, which has been fascinating work. But we do a lot of public-private partnership work. We do a lot of urban planning, around everything from strategic plans for cities, shared mobility plans, curbside management, which is becoming a huge issue with the change in how people move around. And a big opportunity as well. And then, you know, we do a lot with the private sector on go-to-market strategy, and positioning them to be triple bottom line companies that the government will want to do business with. Which means sometimes like a wholesale revamp, not just of how they market themselves, but how they conduct their business, and making sure that sustainability and health and equity and positive outcomes for society are not just talking points in their marketing, but key pillars, north stars of their strategy. And when we're successful there, I mean, it's very rewarding. Very ... it feels really good to have that kind of impact.

Eve: [00:27:14] So, I think right now, socially responsible real estate is still a minority fraction of what is going on in this country. I'm wondering what you think it will take to kind of move it to the only way to do real estate development, or think about building in cities.

Gabe: [00:27:30] It'll be a combination of the regulatory environment changing. You know, we're gonna get away from single-use anything. We're going to get away from fossil fuel-powered anything. And so, you know, as these are put into a regulatory form, these policies, that will change the way people build. We need more affordable housing. We need more workforce housing. I do think that government leads. I know we have challenges with the finance folks who will say, yeah, I'm not going to finance that if you don't build two spaces per unit. And this is where government is so important, because obviously if a local government says, look, we're going to parking maximums for minimums, it's not like finance companies will say, oh, we're not going to build in New York City, we're not going to build in Nashville. They will. And that's why government's got to lead. I think, also, the other side of this coin is that once people see what they want, they will buy it. And then once you hit a tipping point ...

Eve: [00:28:32] Right.

Gabe: [00:28:34] .... the market sort of takes over and ...

Eve: [00:28:36] Kind of like iPhone, right?

Gabe: [00:28:39] Yeh. I mean, look, government used to lead. Government incented Tesla to build electric cars and loaned them a billion dollars, and all of that, right?

Eve: [00:28:47] Right.

Gabe: [00:28:48] But now the reason people are buying Teslas is they're saving money and they're really high quality cars. And so people are self-selecting into micro-units or developments without parking that are cheaper, but also maybe closer to the things that they want to experience. And the market is begging for this. We are so ... like I was talking to Chris Leinberger the other day and he said we have 40 years of pent up demand for urban, livable, walkable. And so at some point, the next generation of developers are going to come out and say, well, why the hell are we building that?

Eve: [00:29:23] Right. You know, I think that zoning is a really important piece in this. And I was involved in the zoning code rewrite, and it is huge. You know, and every municipality has a different zoning code. When I think about this, it's overwhelming how you kind of move towards countrywide acceptance and regulatory changes to really make this happen for everyone. It's a big, big job.

Gabe: [00:29:51] That's interesting. Yeah, it'll be interesting to see when when we get a new president, hopefully in November, you know, the tack that they take towards transportation, and, you know, hopefully getting away from the sort of modal silos that we have DOT and thinking much more across HUD and DOT and DOE, which, you know, was attempted last time, but it was never funded. And I would love to see that really happen. I mean, you could almost see collapsing these agencies into one, and ... with different divisions internally based around land use type, you know, urban, suburban, exurban, rural, versus the bimodal stuff and then addressing the energy, you know, around housing and transportation and production.

Eve: [00:30:42] Yeah, yeah, yeah. Well, this has been fascinating, but I want to know what's next for you.

Gabe: [00:30:48] Yeah. Well, you know, I'm really enjoying my work. I mean, we'll see if the entire economy just grinds to a halt.

Eve: [00:30:56] For at least a month, right?

Gabe: [00:30:57] Yeah. Maybe we'll all be living in communes soon and just dancing and eating tofu. But in the in the meantime, I going to continue working with cities, working with companies. I also work with Fontinalis Partners out of Detroit, wonderful firm, and we invest in scalable platforms, you know, often software based, but sometimes hardware based also. So, I really enjoy working with startups. And we do that at Cityfi. But also, obviously, at Fontinalis, there's a lot of work to not just invest in these companies, but then to help make them successful. And in my personal life, I'm revamping a beach house.

Eve: [00:31:37] Oh, lovely.

Gabe: [00:31:38] Trying to get that done by summer.

Eve: [00:31:41] I'm revamping a tiny little rural cottage. It's fun. Well, thank you very much, Gabe, it's been really delightful talking to you. And I can't wait to see what you do next.

Gabe: [00:31:54] Well, thank you and thanks for thinking of me and I'll be following your work as well.

Eve: [00:31:58] OK.

Eve: [00:32:02] That was Gabe Klein of Cityfi. Gabe believes a few things adamantly. First, that there is enormous power in collaboration between the private and public sector. Second, that data rules. And third, that over the next few years we'll see a reallocation towards pedestrians first and automobiles second.

Eve: [00:32:32] You can find out more about impact real estate investing and access, the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

[00:32:50] Thank you so much for spending your time with me today. And thank you, Gabe, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:18] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:24] My guest today is Lance Chimka. Lance is the relatively new and extremely energetic director of Allegheny County's Economic Development Department, in Pittsburgh, Pennsylvania. He has a very contemporary take on what government ought to be doing, and that includes investing in real estate to advance the economy. Lance is building a collaborative team environment, working with developers throughout the county, lending where banks dare not go, always with his eye on economic development growth, and always with the thought of how our region can do better. Learn how Lance and his team are supporting development in a not-quite-market rate environment.

[00:01:11] Be sure to go to EvePicker.com to find out more about Lance on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:37] Hi, Lance. I'm really excited for the opportunity to talk to you today.

Lance Chimka: [00:01:41] Pleasure's all mine, Eve. Thank you. I'm honored that you would have me on.

Eve: [00:01:45] We're gonna have a great time.

Lance: [00:01:46] Absolutely. We usually do.

Eve: [00:01:48] In a not a lot of time, you've gone from being an intern at Allegheny County Economic Development to the organization's director. And then you did a few odd jobs in-between. And that's a pretty meteoric rise, wouldn't you say?

Lance: [00:02:06] Ah, yeah. I mean, I guess it has been pretty quick. It sometimes didn't feel that way. But I think the cool thing about that is that whole progression is absolutely vital to some of the stuff I want to get done, now. I wouldn't have changed that course, at all. Like, understanding kind of the daily struggles of interns in my office absolutely directly informs how I work on efficiency measures here, for example. It's been incredible and I've been really lucky to have incredible mentors along the way that have taught me a lot. That was one of my favorite things about public sector work, is it touches so much, that you're able to, you're able to learn.

Eve: [00:02:45] What led you to pursue a life in government service? Was it that first internship that you just liked so much?

Lance: [00:02:52] When I was pursuing an undergrad degree in finance, it was kind of in the boom times, the 2000s, and I didn't want to take that route. Kinda always been a volunteer at heart, and so I joined the Peace Corps, and that was kind of the start of my real public service. And I just kind of knew, I came back to go to CMU and get a policy degree and just kind of always knew, in my heart of hearts, I would always be in some kind of public servant role. Not necessarily in government work, but that's the path that I've chosen to this day, and it's been incredibly rewarding.

Eve: [00:03:27] So, that what drives you, yeah. So, for listeners who haven't connected the dots yet, Lance and I share a hometown, Pittsburgh, and a few decades ago, Pittsburgh was pretty well all but written off. You can listen to my podcast interview with Tom Murphy that I think just went live and you'll get to hear the turnaround mayor talk about where we were then and what it took to shake that image. And that brings me to a statement that I read, that you made, Lance, which was, "we're in economic expansion, but we're not seeing some of the other growth that other benchmark cities are seeing." And I'm just wondering what you meant by that?

Lance: [00:04:09] Not to, not to recap what you probably talked with Mayor Murphy about, but to get from the doldrums of 1983, which is really the trough of our local economy.

Eve: [00:04:19] It was the bottom, right? Yeah.

Lance: [00:04:21] Yeah. To where we're at now, has been an amazing transformation, right? It's been all about diversification and it's, of a regional economy. And then we, now we have these five primary industry sectors: in financial services, IT, energy, advanced manufacturing and healthcare. And that's really, really important because in recessionary periods, that diversified economy is very robust, and makes us the darling, and outperform benchmark cities in recessionary periods. However, the problem is that in expansionary economies we lack the kind of exponential growth that some of our other cities experience. It's just kind of the nature of our economy currently, is slow and steady wins the race, which is fine. I think my goal is on the macro economic end, is to not throw the baby out with the bathwater, keep the diversification, keep the slow, steady growth, but then really experience some of the upside of expansionary times, which we're in now. And I think the key to that is, and I'm really optimistic about the future of our economy, is across those five industry sectors. You have artificial intelligence, which we are an absolute worldwide hub of, cuts across all of those. And robotics, cuts across three of those, in advanced manufacturing, health care and energy. So, those eight intersection points that I think are the key to experiencing upside growth, and that's some of the stuff I'm excited to work on.

Eve: [00:05:56] How do you work on that? How do you improve that?

Lance: [00:05:59] Great question. Especially like, how does government do that? The risk profiles associated with investments in startups are probably too, you know, too risky of an investment for governments to be making. And not to mention, we don't have that skill set. But I think there are a lot of other ways we can invest in the city in a way to encourage that kind of growth. One of those ways is in real estate development, right? If you take something like biotech, right? A lot of times you've got companies that need wet lab space. You have extremely long periods to get through clinical trials. You have really expensive buildings that, you know, because of the nature of the beast, you have your non-credit tenants. So, I think when we're making investments in real estate, we need to incentivize those kind of assets in buildings that aren't going to happen in the open market. That's just one example. We lack high-bay space for robotics. Some other specialty real estate that I think the public sector can play a role in: mitigating the risks for developers who have non-credit tenants, and making sure that building stock is available. Speculative development is another thing we've classically underperformed on. And in the kind of pace of the current economy, like, people are not waiting around 18 months to build a building, they want turnkey space ready to go. So, we're working on a number of things to make sure that those types of building stock in speculative development is allowed for. And a lot of that is investment through tax abatements, and direct investment, and site assembly that I do here in this office. So, that's just one example in real estate. I think you can find other examples in public infrastructure, amenities, recreational space, and being really intentional about how we connect our tech hubs through infrastructure work. Whether that's public transit, or whether that's, you know, really compelling a multi-modal streetscape design. Things like that.

Eve: [00:08:03] Quite a lot to think about, isn't there?

Lance: [00:08:04] Yeah. Yeah. Keeps 'em busy.

Eve: [00:08:06] So, you also served as an advisor on Pittsburgh's Amazon HQ2 proposal. And I'm wondering in retrospect how you feel about making it to the top 20 list, but not as an Amazon final city pick.

Lance: [00:08:20] Yeah, I mean, I feel great about it, because I think we extracted all the marketing benefit from it without any of the really, really, really painful stuff that might have been associated with it. I am proud of our approach to that. I think it was, hey, here's a suite of stuff that we, as every Pittsburgher, there's wide agreement that we need to invest in. And we don't have a revenue stream to do that. So, let's take that suite of things we need to invest in and treat this gargantuan investment coming our way as the revenue stream. You know, and I think it helped kind of distill that suite of, that wish list, if you will, for us. And now, ok, we might not have the revenue stream, but at least it helped distill what we want to be as a city, forcing us to go through that process. And I think it was overwhelming positive experience.

Eve: [00:09:13] What's the top of the list that we should become?

Lance: [00:09:16] I think the two things that kind of rose to the top, given the time in our city and the way things are trending, are people want a really robust public transit network. I think that was clear. People want and are concerned about rapidly appreciating real estate values in some of our residential markets. And that would be exacerbated by a huge investment like that. And so I think it really rallied people around public transit, and around affordable housing. Which I think is a positive thing, you know?

Eve: [00:09:48] Yeah, no, I agree.

Lance: [00:09:50] It's great that affordable housing is suddenly cool again. You know?

Eve: [00:09:53] Yeah.

Lance: [00:09:54] This is fantastic. People working in this field are like, wow, this great sea change, like, in a really short period of time.

Eve: [00:10:01] Yeah, that's true. Affordable housing is a really hot button issue now, isn't it? Everywhere.

Lance: [00:10:06] Yeah, no doubt. And it's great. And I think ultimately, you know, we did not land that investment. I think predominately it was a numbers game, right? A population numbers game. You're talking about ...

Eve: [00:10:18] Yes.

Lance: [00:10:18] ... a gigantic pool of workers, and being a small middle market city was tough for us to absorb that, A., and, you know, the facts that matters are we have zero population growth and a two million metro area, and it went to a place with a 20 million metro area and five percent growth. And a, what a, maybe a 12 million metro area, and like 10 percent growth down in D.C., right?

Eve: [00:10:42] Right.

Lance: [00:10:42] At the end of the day it was all about ...

Eve: [00:10:45] The numbers.

Lance: [00:10:46] ... you know, the numbers, demographics, bodies, population. And that put a fine point that we need to work on that as well, right? That's a huge Achilles heel for us is a lack of population growth.

Eve: [00:10:56] It is and it isn't. I mean, that part of Pittsburgh's charm is its size. When you talk about what should Pittsburgh become, I think you should also think about what it shouldn't become, right?

Lance: [00:11:07] Sure.

Eve: [00:11:07] It's a pretty beautiful and rather unique city. And each city has its own strengths. I don't know. For me, cities go beyond numbers, but perhaps not for Amazon.

Lance: [00:11:17] Yeah, well, exactly. I think, despite what they would tell you, I think they had to take a very analytic approach to that.

Eve: [00:11:23] Yes.

Lance: [00:11:24] And it's something that like charm and culture and beauty were probably not heavily weighted ...

Eve: [00:11:31] No.

Lance: [00:11:31] ... on that algorithm scale, right? So. But I agree with you.

Eve: [00:11:35] Probably mobility and housing stock were right up there.

Lance: [00:11:38] Mm hmm. I imagine.

Eve: [00:11:39] You've barely started, but what would you like to accomplish at ACED?

Lance: [00:11:44] Oh, boy, I mean, a lot. So, our two-fold mission is this: one, is the work on the macro economic health of the city, which is really about building a diverse and growing regional economy that's opportunity rich for everyone to tap into, right? And we addressed some of that already. The other part of our mission is much more neighborhood-based. And that's, you know, we want to create healthy and vibrant communities. So, all of our investments, and we make those investments in the areas of housing, and industrial and commercial development, infrastructure development, parks and rec, things of that nature, all of our investments are done with that two-fold mission. So, there's certainly a lot of things I think we can do and be more creative with the tools we have. You know, I'm a big proponent of good government, too, and I think there's a lot we can do to make the public sector meet the needs of our citizens in a more efficient and customer-friendly way. So, that's the other kind of side of this that I will work on is, not only mission delivery, but just, you know, government efficiency is a twisted hobby of mine that I like, I like working on.

Eve: [00:12:55] Ha! That's a really great hobby.

Lance: [00:12:57] Yeah. I mean, everyone needs a hobby.

Eve: [00:12:59] Yeah.

Lance: [00:13:00] And to be more specific, again, I talked about the real estate assets that I think we need to incentivize. A big concern of mine is if you put communities, you can kind of classify them broadly in three buckets. And that's, there are tons of communities that are thriving, and we need to support them. There are a number of communities that are revitalizing that need special attention. There are a lot of communities, they need stabilization. We need triage. And a lot of that is direct fallout from the 1983 exodus of people with any sort of social mobility leaving the city.

Eve: [00:13:37] Yeah. Yeah.

Lance: [00:13:37] And we have certain areas that, they have zero market. Land value is negative, right? And that presents a whole slew of economic and social problems that go along with that. And we really need to support those communities. At the same time, kind of leaving the development breadcrumbs from areas of high opportunity to establish markets, and you kind of need to string those investments along. It's going to be a while until I can take the strength of the market that is the Strip District, for now, and pool it across the Allegheny Valley, right? And pool it down into the Mon Valley.

Eve: [00:14:14] Yeah.

Lance: [00:14:14] And in the process establish beachheads in Etna. And I need to establish that beachhead in Etna before I can really get to Tarentum and New Kensington, right? Same thing goes for the Mon Valley. I really need to establish a strong beachhead in Wilkinsburg and Braddock until I can really talk about strength of market in places like Clairton. In the meantime, we need to make sure that we are treating those communities with the respect that they deserve in addressing the blight and disinvestment they're struggling with, and doing that in a really smart and strategic way.

Eve: [00:14:46] Well, it must be really tough making decisions because you can't have endless resources, I'm sure. And then you have to decide where to direct those resources. And for people who don't know who are listening, Pittsburgh was around 700,000 people strong and really lost more than half of its population in the 1980s. And it's now still hovering just over 300,000. Although family units are smaller now.

Lance: [00:15:16] Yes.

Eve: [00:15:16] It's still a lot of vacancy, right?

Lance: [00:15:18] Yeah, absolutely. And so, you know, there's some opportunity there. You know, to some extent, affordable housing price per square foot is a supply demand calculation, right?

Eve: [00:15:27] Yes.

Lance: [00:15:28] The problem is the areas that are close to job centers, well-served by public transit, and have amenities like grocery stores. We're seeing rapid appreciation there, and obviously, because they're more desirable places to live. So, we need to make investments to ensure that those are mixed-income communities. And we also have the opportunity, though, that a lot of other cities don't, to make proactive preservation investments in areas that have naturally occurring affordable housing. And we're doing both of those things on the housing investment side.

Eve: [00:16:00] Real estate development is a major component of your work.

Lance: [00:16:04] Oh, yeah. I would say most of what we do has a real estate component to it. Now, one of the things we're trying to get more engaged in, that we traditionally have not, is the workforce development arena. You know, I think one of the big transitions we talked about, like the change in public opinion around affordable housing ... the innovation economy has forced site selection to go from a predominately site- and building-centric approach to predominately talent-based approach. And we, I think in the past, in the economic development community, have taken a very hands-off approach saying, hey, there are specialists in workforce development, we're going to let them do their thing, and we'll just, we'll build the stuff, invest in those tangible building products. I don't think that model works anymore. I think the workforce challenge and the future of work is such an acute need that we really need an all-hands-on-deck approach. And the more resources everyone can leverage, that and, the better. I'm just finalizing my budgets for next year and we're probably making close to a million dollars in investments in workforce development, which doesn't have a land and building component to it. And I'm proud of that. And I think that's something we'll continue to invest more heavily in. And that's everything from workforce readiness of teens, to adults with barriers to employment, getting re-educated and prepared for the workforce. You know, we need to attack this from all angles.

Eve: [00:17:33] I was going to ask, is there a rhyme or reason to the projects you become involved in. But I think I'm hearing that your organization, you really play the role as almost a pioneer investor early on when perhaps it's a little bit uncomfortable for private money to be involved?

Lance: [00:17:51] Oh, no doubt.

Eve: [00:17:52] Yeah.

Lance: [00:17:52] Yeah, absolutely. Our investments, I think, are predominately ... well, one, we take first mover investments in site assembly. Right? For example. So, one of my big hypotheses was that people say there is no market, no real estate market in Braddock, right?

Eve: [00:18:14] Mmm Hmm.

Lance: [00:18:14] And I challenge that. I think it's the fact that the available real estate is not the right kind of real estate. So, for example, we assembled 60 tax-delinquent, single-family structures, demolished them, consolidated them into one five-acre parcel, and worked with a very creative developer on a take-down period that worked for the finances of that kind of constrained market. And they built a 60,000 square foot high-bay light industrial building. It's probably the first new industrial development in Braddock in, I couldn't even tell you how long. This is a place that suffered 90 percent of population loss.

Eve: [00:18:52] Yes.

Lance: [00:18:52] Those are the type of things, in that case, we were a first mover and then worked on aggressive land conveyance strategy with the developer. And now the great thing is we have new tax base in Braddock, we new job base in Braddock, and almost more importantly, I have a comp now, I have established that land has value in Braddock.

Eve: [00:19:12] Oh yes, that's very important.

Lance: [00:19:14] And previously that didn't exist. So, that's something we did in 2019. They're going to take occupancy first quarter of 2020, and, yeah, we're really proud of that kind of work. So, sometimes our investments are in that realm. Other times were physical investments, either through tax leverage finance or direct investment, and yes, we assume a much higher risk profile than our private sector partners.

Eve: [00:19:35] And have you been able to convince some banks to come along on the ride with you?

Lance: [00:19:39] Yeah. And I think as long as you understand their underwriting criteria, and their approach, they're great partners. You just have to understand what their sweet spot is and work around it. We underwrite our investments in a very similar way that banks do, on the risk end. The difference being, one, we're willing to assume more risk. And two, on the return end we think much more broadly about returns. It's not just about debt coverage ratio. It's about tax base expansion. It isn't necessarily going to pay us, but is a return to the project because it's a mission-based return.

Eve: [00:20:16] It's a return to the region, right? As well.

Lance: [00:20:17] Exactly. We love working with banks and traditional funders. And we have the ability to be more flexible to allow them to meet their underwriting goals and and still participate in the project.

Eve: [00:20:28] What sort of projects do you hope to see more of? I mean, if things go really well and your investments pay off in the way you want them to. What sort of projects are you hoping to see arise independently in the next five years, let's say?

Lance: [00:20:42] Yeah, I think if we do a couple of projects like that, that light industrial building in Braddock then ... that's the goal, is that you would then establish a market and I can then start making similar investments in Duquesne and McKeesport. And like I said, you just pull that market down to maybe less centrally located areas. So, yeah, more spec buildings, more high-bay light industrial for robotics industry, more wet lab for biotech and life sciences. You know, hopefully, some of our development community starts to realize that you can stand in Lawrenceville in 40 dollar square foot space and look across the river at 15 dollar square foot space. And ...

Eve: [00:21:19] Yes.

Lance: [00:21:21] ... start to recognize that arbitrage opportunity. Because these communities, they're fantastic, unique, beautiful places. They are open to development. They are, you know, they're wonderful places to do work. And they're right adjacent to the urban core. So, you know, rethink your idea of proximity and let's do some great projects in some of these communities that are maybe overlooked in a lot of cases.

Eve: [00:21:47] And then most importantly, it's pretty fun to be at the leading edge, right?

Lance: [00:21:51] I think so! Sometimes, you know, that's when you don't have a comp and the bank starts to get real nervous ...

Eve: [00:21:58] I know, I know.

Lance: [00:21:58] ... that's when, you know, they don't find it as much fun as I do. But yeah. I mean, that's part of the fun, is there's additional challenge there, but it can be really, really rewarding if you pull something off.

Eve: [00:22:08] I agree. Totally agree. Yeah. We've also talked about how to empower people in these communities to be part of the change, the rapid change that's occurring in cities like Pittsburgh. And I am wondering why you think that's important?

Lance: [00:22:23] One of the big challenges we face as a society is disproportionate allocation of not only income, if you look at wealth, right? It becomes even more staggeringly problematic. So, we're not trying to establish markets for, just because, just for tax base, right? Hopefully, the idea is then, by establishing market you can assist in families building wealth, right? And we want people to be able to participate in the benefits of these hopefully catalytic investments we're making. How best to do that is a challenge. You know, obviously, it's easy when you have homeownership, high levels of homeownership, because that's, you know, your biggest asset that appreciates with change in real estate market.

Eve: [00:23:17] Yeah.

Lance: [00:23:17] If people have that asset and they want to cash out and participate in that upside return, well, great. You know, that's building equity, that's building wealth. And hopefully that's life changing for the family that chooses to do that. I think the problem, because when people are very culturally, emotionally and kind of societally invested, but don't have that asset to participate in the appreciation, how to plug those people in to our changing communities and make sure that they participate. And that's where, you know, lots of novel ideas that I think we've been talking about, about microlending, and, you know, equity returns back to neighborhoods, start to become really, really compelling for that kind of segment of society and something that I really want to learn more about, and try and institute some really progressive things on that front.

Eve: [00:24:10] I've been talking to some people over the last year who also believe that making a space for those people, like a physical space, is really important. And they do that in different ways. Like maybe a community space or ... there's a developer that I know who very purposefully will create retail space and then look for someone in the neighborhood to fill it and really help them build their business into that space. And that, I suppose that's another very concrete way to involve community and make them feel like they belong, right?

Lance: [00:24:47] Yeah. No, absolutely. Absolutely. And, you know, maybe that's a, you know, a silver lining on the challenges to retail real estate now is that mixed-use buildings are kind of hoping that's a break even spot? Right?

Eve: [00:25:01] Yeah.

Lance: [00:25:02] And so what you have is then, is a really affordable commercial ...

Eve: [00:25:05] Right.

Lance: [00:25:05] ... property for people to move into. You know, locally-owned, sole proprietorship businesses that provide a higher return back to the, to the owner.

Eve: [00:25:17] Yeah, yeah.

Lance: [00:25:17] Hopefully we can continue that.

Eve: [00:25:19] Yeah. And so, like, I have to ask, what's, you know, your background? You mentioned a little bit about it, but what did you study? What got you to this place?

Lance: [00:25:29] Yeah. I grew up in Pittsburgh, to a ... I was the youngest of four.

Eve: [00:25:35] You were the baby.

Lance: [00:25:36] I was the baby and I probably act like it too much. But, you know, my first education was growing up in incredibly hilarious and brilliant family. So, you know, my parents were really hardworking, great people. I went to a mix of public and Catholic schools when I was a kid. I studied finance in Washington, D.C., The Catholic University of America. Went overseas and lived in Turkmenistan for three years, which was arguably the most educative of all of my educational experience. And I came back to CMU to get a policy degree with the intention of going back to do more international development work, because I found it just fascinating. But really fell back in love with my hometown, recognized that there were parts of my city that were in as much need or possibly greater need than what we consider to be some of the, you know, the most poverty stricken places on earth. And that didn't sit great with me. Yeah, all of those different educational life experiences, it kind of like, let me down this path. And, you know, people, like I said I have had great work mentors that have given me chances to work on stuff. I've just been incredibly lucky.

Eve: [00:26:51] I have a feeling it's not just luck, but we can go with that.

Lance: [00:26:53] I think it's mostly luck. It's mostly luck. But yeah, like I say, it goes back to my parents. I do work hard at it because I love it. It never quite feels like work, you know. Some days it does.

Eve: [00:27:04] Yes.

Lance: [00:27:05] Most of the time it doesn't.

Eve: [00:27:06] That's great. And do you think on the whole, socially responsible real estate is necessary in today's development landscape. Outside of the work you do, like everyday developers? What do you think that should look like?

Lance: [00:27:20] There's crappy real estate development and there's good real estate development, right?

Eve: [00:27:23] Yes.

Lance: [00:27:24] I think good real estate development is about placemaking, and placemaking is about integration into the community. Not just, you know, from a contextual design standpoint, but from a 'community needs' standpoint. And I think enlightened developers get that. Enlightened developers know that incorporating that kind of philosophy in the development usually leads to higher returns, too. So, I think it can be done well and it can be done profitably, right?

Eve: [00:27:52] Right.

Lance: [00:27:52] It just requires a kind of a philosophy, a mindset, and the ability to listen to people a little bit more. But in the end, they have a much better project to show for it.

Eve: [00:28:03] Creating something that's responsible isn't really swallowing a bitter pill, right?

Lance: [00:28:09] No, definitely not. Especially when you have your friendly local government economic development person to help you along the way and hopefully chip in where necessary.

Eve: [00:28:20] And are there any current trends in real estate that you think are interesting or most important to the future of our cities?

Lance: [00:28:28] Well, I mean, I think it's interesting, you know, being the hub of technology that we are. I think the design considerations around places like parking garages, for example, I think are really interesting. Because the rate of technological change is forcing people to consider the fact that this structure could achieve obsolescence in five, 10 years.

Eve: [00:28:52] Yeah.

Lance: [00:28:52] Which, what previously was considered a 50 year asset. So, I find that inherently fascinating.

Eve: [00:28:58] It is fascinating, isn't it? I just start thinking about, well, what could you do with a parking garage?

Lance: [00:29:04] Yeah, right.

Eve: [00:29:04] How many housing units could you put into those little slots?

Lance: [00:29:08] Precisely. And are they going to be livable, you know?

Eve: [00:29:10] Yeah.

Lance: [00:29:10] And how do you remediate the oil afterward? You know?

Eve: [00:29:12] That's right.

Lance: [00:29:12] It's a ... it's a really interesting thing. So, you see people spec-ing in higher ceiling heights than they would have previously. Flat floor plates. All these different design considerations that I find fascinating. And even more fascinating because we're on the bleeding edge of all of the autonomous vehicle technology that is going to lead to obsolescence of those buildings. So, yeah, I mean, that's one that I find fascinating. What else?

Eve: [00:29:39] I'm watching zoning changes across the country, and across the world. I'm pretty fascinated to see how quickly that's going to move along. When you have cities, you know, basically outlawing single family homes. That's quite a statement.

Lance: [00:29:53] Yes. I think Pittsburgh in particular is being very progressive in some ways with, you know, allowing for accessory dwelling units, which I know you're probably an advocate for, and ...

Eve: [00:30:05] Yeah.

Lance: [00:30:06] ... and, you know, what they've done with the RIV district, for example, and ensuring access to the waterfront, I think is some really good things. However, in some city neighborhoods, and this gets even more acutely problematic when you move out to maybe smaller municipal governments that haven't updated their zoning and code in a while. The thing that I find problematic is if you ask the average 10 people on the street what the vision for new development their community would look like? And then you show them what current zoning allows for, they would be horrified, right?

Eve: [00:30:40] Yes, yeah, I think that's true in most places.

Lance: [00:30:43] It's a huge disconnect and it's worrisome to me.

Eve: [00:30:47] Yeah, I mean, how do, you know, it's really expensive updating a zoning code. I've been involved in that. It's a really big deal.

Lance: [00:30:53] It is. And when you multiply that by 130 municipalities with wide, varying levels of, kind of, capacity. It's ... yeah, it's really a daunting task.

Eve: [00:31:05] Yeah. And one sign-off question, then. Given all of the possibilities, what comes next for ACED, and for you?

Lance: [00:31:14] I am very project focused. And I believe that markets are built one great project at a time and I try not to let the enormity of the challenges, you know, get me down, right? It's just one good project at a time. We're focused on that every day, and we're focused on being innovative and creative every day. And there are a ton of innovative and creative people in Pittsburgh that we need to partner with and work with to solve these problems. Like I said, it's all hands on deck.

Eve: [00:31:48] Well, thank you very much. I really enjoyed that conversation. I can't wait to see what you do next.

Lance: [00:31:52] Awesome. Thank you so much, Eve.

Eve: [00:31:54] That was Lance Chimka. Lance is embracing his role as the head of an economic development department with energy. Our conversation reflects the way that Lance thinks. Broad and diverse ideas to get at very particular economic problems. Lance is focused on growth, first and foremost. Making sure that Pittsburgh's growth matches other cities. But at the same time, he wants to make sure that no one is left behind. So, he thinks a lot about how to empower communities in the path of rapid change, and how to change the disproportionate allocation of wealth. I'll be interested to see the impact that Lance's leadership will have.

Eve: [00:32:46] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

[00:33:12] Thank you so much for spending your time with me today. And thank you, Lance, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:08] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:14] My guest today is Mark Roderick, founder of Lex Nova Law and one of the top online crowdfunding experts in the country. I asked Mark to join me today to discuss the very exciting changes proposed by the Securities and Exchange Commission to regulation crowdfunding. In case you haven't heard of it, regulation crowdfunding, or Reg CF, is the securities regulation that is really the first step taken by the S.E.C. towards democratizing investment. The additional changes proposed will give this regulation real legs.

[00:00:57] Be sure to go to EvePicker.com to find out more about Mark on the show notes page for this episode. And be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:18] Hello, Mark, it's delightful having you on my show.

Mark Roderick: [00:01:21] Well, thank you very much. It is delightful sort of being there.

Eve: [00:01:25] Very good.

Mark: [00:01:26] Virtually.

Eve: [00:01:25] Just sort of. Yeah. Okay. Today, we're going to talk about raising equity online, which is a pretty wonky subject, but you and I like it. And raising equity online is also known as equity or investment crowdfunding. You said these proposals are great for the crowdfunding industry and for American capitalism. They're not about Wall Street. They're about small companies and ordinary American investors, where jobs and ideas come from. And you were referring to some proposed changes to equity online raising funds. And according to the S.E.C., a majority of entrepreneurs and emerging businesses raise capital using an exempt offering framework under the Securities Act. And they raise everything from seed capital for new businesses, to funding growth on the path to an initial public offering, and, also, raise equity for real estate. So, I wanted to talk about the rule changes and why you think they're so great.

Mark: [00:02:35] Well, okay. Big question and a big, big topic. I mean, maybe I'll just start at the granular level and then kind of work backwards. If you are in or around the existing industry, And I'm going to call it the Title 3 industry or the Reg CF industry, as opposed to what we might call the Rule 506(c) accredited investor industry. The accredited investor industry in real estate is super-healthy. People are raising a lot of money and platforms are profitable and all kinds of wonderful things are going on. In contrast, the Reg CF world, the industry, it's sort of, you know, like when you cross the railroad tracks and crossed into the less affluent part of town. It's a very, almost, I don't want to get too hyperbolic, but, you know, it's a little bit of a desolate landscape.

Eve: [00:03:41] Oh yes.

Mark: [00:03:41] It's very difficult to make money for funding portals, and it's a vicious cycle as opposed to a virtuous cycle. So, it's hard to make money. Very small companies with very limited resources are applying because of the limits – we can only raise up to a million dollars a year, and in real estate, in particular, that's not very much money. And that leads the portals, the funding portals, too many of them, not yours, I should say, but too many of them have adapted to that situation. You know, you're trying to squeeze money out of people who don't have any money and have led to a lot of shortcuts, and what I called gimmicks, and that is a vicious cycle because investors, who are not dumb, see that, they see that's what's going on. You know, they just ignore the entire industry. And that means that high quality companies are that much less likely to try to use Reg CF. And it has been a vicious cycle.

Eve: [00:04:46] Just backing up one minute. I think some of our listeners maybe not familiar with Reg CF or regulation crowd-funding. So, I just feel like I need to fill in a little bit. Regulation crowdfunding and other online crowdfunding rules grew out of the Jobs Act of 2012, and the intent was really to move online crowdfunding for donations to crowdfunding for investment, right? And so regulation crowdfunding is the rule that lets anyone over the age of 18 invest, but really kind of limits how much they can invest, and how much the company raising money can raise. Those limits, I think, have been the real stumbling block, right?

Mark: [00:05:31] Yeah.

Eve: [00:05:32] So, this has translated into smaller offerings, just like you said, which these funding platforms, which are very heavily regulated to use that rule, it means that they can't make a lot of money. And that's kind of where you left off, right?

Mark: [00:05:50] That is exactly right.

Eve: [00:05:52] The new rules, which you seemed very excited about last week, I think, will make some big changes in that landscape.

Mark: [00:06:01] Yeah. They will make a couple changes that are, I think, taken together, just gonna be very, very important and are really going to, to continue that bad metaphor I was using, really revitalize the Regulation CF neighborhood. These are the two most significant changes. As you said in your overview, Regulation CF or Title 3 – those are interchangeable names for the same set of rules – limit very severely how much each investor can invest. And the idea here was to protect widows and orphans from all the shady entrepreneurs out there. But even if the widow or orphan wants to invest his or her entire net worth into a questionable company, the Reg CF rules won't allow that. To the contrary, they allow only very small investments. And that means that when you're trying to raise money in Regulation CF, you have to find lots of investors, because each of them can only contribute a very small amount. And, you know, that's hard. Marketing is hard.

Eve: [00:07:21] It's very hard.

Mark: [00:07:22] It is also inconsistent with other S.E.C. rules, which in general allow accredited investors to invest as much as they want. One of the fundamental concepts in U.S. securities laws since the 1930s has been that rich people can take care of themselves. They don't need the government to protect them. And so the term 'accredited investor' is sort of a stand-in for rich people. All of the other S.E.C. rules, really, allow accredited investors to make bad decisions, you know. An accredited investor can invest his or her entire network in a single deal. And people have noted, since the outset of regulation crowdfunding, that the regulation crowdfunding restrictions are inconsistent with that general concept. So, one of the changes just made by the S.E.C., or proposed, is that, what do you know, accredited investors will no longer be subject to those severe limits. In fact, they won't be subject to any limits. So, now if you can attract some accredited investors, you know, you can get people to write big checks. So, that's an important change. Really important change.

Eve: [00:08:40] Yeah. Yeah. I mean, I'll give one example that has impacted us. We have quite a few account holders or investors who are accredited by definition based on their net worth. And they have very healthy networks, but they're retired and they own their houses and their income is maybe below 100,000. And under the regulation crowdfunding Reg CF rules, one of these investors was limited to investing 4,000 a year under Reg CF. But as an accredited investor, she can invest however much she wants. That's how weirdly bad the rule is right now.

Mark: [00:09:20] Yeah. And just to take that one person, I don't know how much of a check that person might write, but let's say it's, you know, 25 or 50,000 dollars, which is not an unusual investment in the Rule 506(c) world. So ..

Eve: [00:09:34] Yeah.

Mark: [00:09:35] ... she goes from even conservatively ...

Eve: [00:09:38] She couldn't be bothered investing 4,000. She might be interested in 15,000 or 20 or 25 but not ...

Mark: [00:09:44] Yeah.

Eve: [00:09:44] Yeah.

Mark: [00:09:45] So, it doesn't take many of her, you know, the difference between four and say, even conservatively, 25. Those numbers add up quickly. That change in itself was significant. But, in addition, the second change is they've raised the limit from a million dollars to five million dollars. And that means bigger companies, companies with more revenue, more products, more services, more scale. Bigger companies can now start using Reg CF. Yeah, I mean, you know, Eve, that a million dollars is not very much in the real estate world. Five million dollars really is a lot. Lots and lots and lots of deals are done with equity of two or three or four million dollars. So, it vastly expands the number of ticket holders who are allowed to attend this event. And then, when you put those two together, you know, now we can do a three million dollar raise where we can raise as much as we want from accredited investors. That, suddenly, becomes an extremely viable business. And that's the point that funding portals will now be able to make money. In fact, they'll be able to make significant amounts of money. You know, that's like, again, going back to that metaphor, that is pouring a lot of money into that neighborhood. And you're going to see, in my view, just a fundamental change. You're going to walk through the streets and say, oh, that used to be a dilapidated building. It looks nice now. And so on and so forth. And you're going to see better business practices from the portals. I believe you're going to see much higher quality offerings on those portals. In fact, you're going to see websites that were formerly only in the Rule 506(c) world who had shunned Regulation CF. You're going to see those companies getting their portal licenses and saying, hey, we can now expand our investor clientele at very little cost. You know, we've been marketing only to Rule 506(c) accredited investors. Now we can market to everyone. Why not?

Eve: [00:12:10] Maybe the answer, response to why not, is the regulation that is attached to, being a funding portal, and not to 506(c).

Mark: [00:12:20] Yes. I mean, it's certainly an impediment. I mean, you've been living in this world for the last five years and the regulation can make you pull your hair out. But the business opportunity, it seems to me, is ... the landscape just changed completely in my view, you know, I ... within the last three weeks before these proposals came out someone called me, a company, you know, we want to be a funding portal. And I tell them, because I try to be very straightforward with anyone, you know, you're not going to make any money. It's a funding portal.

Eve: [00:12:55] Right.

Mark: [00:12:55] You know, you want to go, have to expand, vertically integrate. But it's a very, very difficult business. And that was advice I've given in the last two weeks. You know, I've had people contact me since the proposals, and it's totally different advice. This is a real opportunity.

Eve: [00:13:13] Yeah, yeah, yeah. Interesting.

Mark: [00:13:14] I mean, how do you see it affecting your business? You're in the business.

Eve: [00:13:19] The thing you haven't touched on yet is, there's a couple of things that really matter to me. And one is, yes, the fact that accredited investors can invest whatever they want really matters, because I no longer have to offer side-by-side offerings which are very complicated and time-consuming. So, by a side-by-side offering, I mean a Reg CF plus a 506(c), at the same time. So, that can go away. I think the fact that the investor limits have been turned upside down is huge. The fact that now an investor can invest the greater of their net worth or income is absolutely enormous for my crowd. And then I think the single purpose entity rule, which we haven't talked about yet, is huge. Until now, if you're going to use a regulation crowdfunding offering type, your investors must invest into the actual deal, which is often not the way that real estate deals work. So, being able to collect a group of investors in a single purpose entity to invest into a project, or a series of projects, is a very big deal. And I've been talking to one institutional developer who was really pulling his hair out and trying to figure out how to make Reg CF work for the community he's interested in using it for, and that particular change makes the whole thing possible. There's more, I'm sure, testing the waters. I mean, we haven't talked about all these things, Mark. So, the marketing rules around Reg CF are stifling. And so I want to learn more about what does it mean now to be permitted to have a demo day or to test the waters to, you know, just show the deal before you actually register it with the S.E.C.? I think all of those things really matter.

Mark: [00:15:13] Yeah. There are some other important changes, including, as you say, this so-called testing the waters. We used to have this ridiculous rule, really, that subjected, you know, these tiny Title 3 issuers to more stringent rules, you know, then the largest companies. It was crazy.

Eve: [00:15:35] Yeah.

Mark: [00:15:36] If you were talking, some developer was trying to create this little project, you know, you had to tell that person, you can't even whisper that you are considering a Title 3 [offering] ... You can't tell anyone, you know, don't tell your wife. And it was just this ridiculously restrictive rule. So, that is now going to be swept away. And basically, for all intents and purposes, Title 3 companies, issuers are going to be like everyone else. Yeah, you can talk to people about it. You can't take their money. But that's an important change for sure. The demo days. Meaning when you're local science center has a demo day you are now actually allowed to ... to attend. It was crazy that you couldn't attend before. We should mention that they've taken some things away. Many Title 3 issuers, the security that they were offering, as you know, were called SAFEs – Simple Agreement for Future Equity. Very popular. The S.E.C. has been convinced by someone that that is not an appropriate instrument for a small company to issue. So, they're going to absolutely get rid of them. Another very popular instrument – revenue sharing notes. It isn't clear from the proposals, but it sure looks like they're getting rid of revenue sharing notes or at least want to.

Eve: [00:17:04] Interesting.

Mark: [00:17:05] You know what the lord giveth, the lord taketh away. I know there's going to be, during the public comment period, there's going to be a lot of people complaining about those two things. We did take a couple steps backward, but I think we took about 10 steps forward, so, on the whole, they have made the market much more robust. Yeah, I think it's very exciting, I, you know this is a world that, you know, you and I have both drank the Kool-Aid a long time ago. This is about providing capital for lots of people whose access to capital has hitherto been restricted. And it's also about providing investment opportunities to ordinary Americans that have hitherto been reserved for the ultra-wealthy.

Eve: [00:17:55] Yeah.

Mark: [00:17:55] And that's why my blog post said, you know, this is not about Wall Street. It is actually about undermining Wall Street. It is about a sort of direct to the people, democratic American capitalism. And I think this is a really good step in the right direction. I don't see any down side personally.

Eve: [00:18:17] Yeah, so you think the number of funding portals is going to explode?

Mark: [00:18:20] I do.

Eve: [00:18:21] It's about 50 now, right?

Mark: [00:18:23] Something like that, yeah.

Eve: [00:18:24] And in real estate?

Mark: [00:18:26] I do. I think you're going to have some competitors, which is good. Yeah, I think there are going to be real estate funding portals, I even think, Eve, I think that the big real estate, the Rule 506(c) sites, I think they're going to consider very seriously having subsidiaries that are funding portals.

Eve: [00:18:47] Interesting.

Mark: [00:18:48] I think it's a natural to expand their customer base. You know, I've always said that portals are like retail stores. And I read a blog post once, saying a portal is like DSW. And DSW doesn't limit the kinds of shoes that it sells, and it wants every kind of customer to walk in the door, right? And even, you know, a brand like Mercedes Benz, they don't sell only a 100,000 dollar cars, you know, they sell a 35,000 dollars car. Why? Why do they do that? It's not to make money from selling a 35,000 dollar car. It's to get people into the showroom.

Eve: [00:19:33] Yes.

Mark: [00:19:33] And expand their demographic customer base. And I think that's the natural route for portals as well. We want to accredited investors. We want non-accredited investors. We want everyone, right? I mean, that's always make sense to me.

Eve: [00:19:46] Right. Right right, right. So, can you think of some examples of projects that you saw in the past that if they went live now, would do so much better? Or is that too hard a question?

Mark: [00:19:57] You're, I mean, you're the one who would know that.

Eve: [00:19:58] We have an offering live right now, which was just so complicated to put together, a side-by-side offering. And, you know, an opportunity zone fund offering. They really needed a single-purpose entity for the opportunity zone fund investors. And, of course, we couldn't use it for Reg CF, so the Reg CF investors missed out on the opportunity zone, tax discounts. And, you know, thinking about how that would be put together under the new rules, it would be so easy.

Mark: [00:20:31] Yeah.

Eve: [00:20:31] I spent months putting it together.

Mark: [00:20:35] I mean, probably every project you've ever had on your platform.

Eve: [00:20:38] Yes.

Mark: [00:20:39] You would've had the ability to pitch it to accredited investors. Simultaneously. And you would have been legally been earning commissions on all of those transactions.

Eve: [00:20:50] Yes. Yeah. That's a really big problem.

Mark: [00:20:53] I mean, your life would have been very different.

Eve: [00:20:54] Well, I can't go back five years, can I?

Mark: [00:20:57] No.

Eve: [00:20:58] So, what about the whole 'not being able to talk about the terms of the deal'? Like that's been another really huge stumbling block when you do advertise Reg CF offering, you're not permitted to talk about the teems. You can't say, you know, the offering is nine percent preferred return. You're not permitted to say that. You're not even permitted to say the minimum investment amount. Whereas with a 506(c) offering, you can say all of that. Is that going to change?

Mark: [00:21:27] Not yet. It wouldn't surprise me if it changed in the future. So, yeah, you're gonna be stuck with those same advertising limitations. Now, I will just say that you can say those things.

Eve: [00:21:41] Yes, but that's all you can say, right?

Mark: [00:21:42] But that's all you can say.

Eve: [00:21:44] Yeah.

Mark: [00:21:45] And you can say a lot. You know, you can say come invest in this fabulous multi-family project in Downtown Pittsburgh, and it's 72-percent leased and it's gorgeous and it's environmentally friendly. You can go on and on and on and say all those things.

Eve: [00:22:04] You can't say "it's gorgeous" because it's in adjective, right?

Mark: [00:22:07] Ok, well, now I think, I can, I think you can say "gorgeous."

Eve: [00:22:11] No, I can't.

Mark: [00:22:13] The only thing you can't say is ...

Eve: [00:22:15] I got my knuckles rapped for saying "bold." Yeah.

Mark: [00:22:20] You just can't say, and by the way, we're raising two million dollars for that project. You know? You can talk about the project until you're blue in the face.

Eve: [00:22:29] Yeah. Well, that's been pretty good for us because we want to talk about the projects, but still it is a stumbling block. I think people sit up and pay attention when you say you can invest as little as 1,000 dollars and they're looking at an ad talking about a great project, but they don't really know. It's a question of will they click through? Right? It's definitely a stumbling block.

Mark: [00:22:50] Yes. And it will continue to be.

Eve: [00:22:53] Yes. Ok. So, I want to just shift gears a little bit. We're doing this a bit backwards. But how did you become an S.E.C. crowdfunding expert, and why?

Mark: [00:23:04] Actually, Eve, I think our stories are in some ways, similar. So, I mean, I've always been a boring corporate lawyer. And in being a boring corporate lawyer, I've represented entrepreneurs my whole career. And when you represent entrepreneurs, one of the things you spend a lot of time doing is helping them raise capital. Entrepreneurs are always looking for capital, and raising capital used to be, you know, really, really hard. It's still really hard, but it used to be, before the crowdfunding rules, a lot harder, as as you know. And when I saw the Jobs Act on the horizon, this must happen back in like 2011, which is amazing, of course, how quickly time flies.

Eve: [00:23:50] Yes.

Mark: [00:23:51] But I said, wow, you mean you're going to be able to use the Internet to raise money? This is huge. It's transformative. It's disruptive. It's fantastic. And I drank the Kool-Aid right away and thought this would just be a great thing for the American economy. And I said, it's going to be fun and I want to be involved with it. So, I immediately decided that that's what I was going to do. So, I learned all about it and started writing this blog and started speaking about it in public. And I'm so enthusiastic about it, and the rest is history. So, that's my story, which in some ways is probably similar to yours, right?

Eve: [00:24:33] Yes.

Mark: [00:24:34] You saw it and you said, aha!

Eve: [00:24:36] Yes. But not enough of us yet. Right. Still a pretty small industry.

Mark: [00:24:41] Still a pretty small industry, but it is growing, you know. People are raising, we talked about five million being a pretty good real estate deal, you know, people are raising 15 million now. And that, when, you know, when you and I got into this industry, the concept of being able to raise 15 million dollars for a deal online was unthinkable.

Eve: [00:25:06] Yes.

Mark: [00:25:06] You know, people were raising 250,000 dollars to do a fix and flip. The industry is now funding from very significant deals. And because entrepreneurs are always looking for capital, you know, the entrepreneurs of the world are really paying attention.

Eve: [00:25:26] Yes. Yeah.

Mark: [00:25:27] I'm a pretty good barometer because I am pretty well-known in the industry and I will, so when I say my phone has sort of been ringing off the hook, that's a pretty good industry barometer.

Eve: [00:25:40] It is. Yeah.

Mark: [00:25:41] You know, it probably means lots of peoples' phones have been ringing off the hook. And this latest change really has gotten people's attention.

Eve: [00:25:49] Yes. Well, it should.

Mark: [00:25:52] So, I think in 2020, I really think the industry, those of us who survive the coronavirus, anyway ...

Eve: [00:26:01] Oh, that's depressing.

Mark: [00:26:02] Yeh, and I ... then are going to, you know, really see a significant uptick.

Eve: [00:26:10] Yes. So, I have to ask the next round of improvements that the S.E.C. makes, what do you want to see on that list?

Mark: [00:26:17] So, I get asked that question a lot and I never have a ready answer because I've been doing this, you know, I've been practicing law for so long. I have learned not to think about possible legislative or regulatory changes because they are so rare and so unpredictable, you know. There are two things you never want to see being made. One is sausage and the other is law. I just focus on the world that I have, that I'm in, rather than on how it might be improved.

Eve: [00:26:57] I get it. The thing I think about is of regulatory burden, which is enormous for small companies. Really enormous.

Mark: [00:27:05] And how would you address that?

Eve: [00:27:08] For a small company that's never done something like this before. As a member of FINRA, not only are you following, you know, the regulation crowdfunding rules, but you're also following FINRA's rules, which require many, many, many things, like WURM compliance of emails and evidencing and things I never knew existed. It's very time consuming to learn at all, and it's time consuming to keep it up and to do it properly. And I have a feeling that many platforms are not doing it properly because it's just too hard. So, I think that really needs to be addressed in one way or another. You know, I don't know what a full-blown broker/dealer compliance book looks like. I'm sure it's worse. But in some ways I feel like FINRA wasn't ready to handle these smaller companies, they've never done anything like it before. The compliance is ... huge. And, you know, we're surveilled every quarter, and they said, well, every word. And that that's their job. So they have to, I'm not saying they shouldn't, but it's all required, and it's a lot.

Mark: [00:28:19] Yeah. And I mean, maybe I would say the next significant change maybe should be from FINRA rather than from the S.E.C..

Eve: [00:28:31] Yes, possibly.

Mark: [00:28:32] I completely agree with you that FINRA didn't know how to deal with this and they started off with a light touch, you know. The first funding portals that I represented that, they were easy to get approved. And then FINRA just didn't know what to do. And, you know, the easy answer is from a regulatory point of view was always to make it more difficult. And so we've ended up in this kind of crazy situation where funding portals, small, small organizations, are subject to the same regulatory treatment as, you know, as Morgan Stanley. And it it is clearly not a good fit.

Eve: [00:29:16] That's right. Although I have to say that they're trying, and in their communications with Small Change, at least, the tone is more about helping us be aware of what we're supposed to do. So, it's not a bad tone, but still, the regulatory burden is there. In a sense, I think FINRA got lumped with this without anyone much thinking about the consequences. Does that make sense?

Mark: [00:29:39] Yes. I mean, I'm not attacking FINRA, because, as you say, they're just doing their job. No one told them, you know, you should act differently with the respect that this particular species of FINRA member, as you know, I mean, these days we're submitting policies and procedures to FINRA that are, you know, 75 pages long ...

Eve: [00:30:03] Oh, wow.

Mark: [00:30:03] ... could be a two person company where, you know.

Eve: [00:30:07] Yeah.

Mark: [00:30:07] The policies and procedures amount to the two people saying this is how we're going to regulate ourselves. You know, there's no one else to regulate. There's no one to supervise.

Eve: [00:30:17] Yeah, no, no. I know. It's a shame.

Mark: [00:30:21] It's almost been an absurdity, but there you go.

Eve: [00:30:25] So, yeah. Let's root for FINRA making the next change or, something happening that permits for FINRA to make the next change, because I'm not sure they're fully in control of that themselves. I don't really, I don't really know. But, you know, we we pay a lot of money to a company called Smarsh to archive all our emails, all our websites, everything, so that they're all WURM compliant. That's a big burden for a tiny company.

Mark: [00:30:52] Well, there you go.

Eve: [00:30:52] We also pay a lot for insurance, which is crazy expensive. I have a feeling that many funding portals don't ...

Mark: [00:31:00] Just don't do it. Yeah.

Eve: [00:31:01] ... pay for insurance, because they can't afford it. I like to sleep at night.

Mark: [00:31:05] I guess, what from the FCC, you know, rule 204, which is that burdensome advertising rule that you were alluding to earlier. That does seem a little too harsh. The idea of it, the theory of regulation crowdfunding is that every investor should have access to exactly the same information at all time.

Eve: [00:31:29] That's right. Yep.

Mark: [00:31:31] And so that's why they don't let you freely advertise. They want all attention to get focused back to the funding portal.

Eve: [00:31:39] Right.

Mark: [00:31:40] Which is supposed to be the sole source of the information. And so, yeah, I totally understand that. I'm not going to say there's no reason for the rule. I think maybe this is an example of ideology, sort of, getting the better of practicality. The rule is just impractical. And ...

Eve: [00:32:02] Yes. Yeah.

Mark: [00:32:04] The ideological purity of it I think is outweighed by the burden that it places on, again, on very, very small companies.

Eve: [00:32:13] We've ended this on a bad note.

Mark: [00:32:15] Yeah, but well we're sort of searching for ways that maybe in five years from now, maybe the S.E.C. will make the rules even better.

Eve: [00:32:26] Yeah.

Mark: [00:32:26] But these little rules, you know, again, we're dealing with tiny companies and you know, big companies have the resources to hire lawyers, like me, or even have their own in-house lawyers. But these are tiny companies. So, a lot of these rules, as you know, in your position as a funding portal end up just being tripping points, you know, traps for the unwary.

Eve: [00:32:50] Yes.

Mark: [00:32:51] Yes, we could do with fewer of them. But on a positive note, again, 2020 is going to be a very, very good year.

Eve: [00:33:00] Yes, it is. And final question, what's next for you?

Mark: [00:33:06] What's next for me is, you know, I've just started a new law firm, Lex Nova Law. Super exciting, fun, high tech, really cool, hiring more people, training more people to learn about these rules. And part of my job in the crowdfunding industry is to educate people. So, I love being on the forefront of education. And another part of my job, I think, is to make the industry better. And that means more compliant, but also more efficient. The Internet, which is what crowdfunding is all about, it requires efficiency, right? It is ...

Eve: [00:33:54] Yes.

Mark: [00:33:55] It is a tough taskmaster. You know, Amazon. You try to compete with Amazon in retail, man, you find out how efficient they are. So, lawyers, the key kind of friction points in the syndication world, in the capital formation world. You know, lawyers have to become more efficient. And I work on that all the time and try to work with industry leaders to make the crowdfunding industry better for investors, in part by making it more efficient. So, that's the answer your question

Eve: [00:33:55] Great. Well, I've had the privilege of working with you on that. And I agree. Efficiency really matters. Thank you so much for joining me. And I also can't wait to see what the year holds.

Mark: [00:34:42] Thank you so much.

Eve: [00:34:44] Okay.

Mark: [00:34:44] Have a great day out in sunny Pittsburgh.

Eve: [00:34:51] That was Mark Roderick. We got into the weeds together about the proposed improvements to regulation crowdfunding. He and I both understand what these changes will mean to capital formation. As Mark said, these proposals are great for the crowdfunding industry and for American capitalism. They're not about Wall Street. They're about small companies and ordinary American investors, where jobs and ideas come from. You can find out more about impact real estate investing and access to the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Mark, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:08] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:15] My guest today is Brandon Dennison, a young creative powerhouse working to bring an economy to mid-Appalachia. As a young adult, Brandon noticed the poverty and lack of jobs in the town he grew up in. That early memory stayed with him through his college years. While still at school, he launched Coalfield Development, which is focused on workforce development to counter the generational poverty and lack of economic opportunities in Western Virginia. While workforce development is the center of Brandon's focus, that has also spilled over into creative, sustainable and community-centric real estate development. Brandon's work has been recognized with a Heinz Award, and a $1 million grant from the Rockefeller Foundation/Chan Zuckerberg Initiative. You are going to want to hear all about it.

[00:01:24] Be sure to go to EvePicker.com to find out more about Brandon on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:58] Thanks so much for joining me today, Brandon.

Brandon Dennison: [00:02:01] Happy to be here. Thanks for having me.

Eve: [00:02:03] So, we are rebuilding the Appalachian economy from the ground up. That statement is front and center on the home page of Coalfield Development, the organization you founded and lead. Well, I'd love you to tell me exactly what that means.

Brandon: [00:02:20] Well, it is a bold statement. There's no doubt about that. And we are trying to model and pioneer what a whole new and better and fairer and more sustainable economy can look like for our region. This is a region that's been overdependent on coal for far too long and that overdependence has left us economically vulnerable. It's also left our environment in a difficult situation, not as clean as it should be and it's hurt, it's ultimately hurt the fabric of our societies and our communities, as you can see with the growing opioid and addiction crisis that we're in. So, at Coalfield, we know that we can't re-employ every single unemployed person that's out there in Appalachia, but we can model what a newer and better way of doing things can look like.

Eve: [00:03:13] So, you know, what does that modeling look like? Have you developed programs? What are you working on?

Brandon: [00:03:18] Yeah. So, we incubate, mostly from scratch, but also in partnership with other entrepreneurs, we incubate what we call social enterprises. These are business models that blend the compassion of the nonprofit world with the efficiencies of the for-profit world. And the enterprises are in new sectors of the economy where we can innovate and show what a more sustainable economy can look like. So, for example, we've helped start the first solar installation company in southern West Virginia. We have an organic agriculture company. We make t-shirts out of recycled plastics. We make wood furniture out of reclaimed lumber from dilapidated buildings, some very innovative businesses. And we use those businesses to put people back to work, and then to support their lifelong learning and development.

Eve: [00:04:06] And so how many businesses like that have you developed to date?

Brandon: [00:04:09] From scratch, we've helped start 11 new social enterprises that we own and operate. And then we've also invested in more than 50 other social enterprises throughout the region.

Eve: [00:04:21] That's a lot. That's over 60, already.

Brandon: [00:04:25] Yeah.

Eve: [00:04:26] And so that creates a lot of jobs. How many jobs have those enterprises created?

Brandon: [00:04:32] We've created more than 250 new jobs. And those are permanent positions. And we've trained over 1,000 people through our training programs.

Eve: [00:04:41] That's that's pretty amazing. So, tell me a little bit about the programs that you've developed, as well.

Brandon: [00:04:47] When we hire a person onto these social enterprises, we hire them according to what we call our 33, 6 and 3 model. This is how we organize the work week, 33 hours of paid work each week, six hours of classroom time. All of our crew members are working towards an associates degree at the local community college. And three hours a week of personal development, which is, essentially, it's life stuff ...

Eve: [00:05:15] Yeh.

Brandon: [00:05:15] ... to help our people overcome the challenges that are getting in the way of their quality of life. So, it's a very holistic model. And what we found is, whether it's in agriculture or construction or manufacturing, the model's replicable across different sectors of the economy.

Eve: [00:05:31] So, you're also providing, I think, a lot of support services in a variety of programs, like you, you say you train people. How do you do that? What resources you provide them with?

Brandon: [00:05:43] So, this is a paid experience. The 33 hours, it's paid work, it's a real job. And then we do a scholarship for the "6" and the "3," so none of our college students have student debt. And then we layer on some additional life support. We have a zero interest emergency loan program that folks can tap if they have an unexpected emergency. And we facilitate a personal development program, which is really its reflection, where part of those three hours we're creating time for folks to really evaluate where they're at in life, and sometimes for the first time, assess a future and how to attain that future.

Eve: [00:06:22] So, it sounds like you have a huge amount of support, I think you're just probably telling me little pieces of it, for a lot of people. And what impact has that had? I mean, how are you measuring success? What does that look like to you?

Brandon: [00:06:40] Well, there are some easy ways to do that. And then there are some deeper ways to do that. What excites us is really the deep human development. When we see a person who's been able to calm chaos in their life, and they're now able to develop a life plan and goals and start to achieve those goals, and start to have a quality of life they never thought attainable. That's why this organization really exists. So, we measure our success by jobs created, and businesses created, and people trained. But then we also, internally, every crew member has a monthly evaluation by which we track their professional development. And then every week we also have a personal reflection which actually monitors and tracks the improvements in the well-being of the person themselves. So, we can measure this through peer-reviewed surveys on things such as optimism and self-confidence and sense of self-agency and self-worth. And that's harder to measure. but that's really the magic of this organization, I think, are those deeper human, really, transformation is not too strong a word for what we see happen in people's lives. We've seen people go from struggling with addiction to, all the way to becoming entrepreneurs. Folks who have been couch surfing and homeless to first time homeowners and opening savings accounts. So, I don't think transformation would be too dramatic a word.

Eve: [00:08:10] No, absolutely not. That's pretty remarkable. Tell me, how does real estate development fit into your model?

Brandon: [00:08:19] Yep. So, we have a niche with real estate where we take on older historic buildings. We use our locally hired construction crews to revitalize those buildings into mixed use, mixed income hubs for economic development. So, what I mean by mixed use, there's usually an affordable housing component. We do the housing green and sustainable upstairs, and then downstairs there's usually a small business component where we're creating new space for new businesses to come into the communities. New social enterprises to open up shop. And then by mixed income, you know, we're creating assets that are really accessible for people of all different incomes. And so, the real estate component really supports the personal development and the enterprise development strategies that we've already talked about. And it's important for gaining community trust because it's so tangible. I think sometimes there is a lot of cynicism down in southern West Virginia. There've been so many government programs and mission trips and charitable efforts that folks have become really skeptical about what it actually means for their lives. I think part of the reason our real estate component is so popular is it's tangible. People see an empty building coming back to life. They see their neighbors moving in there, having a great place to live. They see new businesses opening and putting people to work. And it's hard to deny that positive momentum.

Eve: [00:09:44] Yeah, that's true. I think real estate is pretty fabulous that way. It's sort of visible proof of change, right?

Brandon: [00:09:50] Yup, exactly.

Eve: [00:09:51] Yeah. How many projects have you completed?

Brandon: [00:09:55] I would have to add that up, exactly, but I'd say at least about a dozen. We have another three or four in our in our pipeline, right now.

Eve: [00:10:03] And your role in these projects, are you the developer, or do you help someone else who's developing the project?

Brandon: [00:10:11] We are almost always the developer. So, we have the competency as an organization to put the finances together, to lead the community engagement, the community visioning. We're usually the contractor. We're a licensed general contractor. So, that creates local jobs through which we can use that 33, 6 and 3 model that I referenced earlier. Sometimes we're the owner and manager, but not always.

Eve: [00:10:35] So, I have to ask if there's something you don't do?

Brandon: [00:10:40] (Laughter) That's a fair question.

Eve: [00:10:41] Because you're rattling off, like, an extraordinary number of accomplishments, and I'm sure there's more tucked away that you're not talking about.

Brandon: [00:10:48] So, I studied nonprofit management in graduate school, so I know the term "mission drift" and it's always a concern. But kind of our theory of change for southern West Virginia is that things had gotten so stagnant and so, sometimes hopeless feeling, that what was needed were really were some bold experiments. And that it wasn't enough to just pick one area and say, this is what we do and this is all we do. And so, we are into a lot of different things, but it's actually kind of on purpose.

Eve: [00:11:19] Yeah, it sounds like you're pretty happy about it, too, Brandon.

Brandon: [00:11:23] Yes. Because of those transformations, that I realize, it's hard not to wake up excited about what we're doing. This is where I'm born and raised. So, I love this place. I'm committed to this place. And to get to see people transform their lives and communities transform, you know, literally empty buildings transformed into new places of business. It's inspiring to be a part of it.

Eve: [00:11:46] So, let me let me ask you, are you working in one town, city, or are you working all over the state?

Brandon: [00:11:55] We have partnerships all over the state now, and even a few outside of our state borders. But most of our work is focused in southern West Virginia, kind of near the Kentucky border.

Eve: [00:12:07] Okay. And tell me again what sort of problems? You, I know, there's an opioid crisis, I mean, what sort of unemployment are you dealing with there? What's happening economically in that part of the state?

Brandon: [00:12:21] Well, I've had to learn the hard way the difference between generational poverty and circumstantial poverty.

Eve: [00:12:28] Yeh.

Brandon: [00:12:28] Circumstantial poverty, you have folks who have had stable income, have had good jobs and lose those jobs, and it is very scary. But there's kind of a base or a foundation for them to rebuild off of. Whereas, with generational poverty, you've got several generations gone by without wealth and assets accumulating. And it's just a deeper, more complex sort of challenge. And that's the kind of challenge we're facing in Central Appalachia and have been for generations. And so, that's why our work goes so deep and long. You know, we're creating actual jobs. These are two and a half year contracts. We're sticking with people all the way through the end of their associates degree, which is, usually takes two and a half years. So, it's more expensive, it takes longer, but it's what's required, given the complex generational challenges we're staring down.

Eve: [00:13:20] What is unemployment like there?

Brandon: [00:13:23] Unemployment is, it's always above the national average. But what actually stresses me out even more is the labor participation rate. Unemployment measures people who are out of the workforce, but are actively trying to get back into it.

Eve: [00:13:36] Right.

Brandon: [00:13:36] Whereas labor participation, that measures the number of folks who are trying to be in the workforce versus those who have totally given up. And we have a lot of counties where less than 50 percent of the working age population is in, actively in the workforce. And that, frightening. You can't build a modern, healthy economy with a number like that.

Eve: [00:13:56] No. So, then what is your and your organization's long term goal? What do you hope things will look like in 10 years?

Brandon: [00:14:03] This is why we're so committed to starting new businesses ourselves. It's not enough to just train a workforce for the businesses that exist because there's just not enough economic activity happening right now to really build an economy for the future. And so, this is why the startup component of our work is so important.

Eve: [00:14:24] Yes. So, out of everything you've done, what do you think's been most successful and perhaps what's been least successful?

Brandon: [00:14:32] Well, one of our social enterprises was a coffee shop in a small town in southern West Virginia that we were very proud of. It was in a formerly vacant building. It was a beautiful project. It filled a need and a gap that wasn't being met in the community. The idea for the coffee shop came out of community charrettes, But ultimately the coffee shop, it just didn't make it financially. And I think what that reinforced for me, you know, retail businesses are going to struggle until we've rebuilt that economy to have outside investment coming in, to have businesses, like manufacturers or construction companies that really generate a multiplier effect, it's gonna be tough for a retailer-type businesses to take hold. So, it was so sad to close the coffee shop, but we learned so much from that. And on the success side, I mean, I think of the human beings whose lives have transformed, the 250 new jobs that we've created. And ultimately, what those people as part of social enterprises have achieved, is they've modeled what a whole new and better economy can look like, especially when you think about that solar company.

Eve: [00:15:41] Yes.

Brandon: [00:15:41] To think that we've grown a solar installation company. It's totally for-profit now. No grant money needed. We did that right in the heart of coal country. That's a pretty bold accomplishment.

Eve: [00:15:51] That's pretty bold. Yeah. Just going back to real estate a little bit.

Brandon: [00:15:56] Sure.

Eve: [00:15:57] I've done this sort of real estate project myself, and I'm wondering how you fund your projects.

Brandon: [00:16:03] It's always a mix. We never like to do a project that can't sustain at least some debt. You know, we feel like if it has to be 100 percent grant-funded, that's probably not a good sign that it's viable. And yet in our distressed communities, to expect a property to handle 100 percent debt service is not fair either.

Eve: [00:16:23] I don't think you can expect that in too many places anymore, so, especially if you're trying to build affordable housing where, you know, affordability depends on keeping debt down. So, it's very tough. Yeah.

Brandon: [00:16:36] So, we almost always have a bank loan that, anywhere between 10 to 20 percent of the projects, sometimes more. And then we fundraise. And for the housing piece, the Federal Home Loan Bank of Pittsburgh has been a fantastic funding partner for us. And on the commercial side, we've had some good luck with the United States Economic Development Administration.

Eve: [00:16:59] Ok, creeping up to 40 percent would be a good thing, right?

Brandon: [00:17:03] Yeah.

Eve: [00:17:04] Yeah. I think given in Pittsburgh, projects that are in underserved neighborhoods typically need, maybe 40 percent of subsidy, and the market's gotten pretty strong here. So, it's very difficult. What you're doing is very, very difficult. And what role does the community around you play in the funding of these projects?

Brandon: [00:17:24] Part of the problem with the generational breakdowns that I was referencing earlier, that means there's not been an accumulation of wealth over the generations. And so we do not have a philanthropic base like what many urban areas have.

Eve: [00:17:40] Right.

Brandon: [00:17:41] Our local community foundation can really only do grants of five to ten thousand a pop. One in Charleston that can do a little bit better. So, we are really forced to look to the public sector for funding help and we're forced to look outside of our region for folks who understand the oppression and the divestment that's happened here, and are willing to help us try and rebuild a stronger base.

Eve: [00:18:06] Yes. So, that brings me to the question. You know, I have an equity crowdfunding platform. Do you think that could play a role in building communities for everyone where you work?

Brandon: [00:18:16] I think so. I think it's a brilliant model. And I think, you know, to answer your question more directly from before, about the role of the community, what makes our projects really go is this the sense of community ownership. So, we start every project with multiple community town halls, and charrettes, and the community members actually sit down with the architects and help design these projects. So, we often times, even though Coalfield is technically the owner and the developer, there is a wide sense of connection and ownership to these buildings from community members themselves. And so I think that sort of approach that we take might very well make us a good fit for your crowdfunding approach.

Eve: [00:19:00] What community engagement tools have you use that have worked best?

Brandon: [00:19:05] We used to start with a charrette right out of the gate. We realized the charrettes go better when there's more knowledge built up of the history of the building, and what's possible and what's not, given the funding source. And so, we start with the town hall, sometimes two or three, just to build the awareness of the history of the building and the funding sources at play.

Brandon: [00:19:26] Then we have a charrette, and sometimes more than one charrette, to actually let the community members sit down with the architects and have their fingerprints on the actual blueprints for these projects. And then we continue to engage the community once the properties are up and running. We hire local community members to staff these facilities. And we continue to lead community engagement efforts well into the future operations of the buildings.

Eve: [00:19:52] So, community engagement from beginning to end, right?

Brandon: [00:19:56] Yeah, absolutely.

Eve: [00:19:58] Going back to you. I'm just wondering what your background has been that's led you down this path, creating this pretty amazing organization.

Brandon: [00:20:06] I was born and raised in southern West Virginia. I had a happy middle-class upbringing, but I knew all around me there was a lot of pain and suffering. I went away to school about six hours east of here, and I got very involved with a progressive Presbyterian church. I loved the youth group and I would take the group on service trips, all over, mainly to learn and to do a little bit of service. And I had some amazing experiences, but everywhere I went, I felt like, where I belong was back home in my own backyard because I knew that's where I could probably have the biggest impact. I understood that place the most. And then the very last service trip I led was to Mingo County right back in southern West Virginia. And we had this experience where we were doing service work on a house. And these two young guys approached us and they had tool belts slung over their shoulders, and they asked us if we have work available. And I explained we were volunteers, and they went on their way, and it was just a brief, brief interaction. But I felt like that brief moment really summed up the situation in southern West Virginia, which is, we have people who want to work and want to learn and want to be a part of something, but our economies stagnated so badly that there's nowhere for that gumption to really be applied. So, that was the seed that really started me thinking about Coalfield Development.

Eve: [00:21:30] And then after that, how did you get it off the ground?

Brandon: [00:21:33] I went to graduate school to study nonprofit management with the Indiana University. I knew that I wanted to move back home but Indiana had a great program. And while I was there, the business school actually was helping start this new program in social entrepreneurship. And that was a phrase I'd never heard before, but it really caught my attention. The more I learned, the more I felt like, here was something different, and new and potentially more effective than some of the other public and nonprofit programs that have been tried back home. I had an internship in the summer of 2010 to kind of listen and learn. And then I took the whole second year of graduate school and just threw myself into the business plan for Coalfield Development. And then I, when I was done with school, I moved back in with Mom and Dad and they gave me financial cover and shelter to make a try at this thing.

Eve: [00:22:26] (Laughter) Very good. Have you moved out? I have to ask.

Brandon: [00:22:30] (Laughter) I did finally make it out. I'm married and we have two boys now.

Eve: [00:22:34] Thank goodness. Your parents are probably saying thank goodness too. Right?

Brandon: [00:22:38] Yeah, probably so. It's kind of, like, the millennial thing to do, you know. (Laughter)

Eve: [00:22:42] It's a very millennial thing to do. Really. It's been a tough 10 years, right?

Brandon: [00:22:49] It has been.

Eve: [00:22:49] So, then, do you think socially responsible real estate is necessary in today's development landscape?

Brandon: [00:22:56] I think it's critical and I think it's too often overlooked. You know, we organize our organization by what we call three core capabilities. It's the personal professional development. It's the incubating of the social enterprises. And then it's the community based real estate. And the community based real estate in many instances is what's making the first two possible. You know, it can be complex. There's many different funding sources. It takes years for these projects to get pulled off. And so sometimes it's not the easiest ... kind of sexiest piece of our work to talk about. But it's a critical component.

Eve: [00:23:31] Yes. Yep. And are there any current trends in real estate development that interest you the most that you think could be relevant, too?

Brandon: [00:23:39] Well, I think the American small town is poised for a comeback. Rural has challenges, but I think more and more, people are looking for a good quality of life. They're looking for outdoor recreation opportunities and clean air and clean water and peace and quiet. And with some historic buildings. When you think about sustainability, I think, historic preservation gets overlooked. But one of the best things we can do to build new housing in a sustainable manner is to preserve our current building stock rather than knock it over and put it all in a landfill. So, I think there, the future of the market might be good for rural small towns. I hope so.

Eve: [00:24:18] Yeah, I think you're probably right. I was in Australia recently and I travelled to Hobart, which is in Tasmania, to the south of it. And it was fascinating because Melbourne is the closest city to the north and it's one of the most expensive cities in the world and growing really, really quickly. But it was this tiny little city. I hesitate to call it a city, it's very small. And it had really had a huge influx of young people who were experimenting, and building businesses in exactly the way you've described. Just trying to, kind of, build up a new place for themselves where they could afford it. It was pretty dramatic.

Brandon: [00:24:59] Very cool.

Eve: [00:24:59] Yeah, very cool. Yeah.

Brandon: [00:25:00] I think that's the future.

Eve: [00:25:01] Yeah. I think, you know, people have to find their way out of some of our cities which have become just too expensive for most people. How do we think about our cities, towns and neighborhoods so that we can build better places for everyone?

Brandon: [00:25:17] I think historic preservation, again, is a key part of that conversation. I think that mixed use, mixed income projects are important. The reason the mixed income, you know, if you look at affordable housing development in years past, it's often, it's taken low-income people and shoved them in a corner of the city and kind of consolidated all the challenges that come with poverty. It really cut people out of pathways and avenues and access to opportunity. The mixed income is important, and the mixed use is important as well, so that we're not just creating affordable housing, but really, we're building up communities that include small businesses and recreation opportunities and community engagement opportunities that contribute to a whole quality of life.

Eve: [00:26:07] So, I think basically you're saying we should just keep mixing it up, right?

Brandon: [00:26:11] I think so.

Eve: [00:26:12] Just mix it up. Well, thank you very, very much for your time. I really enjoyed talking with you and all the best for this pretty fabulous organization that you've built.

Brandon: [00:26:22] This was a great conversation. I love the work that you're doing as well. And I hope we can find a way to work together.

Eve: [00:26:28] Absolutely.

That was Brandon Dennison of Coalfield Development. Brandon measures success in the lives he helps to transform, from poverty stricken and jobless to optimistic and confident. Each participant in the 33-6-3 program that he developed works for 33 hours, studies towards an educational degree for six hours, and works on personal development for three hours, each and every week. While workforce development is the center of Brandon's focus, that has spilled over into creative, sustainable and community-centric real estate development as well. Historic preservation, community engagement and job creation all come together in a very holistic real estate development program.

Eve: [00:27:30] You can find out more about impact real estate investing and access the show notes for today's episode at my website, Eve.Picker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Brandon, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:06] My guest today is Brian Gaudio, founder of Module Housing. While working on a documentary about the housing crisis in South America, Brian, then just a college senior, saw the broader possibility of modular pay-as-you-go design. As opposed to simply designing yet another prototype for affordable housing, he decided to create a startup around it. And so Module focuses on perfect little housing solutions that meet zero-energy standards, and are smaller and flexible, so that they can grow with a family's needs.

Eve: [00:00:53] Be sure to go to EvePicker.com to find out more about Brian on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing, and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:9] Hi, Brian. Thanks for joining me today.

Brian Gaudio: [00:01:24] Hi Eve, thanks for having me.

Eve: [00:01:29] It's a pleasure. So, I've been watching you build your company, Module, for a few years now, and I'm really excited to talk to you about it. You've decided to focus your life's work on designing modular housing, affordable-by-design housing. And that was a pretty bold move straight out of school. So, what problem are you trying to solve?

Brian: [00:01:47] It is a big problem. And it's a problem that, in school I was always, you know, in studios I would always be thinking about. It was something that was rattling in the back of my head, was how do we bring good design to more people, right? In architecture school we're often told how important design is. And then we get out in the real world and we realize how the designers need to have a larger seat at the table. So, in my work after school, it was always trying to answer that question of how can we bring good design to more people. And there may be non-traditional ways to do that, is what I've been learning.

Eve: [00:02:20] That was the biggest problem. But I think I also read that you became very interested in affordable housing issues during your Fulbright Fellowship. You want to tell us a little bit about that?

Brian: [00:02:30] Yes. In school I actually was studying under one of the fathers of community design and participatory design, Henry Sanoff. He had founded an organization called the EDRA, the Environmental Design Research Association. So, I was sort of a student of his and a student of Brian Bell, who had started the Public Interest Design Institute, in the United States. So, it was really learning from folks who were leaders in the public interest design space. So, after school, I tried to pursue that as a career and worked at the Gulf Coast Community Design Studio doing affordable housing and disaster recovery housing, as an intern there. For those who don't know, Biloxi, Mississippi, on the Gulf Coast, is not too far from New Orleans. And when Hurricane Katrina hit New Orleans, it also hit Biloxi. So, I spent a little bit of time on affordable housing in Biloxi, Mississippi. And then, also, after that, went to the Dominican Republic and did a Fulbright scholarship trying to understand housing affordability as it relates to disaster recovery and urban design, in general. I was working in a neighborhood that was alongside of the, a waterway that during some of the tropical storms, people would be washed away, and housing would be wiped away.

Eve: [00:03:49] Hmm, wow.

Brian: [00:03:50] So, that research was really thinking about housing from the perspective of, where is it safe to have people housed? And what do you do when a neighborhood exists in a place that is really at risk, when we think about environmental and natural disasters? So, that was some of the kind of affordable housing work and research I was doing right out of school.

Eve: [00:04:15] That's pretty intense work. So, how does that tie into what you're doing today? I mean, what got you from there to where you are today, building small modular homes.

Brian: [00:04:28] Being exposed to these different methods of practice ... so, in Biloxi, Mississippi, I was working for a nonprofit architecture firm that was an arm of Mississippi State University. So, I was exposed to this business model of a nonprofit architecture firm. And then at the Fulbright, it was really a bit more of an academic endeavor. Technically, the Fulbright's under the U.S. Department of State, but you work with the local university. So, again, thinking about some of these issues from a, an academic perspective, I would call it. And then after that, I had spent a little bit of time with a friend directing a documentary, again, trying to educate ourselves on the problem of housing affordability. So, in that documentary, we interviewed a lot of architects, governments, designers, businesses about the housing crisis in other countries, specifically in South America. And it was in this kind of three, four years or so of, I would call it, a research phase, of understanding what are the practices and models that other organizations and groups are taking as it relates to housing affordability and what things worked from those models and what things didn't work. And I guess how that ties into Module, what we're doing today was, while these nonprofit architecture centers, these design centers, can work really well at a neighborhood scale, the question I always had was how can we move beyond the neighborhood scale and effect change at a greater scale? You know, at the city scale, and at the state scale, and eventually at the scale of a, you know, a country like the United States? How do we take some of those principles that worked really well at the neighborhood scale, but may not be able to affect thousands of people?That's really why we chose to start Module, not as an architecture practice, but as a startup company. The idea being that you could scale faster through alternative capital means and have ultimately a greater impact once we do reach that scale. So, that's kind of how those experiences influenced starting Module.

Eve: [00:06:29] That's a really interesting path. I know you also were a company in Alphalab, which is a, I suppose, a startup accelerator. Has that worked for you, as a startup company, rather than a building company?

Brian: [00:06:44] Yeah, it's a very good question because we went through, so you are referring to Alphalab and for those who are not in Pittsburgh, Alphalab is a startup accelerator, kind of like TechStars or Y Combinator, where they give early stage companies, basically folks with an idea and maybe a business plan, some initial seed capital, typically 50,000 dollars and some free office space and mentorship, to basically start to try to build their own business. A lot of the businesses in that accelerator program were tech businesses. So, think about software as a service company, SaaS companies like Slack, for example, you know, being the typical type of company that's supported by an accelerator. So, I think we learned a lot about asking questions and testing our hypothesis through that accelerator program. And we were able to raise some initial angel capital, I would call it, in the Pittsburgh startup community and get our name out there and, you know, learn how to market, create a website and things like that. I think we also learned that as we look at investors and ways to support our business, you know, a typical venture capital investor is not likely the right kind of investor for a company like Module because they look to 10x their money in five years, which, we're building a different kind of business than that. So, those are some of the things we learned from Alphalab.

Eve: [00:07:06] Yeah, interesting. So, you don't think you're a unicorn, like the rest of us, right?

Brian: [00:07:07] Right. No. Not in the traditional sense, no.

Eve: [00:07:18] So, what distinguishes your product, your modular housing products, from other products in the marketplace.

Brian: [00:08:26] So, as we think about off-site construction, modular housing, prefab construction, there are many companies now who are pursuing this as a business model. And I think we identify with the overall trend. The reason why so many people are pursuing modular or prefab construction is the labor shortage is getting worse and worse. And Eve, I know in your business, you're doing a lot of development. So, I'm sure you're familiar with the shortage of qualified skilled labor here in Pittsburgh. But at a national scale, we have that challenge. So, the labor shortage is real. And then we have a supply shortage, as well, in certain markets. So, they can't build things fast enough. And so that's really why prefab or off-site construction has started to take off. So, parts of the home or the development are built in a factory environment, shipped to site, installed with a crane on a traditional foundation. So, as we think about our company, Module, and what differentiates us, we are really thinking about the entire customer experience. So, we're offering turnkey design-build-develop services. So, we're not a manufacturer of homes. We work with a third-party manufacturer and we work with a third-party contractor. So, we don't own those parts of the supply chain. But what we do own is the customer experience. And we're trying to really redesign the customer experience, and redesign homeownership from the ground up, because we think the typical way that the top ten voters in the country do it are very dated. The floorplans they are using are dated, the construction methods that they're using are dated often times. And today's consumer is used to the convenience of making purchases online and browsing of things online. And they want things now, and they want help. A lot of customers expect to have, kind of the user experience that they go through purchasing a computer or something, in all of the purchases in their lives. And not many builders can offer that experience. So, I'd say that's one thing that's really unique about us as a company is the customer experience that we're building through our web application. If you go to our website ModuleHousing.com, you can see some of that. That's one thing that's unique about our product. I would say the other thing is all of our homes are certified by the U.S. Department of Energy as zero energy-ready. We build to that spec. It's a sustainability spec. And we chose it because we believe it offers the best bang for your buck as we think about customers. So, while LEED and Passive House may be, sometimes those certification programs can be really challenging and costly to do. We feel that the Zero Energy Ready Home program offers some of the benefits of lower operating costs in your house at a much more reasonable price point.

Eve: [00:011:11] So, it's an energy program for everyday people.

Brian: [00:11:15] Mmm hmm. Exactly.

Eve: [00:11:16] Yeah, interesting. What is your process? Can you describe that?

Brian: [00:11:19] Yes. So, we work with, I'll call it, several types of customers. We work with individual home buyers. So, folks who want to purchase one of our homes or build a home with us. And then we will also work with real estate investors or mom-and-pop developers, I'll call it. So, these are folks who may have purchased land recently. They may have fixed up some houses or have some rental units, but they're not a new construction contractor. But they own land and they're looking to do something with it. We service, I'll call it, mom-and-pop developers and home buyers. And we'll do two types of processes. One is, if you're a home buyer, you come to our website and you fill out a form on our website. And on that form you'll share here's my current needs, my future needs, my financial health, and here's some of the areas that I'm thinking about owning a home in the city of Pittsburgh. And we have a proprietary GIS database of every vacant lot in Allegheny County. We're able to basically help that customer find the right lot for them, help them purchase that lot, and then help them build a home with us. So, we'll take them through the process from zoning approval, permitting, financing, estimating, and we will basically hold their hand through the process, through construction administration, until we've turned over the keys to their house. So that's really a turnkey service that we offer. And then, the other type of process we have is as a developer. So, we as a developer on spec, will go out and purchase land and build multiple units at once and then sell those units to customers. We're working on a project right now in Garfield, in Pittsburgh, where we are building four units, it's a mixed-income project, and we'll be selling those, those will be on the market, those will be finished this summer. And that's where we are going out as a company, acquiring the land, financing the project, and then customers will come in and have a traditional mortgage when they purchase the homes.

Eve: [00:13:12] And as these homes affordable compared to others? Where they sit in the marketplace?

Brian: [00:13:19] We will build for multiple income brackets. For instance, this project in Garfield is a good example, where we have a home that will be sold to a buyer making 80 percent or less of area median income. So, that home will be sold for 183,000 dollars. I believe that's the list price right now. And that's only for income-qualified buyers, who meet certain income limits. And we're able to do that because we had partnered with a nonprofit community development group in the neighborhood and Urban Redevelopment Authority of Pittsburgh, and we were able to secure a subsidy to subsidize the cost of that home to a buyer in the neighborhood. So, in that case, we're serving a kind of, for sale, affordable, 80-percent AMI customer. But our bread and butter products, our market rate product is going to be anywhere from the mid-threes to 500,000 dollars for a home. And to give listeners some context, as we track the new construction in the city of Pittsburgh, a lot of the new construction that's going up in the East End of Pittsburgh is going to be 600 to 800,000 dollars. So, that's kind of the going rate for a new construction builder-grade home in the East End of Pittsburgh. And because we're building less square footage and we're building, basically, in neighborhoods just next door to those, we're able to provide what we believe is a better quality product at a price point, let's call it the 400,000 dollar range, for our client.

Eve: [00:14:53] That's somewhat affordable, and partnerships to really create serious affordability. But like everything else we've heard and know, it's very difficult to build truly affordable housing without subsidies, if not impossible. This is another example of it. You really need a subsidy to make that work, right?

Brian: [00:15:11] Absolutely. I think coming out of school and you're thinking, you know, as I am thinking about myself graduating from school, I'd be like, wow, you know, we can design anything and we'll find a way to make naturally-occurring affordable housing with just great design. Then you realize affordable housing is really about financing, you know, and the capital stack. So, that's one lesson we've learned over the past four years.

Eve: [00:15:33] Yes. And so you've been at this for four years. How many houses have you built now?

Brian: [00:15:38] So we've finished our first home for a customer last year, in 2019. It was a one bedroom, one bathroom home in Friendship. It was sort of an aging-in-place model. We built it for a clients' parents. So, almost like an in-law suite, or an accessory dwelling unit, but on a separate property. That project is finished and we are now under construction to complete our next four homes. And those should finish in the summer of this year. And we have some other projects in the pipeline.

Eve: [00:16:08] What's the big hairy goal for Module?

Brian: [00:16:12] The big goal is really to push the industry. I feel that the way we build homes is dated. From the types of design, to the types of families and household types that a lot builders are serving. We want to push the construction industry to really wake up and understand that there are different types of customers who need to be served and we're ignoring those customers. So, I think that's really the goal. Module is a vehicle to do that. So, as we think about the young first-time homebuyers who are burdened with student loan debt, getting married later, fewer kids, they don't need to buy the homes that their parents bought in terms of size and programming and things like that. So, we're trying to push the industry to say, hey, there's a huge entry level housing need in the country. And there's also a huge need for baby boomers who are looking to downsize, and they have too much house. And we need to be thinking about these two customer types, because they're going to be a huge component of the nation's housing needs. That's really the ultimate goal for Module, is how can we push the industry forward and provide a demonstration of how a development company can do that responsibly, really.

Eve: [00:17:22] What are your goals just for the next few years? You've built a few houses.

Brian: [00:17:26] Yeh.

Eve: [00:17:26] How quickly can you ramp up now? I know how long it takes to get to the point where you get the first one out the door, so now things should speed up a little, right?

Brian: [00:17:35] That's right. Our goal, we talk about 100 units over the next four years, in Pittsburgh. So, that's the goal that we've set out. And so for us to do that, we have to start taking on larger projects. So, I'm looking at parts of the city where we can do, I'll call it, impact-scale projects, thinking 20 to 40 units and working with the local neighborhood groups to understand what their needs are and how we can serve them. So, we'll be finished our first spec project in this summer and we're looking at projects where we can build 10 or more units. And that's really what will help us scale faster. We'll do some of these one-off customers, you know, taking them through the process, just sort of, it's about brand awareness and it's about understanding the customer journey. But really, we want to be working on projects where we can assemble sites that build 10 or more units at once.

Eve: [00:18:25] And you think you're going to stay in Pittsburgh for now.

Brian: [00:18:28] Yes, we will. Obviously, to build thousands of homes, we're gonna have to get outside of Pittsburgh. But Pittsburgh will be the first market. It's my hometown. I'm from here originally. And so, we thought it was a worthwhile test market. And what Pittsburgh has some other cities don't, is we have an insane amount of vacant land that is yet to be built.

Eve: [00:18:59] We really do, don't we?

Brian: [00:19:00] That's one asset that we have. So.

Eve: [00:19:01] Yes. Yeah.

Brian: [00:19:05] And that's one reason why, getting getting projects off the ground, you know, if we were in New York, for instance, getting access to land as an upstart developer might be nearly impossible. And so, there are still parts of the city of Pittsburgh where there are larger parcels of land, and we see that as one benefit of being in Pittsburgh.

Eve: [00:19:14] Great. So, I'm going to shift gears a bit and just talk to you about impact investing, socially responsible real estate. And do you think that's necessary in today's development landscape, thinking about the impact of what you build?

Brian: [00:19:28] Absolutely. I think, and one reason, kind of when you talk about a goal of our company or a reason that we were founded, is we feel that often times what gets built in a particular site may be really great for the bottom line of a particular limited partner or, for the preferred return of a particular investor. But that becomes the primary goal of the project. And the folks who end up living in the space, whether they're buying it or renting it, are an afterthought. And I'm not saying that's, by no means are all developers that way, but we've seen a lot of development projects that really ignore the end user. And I think why I'm excited about impact real estate investing is the ability to bring the end user back to the forefront of the conversation, because we build housing ultimately to shelter people. And I think sometimes people in this industry lose sight of that. So, I think impact investing has the ability to bring the end user back to the forefront of the conversation.

Eve: [00:20:33] Yeah. You know, when you talk about that, are there any current trends in real estate that excite you or interest you the most, that you think might have legs in the future?

Brian: [00:20:43] Trends with respect to impact investing, or just trends in general?

Eve: [00:20:46] Anything, I mean, obviously you think modular housing is important. But anything else out there? I've been watching, we've seen co-working, for example, really change the landscape. Today, I was reading along those lines about people who are starting to co-purchase homes because they can't ...

Brian: [00:21:07] Yeah.

Eve: [00:21:07] ... they can't afford them individually. So, there are some weird trends emerging in an effort to deal with this housing affordability crisis.

Brian: [00:21:17] Absolutely. Speaking of those trends, I mean, we operate in the startup world, so we do meet a lot of startup companies working on innovative finance models. And there's a company called Divy, which again, sort of supports co-purchasing of homes. And that's a company, you can look up Divy. And there's another company called CoBuy. So, these are finance companies which help either friends or folks who want to purchase a house together. So, that's one model. There's been a couple other startups as it relates to purchasing of homes where they will buy the house for you and you will rent from them for a certain period of time, and then with the option to purchase. I don't remember the name of the company that I was reading about the other day, but that's another interesting finance play. And then, I follow, obviously, these smaller, you know, lot size movement. So, with what's happening, California with ADUs really interests me. And then I think it was Minneapolis that out with the single family zoning restrictions ...

Brian: [00:22:19] Yeah, that was really interesting. Yeah, they're really interesting trends, aren't they? People sort of really adapt to the marketplace in really fascinating ways, beyond just the companies that emerge. People are immensely creative. So. that's kind of comforting, isn't it?

Brian: [00:22:36] Yeah, absolutely. There's a company that's working on 3D printing of houses, which I am a bit skeptical, I admit, I'm a little bit skeptical of. But I think it's amazing that we have, now, three or four startup companies that are 3D printing homes. I think of it as a fascinating R&D project. I'm not sure how commercially viable that technology is. But the idea that, you know, it sort of get to the same pain point of modular construction with regards to the labor force.

Eve: [00:23:06] Yeah. I mean, I think ...

Brian: [00:23:07] Preprinting the home, that could really save some labor costs.

Eve: [00:22:12] Yeah. I mean, that seems to be the heart of it all. Because when you think about affordable housing, there's always been the skeptics. It doesn't really matter what city or state you're in. There is a gap between the cost of building something and what someone can afford to pay towards that cost. There's just this financing gap. And until we figure out new technologies in construction and ways to reduce the cost of construction, that gap just isn't going to disappear. It's not going to go away. I don't see that there's any other way to make it go away. It's a really big problem. Yeah, it's a really big problem. How do you think we need to think about our cities and neighborhoods so we can build better places for everyone?

Brian: [00:23:59] As I think about a neighborhood and a city, sometimes neighborhoods are microcosms of the city. So, for instance, we're working on a project in Garfield, which is, sits in the East End of Pittsburgh. And Garfield was a neighborhood that still has a significant amount of vacant property and blighted properties. But it's a neighborhood that's starting to turn the corner.

Eve: [00:25:26] A few years ago, like, 400 of the 1,700 lots were vacant. That's a real big number.

Brian: [00:22:24] Yes. And, you know, I think there's evidence of a neighborhood like that, that's starting to make significant progress in reducing blight. But the question that everyone has is how do you reduce blight and promote new home ownership and things like that in a neighborhood without pricing out people who are from the neighborhood, or displacing residents. You know, like gentrification happens, it is a thing. Change happens. And managing that change, I think, is something that a neighborhood, like at the neighborhood level, can be done. But then I think there's, we're in the city of Pittsburgh. We have to think about managing change, encouraging growth in our city and then trying to manage that in a way. And I was just at an event yesterday with someone from the city of Pittsburgh, a representative from the city, and they talked about the number one need Pittsburgh has is turnkey new construction for people who are relocating to Pittsburgh. And I was really surprised by that statement. But I think it shows that while at a neighborhood level, there may be a particular issues that are really important, at the city level, sometimes those issues can be quite different. And so how did neighborhoods speak to cities and back and forth is a really important dialogue that has to happen.

Eve: [00:25:45] So, do you think a neighborhood like Garfield is managing the change? Because I know it's changed a lot in the last few years. It was a very poor, underserved neighborhood, and it's received quite a lot of attention in the last few years.

Brian: [00:25:59] I think it is a neighborhood that's actively managing that change. There are some neighborhoods ... we work with a lot of neighborhood groups, and we're not a nonprofit. Right? We do have a mission behind us, but there are some neighborhoods in the city of Pittsburgh where you talk about development and new construction, and people will just, they don't want even have a conversation about it. And they're trying to prevent change from happening. And that can be really challenging for the residents, and for people who want to be working in that neighborhood or living in that neighborhood. So, I think Garfield has done a good job of ... and then there's other neighborhoods on the other side where they're just sort of like, hey, it's we're open for business, you know, no rules and no regulations. So, I think Garfield has done a good job of balancing those two. And I think it's really up to the local community development organization, because they're looked at as the kind of voice of the neighborhood. So, how well can that director and the staff people manage those multiple voices? And they need to see, for instance, Garfield talks about, we need to see affordable new construction, but we need to see market rate new construction as well. We don't say we don't want that, we need that for our neighborhood. So, I think groups that realize you have to have a balance of those things are always the ones that we like to work with.

Eve: [00:25:19] Yes. So, what community engagement tools have you seen that have worked? You talk a lot about working in communities and making sure that you're sort of representing what they want. That can be hard, right?

Brian: [00:26:11] Yeah, it can be really hard. In Biloxi, Mississippi, we had different methods for community engagement. One method I really liked was we would host, and this is at our design studio in Biloxi on the main street there, we'd host something called Friday Morning Serial, S-e-r-i-a-l, but we served cereal, so we served cold cereal and coffee. And every Friday we would invite someone from the community to come in and talk about what they're, what they're doing, who they are. And we would invite folks from the neighborhood to sit. And it wasn't a long, wasn't a TED talk. It wasn't overly produced. It was come, talk for 15 minutes, and then we're just gonna have cereal and chat. And honestly, that was the best community engagement I had witnessed, because it was, it was a great organic way for people to start talking to their neighbors and learning about one another. And it wasn't like this formal presentation of the drawings, OK, here's the development site, it was a very natural conversation. That was one piece of engagement that I participated in that I thought was really fun.

Eve: [00:27:39] That's sounds really, that sounds charming.

Brian: [00:27:42] Yeah.

Eve: [00:27:44] We should do that here. That's really lovely.

Brian: [00:27:47] We should. And perhaps you'll have the, Elizabeth, she was running Friday Morning Serial at the Gulf Coast. Maybe she'll be a podcast guest at some point.

Eve: [00:27:57] Oh, very good. Yes.

Brian: [00:27:59] But in Pittsburgh, there's another kind of non-traditional community engagement. There's an event every year called Open Streets, where in different neighborhoods, they will shut down the streets to vehicular traffic and let people walk and bike in the middle of the street through different neighborhoods. And we've participated in that several times. You know, kind of little pop up booth. And that's a great way to talk to people and engage with folks, because they're out there having fun. And it's another way to get some informal community participation. So, it's called Open Streets Pittsburgh. And I think it's a great event.

Eve: [00:29:36] Well, I'm really delighted you mentioned that because, do you know I founded that, I co-founded that.

Brian: [00:29:43] Oh really? Well, there you go.

Eve: [00:29:45] Yeah.

Brian: [00:29:45] So, did you found it with the intention of doing that?

Eve: [00:29:48] Founded with the intention of opening the streets to everyday people. It's not rocket science. People were doing it all over the world. Pittsburgh's always a little bit behind, right? But I'm really thrilled to hear you say that it's meaningful to you. It's a great event.

Brian: [00:30:07] And it just activates neighborhoods in a different way. When you're walking through the streets ...

[00:30:111] Amazing.

[00:30:11] ... I think they've done a good job of putting it in neighborhoods where the folks who typically engage in Open Streets, they might be more cycling-oriented, or like transit advocates, but they're doing it in neighborhoods now which may have seen a lot of disinvestment over the past 30, 40 years. And I think it's a great way to get people engaged in the neighborhood.

Eve: [00:30:32] Yeah,.

Brian: [00:30:32] Non-traditional. So good job, Eve, and other co-founders.

Eve: [00:30:43] I did not do alone. But, you know, it's interesting because streets and roads take up so much of our open space and it's pretty wonderful to be able to, you know, use it as a park for a short time. Once a month, you know, you just open the space and get rid of the cars, let people go out there, and have exercise classes, or walk, or bike, whatever they want to do. It's a really wonderful thing. It's really fabulous. So, I'm glad you enjoy it. But you and I also have talked about equity crowdfunding. And I'm wondering, you know, that's what I do. And I'm wondering, you know, if you think that would be helpful for engaging a community like Garfield. In what's happening there?

Brian: [00:31:15] Yeah. Yeah. As I think about equity crowdfunding, or just crowdfunding, in general, you know, part of the model opens up the company to a broader audience. Right? Not as many people participate in real estate deals as to equity crowdfunding deals. And then when you add the marketing component to it, you're really telling a story. I've saw some of the projects that you've had on your platform. And Jonathan Tate, he and I have spoken together at a couple of events, and I really think it's an opportunity to tell the story of a particular project really well. So, in addition to funding the project, I think the narrative that you create and the engagement that you can have in an open, a more open platform, is exciting. That's when I think about equity crowdfunding.

Eve: [00:32:05] Yeah. I think for me is, my hope had always been that it would be a way to let communities invest in what's happening around them. And I don't think it's working too well for that yet. I think there's just a very nascent industry and people don't know very much about it. And I think that maybe investing is a pretty threatening activity for most people who've never done it before. So, I hope that over time we can educate people and they understand that investing in their own community could be a really great thing. But that's down the road, right?

Brian: [00:32:38] Yeah.

Eve: [00:32:38] So, I'm going to wrap up with one question that I really want to ask you, and that is if there was one thing that you could change about real estate development in this country, what would it be?

Brian: [00:32:50] I would change ... the people who are thought of as developers, the type, you know ... like I am late 20's white male. Right? So, I may not be like a slicked back hair, like 50s suit-wearing 55-year old guy, who's a real estate developer. But I think there are many other people who don't think of real estate development as a career, a path. Whether it's particular minorities or gender types. I would love to see more diversity in the world of real estate development, because I think the more people that are able to see that as a career and engage in it, then will bring fresh perspectives to the projects that we see developed around our country. And when it's this, you know, when it's kind of the majority of folks working in that field or who are perceived as successful in that field, fit one type of persona, then it limits the quality of projects that are going to be executed. So, I'd love to see many more types of people become developers then kind of what we think traditionally of as a developer.

Eve: [00:34:03] Well, I completely agree. And I want to thank you very much for spending your time with me today. It's fascinating. And I'm sure we're going to be talking again soon.

Brian: [00:34:12] Absolutely. Thank you very much, Eve. I've really enjoyed it.

Eve: [00:34:13] That was Brian Gaudio. As a young student, Brian absorbed ideas from many places. Both Elemental's incremental housing in Chile, and the 100,000 Houses Project by the Philly-based firm Interface Studio Architects, have influenced his thinking along with the housing crisis in South America which he was exposed to during the filming of his documentary. It's fascinating how new ideas are developed out of such varied influences.

Eve: [00:34:45] You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Brian, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve: [00:00:14] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Ommeed Sathe. Ommeed is Vice President of Impact Investments in Prudential Financial’s Office of Corporate Social Responsibility. His unit manages a portfolio of $1 billion in impact investments.

That’s a big number and it doesn’t seem like Ommeed is slowing down.

Ommeed grew up in a family who felt public service, through work or volunteerism, “was fundamental.” And that has clearly rubbed off.

Be sure to go to evepicker.com to find out more about Ommeed on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, SmallChange.

Eve: [00:01:42] Well hello Ommeed, thanks for taking the time to talk to me today.

Ommeed Sathe: Absolutely, Eve, it's a real pleasure to be with you.

Eve: Well, that's great. So I wanted to start with your title, Vice President of Impact Investments at Prudential. What does that mean?

Ommeed: [00:01:59] Yeah, so I head up the company’s impact investing activities, and that's obviously one of those terms that kind of sounds OK, but it doesn't really necessarily clearly translate. But what it is, for us, is it's a portfolio of investments we've made that are trying to have both a financial and a social impact. And so they are genuine investments that try to make money, but we invest them exclusively in projects that we think have outsize social investments and in particular in the types of projects that our company and traditional capital markets wouldn't do otherwise.

So, they're really meant not to be sort of a subset of what the company was doing already, but to be a portfolio, to be used to be catalytic and differentiated and to invest in places we wouldn't be investing otherwise and in projects we wouldn't be looking at otherwise.

Eve: [00:02:51] So how big is the portfolio?

Ommeed: [00:02:53] At the moment, it's, it's about a billion dollars.

Eve: [00:02:57] Wow, that's pretty big. Can you give us some examples of the things you've invested in?

Ommeed: [00:03:02] We have sort of two halves of the portfolio. One is around very physical types of projects, affordable housing. We've made a lot of investments in our hometown of Newark in big transformative developments and redevelopments. And then we also do some interesting work around new ways of doing agriculture, new ways of sort of growing and feeding the planet. And that's sort of on the physical side of the work. And on the other side of the portfolio is investments in really interesting social purpose businesses. And those have been largely focused on financial inclusion. And then on education and how do we re-skill and retrain the labor force?

Eve: [00:03:42] That's pretty great. How would you define impact in real estate? How does Prudential define it? Like, both of you?

Ommeed: [00:03:50] Yes. So, this is actually a really fascinating question. So, I think there's probably three ways to think about it. You can think about it just sort of on the the most, I'd say, straightforward which is, you know, units of affordable housing, square feet of redevelopment, square feet of the building, and if it's a LEED platinum. Your, sort of, the physical characteristics of the development very much sort of very clear outputs of sort of what the real estate is. I think the second way to think about it is what's sort of the community level and at the residents’ level. And so how are residents’ lives being impacted and living in certain places? How are services? What's the quality and satisfaction of tenants? So very sort of a consumer impact as well as in looking at sort of the communities in which this real estate is. So, are these places where investment wasn't being made and after you make these investments, does more investment come in? Are those investments leading to good outcomes or is it just catalyzing sort of unhealthy gentrification? Those are a couple of dimensions. And then I think the third and both, sort of, most qualitative and trickiest maybe to sort of measure, but something that really drives us is, is this work in any way catalytic? Does it change the trajectory of what a market is going towards? Does it prove that a new way or a new type of housing or new type of sort of investment strategy that could work thing be replicated in other places?

Eve: [00:05:18] That last one must be more of a hope than a metric that you can measure.

Ommeed: [00:05:23] That's right, it's true that it's nothing than more of a hope. But I'll give you some examples, maybe that last one, because I think it kind of brings it to life.

So, you know, one of the things that we've been looking at and I think we've done with the great sort of sort of architectural firms is how do you say we take lots that have been deemed substandard, often sort of ineligible even for development and develop really creative structures and housing and building models that can sort of create value on land that is otherwise essentially worthless. And are there ways to sort of replicate that and make that go to other places? Because it's interesting, right? Like, you know, with land getting so expensive and all the prime development sites gone. If you're trying to get more affordable housing into sort of affluent markets, sometimes figuring out really creative design solutions for substandard or non-standard lots is one way to do that. Another thing that we've done sort of I think has been really catalytic. We worked with some colleagues down in Washington, D.C. They had recently passed a new ordinance that required much higher levels of stormwater retention. And a lot of our city's stormwater is actually a sort of surprisingly under-appreciated problem. Enormous source of pollution, flooding. And so, cities are starting to try to grapple with how they do this better.

[00:06:37] And so D.C. passed this ordinance requiring much higher levels of stormwater capture. You know, one of the few ways you can do that on a development is you can either sort of build in essentially bladders in the basement to capture water or green roofs on the roof. But what DC did that was really interesting was they permitted people to fill some of their obligation by making improvements to green infrastructure in other parts of the city. And so we helped fund a bunch of improvements to green infrastructure and you got essentially tradeable stormwater credits. And so this was a version of sort of what people talk about wanting to try to do with carbon by creating tax and trade mechanisms and, but done at the local level around a whole novel problem with stormwater. And so that's sort of an example of something that I think we helped build the first green infrastructure products and create the first tradable stormwater credits. And we think that solution is really interesting. And we also think other cities will see that, and potentially try re-create a similar solution.

Eve: [00:07:35] That is catalytic. So, you know, when you were talking about unusable lots, I was thinking about an article I read recently about the downsizing of some freeways and the land that that might free up. For, you know, development use. I think that's a really interesting thesis in this time when we're starting to see autonomous vehicles and a lot of people who don't want to own cars. It's really interesting to think about where land is available, right?

Ommeed: [00:08:04] I think it is. And it's still strange to me, actually, because there's a sort of funny meme, right, that what will happen in Silicon Valley finally invents a technology that allows us to build the second story. And, you know, I think that spirit is kind of true even in New York City. You go around and see so many easy and obvious potential sites that you could build on. Sites that are being used for car dealerships, parking lots, abandoned, your public assets, you know, right of ways. And it's amazing just how much of that land is there when you start to look. And it does feel like some of the lowest hanging fruit, in terms of how do we find opportunities to create more affordable products. Again, it may not be the best location in the city, but it's certainly habitable and buildable and safe. And I think it's been really interesting. We worked with this great architecture firm down in New Orleans the Office of John Tate, and they've done really interesting stuff thinking about how to do that.

Eve: [00:09:02] Yes. Yeah, I know Jonathan really well. He was, he actually did the first crowdfunding offering with us.

Ommeed: Oh, there you go, it's a small world.

Eve: It was one of his Starter Homes on an odd lot. Pretty fascinating times. Do you have metrics that you've developed to test against projects that come to you?

Ommeed: [00:09:23] We do. There's a couple of ways, and I think goes back to sort of thinking about the different impacts, you're capturing metrics for things like the number of affordable housing units, the square feet of, extra, square feet of Y that's fairly straightforward to capture. You know, I heard this quote the other day. I thought it sort of kind of interesting. We can grind to a fine dust that we can easily ascertain. And yet sometimes in doing that, we don't really measure what's most important. And I think the things that are most important are somewhat, by their nature, more ambiguous. And so some of this is actually the process of asking those questions. So, I'll give you an example with affordable housing. You know, we know it's desperately needed and in many affluent communities. And yet a lot of times where affordable housing gets built isn't necessarily the, you know, the most affluent areas. Is that a good or a bad thing? Right. You know, it's not a question that can be answered with a single metric, because it matters in terms of looking at the public education system and saying, OK, you know, are there good education resources or are there community resources? You know, there's research by Raj Chetty that sort of speaks to just how relevant place really is the social and economic mobility.

[00:10:27] And that data is not. It's really interesting and compelling, but it's certainly not black or white, in terms of its implications. And so one of the things I do think we're trying to do a better job and actually think is something that's so under-appreciated in real estate is really to survey tenant residents and try to get data from the people who live in buildings, about their lives getting better, what's happening actually as a result of being in this complex here, because I think some of these questions are important questions, but they're not solvable with the data we have. And yet, you know, every other sector of our economy, it's you know, if you could buy shoes from Zappos, every one of those companies is has a net promoter score and wonders what it is and as careful about it and uses that as a leading indicator of telling you whether something's working. And yet in real estate and I don't know about you, but no landlord has ever, no only one I should say, has ever asked me, like, was I happy.

Eve: Yeah, yeah, interesting.

Ommeed: And it's striking, the one landlord that did ask me that question was absolutely, no surprise, the single best landlord I ever had.

Eve: Often landlords are pretty scared of the tenants.

Ommeed: [00:11:32] And it's funny, I do think one of the trends we're seeing that I think is a really interesting trend, is that as far as people I see and real estate are really moving in this direction, that so much of real estate development used to be about the physical development of the assets, actually getting the things built and getting it through entitlements and through reviews and all of that. And so, the field really focused on the physical construction and not the management and hospitality.

But you just look at sort of food halls or even kind of we-work and co-working spaces. All of those models are fundamental, about taking spaces that exist and thinking about how do we manage them better, how do we program them better? How do we get more stuff out of the same space? More and more, I think real estate is actually moving to hospitality. That if you think about hotels, right, with hotels, you think about brands and you think about your experience. You don't really think about hotels and associate them with the physical structure. To some extent, everything you see and experience is on the inside.

Eve: [00:12:31] Yes. So, you know, I interviewed someone a couple of weeks ago you might be interested in them in Amsterdam. He has a spin-off, an architect who spun off a company called Superlofts. You can find it on my website.

And it's very interesting because he creates a community before he, before they even start designing the building. They start meeting with groups of people who want to buy these little condominiums and talk to them about the needs, the dreams. Almost, he said like a video - what would you like a day in your life to look like? And when they have a group of like-minded people together they will start to kind of design the physical space around them. It was fascinating.

Ommeed: That sounds amazing.

Eve: Really fascinating, beautiful architecture as well. So I think there's a lot of really interesting innovation going on. So, why Prudential? That might be surprising to some people.

Ommeed: [00:13:25] Yeah, it is, I mean, it's sometimes surprising to me as well. My connection to Prudential's at a couple of levels. One, before I joined the company, I was in New Orleans working after Hurricane Katrina. And in that role, I led redevelopment for the New Orleans Redevelopment Authority. And we were tasked with trying to really catalyze neighborhood-based redevelopment in the wake of the storm. And in doing that, in that role, got to work with just about every kind of capital source around the country, philanthropic, government, private sector. And we were trying to coalesce all of that capital around really important, really transformative projects. And Pru is just one of the best people we worked with. And in that experience, and it really shaped for me how different the access to capital is by place. So I'd come from working in New York largely in the boom times ahead of the financial crisis, working on often quite foolish projects with unimaginably easy access to capital. And even if they'd worked, relatively low returns and then going to New Orleans and having really vital projects with great returns, but just in a place where there was almost no capital available. And seeing how important it was to have sort of, you know, investments and capital to try to move away from a very limited set of places which have kind of capital they need for reinvestment.

[00:14:45] You know, I think a lot of people who are urbanists, I'm sure this will sort of resonate, you know they've grown up in New York, San Francisco, D.C., Boston, you know real estate we call the sexy 7, right, The 7 kind of big, urban markets where capital is unbelievably plentiful. And that's not really reflective of what it's like to work in most urban communities around this country. You know, in most urban communities, even good projects have a hard time finding financing. And it's even harder for projects that are really sort of aspirational at a social level because a lot of those projects are often coming from entrepreneurs or untested, who have limited ability to manage pre-development. The work that you described in terms of sort of crowdfunding and some of that I think is a really interesting angle to bringing capital into those markets. But another is sort of getting institutional money like Prudential to have dedicated programs that really start to look in these non-traditional markets and opportunities.

Eve: [00:15:41] Right. So I've done a lot of real estate development like that in Pittsburgh, which is a city that was in pretty bad shape when I started doing the work I did and I relied heavily on public funds and the mayor's office and the Urban Redevelopment Authority to fill that role. But I imagine that many cities don't have those sorts of resources for developers. And I also think those funds have dried up a little. So that makes Prudential's role perhaps even more important.

[00:16:07] Yeah. No, it does. And I think we're trying to push ourselves to get even more early stage with our investments. You know, I think some of the stuff we've done in Newark has actually been very large projects and in some other markets we've been able to do projects which are 50 to 100 million dollar kind of projects where we'll be investing 10 or 20 million at a time. But where I think the real need is to have, you know, institutions like us really push to do more in pre-development to do more with sort of, you know, young and minority development firms and to really try to continue to push earlier, because the earlier you get, the more you see that acute lack of capital. You know, when you really get into the machinery of real estate, you see why and how access to capital is such a profound differentiator. It's not really the project economics that blow things up. You know, what we see is people get stuck in pre-development.

Eve: Yes.

Ommeed: [00:16:57] You know, they get stuck having, you know, bought land and thinking it would take them a year to get permits. And now it's two years and they don't have money to make the payment on an acquisition loan or they've got to pay for another X, Y, Z of permitting or entitlement costs. And they just can't get the project to the finish line. Typically, you know, the most underserved markets are often also the ones that are actually most difficult to operate in because they don't have some of the robust public sectors like you saw, even saw in Pittsburgh, right, and so you couple those challenges and we really do see it as being a pretty acute need to solve.

Eve: [00:17:32] Prudential would actually go in at such an early stage of pre-development stage? That's pretty unusual.

Ommeed: [00:17:38] I want to be clear we haven't done it yet, and I think it's sort of where we want to get to. You know, as we see it, adding a part of this is just the evolution of the real estate market. When we started this program seven or eight years ago, I'd say, it was really just not a lot of capital flowing in. Like, take a town like Newark, there was almost no equity capital to support redevelopment. And it really felt like even our financing at the project level was pretty transformative. Fast forward to where we are today, I'd say, if you can get a project to being at a closing even in Newark, there's a lot of sources that'll provide equity capital now, but it's the money to support the pre-development and planning, entitlement, that stage of the work that's really very, very scarce. Because that money's so scarce, it means that the people who do big projects are going to look can be and have a certain set of values and approaches and people with new ideas and real creativity won't be able to be even having a seat at the table.

Eve: [00:18:36] So a billion dollars now. What's what's the goal for this portfolio?

Ommeed: [00:18:40] There's a couple of ways you can go, right? Like most people in financial services, you get to a billion and then you want to get to 10 billion. And bigger is just better. Actually, I think given sort of our mandate to be catalytic and creative, we're trying to actually push to some extent to the opposite. So, not to necessarily get the portfolio bigger, but actually try to push earlier down the risk spectrum and really push ourselves to be more catalytic and more transformative and more creative rather than build to be bigger. Because I actually think this is sort of in my experience, once something gets bigger, it actually gets more vanilla, more predictable and usually if it makes sense, there will be lots of people who'd be willing to invest.

Eve: [00:19:23] Got it. That's really fascinating. What percentage of the total Prudential portfolio is the impact portfolio?

Ommeed: [00:19:32] Good question. I'd say there's two ways to think about that. Right, so when you're an insurance company, you have a tremendous amount of assets. But somewhere in the neighborhood for Prudential, you know, five hundred billion dollars of assets, let's say. But that's not really a very accurate measure because the way insurance companies are regulated, ninety five percent of what they do has to be in very safe, predictable bonds and rated kind of loans. And so, the portfolio we manage is essentially 5 percent of the company’s risk appetite.

Eve: [00:20:06] OK. Well, I know a little bit about the work in Newark through Jonathan Tate. I'd love to hear a little bit more about that. I think what you're doing there is tackling quite a big problem and quite a big project by the sounds of it.

Ommeed: [00:20:19] Yes. You know, so Prudential's been headquartered here in Newark for the better part of a hundred and forty years, and obviously, the city of Newark has gone through many, sort of evolutions during that time. I think what's interesting, right, is that you can sort of contrast what we're doing now with maybe what people did 30 or 40 years ago. There was obviously a fairly disruptive and difficult period of urban unrest, and the riots and a lot of people fled the city, a lot of companies left the city and there was sort of a cycle of disinvestment for many, many years. And we've done this really interesting research, actually, you know, Newark, pre the civil unrest had more urban renewal than anywhere in the country.

[00:20:58] And you can watch these videos and they are just heart wrenching because the helicopter shots of the city. And it looks like Berlin after World War Two. And yet the voice-over on the video is so proud of what they've done.

Eve: Ooh.

[00:21:14] They state literally there's been more, you know, more of urban renewal per person in New York than anywhere else in the country. And this was Newark 1950, and you see actually sort of the devastating impact of that cycle in the community. But you can really see some of that and that's sort of just a random aside. But in the sort of reaction after the civil unrest, a lot of the investment that was made, was made and things like if you've ever been to Newark there's something called the Gateway Center, which is like the Renaissance Center in Detroit. Towers, skybridges connected to transit, you know, kind of fortress style orientation to the urban environment. Instead of doing that, what we decided to try to do sort in this most recent cycle and look, you know, Pru had a role in building those gateway complexes in the 70s and so this is by no means, you know, a story that doesn't sort of involve us.

[00:23:02] But in the most recent sort of time when a company had a choice around building a new tower, rather than build it near any of the train stations or in any of the sort of locations that would have been most accessible to commuters, we built that tower literally in sort of the heart of the city. Now it's on Broad Street, which was aptly named, it's the broadest street in downtown. It's on the side of what used to be a sort of a former shopping strip. So, it's a center where all the department stores and movie theaters used to be in downtown. In building that tower, we also made, I think, a really critical decision with the team I run, to not only just build something for ourselves but to start to invest in all of the sort of transformative developments in and around that location. And the most important of those was an old department store called the Hanes Department Store, which during its heyday was a department store that would have competed with Saks. It had a four-story grand atrium like the Grand Magasin in Paris. People would come up and have these amazing memories of putting on white gloves and dressing up and going to this department store.

[00:23:08] There was the Maple Room and the Pine Room and, you know, we just, it was this incredible legacy experience and actually even had a really interesting role as one of the first places where integration happened in the city. Shopping was actually one of those areas where integration was sort of, one of the first places to happen. So, really a pretty legendary history, but had been closed for 25 years and the building itself had completely fallen apart and we made it sort of our passion project to redevelop that building. And we were able to do it in this incredibly complicated, mixed use way. So, the first floor is retail, which is both big box retail and neighborhood retail. The second floor is offices. Third and fourth floors are housing. 40 percent of the housing was set aside for affordable housing. The retail mix is everything from fintech companies and co-working to really cutting-edge nonprofits. And then, maybe the sort of cherry that made it both the most difficult project I've ever worked on but also the best, was Rutgers University brought in all of their arts and design program into that building and did it in this way that I think is really unprecedented where, first of all there's no separate entrance for the university, the public can go into those spaces. But even intermixed in the Rutgers space are private galleries and a rotating space, right in the front of their space for, you know, kind of community serviing arts nonprofits. They essentially have like six month displays where they can come in and sort of gain visibility and access to resources. And so it's been a real labor of love. And it's physically, that building, plus the Prudential Tower plus Military Park, plus some other things we were doing, started to re-knit together parts of the downtown. So we followed that up with another half a dozen investments that I think are sort of all, again trying to sort of replicate that playbook of mixed income, mixed use development with a mix of both sort of national needed amenities and community serving retail and office tenants that both sort of try to draw exciting new things, but also, you know, cater to some of our legacy businesses.

Eve: [00:25:13] Yeah, so common theme I'm hearing from a lot of people now is that part of the process of keeping a community whole is to provide space, a community hub, space in some way or another for a community to feel that it belongs while improvements are going on around them. Does that make sense?

Ommeed: [00:25:32] Yeah, absolutely. One of the things that we had in that building is we, we sort of restored this grand atrium and the grand atrium is actually sort of open to the public year around. And so it becomes this place where you see people, especially in winter here right like, it serves almost like, you know, the function of a town town commons and we sort of made it kind of connect both sides of the building so this is a really kind of interesting passageway.

Eve: [00:25:56] That sounds lovely, I'd love to see it. Perhaps this question is redundant, but I'm going to ask it anyway. Do you think socially responsible real estate is necessary in today's development landscape?

Ommeed: [00:26:07] I do. And it's got a place to play at a lot of different levels. So I think if you look at sort of the institutional level, I think given some interesting things where people are starting to sort of demand that portfolios be LEED certified and have certain environmental obligations, and I think that's something that sort of very both important and do-able at the very sort of macro level for real estate. But then I also think, with what we're facing as a country between the challenges around affordable housing, just radical inequity, and then honestly, we haven't built a lot of housing in this current boom. It's one of the most sort of striking things that's happened is that we haven't built enough housing, we haven't created enough units, and that's driving up the price for everyone. And I do think we, we need capital to be creative and thoughtful about how do you get more going on in places where it's not and get it to a density in a scale that actually starts to bend the cost curve?

Eve: Yes.

Ommeed: [00:26:59] You know, one of the things that, you know, we get asked a lot is sort of, you know, this gentrification question.

Eve: That's a big one.

Ommeed: [00:27:06] And again, I think that that question, it's so much shaped by people's experience in cities like D.C., Boston, New York, cities that are going through these incredible economic booms but have also hardly permitted any housing. If you look at New York, New York City I think last year permitted as much housing as Jersey City. That's one city of eight million people, another three hundred thousand during, you know, year 10 of an economic boom. And so, you know, historically, when we've had economic booms, we've been able to produce a lot of housing. And the thing that's really striking right now, we're just not doing that as a country. And so what's happening is because there's no real housing production and because we've really reduced, for reasons that no one really quite fully understands, geographic mobility, so people aren't moving like they used to, the jobs that are being created and the wealth that's being created in certain places in many cases is all being swallowed back up by people's rent.

Eve: [00:27:59] Interesting.

Ommeed: [00:28:00] The cost of living. And so, you know, I think we are really as a society, not doing what we need to do in terms of connecting people to economic growth.

Eve: [00:28:09] Do you have any ideas about that? I talked to an architect in Australia who's kind of plugging away building affordable, sustainable buildings and making sure that the first buyers are city-serving civil servants who need to be close in. People are taking it from every angle.

Ommeed: [00:28:29] There's no silver bullet. Sure, I do think one of the things that we have to rethink from a design perspective is density.

You go to a city like Vancouver, I mean, I think there's really different ways in which density can be expressed at the street level. And people's experience, you know, people are very poor at actually gauging how dense something is. So, one of those things is I think actually becoming comfortable saying like, you know, we do want to sort of start to think about infill and densification and how do we do that? I do think some of the stuff that's happening on the West Coast about accessory dwelling units and trying to come up not with sort of solutions that, you know, are project solutions, but are actually these kind of decentralized solutions, making it much more easy for people to add a unit, or what Minneapolis did with eliminating single family zoning.

Eve: Yeah.

[00:29:19] I think it's really, really interesting. A few other things we've seen that we're really excited by - in Texas and Colorado and a few other places, we've seen this interesting move to take assets that were built in say the 1970s and 80s as large market-rate rental and kind of reverse convert those to affordable housing. And the way that works is that basically in exchange for really substantial tax abatements, buyers go ahead and dedicate a portion of those units to being affordable and they end up working out roughly the same to what it would be if they bought those buildings and invested lots into to aesthetic renovations and tried to remarket them as luxury. So, these are essentially perfectly lovely units built except with carpet and cherry wood that rather than ripping all that out and trying to convert them into luxury housing, you leave them like they are and convert them into good quality, you know, mixed income developments.

Eve: Yeah, yeah, yeah.

Ommeed: [00:30:16] I think some of the reverse conversions are really interesting too, as another theme as to how we can get affordability on scale.

Eve: [00:30:22] You know, in Melbourne, Australia, years ago, I was really fascinated, there was, the zoning department implemented densification along major roads where there was infrastructure. It's actually a really sprawly city. And so, what they permitted was much higher density buildings, housing, along roads that had bus and train tram. It's been really interesting watching it unfold, you know you can really see the physical spaces changing. But it's a really smart move to take existing infrastructure in a very big city, which is going to be very expensive to increase, and find a way to create density around it. I thought that was pretty smart.

Ommeed: [00:31:06] Yeah, it does sound like a really elegant solution.

Eve: [00:31:09] There's another neighborhood there that I know has now put an overlay district in place where they are not permitting anymore parking spaces moving forward. They're really trying to eliminate them completely. It's a very dense, mixed-use neighborhood, very close to the central business district. So, they're making some pretty bold moves with zoning to try and handle what is sort of a rapid sprawl.

And of course, that means if you can live close in and you can have a smaller unit and you don't need a car because you've got access to infrastructure and it's more affordable. Right.

Ommeed: [00:31:42] Right. You know, it's interesting, I question required parking. Most of the development we've done has has either had minimal or no parking associated with it because the zoning codes here were permissive and it's a real driver of, as you said, you know, you can create more units, you can reduce the cost. Parking minimums are, I think, a hidden and really destructive part of many zoning codes.

Eve: [00:32:05] They've been very destructive, not just for housing, but even when you think about retail strip malls with seas of parking in front of them which are really all about parking minimums.

So are there any other current trends in real estate development that you think are important?

Ommeed: [00:32:19] We've talked about a lot and it's not so much a real estate trend, but this decline in human mobility and our declining mobility rates, I think is just one of those fascinating social trends that I think has implications for place and how we do things that I don't think we fully quite grapple with. I do also think that, you know, we're entering an increasingly dark age for retail.

Eve: Yes, we are.

Ommeed: [00:32:44] You know, there's aesthetic implications to that but it's hard to imagine true vibrant urban places without vibrant retail corridors. And so trying to figure out sort of what else can we do on ground floors? We see this problem in Newark, almost every square foot of retail we've had has had to be filled by a food and beverages. And even then, after a while, you reach saturation. So, what can you do with spaces that actually are interesting and inviting, and, you know, if you are pessimistic on the future retail?

Eve: [00:33:14] This is a dilemma, because other countries we're not really, not really seeing the demise of retail in the same way. It's really a shame for us. Right. It's very difficult.

Ommeed: Very difficult.

Eve: You also engage the community, right, in your work in Newark?

Ommeed: [00:33:30] We do. One of the things that's been interesting in Newark is that I think there's this big cadre of, you know, of what people would call sort of anchor institutions, and that have been a nice kind of vehicle to sort of get all of those different institutions to really try to, sort of, really think differently about this community engagement and not sort of recreate what happened in the 1950s and 60s in terms of just sort of having this kind of urban renewal from the top down.I think part of what we've tried to do in insurance in the beginning is, in finding a way to sort of help smaller infill neighborhood based projects, you actually get to interact with people in community and get just an insight, at a much more human level, into what's sort of driving people and what needs there are felt. I think wherever you can, trying to sort of really, I think encourage transparency.

[00:34:21] We've, you know, we've been really fortunate, I think, to have good leadership at the Mayoral level in Newark and I think they have really forced and encouraged that same kind of community convening, but also done it in a way that, I think, you know, too often those meetings are either sort of lip service or not willing to sort of push back on these issues, let's say, around gentrification. And what I think the Mayor has done a really good job of here is both coming up with good policies around inclusion and local hiring, but also signing up for the fact that, look, inclusive growth also means we have to be able to grow and do things the right way and that if you look at a city like Newark, almost everything we've built has been vacant buildings are vacant lots.

[00:35:04] You know, there's still a long arch before you get into displacement. And actually, if you're adding units of affordability and doing that, you can be constructive in taking the edge off of those pressures.And so I think there's been a really good set of conversations that aren't trying to sort of demonize either side, but trying to get to a pretty reasonable resolution. So, we've been fortunate here.

Eve: [00:35:28] So I'm going to just ask a wrap-up question. Where do you think the future of real estate impact investing lies for the country? It's really just a little blip right now. Right?

Ommeed: [00:35:39] Hmm. I think it can be two things at the same time. I do think there's a real role for institutional capital in pushing more investment into things like affordable housing preservation and sustainable large scale development and I think that's largely about sort of preserving existing assets and upgrading existing assets and I think that's one scenario that impact real estate can do. And then I think there's a need for the kind of catalytic capital that we have to really push money into the places where there's just very little capital availability. I think you could see two, sort of very different approaches, depending on sort of the type of capital of the scale and the places they go, but both are needed.

Eve: [00:36:23] Well, it sounds like a fascinating job you have and probably most people listening to this, are very surprised that Prudential is kind of taking a lead in this and I'm looking forward to seeing what else you invest in. It sounds pretty fabulous.

Ommeed: [00:37:37] Well, thank you. I'm so excited to go look at sort of some of the examples you mentioned.

Eve: Ok, we'll talk again soon, OK?

Ommeed: Thanks.

Eve: That was Ommeed Sathe. For Ommeed, investing is more than a way to make money. It’s a way to make a difference. His portfolio at Prudential has already supported the creation of well over 1,000 housing, 250 hotel rooms and plenty of retail space in Newark. But most importantly while other funds aspire to reach 10 billion dollars once the 1 billion hurdle has passed, Ommeed's aspirations differ. Rather than go bigger he'd like go riskier - with untested developers and untested ideas in untested neighborhoods.

You can find out more about impact real estate investing and access the show notes for today’s episode at my website, evepicker.com. While you’re there sign up for my newsletter to find out more about how to make money in real estate and while building better cities.

Thank you so much for spending your time with me today, and thank you Ommeed, for sharing your thoughts with me.

We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:14] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:23] My guest today is Tom Murphy, Pittsburgh's turnaround mayor. He oversaw the difficult, but transformative transition of the city from the mid-1990s to mid-2000s. Those were turbulent times and included many highlights and many struggles. During his tenure, he declared a budget crisis, built two stadiums, created a $60 million development fund and built many miles of river trails. Tom Murphy is an authentic city expert.

Eve: [00:01:03] Be sure to go to EvePicker.com to find out more about Tom on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:38] Hello, Tom, I'm so delighted that you found time to join me today.

Tom Murphy: [00:01:42] I'm always honored to be with you. You were one of the pioneers in many developments in Pittsburgh when very few people saw the opportunity.

Eve: [00:01:50] You were the second longest serving mayor in the history of Pittsburgh. And in 1994, when Pittsburgh wasn't sure what it was going to become, was really on the verge of collapse. And you shepherded the city through a very turbulent transition from a place that had emptied out with the closing of steel mills and suburban flight, to a city transformed almost every respect. And I was in Pittsburgh for every moment of it. So, you reshaped Pittsburgh, kicking and screaming all the way.

Tom: [00:02:22] Underlining kicking and screaming, Eve. As you remember, every time we tried to do something, there were, there was controversy. I mean, it just, it was amazing to me.

Eve: [00:02:34] Well, this is slightly conservative city, so maybe that was part of it, but people couldn't imagine what you imagined. When you begin with a city that has lost its industry and half its people?

Tom: [00:02:47] Well, I'm a product of that, I mean, my father worked for 51 years at Jones & Laughlin Steel steel mill on the South Side. So, my whole life was defined by the shifts he worked there, I mean ... you know, he was, he worked in the mill. I mean, he wasn't a boss or anything, he just worked in the mill and our lives were shaped by that and ... and sort of everybody I knew pretty much, their lives were tied to the mill. And so I grew up with that. And to watch that disappear in the, really the 70s and the 80s, I was a state legislator on the North Side, and I don't think people appreciate how incredibly destructive it is for families. You know, where you had very traditional families where the husband went to work in the mill, you can make a good living, buy a house, buy a car, take a vacation and now all of a sudden that disappeared. You know, the wives went to work, kids who had thought about going to college deferred that, you know, we lost a whole generation from Western Pennsylvania – 500,000 people left and they were overwhelmingly are our kids, young people who were leaving, because they didn't see a future in Pittsburgh. And so having come through that, having lived it, you know, on the North Side, where we've lived for almost 50 years now, and how destructive it was, never thinking I would be mayor. When I became mayor, I mean, my focus was how do we stabilize this situation? And to do that, we needed to re-imagine Pittsburgh in lots of different ways. In how we educate kids, because you didn't need a high school education, let alone a college education to work in a steel mill. And you know, what we did with all this land, all of these industrial, thousands of acres of industrial property. And the culture of Pittsburgh, which, you know, was almost opposed in the technology industry because they were seen as non-union.

Tom: [00:04:40] And so we went through huge controversies in talking about re-imagining Pittsburgh. And now we've come out the other side and, you know, it looks very different.

Eve: [00:04:51] It does. Did you have a strategy from day one?

Tom: [00:04:57] Well, I laugh at that. I mean, hindsight always gives you the strategy. But we did in the sense that we felt we needed five things, right? We needed money. We were a flat broke city and ... you know, essentially, as you said, I mean, close to bankruptcy. And we needed to figure out how we will get money so we could invest in Pittsburgh and entice developers. Two, we wanted land control. A lot of this land was tied up in bankruptcies and it was, you know, uncertain titles. And so, a developer who has a choice of buying a 100-acre greenfield site or 100-acre steel mill site, they're going to buy the greenfield site. It's safer. And the third was that we needed a really good team of people who were going to be public entrepreneurs, in effect, that were willing to take risk. And the fourth thing we needed, we needed a vision. We needed to be, to sort of know where we wanted to go. And the fifth thing is we needed good public-private partnerships. We needed people who believed that Pittsburgh could be a different place. And you remember back then, Eve, you were one of the few people that ...

Eve: [00:06:08] Yeh.

Tom: [00:06:08] ... were willing to invest in places like East Liberty. It was very hard to get local developers to re-imagine Pittsburgh. They had their little niche. They were comfortable in it. They've been through 30 years of decline. And so all those ingredients, you know, we talked about them when I ran for mayor. And people obviously voted for me. But when we started to do this stuff, they said we didn't know you meant that. So where do we get money? And the first month or so I was Mayor we reduced the city's workforce, reduced the number of police officers we had, then shifted six million dollars of that money annually to finance a $60 million bond issue, which we called the Pittsburgh Development Fund, which gave us money to invest in the future. In every city, I mean, I talk, I meet with cities a lot and talk to them and that's one of the challenges they face is, your demands for the day-to-day. Just 'today' is huge in a city. I mean, everybody wants more police. Nobody's streets are getting salted enough, and potholes, and if you just spend the stuff on all your resources on today, nothing changes. I mean, you're Pittsburgh and in Pittsburgh we were still declining, so the challenge was how do we get some of those resources and use it to invest in the future, which entails risk.

Tom: [00:07:27] The second thing we did, Eve, we went out and bought, as you know, Mulugetta Birru was head of the Urban Redevelopment Authority, and we had him go out and buy almost 1500 acres of land. You know, we bought what was then the South Side works of Jones & Laughlin. We bought the slag dump in Squirrel Hill. We bought the old Sears site in East Liberty. And then, you know, we looked at each other and said, what do we do with this stuff? And that's when we began to form great partnerships with developers. Somebody like you who was willing to invest in that old building in East Liberty and, you know, and others. And the $60 million gave us the ability to create really creative and effective public-private partnerships that share the risk with developers who believe that Pittsburgh could be a different place. That's what we did.

Eve: [00:08:17] I was going to ask the question that, do you believe developers played an important role in the transformation of the city? Obviously you do.

Tom: [00:08:24] I do. I think place is everything. I think it has huge impact on how people live, I think, like crime rates, a whole host of other things. How they, what they think about themselves. I mean, if I live in a neighborhood that has, half the buildings are vacant and there's a lot of litter and everything, you know, I come out my door every morning, I probably have a different reaction than if I live in a neighborhood that has lots of gardens and clean. And so I think that, it has huge impact. And so developers, from our point of view, as you know, were really important partners. And this is, I tell this story all the time, is when we started to see things happen, developers would come and say, Mayor, I have a great idea for you. And we'd say, with all due respect, tell us why it's a great idea for you. And we'll decide whether it's a great idea for us, and if our self interests come together, we'll figure out how to be a good partner and share the risk with you. But that assumed we knew what we wanted and so that was one of the really big challenges. As you remember early in my administration, I had a really great planning director, Eloise Hirsh, who really helped shape that vision, as well as Tom Cox and Mulu and Steve Leaper, really helped shape that whole vision of what Pittsburgh could be. It was really reimagining, you know, old steel mills in the South Side and a slag dump in Squirrel Hill. And so we were looking at, not to ignore other things, but we were looking for things that could be catalytic, that could change people's image of Pittsburgh. And the ballparks obviously help with that, too. I mean that when I was running for mayor, I wasn't planning to be, have anything to do with sports stadiums. And that sort of was one of the challenges of running the city, as you know, I didn't think about it. And then all of a sudden, it's the number-one topic.

Eve: [00:10:17] Well, it's always the number one topic in Pittsburgh. Sports, so.

[00:10:20] Well, unfortunately, I mean, I don't know if you know the story, Eve. As I, when I ran for mayor, I was elected mayor in November. In early December, the then-owners of the Pirates gave me a letter that said they intended to sell the team. I don't even know this, that Dick Caligiuri many years ago had signed an agreement with the team that if ever they were going to sell it, that the city would in affect own the team for nine months in which they would be required to find a buyer. And if we couldn't in nine months find a buyer, then the team could be sold to another city. And so there I was, having run on crimes, jobs and taxes, now owning a baseball team. It really, literally when I was running in November, I had no idea that the first year of my time as mayor, two years, would be dominated by trying to figure out how to build a baseball park and a football stadium and a convention center. So, that's life, right? So, we had to figure it out, right?

Eve: [00:11:20] When the sun goes down, with Downtown as a backdrop, it's a very special place.

Tom: [00:11:27] Well, it's a, my favorite seat in PNC Park, regardless of what the team is doing, is that, at the very highest point in the left field stands, and because the view of the city at dusk like that is incredible.

Eve: [00:11:41] Was the Pittsburgh Development Fund the most important thing that you implemented? Were there the other programs or policies with very big impact?

Tom: [00:11:49] Well, what's the Development Fund gave us is, it gave us the ability to be, to be flexible. When I go to lots of cities, they would say, we'd love to do this, but we don't have any money. The money, for better, for worse, becomes a really important part of being able to pursue your dreams. And so the Development Fund was our money in the sense that we didn't have to look to the state or the federal government, you know, to wait for months or a year before you figure out whether you're going to get the money or not. We also, as you know, in the URA, people at the URA led by Mulu and Steve, were very entrepreneurial in understanding how they used tax increment financing and other federal and state sources, so it ... it was fairly typical, it might be true in your deal, your deals that you were doing, is that you were getting sources of money from 10 or 12 different sources. And what I have found is that's unusual in a lot of cities, that cities are not entrepreneurial like that, of understanding how you mix and match money to make a deal work. So, what I say, Eve, is it's really, it's really a market driven approach, is that basically you as a developer come and say, you know, I want to do this building, but this is what the bank is going to lend me, and there's this gap in financing, and if it's something we want to see happen, we being the city in this case, then we become your partner and figure out how to help finance it, whether it's our Development Fund or other sources.

Eve: [00:13:30] My experience with the Liberty Bank Building was very typical. I think I had 12 sources of financing.

Tom: [00:13:36] Yeh.

Eve: [00:13:36] Most of the URA money, which I'm really glad gets to be recycled. But Mulu was extremely entrepreneurial. He, first of all, he didn't quite trust me when we started ...

Tom: [00:13:36] Well, but you were a small developer at the time, right? With not a long track record. But with great ideas.

Eve: [00:14:05] There were really interesting meetings. I really became very fond of Mulu. So, but he, you know, his approach was, look, we have this amount of money. 300,000 dollars out of this pot of money, or whatever it was. And you need two million. Go away and think about how it might work. And so I would come back and I'd say, look, I could make it work if you took little interest payments for two years or, you know, whatever, whatever it was that made it to some sort of stabilized scenario. I learned a lot. And then, you know, things shifted very much, and I think the URA lost a lot of its funding in the mid-2000s and the banks got more skittish and it all changed, right?

Tom: [00:14:49] Well, it did and it didn't. I mean, I think the philosophy in the city changed and maybe ... so I was saying this about being market driven. Mulu met with you and you convinced him that the market was what it was, that without flexible public money that could defer interest or payments even for a few years, that that this deal was not going to happen, and we wanted it to happen, and so we would make the loan. The market has become much better in Pittsburgh, though. You were, you know, in my view, the early bird gets the worm in this case, in the case of your building, you were, you were the early bird. Is that you got better financing then maybe after the market's healthy. So, we tried to be market sensitive in that sense. And at the same time, recognize that we wanted these deals to happen, so we were willing to put, risk public money. I think the key to it, what I learned about myself in this, Eve, as I was, I am not a good day-to-day manager, but I understood how to hire good people and just give them room. And if a deal blew up, you know, that's what's going to get reported on the news. But I need to be willing to support the people if they did the deal for the right reasons and it just didn't work. And we had some of those done, you know, Fifth and Forbes Downtown was one of those examples. But we were willing to take those risks, whether it was with you or other developers, that we didn't know with the market, we didn't know if people would move and live on a slag dump in Squirrel Hill or, you know, live in apartments in South Side. We didn't know what the market was. We were way out there and that was the risk involved in this, and using public money.

Eve: [00:16:33] I moved to Pittsburgh accidentally and was kind of involved in all of this on the periphery, and it really shaped my life. The way I think about cities is very different now. So, thank you for that. The plan that did not work out was the redevelopment plan to reshape Downtown which...

Tom: [00:16:49] Actually it worked though didn't it? I mean, four of the five blocks that we were going to acquire have been redeveloped.

Eve: [00:16:57] Yes, it did work. But my question was, yeah, it just took time, didn't it? Took time for people to get used to the idea.

Tom: [00:17:04] Well, it looks differently than what we would have, I mean, we were more focused on a retail strategy and it might or might not have worked. I don't know.

Eve: [00:17:12] Well, today with Amazon, it might have backfired again.

Tom: [00:17:15] And that's where you don't, I don't know with today's retailing whether it would have worked or not. If we would have been able to put together sort of what we were thinking. But, in any case, all five blocks have now been redeveloped, that we focused on. And it's a much more vibrant place. We could see the decline there. I mean, we could look at the sales numbers of businesses that were there and just see the decline of what was going on, and I think felt the need to try to intervene, you know, and maybe did it really in a clumsy kind of way. And but, you know, at the end of the day, it was a necessary intervention that ended up working. PNC played a big part, was a big partner in that with their new building

Eve: [00:17:59] Yes. It was really difficult, I remember. What would you do differently today? A different city.

Tom: [00:18:06] When I've come to really love is the public spaces. So, in East Liberty, I think we would have had, we had the opportunity, which we didn't do, to create a sort of a central plaza somewhere there. That we could have really recreated a much more, you know, in a public space, it can be the most democratic place in the city. And so, I mean and so with Home Depot, we were looking to make a democratic place where people, wealthy people and poor people would all shop. If I had done East Liberty thoughtfully more, maybe we would have created a public space like that, too. And Market Square, in many ways, plays that role Downtown now. There's a public space where people of, with all incomes and all backgrounds show up. And so even in smaller neighborhoods like Lawrenceville and other places, because there were such, you know, abandonment of property, we had opportunities to really create better public spaces, little town squares. Because one of the strengths of Pittsburgh is with its 90 neighborhoods is, is that we have this real sense of communities and I've come to appreciate that much more. And we really would have focused more on creating places where that community can play out in neighborhoods like Lawrenceville and other places. I go to China a fair amount. Not recently. thank goodness. And when I, I get up early in the morning to go for a run and one of the things I see there, and China has done a very bad job of creating public spaces, but where there is public spaces like at six, seven o'clock in the morning, there are hundreds of people there in the plaza doing tai chi or dancing to a boombox. It's this great sense of community. There's lots of older people or people running. And you can see feel this community, I mean, people talking and laughing. Every morning they're there. And we don't have that tradition in America. But it would be wonderful. We did, but but we ought to create places where that happens. You know, the Blue Slide Playground is a place like that in Squirrel Hill. I mean, famous now because of Mac Miller.

Eve: [00:20:24] I visited Beijing three years ago, and the photo I loved the most from there is a small urban park which had exercise equipment in it. And in fact, I saw this several times ...

Tom: [00:20:34] Right.

Eve: [00:20:35] ... exercise equipment, really basic. And you could see people all congregating, and doing their little exercises in the park, open to everyone, It was fabulous.

Tom: [00:20:46] Right. We did a half step under Eloise's leadership in public works. We made a decision to rebuild all of our 100 and some neighborhood parks, like the Blue Slide Playground or the Schenley Park, and also many of the smaller ones. And we would have community meetings and we would hire landscape architects who would meet with the community and, you know, with the playbooks. And then they would work to design the kind of playground they wanted. They would given a budget, 100, 150 thousand dollars, and they could pick from the play equipment books, the playground they wanted. But the instinct we had was right, but we should have expanded it. And in many neighborhoods where, like Homewood. I mean, you have an opportunity in Homewood, still today, I think, to create a really great plaza that would become the center of Homewood, and how you would do that. And East Liberty represented that opportunity. I mean, there were, as you remember, lots of vacant land there that was tax, you know, essentially abandoned. So that's probably one of my bigger regrets, was not creating places where that sense of community can play out.

Eve: [00:21:58] What do you love most about Pittsburgh? I know you still live here.

Tom: [00:22:01] Our strength and our weakness is our parochialism and that's what I love most ... is that we're an unusually friendly city. I'm in Washington four days a week, right? And my habit in Pittsburgh is pretty much everybody you see, even before I was mayor, but when I'm mayor I don't know whether I know them or not, or they know me. So you say hello to people, right? You get on an elevator, you say good morning, right? People, you do that in Washington, D.C. people look at you like you're ... going to rob them. You know, it's a weird feeling for me. I see that in lots of cities. I would just did Orlando for a couple of days that I felt it there. Same thing, is that, sort of people don't make eye contact, don't acknowledge. I mean, if there was just two of you in a place, that you don't, they don't acknowledge you.

Eve: [00:22:50] You know, that's interesting. There are other cities like, I think Atlanta and Detroit are very friendly. I always notice it when I go there.

Tom: [00:22:56] Yeah. So it's, and I hear that. It's funny, I mean, when I speak, and I was in 50 cities last year, so I end up engaging with thousands of people. One, is the numbers of people that have lived in Pittsburgh. You know, I mean, that's sort of the legacy. I always say you're our failures. We couldn't give you a reason to stay, you know, there's so many people that left in the 70s and the 80s. And the other is inevitably people who are not from Pittsburgh. I just was talking to a guy in Orlando yesterday who, his daughter and he, and they've never had any connection with Pittsburgh, but she loves the Pittsburgh Penguins. And they go to Pittsburgh every year to see a couple of Penguins game, and he was telling me he's going in March and, you know, he said, I've never been to a friendlier place in my life. Everybody talks to you and it's just, it's a great place, right? We don't even think of that. And that's partly what I like. And I think that's the strength of Pittsburgh. When I say parochial is that we are really, those of us who are from Pittsburgh or who moved there, you become really rooted in your neighborhood, and in the city. I think in places like Orlando, that is, you know, a lot of Florida cities in California and even Texas cities. You know, there's lots of new residents. And so they don't have that kind of history. And so I, that's part of the challenge of Pittsburgh. How to keep that, and at the same time not have it be a deterrent to making Pittsburgh a competitive city.

Eve: [00:24:28] But you know, I think what's most interestingly Pittsburgh, about Pittsburgh to me, is again, I've always thought it's topography saved it from becoming what Detroit has become.

Tom: [00:24:40] Oh, I think definitely, I mean, the hills and valleys and how Pittsburgh is defined, I think is a large part because of its topography. You know, I learned that running for office when I was in the legislature, when I first ran for the legislature. If you confuse people from Spring Garden with people from Spring Hill, they will never vote for you. I mean, they're very rooted in their neighborhoods, right? And so there's that whole hierarchy like that around Pittsburgh. When I meet somebody, when they say they're from Pittsburgh, I typically say, where did you go to school? And that tells me a lot about them.

Eve: [00:25:19] Interesting. Yeah, I think the topography also, it kind of contains each neighborhood. So, I think that that sense of being in a neighborhood is going to stay. I can't, I can't see it disappearing in the city.

Tom: [00:25:33] No, and that's what, when I was talking about the public space, I mean that's, that's what I have a big regret it was around that idea of how do you build even a stronger sense community using public space, whether it's playgrounds or a park, a community. How do you in a very thoughtful way connect people in that neighborhood so they feel a sense of place? And there's a purpose for that, because I think if people feel rooted in their neighborhood, I think they're willing to put up with a lot of problems if they see themselves and others committed to wanting to making it better. I mean, if I can see a light at the end of the tunnel, I'm willing to stay on the journey, right? A lot of people are not willing if they don't see any end to it. And I think of a neighborhood like Allentown that's been through a lot of problems. And yet, there's a strong core of people in Allentown who have really stayed with that neighborhood. And, you know, it has gone up and done and now I think it's back, going back up again. I know we used say, Eve, you know, that houses in the North Side up in Fineview at the time, I mean, you could buy for 30 or 40 thousand dollars. And we said if Pittsburgh's population were like any other city and it was growing, those houses would be worth a million dollars with the views. And that was part of the problem, is that we weren't growing as a city. And it's still part of the challenge of Pittsburgh, is that we're doing much better, but we're still not growing compared to, certainly the region is not, compared to a lot of other cities and communities.

Eve: [00:27:19] Today you work, you're a senior fellow at the Urban Land Institute, which some of my listeners may not know about. What do you do in your role there?

Tom: [00:27:32] So the Urban Land Institute is an organization founded about 75 years ago by a group of developers concerned about the quality of development beginning to happen in America. And fast forward, the Urban Land Institute now has about 50,000 members worldwide. And it really, it's focus is how do you create thriving communities? And ULI had participated in several programs in Pittsburgh when I was mayor, and then I got recruited to speak at different ULI events. And when I was leaving as mayor, it was right after Katrina in New Orleans and along the Mississippi coast. And they asked me whether I would go down and work with the mayor of New Orleans and with other public officials across the Mississippi coast. And so I did that for about a year and a half after leaving as mayor. And it was fascinating. I mean, it was really a fascinating experience. And, you know, in New Orleans, their mayor ended up going to jail for 15 years. And the political structure was really fairly inept back then. It's gotten better. And so I watched, really, New Orleans return in large part because of grassroots decisions and leadership, through churches and nonprofit groups and neighborhood groups, and a lot of outside help. Foundations and movie stars like Brad Pitt. But people, but ultimately, the up-swelling was really, really bottom up. It wasn't top down. And so it was a fascinating experience to work in, there. And I still am, I was on the board for many years of a community development corporation there. So it's been an experience. Since then I got to about 50 cities a year and speak at ULI events or other events, and then often end up working with cities for a while. And I've written several papers – working on one now for ULI.

Tom: [00:29:40] It's been a good, a good experience, really a great experience after being a mayor. And part of what I get asked to do all over the world is, in part I get asked to talk about Pittsburgh. How we went from this failing industrial city to what we're becoming. And the reason I get asked by, about that is, wheat I've come to realize, Eve, is virtually every city in the world, whether it's Hong Kong or London or Dublin, or are all struggling with some of the same issues that we went through in Pittsburgh, of sort of what what is our place in the world? We were forced to have that conversation because of the collapse of the steel industry. Other cities have not had that kind of dramatic change, but they are seeing the world change and they are trying to figure out how to stay current and get in front of those changes and manage them.

Eve: [00:30:34] Are there any current trends in real estate development that interest you the most?

[00:30:39] Well,every city, every place I've been, and this is, I mean, last month I was in Dublin and London, right. And I was supposed to go, I go to China about four times a year. I was supposed to be going in March. My plane trips are now all being canceled, but I was going to cancel anyhow. But so whether it's cities in China or European cities, affordability is a huge issue. Of how do people, where do people live? And how do they afford to live? And so how cities develop affordable housing is a big, big issue. Where am I going to work? Because of the impact of technology and we see it in Pittsburgh up close every day as we see a whole litany of driverless cars on the streets of Pittsburgh or autonomous vehicles with attendants in them. But, you know, pretty soon the attendance won't be there. As I mentioned, I was in Orlando yesterday, just east of Downtown Orlando but still in Orlando is a place called Lake Nona. And they now have, I don't know, a half a dozen driverless autonomous buses that drive people around this very large development. Nobody driving. Nobody in, no driver. And no attendant. It is just on its own already on a sort of a, sort of private street where bikes and others places can go, but not cars. So we're seeing this happen and what does that mean? I mean, if you think of 50 percent of the land use of a typical city is for cars, between roads and parking and everything like that, what does that do to how we think about cities. And not it's not even that kind of technology. It's why do young people want to come places? Part of what I say is what does General Electric and McDonald's and Marriott and Fifth Third Bank and Heinz Kraft Foods and what they have in common is over the last five years they've all moved their headquarters from suburban office parks into cities. And why are they doing that? They're doing it because ... they're having a hard time recruiting talent, young people, to move to the suburban office park. Where you need a car to get to. You know, if you do a survey of the Google employees in East Liberty, I'm betting that 25, 30 percent of them either walk or ride a bike to work. So that has huge implications on cities. You know, do you spend your money building more highways or do you build a transit system. That's part of Orlando's challenge. They don't have a good transit system and now they're strangling, you know, because of the congestion.

Eve: [00:33:33] Yeah. It's changing.

[00:33:34] So it's those debates that I'm watching all over. Mobility is a huge conversation. The equity conversation, I mean, one of the things I see really fascinating, The New York Times did this, I thought, very cruelly. A few months ago they did an article about cities and they talked about winners and losers.

Eve: [00:33:56] Yes.

Tom: [00:33:56] And they talked, and they compared Nashville and Birmingham. And they said Nashville is a winner, they both start at the same place 25 years ago. Nashville is now a hot city, booming, and Birmingham is not. And they talk about, why, how that happens is really a lot to do with leadership. And then within, so we're seeing cities sort of separate themselves, if you understand, those that are, where Amazon is going to consider locating, and those that are not. And what are the ingredients that make that cut? And then the other, within cities we are watching a huge divide with lower income people and the people that are sort of part of the new economy. And so, I think that equity issue is a huge challenge for cities also.

Eve: [00:34:43] Yes. You know, I have always thought that one of the things that's most overlooked in discussions about cities and how to grow them is their connection to other cities. And, you know, I think that's probably Pittsburgh's growth problem. It takes a really long time go by train.

Tom: [00:35:00] Well, we lost a whole generation of people that would normally be having babies.

Eve: [00:35:07] If you want to get to New York by train, it's a day. There's no easy, fast way to get to work hubs. We're sort of a little bit stranded. And I was always puzzled by the fact that we, you know, people would talk about better transit in the city, but I wanted better transit to other places, nearby, to open up opportunities. If I wanted to do a development project in a city, I wanted to be able to get there in a day in and back. Right?

Tom: [00:35:37] Right.

Eve: [00:35:37] So I, you know, I wonder if you plot out those connections, you know, where the, you know, the cities done well, will land.

[00:35:49] I think it's a mix. I think mobility is one piece of the conversation of how easy it is to move around a city. Our son, for example, is now 29 years old, does not even have a driver's license. He lives in Pittsburgh. On the North Side right now with us, he's moving, though. You know, he is, has been able to manage fine living in Pittsburgh, using Uber and using public transit and, you know, walking a host of other things and abusing his friends every once while they're able to, you know, he's able to sort of manage living in a city pretty well. But I think mobility is part of the conversation. And that's what, when I was becoming mayor, Eve, our focus was we need to figure out how to create a diversity of jobs. And we needed to make Pittsburgh a place where people wanted to live. You know, we're never going to be, maybe we will someday, we're never going to be a warm city. Like I was just in Orlando yesterday. It was 90 degrees. We're not going to be near the ocean, but we had other assets. And so, as you might remember, I was very focused on building riverfront trails for that reason is that was an underutilized asset. You know, we watched, you know, a great music and bar scene sort of, and that happened organically. It's funny, I watch the, I read the media in Pittsburgh now about the Strip District and we made a very intentional decision not to do anything in the Strip District. We, you know, people would come and why don't we do this and why don't we do that in the Strip District.tAnd we really said The place is working really well. Why do we want to get involved in it? Let it, it's just happening on its own. So. You know, that it's interesting that that's the big, big debate right now in Pittsburgh, I guess about, are we killing the Strip District. So I think that you make decisions, you know, some of them are going to be right. Some of them were wrong. Hindsight will tell you whether it works or not.

Eve: [00:37:56] You know, this show is about real estate impact investing. And I want to know what you think a key factor is that makes a real estate development project impactful.

Tom: [00:38:06] You know, I think it's the public space. Is the building itself attractive, but it's the space around it, how it engages people that work in that building, and even people walking by, how they might use it. I think that, how it all connects. And you can get senses of it, right? When it works well? I think, you know, there are places in Pittsburgh that I think of that are just great places to be. People like to be there, right? I look at Mellon Park, you know, going back many, many years, long before I was mayor. Still a very iconic place on a nice summer day. It's packed with people, having lunch. And I think how that happens, and that's where the public private interface is so importantA and where the public needs to have, to be put money in the game, to say to a developer, you know, we want to get this quality in, and a developer might say, but I can't afford to do that. And if you look at the books and the market is going to be make it hard for the developer to do that, then there's a public role for that. I think another good example is that is Schenley Plaza, which for for 40 years or 50 years was a parking lot. I mean, think about that. I mean, I, you know, on one side is Schenley Park, on the other side are the museums, on the other side is the Pitt law school. And then on the other side, the Cathedral of Learning. And what is the highest and best use of that land for 50 years? It was surface parking. And Mark, this chancellor at Pitt and I got together and said we should be, we should do better than that. And so we work with the Parks Conservancy and came up with an idea to put a park there, to take the parking. And I got all this hate mail, but I'm never going to vote for you again. You're taking away my parking place. And I said, you know, you'll get over it. There'll be other places to park it. But this is, this, we can do better than that is the interest of a great university. To a great park. To a great museum. We can do better than that. And you look at that on a nice summer day, it's filled with people. So creating those kinds of places, I think is is that there's a responsibility of both the developer and the community. You know, you did something quirky Downtown with those statues. And I bet lots of people walk over, who maybe have never been in Pittsburgh, walk over just to look at them.

Eve: [00:40:58] Yes. In fact, I think the taxi drivers use it for directions when someone says, I want to go Downtown.

Tom: [00:41:05] Yeah. So that's what I mean. And look at Randyland on the North side.

Eve: [00:41:10] It's fabulous. Yeah.

Tom: [00:41:12] You know, I mean, it's just things like that make a cityS so the other word that we use a lot in ULI is authenticity, right? Pittsburgh has a great history. It has a great story. And we could still do better at telling that story. The South Side Works, when we started to develop that we put, had a competition for, and we brought artists and old steel workers who worked there together for like a morning of talking. And then we had a competition for artists. And there's, at the end of Hot Metal Bridge is a little monument that we established for the steelworkers. But Pittsburgh is an incredible story.

Eve: [00:41:56] So I'm going to ask one last question, because I've taken up a lot of your time.

Tom: [00:42:00] It's fine, I've enjoyed it. It's fun to talk to somebody who actually knows Pittsburgh, Eve.

Eve: [00:42:05] So is there something that you think could really change real estate development in the U.S., for the better?

Tom: [00:42:14] I think it is, is the idea, the partnership idea. I'm amazed that the cities I go to, many developers attitude is I want a minimize my involvement with the city. Maybe there's a reason for it. I want to get in and get out. I want to get the entitlements, whatever I may need and do what I want to do. So the challenge is the developer has a piece of property. The developer needs to figure out how to make money from that property. I accept that. I want the developer to make money from the property. On the other hand, the city, the city has the responsibility to build a great city. That it will never be a great city if these developers see their development as sort of an island disconnected from what's next to it. And so the city's responsibility is to figure out how that all fits together. Give you two examples that drive me nuts. I can drive on pretty much any suburban shopping street. I can go into a gas station. Maybe I want to go to the store next door. And I have to drive back out onto the highway. Or maybe I want to go to a store across the street, I have to go out on the highway. Maybe I have to drive a half a mile to get over there to the other side. So I can't, there's no sense of connection between any of that. And the other is, I watch in suburban areas like Cranberry Township subdivisions being developed of 100 acres or so. What would it take for those subdivisions that, maybe there's five different developers doing one hundred acres each, if they would, then the city's role would be to say we want to connect all this with a bike trail at the edge of your property so that every, so now instead of having a couple little playgrounds, you might have a five or ten mile bike ride, safe, off road. You don't have to worry about traffic with your little children. And there is examples of where the public fails. Both the public and private developers fail. Because you create great, great amenities if you begin to think in a bigger way rather than individual pieces of property. That's what's destroying development, and quality in America today.

Eve: [00:44:33] Yeah, I agree, I think we both believe that real estate development, just as a financial tool, as a way to make money, isn't making our cities better.

Tom: [00:44:43] Well, I think you make more money if you build quality. In the long run I think your development is more valuable. I mean, we didn't get into all the other sustainability and all that which a lot of cities are facing.

Eve: [00:44:54] Thank you very much.

Tom: [00:44:55] Look forward to see you sometime. Bye bye.

Eve: [00:45:04] That was Tom Murphy, past mayor of Pittsburgh. Tom thinks place is everything, so place is what he invested in during his long term as mayor. He did that by reducing operational costs and creating the Pittsburgh Development Fund, a $60 million fund focused on helping developers who were willing to work in places and on projects that made the city better and better. It was a very bold, and unpopular move, but paid off in ways that no one imagined, as did many other moves that Mayor Murphy made.

You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Tom, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve: [00:00:00] Hi there. Thanks so much for joining me today for the latest episode of impact real estate investing.

[00:00:06] My guest today is Emerick Patterson, a developer with a conscience. Emerick is currently entrepreneur in residence at Heritage Equity Partners, but he's about to launch his own brand Urban Parti. With his latest project, The Bushwick Generator, he focuses on ways in which to find and keep a place for the existing community in the face of gentrification.

[00:00:33] Be sure to go to evepicker.com to find out more about Emerick on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:00:54] Hello, Emerick. Thanks for joining me today.

Emerick: [00:00:56] Hello. It's nice to talk to you.

Eve: [00:00:58] So I reached out to you because I heard about a project that you're involved in called the Bushwick Generator. And I've seen it described as a community oriented and community led innovation lab in Brooklyn, which is pretty intriguing. So I wanted to start by having you tell us a little about that project.

Emerick: [00:01:22] Yes, I will. And for first I want to say thanks for having me on. And I am a big fan of Small Change and the work that you're doing and just generally of the ecosystem or community that you are creating. So, yes, I'm happy to tell you about the Bushwick Generator. It's an innovation hub based in Brooklyn, New York, an area called East Williamsburg. So have you been to Williamsburg before?

Eve: [00:01:47] Yeah, it's been a while, but I have. Yes.

Emerick: [00:01:51] So Williamsburg was basically a manufacturing district on the waterfront. There's a ton of industry. This is really north of Brooklyn. There was a ton of industry here in the 1900s. And you know, the industry is transformed, moved on in some cases and the waterfront of Williamsburg basically was repositioned into more of a living destination and also a tourist destination. You know, if you look on Netflix now, basically the majority of shows that are filmed are filmed in Brooklyn. So, you know, it has changed dramatically in the last 10 years and the area that I've been working in is in East Williamsburg and Bushwick, which is really an up and coming area in north Brooklyn. What's special about it is that highly [friend] and accessible there. It's right on the L-train and the L-train is really the main mode of transportation from Brooklyn to Manhattan. Aapproximately two hundred and fifty thousand people take the L-train every day. So this sits right on the L-train, very close to where folks live. That means it really has the potential to be a true live work and play district. And so all my focus over the past two years has been in this area. And Bushwick is generally a very central area, very, very diverse. I'd like to say that Bushwick has all the ingredients for a delicious urban soup because you have a mix of ethnicities. It's primarily actually, Latino migrants, immigrants, that have been in the area for a long time. And then as well as a large African-American population. We're also very close to Bedside.

Emerick: [00:03:47] So very interesting, very diverse area. You also have all the young creatives who live along the L-train. Most of them live in Bushwick because the price of housing is lower.

Eve: [00:03:58] Yes. Interesting. So what's what's the goal of the Bushwick Generator.

Emerick: [00:04:03] So when I showed up at the Bushwick Generator there wasn't much going on, but it was always conceived as a place for office tenants and creative tenants, which is really, you know, the standard for a warehouse type development. So basically there was a lot that's approximately a hundred thousand square feet. There was a warehouse and there was a company there that made tanks. We purchased the site in 2015. And since then, we've repositioned the buildings to be from the tank and storage facility to be for creative office, and, you know, in the creative office tenants, essentially. And so we're now still today the building is a bit under construction because the L-train actually was shut down for a long period of time and really slowed down the progress of the East Williamsburg, Bushwick as far as tenants wanting to move in. Everybody thought that Bushwick and Brooklyn were going to be disconnected from Manhattan. And so it's still today mostly under construction. However, we're going through some permitting on a portion of the site.

Emerick: [00:05:26] And we do have a 5000 square foot space that is completed. And that space know is where I do a lot of the neighborhood work. And we also do have a couple of tech tenants in the building. So we have a tenant called Paper Space, which is a machine learning tenant. And we also have a company called Romenesko, which is a Latin American media tenant.

Eve: [00:05:52] So the ultimate goal is to... What is the ultimate goal of this space?

Emerick: [00:05:59] Yes, sure. So I would say that it's a standard development. We are going through a process to build more than we're currently building. However, I would say that the goal of the building is this is a unique opportunity here to kind of offset gentrification, if you will. I mean, there's clearly a lot of capitalized stakeholders that are moving into this area. Netflix is coming in just a stone's throw away and they're building 250,000 square feet of production facilities. Also, a company called [Consensys], which is a large blockchain company, founded Ethereum which is also a stone's throw away.

Emerick: [00:06:42] There's other tech and media tenants in the area. So tech is definitely moving into a neighborhood. But at the same time, as I mentioned, Bushwick and East Williamsburg is a highly diverse area. And so there's a huge opportunity to really align some of the effects that a new capitalized stakeholders will create by coming into the areas. That could mean job training and job readiness. It could just mean space equity to convene for some of the residents in the neighborhood now. But in the end, it's really about taking the steps to really have the neighborhood influence what what could be in the building. And I think that's the most important part.

Emerick: [00:07:23] How did you take those steps and how do they have a say?

Emerick: [00:07:27] Yeah. So community work is not easy. Exactly. So we have space.and the Bushwick Generator really is its ethos. I mean, for lack of a better word at the moment, we have 5000 square feet, we have an open door policy for people in the neighborhood to come in. And we also encourage them to come in. And we do a lot of outreach to make sure that they get in the door. So when we do an event, for example, you know, we do a lot of outreach. We have a local nonprofit that works out of the space called Sustainable United Neighborhoods. And we do a lot of outreach to make sure that the people who show up in the generator, or virtually any event, make up a kind of representative sample of what the neighborhood actually is.

Emerick: [00:08:13] It's very easy to throw a tech event, but it's not as easy to get local young adults from, say, major housing into the building. So we really tried to bring together the normal events that would happen in the tech hub with kind of the young adults who are in the area who really want access to the possibilities that are happening now in the space and also will happen in the future. And we really work to bring these two things together.

Eve: [00:08:41] So what's what's the best outcome for this project? Do you think, for the neighborhood?

Emerick: [00:08:45] Well, there's a lot of unknowns. I would say the absolute best outcome here is that there's a shift in the status quo of creating a tech hub. You know, I mean, I think that this is a well-positioned development in an urban area that is outside the core district. And it's really very close, within walking distance to a lot of people who could really use training without the cost of getting into the city every day. And they could use kind of the [augeration effect], frankly, that, you know, has happened in the city or has happened in Manhattan and in their own neighborhood. So I think that the scenario here is where the young adults that live in this neighborhood feel like this is also their home and they feel confident enough to be a part of this community and and really, you know, ask for help.

Emerick: [00:09:45] And I think the other side of that, of course, is that people coming into the area, into this tech hub, really understand what this neighborhood is all about. And that they offer, you know, their time and mentorship to make sure that the young adults of the neighborhood really have have access.

Eve: [00:10:03] I know how hard it is to make something like this happen in the face of, you know, wealthy development. So it's commendable, ethical, and I hope you're successful. I've also noticed that there's a wiki page that the community keeps for the lab or incubator, which is really interesting.

Emerick: [00:10:33] Yes. The Wiki page. Yes. We've done a lot of work around open source technology and really looking at what is it that really makes it create trust in neighborhoods. And I think that I just don't believe that the future is that people are going to shove technology down the throats of people who live in neighborhoods. So we've done a lot of work to consider what does it look like if for basically tech to be in the neighborhood. I feel like it's something that the people in the neighborhood created or have access to to change or control themselves.

Eve: [00:11:11] Right. Interesting. What's your background and what led you to this point? Working on projects like this?

Emerick: [00:11:21] My background is, I mean, just before even getting into real estate, I was very young, so I graduated with an engineering degree when I was twenty four. I got a crazy idea that the stock market crashed two thousand eight, that commodities were going to do very well, so I dreamt up a very crazy idea to move to Brazil and tried [to turn my farmland]. It didn't work out and years paying people back for that mistake. And, you know, friends and family and so forth. And from there, I've gotten to investment banking.

Eve: [00:11:59] Hold on a sec. I wouldn't call that a mistake. I would call that a pretty bold experiment.

Emerick: [00:12:07] It was a it was a grand journey. But, you know, when you're young and naive, you know, you don't you don't think it's easy to gloss over it.

Eve: [00:12:17] That's how you learn, right?

Emerick: [00:12:19] I definitely learned. So I went into investment banking for a bit down in Miami where I was doing Latin American receivables financing. Eventually I made my way to New York and I worked for a few tech companies for a bit, doing fiber optic cable.

Emerick: [00:12:41] And then I had a friend call me up and say, Hey, man, I'm starting this real estate business. Will you help me build it? So I helped to build a real estate business. And then I went back to Columbia to do a degree in master's in real estate development. It was at that point that I really committed myself to the urban environment. And I said, you know, this is what I'm going to focus on, basically the rest of my life. So whatever happens, it happens within the context of of the built environment or urban. And from there I went to work with a large developer in Brooklyn, really a pioneering developer. It's called Heritage Equity Partners, led by Toby Moskovitz. And I went there to do acquisitions. But eventually I changed my my title to entrepreneur in residence and went to work on this property.

Eve: [00:13:46] That's a nice journey. So shifting gears a bit. You know, this is a risk, socially responsible work that you're doing. So, you know, do you think socially responsible real estate is necessary in today's development landscape?

Emerick: [00:14:02] Yes, absolutely. Absolutely. More than necessary. It's almost it's almost critical. I mean, because we're really talking about know we're really talking about equity. And we're also talking about, you know, real estate is a political endeavor almost always, unless you're building as of right. And you know that it's really a negotiation oftentimes with the city as to what's being built and why and for whom. And so I would say that it's definitely critical that there's more people in this conversation, essentially.

Eve: [00:14:45] All right. Yeah, I mean, I agree. But is there enough of it is the question. I'm not convinced that many developers think this way yet.

Emerick: [00:14:54] Yeah, I definitely don't think there's enough of it. And I would say that I don't think enough developers have the capacity to think this way. I think until we see, you know, the capital markets really transformed for, you know, that we're not going to see real change. And the reality is, is that, you know, with highly debt and debt driven investments and development, you're going to continue to push rents.

Emerick: [00:15:19] And I'm not even speaking about the residential market. That's just that's its own animal. But even in the commercial market, you know that debt-driven investments are going to push rents into neighborhoods. And that is definitely going to a force displacement. So I agree that it's very. It is also very tough for a developer to fully think through and to fully act on what would take to be a good developer, I mean, Brian, from Shift Capital, I think like one of the best examples of a developer who is really committed and, you know. I don't know what his capital stack is. But I think that his capital stack is aligned with you know, the work that he wants to really do in the neighborhood. So, yeah, I don't think we're there yet.

Emerick: [00:16:16] Certainly on small change, we've helped raise homes for a number of developers who I think are really thinking hard about this and working hard on it. So I think they're, um, there are more. But it's a capital problem is huge because if you have to provide a return to keep hungry investors happy, it's not always possible to do something that's socially responsible. So they're really at odds with each other, right?

Emerick: [00:16:44] Yes, exactly. Yes. Yes.

Emerick: [00:16:47] And just get put in a situation where you have to basically push rents. It's a vicious cycle. Right. You know, and if you're pushing rents, if you're pushing rents in communities, I mean, you're really, it really becomes a problem because if people don't have the space to convene and to grow, you know, then the question is where do they really go for that? And it all plays, a lot of it plays into the structural transformation around mobility and, you know, just the cost on time and resources that it takes to get somebody from ... As people move farther and farther out into neighborhoods, you can't have them all coming all the way into the core area to get some sort of training. So there's definitely, there's definitely like a space shift that's happening.

Eve: [00:17:46] Yeah. You know, if you if you get a moment and take a listen to the podcast interview I did with Jeremy McCleod in Australia. He's building affordable, sustainable buildings in a country that really doesn't have an affordable housing policy. But one of the things that is fascinating is they have like eighty five hundred people lined up for the units that they're building, but they're putting civil servants, teachers, firefighters, people who are necessary to keep the city going, at the top of the list. They are always the first to get an option to buy.Yes, because that group of people are not paid enough and pushed further and further out. It's a really, it's an interesting thesis, a different take on the problem. I just find it fascinating.

Emerick: [00:18:33] That's how the affordable housing structure is kind of set up in New York, just to some extent was to make sure that the first responders always had a place to be close to the core area.

Emerick: [00:18:47] Yeah, is he in architecture, Jeremy?

Eve: [00:18:50] Jeremy, he's an architect. Yeah, but he's really stretching his role as an architect and has spun off a non-profit to build more buildings like this. And that's really sort of taken on the role of developer in many ways. It's fascinating. People are tackling the problem all over the world and in different ways, which I find really hopeful actually. It's a really huge problem.

Eve: [00:19:18] Are there any other tenant trends in real estate development that interest you the most or that you think are important for the future of our cities.

Emerick: [00:19:27] Yeah, I mean, I believe. I believe governance, the governance dynamic is changing and the political, like the hyper local political landscape is changing. I think that cities generally and municipalities they're stretched kind of to the limit. And I think that it's going to be difficult for them to to really have the resources where their mouth is. And so I think that that is something that developers or intermediaries are going to have to really take on, which there's an opportunity as well. You know, and really manage some of the hyper local type of coordination that's needed to be sustainable. So, you know, I believe that sustainability includes both the social fabric and the physical fabric. I believe that they go hand in hand and I believe it is incumbent on people to understand what is it involved, you know, with some degree of creating, you know, neighborhood or cities. They understand the dynamics or understand what capacity they have to actually make a difference, do something in neighborhoods and what the mechanisms are to do that. You know, that is what's needed for people to feel confident enough to change and to participate. I think the shift is that people actually want to co-create their neighborhoods and cities and you know, the mechanisms mechanisms to do so aren't exactly there. And it's not so much about a product or, you know, a short term goal, as it is about the long term process of education, of empathy and of feeling, also of innovation.

Eve: [00:21:39] So you talked about you know, we talked about how difficult it is to engage community members. What engagement tools have you seen or used that you think work best?

Emerick: [00:21:51] I think that space is very important. Having a space where people can access. The tool is really not an app, you know. I mean, you know, these are these are things that definitely complement the work. But I think that in the end, you have to meet people where they are and where they want to go in life. You know, not everybody is interested in real estate development. Not everybody is interested in local urbanist type stuff. You know, we are because that's what we like. But that doesn't mean that a young kid from Florida who lives in a housing project or you know around the neighborhood, cares at all about that. So they may want to go find a shoe or they may want to make a business or they may want to learn something and get a job. So I think that there's this infinite complexity in neighborhoods. And to say that there's one or one idea that's really going to fix everything. It's an approach that's not necessarily my approach. So I think the tool is the process itself. The tool is in deep relationships. And also programming. So I would say programming is critical and everything else is secondary.

Eve: [00:23:12] So in other words, it's a lot of hard work, right?

Emerick: [00:23:15] Yes. I think it's a great because I think there's a ton of opportunity in that. I mean, you know, every time you speak to somebody more in the neighborhood, you really you learn something new. And that is part of innovation. I mean, I don't I frankly don't see how innovation works in any other way. So I you know, I know what all the tech companies are doing, you know. But I think there's tremendous opportunity in learning about people in dense urban areas.

Eve: [00:23:48] Where do you think ultimately the future of real estate impact investing lives? What do you think real estate in the US needs to look like in the future?

Emerick: [00:24:00] I think you started with your Small Change index, you know, in attempting to quantify impact. I think that is definitely important and that is that is the direction it's headed. And I mean, I think that ultimately the capital markets have to change. There really has to be a new kind of return on investment that we're getting to a point where debt capital for speculative development, at least in the commercial office space, for example, is not really the right way to fund a development, but it could be. That make sense?

Eve: [00:24:44] Yeah. It makes lot of sense. So with that, I'm gonna sign off. And thank you very much for taking the time to talk to me today. It's been really fascinating. Oh, you know, I have one more question. I'm gonna I'm gonna ask you and that is what's next for you? That's the most important question.

Emerick: [00:25:01] Yeah. Thank you. For now, I'm still working with the generator property in Brooklyn. I do have launching a brand which is Urban Parti. You can see information at urbanparti.com that you know, which is really all the work I've done here in Brooklyn just to put a form to what I've done, which is really about creating local access points for urban innovation. And so the next step is really building up the partnerships around, you know, in this community, really, of people who care about real estate development. And I believe that it needs to be changed and I'm growing that brand.

Eve: [00:25:48] That sounds fabulous. I can't wait to see what you do next.

Emerick: [00:25:51] Great. Thank you very much for the time. I appreciate it. Thank you. Bye.

Eve: [00:25:59] That was Emerick Patterson. Emerick believes that in order for socially responsible development really to take hold, the capital markets must change. We need to move away from debt and equity. That essentially requires developers to squeeze out more and more rent, displacing more and more people. And Emerick also believes that when there is a shift in status in a neighborhood, it is incumbent on developers to build a relationship with neighborhood residents and provide a space for them to stay and grow. You can find out more about impact real estate investing and access the show notes for today's episode at my web site evepicker.com. While you're there. Sign up for my newsletter to find out more about how to make money in real estate, while building better cities. Thank you so much for spending your time with me today. And thank you, Emerick, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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Eve Picker: [00:00:03] Hi there! Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Janine Firpo. Janine is a writer, values-aligned investor and entrepreneur. Janine's background is fascinating. She left a career in the tech world many years ago to pursue a more meaningful work experience. This led her into the world of microfinance and philanthropy. She has consulted and lived all over the world. And now for almost 10 years, she has been on a personal mission to invest all of her assets so they create a positive impact. It's a bold move and she is all in.

Be sure to go to EvePicker.com to find out more about Janine on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:21] Hello Janine, thanks so much for joining me today.

Janine Firpo: [00:01:24] It's my pleasure, Eve. Thank you so much for asking me and for being interested in what I'm doing.

Eve: [00:01:30] Yeah, well, you've had a really fascinating career, starting with technology companies when they were startups, and are household names now. And you left that path to follow a very different one. But I wanted to ask you how you started your career?

Janine: [00:01:45] I'd be happy to tell you. So, I actually started my career very early in 1981. It's a long time ago for many people. And I sort of fell into the computer industry, first in Louisiana, and then when I really got into it, I moved back to the Silicon Valley where I was originally from and I'm still here. And I worked in high tech for about 15 years, worked at Apple Computer in the 80s, and then also did some startup work. And then in 1995 I left a job and I did a solo backpacking trip through sub-Saharan Africa. And what was really interesting about that is when I left on my trip, I was in something called the CD-ROM and multimedia industry. And when I came back, everyone I knew was in the Internet industry. So the internet literally turned on in the four months that I was away.

Eve: [00:02:37] Wow.

Janine: [00:02:38] And I was perfectly positioned to get on that ride, that dot com ride. But when I was in Africa, I saw poverty like I had never seen it before. And I decided that I wanted to use my life in a way that had meaning. And so I set out on a track to figure out how could I use the skills I had, technology and business knowledge, to bring change to the levels of poverty that I was seeing in Africa. And so that launched me on then what became a twenty-year career in international development and bringing technology into Africa, Southeast Asia and other parts of the world. And while I was on that trajectory, I got involved in something called microfinance, which is making loans to poor women, primarily in developing countries around the world. And in looking at what is the role that tech could play in really scaling microfinance, it was reaching 100 million people in the world when I started, and the need was to reach two and a half billion people. That inquiry, other people were involved in it as well, led to something called 'mobile money,' which is using the cell phone as a bank for the poor.

Eve: [00:03:50] I was at the Bellagio Foundation in Italy, a few years back, with someone who was writing a book about the M-Pesa.

Janine: [00:03:58] Exactly! M-Pesa, which was one of the first incidences of this, it actually started in the Philippines, but M-Pesa was the example that just shot off the charts within the first year. It came out in 2007, and within its first year it had a million people using the service. And in the second year it was many more millions. And it's now serving, over 85 percent of the population of Kenya uses M-Pesa now, and it has become a de facto way to move money. And now people are getting loans over it. It's being used as a financial mechanism for all sorts of things. So, it became an amazing industry. There are now over 250 incidences in more than 90 countries around the world.

Eve: [00:04:44] But it really started because people had cell phones. Right? And they needed to move money.

Janine: [00:04:51] They had cell phones, well, actually the way it really started was the people behind M-Pesa was Vodacom, and they were trying to apply the cell phone technology to microfinance. And they started in 2004 with a microfinance institution in Kenya. And it just didn't work for a lot of reasons that I won't go into. But what they found that was really interesting when they were trying to help this microfinance industry scale its business was that people were using the phone just to move money back and forth. And they saw a real opportunity. So, they retrenched. They rethought everything. They set up all the infrastructure that they needed. And then in ... February of 2007, they launched M-Pesa as we know it today, which was a money transfer service. Now, super-fascinating the way it all unfolded.

Eve: [00:05:40] Yeah.

Janine: [00:05:41] Yeah. And then so I had this great career for 20 years. I traveled all over the world. I've been to more than 80 countries. I worked all over the world. It was amazing. I loved it, but I was also traveling 50 to 70 percent of the time for 20 years. And the industry became huge. And I was always more interested in startups and new things. And so it just became time, a couple years ago, for me to leave that. And so I retired from that career. And along with being involved in all of that, so, I was sort of a social entrepreneur before that kind of word became a thing. And because I was in the Bay Area I was involved in all of these conversations around what has ultimately become known as impact investing. I was working at Hewlett Packard in the corporate social responsibility world. So, part of just that entire conversation about the new philanthropy and different ways of using our money. And about 10 years ago, even though I am not a high net wealth individual myself, I realized I'd made the choices in my life to live and lead from a life of value, and something where I was making a difference in the world, and I realized my money was working against me. And so I decided I was going to figure out how to invest all of my own money, from my cash to my public stocks to private stuff. If I could do that to real estate, all of it, how do I invest all of that in a way that lines with my values and is supporting the world I want to see.

Eve: [00:07:18] That's a pretty powerful step to take, Janine.

Janine: [00:07:19] Well, it just was really in alignment with who I was. And it was because I was watching, I was going to these conferences and I was seeing these ultra-rich people and financial, you know, foundations and institutional investors doing this. And I thought, well, why can't, why can't the rest of us do this? Why is this yet another thing that's just being left to the very rich? And so I decided to try on my own. And in the 10 years I was working super hard, so I had financial advisors. They didn't get me where I wanted to go. And so when I retired a couple of years ago, I took a lot of my assets back. And I've been working on this myself.

Eve: [00:08:01] Wow.

Janine: [00:08:03] And I have realized that in the 20 years that I was, have been sort of watching this space, it's really evolved. And I now think we've gotten to a point where the goal of investing your money in alignment with your values is becoming mainstream. At this point, one of four dollars that are invested by institutional investors are invested in socially responsible ways. It just hasn't trickled down enough to those of us who aren't wealthy. And it shouldn't be that way, because there are now products across virtually all asset classes that you can invest in a values-aligned way, even if you're a non-accredited investor, which means even if you don't have a million dollars in net worth, you can invest this way. And so I have corralled a bunch of the brilliant women I know who are now helping me develop a book, helping people, primarily women, because we have been really left out of the financial services conversation in a lot of ways, to help them think about how to be smarter about their investing overall and how to do this in a way that aligns with their values, too.

Eve: [00:09:12] That's pretty fabulous. So, just shifting gears a bit, when we talked awhile back, you mentioned that you were interested in investing in impactful real estate, the next step in this process for you. And ...

Janine: [00:09:25] Yes.

Eve: [00:09:25] First of all, I'm wondering why that's an interest now?

Janine: [00:09:28] Because, well, I currently own real estate. So, when I was a kid, I actually learned a lot about money from my mom, and my mom when I was a really young kid, we didn't have very much money. In fact, we were kind of poor. We didn't always know where we were going to get food. We were wearing secondhand clothes. My mom was a coupon shopper. And at some point along the way, she decided that she needed to find a way to make more money. And so she got herself into real estate. She became a real estate professional. And she started learning about buying property, buying and selling property. And so she, we're talking like back in the 60s, I think, she started going to the courthouse steps and buying foreclosed property and sometimes sight unseen. She would buy them and then she would turn my sisters and I into her crew and we would go ... we were, like, this is how I spent my summers, my teen years. Ripping up carpets, refinishing carpets, painting interiors, painting exteriors, cleaning, you know, all of that. We were her crew. And then she would rent these properties out. Sometimes she'd sell them. So, I learned about real estate and I'm in the Bay Area. This is a really hot real estate market. And so I've, you know, I've learned something along the way. And ... I bought my first house when I was 30, and have purchased real estate. So, I have those assets. Now, if I am truly aligning all of my money with my values, then that has to include my real estate. And so I've gotten to the point where I've pretty much figured out a strategy for all of my other asset classes. My cash has all been moved in alignment with my values. I'm working on doing that with my public equity stuff. My fixed income is moving that way. I'm an angel investor. I only invest in socially responsible businesses and I primarily am investing in companies that are started by female CEOs, because women get less than two percent of the private equity capital in this country. So, we need to support more women founders. So, I'm doing that with a lot of my money already. It's time for me now to start shifting my focus to the real estate. So how do I get out of, so I'm starting to think about, how do I get out of single family residences, and what might have more values aligned real estate set of opportunities look like.

Eve: [00:12:02] That's really interesting. I have the reverse problem, so I'm going to probably ask for your help in dealing with my other assets.

Janine: [00:12:11] Happy to do that.

Eve: [00:12:12] So, you've been looking. And what does real estate impact investing look like to you? What does that mean?

Janine: [00:12:19] Well, that's a really good question. And I have to be honest that I'm in the early days of this journey. And so I'm just starting to learn and that's how I found you. Actually, I was out on the Web and I was kind of searching around and thinking, well, who's doing anything out there in real estate? And that's how I found you. So, I know a little bit. So, and I've invested in a little bit. So, my last job was up in Seattle working through the Bill and Melinda Gates Foundation. And when I was up there, I heard about a company, that basically what they were doing was they were buying distressed property in Seattle, and they were single family, and they were gutting a lot of these places and then rebuilding them green. And could actually tell the buyer this is what you're energy saving is as the result of buying this house. So, green is one way of thinking about this. I'm also somewhat familiar with affordable housing. And my current financial advisor actually has me in an affordable housing fund. I forget the name right now. I apologize for that. But they had me in that kind of fund. I've been aware of the whole opportunity zone set of things that are cropping up around the country. Although I've heard varied things about those opportunities. And, you know, those are basically things that I know. I also am invested, a very small amount of money, this particular deal could only take a thousand dollars from each investor. But it's a woman here in Oakland, the city that I live in, who is basically raising down payments through gathering money from many, many investors. And then she's getting loans and she's buying multi-unit properties that already have tenants, low-income tenants, and what she's doing is, she's setting up structures where these tenants, as they're paying rent, are actually in basically a buy-to-own situation. And she's turning these buildings into cooperatives that are owned by the people that live in them. So, I think there's some interesting models out there. I just don't, I only have seen a smattering of them so far.

Eve: [00:14:40] Yeah, actually, I think, I just interviewed Rebecca Foster, who is also in the Bay Area on the Housing Accelerator Fund, which is a different model, they are working on raising money to preserve existing affordable housing in San Francisco. Yeah, I think there's lots of ways to make impact and you're just really scratching the surface. Right?

Janine: [00:14:59] Exactly. And there's a, yeah, there's a man that I met recently through something I'm involved in who's in the real estate business out here. And he's starting to think about building his career around socially responsible real estate. So, he and I have had a couple of conversations. And one of the things that he sort of suggested to me, although I don't know that I have enough assets to do this, but he talked about wouldn't it be cool to like have a building where you could have businesses in it and and tenants in it, residential and office space combined. But really determine that you want a certain kind of business. Like create a space where these are all businesses that are run by women, or these are, you know, so ... or these are all businesses that are in this kind of vertical and they're helping each other and that particular vertical is good for the world. That was kind of an interesting thought.

Eve: [00:16:02] I think a lot of people are thinking about this in many very different ways. Like, I built a portfolio of what I believe are socially responsible projects, but really starting before green was the theme. And I focused on underserved neighborhoods and blighted architecture ...

Janine: [00:16:26] Right.

Eve: [00:16:27] And so what I think is interesting about the real estate impact investing world is there's really 1001 ways to make an impact. You just really need to figure out what matters the most for you.

Janine: [00:16:41] I totally agree. In fact, that's one of the things that I'm talking about in this book I mentioned is I am moving away from the words impact investing and socially responsible investing and all of that, because I think so many people use those words and they mean different things by them. And what I and it's, so it's hard to get a clear definition on it. And what I've found is when push comes to shove and you talk to people who are thinking about impact investing, they're usually talking about private deal flow, private debt and private equity. And I'm really interested in looking across all of your assets. So, what I've come to realize is even though I believe that if enough of us move our money this way, we can change the economy. At the end of the day this is really about our individual choices and who we think we are as people and how we want our money to reflect who we are in the world.

Eve: [00:17:35] Yes.

Janine: [00:17:36] Right?

Eve: [00:17:37] When you take money, you use it, you spend time on it as well. So, for me, it's even more than money. It's how I spend the time around it.

Janine: [00:17:47] Exactly. In fact, I realized the other day, it's, for me ... so much of this conversation about values align or impact investing, it's always the extra thing that people have to talk about. It's, like, here's your financial issues and how you invest in all of that. Oh, and then there's this impact investing thing. And I realized, particularly for women and millennials, who the vast majority of us want to invest our money this way, it's not the extra thing. It's sort of like the icing on the cake. Yeah, you can go out and you can invest your money to maximize return or whatever. But it's really kind of boring, in a way, to do, at least to me, it's like, yeh, so my money is out there and it's doing whatever and I don't even know what it's doing, and all I really care about is the return? No, I want more from my money than that. I've worked hard to get it. I care about everything I do in my life. Why wouldn't I care about what my money is doing? And when I get feedback from the people that I invest in about how my money is being used and what it's doing in the world, that makes me so insanely happy. And it's really fun to be able to talk to people about the cool stuff that my money is doing. I love it. It changes the game.

Eve: [00:19:08] Are you still getting your return?

Janine: [00:19:10] Oh, my God, yes! This is not about giving up return. This has never been about giving up returns. I can meet or beat the return that you that any other investment is giving. So, for example, if you look at public equities markets, so, one of the things that I'm invested in is the Vanguard Total Stock Market Index. This is like one of the things that people talk about all the time. Go into an index fund, Vanguard is really cheap, blah, blah, blah. Right? Great thing to be invested in.

Eve: [00:19:41] Right.

Janine: [00:19:41] But if you actually look at that from the perspective of environmental sustainability, there is a website out there called As You Sow that ranks, if you look up As You Sow 'Invest Your Values,' you will go to a page that you can say, "I care about fossil free stuff" or "I care about gender diversity" or whatever. And you can put your stock tickers into this tool and it will tell you, it'll show you a grade that that particular holding gets across all of these different variables. And it will show you how much of that fund is invested in the things you don't want it to be in it. What are those holdings? And so that stock gets a D on As You Sow. Now, I did some homework on As You Sow and I actually found another Vanguard Fund, an FTSE Social Index Fund, and other funds that not only are getting a better grade like A's and B's, but they also get better returns over a 10 to 15 year time horizon than what I'm in, that's getting a D.

Eve: [00:20:54] Wow.

Janine: [00:20:55] So why am I in that?

Eve: [00:20:57] Yes.

Janine: [00:20:57] I'm going to get out.

Eve: [00:20:59] Well, I have to ask, you spent a lot of time on this, right?

Janine: [00:21:02] Yes.

Eve: [00:21:03] What about those who are just trying to find time in between the cracks to figure out where to put our money?

Janine: [00:21:12] Right. Well, that's why I'm writing a book, because I realized that this shouldn't be this hard, and people shouldn't have to do the level of work that I've had to do to figure this out. So, the book is going to tell you how to do it. It's going to basically, what it's going to do, it's going to have three different sections, and the mid-section goes asset class by asset class and tells you this is what this asset class is, here's how it works, here's how it's generally thought about, and here's all the ways you can invest in this asset class in a values aligned way.

Eve: [00:21:42] Wow. Let's go back to real estate. So, on your journey to find impact impactful real estate ... Now I'm feeling very self-conscious about the word ... What information haven't you been able to find? What's missing out there for someone who wants to figure this out?

Janine: [00:22:00] There is no place that really says these, this is what this space looks like, and here's all the different kinds of deals that are available. And, you know, this is what's going on, these are the cool things that people are doing. I mean, I think that you're trying to do that through your podcast, and I applaud you. And that's it. I mean, I realize in order to figure this out, I'm going to have to go do serious homework and talk to a lot of people and see what other people are doing and then start to piece together what feels like an interesting way for me to move forward. Finding the information is super, super hard.

Eve: [00:22:46] Yup, it's very hard. There's a lot of high level information that I'm aware of that I, that is really for sophisticated investors. I find it difficult to follow myself and, there is sort of an ... exclusiveness around it ... investing that I agree with use a little bit disappointing.

Janine: [00:23:10] So, there are financial advisers out there who are socially focused, but they don't share information about the things that they invest their clients in.

Eve: [00:23:21] Oh.

Janine: [00:23:21] Because that knowledge is sort of their intellectual property. Right? So, there has been an opaqueness around this for a long time. And I feel like it's time to blow that up, too, and just make this stuff completely transparent. There's no reason why this information shouldn't be easily available and easily accessible.

Eve: [00:23:43] Well that's very exciting. So, have you found anything you want to invest in real estate?

Janine: [00:23:48] Not yet, because I haven't gone far enough down the path. But I will say the other thing that has intrigued me is the idea of co-living or shared housing kinds of situations. I've been intrigued by some of the things that you've had on your show and, you know, have added them to my list of possibilities. But I've been so focused on the other asset classes and just trying to get this book, bringing this book to life, that I haven't had the time to do the real homework on real estate.

Eve: [00:24:24] I mean, I think if I was starting out now, I'd be making a list for myself and not expecting to check every box, you know? Certainly if I think about moving other assets, top of my list would be women-owned businesses. You know, it's just things that you, that I care about, that really matter to me that the next person, you're about something else more.

Janine: [00:24:48] That's exactly right. And there is there will be a chapter on this book, in this book about private debt and revenue-based financing and private equity and how women can get involved in that. Angel groups that are women-based angel groups, and some new innovative models that are coming out to bring women in, even at relatively small value points, and online platforms that are available now if you're not accredited investors. So, there's actually tons of ways to start investing in women, in businesses and things like that for anyone.

Eve: [00:25:24] So, I'm in the early, right at the beginning stage of talking to a group about a women's development fund, a fund, not a huge one, a small one that would invest in women-led real estate projects.

Janine: [00:25:36] Oh, interesting.

Eve: [00:25:38] It's going to take a little while to develop, but I'm very excited about that. I think it's a, you know, a very strong purpose, right?

Janine: [00:25:47] Yeah, no, it's great. So, I actually have a question for you. Because I seem to remember and I may have gotten this wrong, but I seem to remember in listening to one of your podcasts at one point that you talked about the fact that people who do impact real estate investing aren't necessarily going to see the same kind of returns as people would in regular real estate deals. So, first of all, did I hear that right? And if I did, could you say more about that and why that's the case? And also, what do you think is a good return?

Eve: [00:26:21] I think that's not necessarily true across all types of real estate; affordable housing is the most difficult.

Janine: [00:26:30] Ah.

Eve: [00:26:30] And that's because the more you return to an investor or a bank, the higher rents are going to be for the tenants.

Janine: [00:26:38] Right. I get it.

Eve: [00:26:39] So, if subsidy goes away as it has been, and we get a bigger and bigger and bigger need for affordable housing, which we have, this gap, ok? And if investors continue to want to be, quite frankly, a little bit greedy and expect 20 percent internal rate of return, I don't know how you build those projects and keep housing affordable if that continues. So ...

Janine: [00:27:09] Yeah.

Eve: [00:27:09] There are many examples of affordable housing projects we've done on Small Change that are offering quite generous returns. But they can do that because they have, they are a mixed-use project, they have new market tax credits, they have a grant from the city, they have, you know, historic tax, they do public-private financing, maxxed to be able to squeeze out the best return they can for investors. Very difficult. And so I think that's not true for all real estate, but definitely for that class of real estate. I think a lot has to happen for it to be kind of a normal market driven ...

Janine: [00:27:55] That actually makes a ton of sense. I totally hear what you're saying. And I think those kinds of things in real estate and other verticals like health and education, perhaps. That not everything is going to deliver market rate returns. I mean, I think one of the fallacies and the problems that have come out of the impact investing movement, if you want to call it that, is the belief, or that's come out of our very, the way we think about capitalism, is that everything has a market ... everything can be done through the market. And that's just totally not true. There's a, there are brilliant things that can happen, like what you're talking about with affordable housing that can deliver a good return to an investor. If there is a subsidy brought in, or if there is a recognition that, you know, this business model is not going to completely wash its face, it's not going to completely be able to return what it needs to return. But there's lots of ways that you can bring in guarantees or you can bring in first tranches of money that are willing to take a greater loss. Or very interesting things you can do with a financial stack.

Eve: [00:29:23] But ultimately is it right for a private investor to get a 15 to 20 percent return on a project that will only move forward if there's tons of subsidy. Kind of wrong.

Janine: [00:29:37] I'm not sure it is because, look at the alternative. The alternative, and this is kind of what happened in the microfinance world. So, in microfinance, it was reaching 100 million people. It definitely was shown to help bring people out of poverty. It was completely driven by grants. And there was, when I got involved in it in 2002, there was this huge battle going on between proponents of, like, the Grameen Bank, of keeping it completely the way it had always been and fully driven by grants, and a new group of players who were saying, yes, but we can actually commercialize these microfinance institutions and turn them into commercially viable institutions. And there was this huge battle between those two. They hated each other, actually. And what ended up happening is the commercial play actually got proven out. It was shown that you can, in fact, commercialize microfinance and you can reach a lot more, and the whole technology piece that I talked about came out of that as well. And now you've got, from the time I got started, so that two and a half, in a basically a 10 year span in that two and a half billion people who were previously unbanked. It's now gone below two billion. So, by bringing capital that was seeking a return into the mix, that whole thing was able to scale in a way that it would never have scaled just on grants. Right?

Eve: [00:31:18] But I think when I'm talking about is, we had an offering on Small Change that was an homeless housing project in L.A., just a small offering. But the developers were determined to open it up to the community. And the funds they get, the rent they get is actually from the government. So, it's going to be affordable housing in perpetuity. It's not going to, you know, increase in value and be sold at a profit. So ...

Janine: [00:31:48] Right.

Eve: [00:31:49] ... was a fixed return, OK, return over years, which was a nine percent return, which I thought was pretty generous. And that offering actually filled up faster than any we've had.

Janine: [00:32:01] Yeah. I'm not surprised.

Eve: [00:32:03] So that question to me was, do you think we could offer a little less and still raise money, because that's hard, to add in a nine percent return to a project like that? And I don't know the answer.

Janine: [00:32:14] Well, you try. I mean, I'm ... I think the thing is, you know, people are going to look at this like anything else. They're going to look at it from a risk returns scenario. So in my own personal portfolio, I have money in bonds that are returning me three or four percent. Right. So that's OK, because I know that those are pretty secure and chances are I'm not going to lose my principal.

Eve: [00:32:42] Right.

Janine: [00:32:42] So getting three or four percent is OK. But if I'm going to put money into a private business where in five years, 50 percent of private businesses will be out of business, then my risk is a lot higher because I don't know that that business is actually going to succeed and I could lose everything. Right? So I'm looking for a better return in a three to four percent. The same thing is going to be true in a real estate deal. I mean, if you're asking me to invest in something and I'm going to get a five percent return on it, then I'm going to need to feel pretty dang confident that I'm going to get that five percent return and I'm going to get my principal back. And that's not always possible in a real estate deal.

Eve: [00:33:27] And you get to feel good because you'll be housing most people, right?

Janine: [00:33:34] Yes. Yes, I get that. And I also get that people need to make enough return on their money to be able to retire and have the things that they want, too. And they're not going to put that at risk. So, I think there's a, but I, you know, I talked to a woman yesterday who's on the other side of this discussion, and I really liked her a ton. She was great. She's very committed. She is very, you know, in integrity with herself. And she really believes that people should be willing to make investments and get no return if they're doing good stuff in the world. And that that is the way the world should go and that we should stop even thinking about return at all. So, she's got a very different perspective on it.

Eve: [00:34:19] I think if you have enough wealth that you can do that with some of your money, that's fantastic. But you're right, most people can't,.

Janine: [00:34:26] No, they can't.

Eve: [00:34:27] They need to live, too.

Janine: [00:34:29] So, yeah, in fact, in doing the research on this book, I found that in the United States, there are 14 million people who are millionaires, about 14, 15 million people. Right? Five percent of this, five, six percent of the country. So, if that's true and if 95 percent of us aren't millionaires, then, you know, asking people to not get a return on their money is a pretty big ask.

Janine: [00:35:03] Yeah. An I don't think, and I don't think that one percent of us who really have wealth are sufficient to solve this problem.

Eve: [00:35:15] Yes.

Janine: [00:35:17] So, we have to find ways that the majority of us can participate in solving this problem. And that means that we need to do this in a way that they can feel comfortable with the return they're getting. And I think subsidizing to help them do that is not necessarily a bad thing. And I actually think that's where the really rich people could come in, is that they could provide some of those subsidies, so they can take lower return to help other people's money come in at a higher level of return.

Eve: [00:35:51] So do you think that these new crowdfunding rules, like my platform, Small Change, where we use regulation crowdfunding to let anyone invest? Do you think that is a path towards a solution?

Janine: [00:36:02] I think it's one of them, and I think it's, Yes, I do. I think it's a really interesting path. And I think that people who are non-accredited, it's been kind of fascinating to me as well how differently wealthy people invest than people who aren't. And it's not right that people who aren't wealthy shouldn't be allowed to invest in vehicles that can provide them with more direct opportunities to have impact with their money and to provide them with greater return. I mean, there is way more risk, for sure. And some people could make bad decisions. You need to do your homework with this. But there are a lot of really smart people out there who are non-accredited who would put in the time and effort to make the right decisions and they should be allowed to.

Eve: [00:36:56] No, you and I agree about that. And I also, I really don't like the idea of classes of investors. So that, you know, I've had discussions with developers who think that accredited investors want more, deserve more, and I ...

Janine: [00:37:14] Yeah.

Eve: [00:37:14] ... can't agree with that. I think money should be given the same opportunity. And unaccredited investors who had absolutely zero opportunity to get, you know, a half a percent return from your bank account if you're lucky.

Janine: [00:37:26] Right.

Eve: [00:37:26] That's just not OK. So ...

Janine: [00:37:29] No, it's not. And you know, the truth is, there's a great book I read a long time ago by a guy named Nocera about sort of the evolution of money. And, you know, actually even before him, if you go back, San Francisco history. So, this is a story I absolutely adore. The Bank of America. Do you know the origin story of the Bank of America? It's sort of incredible.

Eve: [00:37:53] No, I don't.

Janine: [00:37:55] So, quick version. So, it started in before 1906. There was an Italian immigrant in the San Francisco, in San Francisco itself, actually, who decided that, at that time, the only people who could have bank accounts were extraordinarily wealthy people. J.P. Morgan, you know, that kind of ilk of person. And so he decided, you know what, I think the average man and woman should have bank accounts and be able to get loans. And so he started this bank. It was called the Bank of Italy. And nobody used him because nobody trusted banks. And so then came 1906, the famous earthquake of San Francisco. And he rushed to his bank. He took all the cash out of his safe. He put it in a wheelbarrow. He put, you know, fruit and vegetables over this thing that he had all his money in. And he carted it out of San Francisco. And then he met with the other bankers and they were talking about what they were going to do for the city. And the other bankers were saying, well, we've got to wait six months before we can open our banks. It's too dangerous. You know, bad stuff is going to happen. And so this man, his name is A.P. Giannini. He took that cart or whatever he had of money and he brought it to Fisherman's Wharf and he set up a little table using barrels and a log, and he started giving out money.

Eve: [00:39:30] Wow.

Janine: [00:39:30] People came to him and he gave them loans. And all he asked was their signature. He trusted them. And the people were so responsive to that, they had so much gratitude, that his bank grew and the Bank of Italy became the Bank of America.

Eve: [00:39:50] That's a great story. Yeah.

Janine: [00:39:51] Right? So, and if you look at the history of money and you look at, what you find is that time and time again, there was some innovator like him who said, "You know what? This shouldn't only be for the rich." That's how we got money, mutual funds, and that's how we got invested in, that's how anyone can invest in the stock market. It wasn't always that way either. That was also just something for the rich. So, time and time again, we have seen these things come online for wealthy people. And then some innovator says, you know what? It doesn't have to be this way.

Eve: [00:40:32] Yes.

Janine: [00:40:34] And then the rest of us can participate.

Eve: [00:40:35] Fascinating. So given all of that, what do you think the future of real estate impact investing lies?

Janine: [00:40:43] I'm going to take a step back first and say, where does the future of impact or values aligned investing lie first, and I believe it is going to become ubiquitous. I believe that ultimately this is the way people are going to invest writ large, that their values are going to matter to them as much as their return. And they're going to realize they don't have to give up both. And I think that the real estate piece of this, because it's more complicated for people, is going to be a little longer to come online. But I think there will ultimately be a lot of really interesting opportunities, for all of us, to invest in real estate, too, because it is a great diversifier.

Eve: [00:41:23] Yes.

Janine: [00:41:25] And I'm a huge fan. When I was a young girl, my favorite movie of all time was Gone With the Wind. And, you know, I totally love that she always goes back to the land and she realizes that regardless of what's happening around her, the land is something tangible and real. And it's something that she can hold on to. And I think that's still true today.

Eve: [00:41:49] Well, that was some really fascinating conversation. Thank you so much for joining me, Janine. I'm sure we're going to be talking again soon.

Janine: [00:41:58] My pleasure. Thank you so much. I enjoyed it, too.

Eve: [00:42:03] That was Janine Firpo. Here are some of the things I learned during our fascinating conversation. First, not only can you expect financial return when you make a socially responsible investment, you can meet or even beat the market. Second, only five percent of the U.S. population is a millionaire. That means that 95 percent of the population does not have access to investment opportunities that are largely available for the wealthy. Finally, figuring out what impact means in real estate investing is difficult for someone starting out. It's impossible to find consistent metrics. You can find out more about impact real estate investing, and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Janine, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:00] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Marc Koehler, the founder of Marc Koehler Architects and the fabulous Superlofts. His studio is located in Amsterdam, the Netherlands. While the studio works on many architectural projects, Superlofts is perhaps the most exciting project that you will want to hear more about. With Superlofts, Marc is tapping the desire for city living and combining it artfully with flexible living opportunities, carbon-neutral living and community consciousness.

Be sure to go to EvePicker.com to find out more about Marc Koehler on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Marc Koehler: [00:01:09] Hi, Eve.

Eve: [00:01:10] Hi, Mark. Thank you very much for joining me today.

Marc: [00:01:13] Yeah. Nice to be here. Thank you.

Eve: [00:01:15] Yes. So, you know, I wanted to talk to you today about the very fascinating work that you're doing in your studio, Marc Koehler Architects. And, you know, I was especially fascinated by a statement on your web site that says you are in the business of bringing people together and that you build the new ways that people want to live. And that's a pretty unusual set of statements for an architect. Architects usually focus on buildings, not people. So, I'd love you to tell me what you mean by "the business of bringing people together."

Marc: [00:01:51] Yeah. Well, our company started 15 years ago. Small architects, boutique design agency, doing private houses, transformations of apartments and so on. And we really had to listen to what people wanted, and how they would like to live. So, what we developed is a methodology which we called 'The Ideal Day,' in which we ask people to write down their ideal dream day in their ideal future home ... as a film script, starting in the morning, ending in the evening. And then, it's about how do you want to wake up, or how do you want to come home after work? So, it's not about how big is this? How many square meters do you need in your bedroom, or in your entrance hallway, but what is coming home for you? What do, what is the routine, the ritual of coming home or going to bed or waking up or cooking or showering? And by describing this as scenes, as, let's say, scripted scenes of a movie of your ideal future life, people start to imagine the power of change, of possibility. And that's the real quality of architecture and interior design, is that it can really change your life if you take the opportunity and really think of what you want to achieve with your new space.

Marc: [00:03:13] This is something that grew out into several projects, beautiful houses we did for different people. And then in the middle of the financial crisis, when nobody wanted to invest into, let's say, apartment buildings in the Netherlands, the only sector of the building industry that continued was private housing. So, townhouses, family houses in the suburbs. And there was a lot of land available around the city center of Amsterdam that wasn't developed. Banks wouldn't give anyone a loan because it was a very, very deep financial and real estate crisis, from 2008 to 2015. We, though, had this network of private individuals that did want to develop their dream home. They didn't want to live in the suburbs, though. So what we created was a framework. Basically an apartment building existing out of concrete frame, with double-high spaces of five or six meters tall, and invited people to design their dream house within that framework. And this is what became Superlofts.

Marc: [00:04:22] And Superlofts basically allows private individuals to design with us their dream home in a vertical kind of village, in the sense that we have multiple floors on top of each other, with collective facilities and a strong community that actually then is the result of this. Because people become engaged, in the process of design and also in the process of, let's say, co-owning a project with other neighbors. And we manage this whole process. And this is when we discovered that the sense of community, something that was really missing in the city. So, we started to also select people for these projects that actually match with each other, and organized, let's say ... co-creation sessions, in which these future homeowners decided together upon what kind of parking situation they wanted for their cars? Did they want electrical charging points? Did they want a shared car? Or maybe they wanted a roof terrace with a barbecue pit or a shared garden for the kids to play. And we really became real estate developers focusing on how people want to live together in the future. And this is what made us stand out to other real estate and architectural concepts in housing. Superloft is really based on individual freedom and, let's say, the power of doing things together with your co-owners in the building, and developing shared spaces. And it creates very successful building complexes with a lot of happy people that have a very strong social cohesion, do things together, take care of each other, like in a village, but then in the middle of the city.

Eve: [00:06:21] Wow, so that's a pretty powerful concept, and it must be very different from, you know, where you started 15 years ago. I'm wondering what sort of shifts in lifestyle you're responding to.

Marc: [00:06:36] Ah, well, there's many global trends that also resonate in the Netherlands, which is the shift from suburbs towards living in the city centers, or around the city centers, so people are moving back into town. People are moving closer to the facilities that the city offers. They don't want to sit in their cars, in traffic jams, bringing their children to horse-riding classes and ballet classes and football class the whole day. So, they choose to move back into the areas where they can have everything close by. So, they don't lose valuable time in the car.

Marc: [00:07:14] So, that's one thing. So, in Holland, you see that, all this in ... also in London and many other cities. Also in the U.S., you see that former industrial areas are gentrificating into mixed-use residential zones close to the city hubs. And this is kind of, let's say, a potential area for a new kind of mixed and diverse city where working and living and leisure and mobility – all these aspects are kind of like combined in a new way, a lot of potential for new experiments. The old city centers are, of course, overprotected and with all kind of building codes and historic preservation codes, but especially these zones in this transition zones like called old harbor districts and light industrial areas. They are potentially the new cities where the middle class moves too. And, yeah, Superlofts is often used as a catalyst in these kind of areas. So, we are hired to bring an area that is now underused and mono-functional into movement with maybe 20- to 100-apartment building with shared facilities. This attracts pioneers that ... often creators, designers, makers, thinkers and marketers, real estate developers that think, hey, I have an idea of how I want to live, and I think I can develop my ideal home within this Superlofts framework.

Eve: [00:08:49] Well, I want to move in.

Marc: [00:08:52] And then you see that these pioneers are often rewarded with a very strong increase of value of the property over the years, and then surrounding properties profit from that Superlofts has had ... let's say, a function of putting the area on the map, showing as a proven concept that it's a nice place to live. And this is then where more commercial housing projects are being developed around it. So that's one an important trend.

Marc: [00:09:22] But I think the second one is that we are moving towards more compact and smart living so that the apartments are becoming smaller but more smartly designed with less space for owning things, more for sharing space, collective sharing services. So, we don't need our CD collection anymore in the house. We have it on our phone. So, we don't need all this space to own things. And you see that also in Superlofts. They are becoming more and more compact and therefore also more affordable to broader groups of people.

Marc: [00:09:57] And the third trend, I would say, is sustainability. Climate, positive approach in which we use all these different aspects from water retention to natural cooling in nature, inclusive façades, smart energy and heating concepts to make a real circular approach to how we deal with energy and materials. In the sense that we tried to create closed cycles and loops in which energy is not being used for ... spoiled, or wasted. And the same in terms of net nature and water. And yeah, that's how ... we achieve, to make, let's say, projects with this positive climate, positive footprint in which we we store CO2 in the buildings rather than that the buildings produce CO2.

Marc: [00:10:48] And yeah, and the fourth trend is the one that I described in the beginning, the search for community. People are looking for a sense of belonging, of social interaction.

Eve: [00:11:02] You know what I'm hearing is that you must have a lot of people who are interested in what you're doing. I'm hearing first you curate the people that are going to live in the next building, whether it's 20 or 30 or 40 people. And you essentially address the way they want to live rather than create an apartment building with two bedrooms and two bathrooms and some of them with a den, and hoping that you can find people who want to live like that.

Marc: [00:11:26] Exactly.

Eve: [00:11:28] Wow.

Marc: [00:11:28] Yeah. So, what we do is we propose through social media and a website, a proposition for a building that is still very open in terms of offer. So we provide a menu of housing types, very diverse, from apartments on one level to duplex apartments, to work/home combinations, to apartments for seniors with everything on one level with all kinds of facilities or with a little elevator connecting two floors. And then we see how the market responds. So, we do market research and see how, what people's interests are. And then we make the, based on that, the ideal mix of apartments. And allow people to get an option, like, to take an option, or, how to call that, to reserve an apartment for an amount of money so that we are sure that they are serious in wanting to join the community. And then we kind of puzzle with these people so that everyone gets their ideal type of apartment on the floor they want. And then we'll have a second round to fill up, let's say, the empty spaces within the building. And we do this all based on online communication, but as well through interactive meetings, live meetings, let's say, group meetings in ... we rent a place where we invite future homeowners to come together so they can get to know each other and see if they really like each other. And then you still see that people are still moving to the building, because they see, oh, there are these other two families with kids. Well, that would be nice to live together on one floor and share this large roof terrace together, for instance. So, you ... meetups create all kinds of social interaction that leads then to a strong community.

Eve: [00:13:34] How fascinating. And then how long does this whole process take from when you sort of make the offer online and start to organize people until when they move in?

Marc: [00:13:45] Well, I mean, the last project we're now doing ... within Hoorn, in the north of the Netherlands. It has 45 apartments, large ones, a tower of 50 meters. And we started six months ago. Now we are offering the website of going live within a month and we will start construction in one year. And then it's about a year to build it.

Eve: [00:14:12] About two and a half years.

Marc: [00:14:13] So, let's see. That is one, two and a half years. Yeah, it's about two and a half years from beginning to end.

Eve: [00:14:20] And do you find that a lot of people drop out if they commit like the half year point and they have to wait two years. Are they happy to wait?

Marc: [00:14:29] No, because this is almost common in The Netherlands, because the difference between how we built in the Netherlands or develop in the U.S., is that people ... we don't we don't start to build before the apartments are sold. So, the project first needs to be designed. Then it's, 70 percent needs to be sold before the developer and construction company will actually start constructing the building. So, people are used to have, to wait two years before they are actually moving in. If they are first buyers, in the beginning of the process, of course, you start later. The last 30 percent of the project is always sold in the latest stage.

Eve: [00:15:15] Right. It's not that different because for condominium projects, which this would be in the States, you would have to have pre-sales in order to get financing. For an apartment rental building, you would build it before ...

Marc: [00:15:31] Ah.

Eve: [00:15:31] ... but if, yeah, but condominiums are a little bit riskier and I think banks on the whole want to see pre-sales. I am not sure they want to see 70 percent, but it's a similar process.

Marc: [00:15:42] Ok. And that will also then take about two and a half years?

Eve: [00:15:46] Well, I don't know. It depends on the project. You know, it depends on what sort of permits you get. It could take a lot longer in a place like San Francisco with, where permitting is really, really slow ...

Marc: [00:15:55] Yeah.

Eve: [00:15:55] ... versus a smaller place where permitting is faster. So, it depends.

Marc: [00:16:01] Right.

Eve: [00:16:03] So, yeah.

Marc: [00:16:04] Here, by the way, we had our buildings also can be larger than just 20 to 40 apartments. We are now also working on, like, complexes with hundreds of apartments. I don't think that this way of developing is just possible only in a niche market, tailor-made situation. I think it actually can be done better, when you have a larger scale and more apartments. So, we are, in this sense, also talking to developers abroad, like in London and in Bremen, in Germany, for really large-scale projects. Because the return on the investment is more interesting in terms of software development that is tailor-made for this project. And you can make a much more smooth process really working on, let's say, online customer journey that done with an interface that is really allowing the future homeowners to customize their homes on their iPad. But the investment of this is so large that it actually pays back only on a larger scale.

Eve: [00:17:11] But how do you keep community in a very big scale project? I know I talked to Jeremy in Australia about, sort of, the ideal size of a community. And I think when you have hundreds of units ...

Marc: [00:17:23] I think ideal would be 20 people. 20 apartments, for me, is an ideal size of, let's say, a basic cell. And then if you do hundreds of houses, you build it up with several cells. So, every entrance and elevator is then one unit of about 20 apartments. And it has its own homeowner association, so they can make decisions with a small, trusted group of people. They share their roof terrace and they make their choices together. It can also be 30 apartments. It's not, or even more. But, ideally, let's say, between 20 and 30. And then in a neighborhood development, you just built several of these blocks and then they again communicate on a higher level about how do we deal with the street?What do we want the municipality to offer in terms of bicycle parking in the street, garbage and waste recycling facilities? What do we do in terms of architectural co-ordination so that different blocks actually create a nice ensemble? How do we deal with sun and shading and wind and sound issues that ... we can discuss that on a larger neighborhood scale with different communities.

Eve: [00:18:49] Right. So what does a Superloft actually look like?

Marc: [00:18:53] Well, that is very diverse, but we like to see it in the basis as a stripped down core and cell building in which we expose the concrete structure that has a very beautiful, deep facade made out of timber on the inside. I think it's important that this is something that is very beautifully designed, like we are using like a very deep 40 centimeter, deep timber frame on the inside that allows you to sit in it and to put books or plants in it. And then the rest of the space is very stripped to concrete. And then people are able to customize that space with interior design elements. It can be a mezzanine floor, can be staircases, kitchens, bathrooms, walls, etc. And, in that way, can give their own expression to the space. The facade zone is something we like to control because it's very important how the building looks to the outside. The building should stand there for hundreds of years and we don't want to make something that looks cheap or unattractive over time. So we spend a lot of quality time on how the facades are designed.

Eve: [00:20:15] And the building facade is, you know, the wall of an open space that's shared by everyone. So that's really appropriate.

Marc: [00:20:22] Each unit, its apartment is then sold as as an open space, but then filled in ... with a specific layout of the inner walls, and so on, by each client. They can then choose to do this themselves as a do-it-yourself project. But most of them, they choose from a palette of standard options that we are offering, and we still offer them all kind of finishing options that to customize the space in the way that they really like. Everyone has the feeling that they are part of a creative process, even if you don't have much time for it. And you choose a basic layout. There is still a lot of nice decisions you can make about how to give expression to your space, and not everyone has time and the creativity to do so. So we offer a whole spectrum of, let's say, paths, routes more or less intense to make your ideal home. Then, in terms of rental apartments, which we also do, we give these choices to the developer and the real estate agent to together customize the building in the way they think would work best. And then we still try to make the layouts in a way that people have several options in how to place their furniture in this space so that they can decide to put the sofa in at least three positions. So that there is really a choice to make even if you cannot design the layout of the apartment, you can design the layout in a way that you can customize the seating area, and even the kitchen that we're designing now - a hotel co-living brand with a kitchen that is kitchen island on wheels, so that you can really customize the space to your taste, even if you don't own the space.

Eve: [00:22:12] Very nice. So, you know, the world has a huge affordable housing crisis. And I'm wondering, I don't know if the Netherlands has an affordable housing crisis.

Marc: [00:22:23] Yes. Yes.

Eve: [00:22:24] What ... who is addressing that in any way?

Marc: [00:22:27] Definitely. And Dezeen maand Business Insider and The Independent newspaper have written all about Superlofts in the light of housing crisis and affordability. And basically what they were analyzing is that Superlofts allows starters, first buyers, an affordable home, because, let's say, 20 to 30 percent of the value or price of an apartment is in the finishing of the apartment. And often this is too expensive for first-time buyers. And this is what makes them move to rental. However, if you buy the apartment in a core/shell way and it's already attractive to start living there just with minimum investments, which is basically what Superlofts does, because the basic quality of the empty, open space is already does, so nice that you can just put a bed, kitchen and a bathtub and you can live there in a very nice way. And then in that way, phase your investment over time. So, then you don't need to invest that 30 percent upfront. But you can wait until you find a better job or your fixed contract. So, it allows younger people to enter the housing market and save their investment in the apartment.

Eve: [00:23:53] And shared amenities also must reduce the cost. I mean, do you have shared laundry rooms? Are you able to limit parking areas?

Marc: [00:24:02] Exactly. And then also the larger apartments are actually a solution to the housing crisis, because what happens is that they are built in a way that they have multiple front doors, they have two front doors. So, you can split each larger apartment into two smaller ones, which results in, people rent out part of their house as a unit, as a rental unit. So, they buy an apartment and rent out part of it to two young people that need a 30 square meter studio, or something. And so it also, in this way, contributes to at least a diversity of housing types in an area, and also affordable rental apartments within a condominium.

Eve: [00:24:47] Interesting. So how Superlofts evolving, then? What do you see in five or 10 years?

Marc: [00:24:53] Well, I think that, several things. One is that we are really moving to timber construction and we are developing our first timber project at the moment in the Netherlands, which is six stories, mass timber. Still, there are smaller units that you can connect into larger ones on top of each other or next to each other. That creates kind of infinite possibilities to make floorplans and adapt them over time to changing lifestyles or market demands. So, when this mid-segment rental project, in 20 years, is released by the government, because there is a 20-year, let's say, deal on the land-lease that needs to be respected before you can alter the configuration. In 20 years, the owner of the building can reconfigure it without, with minimal costs, because it's already built in a very flexible, adaptable way. The timber construction is helping a lot. If you make things in concrete, it is more hard to connect units on top or next to each other. You have flexibility within the unit, but not between them. When we move to timber we can make this kind of Tetris game much more flexible and allow in 20 years from now a much higher, let's say, rest value or repurpose value for the owner of the building. And he can then or she can then transform it into another second market segment. Maybe make smaller units, maybe sell part of it without having to demolish anything. So it actually allows a much more healthy and sustainable way of building if you build in a flexible, adaptable way in timber, because you don't produce waste. And secondly, you store CO2 in the building because each tree that you, let's say, take out of the forest and put into your building is a lot of CO2 that you take out of the air and store in the building – as long as you replant the tree, of course ...

Eve: [00:24:53] Yes.

Marc: [00:27:09] ... which is the case in Europe, in all the forests that you are allowed to take wood from. So, we are really believing that this is going to be a huge solution, or help, a contribution to solving climate crisis, is to mass build, massively in timber. Secondly, we are moving into diversifying our products, into rental, into co-living. And we'd like to partner with developers and real estate pioneers to, let's say, create a global brand for Superlofts that connects all these different projects both in condominiums and rental into one strong brand that the Superloft members identify with, that activates the community, that offers all kinds of services, such as if you want to rent or sell your apartment, you can do that through our platform. If you want to share services or start a community event, we will allow that. And we offer all kinds of inspiration, creative inspiration on how to decorate your home or a platform of preferred suppliers where you can get design advice or buy really cool stuff for your house. So, there's a lot of opportunity still to activate a community and to develop Superlofts further into a global brand. And we are looking for partners in different countries at the moment to produce to do so.

Eve: [00:28:42] Fabulous. That's pretty exciting.

Marc: [00:28:44] Yeah ... I don't know if it's gonna work, but it isn't really ... my dream already for five years is to actually connect now to different buildings. We have built eight in the Netherlands. I know these people are super-excited to tell about what they are, about their lives and how they are using the building and how they decorated their homes. And we have photographed twenty five of them, interviewed to them, and we are now starting to post that on the website, on what's called Superlofts.co with 'co.' And then there is the Superliving page. And that's the blog where we are kind of like starting to share this inspiration.

Eve: [00:29:27] That's wonderful. Are real estate investors in the Netherlands interested in your work?

[00:29:32] Yeah, in general. Well, it's ... In MKA, definitely, in our architect firm, for sure. So, there's a lot of spin-off for my architect firm because of Superlofts. So, we being hired, as I said, to to design a new co-living hospitality brand that is going to operate globally. So, these kind of people see that energy and creativity that we put in Superlofts can also be put into new housing concepts, that we are being approached by different investors and developers to start new specific concepts for their own properties or investments. And about Superlofts to find partners. It is. Yeah. Actually, when I am thinking, yeah, actually it is going quite well.

Marc: [00:30:19] So, there are there is different developers in both the Netherlands and abroad that would like to do Superlofts projects with us, and I think that in a couple of years from now we will we have projects in London and Germany and maybe the U.S.

Eve: [00:30:37] That's pretty fabulous. Do you know where in the U.S.?

Marc: [00:30:41] Well, we've been looking in Newark. We've been looking in Brooklyn, in San Francisco. And the thing is that all these developments, they kind of stalled because of the complexity of legal issues in condominiums. So, this kind of development of Superlofts in the States that, where we were like one and a half years ago, which was really still focusing on condominiums, not so much on rental and co-living, but in that phase when we were in the U.S., we discovered that there was a lot of fear of people suing each other in condominiums ...

Eve: [00:31:25] Yes.

[00:31:28] ... and that this is what stalled the developments and what made it more difficult to pull it off. But I think that in terms of rental, when we customize the building, not with the end users, but just with the developer and the local design team, that this is actually going to be a much more interesting approach for the U.S., which means we'll make rental buildings with shared facilities with a lot of diversity and types of lofts, in which the people can actually still belong, become a member of the Superlofts community, and enjoy the creative energy that that we are spreading. But then not in co-designing their building, but more in, let's say, customizing their apartment decoration or, let's say, configuring their, the furniture settings of their apartments, the types of furnishings that they choose. This is something we are now looking into, but our focus is really now in London and Germany.

Eve: [00:32:41] Okay, cool. So, I have some final questions for you. And I want to know whether you think socially responsible real estate is necessary in today's development landscape. Because not everyone thinks about it the way you do, right?

Marc: [00:32:56] Yeah, I think it's it's just it's crucial for two reasons. One, is that we are having a climate crisis that really demands for people that have power to change things, to really step up. And I think real estate pioneers are having a great responsibility and potential to show that we can do things in a radically different way. It doesn't cost much more. It's not so much more complicated. It just needs a little bit more time to do the right thing. You need more attention. Slow down a little bit the process so that we have time to really think things through in a more original and sustainable way than just choosing for the standard options. But I think we all know that the world deserves this attention. Right? This is just there would be a kind of crazy not to take the time to really do the right thing at the moment. And secondly, I think in terms of social sustainability, we see that our societies are polarizing a lot. Societies are falling apart in different groups that are standing more and more opposite to each other, even within families. Well, this is partly the result of that we have created cities with a huge segregation between different groups and that we allow ourselves to just go from place to place with our car or on public transport with our headphones on, not talking to the so-called other. We're not meeting others really anymore. And we're meeting the same kind of people in this, in the gym as in the offices and in the members club. And that's, and so on.

[00:34:45] So what is really important is that we create communities around the home so that the home sphere, let's say that what we in Germany called the meinschaft sphere is, let's say, a local area network around your home includes maybe the school for your children, your local shops, but also places where you meet your neighbors, that we really start to revalue the neighborhood and the street and the building block as a social structure that allows you to get to know people from your own kind and tribe, but also from others. And that your children, our children aren't that they become used to the fact that the world is very diverse and that there is diverse ideas and diverse kind of people, and that that is actually enriching our lives and our potential as open societies to survive in this competitive world against other continents in which there is much less freedom and much less diversity. I think the strong potential of the United States, of Europe, is that we can be proud of having these open societies that are diverse and inclusive, and that we really need to revalue the position of the home and the neighborhood in this city as important social catalysts. And I think that community-based residential developments that are not gated communities, but that are designed to interact with their surroundings and that are diverse socially and economically. Small and large, rich and poor apartments, everything mixed. That is the responsibility we have as real estate pioneers to create, let's say, a better world.

Eve: [00:36:40] So, in a sense, I think, I feel like we're going backwards. When I first moved to Pittsburgh, I lived in a neighborhood of houses built around 1900 and they all had front porches, and that's where people congregated in the evening ...

Marc: [00:36:55] Exactly.

Eve: [00:36:56] ... talked to their neighbors. And then, you know, TV came along and everyone went inside. And the front porch was no longer used in that way. And I think it was sort of replaced all the time in apartment buildings with individual small balconies, but without really sort of understanding the ...

Marc: [00:37:14] Yeah.

Eve: [00:37:14] ... the loss of that place. Right?

[00:37:16] I so agree. And, you know, it's so simple to solve this. If you look at an entrance lobby of an apartment building or a condominium, maybe it's three meters wide. That's 30 feet wide, a hundred feet long and you just have mailboxes. But if you would make it a little bit bigger and you put a large table there for where you can sit with 10 people, you put the newspaper, you put some flowers. You have Internet. Then suddenly you have an office space or flex-office place in your apartment building. People will start to use it as a place to work. Of course, you need to have a little bit nice design of the space and of the facade and good light and a nice carpet and so on. But it's a little bit of effort, and then suddenly people that have that are independent workers that work from their home or their apartment can use that space as their meeting room as their, you know? It doesn't cost anything extra and you have a fantastic social interaction space where you meet your neighbors, where you talk to each other. The same for children. You can they can do their homework with one parent together in that space rather than that every parent has to do their homework with their children separately in their homes. What we see in our buildings is that parents share this responsibility, and say, ok, one of us stays at home every afternoon to take care of the kids coming home after school, because they're playing in the street around the house. And then at least one parent is there working in the space for something when something happens or if they need some guidance with their homework. This is what my ideal world looks like. Basically, you know, where people choose to live together because they see the advantage of sharing things.

Eve: [00:39:08] What wonderful ideals. Thank you very, very much for joining me. I thoroughly enjoyed the conversation. And I want to come and look at your Superlofts sometime very soon.

Marc: [00:39:17] You're very welcome. And let's find a nice spot in the U.S. to do a Superlofts U.S. prototype with a very nice lobby space where people can work on the ground floor. And with all these dreams that we have just discussed, maybe we all we can find an interesting opportunity in the future. I'm sure that there is a lot of interesting developments in American cities at the moment, like in Europe, that really are very interesting to work within. And when you come to the Netherlands, I would love to show you around. We have another website that I would like to tell you about, which has an audio tour along all these kind of community buildings in Amsterdam. So it's nice for you and for any of the listeners. It's called the Open Building Audio Tour. And you'll find it on openbuilding.co, 'co' again, which is a platform that I've created with 15 Dutch architects with all kind of, everyone showcasing buildings similar to Superlofts which the architect has created, let's say, community buildings, flexible and adaptable over time, often very sustainably built and, that's really worth doing when you come to visit Amsterdam.

Eve: [00:40:47] Absolutely. I'm going to, I'm going to get there. Thank you very much, Marc, and enjoy the rest of the day.

Marc: [00:40:53] Thank you. Bye bye.

Eve: [00:40:55] That was Marc Koehler of Marc Koehler Architects and Superlofts. This architect is thoughtfully pursuing the idea of community first, building second, rather than design and build a project and hope the market will come. Instead, his team design their Superlofts around a curated community of people. Every aspect of each Superloft project is thoughtfully designed, from the exterior facades to the number of families in each pod, to the shared amenities to encourage community, to the extreme flexibility of the housing units. I can't wait to visit a Superloft. You can find out more about impact real estate investing and access the show notes for today's episode at my web site, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Marc, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Rebecca Foster, the CEO of the San Francisco Housing Accelerator Fund. The accelerator fund is a public private partnership that helps to finance affordable housing in San Francisco, in particular, the many buildings currently being occupied affordably that are in danger of being purchased and of their occupants being displaced.

Be sure to go to evepicker.com to find out more about Rebecca on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve Picker: [00:00:00] Hi, Rebecca. Thanks for joining me.

Rebecca Foster: [00:00:02] Thank you so much for having me, yes.

Eve: [00:00:04] It's really great. So I wanted to dive right in and find out all about the San Francisco housing accelerator, which you lead, and I saw that the headline on the accelerator site says, "Innovative financial tools to preserve and expand affordable housing." And I wanted to ask you, what are innovative financial tools? What do you employ?

Rebecca: [00:00:27] Sure. So, what our goal was in ... creating the accelerator fund and I think a key piece in our origin story is actually we were created and incubated out of the mayor's office in San Francisco. And so we are truly a public-private partnership, and I think, especially in the world of affordable housing, that's a fundamental component of what makes it effective. So, we bring together private, philanthropic and public sector funds to address gaps in ... that the public sector can't address with its sources of capital alone to achieve its affordable housing goals and so on. And in terms of innovative financial products, what that really means is that, for example, the ... you can't really finance permanently affordable housing, especially in a high-cost city like San Francisco, but really in most places around the country, without permanent subsidy funds from the public sector. Because the amounts that ... of rent that are lower, extremely low-income or in the case of the Bay Area, even middle-income person can afford to pay just isn't enough to cover the cost of building or acquiring a building, let alone some of the operating and services costs if they are extremely low-income and need services support. So you really need the power of the public sector and the tax base, essentially, to cover those long-term permanent costs.

Rebecca: [00:02:06] But it would ... it's probably no surprise that government does not move very quickly and it's hard for government to deliver on capital, deliver their capital really quickly and to take risk with it. And so that's where we come in, is with private and philanthropic capital we are able to be the first money in that can, for example, in the acquisition of a building where residents are at risk of displacement, we can help a nonprofit compete with all cash buyers and foreign buyers and close on a loan in less than 60 days, get to approval for a loan in less than 45 days, and that's really hard for a government to be able to do. So we essentially can provide that bridge. And then once the property ... the building is controlled and in nonprofit hands, the city can come in, 12 to 24 months later, with permanent funding. And then we can do something similar with new construction and just really use our capital to be much more innovative and allow the nonprofit housing, affordable housing developer to move faster, be creative, try construction innovation that it's harder for the public sector to do so.

Eve: [00:03:21] Do you ... like, I've worked enough in these types of projects to know that the gap can be really substantial, even in Pittsburgh. I think a few years back, it was really a 40 percent financing gap between what it costs to build an affordable unit and what return you would get for that unit. So, 40 percent in government subsidies, I can't imagine there isn't a bigger gap in San Francisco in the Bay Area.

Rebecca: [00:03:49] Yes, I mean, it is. You're absolutely right. It is. Just for order of magnitude, the average cost of a new construction affordable housing unit in San Francisco ranges between 500 and 800 thousand dollars. And depending on the income level of the residents in that unit, the subsidy required can be, if you include the low income housing tax credit, so federal and state subsidies and local subsidies, it can be nearly all of that cost. The local government generally bears, in the case of San Francisco, about 200 to 300 thousand of that total cost. So, a similar percentage, but I think the total costs are ... a similar percentage on the local level, but the total costs are probably much higher.

Eve: [00:04:41] And that means the traditional banks don't want to be involved at some lower level?

Rebecca: [00:04:48] Yes. So they ... so, basically in our ... so we have many banks actually invested in the accelerator fund as senior lenders and so they are involved in our fund, in the bridging, at a senior level. And then we have below them funds from foundations and from the city of San Francisco itself. But in the permanent financing, yes, banks will both provide a construction loan, but they provide a construction loan when there is clarity on what the permanent, stabilized funding source is, which will include a significant amount of subsidies and often low-income housing tax credit. And then if the project is supportive housing for individuals who've been experiencing homelessness, generally there isn't much revenue that can support a senior mortgage on the permanent. But if it's a 50 or 60 percent median income project or, you know, workforce housing, if there is enough in rent, then there often will be a bank providing a senior mortgage. It's just a small, relatively small percentage often of the entire capital stack.

Eve: [00:05:58] So you must get frustrated listening to some of the rhetoric about building affordable housing. And who's to blame for where we are. It's a really big problem.

Rebecca: [00:06:12] It is a tremendous problem. But I guess I also ... it can be frustrating, but I also, like, part of why I love my job every day is that we are on the ground in a real blocking and tackling transactional way, and in a way where we see the impact on families. We are producing and preserving affordable housing every month with projects. And so that is a counterpoint to the feeling sometimes of how overwhelming the level of systems changes that's necessary to actually address the hole that we have dug ourselves into, particularly in California, with so many decades of undersupply of housing, especially in urban infill housing, not enough density tax codes that don't really encourage rental housing and affordable housing. I mean, we have a lot to dig our way out of. And I think we can do it.

Eve: [00:07:12] Yeah. I mean, I just made a little time in Australia talking to an architect who is working on affordable and sustainable housing there. And it was really fascinating to hear the story of what got them to this place where essentially there's no government subsidy at all. And, you know, the cities, the major cities in Australia are some of the most expensive in the world. So, I think the problem is huge in many places. We, you know, we know it's huge in San Francisco, but I think people are attacking this in many different ways, which we'll talk, you know, about later. But I wanted to first know what's your impact been to date? How long have you been in business, actually?

Rebecca: [00:07:53] Yes, so we are just about at our three-year mark. So, we are still very much a startup. But we have we've done a lot and the need has been great in the last three years. So, we have really two primary programs, I guess three primary programs, to date. And the one that we really started with, and then I would say it's our most significant, is the bridge loans that I mentioned where we help nonprofit or affordable housing developers buy buildings, often, or land that is on the market, on the open market. And in the case of the buildings where the residents are at a very high risk of displacement, and just for a little context there, it is ... we have rent control in San Francisco, but there's no vacancy control. And so, basically when a unit becomes vacant, the rent can go from, if there has been a long-time rent-controlled resident living there, can go from, say, you know, 1500 dollars a month up to market, to 4500 dollars a month, depending on the size of the unit. So, that, in a market like this, means that there are a lot of buyers that are looking to buy five to 25-plus unit buildings and either very aggressively push the existing residents out who are low-income or wait them out. And, so, we are just experiencing tremendous displacement. So, we have with, our bridge loan fund has funded the preservation of 319 affordable homes since we started and that's across 15 projects, and we have committed across those projects 183 million dollars of capital, across those projects plus an additional vacant land acquisition for the production of new affordable housing.

Rebecca: [00:09:50] And we have also, separately, so that's our bridge loan fund and we basically raise capital, deploy it for non-profit, to go buy these buildings; also to rehab them, do the structural upgrades so they're seismically safe; in any instances where it's possible add new accessory dwelling units, so, turn the garages or the carriage houses in these buildings into new, permanently affordable units. So, we've also financed the first permanently affordable accessory dwelling units in San Francisco, in a couple of our buildings that we funded in the Mission. And then we separately have another fund, the homes for the homeless fund, that's in partnership with a great local organization, Tipping Point Communities, and that is funded with 50 million dollars entirely of philanthropic capital. So, our other capital is impact that basically, but it is not ... we have to repay it. And in this case, this month of a 50 million dollar restricted grant and the entire goal for those dollars is to significantly cut the cost and time for the production of supportive housing for individuals who've been experiencing homelessness. And we are halfway into the development of a 146-unit building in the Fillmore neighborhood in San Francisco that has 145 supportive housing units and a manager's unit, and it will, knock on wood, the total development costs for it is going towards under 400 thousand dollars a unit, including land, which is, as I mentioned before, a really significant reduction from the status quo. And our whole schedule is two years and nine months from the time we bought the parking lot until when we should have individuals be able to move in. And that is ...

Eve: [00:11:44] Yeh.

Rebecca: [00:11:45] ... there are many factors there, but, I say, in both cases, really what we are ... you know, we have we've deployed a lot of capital and we are, what we're really focused on is like what can we do with every single project to help our partners, both just get it done and make sure the building isn't lost and the homes aren't lost in the case of the empty displacement work and preservation. But also to do it better, every time, and figure out how ... we can do the next one a little bit faster at, you know, at a lower cost or with different capital sources that make it more sustainable for the government to support this work over the long term.

Eve: [00:12:28] What about construction in the equation? Are you sort of looking at different construction methods as a way of becoming more efficient?

Rebecca: [00:12:38] Yes. So, for the project that we are working on, that ... the new construction supportive housing project, we are using modular construction, and this will be the first permanently affordable modular project in San Francisco. We are working with Factory OS, a modular manufacturer in Vallejo, and that is one of the many factors that is helping us cut the time and the cost for the project.

Eve: [00:13:07] It's interesting. And so what's the long term goal for the housing accelerator?

Rebecca: [00:13:12] I mean, I'd say, so when I mentioned that we really focus on three things; we have the bridge lending program, which really is about just helping the, you know, the government, the city, achieve its goals with much more flexible capital and faster, and problem solve. And then, we have a supportive housing work, which is really a more flexible investment focused on bringing down the cost and time of the production of housing. And then, the other big area that we're focused on increasingly as well is innovation in how capital can be used to really help push the envelope in getting more affordable housing done and getting it done faster. Kind of more of those systems change elements. I mean, I'd say within the circle of the delivery of capital in dollars, which is really are, I think where we're focused. And so, for a long term goal, we have really ambitious goals about getting to one-third of our existing multifamily building stock in San Francisco, where there are low-income and extremely low-income tenants. We have a 20-year goal, along with our nonprofit developer partners, of getting to one-third of those units being permanently affordable. So, like building more of a social housing stock or preserving more of a social housing stock. On the preservation side, we're also starting to work with other partners in the Bay Area about how they can build out similar preservation programs in their cities, because unfortunately San Francisco has been at the tip of the spear with displacement.

Rebecca: [00:14:51] And I think it's rippling out to, you know, a number of other places as well now. And then, I think on the partnership and, you know, that investment and construction side, I mean, we are ... we're looking at any way, as I said, that we can be really creative, and problem solving focus and capital delivery that can cut costs and time so that the long term permanent gap that the government puts for affordable housing can be reduced and that we can get more housing done faster. So, to your question about innovations in construction, we're looking at are there ways we could support construction innovation where traditional banks and governments aren't yet comfortable with taking on risks in this industry by, you know, so we're looking at creating some insurance or backstop products for modular housing.

Eve: [00:15:46] Yeh, interesting.

Rebecca: [00:15:47] We're also looking at other public-private partnerships, which I think is another key part of our model. So, we're looking at working with the school district on educator housing and philanthropic partners and, you know, trying to in some ways, you know, and then just getting more done in San Francisco in the work that we're doing and continuing to improve upon that.

Eve: [00:16:10] So, it's great hearing you talk about all of this, because I think most people think, you know, an affordable housing unit is just the structure, but there's so much more to it. There is how do you finance it, and how do you build it, and how do you insure it and all of this, all of those things. Have you estimated, I'm sure you have, how many affordable housing units are needed in San Francisco?

Rebecca: [00:16:34] That is a great question that everyone has. Yes, everyone has different numbers. So, I think on the preservation side, we are focused on preserving through ... the lending program 15,000 units in San Francisco. And that's our, based on the data that's available, getting it about a third of what seems to be the at-risk, you know, generally rent control, the lower income, extremely low-income units, and on the new construction side, I don't have the number at my fingertips, but when we started the accelerator fund, the goal was, this was in 2014, 2015, when the initial ideas ... for the fund were getting incubated in the mayor's office, we had set out at the city to to build 30,000 new units of housing by 2020. So, by the end of this year. Which now we're here, with half of them being permanently affordable. And I think the city will be close to meeting that goal by the end of the year, knock on wood.

Eve: [00:17:41] That's pretty great.

Rebecca: [00:17:41] And it is clear that it is not nearly enough. I mean, ... in the last study I saw, regionally, is that we need about 250 thousand more units of affordable housing in the nine county Bay Area just to make up for what we haven't produced over the last decade.

Eve: [00:18:00] Wow.

Rebecca: [00:18:01] And so, I mean, the numbers are staggering. And so, we can't do it if, we have to be reducing the cost and the permanent gap from the government in every possible way we can. And I think, I mean, another piece here to focus on is the revenue side. We also have to, you know, we need to also be addressing how extremely low-income individuals and low-income in our workforce, what kind of opportunities they have to actually be earning enough or be supplementing their income in other ways so that they can afford rent.

Eve: [00:18:42] Right. It's a huge problem. So, it's really big, and it sounds like you're attacking it from all sides. So, what's your background and how did you get to this position?

Rebecca: [00:18:55] It's been a meandering path. I'm sure like many people, but ... I have always really, have always really loved communities and particularly the way that people interact with their environment and, like, the built environment. And I grew up in a very rural place on the river. My parents had a campground. And although that's a far cry from the urban landscape, I think that threadbare as it is, in that case, the campground and the river were really a physical gathering place and like a hub of community. And I think similarly, in a place like San Francisco, I mean, this work we're doing on preservation, you just see, although a building might have five units in it, five families, one of them is the, you know, marine biologist who tends the local community garden. And another family moved here from Central America 27 years ago and have built their live here. And I mean, you just the ripple impact of everybody's story ... in these buildings and what it does to community when they are displaced. We actually, we just helped our partner close on a building in, north of the panhandle of Golden Gate Park on December 23rd that has sick senior citizen African-American couples in the building. And I mean, that's exactly the kind of situation where they have built their lives here, their friends are here, their communities here. And they are an integral part of what makes the fabric of San Francisco the place that everybody loves. And we, so I think there is that connection, I mean, it's like the connection of people to place, not just the big fancy architecture, which also is really cool. But the, you know, the homes that make up these communities and how that all ripples out and, you know, makes a place a really unique special place it is, I think that, that is a common thread.

Rebecca: [00:21:12] And then, from a otherwise from a background expertise perspective, after I went to business school, I had an ... I went to business school because I had zero background in finance and felt like, I started to realize in my work in urban development that I needed that. And then decided at the end of that to go really try to solidify what I had started to get at graduate school, with real world experience. And I spent eight years at Goldman Sachs as a public sector infrastructure banker in New York, and then in San Francisco, ... and then left there to go to the mayor's office in San Francisco. And so I really feel like now I am in the best professional opportunity of a lifetime to be able to be entrepreneurial and creating something that connects capital to solutions in communities. And it's been really, it's been really fun and challenging.

Eve: [00:22:17] It sounds like it. So, you know, I wonder ... So we kind of heard what real estate impact investing is happening around the accelerator. But I'm wondering what difficulties you see with it and whether you think people still need to be better educated about what sort of returns to expect, and, you know, what it means to invest in something that isn't just a commodity. Right?

Rebecca: [00:22:46] Yes. I mean, that is an excellent question and I think one that's very top of mind right now, because we have had fortunately more of the largest employers in the Bay Area have started to focus on the tremendous need, locally, even though these are global companies and I think often in many ways had not really been focused as much on their local communities. And and are now, I think, both because it's a real, that the lack of affordability and the housing challenges are a real issue for their workforce across the spectrum of their workforce. And because it's just, you know, the extent of homelessness is really painful and you can't exist in the Bay Area and not be feeling every day the impact of the level of poverty. And I think also of the dissonance between being at the center of wealth and innovation, arguably in the world, and the level of poverty.

Eve: [00:23:55] I was going to say that's the most shocking part. You know, the fact that it's one of the wealthiest places in the world and has this incredible homeless problem.

Rebecca: [00:24:04] Yes. I mean, and it is that, I mean, we all have to take so much responsibility ... like, we got to fix it. And, I think, you know, when we started our fundraising, we talked to a lot of national foundations and it was frustrating at that time. But I get it. Many of them said to us, we're sorry, we're not going to invest in San Francisco. You have so much money there. You've got to solve your own problems. And, I think, it's to some extent that's true. Like we have to address this in the Bay Area. And, I think, that that is becoming more front and center for folks. And that being said, from an, to your point about the kinds of returns you can expect and the education question, we still have some work to do on that front. Because you can't really, you can't make money off of extremely low-income people.

Eve: [00:24:57] Yeh.

Rebecca: [00:24:57] Yes. There is the potential to have some, you know, high risk appetite. You get your principal back and get a one or two percent return type funding. We certainly have that sort of capital in our bridge loan fund, but that's only as valuable as the amount of permanent gap dollars that the public sector has and that are available to address the needs of permanent affordability. And so I think the power of what you can do with flexible philanthropic and private impact-focused capital is take a lot of risk. Try new things. Innovate on construction. Parallel track on your design work before you have your entitlements, like, allow your, like those types of things. And that means you might not always get repaid. It is more risk. And, I think, though, that is, that's a hard, that's a hard balance to sort of figure out.

Eve: [00:25:55] It is. And it's actually something I struggle with. I don't know if you got a chance to look at my crowdfunding platform, small change, but I get asked all the time how the platform might help affordable housing projects. It's a very difficult thing to answer for exactly the reason you said. The more return you provide to investors, the more rent you have to charge.

Rebecca: [00:26:15] Right.

Eve: [00:26:17] It's very problematic. That's not really the goal of affordable housing. But I've seen people tackle it and still manage to get some investment in just some different ways. But it's really, it's difficult to watch. I wish I knew with certainty that if we put affordable housing projects on the platform with a two percent return, people would invest.

Rebecca: [00:26:41] Right.

Eve: [00:26:41] But ... I just, I don't really believe that yet. You know?

Rebecca: [00:26:45] Yeah, I think it is a hard, we have talked, we've had many brainstorming sessions with various partners about, you know, well, what about like affordable housing and workforce housing? Your risk of turnover is minimal. And so the risk is significantly lower, and so, we have, you know, talked through before, well, could we get, you know, pension funds and larger institutional investors to really look at this more like infrastructure, than like, you know, real estate, market rate real estate returns. So, that's one angle that we've talked about with folks. The challenge still is it's very low. It's one to two percent. And it's long term. And, you know, until there is just ...

Eve: [00:27:32] It's got to be people in institutions with enough wealth that that particular investment isn't going to impact them too much.

Rebecca: [00:27:40] Right. And where there is, I mean, I think there ... and it's a very true double bottom line. I mean ... and where I've seen it work, you know, in some cases with crowdfunding, one of our partners, Mission Economic Development Agency, did a crowdfunding raise for a building acquisition that had a beloved mural in Mission Bernal neighborhood, the Precita Eyes Mural. And when there's some, I think there is a benefit, especially because it's so local. You know, engaging people who care about a place, and investing in something that makes that place vibrant and diverse, and the community that they, that they love and want to be in. Although, that may be in many cases, I guess, I think the other challenge with crowdfunding is the cost is so significant, of housing, that raising $20,000, which could be a lot of people with a lot of small contributions, is probably more meaningful in terms of engaging people in the work than it is in terms of actually moving the needle financially for the project.

Eve: [00:28:54] Yeah. Although I think of crowdfunding as a couple of different securities rules and you can crowdfund or advertise regulation D, as well, which lets you raise as much as you want. So, but only through accredited investors. So, but I think, you know, the small crowdfunding, retail crowdfunding that everyone can invest in is useful from a community building, asset building point of view. It's not a way to raise a lot of money, that's for sure.

Rebecca: [00:29:24] Right, right. Yeah, there's a ... one area we're looking at where there could be overlap a little bit with the crowdfunding ideas, how we could create a product for investing in affordable housing that's coming through donor-advised funds.

Eve: [00:29:42] Yes.

Rebecca: [00:29:42] There really is already the dollars that people have allocated to philanthropy and generally there is a lower desired return threshold, or they're just not as focused on it. And so, and there are there are a lot of dollars in donor-advised funds, nationally, of course. So, that's an area that we started to look at more, that it would be great to, for us to continue the conversation on.

Eve: [00:30:08] Absolutely. Absolutely. So do you think socially responsible real estate is necessary in today's development landscape? I know you're focused on housing, but in general?

Rebecca: [00:30:16] I mean ... to the extent, and you can help me with the definition of socially responsible real estate ...

Eve: [00:30:25] Oh, I don't even really know it myself. I mean, I think there are a bunch of different definitions out there. Mine is, you know, something that makes life better for people. It might be a building that houses services that they need, or it could be a building that, or a space that is created that they can use. I mean, I think there's many ways to define it, in real estate. For me.

Rebecca: [00:30:52] Yes, I mean, absolutely. I think especially in these, I mean, the trends toward urbanization. And we just, there are so many more people and I think probably will continue to be so many more people that are living in an urban environment. And it is, I think as we, everyone feels like, viscerally yourself, what your day to day interaction is with the space that is your home, and your community, and your walk to transportation, or your commute to work, and your interaction and your place of work with the space that you're in. I mean, those that's what makes up a big portion of people's lives. And so I think it is totally fundamental that we are, that we, you know, are all thinking about making that positive and thinking about it in all of the ripple impact ways, from a sustainability and climate perspective and, you know, how people interact and as an affordability perspective. I mean, there's so many elements in addition to affordable housing that improve the quality of someone's life versus their rent cost ...

Eve: [00:32:11] Right.

Rebecca: [00:32:11] ... that also are very much tied to space, their commute, their job environment, the quality of their schools. And these are all tied to urban design, and the use of space, and the buildings that fill the space.

Eve: [00:32:27] And I think the ability to live somewhere and not have to have a car is like absolutely critical. Transit ...

Rebecca: [00:32:34] Yes.

Eve: [00:32:35] ... being able to walk to amenities, walk to work, walk to school. It's really critical for living affordably. Actually, I wonder how successful you've been, where you've been sort of making your numbers extremely lean in, in getting the units to be very energy efficient. Has that been hard?

Rebecca: [00:32:57] So, a lot of the work we do is, as I said, is helping ... developers buy existing buildings. And part of the upgrades are focused, whenever there's enough, you know, capital budget for it on window upgrades and kind of those types of weatherization, and other things that will improve energy efficiency. And then in the new construction buildings, I mean, our, we are not a developer, but our developers are definitely focused on those things. And I think just by nature of, I mean, there's no parking in affordable housing ... There's always bike storage. There is, you know, they're generally, luckily, in San Francisco, like near and have great access to transit options. And, I mean, you know, one thing that is, we are doing to bring down costs in the, our new construction project is the individual unit sizes are smaller than most supportive housing studios are. Yes.

Eve: [00:34:05] Yeah. Interesting. Okay. Yeah, it's a little bit harder when you have older buildings, you have to retrofit them because ... you just can't seal them as well.

Rebecca: [00:34:17] Yeh.

Eve: [00:34:17] You can't really get as much energy efficiency as in, you know, a modular box that you're thinking about that from day one. They just weren't built that way. Yeah.

Rebecca: [00:34:26] Yeh. Right.

Eve: [00:34:27] So. Wrap up question. Where do you think the future of real estate impact investing lies?

Rebecca: [00:34:35] I mean, I think, definitely, as I said, where I think that private capital can be, from an affordable ... from my lens, an affordable housing can be the most impactful, is in really coordinating closely, working with somebody like us, or others, that coordinate their dollars and the repayment of their dollars very closely with public sector dollars that are the permanent financing, which is a huge risk mitigation for their investment. And so, you know, I think in the case of San Francisco, it had the triple-A credit rating. So, investors really should feel comfortable as bridge lenders with taking on a fair amount of risk if they know that the city is a partner of ours. And so, and that can then allow us to help the, you know, the nonprofits move much faster and have one single funding source that could be extremely high loan to value ratio, for example, and not have to pull together many different funding sources, just anything that we can do with bringing in that private capital. And then really understanding how mitigated their risk is by the existence of the permanent capital at the back end. I think then can, you know, can help us deliver on greater efficiency and get them their goals of repayment and also get moved towards our goal, bringing down the permanent gap and getting more housing done faster and more cost effectively.

Eve: [00:36:11] So you've you've really bitten off a huge project. And I'm really, I'm really impressed and very grateful that you took the time to talk to me.

Rebecca: [00:36:22] Well, I love the work you're doing, and it's so great to be able to lift my head up sometimes and hear about what others are doing, innovating in this space around the world. So, with your, much appreciate the ... documenting and sharing you are doing with the project.

Eve: [00:36:40] Well, thank you very much. And we'll sign off. Thanks a lot. Bye.

Rebecca: [00:36:44] All right. Thank you. Bye.

Eve: That was Rebecca Foster, CEO of the San Francisco Housing Accelerator. What a huge challenge she has set herself. The accelerator wants to save one third of the existing 45,000 affordable housing units in San Francisco over the next 20 years. And they're using a variety of financial tools to make sure that rents remain affordable. In just three years, the accelerator has saved 319 homes and raised $183 million in capital. You can find out more about impact real estate investing and access the show notes for today's episode at my website evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Rebecca, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:03] Hey, everyone, this is Eve Picker. And if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: [00:00:19] Eve Picker: Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Jeremy McLeod. Jeremy is the founding director of Breathe Architecture, an architecture studio located in Melbourne, Australia. Breathe is a world class architecture firm delivering fabulous projects to its clients. But Jeremy isn't resting on his laurels. He really cares about the ever widening gap between those who have wealth and those who do not. And so 12 years ago, he embarked on a journey to deliver sustainability and affordability in one housing model. His first project, The Commons, was met with huge success. Now, with a waiting list of over 8000 buyers, he intends his Nightingale project to be an open source housing model led by architects. Be sure to go to Eve Picker dot com to find out more about Jeremy on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform,Small Change.

Eve Picker: [00:01:35] So hi, Jeremy. It's really lovely to finally meet you.

Jeremy McLeod: [00:01:40] Yeah, I did think we were doing this interview over Zoom so I was surprised to see you in my office in Australia. Thanks for coming.

Eve Picker: [00:01:46] Oh, you thought it was by Zoom. I told you it was local. It's really fun to be recording in your beautiful building and actually see it because I've really wanted to do that for a long time. So you're an architect and you've taken your fabulous education and you're working on a new housing model for Melbourne, Australia, where we're recording today. And I wanted to talk about what's kind of driven you to think about that, to develop a better housing model and what even that means.

Jeremy McLeod: [00:02:16] It's not hard to build a better housing model in Australia. It's because our housing system is broken. I mean, the interesting thing about Australia is that we're the richest country per capita in the world, yet we have one of the highest greenhouse gas emissions per capita in the world. But importantly, we have over, at the last census, we have over one hundred and sixteen thousand homeless people here. So for an incredibly wealthy country with lots of opportunity, there's incredible inequity here. And that inequity is growing. In countries, you know, Scandinavian countries or Austria or Germany or anywhere in Europe, basically, there's an affordable housing requirement. In London there's inclusionary zoning which requires you to put in 20 percent affordable housing. In New York there's inclusionary zoning, but in Australia there is no inclusionary zoning, which means that the private housing developers can build whatever they want without including any affordable housing.

Eve Picker: [00:03:18] So, not held accountable for the economy at all.

Jeremy McLeod: [00:03:20] No, absolutely not. And so in that instance, then you would assume it's the responsibility of the state to provide housing for its people. But in the 1980s, state governments around the country started divesting their responsibility for housing and people through a public housing system and started giving it to smaller, not-for-profit organizations, church-based or faith-based organizations or community housing providers to provide housing. And they started selling down their assets and importantly, stopped building housing. And so what we've seen is a steady growth of homelessness at the same time as a steady growth in wealth in this country. As an architect. I mean, before I was an architect, I studied environmental design. So I understand, you know, inherently the issues around climate change. I've looked at the issues around the last IPCC report which says that, you know, if we're not careful, we're going to find 2 billion refugees globally, a billion coming out of Africa and a billion coming out of Asia. Where do you think those people are going to be? And we also understand that people at the edges are the people that suffer the most in times of climate change. So, I mean, I think that climate change and homelessness and housing are all intrinsically linked and that we need to resolve both those issues simultaneously. And we need to resolve those issues very rapidly. The state doesn't... has divested their responsibility. and the private sector obviously is interested in returning profit to their shareholders, not in delivering kind of, you know, on corporate responsibility goals that, you know, may or may not exist within their boardrooms. So the idea for us was that we would build a model, a prototype basically to encourage private developers to change the way that they worked. And our contention was that you can build housing that simultaneously builds community that is sustainable and that is affordable and it returns some fair and reasonable return back to investors.

Eve Picker: [00:05:35] You thought this was an important role for you as an architect? Because it's an unusual role for an architect.

Jeremy McLeod: [00:05:44] Yeah. Look, I mean, of course, my first love is architecture. I would love to just design great buildings all day, every day. I would love to build great housing. But as an architect yourself, you would understand that to make a great project, you need three things. You need a great architect, you need a great builder, you need a great client. And so if we're trying to build great housing projects in Melbourne, it was, you know, let's assume for a moment that Breathe Architecture was a great architect. I can find a great builder, but I couldn't find a great client. So for us to be able to deliver on the projects that we needed to, I felt that the only way was to become our own client.

Eve Picker: [00:06:26] That makes sense.

Jeremy McLeod: [00:06:28] Yeah. And to basically build a system that could be replicated, that was kind of the birth of Nightingale.

Eve Picker: [00:06:35] Right. I watched your TedX talk, which I thought was really interesting. And you said that there's a population explosion going on here, which I know, but I think I didn't realize it was quite so rapid. But how many people in Melbourne today?

Jeremy McLeod: [00:06:48] So there's five million at the moment. We're going towards 8 million by 2050. It's essentially a hundred thousand Melbournians every year for the next 30.

Eve Picker: [00:06:57] I think it's one of the fastest growing cities in the world, right?

Jeremy McLeod: [00:07:00] Yeah. So interestingly, we've always been smaller than Sydney. We've always been the little sister to Sydney and we're now about to outstrip Sydney in terms of population.

Eve Picker: [00:07:08] Yeah, I can feel it every time I come and visit. You talked in that TedX talk about urban compression versus urban sprawl, which I thought was a really great way of describing what's available and what's probably true in most of the United States as well. The idea being that urban compression is like warehousing people in really dense, maybe warehousing isn't a way to say it, but building very dense, high-rise housing products in inner cities versus urban sprawl, which is building, you know, the American/Australian dream of a house on a lot. Right? And not much in between yet. So what's in between look like?

Jeremy McLeod: [00:07:50] Well, I mean, the interesting thing here is it's all about politics, right. So, in the centre of our city, it's all old commercial land. It was a commercial centre. So it's easy to build one hundred and eight story towers there to warehouse people, so to say, because no one objects to that, because everyone sees that if someone builds a 108 stories there, then I can then build my old shop to 108 stories and I'll get that value uplift. So it's a great capital gain. And the city, in the middle ring suburbs, so in all the places really close to infrastructure, schools, hospitals, work, public transport, those areas there are all held by the city's wealthiest population. They're well-moneyed, they're well resourced and they've got a very, very loud political voice. And they say very clearly to the state planning minister and to the state politicians that they don't want any increase in density around them. But like San Francisco, instead, they've got no issue with density per se, just not in my backyard.

Eve Picker: [00:09:04] Yes. NIMBY, right?

Jeremy McLeod: [00:09:06] So that's right. So they're the NIMBYs. So, instead what happens is that if you're a first time buyer in Australia, if you could possibly afford to be a first time buyer here, you can't afford to buy a house in the middle ring suburbs close to work, close to hospitals, close to schools.

Eve Picker: [00:09:22] Yeah, you're very far away.

Jeremy McLeod: [00:09:24] You end up very far away. So in Sydney, I saw a graph recently where if you're a nurse and you work in a hospital and you're a first home buyer, you're an hour and a half away from the nearest hospital that you are working in.

Eve Picker: [00:09:37] Wow.

Jeremy McLeod: [00:09:37] That's three hours every day. Yeah.

Eve Picker: [00:09:40] So in effect, those people are really the ones that need to be closer to the city and need to be, have access to public transit.

Jeremy McLeod: [00:09:48] Absolutely.

Eve Picker: [00:09:49] And of all of those things to make, to make their lives work.

Jeremy McLeod: [00:09:52] Well, to make the city work for all the well-moneyed people as well, you know. Yeah. So the city works because of those people. And so, and the other issue that we've got in Melbourne is this incredible sprawl issue where currently we have built over 40 percent of our farming land. So we've got 60 percent of our farming land left, but our population is growing at unprecedented rates. At the same time, we've got pressure where China is coming in and buying our farming resources. So they're buying, you know, beef, dairy, big farmland, so I worry about food security for, you know, for Australians in the future when there's 1.5 billion Chinese and 600 million middle class Chinese, you know, in a time when food security becomes a big issue all of our food will be being exported.

Eve Picker: [00:10:49] Wow.

Jeremy McLeod: [00:10:49] So I see that as this incredible, this madness of us building over all of our good farming land.

Eve Picker: [00:10:56] And then the other piece of it is, I think you and I agree on this, that many new buildings are built as a financial commodity. And really, they're really about making money not about making place better, which is really disturbing to me because I think you can take the same money and build, you know, add to a city in a really meaningful way or not, right? So...

Jeremy McLeod: [00:11:20] Yeah, looking at examples, like there's a suburb in Sydney called Ultimo and over 90 % of Ultimo has been bought by investors. So essentially a lot of our apartments, and in Melbourne, in

Eve Picker: [00:11:36] And is that, like, little single-family houses or...

Jeremy McLeod: [00:11:38] No, so it's all apartments. So the whole, nearly all ...

Eve Picker: [00:11:41] So it's a bit of a ghost town then? Or is it just all rental?

Jeremy McLeod: [00:11:44] Well, a lot of it is rental. You know, until very recently, there were no foreign ownership maximums on how much of an apartment or, or how much of a building you could sell to foreign owners. So we were. we had Australian developers selling 100 percent of their buildings to offshore waiting lists in Kuala Lumpur or Shanghai. We would find that, you know, whole buildings are owned by offshore investors that have never been to the city or have never seen the actual apartments. They bought it off a spreadsheet through, through an investment vehicle. And of course, when you get a city built on a spreadsheet, it becomes a pretty, pretty sad outcome.

Eve Picker: [00:12:24] Right. So your journey started in 2007 when you bought the piece of land where you're sitting on right now, right?

Jeremy McLeod: [00:12:35] Yeah.

Eve Picker: [00:12:35] And, so where did you begin?

Jeremy McLeod: [00:12:38] Well, so maybe I'll go back to 1972 when I was born. So, so my parents were a couple of hippies. When I was about eleven, my dad took me to old Parliament House to lobby the government then about public housing in a suburb called Footscray in Melbourne. So then I go on study sustainability, environmental design, and then I go on to be an architect where my focus is on studying housing. I then work for a big firm, and when I'm working in that big firm, I end up working on, you know, 88 story towers, which just, you know,.

Eve Picker: [00:13:18] And the toilet details, right?

Jeremy McLeod: [00:13:19] Yeah. Yeah, lots of toilet details, lots of stairs, correct. But it was the last building that I worked on in that big practice, I was working on the carpark for six weeks.

Eve Picker: [00:13:29] Oh, that's really crushing.

Jeremy McLeod: [00:13:30] And I thought that that was crushing and I didn't think it was a good use of my time or, it wasn't that I was interested in, you know, housing cars. What a meaningless act. So I start Breathe Architecture in 2001. When I started Breathe Architecture, the simple idea was that every room would have a window so the occupants could breathe.

Jeremy McLeod: [00:13:53] So in 2007, as an architect working in the city, we'd been working for a bunch of property developers. It was, it was disappointing. We resigned a couple of commissions, we got fired from a couple of commissions because we wouldn't back down on certain things like, you know, we wouldn't take the solar panels off the roof. We wouldn't take the,.. yeah, yeah, we wouldn't take the solar hot water out of the building. We wanted to make sure that we got winter sun into the building, you know, like. really simple things that we wouldn't back down on.

Jeremy McLeod: [00:14:29] So after that, we decided that we would partner with some other architects and we would try and embark on building a prototype building. So there were six of us. Six architects. We all came together, we bought this site. It was originally called Nightingale back in 2007, and it took us until 2013 to finish it. So it took us six years. In the middle of it, thanks to sub-prime issues in the United States, the financial crisis washed across the shores to Australia. By the time I needed finance to build this...the idea was that it would be a zero carbon building. A building that focused on sustainability and community and affordability. By the time I needed to get money for that, it was after the financial crisis had actually, bit into Australia as well, and we lost our funding to build it. And so then...

Eve Picker: [00:15:22] Why did you lose the funding, is it because banks just got more conservative? Or..

Jeremy McLeod: [00:15:28] Yeah, banks just got more conservative.

Eve Picker: [00:15:30] So the same reasons I saw in the States.

Jeremy McLeod: [00:15:33] Yeah, and look, I actually don't blame the bank. I think that leading up to the global financial crisis, you know, it was too easy to get money. So as a group of six architects, you know, we were about to borrow seven point one million dollars, you know, on a kind of prototype project that hadn't been built before. So I can understand why the bank was nervous by the time, you know, we got into, you know, 2010, 2011.

Jeremy McLeod: [00:16:01] We went and met with a whole different raft of impact investors. We met a group called Small Giants and Small Giants bought the project off us. They renamed the project from Nightingale to the Commons because their marketing team thought that was a good idea. I can, I can live with it, but you know, what's in, what's in a name. But anyway, the Commons then ended up being delivered and in 2014, it won the National Award for Sustainability, the National Award for Housing. And it became, you know, kind of a destination for people to come and look at. And so in the following year, we opened the building up for tours. We took every property developer in the city through. We took Melbourne residents through. And we talked a lot about, you know, the importance of change in our housing model. And then the idea was, off the back of that, that we would influence change in the marketplace.

Eve Picker: [00:17:01] Well, that was one of my questions here. Has your work influenced the status quo?

Jeremy McLeod: [00:17:06] Well, the interesting thing was that when we, when we completed the Commons and it won all those awards, and it got lots of media and lots of people were interested, the answer to that is no. It was seen as an exception to the rule. And so, the idea was that the pilot project or the prototype project would influence change, but it was seen as an outlier.

Eve Picker: [00:17:26] Interesting. And like just breaking up a bit. So what is different about the Commons, this building?

Jeremy McLeod: [00:17:32] So the Commons, I think that if you want to build something that's affordable and sustainable simultaneously, every project manager says that you can't do that. Every project manager will tell you that sustainability is more expensive and so to build sustainability means that you can't build it affordably. And so instead, Bonnie Herring, who was the project architect of Breathe who led this project, her whole approach was one of sustainability through reductionism. So she constantly interrogated the idea is, if we don't need it, take it out. Ask people, what are the things they actually need not what they want from some real estate glossy brochure.

Eve Picker: [00:18:14] What they think they need because everyone else has it right.

Jeremy McLeod: [00:18:17] Yeah, but when we when we started talking to people, the interesting thing was that what people actually wanted was space, light, outlook, plants, you know, natural materials. No one wanted marble bench tops, you know, a thousand down lights, white shag-pile carpet, a swimming pool, three bathrooms, you know, what people actually wanted, we were finding, was just kind of really good meaningful housing. So our approach on The Commons was, yes, sustainability through reductionism. If I step you through that, you'll see that it makes total sense. So the first thing is, we took the basement car parking out. And why is that important? So, for a seven million dollar building, the basement car park was gonna cost seven hundred and fifty thousand dollars. So by taking that out, we reduced the build cost by over 10 per cent. But importantly, we just, we didn't just reduce the price of all the apartments by $30000 each. We also took some of that money and put it into making the rooftop garden, you know, really incredible. Where you would have ordinarily had a driveway coming in off the street and a ramp up and then a ramp down to get into that driveway and a roller door to close that driveway off to get down to the basement carpark, instead, Instead of having that there, we put in a wine shop where the driveway and the ramp would have been.

Jeremy McLeod: [00:19:42] And then we sold the wine shop for four hundred and twenty five thousand dollars. We then took the revenue from the wine shop and we used it to increase all of our glazing to get the best possible double glazing that money could buy in the country at the time. We pumped up all of the insulation on our walls. So we made all of our walls fatter. we got better insulation in them. So we used that money to improve the thermal envelope of the building. Then, that then made the apartments perform...so we've got the star rating system here, so you need kind of, you need a minimum of five stars or an average of six stars to be able to get a building permit here. And instead, we set the minimum at seven and a half stars here. The panacea is 10 stars means you don't require any energy for heating or cooling, which would be incredible. But we'll make it to seven and a half stars out there. More modelling told us that the building could operate within a thermal comfort range of between 19 and 27 degrees. And the interesting thing is that that's kind of the European thermal comfort range of the Germans deemed that to be.

Eve Picker: [00:20:47] So that's all Celsius right now. Got it. That's about ...oh I can't do that in my head right now. We'll figure it out later.our Yeah, I'll let you do the calculations. You'll figure it out later.

Jeremy McLeod: [00:20:57] But but basically, the Australian thermal comfort range, you know, is generally been seen to be in between 19 and 22 degrees.

Jeremy McLeod: [00:21:08] So by stretching it out from nineteen to twenty seven, the German comfort range, all of a sudden we found that we didn't need to put air conditioning in. When we take air conditioning out, we save another 5 percent out of the building costs throughout the building and obviously drastically reduce the operational costs and operational energy required in the building. Normally every two bedroom apartment in Melbourne at that time was being designed with two bathrooms. So a primary bathroom and then an en suite to the master bedroom. Instead we took out all of the en suites, so we had one bathroom in each apartment. We kept them at the same size. So the apartments, by taking out the really energy intensive detail-heavy bathrooms, we saved about $10,000 out of the cost of each of the apartments and all the living rooms got seven square meters bigger, which is 70 square feet. We took out all of all of the individual laundries out of each of the apartments and instead put one beautiful laundry on the rooftop, which overlooks an incredible rooftop garden.

Eve Picker: [00:22:14] And I assume you could save money on all the stacks. Correct. And the space in the unit. Correct. So everyone's. Exactly right. And the cost of all these appliances. Exactly. Seventy costs.

Jeremy McLeod: [00:22:28] Exactly. You get it. You get it. So you do that over and over again. We have one shared Internet connection. So we bring fibre into the building and we share that Internet throughout the building. So we pay for it at one point and then we use bulk buying to share that. It gets really, really cheap, really, really fast internet in a city where the Internet here is expensive.

Eve Picker: [00:22:47] That's smart. That's a very good idea generally to buy it as a retailer.

Jeremy McLeod: [00:22:50] It's expensive and it's poor quality here. And we do the same thing with the power through an embedded network.

Eve Picker: [00:22:57] So it's this constant that you're a very pragmatic approach. It's really pragmatic, pragmatic to chisel away what's really necessary in a building and and really make it work. Yeah. And think about it.

Jeremy McLeod: [00:23:10] You know, what can you share? It's all about sharing and using, you know, bulk buying and trying to get maximum utilization. So you know what? Our laundry, for example, is six washing machines, which could use a lot more than having, you know, 24 washing machines that get used in a very infrequently.

Eve Picker: [00:23:28] I think a lot of people might find that concept difficult, but I suppose you don't need to find a lot for one building do you.

Jeremy McLeod: [00:23:38] Well, I mean, initially when we started when we finished this project and we started work on Nightingale 1 and I'll tell you why we started Nightingale 1, there were eleven people that had written to us to say, if you're going to build another building, like The Commons, can you please let us know. And so we put those eleven people on a waiting list. That waiting list through Nightingale housing is eight and a half thousand people.

Jeremy McLeod: [00:24:03] So apparently there is eight and a half thousand people in Melbourne that would be happy to have a cheaper apartment with a bigger living room, with a beautiful shared rooftop laundry ,with one bathroom, with no individual or private car parking, but with a free car-share membership to, you know, 20 cars parked within a 400 meter radius.

Eve Picker: [00:24:29] And to be fair, in a beautifully designed building.

Jeremy McLeod: [00:24:33] Thank you.

Eve Picker: [00:24:35] I'll sign up for the waiting list!

Jeremy McLeod: [00:24:38] I think the great thing about, you know, being your own client is that you can definitely make sure that the architecture is what it should be.

Jeremy McLeod: [00:24:49] So I actually for people listening in, the thing that's also very incredible here is The Commons. This building sits right on a railway line. You can see there you can see the station. Out of the windows. So it's really it's really a transit oriented development as well, which really makes it much easier not to have a car.

Jeremy McLeod: [00:25:08] Yeah, absolutely. So there's that train station right next door or the bike path right next door or the 503 bus and then the tramline.

Eve Picker: [00:25:16] And the garage packed full of bikes.

Jeremy McLeod: [00:25:18] Yeah. So we do have the highest ratio of bikes to apartments in the country. Yeah, but the interesting thing about that is that we just looked at what were the bike ratios used in the Netherlands and then we used those and brought that over here. So it's not none of this is rocket science, at least, you know. How's it been done?

Jeremy McLeod: [00:25:36] So you have investors in this project and how did they do?

[00:25:42] So in the Commons there were six architects and all of us and we all invested. So Tamara and I, my partner and I, yeah, we literally bet the house on it. And so, yeah, out of the Commons, we did at the end of the project when Small Giants, we bought the site, we redesigned the site, we got the D.A. approval, we got the price in place. Then we had to sell the project at Small Giants. They sold they bought the project back off us. And at that point we had bought the site for five hundred and forty five thousand and we sold it back to them for two million dollars.

Eve Picker: [00:26:23] How did they do then?

Jeremy McLeod: [00:26:27] Eventually, they never actually disclosed to me how they did, but they built and entire brand off the back of The Commons.

Eve Picker: [00:26:35] There you go!

Jeremy McLeod: [00:26:36] But interestingly, everything sold in The Commons. The project was delivered on time and on budget. And you know.

Eve Picker: [00:26:43] And did it sell quickly?

Jeremy McLeod: [00:26:45] Yes. And that kind of thing else was.

Eve Picker: [00:26:48] Yeah, that's probably keeping in a project like this, because having a couple of vacant units if your profit and a building like this.

Jeremy McLeod: [00:26:54] Yeah. That didn't happen here.

Eve Picker: [00:26:57] That's fantastic. So then, you know, the triple bottom line here actually made a financial return as well. That's a pretty strong argument for doing the right thing. Yeah. How hard is it to find investors who really care about the triple bottom line?

Jeremy McLeod: [00:27:16] Well, so maybe let me let me just come back to the move from The Commons to Nightingale 1. Or why we started Nightingale Housing. Do you want to hear?

Eve Picker: [00:27:25] Oh, yeah, absolutely.

Jeremy McLeod: [00:27:26] So this idea that that the Commons would drive change by being a prototype building. And I said before that it kind of failed because it was seen as the exception, not the rule. What we decided to do after that first, you know, with that wait list of eleven people was to, if if the market wouldn't change, then we would drive change in the market and we would continue to build buildings until such a time as the market actually came to us, you know, until we didn't need to exist any longer. So we established Nightingale Housing. We got some corporate sponsorship. We got a government grant. We got a grant from the National Australia Bank. So we built a really small team of about three of us and we embarked on Nightingale One.

Eve Picker: [00:28:15] And that's a non-profit driven.

Jeremy McLeod: [00:28:18] Yes. So Nightingale One was still delivered. And the way that we wrote that feasibility study was that we capped the return at 15 per cent per annum and then we capped that return at a three year project timeline. So essentially it was a gross return of forty-five per cent over three years. So there was a lot of pressure on us to deliver that for our investors to deliver it within the three year time window.

Jeremy McLeod: [00:28:42] So - to get to get - we tried to do that at 10 per cent per annum. And when we tried to raise impact investment to build a carbon neutral building. So when we tried to raise equity, I spoke to probably 60 architects in the city because I wanted architects to invest in it. I wanted architects to own it. I want to share the IP with architects that would take it and scale the idea. I met with architect after architect for about, you know, six weeks and we ended up getting 27 investors all putting in $100,000 each. A lot of people with not a lot of money borrowed against their homes to invest money in. And when we first said we want to return 10 per cent per annum, ur first investor said that wasn't enough. It wasn't it didn't match the risk versus return matrix for them. And so they wanted fifteen percent return. So we ended up taking all the equity. In Nightingale One it was about a 10 million dollar project and we raised $2.7 billion in equity with a capped return of 15 percent per annum. Going forward from that ...

Eve Picker: [00:29:49] Did you return the 15 percent?

Jeremy McLeod: [00:29:52] Yeah, absolutely. We returned. And so the way that we that our model worked was that we have a construction contingency in the project, and so after we returned all the money to the shareholder, exactly as we said in our prospectus at the end of the project, the money left over from that contingency, instead of taking that as developer, which a developer would normally keep that as [crane?]. We then gave that back to the residents. So the residents that had balloted into the building, because by that time there was more demand than there was supply after the success of the comments. So we had to run a public ballot where the mayor drew the names for the apartments out of a hard hat. And those residents, those lucky residents at the end of the project, their apartments were about $90,000 under market. And when we finished the project, we gave the building a check for $109,000 dollars back.

Eve Picker: [00:30:43] Wow. And just to be clear, because in the US apartments are usually, well, this is this is all for sale. At this point. Right. Yes. Which is really what the market is in Melbourne.

Jeremy McLeod: [00:30:53] Yeah, absolutely. It's all you know, it's all for sale. Everything's for sale.

Eve Picker: [00:31:00] Which is in itself an interesting discussion. That's really amazing. So now now that was the first project. What's happening next?

Jeremy McLeod: [00:31:08] Well, so after the completion of Nightingale One, and then we did Nightingale Two which is just completed and Nightingale Brunswick East, which is just completed.

Eve Picker: [00:31:18] How many units did you build?

Jeremy McLeod: [00:31:19] So Nightingale One. So the Commons is 24 apartments, Nightingale One is 20 apartments, Nightingale Two is 20 apartments, Nightingale Brunswick East is a hybrid with a property developer. So that's 38 Nightingale apartments and about 25 straight to market apartments.

Eve Picker: [00:31:37] So that's a real mixed income project.

Jeremy McLeod: [00:31:39] Yeah. Yeah. And that's interesting. It's interesting. The developer was so good. They funded the whole project. They agreed to run everything transparently with us. So it's you know, so Nightingale's principles are that it has to be minimum seven and a half stars, has to be carbon neutral and operations can't have natural gas pumped into it, has to have, you know, all those Nightingale principles. And we've got to lock up. We also have a restrictive caveat which says that if we're selling and owning an apartment to you and we're capping the maximum sale price that we're selling to you based on a maximum return to investors, then you can't sell it tomorrow and make a massive profit.

Eve Picker: [00:32:19] And so you want to keep it affordable.

Jeremy McLeod: [00:32:21] Yeah, absolutely. And so this developer, Lucent, agreed to do all of those things. They handled all the delivery side. And the benefit the upside for them was that they were trying to sell apartments in a street where someone else was about to sell 700 apartments. Someone else was selling 60 apartments. There was about a thousand apartments on the market. They broke their building in half, did half Nightingale half straight to market. We said that we would do that only if the entire project, including their straight to market apartments, were carbon neutral in operations and met the minimum seven and a half star requirement. They agreed to do that. The Nightingale apartments went to ballot. They balloted in one day. So they sold all of 38 apartments in one day.

Eve Picker: [00:33:04] That's astounding.

Jeremy McLeod: [00:33:05] Which then got them the sales target that they needed to get financial closure from the bank to cover the debt, which meant that they could then demolish the building, start their basement construction, which gave them a massive program jump on all the other buildings. They then opened their straight to market sales. And some of the people that it missed out on the Nightingale ballot went and bought there because they could afford to. But also, they were interested in the sustainability idea of carbon neutrality and the idea of community. And then it gave them a kind of a massive differentiator in the market. And so when no one else was selling anything in that street, they sold their 25 apartments in three weeks, which was unheard of.

Eve Picker: [00:33:50] I don't know what balloting is. Can you explain that to me?

Jeremy McLeod: [00:33:53] Sure. So ordinarily, the way that a straight to market developer would sell their properties by employing a real estate agent. The real estate agent generally charges a fee of about 2.25% percent. So there's two different ways you can sell in Australia. But if you if you employ a real estate agent here, they'll charge you 2 per cent of the gross revenue of the project, so if the project is a 10 million dollar project, they'll charge you $200,000 for the 20 million dollar project, they'll charge you $400,000.

Eve Picker: [00:34:22] Because they're going to sell all units for that.

Jeremy McLeod: [00:34:25] That's right. They are going to sell all the units for that. If you historically had trouble selling, you would go to financial advisors in inverted commas, who are meant to be independent and they could sell your apartments to people looking for investment advice and they might charge six or seven percent. Okay. I think they're trying to outlaw that at the moment. Because they're their commission obviously makes it difficult, the rate of their commission is so high, it makes difficult for them to make independent advice about what to buy into or what not to. But Nightingale's says no real estate agents, no sales, no marketing. Instead, it has a series of information nights, it talks to all the purchasers and it provides information, fearless information, warts and all, about the great things about the project and the not so great things about it.

Jeremy McLeod: [00:35:17] So for The Commons, for Nightingale One, we talk about all the great things, but we also say that it's right next to the train line. So the great thing about that is that it's really close. But it also means that train runs 24 hours on a Friday and Saturday night. And if you got your window open, you know you can. You're going to hear it. You know, that's a very, very it's a place of urban flux, and that where you see all the single story warehouses now, you'll be a construction site for the next five years. So we talk about all those things openly.

Eve Picker: [00:35:43] So how do you find those people, though? How did they find you?

Jeremy McLeod: [00:35:46] I don't know. So so, look, we don't have you know, we don't have a marketing team. We had some political trouble on Nightingale One where we got a planning permit. The developer next door took us to the appeals court here based on the fact that they didn't want us to sell apartments that were 20 percent bigger, 20 percent cheaper and 120 percent better than theirs, because I think that they thought that it might provide a market problem for them. They took us to the appeals court and they were well funded by the developer. And we weren't particularly well-funded. And they had a good legal team. And then they had our permits stripped from us. So they got our permit taken off us.

Jeremy McLeod: [00:36:33] Well, it's a very, very strange planning system here where individuals can veto a local government decision. It's very interesting. So we then had to lodge a new planning application from scratch for Nightingale One.

Jeremy McLeod: [00:36:53] But the interesting thing was that when Nightingale One lost the local planning permit at that at the appeals tribunal, the local media, particularly the liberal media, got very, very bent out of shape about a project that was trying to deliver carbon neutral housing affordably, particularly trying to house millennials and first time buyers that had just been totally priced out of the market. And they got really bent out of shape that that the one thing that that project was defeated on at the appeals court was on car parking. So basically the whole fight was that we didn't provide any car parking. How our whole contention was that it sat on top of a train station next to a place where people were unlikely to have cars. Well, over 30 percent of them didn't have a license. Thirty percent of them didn't have cars. And the last 40 percent had filled out statics saying that they would either get rid of their cars when they moved into the building or that they would garage them in surrounding buildings that have masses of basement carbon that is under utilized. Well, the biggest thing that happened for us was that it totally changed the landscape for us in terms of everyone suddenly had heard of Nightingale, heard about this.

Eve Picker: [00:38:03] That bad thing was great marketing.

Jeremy McLeod: [00:38:05] Yeah. The bad thing that nearly broke me emotionally, like Breathe architecture was nearly broken the day after that. We couldn't believe what had happened in the 21st century in this city, given its incredible problems with climate change and kind of housing justice. And anyway, what we found was that beyond that, after that, our waiting list, like the week after that, our waiting list had jumped from 125 people to over 400 people.

Jeremy McLeod: [00:38:34] So people had read it in the mainstream. Wow. So you're wonderful. You're absolutely right. I think that was the start at which people actually started to hear about us.

Eve Picker: [00:38:42] So because we're running out of time. But I really want to know what's next.

Jeremy McLeod: [00:38:47] Mm hmm. Good question. So off the back of all of the Nightingales we've done, what we found was that Nightingale One opposite the Commons, they're both really great strong communities. But what we've found is that there's that they've actually started to work together as an organism. So the residents of The Commons and the residents of Nightingale One have worked together to lobby the council, to close the street at the front. So in two years time, the street will be closed and they're going to pull up the asphalt and replace it with grass and turf.

Eve Picker: [00:39:18] Well, it's wonderful. And so you've started to see really build a community here.

Jeremy McLeod: [00:39:22] Yes. And they and importantly, what else we've seen is with those two buildings in close proximity to each other, they've started to engage with other residents around. So it's not just individual communities, but everyone within that street now and across the railway lines and around the corner are all now kind of engaging in street parties, garage sale days, you know, Christmas parties or just talking to each other as they go past. There's no more anonymity. And so the big thing for us was how do we kind of learn from that? And so we bought seven sites to Street south of the Commons. And that's what's called Nightingale Village. So that's there was gonna be seven buildings by seven architects, all carbon neutral communities, no individually owned cars, a car share hub for 15 share cars, a consolidated bike park with 450 bikes. But importantly, no cars allowed on the streets. So on the streets above, again, pulling up the asphalt, replacing it with grass, trees, street furniture and making it a place for pedestrians and cyclists. That's fabulous. Yeah. And so then, you know, at that scale, it jumped from a 10 million dollar project to one hundred million dollar project. We had a superannuation company, HESTA work with an organization called Social Ventures Australia, an impact investor, and they put in 20 million dollars worth of equity into that project. And then we've had a big bank here, National Australia Bank essentially build a two billion dollar housing innovation fund to step into the gap that our federal government and state governments have left to. Yeah. And so the debt will be funded out of that National Australia Bank housing fund. So it's been incredible getting institutional finance coming in to make that happen. And then within that, obviously, we understand and that we're part of the gentrification problem. And so we've been looking at this idea of inclusionary zoning and why can it work in London and why doesn't it work here or why isn't it called for here? And basically, the property council here, lobbies our planning minister, not to put inclusionary zoning. They say that we won't be able to afford it, that it will make..

Eve Picker: [00:41:32] But who does the Property Council represent.

Jeremy McLeod: [00:41:36] Property developers. And so. And so we've decided at Nightingale Housing to now make sure that every project we do has 20 percent affordable housing in it, whether there's inclusionary zoning or not. And so what we're intending at Nightingale Village, we're now putting in 20 percent affordable housing. And so within that, we want to prove to the planning minister and to the government that you can put in affordable housing, that you can salt and pepper it through your developments, that it can be done well and it can be done elegantly and it can be done equitably. And if we can do it, there's no reason why a well-managed, publicly listed housing company or development company can't do it. So, yeah, look, the big push for us is now to actually make sure that we don't just we just try and get better with every project. We try and think through what are the other issues that need to be done and then we'll deal with it.

Eve Picker: [00:42:35] OK. So I have a couple of really quick questions for you. What trends in real estate development architecture do you see emerging that you think are important for the future?

Jeremy McLeod: [00:42:47] Yeah. Yeah. So, look, I mean, we're not plumbing natural gas and all of our buildings are carbon neutral in operation. So it has to be powered by 100 per cent certified green power, 100 percent renewables. So that's the measure that we use in Australia before we started Nightingale, every property developer told me that was impossible because people liked gas to cook on their woks, you know, to have a wok burner in their apartments and that they would never go without gas. Since Nightingale One has been complete, there are now five zero gas buildings within a one kilometre radius of Nightingale One. Quite interesting. So we've shifted the bar on this idea of can I operate without gas? Are my purchasers interested in carbon neutrality and around here? Absolutely.

Eve Picker: [00:43:37] And of course, if you don't have gas you don't need to run gas lines and that is another savings.

Jeremy McLeod: [00:43:41] Correct. In the building. Correct. No gas made a room. No gas particularly. Right. Right. Yeah.

Eve Picker: [00:43:46] Wrap up question here. So where do you think the future real estate impact investing lies? Because you've been dealing with those impact investors from day one?

Jeremy McLeod: [00:43:56] Yeah. It's a really good question. I think that and I'm very, very interested in your model, because I think that peer to peer lending is going to be really interesting about people being able to invest in projects with meaning. We see that the people of Melbourne who funded the early equity projects in Nightingale, they did it not so much for the return, but because they cared about what was happening to our city, what was happening.

Eve Picker: [00:44:25] That's why I built small change, because I think the people in the cities they're in and they just want to be part of making it better.

Jeremy McLeod: [00:44:33] Yeah, I agree. Totally. And so it's incredible to see Melbournians investing in projects and people with not a lot of money, but literally, you know, borrowing against their own home to help make this happen, because they're not just interested in making the city more livable place, but they're also interested in and they care about the future generations and what's happening to Millennials being locked out of the housing market and wondering what's going to happen for them in housing security in the future, so I don't think that's going to put a lot of pressure on institutional funds. We've got a lot of superannuation money in Australia.

Eve Picker: [00:45:11] So do you think the interest requirement of 15 per cent is going to grow?

Jeremy McLeod: [00:45:15] Well, the interesting thing is, since the village. That's the last time we paid those rates. Oh, very good. So since then, we've got two new projects on line and the offers are becoming back in. And now, you know, 13 per cent and 11 per cent because, you know, by the time we finished the village that's 14 projects. And with a wait list of eight and a half thousand people, the single biggest risk in a project is sales and settlement. Right.

Eve Picker: [00:45:39] There's not much risk. Right. Right. So I've really enjoyed the conversation. Thank you very, very much. Yeah, there's lots more and want to know, but it's pretty fabulous what you're doing. Thank you.

Eve Picker: [00:45:55] That was Jeremy MacLeod of Breathe Architecture and the Nightingale Project. If you want to build something that is affordable and sustainable simultaneously, says Jeremy, every project manager in Melbourne will tell you you can't do it. So Breathe instead defines sustainability through reductionism. They discovered that what people actually want is really good and meaningful housing with space, light, great outlook and plants, not marble countertops, three bathrooms and shag carpet. They have achieved affordability and sustainability through reductionism. If you don't need it, take it out.

Eve Picker: [00:46:40] You can find out more about impact real estate investing and access the show notes for today's episode at my web site Eve Picker dot com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve Picker: [00:46:57] Thank you so much for spending your time with me today. And thank you, Jeremy, for sharing your thoughts with me. We'll talk again soon. For now, this is Eve Picker, signing off to make some change.

Eve Picker: [00:47:17] Be sure to go to Eve Picker dot com to sign up for my free educational newsletter about impact real estate investing. You'll be among the first to hear about new projects you can invest in. That's Eve Picker dot com. Thanks so much.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:05] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Karina Ricks, the inaugural director of the City of Pittsburgh's Department of Mobility and Infrastructure. This new department has very clear goals to serve its citizens. Karina wants to ensure that no one dies or is seriously injured traveling on city streets, that every household in Pittsburgh can access fresh fruits and vegetables within 20 minutes travel of home without the requirement of a private vehicle, that all trips less than one mile are easily and enjoyably achieved by non-vehicle travel, that streets and intersections can be intuitively navigated by an adolescent, and that the combined cost of transportation, housing and energy does not exceed 45 percent of household income for any income group.

Eve Picker: [00:01:11] These goals sound simple, but are really quite a revolutionary way for a city department to be thinking about transportation infrastructure. Be sure to go to evepicker.com to find out more about Karina on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: [00:01:50] Hi, Karina. Thanks very much for joining me.

Karina Ricks: [00:01:53] Great to be here. Thanks.

Eve Picker: [00:01:54] So you're the first director of a brand new department in Pittsburgh, the Department of Mobility and Infrastructure. And I'm wondering how that department came to be.

Karina Ricks: [00:02:05] So the department came the way that many of them have emerged in recent years in the US, which is that the city had a department of public works, which really was primarily responsible for maintenance of the transportation assets that we have in the city. So clearing snow from streets, patching potholes, generally replacing in kind. We also had a Department of City Planning which was tasked with sort of longer term, longer range objectives of communities. But there was this missing middle that was sort of thinking about this tremendous infrastructure that we have. We're responsible for about one fifth of the land area of the city, which are the public rights of way. And rather than just replace in kind, replace in kind really starting to think about how is this asset contributing to the sustainability of the city, the ability to thrive of our local neighborhoods? What are the policies for management and operations that need to be put in place to really get to those objectives? And so the Department of Mobility and Infrastructure was created to fill that gap. And it drew staff from both the Department of Public Works and the Department of City planning to bring together, in a way this transportation land use, economic development objectives, and think about think very proactively about the design of our infrastructure, the use of our infrastructure. And if I can go just from a minute to talk about. I had nothing to do with the name of the department. It was, I'm the first director but the the creation of the department was something that was a product of mayor. But I'm thrilled at the name. So in the US, you know, initially these kinds of departments were called the Departments of Highways, which really sort of informs their priorities right where we were thinking about things in the time that was back in the 50s and 60s. They were departments of highways. Then they sort of morphed and changed their names to be departments of transportation. Well, that's fine as well. But what we've learned - Recent research that was done at Harvard University found that the time that it takes to commute, so that the the time of travel and the reliability of travel is the single most important factor in families and households being able to change their economic status. So beyond the quality of their neighborhoods, public safety issues or other kinds of elements, their access to transportation, their ability to move from where they lived to where they were going to get the different kinds of goods and services and jobs that they had was the single most important factor in escaping poverty, in changing their economic status. And so, in essence, it said that physical mobility was the most important factor in economic mobility. And so I think that really sums up what this department is about. It's about mobility, not just moving around, but it's about mobility of changing lives. And that's really some of the emphasis that I'm trying to bring to my staff and to the work that we do.

Eve Picker: [00:05:26] So, you know, this is really fascinating because as I do these interviews, all the threads sort of come together for me. I'm learning a lot. And I I just interviewed an architect in Australia who's really built an entire sort of new affordable housing model around exactly that thesis - that cities don't run with essential without essential people who serve it and those people are generally being pushed out. Well, this was in Melbourne, Australia, which is a very, very wealthy and sprawling city. But those people are going to being pushed out further and further and further. And so we have to find a way to have them be able to afford to live closer in and be mobile in in different ways without having a car. So there in Australia, he's developed an entire new housing model kind of based on that thesis.

Karina Ricks: [00:06:18] Right. Well, we we we also refer often to the H plus T index. We talk about the housing plus transportation index. And we have a measurable goal for my department and for the city, which is that no household in the city of Pittsburgh should need to spend more than forty five percent of their income on housing and transportation, which are the two largest household expenses. At any income quintile, so you really need to look at it across income rates, and we know just like any other city, that housing prices are increasing. But what's interesting is in Pittsburgh today, households spend about 21 percent of their income on housing, which is which is fairly low. Go to other places. But they spend 20 percent of their income on transportation, which is quite high. So if housing prices increase, we can keep people in our city if we're able to work on the other side of that equation, which is driving transportation costs down so that we can stay at that affordable net net affordable threshold.

Eve Picker: [00:07:37] So your department is really a whole lot more than about transportation. You're really an economic development department, too.

Karina Ricks: [00:07:43] We like to think of ourselves that way. Absolutely.

Eve Picker: [00:07:46] Yeah how interesting. Yeah. And so you talked about broad ... Well, let me just ask you about you. How did you come to be in this position? What's your background?

Karina Ricks: [00:07:57] I took the scenic route. I would say to my boss. So my original career objectives were in environmental sustainability. And so really focusing on those issues around climate change and overall sustainability and efficiency there through some some different twists and turns, I ended up working, doing a fair amount of work in economic development, actually in Tonga, I was in the Peace Corps, and did economic development there. And then I continued to work in other communities of the global south. And and then from there, it actually morphed into some democracy work in the several countries in Eastern Europe. And I came back to the U.S. and got my master's degree after having all of this experience. And it and it sort of, you know, these different threads came together in city building, the ways that cities are situated, the ways that that relates to economic prosperity, democracy, inclusion, equality. And those threads immediately led to transportation, because if you really can't access these markets, you can't access these forums where these decisions are being made, you are by definition being left out. And this is what leads to a lot of the social isolation that we have, a lot of cultural segregation that we have certainly in this country and other countries as well, where people are really just not engaging with one another. They're not being exposed to two persons of different persuasions and different opinions. And it's leading into a lot of a lot of strife. So, you know, oddly, it really is mobility, transportation, access, you know, that has this tremendous impact, the climate that has this enormous impact on economic prosperity, that has a huge influence over social cohesion. And and, you know, sort of political peacemaking. And so that sort of led me to this place that I'm at now.

Eve Picker: [00:10:22] Interesting. Interesting. So, you know, I connected with you through an article that I read in City Lab about the mobility conference that was held here in Pittsburgh last year, which sounded really fascinating to me. Tell me a little bit about that and the purpose of it.

Karina Ricks: [00:10:39] It was a tremendous experience. It was really one of the most inspiring things that I've had the privilege to be a part of. So it it was prompted from there was a very exclusive conference that was held here in Pittsburgh a couple of years ago that was really contemplating what the rise of autonomy and autonomous vehicles and new urban mobility, how what the consequences of that might be for city form and urban design and architecture and disciplines like that. And it was a it was an invite only convening. It had all of the greatest brains from around the world. As part of it. I was privileged to be included in that group, which was wonderful. And all of these good people throughout this two day meeting were consistently coming back to the themes of equity and inclusion. And then and then one individual that was there kind of approached me in the course of the meeting and they said, you know, isn't this odd? Here are all of these people, all of whom are making, you know, very comfortable livings, have high educational attainments and they're all talking about equity and inclusion and all of these good things. But where are the real experts in that area? Meaning where are the people who live it day in and day out who are really constrained by the situation of their lives and the things that they face and the problems that they need to solve each and every day. Those are the experts. Why are they not in this room? All of us, the privileged few, are talking as if we know.

Karina Ricks: [00:12:23] And so from that kind of discussion, he and I, he and I kept up the conversation going for the next year or so. And from that came this mobility conference, which was a conference, a workshop, co-creation kind of event, where we again, by invite only. But we brought these tremendous subject matter luminaries, experts, top of their class innovators in in mobility and technology and operations. And a third of the conference were those those folks leading into the city and the nation. But a third of the people we paid a living wage and we provided mobility supplement to them were people who are on the margins, on the edges. They're the people that were formerly incarcerated, people that are single mothers with minimum wage jobs, trying to kind of just get their kids to all the places they need to go to and, you know, scrape by their own lives. They were people who face a host of other social and economic challenges that we we paid them to be the experts in the room. And so a third of the people of the conference were that representation. And the last third were governments and nonprofits and enablers that could be a part of it. And we really workshopped what are the challenges that you face, the mobility challenges that you face? What are the things that we can do that would make a real difference, which some of them were as small as providing better lighting at bus stops at night or being able to hail, you know, make sure that the bus driver can see that you're you're waiting there in the bus shelter so that the bus doesn't the one bus that comes every 40 minutes doesn't pass you by because they didn't see you, to creating whole new services that would address these third shift working needs - the hotel and restaurant hospitality workers that oftentimes face certain challenges in the level of service that is provided at the time that they leave work, but also concerned for personal safety as they're carrying, you know, tips or cash or something like that. To, you know, school age, children, mobility so that their parents can do that. So we really workshopped through what is the problem, what is the set of solutions, how can we create new services, new applications, just new improvements that are actionable, that there is actually a timeline and a you know, a funding means. And we came out of there with, you know, six or eight things that we're continuing to really work through. But the solutions and stories that we never would have heard in that very intimate, tangible way, if those people if those experts hadn't been there saying, this is what I do to get by. This is what I'm forced to do to make these things happen. Yes, that would make a difference in my, you know, in a way that I was traveling. So that it was a tremendous event. It was really inspiring.

Eve Picker: [00:15:44] It sounds inspiring. And what were the outcomes like? I know the one thing that cityLAB talked about was the micro ability, but I'm sure there were more.

Karina Ricks: [00:15:53] Yeah. So micro mobility was one of the bigger lifts that came out of there.

Eve Picker: [00:15:58] Let's start with that first and then we can because I think that people would be interested in hearing what that is.

Karina Ricks: [00:16:05] So the micro mobility micro transit solution was one where it was particularly aimed at the workers who work at our hotels and night time restaurants, night time economy kinds of workers who are transit services do very, very well for the daytime office based workers. But transit service diminishes greatly in those evening hours. We have many employers in the city who operate shuttles for their daytime office employees to get them from various remote parking spaces to their campuses. And those shuttles that are just parked and silent in the nighttime. And so this was an opportunity using technology to actually map where workers were to allow a hailing application so that they could indicate when they were in need of a ride optimized route so that planning could be very highly efficient so that we could we could give kind of on demand in a way on demand mobility or at least scheduled service to pick up these night time economy workers and bring them to their places of employment and back again. And using vehicles that already exist in the city, but are but are basically idled during the time that they are needed there so we can get that greater efficiency from them. And then talking with their employers who immediately saw the value of doing this because someone needs to obviously subsidize a service like this.

Karina Ricks: [00:17:50] And they immediately saw the value because of the high turnover rates that they experienced when their employees. If you need to have your your your cook, your chef there at a particular time, because you've got a dining room full of patrons that you need to attend to, if you need to have your room cleaning people there so that you can turn over the keys in your hotel, if you need to have trusted staff that you have trained and that you feel good about so that your customers and your clients have a great experience too. But that person is, you know, habitually 30 minutes late, you know, may not show up at all because of the mobility challenges they have. You can't keep that person around as an employer. You you you're going to have to dismiss them for failure and performance. But that has a cost to you to to find that next person, to train that next person to to to feel trusted with them. And so all they needed was to get their employees there on time. And all their employees really wanted was to get to work on time. So this was a this was a natural matching that we could do. So that was the micro mobility. And we called it the safe shift service and partnered with a company called Move It to help develop that application that would identify where those workers were, how to optimize the routes. We're still working with employers to really bring that into operation. But the research has completed and so we're continuing to advance on that one.

Karina Ricks: [00:19:35] Some of the other things that came out, as I said, were just just simple improvements, like could there be a a switch of sorts on the shelter that could illuminate, you know, something to make sure that the driver of a bus knew that there was a transit rider there in the shelter and they wouldn't just blast by because, you know, there there's not so many people in those late night hours. But if that bus passes them by, there's a huge impact on the potential rider. I'm trying to remember some of the other things. But there is there is some really, really great, not necessarily deeply costly solutions that could be implemented that would have real benefits, too, so that we could do something more than just talk about how much we wanted to address equity and inclusion. But there were some things that we could really do that we knew would be welcomed and useful because they were co-designed by the people who who require them themselves.

Eve Picker: [00:20:39] Fabulous. And then there was also a description of these hubs that you have been building, and the partners. I was kind of really interested in them, the partners and and why they care and how you brought them to the table.

Karina Ricks: [00:20:55] Right. So so that's a bit of a different initiative that came. It was, you know, maybe had some of its birth in the mobility conference. But through other inputs, we understood that there's there's a whole host of micro mobility, new mobility that's coming to cities across the globe. And many cities, as is too typical for us, are caught flat footed with these new technologies. We really don't know how to use them, how to manage them. We end up with our cities, you know, somewhat littered with e-scooters or know previously it was dockless bikes. And, you know, they're there and we're all excited about it, but we're not quite sure exactly who they're serving. The management of the public space could obviously be better in many cases. And they're not really integrated together into a singular system. The onus is really on the user to figure out what are the what is the range of services available in the city, they need to setup a separate profile for each and every service that's there. They need to kind of do their own comparison and cobble together their own services where they might take a ride share from this point to this point, but then a scooter share from here to here and then a transit there to there. But they need to open up three different apps and do their own planning to do that. And it's really a very difficult and challenging arrangement for the user. We said we can do better than that. We can work with the private sector. Maybe just one provider in order to see what works, do some experimentation with them to develop our own policies, to figure out how we can really get toward this elusive mobility as a service concept where, you know, the users can have the whole buffet of mobility options available to them, presented to them in a single way so that they can choose based on what is motivating them, whether it's time or price or environmental performance or fund factor or whatever it is that they want to do. So we put out a solicitation for a mobility collective and we said, you know, we want you to self-organize your industry, please self-organize and bring together different kinds of services. We don't just want the walled garden, as it's called, where it's Uber that says, well, we've got scooters and bikes and car share and you only need work with us. Thank you very much. That's wonderful. But we might see some downsides to having that much control in one place. So we said you need to have multiple companies, multiple services, and you need to be prepared to experiment with us to figure out how we best manage our public space, how we best really get to this notion of inclusion and inclusivity, and run some pilots and run some demonstrations to do that. And so we got great response. We were excited at the number of responses that we got. We selected a partnership that's led by Spin, which is a subsidiary of Ford Motor Company, and they brought with them ZipCar and Swift Mile and Wayz Carpool and Transit App and a number of different independent ( they're not all owned or even have an ownership stake with one another), so they're an independent collection of companies, each bringing a different kind of service together. And they proposed to us that they would like to come to the city and establish mobility hubs where we would have this range of different services, all sort of co-located together in some of our different centers and critical destination areas that we would formulate a platform that would allow the user to tap into all of these different services so the user would really be in control that we would really use as the backbone of this system, our public transit system, so that it is additive rather than competitive to transit. That it would preserve our public bike share, which was very important to us as well. That we love micro mobility and all of the private companies that are popping up, but they're also dispersing as quickly as they're popping up.

Karina Ricks: [00:25:21] We don't want that to happen that we're we totally do away with our public bike share. That is as much a critical public transit option as buses and trains are. So that was one of the requirements as well. And it's been great so far. We really applaud Spin for their willingness to kind of go into the unknown with us, to be really true partners, to be open and vulnerable. You know, and they're able to do that because we've said we're going to not allow any other entrance into our city while you're going through this sort of experimentation phase with us. So we're going to give you a safe space to be vulnerable as long as you're willing to do that with us and to really figure this out in a very, very much of a partnership way. And I really applaud them. I couldn't have asked for a better partner so far. They and all of the other companies that they brought along with them are really very authentically and truly working with us. And we're figuring it out. And I'm excited to see where this is going to go.

Eve Picker: [00:26:34] It's making me_____. It's pretty fabulous initiative. So then there really are no results so far?

Karina Ricks: [00:26:41] It's not not well that I would say that there have been some results so far. So we've talked a lot more about these mobility hubs. And so those are progressing to really ensure that we have, in particular, electric charging that can be multipurpose so that these charging stations so the recharging micro mobility vehicles is is a major limiting factor to them.

Eve Picker: [00:27:08] So that's a core for these stations to have to be able to pull something up and charge it right.

Karina Ricks: [00:27:20] So that you can you can pull a bike up, you can point a scooter up, you can pull whatever the next generation of these things are up that the car share can be electrified. That ride hailing curbside can be managed for efficient drop off and pick up at the curb side. So a whole host of different things. And again, to the convenience of the user.

Eve Picker: [00:27:42] None of these hubs actually live yet?

Karina Ricks: [00:27:46] We're doing the location selection right now. And then there's there's some like a fair bit of infrastructure that needs to go into again because it involves electrifying them.

Eve Picker: [00:27:57] And how many hubs do you are you shooting?

Karina Ricks: [00:27:59] Well, initially there's 50, which is given the size of our city. That's pretty good.

Eve Picker: [00:28:05] That's pretty. And then I'm going to root for location near me, Karina. So it's a really, really fabulous. And it really does. It's really nice to hear that those companies care and want to think this through. It's pretty fabulous.

Eve Picker: [00:28:26] Ok, so let me finish up by just saying I'm very excited that Pittsburgh, as you and I'm I can't wait to see how this turns out.

Karina Ricks: [00:28:36] I'm really excited. And this is a great city to do these kinds of things. And it's a city that values its neighbors. It's a city that values the environment. It's a fantastic urban and natural experience. So the people of Pittsburgh are just wonderful and they're as much a part of the secret sauce of the city as anything else.

Eve Picker: [00:28:57] Okay. Well, thank you very much.

Karina Ricks: [00:28:59] Sure. Thank you. So great to talk to you. Bye.

Eve Picker: [00:29:07] That was Karina Ricks the inaugural director of Pittsburgh's brand new Department of Mobility and Infrastructure. Karina believes that there is a nexus between mobility, real estate and equity. How much one must spend on transport directly relates to how little they have left for real estate and housing. You can find out more about impact real estate investing and access, the show notes for today's episode at my web site evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Karina, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: [00:00:06] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve Picker: [00:00:12] My guest today is Justin Garrett Moore. Justin leads a double life that all comes together in one amazing package. He's an urban designer and his day job is executive director of the New York City Public Design Commission. There he hopes to guard quality and excellence in public space design from large scale urban systems, policies and projects to grassroots and community focused planning, design and arts initiatives.

Eve Picker: [00:00:44] But Justin also founded Urban Patch in Indianapolis, where he grew up. There, with his parents he's deployed an incremental strategy, many layers of smaller actions that altogether add up to a big one, making his hometown a stronger, more beautiful and more inclusive community.

Eve Picker: [00:01:05] Be sure to go to evepicker.com to find out more about Justin on the show notes page for this episode. And be sure to sign up to my newsletter so that you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve Picker: [00:01:31] Hello, Justin, welcome to my show. You know, I didn't realize until I read your resumé how much we share in common because we both have architecture degrees, we both have a master's in urban design from Columbia.

Justin Moore: [00:01:44] Oh, I didn't realize. That's wonderful.

Eve Picker: [00:01:47] And I was also a senior urban designer in the planning department for a few years. So. But then. Oh, wonderful. But then I drifted and went to the dark side and became a developer. And you became the executive director of the New York City Public Design Commission. So different paths. Right?

Justin Moore: [00:02:07] Yes. Yes. Thank you. I enjoy the urban design field because there are so many different things that you can do, whether it's developer, public, private, non-profit. So it's a great field.

Eve Picker: [00:02:20] Executive director of the New York City Public Design Commission is a pretty hefty title. I'd love to know a little bit about what you do there in your job.

Justin Moore: [00:02:30] Mm hmm. Sure. So here in New York, we're very lucky in that since 1898, the city has had a part of its city government, part of the bureaucracy of the city, an agency that is responsible for the oversight of the design of our public realm are sort of common infrastructure. The city was originally called the Art Commission. This comes out of the city beautiful movement kind of during that time period where you had a lot of new parks and boulevards and public buildings that were being done not only in New York, but really all across the country or even world to make cities competitive and these sort of places of investment and an activity. In New York, there's an entity that was created to help make sure that this was being done well, that there was some oversight and thought into how the city was being designed.

Justin Moore: [00:03:31] So fast forward to today. The name is sort of updated from Art Commission to Public Design Commission. And so what we do is we review all the different projects that are happening in the city that are the kind of constant rebuilding and new building of our public amenities. So we review somewhere between eight hundred and a thousand projects every year. And that can be Street design ... Yeah. It's a lot of work. It could be park design. It could be as simple as a building rehab or it can be a whole new development, whether, you know, buildings or even neighborhood scale redevelopment. So it's really fun. It's diverse. We get to work on projects all over the city and even upstate. So city owned land upstate, we review those as well. That's something. Yeah. Yeah, it's a lot. So I'm the kind of the head of the agency, but kind of the main force of the commission is that we have 11 volunteer members who have different backgrounds architecture, landscape, architecture, development, art, etc. who come in once a month and we review all of these projects and are our goal is to be sort of the quality control department to make sure that, you know, the billions of dollars of development kind of construction that's happening for public projects that it's being done.

Eve Picker: [00:04:56] Well, that's really fascinating. So, you know, in your time, I think you've been in this job to three years, but before then you were at planning department for quite a while. So I'm wondering if you've noticed a shift in attitude to the design of place during that time.

Justin Moore: [00:05:14] Yes, absolutely. Going further back. So I started in the planning department straight out of grad school, and I worked in the Amanda Burton version of the New York City Planning Department.

Justin Moore: [00:05:27] But for those who don't know, Amanda Burton was the planning commissioner for a long time. And she had an incredible focus and interest on public space and the role of design in the changing of the city. And so I did see early in my career and just over that's now, you know, sort of 15 years that there is a much greater interest in the importance and role of public space and public realm and the design of those spaces in being really in a central need for for a well-functioning place, whether that's, you know, a particular building or site or whether that's at a scale of a neighborhood or at the scale of the city. And so you've seen a lot of advancements in innovation and testing. You know, some things work, some things don't. But it's really great to see how it's almost like a movement of people that are interested and focused on making good places in cities and its coming from different sectors, it's not only coming from, you know, the kind of the hero architect, the big firm, you know, the I say like those the white guys just deciding how everything is going to be there. There is a much broader coalition of people that are thinking about and operating with how we design our spaces.

Eve Picker: [00:06:51] That must be incredibly gratifying to you. I think it's really wonderful to hear that's happening.

Justin Moore: [00:06:58] So, yeah, we're working with the government a long time, right? Things take a long time as you work on things for years and years and you don't see it in reality until later. But it's it's sort of like my favorite thing to go around to different projects in the city. I worked for a long time on kind of big waterfront redevelopment and those projects take a very long time. But, you know, eventually you go to a place and there's this new park or place or building or development that's in the city. And you know that you had kind of a direct role in helping to make that place happen and seeing that it's well used and enjoyed and is kind of performing environmentally, socially, economically, et cetera. And it's always incredibly gratifying to see and you know, I tell people, OK, the gray hair is worth it for the stress to get some of these things done.

Eve Picker: [00:07:49] Yeah, yeah, yeah. So, you know, I was interested to hear you mentioned the city beautiful movement, which had, quite frankly, forgotten about. But, you know, beautiful is not a word that's used often to describe places and buildings, at least in this country. I often wonder why it's I think it's really important, but it's been struck from our lexicon. What's your experience with that? You know, we talk about excellence and words like that.

Justin Moore: [00:08:16] Right. Right. Yeah. So I mean that it's like the architect in me. Right. So, you know, we talk about the design and how should we be building and doing things and talk about excellence. We kind of break it down into the old architect ingredients of, you know, beauty, commodity and delight. Right. That, you know, that there's multiple things that has to function to be excellent. It has to kind of be responsible in terms of environmental cost measures. But it also has to be, you know, of of interest to people. I mean, ultimately, people are building it. So, you know, giving some form of delight is important and beauty is absolutely ingredient there. I think the reduction of the uses that obviously that's incredibly subjective, especially in places that are fairly diverse like New York. So, you know, you may go and have a project in a community that has one kind of major demographic group and kind of their cultural reference points for what constitutes beauty may be very different from another group or even kind of the amalgamation of all of our mutual agreement on something that that's valued is as beautiful.And so it's it's difficult to kind of have one idea or one word right during city beautiful movement.There is all these projects happening in and of course, their value is as beautiful, but they came out of a very particular progeny, right, so European. I mean, again, I hate to keep harping on it, but like there is a clear power structure that was communicated through that way of designing the city. Right. And then during the modern movement, we had another version of that. So, you know, kind of the modern plaza. You know, there's no people or no earnings, clean space and, you know, the building and all of that, maybe some kind of modernist artwork like that. That that was a different generation. But it left out what we call the multitude of people. Right. And their values of of what's beautiful. So it's something that we have a challenge with. And frankly, every project that we look at and do in the city is that, you know, we're not here to kind of be the arbiter of what is beauty and what is excellence. We have to have this sort of broader understanding of what that is and how you accomplish it.

Eve Picker: [00:10:47] Right. That's pretty difficult. I wish we could all celebrate old beauty because it's so important in cities. You know, the other thing that you work on, that your second role, which I personally find extremely intriguing and pretty wonderful, is as founder of the Urban Patch. And I'd love I'd love to chat about what you've accomplished with that organization in Indianapolis. And why the Urban Patch?

Justin Moore: [00:11:16] Sure. So the origin story I tell people that it kind of comes from two threads. I mentioned earlier that I went to Graduate school at Columbia in the urban design program, and one of the studios I took during the program was working in Baltimore and St. Anton Winchester, kind of West Baltimore neighborhoods, working with something called the Urban eco- Baltimore Ecosystems Study, where it was ecologists working together with social scientists and designers to talk about how urban environments were changing through an environmental lens. One of the kind of foundational concepts of that work was something called urban patch dynamics. And so patch dynamics comes from the kind of ecology field where you talk about how, for example, a certain species of tree may promulgate through a forest over time in this kind of incremental way or, you know, different kind of pattern of change that happen. And at those kinds of patterns that we see in in those kind of environmental contexts also happen in urban contexts. And so the basis of this is that change happens in these kind of patches or incremental ways, not only through kind of the big policy or project or top-down kind of thing.

[00:12:45] So that was something that very much informed kind of how I think about urban projects and urban change. And it's sort of been sitting there for a while. So that's one kind of thread. And then the other was that I started along with my dad doing some kind of family history and research and learned that my grandfather was involved in this organization called Flanner House. And back in the 1940s and 1950s, this organization did this really incredible work around community development and many different aspects of that, from food access and health through to jobs and skills to even housing construction and neighborhood planning and design.

Justin Moore: [00:13:35] So it was this kind of moment of inspiration like, wow, you know, kind of black people in Indianapolis and in that time period were able to kind of advance these really incredible projects that that spoke to many of the needs and challenges that we do today. And so kind of inspired by that. But then thinking about how do I adapt it for today and the context now, I sort of borrowed from what I learned in that urban ecology studio working in Baltimore and found a way through doing our own projects, kind of incremental scale work that we could find a way to have positive change in our community. So it started very simply. My parents and I, we just said, OK, in our neighborhood where I grew up, which, you know, it's a lot of vacant buildings and disinvestment. They were kind of a standard in our community, unfortunately. But we started with the idea we were going to take a vacant house and a vacant lot and we were going to purchase them and fix them up and make them better. And if that worked, that we would just keep do it again and again until our own little urban patch kind of grows and has a tangible and legible way of making our community better. So that was how it started.

Eve Picker: [00:15:03] That's a pretty fabulous story. It's really fun. And what does it become?

Justin Moore: [00:15:09] Yes. So it's it's it's there's so many different layers to it. So this is where more of the kind of the urban ecology side comes through. But the idea is that you have a lot of many different kinds of actions that add up together. So we've done a number of different projects. We're up to eight homes and nine, maybe 10 lots that we've done in this kind of, you know, one by one incremental approach. But we've also done a number of different scales of operation. So we've done tree planting campaigns. So the neighborhood where we are, there's the issue with urban tree canopy, and so we raised some funds and we're able to provide free trees to people that live in the community to help with the revitalization of the tree canopy across the, you know, the entire neighborhood. And thinking about the many different kinds of people that live in the neighborhood in that meant it was important to have this kind of long term kind of connection to the neighborhood, but also some kind of a connection and similarity with with one another. Right you have, kind of the old timers, people have lived in the neighborhood for decades, if not generations, and then you have the newcomers that you know or along with gentrification and other things are coming new to the community and may not have kind of a strong link to the place or even to their their neighbors who have been there a long time.

Justin Moore: [00:16:44] We've done more of the placemaking type work, the idea that as our neighborhood is changing, that we're a part of the authorship and the impetus for that change. So we've done community gardens and kind of community scale artwork, murals and and sculpture, things of that nature that we do in our our neighborhood within our own patch, right within our geography that we can say, yes, this neighborhood is changing, but we are the ones who are changing it. And so it it kind of brings in a different level of agency and conversation to development.

Eve Picker: [00:17:23] It's pretty fabulous. And are your parents enjoying themselves?

Justin Moore: [00:17:26] Yes, my parents are, you know, they’re retirement age. So it's you know, they've always been very, very active people. I tell people I didn't fall far from the tree. I do a lot. My parents also do a lot. And so, yeah, they're, you know, kind of the lifeblood of so much of this work. And, you know, the idea of kind of community development and key word being community, so you have to know people, talk with people, kind of listen to people as you're doing this work. And so having that, you know, I'm in New York while my parents are still home in the neighborhood. You know, they really are connected with these kind of changes that are happening. And we can do our work in a way that is navigating that and still being connected to to the people.

Eve Picker: [00:18:16] So what's what's the current project that you're working on? In both places.

Justin Moore: [00:18:24] So the other thing is it's really three places. So in Indianapolis, it's incredibly exciting that we've worked with a local Neighborhood Development Corporation called the Mapleton Fall Creek Neighborhood Corporation Development Corporation. And so there is a big three block where we're two and a half block site, vacant site that's been in the neighborhood for a very long time. And we're working with a developer called the Community Builders out of Boston.

Eve Picker: [00:18:52] No, I know them, yeah

Justin Moore: [00:18:54] Majora Carter Group here in New York and Urban Patch to redevelop that site. So we're incredibly excited that the first phase of that is is getting underway in its planning process. We received our kind of zoning and planning approvals, are waiting for the July tax credit allocation time, time period to get some things lined up on funding. But that project has kind of the city and local support to move forward. And so that will be an incredibly transformative and frankly, larger scale of development that we've been able to frankly bring some outside thought and outside people to our community. Like we want the best for our community and so, you know, finding new players and actors to think about how development can happen in our neighborhood in a new way. And the Majora Carter piece is that it's not just the kind of standard affordable housing tax credit project, but there's a component that will be around creating a local employment and food related business hub as a part of that development. So that we're not just bringing housing, but also access to some some much needed jobs.

Eve Picker: [00:20:15] So that is pretty, pretty exciting. Did you know I interviewed Majora a few weeks ago? She's amazing.

Justin Moore: [00:20:25] Yes, I do know, in fact

Eve Picker: [00:20:28] I'm jealous. So I want to do that project with you. It sounds sounds absolutely terrific. So, yeah. What about in New York? What's your favorite thing you're working on now? Or something that you are excited about.

Justin Moore: [00:20:40] Yes. So, yeah, here in New York, I think especially at the design commission, we've been I mentioned we looked at a lot of different projects. So it's sort of crazy nonstop work. But the kind of favorite thread that I have is that we have been doing a lot of work on affordable housing. And the idea that this conversation we had earlier about beauty and what makes excellence that we did this whole research effort to actually talk about that. So often affordable housing is sort of discussed with the pragmatics. Right. We need a number unit, needs to be affordable, we need to get construction costs low. But we wanted to elevate the conversation about how do we get excellent affordable housing and that looks like different things. It's not necessarily that an architect designed it. It's - is it accomplishing the many different layers of of how you have a well designed building, whether that's aesthetic or functional or about how it fits in with its context or community. And so we developed something called designing anti-work quality affordable housing. So it's a free guide. Anybody can download it. There's even an app. Yeah, there is even an app. So you can go download our our app and you can find good examples of affordable housing, not only in New York but all across the country.

Justin Moore: [00:22:10] So with this sort of research project that we've shown and demonstrated the many different ways that you can accomplish good design for affordable housing while still meeting, you know, your cost of construction and the different programmatic needs, whether it's on financing or kind of policy side, no,.

Eve Picker: [00:22:27] That sounds fabulous.

Justin Moore: [00:22:30] And so it's been sort of great tool. And my favorite kind of project that came out of that work is something called the peninsula, which is in the South Bronx. And this was at a former juvenile detention facility that had been a place of violence and terror for that community in terms of its young people being put into this unjust facility. They've been closed and the city redeveloped the site, and we were able to kind of have an early design conversation about what is going to make this re-imagination, this site, you know, positive for this community, not only, you know, when the thing opens, but in the long term. And so we've got, you know, a really great project that looks at design for many different angles, whether it's from the public space view or the building design view or the urban design scale view. It's been a great result. And the project has, you know, gone through all the approvals and broken ground and we're excited to see it moving forward.

Eve Picker: [00:23:34] It sounds pretty fabulous. So I'm sort of in awe. It's really great! Amazing work.

Justin Moore: [00:23:43] So there is one I was going to say there is one more thread, which a kind of a branch of urban patch where we're also designing, building and developing affordable housing in Kigali, Rwanda. And so that's kind of our our next phase of work is sort of how these conversations about the need for good quality design and housing go to even some of these global contexts where there's truly an incredible need, you know, rapid urbanization happening in in the sub-Saharan African context. And so we've started doing work there and are nearing completion by the end of this year of our first eight unit mixed-income housing development that will have some market rate and some affordable housing, which is a pretty unique sort of proposition in that context.

Eve Picker: [00:24:42] Who are you partnering with there?

Justin Moore: [00:24:45] So we're the kind of the designer developer on the project, but we're working with, there's an NGO called Scat Consulting. And so they do essentially technical assistance around everything related to building. Right. They look at the whole pipeline for everything from construction materials and the training needed to build through to addressing some of the policy issues that are necessary to get certain types of development to happen. So they're an NGO, or connected to an NGO, the Swiss Development Corporation. And so they're providing this technical assistance, procuring those pliers and laborers and all of that is work that they've been doing on the ground. And so we're coming in as kind of the designer and kind of combo designer and developer who's funding the project and sourcing from, you know, kind of the suppliers and people that they've developed over time and working of course with a local architect of record for filing and construction management and all of that. So it's been it's been a really exciting project.

Eve Picker: [00:25:57] And so how do you fund that? Like you said, you'll acting as the developer?

Justin Moore: [00:26:00] Bootstrapped.

Justin Moore: [00:26:01] Yes. So Urban Patch, the the business model of Urban Patch is that we you know, we started with these projects. We don't ever like flip them, we don't sell them. We keep the asset. And as I mentioned, the neighborhood has been gentrifying. And so there was a significant amount of equity that has built up in those projects, and so we were able to access some of our equity from our holdings in Indianapolis to completely self-fund the project in Rwanda.

Eve Picker: [00:26:34] I mean, that's a stunning example of how some gentrification can actually help a neighborhood. Right.

Justin Moore: [00:26:44] Right. Yeah. So that's the kind of the other thread. It's not the origin story, but something that happened with Urban Patch was that very early we sort of came in full conflict with like the realities of the world of real estate and urban development in America. So I mentioned oh bought the first house, bought the first lot. We went to go buy that first house but I was not able to get financing to buy that first house, even though I had, you know, six figure income, had the downpayment needed, had a near perfect credit score, and no one would loan me money to develop in my own neighborhood. Right. But I'm looking and it's like, well, we see, frankly, all these white people coming in and they don't have this problem. You know, they do it all the time. And, you know, you can let mortgages, you can look that stuff up. You could see they're getting a mortgage for a house two doors down. And so the racism in the whole system still exists. And so the project became this sort of - It ended up becoming this anti-gentrification project and not necessarily anti-gentrification in general, but like, how do we get a different kind of result out of these processes that that are radically changing our our communities? So the first project I actually had to - I was like, I'm going to do this. And so I maxed out all my credit cards and I bought the house in cash. That's how I got that first deal done because no one would give me a mortgage, even though I met every criteria that you're supposed to have.

Eve Picker: [00:28:25] And how much was how much was the mortgage?

Justin Moore: [00:28:29] It was one hundred and twenty two thousand.

Eve Picker: [00:28:33] Not a lot of money, nonetheless. No, not a lot. Not like you were asking for two million dollar loan.

Justin Moore: [00:28:39] No, no, no, no. And it was in a completely absurd. It was completely absurd. And it happens to this day. So like that, you know, people talk about, you know, redlining as if it's a thing of the past. Redlining still exists. It happens in a very surreptitious way, but it absolutely still exists. And, you know, the kind of the work that we ended up doing was to kind of subvert that. And so we ended up finding like, it's great - The Farmer's Bank of Indiana is kind of a small community bank that they will loan money to us now. Right. It's insane, but you had to kind of find ways around to get the work done. And we've been able to kind of scale and continue our model in this incremental way. But frankly, the way that we're able to do that is that the prices in the neighborhood are going up. And so we're able to use equity to fund our our next stages of of projects and do it in a way that doesn't require us to charge our tenants a lot of rent. So essentially the we're able to charge rents that are essentially kind of the cost of the transaction rate, the mortgage tax, insurance, maintenance management. Right. So there's no profit that we're taking. Right. As a part of that, our profit is the fact that there is value growing. Right. Both the value of the tenants paying down the debt, but also the fact that the prices are going up in the neighborhood.

Eve Picker: [00:30:24] But let's let's be clear about this. It's not just your asset value because by doing this you've added value to the neighborhood.

Justin Moore: [00:30:32] Exactly. Yeah. The neighborhood and the city. We pay a lot of taxes. These are vacant buildings and vacant lots that we're now paying for it. It's there. Multiple benefit.

Eve Picker: [00:30:46] Yes. Yeah. Wow. So, you know, there's always small change.

Justin Moore: [00:30:55] Yeah, I'm a fan of so small change. I forget how many projects of yours. I mean, I don't put a lot in, but I put a little bit. They're all interesting to me. So I'm like, oh, like to see that. I love it. I love the platform.

Eve Picker: [00:31:07] Love to help urban passion. Think. You guys are amazing. So thank you. Thank you. Yeah, it's really it's pretty wonderful stuff. And, you know, I know this is red lining, but but it's also not just about you. If I try and go into a neighborhood that hasn't had any investment as a white woman I can't I can't get a loan. Right. Right. Right. There's no value there to get a loan against against it. It's the entire neighborhood. It's like. I think maybe someone who's buying a house to live in it is treated as a different category by the bank. They're homeowners.

Justin Moore: [00:31:44] Oh no, these were homeowners. These were flippers that were coming into our neighborhood. No, this is the sort of thing. The flippers. They come in, they they get the little lady and they scam her to get her house and they know what the house can sell for. And they don't even they don't even fix it up. They just get in there. And yeah, it's it's it is a pervasive problem in black communities across the country. It happens in Brooklyn. It happens. And it's it is a thing. But they've got they're doing it at large scale. Right. So they're they've gotten an established relationship with the bank. That's it. And the bank says, you know, oh, appraisal, whatever they wink-wink, they send their appraiser out there it goes and tells them the house is worth whatever they say it's worth. You know, appraiser comes out and they see, oh, there's too many black people around. And it's not worth that. Is this have the appraisal industry is it is all a part of it?

Justin Moore: [00:32:39] It is. It is to this day a racist system.

Eve Picker: [00:32:45] It's shocking.

Justin Moore: [00:32:45] And, you know, Wells Fargo was I mean, there there are many ways to to that part, which is why, you know, things like crowd-funding and, you know, other mechanisms are gonna be more and more important because, you know, these systems by regulation and, you know, there's a lot that, you know, they're not supposed to be doing these things, but they still do. And so sometimes you just have to find a different way.

Eve Picker: [00:33:12] So I hope that there's some bankers listening to this podcast and they'll come knocking on your door. That would be really a great outcome. Right.

Justin Moore: [00:33:22] Yeah. I mean, yeah, we're we've been. You know, 2012 was the first one. And so we've been growing, you know, and it's sustainable. And, you know, we don't lose money. We don't make money. Right. I got a cash flow basis, as I mentioned, that we keep our rents low. So it's not like we're earning a bunch of money that way. But all of our assets are sort of growing. As you know, the longer we hold the debt goes down, the equity goes up, etc. And you know, and it's designed in a way, you know, frankly, the real estate markets are probably going to soften or if not crash at some point soon. But our math is designed that, you know, we're holding significantly below market rents. And so something crashes. It's not like, oh, we can't command that rent. We still will be able to hold our our property.

Eve Picker: [00:34:13] You know, the crash of 2008, 2009, I had properties in in Pittsburgh that were in neighborhoods that were really underserved, but really beautiful buildings. And I didn't even notice the crash.

Justin Moore: [00:34:29] Right. Because the value was there.

Eve Picker: [00:34:31] Right now, the value was there. And here is where the word beauty becomes important. The units were really interesting and unique and and lovely and people wanted to live in them and ,,

Justin Moore: [00:34:44] And so most of our homes are in a historic district. And so they are very they are these that embodied beauty and values is definitely a really key piece and kind of on the historic preservation and asset side.

Eve Picker: [00:34:56] So hopefully that plays out again anyway. Really fascinating. So. Given everything you do, do you think socially responsible real estate is necessary in today's development landscape?

Justin Moore: [00:35:14] Yeah. I mean, I feel very strongly that the idea of connecting social responsibility and in real estate is, I think, one of the best tools that we have for advancing social and economic equity. You know, there is a lot of work being done on this. So, you know, kind of community land trust movement and things of that nature, I think are getting this. But the reality in the US at least is that the biggest kind of asset base that people have is still their homes and real estate and property, because, you know, the financial markets aren't necessarily accessible and advantageous for for everyone or as many people as the real estate markets have been. And probably because they're tangible in some way, they're they're direct. You live in a neighborhood. There is a shop you go to. There's a house you live in. You know, you you literally experience it every day. And so I think people can naturally connect to and value that in a very direct way. Unfortunately, we hear mostly about the other side of it. Right. The market forces and the big investors come in and buy up or even gentrification forces, but really thinking about how you can create business models and new models to use it as a tool to create stability, to grow wealth, to have some degree of self-determination, for yourself or your family, for your community. You know, however you define the scale, responsibility can happen through real estate. And, you know, we need to address some of the inequalities and unfairness that still exists that we were talking about before. But there's also the opportunity to talk about kind of the new tools and and the kind of models that we want to see that that this can be done differently.

Eve Picker: [00:37:23] Yeah, well, this has been a great conversation. So I have three sign-off questions I'm going to ask you. And the first is, what is the key factor that makes a real estate project impactful to you?

Justin Moore: [00:37:38] Key factor? So for me, the key factor would be the kind of long term sustainability. Right. The main issue I have with real estate is the kind of the transactional piece. Right. So and when things are kind of flipped and exchanged in this kind of quick way, you know, somebody has to make money. And it's not necessarily sustainable to do that over the long term. And so people that people or projects or initiatives that have kind of a longer view, and that could be, you know, from a financial standpoint, like does it pencil out kind of a thing, but it can also be social, right. You know, my my model in urban patch, you know, it's not dependent on us charging money or amounts that, you know, people from our neighborhood cannot afford. Right. There are models that do rely on that and there are models that don't. It could even be you know, there's a lot of conversations about sustainable development goals and climate and green new deal. Right. Long term like the environmental prospects of a project. Right. So that sustainability, peace has socio economic and environmental dimensions.

Eve Picker: [00:38:54] So the second question, I actually think you ask an incredibly interesting way. I'm going to ask it again. Do you think crowdfunding can benefit and impact real estate development in more ways than just raising money?

Justin Moore: [00:39:10] Oh, yes, for sure. I think crowd funding has the potential, but not totally there yet, but definitely the potential to increase and broaden access, to having more people be able to participate in real estate and to have some kind of ownership of change that may be happening in their communities. And I think that the existing models for access to capital and access to resources, you know, it takes a lot for people to to get into those systems and to be able to operate. Crowdfunding does have the potential to sort of make that not such a high bar for people, both on people wanting to invest and to have ownership, but also people that are, you know, just trying to get and get a deal together to do, you know, to get their idea out there. Right. And that, you know, you can kind of have benefit to to both of those kind of players.

Eve Picker: [00:40:19] Yes. Yes. And then finally and this is a really hard thing, but if you could fix one thing or improve one thing about real estate development in the U.S., what would that be?

Justin Moore: [00:40:31] I I. The racism, it still exists. And you have to acknowledge it. It still exists to do anything about it.

Eve Picker: [00:40:40] Yes, I acknowledge it. It's that's a pretty chilling story.

Justin Moore: [00:40:45] So, yeah, it's interesting. Elizabeth Warren and Julian Castro, a lot of the current Democratic candidates in some of their policy papers and things have been pointing to recent scholarship. So the Richard Rothstein, "The color of Law", I forget the author, "The color of money". So there's a lot of kind of research and scholarship coming out on this where people are identifying these things and and noting that kind of the present day effects. And so I'm really happy to see that conversation happening more and more.

Eve Picker: [00:41:23] Well, this has been a really wonderful conversation, and I wish you all the best with your next projects. I'm sure there's going to be many of them. Thanks.

Justin Moore: [00:41:32] Thank you. Happy to do it.

Eve Picker: [00:41:38] That was Justin Garrett Moore. I thoroughly enjoyed our conversation. And there are just too many takeaways to share them all, but here are my top three. I love the Justin talked about the need for beauty, commodity and delight in urban design. I love the idea of patch dynamics - change growing incrementally from little patches. And I love that Justin is developing an affordable housing project in Rwanda.

Eve Picker: [00:42:08] You can find out more about impact real estate investing and access the show notes for today's episode at my Web site, evepicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending time with me today. And thank you, Justin, for sharing your thoughts with me. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi, there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve Picker: My guest today is Jorge Newbery, founder and CEO of American Home Owner Preservation and AHP Servicing. Jorge is also CEO of Debt Cleanse Group Legal Services. AHP crowdfunds the purchase of non-performing mortgages from banks at big discounts, then shares the discounts with struggling homeowners. Jorge is on a mission to help Americans crushed by unaffordable debts.

Eve Picker: A 2004 natural disaster triggered the financial collapse of Jorge's former business, leaving him with $26 million in debts he could not pay. Jorge rebuilt himself through AHP, sharing what he learned from his own challenges to help families at risk of foreclosure stay in their homes. Jorge has also found the time to write a few books, Burn Zones, Playing Life's Bad Hands, Debt Cleanse, How to Settle Your Unaffordable Debts for Pennies on the Dollar, and Stories of the Indebted.

Eve Picker: Be sure to go to EvePicker.com to find out more about Jorge on the Shownotes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Welcome, Jorge. Thanks very much for joining me. It's really nice to reconnect.

Jorge Newbery: Likewise, Eve. Always a pleasure.

Eve Picker: Yeah, we haven't talked for a while, but still, I know that you're a man with a mission, and the mission that I know about is to help keep Americans in their homes. I think a more recent one is to help Americans crushed by unaffordable debt. I'd love to talk to you about how you're tackling these two missions.

Jorge Newbery: Sure. They're very interrelated. I'll go back a little bit in history, about 15 years ago; 15 years ago, next month, was a day that kind of changed my life. At the time, I owned about 4,000 apartments across the country, had a very significant net worth. A ice storm hit my largest holding on Christmas Eve 2004. That holding was 1,100 units in Columbus, Ohio. It was just devastated by this natural disaster, and it triggered this extraordinary sequence of events in which I lost everything and ended up $26 million in debt.

Eve Picker: Whoa! That's a really big number.

Jorge Newbery: Yeah. It created some extraordinary challenges, as you can imagine. As I regained- came back to life, I realized that I'd become good at one thing through that experience. I never filed bankruptcy, but instead, I was able to work with my creditors, or somehow, sometimes, go on the offensive against my creditors, in order to settle those debts at significant discounts and, in some cases, not pay them at all.

Jorge Newbery: By 2008, I realized millions of families across our country are suffering the same experience. They're at risk of losing everything. They're ending up losing their homes, losing whatever property they had, and in significant debt, and maybe my experience could be put to good use to help them. So, I started American Homeowner Preservation in 2008, and the goal was- the mission was, and still is, to keep families at risk of foreclosure in their homes.

Jorge Newbery: Originally, we were a nonprofit. We were able to get our 501(c)(3) designation from the IRS. But over time, we realized that we could be a lot more effective as a for-profit, and we started buying defaulted mortgages from banks at big discounts. Then, once we owned the mortgage, we could do whatever we wanted with it, which could include cutting principal, forgiving delinquency, and reducing payments in order to keep these families in their homes.

Eve Picker: So, the second mission ... I think you started a second company recently, right?

Jorge Newbery: I did. What would happen is, over the years, we would help a family, and they would say, "Wow, this is ..." Oftentimes, people say this is too good to be true. They owe $100,000, and the home is only worth $50,000. They hadn't paid in three years. They owed $20,000 to the bank. Here we come along, and buy the mortgage, and say, "Hey, give us $2,000. We'll forgive the delinquency, so you're up to date. Your payment was $800; now it's $500." They say, "Great!" They'd tell their friends and family, and the friends and family will call us and say, "Hey, you helped my cousin with his mortgage, my co-workers on their mortgage. Can you buy my mortgage?"

Jorge Newbery: The reality is, I can't go to Chase, or Wells, or any of the big banks, or other lenders, and say, "Hey, sell me this one mortgage." They basically decide what loans they want to sell, and I can't make special requests. Neither can anybody. So, what do we tell these people? We started giving them some tips as to what they could do to maximize the likelihood that they could stay in their home an extended period, and somebody would buy their loan at a discount and give them a more favorable deal. That eventually became a book, which is called Debt Cleanse - How to Settle Your Unaffordable Debts for Pennies on the Dollar.

Jorge Newbery: Through life, you find that, as you solve one problem, you create another. So, now, people would read the book, and they'd say, "Hey, I'm following the steps in the book ..." They'd reach out on social media, and by email, and they'd say, "I'm following the steps in the book, but I need an attorney. Do you know any attorneys who can help me?" I knew from my experience when I was in a lot of debt that a lot of attorneys ... Some attorneys can be very helpful, but a lot of attorneys aren't that helpful; don't have that much experience in being ... Outside of law school, there's a lot of things you can do if you can't afford your debts that can be used to your advantage. Most attorneys aren't familiar with the tactics. So, what do I do? What do I tell these people to do? I can't tell them just to google 'attorneys in my area.'.

Jorge Newbery: Over time, we realized that what could work here is a legal plan, where consumers struggling with their debts paid a $99 enrollment fee and $29 a month, and we'd give them access to attorneys in their area. Those attorneys, as part of the plan, agree that, "For that $29 dollars a month, I'm going to give this member half an hour of my time at no extra cost." They're going to get half an hour with their attorney every month.

Jorge Newbery: Not only that, when they first enroll, these attorneys will send letters to their creditors saying that, "This member is represented by our law firm. Please cease communication with a member and direct all future correspondence to us." That has been very effective for members at stopping the phone calls, stopping the letters, which oftentimes create a lot of anxiety, so it's a big relief when that happens.

Jorge Newbery: That's what we've done, and these attorneys ... The goal is they look for violations. It happens all the time, millions and millions of times a year, where there'd be live violations of the Fair Debt Collections Practices Act, the Fair Credit Reporting Act, TCPA, RESPA. When they can find these violations, they use those as leverage to get the debts settled at big discounts, not get paid at all and sometimes, in some cases, they'll sometimes even get the creditor to pay the member a statutory penalty, plus pay the attorney's legal fees. Most of the attorneys work on contingency, so they're not looking to get paid by the member; they're looking to get paid by the creditors.

Eve Picker: I want to go back to AHP Servicing and what you've done there. I haven't talked to you in a few years, but I know you were buying large blocks of foreclosed homes and trying to keep people in them. That was really your first goal. I'm wondering how many people you've impacted by now. How big has this become? Where does everything stand?

Jorge Newbery: I think we've bought, over the years, about 10,000 mortgages, so it's ... We bought a lot of mortgages. We've helped thousands of families stay in their homes with long-term sustainable modifications. Others, they don't want their homes. We've been able to give them cash; in exchange for the deed to the property, we forgive the debt and then, we sell the property. So, we get these vacant homes, which are oftentimes pock-marking low-, and moderate-income neighborhoods, and we get those back into service and occupied. Someone's taking care of them, paying taxes on them, and whatnot. So, between the two, one is keep the family in the home if they want to stay. Number one, that's the goal; but if not, the second thing is to help those communities by getting these vacant homes back into service.

Eve Picker: Let's talk also about how you fund this, because that's how you and I [crosstalk] together, right? That's probably the most interesting part of the story, or very interesting.

Jorge Newbery: Yeah, that's how our paths intersected. So, in 2013, September, we were one of the first crowdfunding offerings under 506(c). Before that, we raised money initially from friends and family; then from private investors who we knew; then accredited investors only, into a hedge fund. But then we heard about crowdfunding. So, September 2013, we offered, under 506(c) ... It was still accredited investors only, but we made it more accessible. It was a $10,000 minimum, which, at the time, was pretty low. I think our first offering raised about $4.5 million or so, and we bought a considerable number of loans. I forget how many, but it was quite a few; probably close to 1,000.

Jorge Newbery: It worked. It made it more accessible. It was still accredited investors only, but it made it more accessible to a wider audience. I remember being really shocked, early on, when people would go online, go through the process, make an investment, and we had never talked to them. I was really astounded by that, because previously, as a hedge fund, we had to talk to people, and explain things, and send out these private placement memorandums that were numbered. So, it really was- seemed to be a lot ... It was just a lot more streamlined.

Jorge Newbery: What was exciting is we did two more 506(c) offerings. All went well, but then, when we heard about Regulation A+, because now it was crowdfunding, but we could accept investments from both accredited investors and non-accredited investors. For me, that was exciting because it really ... We had homeowners, at times, who we helped them out of their predicament, and they'd say, "Hey, I have some extra money I'd like to invest, or my friend, or family member would." I can't tell you how many times we had to tell people, "We'd love to have you participate, but you can't. You're not worth enough, or you don't earn enough, so we can't accept your investment." It seemed [crosstalk]

Eve Picker: -you're part of the 97 percent of the population that's not permitted to invest, right?

Jorge Newbery: Exactly! It didn't feel right. So, when I heard about Regulation A+ [inaudible] accredited investors- I mean, non-accredited investors can invest, that was exciting. We were one of the first Regulation A+ offerings in 2016, and to make it as accessible as possible to anyone, we made our minimum investment $100, which I think is still amongst the lowest, if not the lowest of the major ones.

Eve Picker: Be sure to go to EvePicker.com and sign up for my free educational newsletter about impact real estate investing. You'll be among the first to hear about new projects you can invest in. That's EvePicker.com. Thanks so much.

Eve Picker: I think it's probably the lowest, although there's some pretty low ones in Reg CF, but it's pretty low.

Jorge Newbery: Yeah, it's pretty low. People will say, "Why are you doing that? You don't need to be that low!" The reality is, we don't need to be that low, but it did make it ... People would- it caught people ... It was almost a marketing strategy, but we've kept it because many people have started out with $100, just saying, "Well, what is this? It looks curious. Oh, it's only $100. I'll try it."

Eve Picker: Yes.

Jorge Newbery: Now, though, now they're an investor with us; they get our emails; they see that they get the returns; and they keep up with our news. Then, over time, they increase- the vast majority increase their investments and then, they tell their friends and family. So, definitely, the $100, I think, is a winner. I think we'll do it forever. It's a great way to start a relationship, and that's grown.

Jorge Newbery: Now, our first Reg A fund, we raised $40 million and now, we're working on our second. Our goal probably would be to get to around $65 million. Then, our third fund, which'll come out sometime in 2020, we expect- our goal is to do the full $100 million. Regulation A+, we actually now realize that vision of having homeowners who we helped out of their predicament and now, they've turned around and been investors, and I think that's just- it just feels right-

Eve Picker: That's pretty fabulous.

Jorge Newbery: It is. Socially, it seems right, and it feels good. That's along with a lot of other ... We have a lot of accredited investors that participate, but alongside the non-accredited. We've had people invest very substantial sums, several hundred thousand dollars at a time, and they've asked, "Hey, can I get a better deal, or can I get a little bit extra, or something like that?" We always say no. Again, it plays to kind of the-

Eve Picker: Because everyone's money is the same, right?

Jorge Newbery: It is. Exactly-

Eve Picker: It's a great democratization of investment.

Jorge Newbery: It truly is. The person who puts in $100 and the person who puts in $600, they're getting the exact same terms, and I'm talking $600,000 ... It's fair, it's transparent, and that's the way things should be. I know, in Wall Street, it often isn't the case, so it feels good.

Eve Picker: Yeah. While you've been helping people save their homes and taking people's money to make that happen, how much have you been returning to investors?

Jorge Newbery: I'll tell you what we did in our first fund, because it's kind of a ... You'll see the progression. In our very first 506(c) offering, we said, "Hey, if you invest your money for five years, you earn 12 percent. If you invest your money for two years, you earn roughly 10 percent. If you invest your money for one year, you earn nine percent." That was our first offering, and that's what we did. Then, in our first Regulation A+ offering, we said, "Let's make this simpler. Let's just pay everybody 12 percent, but if they need the money early on, they can ask us for it, and we'll undertake our best efforts to return the money. If they need it back ..." I think we did ... Currently, if they needed it back early, then they'd get a slightly reduced return.

Jorge Newbery: That's evolved into today's fund, where we pay- the first 10 percent of what we earn, that's what we pay to investors. Anything over that is what we keep, and-.

Eve Picker: So, that's pretty motivating for you.

Jorge Newbery: Yeah, it's very motivating to hit big targets. Again, there's a tension between you want to make money, but you also want to deliver a very favorable resolution to the homeowners. We make everything formulaic, so I think our returns don't come from ... They come from creating efficiencies in resolving these, and speed/urgency in resolving these, and trying to minimize legal fees, and other expenses in getting these resolved. When we do that, that's when we generate the big returns.

Eve Picker: Wow! That's quite a story. So, by the time you've raised all three funds, how many mortgages will you have purchased?

Jorge Newbery: That's a good question. Right now, I think we're right around 10,000. I think we will certainly ... If we do all three funds, it should hit 30,000-plus. Of the current funds- I mean, in future funds, and our current fund, our AHP Servicing Fund, we can buy mortgage-servicing rights. We haven't done that yet, partially because we're still waiting on getting our government approval for our service. We did get, recently, approval from the Veteran's Administration to service VA loans. We're working on getting our FHA, Fannie Mae, and Freddie Mac approvals.

Jorge Newbery: Once we have those, we can buy mortgage-servicing rights, which actually, we'd spend a lot less money per loan, for the ability to service that loan. But then, we can service it with our homeowner-friendly strategies, which will, I think, touch a lot more homeowners, so we will ... Actually, the amount of loans that we will own, or service will expand- it could be much, much more than that. I don't have a number yet, but I think, as we start seeing- buying those rights, and then, also, we're servicing now for third parties, so other people that own mortgages that-

Eve Picker: Oh, really?

Jorge Newbery: Yeah. We see that as another way we can impact a lot of homeowners and do what we've been doing, but for other people who own mortgages and are also kind of ... See, it's funny, and I think you may have experienced this in your undertakings, as well. Oftentimes, people interpret socially responsible, or social impact as meaning, "Okay, I get the benefit of doing something good for society, but I have to take a lower financial return." I think, at least in our business, we've demonstrated that you can actually achieve both a solid, oftentimes above-market financial return, and you're also doing the right thing. They're not mutually exclusive. I think other investors now see that, that own these loans, and we can help them in their interactions with the homeowners if they service with us.

Eve Picker: So, then, do you believe that most of your investors are investing because they're making an impact or because of your solid returns?

Jorge Newbery: That's a really good question. I think it's a mix. There's definitely people who are attracted by the financial returns, but there's others who are investing ... The draw is the social impact. Since we've been able to marry the two, I think it's been a ... They don't have to compromise their ... I think, so many times, social impact investors feel the need, upon occasion, to compromise their financial returns because it has a good result. That's certainly understandable, but when you can deliver both, I think that makes it very compelling.

Eve Picker: That's pretty fabulous. Going back to the beginning of this story, I'm just wondering if you could have built this business with bank loans instead of crowdfunding investment?

Jorge Newbery: I don't think so. We're still doing it. I think we qualified for some ... We financed. We've done some financing here and there. Usually it's only for a short term, like we committed to a deal that's bigger than we have- that we're raising capital, and we need to close it by year end, or month end, or something like that-

Eve Picker: A bridge loan, right?

Jorge Newbery: Yeah. We'll borrow, but it hasn't been for long periods yet. Over time ... We've talked to Wall Street investors, or I should say not ... Wall Street institutional potential partners and, for this space, for non-performing loans, they're most interested when the scale is bigger, and we're talking $100 million. We're just not there yet. Over time, I think we will have more institutional capital in here, and we blend that with the equity that we've-

Eve Picker: But Jorge, by then, maybe you'll have such a big crowd of investors, you still won't need them.

Jorge Newbery: Ha. Maybe. We'll see. I guess the attraction is we can get institutional money. Sometimes, you can get it at even lower returns than what we're paying our investors. So, maybe ... It'll make us more competitive on some of the larger transactions, but you're right.

Eve Picker: Yeah, yeah. That's what I hope for. Going back even further, you had this portfolio that was hit by an ice storm, but what's your background? What got you into all of this?

Jorge Newbery: I started as a loan officer almost ... In 1990, so, a long time ago, my first job was answering phones for a loan originator, and I had- that was my first exposure to real estate. Before that, I raced bicycles, and I had a GED, so my options were limited ... I was 25, and my main source of revenue was bike racing, so I needed to get a real job. One of my teammate's girlfriends helped me get the job at the loan company, and that was kind of the start.

Jorge Newbery: A couple years later, I started my own mortgage company, and then I started buying properties. It kind of evolved into buying and doing ... I'll share a strategy, though, that's been a consistent, as I've learned, and it's still what we do today. I always buy what other people don't want. When I first started in real estate, we would do loans that other people wouldn't make. Then, I started buying properties that others didn't want. These would be mostly because they were in less desirable areas, neighborhoods; maybe challenged properties that were maybe the target of- had been vandalized or were a blight on the community.

Jorge Newbery: I found that you could achieve a good social impact, when you remedied whatever the problems were, and you could also make money doing it, and that was rewarding to me. I always like a challenge ... The bigger the challenge, some people say, "Oh, this can't be done," and it's kind of like, "Okay, well, I've got to prove them wrong." Even today, Wall Street does not like to buy the loans that we like to buy, which is those secure- in low-, to moderate-income neighborhoods. Our average home value that we buy is $40-some-000, and that's just Wall Street ... They'll say, "Hey, congratulations, Jorge, you just made $6,000 on that deal." It doesn't mean anything to them, but for us, we make $6,000 on 100 loans or 1,000 loans, and it's like, wait, now we have a business. We buy what others don't want, and that's, I think, where there's some success.

Jorge Newbery: Today, we're working on a deal right now to buy the debt on three churches. These are three churches in kind of low- serving low-, to moderate-income neighborhoods. It's another opportunity for us to buy the debt. No one wants to foreclose on a church, including us, so our goal will be to make those loans affordable for the churches so they can continue operating. 90-percent-plus of what we buy is loans secured by homes, but when we see these opportunities ... No one wants to buy that stuff, so we'll buy it. We'll buy it at a substantial discount, and we can add value by working directly with the church to get the loans back on track.

Eve Picker: I think, as I'm listening to you, I'm realizing this is like ... I've been talking to a lot of different people about different ploys around how to fix the affordable housing crisis. This is such an effective one because it's keeping affordable housing; actually making it more affordable for people who really need it without actually building anything. Pretty dramatic impact, I would say.

Jorge Newbery: Yeah, the housing is there; it's just making it affordable and keeping people in it. So many people in the last housing boom, you know, in the early 2000s, took out big loans. Then, when the values crashed ... Unfortunately, these neighborhoods have not recovered. To a large extent, whereas the rest of the country has recovered, the only segment of the market where values have continued to deteriorate is those secured- those mortgages, or those homes whose values are $50,000 and less.

Jorge Newbery: There's a number of reasons for it. A primary one is Dodd-Frank. Dodd-Frank was a well-intentioned bill, but it really strangled new-mortgage capital from going into these neighborhoods, which basically, they made they made some very tight constraints on what could be charged to originate a loan in these neighborhoods, or everywhere. But, when you get a loan of $50,000 and you can only charge five percent, and that includes a lot of the fixed costs, it's just no loan agent, no mortgage company [crosstalk] No one wants to do it. You're working for very little, so why not spend your time on a higher-value mortgage?

Jorge Newbery: That's made it so that most of the properties that are sold in these lower-value neighborhoods get sold for cash. Most owner-occupants don't have cash, so then, you end up being sold to investors who rent them out and then, it's majority rentals. Then, the banks ... A lot of mortgage holders say, "Hey, it's not even worth it to foreclose," and then you have all these homes that are sitting there with $100,000 mortgages that are vacant, getting vandalized, and deteriorated, and are now only worth $10,000 or $20,000, which eventually, they get foreclosed on; they get sold to investors. It's really left behind a whole segment of our population, at least real estate-wise, and, I think, a driver in the widening wealth and income gaps in our country.

Eve Picker: So, in the work that you do, you're working in neighborhoods where people must be pretty angry. I'm wondering what sort of community engagement tools work for you?

Jorge Newbery: You know, we have a very simple one, which we started in ... Eight years ago. Especially at this point, so many of these ... To your point, so many families who are struggling in these neighborhoods have already had overtures from Bank of America, Chase; whoever has owned their mortgage before us. They've said, "Oh, we could do a modification. We can do this. We can do that." Then, when they go through the process, they're oftentimes left disappointed. Bank of America will want the last year's tax returns, bank statements, paycheck stubs [crosstalk] all this stuff. Sometimes, people are working, you know, doing babysitting, or helping ... Their income is untraditional, in some cases. That goes for all segments of society, but for some of these families, where, "Hey, I run daycare," but, "Oh, we need your daycare license." "Well, I take care of friends' and family's kids ..." There's things- they just don't qualify, and there's no real ...

Jorge Newbery: With these families, now they come to us, and they explain what the situation is. It makes sense to us, and we do it. It's not like- we're not bound by some criteria that a lot of the big banks are, and I think that's given us a big advantage. But to reach them ... Now, we own their mortgage, so, of course, they're thinking we're the bad guy. But we send a letter - one-page letter - that says, "We just bought your mortgage. Great news. Here are three options. If you want to stay in your home, we will accept $2,000 to satisfy your delinquency," which oftentimes is $20,000 or $30,000. "You pay us $2,000, you're completely up to date. Your existing mortgage payment is, for instance, $800. We will drop it to $500." That's option number one. That's a modification.

Jorge Newbery: Number two, "If you don't want to stay in your home, or you've already moved out, we will pay you $1,000, and you sign a deed in lieu to us, and we'll forgive the rest of the mortgage." The third option is, "If you want to settle your loan for a lump sum, then we will accept this amount," and we give them the actual amount. So, let's say they owe $100,000; the property's worth $50,000, and we bought the loan for $20,000 or $25,000. We'll probably say we'll settle it for $45,000.

Jorge Newbery: Those are the three options. It's very simple. If you call, and you say, "I want to do any of these options," we're bound to it. We're going to take it. We have people ... It's so simple. We're not asking for tax returns, bank statements, any of that kind of stuff. People literally call in and say, "Yeah, I got your letter. I want to do option number two." They've already decided that this is [crosstalk]

Eve Picker: I would've thought you'd need someone answering the phone to questions, like, "Is this for real?"

Jorge Newbery: Yeah, well, that ... After, we get over that ... Sometimes, then, we do get those questions, definitely. "Is this for real? Is this a scam?" We get all those questions. [inaudible] we have to give them the assignment that we got from their lender, but oftentimes, we would direct them online. They can Google us and see that we're really who we say we are. Yeah, it works ... I mean, it's so simple, and it's funny, we've been doing this for years, and no one else is still ... I thought, "Oh, this is our secret sauce. Someone else is going to steal it," but no one's stolen it ... They're all so rigid, the other lenders, and they're set in their ways. It's amazing that this is such a ... You can simplify things. I imagine it'll work for all stratas. We primarily do loans in low-, to moderate-income neighborhoods. That's what we buy in those neighborhoods, but in higher-income neighborhoods, I imagine they would also appreciate the simplicity, but still, everybody else still does it ... "We want tax returns, bank statements, all that stuff." That's just- it's a hassle. It's like a big block [crosstalk]

Eve Picker: It's a lot of work-

Jorge Newbery: It is.

Eve Picker: I mean, if someone's got two or three jobs to make ends meet, they're just not going to get it together-.

Jorge Newbery: Exactly.

Eve Picker: Yeah. I can barely get it together.

Jorge Newbery: I know! Whenever somebody asks for my tax ... It's not that tough to get it, but it's like, "Aww, okay, let me dig them out." Then you send them, and then, "Oh, I want a paycheck stub," and then you want this and that ... It's crazy. The banks will actually ask these families who've been struggling, they'll say, "Oh, we need a hardship letter to say why you fell behind on your mortgage." Then, it's like you're getting graded on this thing. Just, just ... They're behind. I mean, they lost their job; there was a divorce; a death in the family; an unexpected medical expense; any of these reasons. But does it really matter? They're behind ... People don't fall behind. No one wants that. Everyone wants to pay their bills, and be on time, and not have- to go on and focus on other parts of their lives. They don't want to fall behind, so you don't have to shame them. I feel like some of the banks almost ... The process they go through, it's almost like they shame them for falling behind. It wasn't something people wanted to do.

Eve Picker: Yeah. Wow! So, you found this little corner here; actually, a really big corner. What's next? I'm sure you're ... I've gotta believe you're thinking about other things.

Jorge Newbery: Two years ago, we started our AHP Servicing, and it actually went operational just over a year ago. Now, we service our own loans. That's new. We always used to have to rely on a servicer. We're doing a couple of things now that ... That's, I think, our big step forward. What we want to do is to get government approval to service government-backed loans. That's a market that we haven't had too much exposure to, but we think we could do a lot of good. A lot of people, the VA and FHA loans, for instance, are oftentimes in our target neighborhoods, and they're struggling, so we think we can help a lot of these families once we have those designations.

Eve Picker: Is that hard to get that approval?

Jorge Newbery: It's a little bit of work. It feels like applying for a modification at a bank. No offense to FHA and VA, but it does. They're asking for all these documents; these explanations ... We're getting through it. We got VA done, and now, we're working on FHA. But, yeah, it is a lot of work. I guess it's, they want to know who you are. They want to make sure you have all your licenses, and all your credentials, and all your bonds, and everything like that - everything lined up. So, totally understandable, but it does ... It's not the funnest process.

Eve Picker: Okay, well, I'm going to go back to big picture a little bit and just to ask you, where do you think the future of real estate impact investing lies?

Jorge Newbery: Well, I know where the need is, so I guess the future will lie in solving the need. But, as you and I have talked before, housing is as unaffordable for a huge chunk of America, and that has to ... We have to remedy that. I don't know if ... There's all kinds of remedies for that, but that needs to be fixed, and we can't ... In these low-, to moderate-income neighborhoods, and I can think of locally- I'm in Chicago, so South Side Chicago, West Side Chicago, there's definitely some of those communities in those areas need help; and East Cleveland needs help.

Jorge Newbery: There's homes out there selling for $20,000, which seems ... Well, that could be affordable. If someone had a mortgage on a $20,000 home, that payment's going to be a couple hundred dollars or something like that; very, very affordable. But no one's providing financing for those loans. Then, investors come in. They buy them, they do a little fix up, and they rent them out. That's not rebuilding the community. It's helpful that somebody is at least occupying the home, but it would be nice if you'd get more homeowners into, through financing, to stay, and move into, and own homes in these lower-income neighborhoods. That has to happen. It can't stay as is. It's just going to get worse.

Jorge Newbery: This is what happens right now is somebody who decides, "I want to buy a home," and they go to a loan officer; "Hey, I want to buy this $40,000 home." The loan officers say, "I just can't finance it. Why don't you buy a home that's maybe $80,000 in this slightly more expensive neighborhood, and we can finance that?" Then, the people that can buy homes, now they're buying homes in the slightly more expensive neighborhoods, and these really affordable neighborhoods are just getting more and more abandoned. That has to stop.

Jorge Newbery: We're doing what we can because we're buying a lot ... A lot of our loans are secured by homes in those areas. But there needs to be a solution to that - the inability, or unwillingness, or really the legislation that created the inability for, or the undesirability for lenders to loan in low-, to moderate-income neighborhoods. It's almost redlining, except, it isn't redlining. It's just, "Hey, we don't make any money doing it, so we're not going to do it." I guess it's hard to argue with that, but that has to change.

Eve Picker: Interesting. Yeah, it does have to change. That's really interesting. I wonder if you could do a huge Reg A raise and simply provide mortgages-

Jorge Newbery: Believe me, it's crossed my mind. I mean, the thing is, we have to ... We'd have to do a Reg A that would be ... Then, you want to provide the rate; you want to provide really affordable rates, or at least market rates - five percent or something like that. So, you'd have to pay the investors-

Eve Picker: Less. I've thought about this-

Jorge Newbery: Yes, and that becomes less desirable.

Eve Picker: I've thought about this a lot too, because we see on Small Change, a lot of people coming to us with new, larger affordable housing projects. Of course, to keep them affordable means that they're subsidized and that they really can't provide much in the way of return. I've thought a lot about who's out there who would invest in that? There would have to be people who invest in that. The interesting thing to me was the little project L.A. Bungalow Gardens that was on our site, which is only eight- actually eight units for formerly homeless people, raised money faster than anything else on our site did. I'm pretty sure it wasn't because of the return. So, someone has to have the guts to test it.

Jorge Newbery: Yeah. Out of curiosity, what was the return?

Eve Picker: They actually offered nine percent, which was very nice [crosstalk]

Jorge Newbery: Yeah, that is-

Eve Picker: -because they're keeping it ... The asset value is not going to increase. It is going to be set as affordable housing for the next 15 years. So, it's really- its preferred return is almost like an interest on debt. You and I should talk about this offline.

Jorge Newbery: Yeah, agreed. It's a problem that needs to be solved ... I guess that would test the willingness for ... You're going to pull out the ... The investors who are investing in some of these crowdfunding opportunities that both of us are involved in, purely for the financial returns, would probably fall to the wayside. So, it's going to really test the ones that are really socially driven and are willing to take a reduced financial return. Can that be done on that scale? I don't know.

Eve Picker: Yeah, and that's going ... Someone has to test that, and ... Let's talk.

Jorge Newbery: Yeah ... Think about that. Just [inaudible] gives us an interesting challenge. If you did a Regulation A+, it's going to $75,000 in legal fees, and accounting to get there. Then, you go to market, and oops ... I go into market at three percent and it just wasn't- the market wasn't there. That would be challenging. So, I don't know. It would be nice to do it on- test on a small scale and see [crosstalk]

Eve Picker: Isn't there an attorney out there who's listening who would do this pro bono for us? [crosstalk]

Jorge Newbery: Maybe. Let's hope so.

Eve Picker: -there's enough who would help us do this offering pro bono, and then we could all take a deferred payment later, when we're successful.

Jorge Newbery: That may be the case, or maybe that's necessary.

Eve Picker: I've got a platform.

Jorge Newbery: Yeah, exactly.

Eve Picker: Let's talk about it.

Jorge Newbery: Yeah, absolutely. It's an interesting ... Certainly, any of your listenership if you have ideas, contact Eve!

Eve Picker: Yeah. So, now, I'm completely derailed ... I do have a couple of wrap-up questions for you and then, and then we'll all wrap up. What do you think is the key factor that makes a real estate project impactful just to you?

Jorge Newbery: Has to solve a real problem and a real need. I think that's the key factor. In any business, in any undertaking, it needs to be a real problem that you're solving, and there's plenty of problems in this country to solve.

Eve Picker: Okay, and the second question, because I ask everyone these three questions, is how can involving investors through crowdfunding benefit a real estate developer beyond just raising money for them?

Jorge Newbery: You get a lot of people rooting for you that now have a financial interest. So, now, they want to see you perform. They want to see you succeed. It's not just you, or you, and your bank, or you, and your one big investor. Now, there's a whole crowd saying, "I want Small Change to win. I want this project to win. I want this project that I invested $500 hours in that's helping the homeless in L.A. that you mentioned, I want that project to win." You have a lot of community members and just people that are out there cheering for you ... They've done it with their money, but they're out there on the sidelines rooting for you. I think that's helpful. Certainly, if you were to ask investors ... Our investors will sometimes volunteer, "Hey, what about this? What about that? Have you thought about this?" They're doing that ... Some of them would probably do it just because they want to be helpful, but because they have a vested interest in your success, I think you get more of that.

Eve Picker: Yes. Finally, if there was one thing that you would improve about real estate in the U.S., what would that be?

Jorge Newbery: We touched on it - the affordability for the every man, and especially those that are of modest means. That has to change. I drive through ... I was in Austin a few weeks ago; a massive number of homeless. I think it has the third largest homeless population in the country.

Eve Picker: Oh, really?

Jorge Newbery: Austin, L.A., San Francisco. Chicago, for that matter. It's really cold right now, so, if I were homeless, I'd have probably migrated out of Chicago because it's just so cold sometimes, but .... Some of those, Texas, California ... I'm sure it's everywhere, but that ... To be as powerful and wealthy of a nation as we are and have so many people on the fringes who are not surviving, that's not ... I don't look at it as their fault. I think that's our fault. That's society's fault. We need to build a better society so that doesn't happen.

Eve Picker: Yes, I agree. So, on that note, we're going to say goodbye and thank you very much for joining me.

Jorge Newbery: Thanks, Eve.

Eve Picker: That was Jorge Newbery. If anyone else is trying to recover from a $26 million loss, they'll likely get a few pointers from Jorge. He did not file for bankruptcy when financial disaster struck. Instead, he painstakingly worked his way through resolving his debt. Then, he rebuilt his life on what he learned. To date, 10,000 homeowners have benefited from Jorge's life lessons and his good heart.

You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Jorge, for sharing your thoughts with us. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Sadie McKeown, executive VP, and chief operating officer of CPC, the Community Preservation Organization. There, she oversees the company's construction, lending, and sustainability initiatives, and she also oversees the operation of its regional field offices located throughout New York State. Finally, she leads CPC's Agency Lending subsidiary, a full-service operation focusing on Freddie Mac, Fannie Mae, and FHA lending products.

Eve Picker: Sadie has been involved in community development for over 25 years. It's rare to meet someone who still loves their job and the company they work for after all that time, but Sadie does. No one understands the dynamics of community and the role that leadership and politics plays in whether a community thrives or dies better than Sadie.

Eve Picker: Be sure to go to EvePicker.com to find out more about Sadie on the Show Notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Sadie, thanks for joining me today. You and I had started a conversation a few weeks back that was really pretty fascinating - the politics of community development. I'd love to explore that with you today. How much impact does politics have on whether a community thrives or not? First, just a little bit of background. How are you today?

Sadie McKeown: I'm doing well, thank you. Thanks very much for having me on your podcast. It's my first.

Eve Picker: It's a pleasure. I read that you've worked for Community Preservation Corporation, CPC, for quite a while now, so you must love it there. I'm wondering if you could tell me a little bit about the nonprofit and what you work on there?

Sadie McKeown: Sure. Yeah, it's been a long time. I started at CPC back in 1991, as an intern, and I really did-

Eve Picker: Wow!

Sadie McKeown: -I really did fall in love with the company and the mission. CPC occupies a very unique space. We are a not-for-profit, but we are fully self-sustaining, so we don't take grants or government assistance. We're a construction and permanent lender for affordable multifamily housing, primarily, but we also do a lot of economic development and downtown revitalization.

Sadie McKeown: We are mostly a New York State- and City-based company, although we have a mortgage company that does lending for Freddie Mac and Fannie Mae on a national basis, as well as FHA. But today, I'll focus on our community development and the construction lending that we do. We started in New York City in 1974, at a time when the Bronx was burning and there was a tremendous amount of disinvestment in neighborhoods in New York City. Manufacturing jobs were leaving, there was white flight to the suburbs, and a lot of neighborhoods in New York fell on hard times.

Sadie McKeown: CPC was created by David Rockefeller, when he was the chair of Chase Manhattan Bank at the time [crosstalk]

Eve Picker: Really? I didn't know that. That's really interesting, yeah.

Sadie McKeown: Yeah, he got together with some of the other commercial bankers in the city and said, "We have to do something about this crisis and really stem the tide of disinvestment and abandonment in New York City." So, CPC was created. We started pretty small. Within a couple of stable neighborhoods, we were successful. Then, Mayor Koch came in and started the Ten Year Housing Plan, and CPC was pulled up to the next level to do a lot of vacant building construction, renovation, and permanent financing.

Sadie McKeown: The way it worked was that the banks would come together and make the construction loans on a pari-passu risk-sharing basis, and they would also forward-commit a 30-year permanent loan to take out those construction loans when the projects were completed and fully leased. It was great, and we started in Harlem, and the South Bronx, and Bedford-Stuy, and neighborhoods that really needed a tremendous amount of investment.

Sadie McKeown: It was decided that more was required to get at the scale of the need, so we worked in partnership with New York City, utilizing their tax-subsidy programs, their vacant building stock, and their subsidies, in conjunction with our first mortgages, to do the construction piece. Then, we went to the New York City and, eventually, state pension funds, and they agreed to buy our 30-year fixed-rate permanent loans because they were insured by the State of New York Mortgage Agency.

Sadie McKeown: So, we created this very special product back in the late '70s that has served the State of New York and the City of New York very well, because it's provided certainty in the financing world with a 30-year fixed-rate non-recourse loan with a forward-committed interest rate. We took a lot of the risk out of real estate, which was necessary - I should say the risk of real estate construction financing - which was necessary because we were in what banks would consider to be the riskiest neighborhoods; lots of vacant buildings, low rents, uncertain demand. We did that in partnership with subsidy programs in New York City, primarily, but then, we expanded to Upstate New York with all of the different municipalities across the state.

Sadie McKeown: We know community development on a large scale. We also know it on a really small scale because some of the municipalities we work in, outside of New York City, are pretty small. So, we have a pretty special lens, where we really go in, and meet with municipalities, and we talk to them about what their housing priorities are. We look at what they have in their housing stock and what they might need. You can imagine, it's Upstate New York, and New York City; there's a lot of historic buildings. There's a lot of old manufacturing buildings.

Sadie McKeown: We get to do a lot of really cool deals that preserve what was there a hundred years ago and bring it back as something new. We preserve the cosmetics of it, and the place of it, but we get to interject financing to make it something new - housing, offices, retail; the whole concept of live, work, and play in downtown, and transit-oriented developments. We've gotten to invest in a lot of communities that are focused on that. Like I said, it's a very unique company, CPC, because we're not a bank; we're not regulated the way banks are, so we have more flexibility; we're more nimble. We partner with government, but we're not burdened in the same way the government is burdened, and I don't mean-

Eve Picker: Sounds fabulous [crosstalk]

Sadie McKeown: Yeah, it's really cool.

Eve Picker: What's the most fascinating part of your job for you?

Sadie McKeown: I guess the most fascinating part of the job is when you go to a place, or you go to a project that a developer wants to do and it's a vacant building, or it's a distressed neighborhood, most people would only see the negative, and they wouldn't want to be in that place. I remember, early on, with my clipboard, as a loan officer at CPC, I would be on some of the worst blocks in the neighborhoods that we were making loans in, thinking every other person I know in my life would get in their car and drive away as fast as they possibly can.

Eve Picker: That's true. I love those places.

Sadie McKeown: Yeah, me, too, and yet, there I was waiting for an opportunity to make a difference, to create change. Lots of times, what CPC does is we're first in with our capital, and we create excitement with the first two, or three, or four projects. Then, all of a sudden, there's projects going up that we're not financing because other investment is coming in, so I think-

Eve Picker: So, your investments are really much more than an investment into a project. They're an investment into a community so that other developers feel more comfortable following, right?

Sadie McKeown: Absolutely. That's one of our big priorities is to create an investment environment, which will attract other capital, both equity capital, as well as other debt capital [crosstalk]

Eve Picker: That's really, really tough to do.

Sadie McKeown: It is tough to do, but that- I think that's my favorite part of the job is when you get to that point, and you start to see other investment coming in, you know you've been successful [crosstalk]

Eve Picker: What's your biggest success story?

Sadie McKeown: So, I mean, New York City is a huge success story for CPC, but it's too big for us to claim, so I'm going to go-

Eve Picker: I would just claim it!

Sadie McKeown: -I'm going to go further north along the Hudson River and talk about a small city called Beacon. Beacon, New York is a population of probably about 20,000. It's a former industrial city right on the Hudson River, which thrived before the Newburgh-Beacon Bridge, before cars. It had a lot of manufacturing, and there was a lot of boat traffic up and down the river. Beautiful, historic buildings; a really interesting, long Main Street and interesting downtown; just a really neat place.

Sadie McKeown: When CPC started making loans there at the end of- in the beginning of the 1990s - '89, '90, '91 - it was all vacant buildings, prostitution, drugs. It was not a place that you wanted to be, and-

Eve Picker: Isn't this where Pete Seeger lived?

Sadie McKeown: Yes, in the Hudson Valley. Pete Seeger lived up that way, absolutely. So, the mayor at the time - and this goes to your point about politics and community development - was really focused ... Her name was Clara Lou Gould. She was really focused on trying to transform the downtown, and the Main Street, and bring it back because what often happens to Main Streets that don't come back - this is going back to urban renewal - sometimes, you can lose the history because you just get rid of the- you erase the problem by demolishing buildings, and you start over because you think that might be the best way forward. It's certainly one way forward, and you can do lots of interesting, and new, and exciting things, but in cities like Beacon, you want to be able to preserve that history because the buildings, themselves, are beautiful.

Sadie McKeown: We literally would go door to door, knocking on the doors, and these were all small multifamily buildings, two or three apartments above a store; figure out who owned the buildings, in partnership with the City of Beacon, because they knew who owned these buildings, as well, and we would sit the people down and say, "Okay, you can borrow money from CPC. We'll get money from Duchess County. We'll get money from the Federal Home Loan Bank, from the local utility company, and City of Beacon will give us a grant." We married together all of these subsidies, and we were able to do about 25 different projects in the concentrated Main Street area.

Eve Picker: Oh, that's a lot!

Eve Picker: Well, it's actually a pretty long Main Street, but it's a small town.

Sadie McKeown: Yes, and all of the buildings, themselves, were really small. What we would do, uniquely there, that other banks wouldn't do is actually finance four units above a store that would take three, or four years to complete. We didn't make any money, as an organization, but because we're mission-driven, it didn't matter. CPC always does a blend of different types of deals, and we service all the loans that we underwrite and close, so that we're making money in other places, which allows us to go in and concentrate investment in places like Beacon.

Sadie McKeown: Over 10 years, we provided about $5 million of private financing from CPC in these different projects; very small average loan size, like $200,000 or $300,000. Then, another $3 million was leveraged in all different sources of public subsidy. We did about 32 storefronts with that $5 million, and about 120 apartments [crosstalk]

Eve Picker: -that's incredibly efficient, Sadie.

Sadie McKeown: Well, it didn't feel efficient at the time, but what happened was we created ... There were some pioneers. I want to give credit to Ron, and Ronnie Beth Sauers, who were a couple that lived up there and were the pioneers that did the first couple of deals. We started to create a buzz, and people started to come to Beacon because it's a beautiful place, and the Metro-North train from New York City stops there.

All of a sudden, people were coming in and buying up the other vacant buildings. Then, there were a lot of artists there. Then Dia:Beacon opened. Dia:Beacon is a large modern art museum that was put into a vacant warehouse down by the river. It's just fabulous. It's a fabulous, fabulous art museum. It attracted a lot of attention, and more, and more people came.

Sadie McKeown: We started in the early '90s; by 2004, or '05, say, we stopped making loans there because other banks were there. We were successful. We kind of worked ourselves out of a job. We still do some financing [crosstalk]

Eve Picker: That's pretty fabulous.

Sadie McKeown: -but we brought back a lot of other capital. Now, I hadn't been to Beacon, in Beacon, for eight years. My husband and I went for a hike across the river, and we were on our way back. I said, "Let's drive through Beacon. I hear great things, and I want to see it." When we parked the car and walked from one end of Main Street to the other, I was absolutely stunned at the activity, and the stores, and the restaurants, and the people. I literally had the chills because but for that initial capital that we took the risk investing there, it may not have happened, or it may have taken a lot longer to happen. So, that was a wonderful story for us.

Eve Picker: That is a wonderful story. You know I'm very fond of Newburgh; fond, and sad about Newburgh, which is across the river, which has enormous potential and is full of very beautiful, beautiful buildings; architecturally significant buildings. But that, in the same period of time, hasn't had the same story, has it?

Sadie McKeown: No, it hasn't. When CPC opened its Hudson Valley office in 1989 or '90, we decided to target cities because it's easier to target than to just spray small loans all over the place. We targeted Beacon, Newburgh, and Poughkeepsie, in the Mid-Hudson Valley, as our three cities where we would concentrate investment. You heard my story about Beacon. Well, I spent as much time in Newburgh as I did in Beacon, but without the same results.

Sadie McKeown: There's a couple of reasons for that, that I'll talk about, but before I talk specifically about Newburgh, because I, too, love Newburgh the same way you do, and I am very much a believer in Newburgh; it's just going to take a little bit longer. But, when CPC evaluates whether or not there's investment potential in a place, we look at five criteria.

Sadie McKeown: We look at the physical infrastructure, and we say, "What are the buildings like? Are there opportunities for us to be here and invest here?" Clearly, that's the case in Newburgh. Beautiful physical infrastructure - the streets, the river. There is definitely beautiful physical infrastructure. Then we look at the social infrastructure. Is there a 'there' there? Is there a reason why people would want to go there, and live there, and eat, and dine, and play there? A little bit less so in Newburgh, but certainly the potential was there [crosstalk]

Eve Picker: Yeah, the potential's huge. I mean, Broadway is an amazing street.

Sadie McKeown: Exactly. We checked that box - social. That's great. That's awesome. Then we said, "What does the economic infrastructure look like?" In that, it started to get a little bit more challenging in Newburgh because the economics were tough. Rents are low, and taxes are high, so it's very hard to leverage a lot of private debt to make deals work. But Orange County was committed to Newburgh. They had their home funds. This was 25-30 years ago, so there was a source from the federal government to use. So, we thought we could put deals together. The tax credit program was just coming online. We had some resources to help the economics, so that was good.

Sadie McKeown: Then, you look at the development infrastructure. Are there people there that are doing development, that care about the place, and that want to see things happen? This has always been true about Newburgh. Just like you, and me, Eve, people love Newburgh [crosstalk]

Eve Picker: Yeah, no, I think that's right.

Sadie McKeown: -there's always a core of people that are trying to make things happen. So, that gave us confidence, too. Now, that core has changed over time. There was a group called the Newburgh Development Association that used to host monthly lunches. We'd all get together in a little restaurant on Broadway, and we'd talk about the challenges, whether it was facades, or parking, or infrastructure; whatever it was. I mean, we'd talk about how to resolve the [soil]. Always felt good about the development infrastructure.

Sadie McKeown: But then you always have to look at the political infrastructure of a place, because if there isn't political will to do what needs to be done, it's a really- it's very challenging. I'll go back over to Beacon for a second, and say that Clara Lou Gould was the mayor, when CPC got started in 1990, and she remained the mayor for the next 20-23 years.

Eve Picker: Wow.

Sadie McKeown: So, her agenda for revitalizing her Main Street remained her agenda for that long. The more you do something, the better you get at it, and the more you can attract attention to what you're doing, the more resources come to you. So, politically, she was a stalwart, and she wanted this, and that very thing happened. More and more people came to Beacon; more and more people wanted to invest. They had a welcoming presence in the government of the city of Beacon, led by Clara Lou Gould. It's not easy to develop in these small cities. There's a lot of things to consider [crosstalk]

Eve Picker: Right, and I would say, as an architect and urban designer, if I look at those two cities, Newburgh is by far the more interesting, in terms of its building stock, and streetscapes. Beacon is not as interesting as Newburgh. So, that political piece has been extremely important for Beacon.

Sadie McKeown: I completely agree-

Eve Picker: Well, except for the fact that there's a direct train linked to New York, and that probably is really important, too.

Sadie McKeown: I was just going to say the exact same thing. The other thing that Beacon has going for it is that the Metro-North train does stop there. As crazy as that may seem to some people, people really do get on the train in Beacon and go to New York City for work every day, even though that train ride is more than ... It's probably an hour and 10 or an hour and 20-

Eve Picker: I've done it. It's an hour and fifteen minutes, but it's lovely. You can sit, and read, and work. It's really lovely. The crazy thing is ... This is where segregation comes into play a little bit, as well. I always wonder about the bridge between those two cities and why it doesn't land in the middle of Newburgh and over to one side, instead, because it's really very close. It's just across the river.

Sadie McKeown: It's interesting. So, back to the politics of Newburgh, I think in the time that the CPC was working there, maybe there were six different mayors. So, what you have is a lack of focus on what your agenda is and a concentrated focus on staying in office or running for office. Because you don't ... Without the continuity, there's uncertainty. People that would come in with all of the greatest ideas in the world never had the same kind of certainty because there was never one strategy led by a strong leader around how to redevelop the city.

Sadie McKeown: A couple of other things, similar to the train, that I wanted to say, because it's not just politics; didn't help, the Newburgh politics, but Newburgh also is much larger, geographically, than Beacon - the downtown.

Eve Picker: Yes. It's huge.

Sadie McKeown: So, you need more to have an impact, right? So, that was a challenge. And it's where there is the largest concentration of poverty in Orange County. Beacon didn't have the largest concentration of poverty, even though it had a concentration. Poughkeepsie did. This is going to sound wrong, but there was less competition for poor people in Beacon than there is in Newburgh, where poor people tend to migrate. So, you have to address that, also. In addressing that, you can't just address that with good housing, or with storefronts, and restaurants. You have to address that with jobs, and transportation-

Eve Picker: Yes.

Sadie McKeown: -and true economic revitalization. I think that that's even harder to do than housing. Physical infrastructure; making improvements to the multifamily building; the historic, beautiful multifamily building site that's there is really important, and that's one piece. But you need to be able to provide income for the residents that are going to live there, and opportunity.

Sadie McKeown: That's so much harder to get that. It's easy to change the physical infrastructure of your place, but to change the economic environment is that much harder; and if you don't even have political leadership that can get to the low-hanging fruit of the physical change, it's really going to be hard to get to the economic change. I think Newburgh has struggled a little bit more ...

Sadie McKeown: In Beacon, you had Duchess County, which had lost IBM and lost a ton of jobs. The county was very focused on diversifying their labor force and making broad change so that they weren't relying on one entity to support them, which was IBM, before IBM left Duchess County. So, you had a county-wide effort to change, and Beacon got to participate in that.

Sadie McKeown: That wasn't the case in Orange County because Orange County didn't suffer the same economic devastation when one employer left. Newburgh didn't have anything to grab on to, or to get help with. They were sort of on their own. So, over the last 30 years, you haven't seen that much change in Newburgh, but ... There's always a 'but' when you're talking about Newburgh.

Eve Picker: Yes.

Sadie McKeown: It does feel like things are really starting to happen-

Eve Picker: Well, when you talk about employers, that has really shifted in the last five- even in the last five years. More and more people are working remotely. I run a virtual company. I have people, really, all over the world for my company. It's really quite manageable and quite enjoyable because we have the technology to be able to talk, like we're talking on Zoom, now; in many other ways ... It's very simple. So, as people move towards the remote employment, the likelihood of a more remote place being occupied goes up a little bit, right?

Sadie McKeown: I couldn't agree more. I think Newburgh is well-positioned for that kind of opportunity, because if you need to get to the city, you can go over the bridge for a meeting, once a week, or something, but you can be extraordinarily productive, remotely. There could be small hubs of WeWork spaces or Regus offices that employ people so that they can come together in collaborative spaces. You don't have to be in New York City anymore to work for a company that's located in New York City, and I think Newburgh is well-positioned for that, but [crosstalk]

Eve Picker: -that actually may be one of the things that helps the affordable housing crisis - the fact that people can work from a more affordable place is a really good thing [crosstalk]

Sadie McKeown: Absolutely, and the fact that they don't have to spend money commuting helps their affordability.

Eve Picker: That's right.

Sadie McKeown: Remote working is one part of the solution.

Eve Picker: Years ago, there was a foundation here in Pittsburgh, where I live, that tried to start a ... They actually did a survey on the civic skills of elected officials, and what they understood about placemaking, and housing, and all of these things. The scores were extremely poor. So, one wonders whether elected officials shouldn't go to some sort of school that might help them a little bit. They're elected based on personality, and charm and really may not have the right skill set to help the community.

Sadie McKeown: Yeah, I agree with that. I live in a small village, just north of New York City, on the Hudson River, south of Beacon. I feel very blessed to live in the village that I live in. We've had the same mayor for 20 years, but we have a very forward-thinking agenda in- I live in Tarrytown, New York.

Sadie McKeown: We did a comprehensive plan, where we brought in the people from the village, and we got feedback on what our priorities are. Then, instead of having that sit on the shelf, we created a comprehensive-plan-management committee to look at what came out of that plan and make sure that we followed up on it. A village like Tarrytown has a part-time mayor, and one village administrator, who has an assistant, and that's kind of it. You have your village engineer, and your administrative people, but you don't- there's not a lot of people that can really move that agenda forward.

Sadie McKeown: So, you really need volunteers. I'm a volunteer in the village, on the housing committee, and on the comp-planning committee. You really need volunteers that care about a place to come forward and participate in its development and in what it becomes. I think that politicians need to do more of that. There's also a program in Hudson Valley called the Land Use Leadership Alliance, which is run through Pace University's law school, where they bring in all of the planning and zoning people from the various towns in the Hudson Valley, once a year, for a six-, or eight-part educational series-

Eve Picker: Oh, that's great.

Sadie McKeown: -yeah, teaching them about placemaking, about zoning, about architecture, about financing, so that when they're sitting behind a table evaluating whether or not a project should be approved, or a library should be extended, or whatever it is, they have a perspective and a sense of how that impacts the whole community and what it takes to get a development done, or to raise funds for a library, or a park, or whatever it is.

Sadie McKeown: I completely agree with you, the education ... There are mayors that go through the LULA program, and there are trustees, and all of the people that make decisions at the local level participate, and they participate with each other, so there's different people from different towns. It's actually a really cool thing [crosstalk]

Eve Picker: It is very cool-

Sadie McKeown: Yeah, I've been a speaker at it, and I've sat in on a number of their sessions. It's actually a very enlightened way to bring people together in a non-threatening environment that's not political at all, where they don't care about anything other than learning how to do best for the place that they live.

Eve Picker: You're working all over New York State like this. Is this the only example like this? You said you look at five things, when you evaluate- five criteria, when you evaluate whether to work somewhere, in order to invest in a project. Of those five criteria, what most frequently lets you down?

Sadie McKeown: Well-

Eve Picker: Or is it all over the place?

Sadie McKeown: It's all over the place. It really depends. If we are in a city just outside of New York City - in the suburban ring - Lower Westchester County, you have great economics, typically great physical infrastructure, social; there's population density. What you really need there is good politics and also good development infrastructure.

Sadie McKeown: In New Rochelle, New York, which is just north of the Bronx, in Westchester County, we had the good fortune of being brought in. New Rochelle was developed- one of the first cities developed outside of New York, a hundred-plus years ago, and it was like a summer community for people that lived in Manhattan. So, it was the first Bloomingdale's outside of New York City, and the Main Street was thriving with merchants and everything else. It was really quite a wonderful city. Then, fell on hard times. The offices went to office parks in Westchester County; stores, and large stores, in particular, went to malls. Downtowns, like New Rochelle - which made no sense that they fell on hard times because of their proximity to New York City - fell on hard times.

Sadie McKeown: When we were called in to look at the financing for this Bloomingdale's building, which had been vacant for 25 years ... We were pulled in by the director of their Business Improvement District, a guy named Ralph Dibart, who we knew; he had been involved when Soho became Soho, and he had been involved in some other cities, so we knew him well.

Sadie McKeown: We came in, and we looked at the Bloomingdale's building. They couldn't get financing. We said, "Well, why can't you get financing?" They said, "Well, the banks won't do it because there are no comps." I laughed and said, "That's the best thing about this project. There are no comps in the immediate area, but there are lots of comps ..." because the woman that bought it wanted to develop loft housing. She stole a design from Chelsea, New York, and was going to do the exact same thing on Main Street, in New Rochelle. Instead of it costing, at the time - this was the early 2000s - instead of it costing $850,000, she was going to charge $225,000. From my perspective, we had great comps because everybody wants to live in Chelsea, they just can't afford to.

Eve Picker: Right.

Sadie McKeown: If you wanted to be in that style of housing, it didn't exist in New Rochelle. That was a place where our lens of turning risk on its head really made sense. She built that project. She bought the building, and built out, and sold that project in 22 months. Incredible.

Eve Picker: I did a similar thing in downtown Pittsburgh, at a time ... I built eight lofts in downtown, in a vacant building, at a time when the bank actually said to me, "Aww, honey, no one's going to live down here." I sold them all before I finished construction.

Sadie McKeown: Exactly.

Eve Picker: People really- they want something more than cookie-cutter options for how to live. They deserve more. So, yeah, it's frustrating when banks, or lending institutions don't really see those innovative opportunities.

Sadie McKeown: Agreed. What was really, really cool about New Rochelle is that was our watershed deal. That was the first one that we did that put us on the map, if you will. Then, because Ralph Dibart was there, the president of CPC, at the time, said to me, "You can do this big deal, Sadie, but look around ..." and when we looked up and down Main Street, it was really small buildings. He said, "These guys have been hanging in here, in New Rochelle, owning their buildings, keeping their businesses alive, and they're the ones that are really struggling. We have to create a program that meets everybody's needs, not just the bigger deals."

Sadie McKeown: So, working alongside of Ralph, we created a facade-improvement program. We created a technical-assistance grant program, where we could ... Because, when they zoned for Bloomingdale's, they did blanket zoning for the entire Business Improvement District; as-of-right residential above the stores. But the store owner said, "That's great, and I have my store here, and I own the building, and I have vacant office space upstairs, but I don't know what I can do with it, and I don't want to spend money to find out." So, CPC did technical-assistance grants to bring in an engineer to say, "Okay, you have X number of square feet; you can do three loft-style apartments; they'll be this big, and ..."

Sadie McKeown: Then, as the loan officer, I could say, "Okay, so the rent for those three apartments will be X, and the rent from your store is Y, so we can leverage this much money in private financing; give you a construction loan to go ahead and renovate that empty office space and turn it into beautiful lofts." That happened, and that was really cool, but it was really Ralph, and I, together, over pizza, or coffee, or Indian food, talking about what would it take to get the facades to improve, the lofts to be developed? How could we work with the smaller owners?

Sadie McKeown: What was great about Ralph was he knew who was serious and had capacity to do it, and he knew who was a little too nutty, so he kept- he protected me from the nuts, because you can get ... You can get into a deal with a nut, and it could take ... Three years later, you'd come out, and your head is spinning. Not that they're not wonderful and creative people. They're just ... Even I can't bank them. So, it was great to have ... That's that development infrastructure piece.

Sadie McKeown: That, alongside of really good politics, you end up with real good boots on the ground, which is a thing that we talk about at CPC. In order to know your neighborhoods, you've got to have boots on the ground. I spent 20 years as a loan officer at CPC. I was boots on the ground, and I walked every block in the neighborhoods that I was in, and I knew them really well. I knew who owned what, and I knew where the opportunities were and where the problems were. Having that development partner, that infrastructure, I think, was really important.

Sadie McKeown: So, New Rochelle's another success story. We've done great things in Syracuse, and Rochester, and Buffalo. Those are the larger cities, and now, we're starting to see activity in some of the smaller-tier cities, like Utica, and Binghamton, and that's really cool, too. We have a great governor that has dedicated a lot of resources to housing; has a real interest in developing Upstate New York, and economic development.

Sadie McKeown: What we do is we look at where the resources are and how we can follow the money, if you will, to make things happen in conjunction with whatever resources are available in a place. A deal came to our mortgage committee the other day in Buffalo, and it was yet another vacant former industrial building, and it was a brownfield site. I laughed, and I said to the loan officer in Buffalo, "It's follow the contamination," because it's such a great resource, and there aren't that many resources, so you have to go where there are resources-

Eve Picker: Yeah, no, that's right. That's right ... Well, anyway, it's wonderful to hear you're so excited about this job after being there for such a long time.

Sadie McKeown: Yeah. Oh, I love my job [crosstalk] very, very lucky.

Eve Picker: Very lucky, yeah. So, just talking a little bit more broadly, I'm just wondering if you think socially responsible real estate is necessary today, in today's development landscape?

Sadie McKeown: Absolutely. I think it's necessary in every day, in every year, and, to the extent that we haven't done it, we should have been doing it. We certainly should do it going forward. I'm a little curious if your definition of socially responsible real estate is similar to mine, so why don't you tell me what yours is?

Eve Picker: Well, we have a definition on Small Change, which is kind of pretty broad and a little agnostic. I think socially responsible could mean an ugly building that's converted into a business incubator for startups in an under-served building. It could equally well, also, be a net-zero passive modular house that is built on a long-vacant site in a good neighborhood that is expensive.

Eve Picker: It's not always ... I mean, I know everyone talks about affordable housing, affordable housing, but I think, for me, impact in real estate can mean a variety of things. I think it's a level of thoughtfulness, so that you just don't spend money doing a deal for the deal's sake, but you add some value to the community you're in. Does that make sense?

Sadie McKeown: Absolutely makes sense, and it is definitely very consistent with my definition. I would say, at CPC, we really do do that. As it relates to sustainability, and passive house, and net-zero, we've been pushing to try to get the first mortgage market to incorporate energy performance of a building into their underwriting, so that they're recognizing how much less expensive it is to operate those properties, so that we can leverage additional net operating income, and-

Eve Picker: That's fantastic because that's really been missing.

Sadie McKeown: Yeah, it has been missing. It's been a real battle; a labor of love. We really believe in passive-house principles, and net-zero, and decarbonization, electrification because it makes housing more affordable, it makes it more resilient in the era of climate change, and it makes it a better living environment - better tenant outcomes, more tenant comfort. It's a much healthier environment for a tenant to live in, so for all of those people-

Eve Picker: -by the same token, housing that is close to transit is also pretty meaningful in the affordability game, right?

Sadie McKeown: Definitely.

Eve Picker: If someone lives somewhere, where they're close to some sort of transit hub, and they don't have to buy a car, and they don't have to drive their car to work, that's pretty meaningful, and that should also count in that [crosstalk]

Sadie McKeown: It absolutely does, and it totally counts ... Transit-oriented development, downtown revitalization, those are all things that we also focus on. Then, we do a lot of what we call 'Big A' subsidized affordable, like bread-and-butter government-subsidized, affordable housing for very, very poor people. We do homeless housing, supportive housing. We do all of that really good, deep, deep mission-based stuff.

Sadie McKeown: That's all really wonderful, but we also do ... When we're talking about downtowns, we try to do integrated housing so that it's not just mixed with retail and office, if that's appropriate, but that the incomes are mixed. We look very broadly at housing, and how it gets built, and constructed. We're very concerned about the rising costs of constructing housing, because there's not a rising subsidy pooled [crosstalk] alongside of it to offset those rising costs.

Sadie McKeown: So, to your point about modular, we are very interested in modular approaches that drive down the cost - the hard cost of construction, shorten the amount of time it takes to build, so that you're shortening your overall development time frame, and the ability to try to build some of that passive, or net-zero, so that you're delivering boxes to the site that are really the highest quality relative to their sustainability.

Sadie McKeown: If you can do that, and you can work with a municipality to get your approvals and to create a routine program, there are ways to integrate affordability into a building with maybe just a tax abatement, and maybe if you're buying land from a municipality for a dollar. Those two things, you can integrate 30-, 40-percent affordability into a market-rate project without capital subsidy. That's something else that we're very, very focused on because there's just not a lot of capital subsidy available.

Sadie McKeown: We will work alongside of any program. I mentioned brownfield tax credits before; historic tax credits. We're doing a deal in South Carolina that has textile credits. My idea has been, [crosstalk] with the Low-Income Housing Tax Credit, we should add a boost for anybody that's going to make their building net-zero, or passive, or electrified and give them a little bit of extra credit to try to raise additional capital to make that building- to maximize its energy efficiency, its resiliency, and sustainability. We're always thinking about how to do things differently; not just doing the same thing over, and over again. I think that's consistent with your-

Eve Picker: It'd be wonderful. Are there any current trends in real estate that you think are the most important for the future of our cities?

Sadie McKeown: Well, when you look at the nexus of climate change, and the affordable housing crisis, I think that that will be a trend, depending on politics, of course. We were headed in that direction under the last administration, with President Obama, where we were in the Paris agreement. I've been to The Netherlands, where they take this very seriously. There are lots of creative ways for capitalism to go to work, making housing more affordable, and addressing climate crisis.

Sadie McKeown: I often want very much for the different departments of governments to collaborate on how to solve problems together, so the housing affordability, and sustainability, and the climate crisis really cross over. I really feel like the resources available to make housing more resilient ... Also, healthcare is another one. There's some really cool stuff happening in places like Connecticut around hospitals and healthcare providers participating in affordable housing.

Sadie McKeown: I think we're starting to see a trend, where it's not just a silo of, "We all do nine-percent tax credits, and let's just keep doing them." I think people, because of the looming affordable housing crisis, are starting to get out of the box, which I think is very exciting-

Eve Picker: Yeah, no, I agree. I think it's very exciting. Very exciting.

Sadie McKeown: One of the things that I think about all the time, people talk about infrastructure in this country, and they think roads and bridges. When I think about infrastructure, I think about money, and financing, and I think about financing being the infrastructure that underpins everything. If you can influence how things are financed, you can touch everything. You can touch every physical building in the country, because, not everyone, but the majority have financing. So, that's sort of [crosstalk]

Eve Picker: -that plays into a question I have to ask - do you think that crowdfunding has a role in that?

Sadie McKeown: I just love crowdfunding, and I love your approach, and I love your concept. I had the great privilege of listening to speak those few weeks ago [crosstalk]

Eve Picker: Oh, thank you.

Sadie McKeown: -and what I love most about the crowdfunding is that it opens the door for many, many, many more investors and people that live in places to invest in the place that they live. Right now, most people just have an opportunity to invest in their 401(k). They're not thinking about investing, so they just participate in their 401(k) at their job or whatever.

Sadie McKeown: I think people are starting to realize there's more to investing, and I think crowdfunding gives people an opportunity to participate in investing in a different way. Your platform really reaches deep into the community. When people are making a $100, or a $200, or a $2,000, or a $5,000 investment, they're not really that interested in how much money they're getting back, as if they were investing $50,000, or $100,000, or $1 million. It would be all about the economic return.

Sadie McKeown: When you drive down size of the investment, the returns are much more focused on the change that you're making with that investment in that community. That's one of the things I love about even the name of your company, Small Change, because you're putting in small change, and you're making small change, but small change, over, and over again, ends up with a huge impact-

Eve Picker: One can only hope!

Sadie McKeown: I think there's absolutely a place for crowdfunding far more broadly in this country and in real estate.

Eve Picker: Great. I'm going to ask you three sign-off questions that I ask everyone. I'm just always interested to hear what people have to say. What do you think is the key factor that makes a real estate project impactful to you?

Sadie McKeown: I think that the thing that makes a real estate project most impactful is that it made someone's life better, and there are so many people that can be impacted by one small real estate development. So, if you appropriately and responsibly renovate a building in a place, and you restore it to its historic integrity, and you put really nice apartments that have a beautiful place to live, the people that live there, particularly in neighborhoods that CPC is in, have a better place to live. They didn't have an option to live that well before, and you made their lives better.

Sadie McKeown: So many times, when we go to our ribbon-cuttings, the tenants will come to the ribbon and cry about how happy they are-

Eve Picker: Oh, that's wonderful.

Sadie McKeown: -to have such a lovely place to live affordably. So, I think their lives are impacted. But then, just the everyday lives of the people that drive by that building - they feel better. It's not vacant anymore. It's vibrant. Something's going on there. Then it happens that the next building gets invested in, and the next building. So, you really make change, and you impact- you improve people's lives. People, meaning the individuals that live there, but also people, meaning the communities that surround the real estate deals that you do.

Eve Picker: Yeah. Okay. This is a hard one, but if you were to pick one thing in real estate development in the U.S. that you'd like to see improved, what would that be?

Sadie McKeown: It is a hard one because I have so many thoughts on this. I'm going to go somewhere, which kind of sounds a little bit weird, but I'm going to go to the building code-

Eve Picker: Oh, I've heard lots of these, so it's not weird [crosstalk] thinking about building codes.

Sadie McKeown: I think that if you could change the code and make the code require the right elements of place, and housing, and resiliency, and sustainability, and address ... You can address so many things through the building code. I was in in Pennsylvania - Pennsylvania Housing Finance Authority - a couple weeks ago, talking to them about their passive-house initiatives and all the cool things that they're doing. One of the people said that Pennsylvania didn't have a building code 20-25 years ago, and that was really shocking to me [crosstalk]

Eve Picker: No, they did. They [crosstalk]

Sadie McKeown: -not a state code that impacted [crosstalk]

Eve Picker: -maybe not a state. They were local; they were locally managed, that's correct, yeah.

Sadie McKeown: Yes, and so-

Eve Picker: But they were all slightly different. Yeah.

Sadie McKeown: But to have ... See, if you can start with a code that keeps everyone consistent, then all of the programs that grow up around real estate have to obey the code, and they can all be more uniform and more efficient. So, it's almost like the roots of the tree and then, the tree grows stronger because the roots are the same. It's a unique one for me. I could have gone to all kinds of things, but I, particularly with my sustainability and my climate-change hat on ... Change the code, and you can change the way people fundamentally address those issues in real estate.

Eve Picker: Well, thank you very much for your time. I've really enjoyed talking to you, and then, I plan to keep talking to you, Sadie. So, thanks for your time this afternoon.

Sadie McKeown: Oh, my pleasure, and I look forward to the ongoing conversation. Thank you, Eve.

Eve Picker: That was Sadie McKeown. That was a fascinating conversation about the impact that personality, will, and politics can have on place. Political infrastructure is just one of the five criteria that CPC uses before they decide to invest in a place. In addition, they review physical infrastructure - what are the buildings like? Social infrastructure - is there a 'there' there? Economic infrastructure, and development infrastructure.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Sadie, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Sandy Selman, co-founder of CPROP. CPROP is a young blockchain real estate technology company. They are focused on creating blockchain-enabled data applications in the real estate and fintech sectors. I'm interested in how blockchain might impact real estate and, of course, my crowdfunding platform.

Eve Picker: Sandy is a roll-up-the-sleeves, highly strategic, and hands-on kind of guy with big-picture vision and an on-the-ground approach. He's had plenty of operational experience as an investor, advisor, and founder, as well as CEO, CFO, and board oversight. He's not a starstruck young thing wading into the next best technology because it's cool. His experience has led him to believe that blockchain has enormous value for real estate in the future, so this is worth listening to.

Eve Picker: Be sure to go to EvePicker.com to find out more about Sandy on the Show Notes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Sandy. How are you this morning?

Sandy Selman: Great. How are you?

Eve Picker: I'm very good. You have had an extensive career in a variety of industries, and you've founded three companies, so I think you could be called a serial entrepreneur. Am I counting right?

Sandy Selman: There was probably some additional ones in there that I just care not tell anyone about, but let's go with three.

Eve Picker: So, really a serial entrepreneur, okay. I want to talk to you today about your latest venture, which is CPROP. It's a company focused on blockchain and its application, in particular, to the real estate industry, which I find really interesting because I think that we're all going to hear a lot more about that in the future. First, I want to ask you, what's your background, and what led you to CPROP?

Sandy Selman: It's been a long kind of twisty, windy road, but I started out my professional life as an engineer and quickly realized, within the first two weeks of getting on the job, that wasn't what I wanted to do. I went into investment banking, specializing in the financing of infrastructure like power plants, and wastewater treatment plants, and the big infrastructure. I just became fascinated with the way the world worked from an infrastructure standpoint.

Sandy Selman: Around the mid-'90s, I was working for a big global company financing projects in the Pacific region, specifically China, and I became very disenchanted with that work, for its lack of social and environmental purpose. I jumped ship, and I founded an early-stage clean technology venture fund, which I thought would combine the best of my financial and technical skills, but also my desire to work on things that had more than just a financial return to them. That was a very, very interesting journey.

Sandy Selman: After my fund wound down, which, coincidentally, was at the start of the Great Recession - bad timing - that's what sort of drove me to be an entrepreneur. The startup that actually led to the founding of CPROP was an IOT - Internet of Things - and data science company that I founded with a partner, focusing on ... We initially started the business to bring smart building solutions to the commercial and government sector in the Middle East but eventually, we pivoted it back to the U.S., and we ended up getting this massive contract with a big, global property management firm.

Sandy Selman: We worked on a project there to develop a product that had to do with more effective capture and management of data to inform big capital decisions, particularly the capital-planning process in very, very large commercial properties. It was amazing to us that this big, global company, given their resources and sophistication, just how inefficiently the data was managed throughout the value chain inside the workflows of this enterprise and how that led to, potentially, misallocations of capital in the hundreds of millions of dollars. That was kind of a ringside seat.

Sandy Selman: It's about the time we were wrapping up that project, we became interested in blockchain. My partners who were younger than me started trading crypto, and that led us to getting deeply involved in blockchain and realizing that blockchain could actually address many of the industry ills that we saw in that project, and that's what led to the founding of it. It's a long answer to your question but that's how we got going.

Eve Picker: Wow. Are you suggesting that golden oldies aren't interested in crypto?

Sandy Selman: No, I don't want to suggest that, but let's just say it wasn't for me.

Eve Picker: Just wondering ... No, it's interesting. Blockchain, this is actually the thing that most people pretend that they understand, and I could be one of them. So, I think it would be really worth hearing a plain-English explanation of what blockchain is and what it does.

Sandy Selman: It's a common question I answer probably 10 times a week. So, blockchain is nothing more than a data architecture. It's not a lot of the things that you hear about it. It is not cryptocurrency. Cryptocurrency is just one application for blockchain. Blockchain, itself, is a platform technology, which is known as a distributed-ledger technology. All that means, in plain English, is that data is stored on multiple computers that are part of the network. It's a network that is, once data is placed onto it, you cannot erase data that was put on; you can only append to it. It's very, very difficult to get data on the network. There is a protocol as to how data gets written onto the network.

Sandy Selman: What it does is ... The practical use case for it is, again, in plain English, it provides an external data architecture, external to, say, a company's enterprise servers, for example, that allows you to validate content and timestamps of data. It allows you to determine with 100-percent accuracy whether specific data existed on or before a certain point in time. That's its central utility. Now, the applications of that range from - in real estate - range from things like automating compliance to the creation of digital currencies that can be used in the financing of real estate, which I'm sure we'll talk about in a few minutes. Does that help?

Eve Picker: Yeah, yeah ... It's still a little bit hard to understand because probably most people got ... Well, not most, but probably some people got stuck on distributed ledger, if they've never really heard that term before. What's a real-world example of someone using blockchain, right now, that is digestible, do you think?

Sandy Selman: I'd say the blockchain applications that are in commercial practice today are a little bit esoteric, and they have to do with the creation of digital currencies in the financial system. So, companies like J.P. Morgan have created an internal coin; it's a digital currency that they call the JPM coin, which they use to more effectively execute wholesale market transactions between different parts of the world of their operation. As opposed to sending money through the Swiss system, they can do it much more efficiently and quickly with this digital currency.

Sandy Selman: But in the data world, there are applications that are quickly catching up. The accounting profession, the insurance profession, any kind of audit and compliance - there are applications galore in the works ... Actually, I was just talking to a friend of mine this morning about this, about how broker-dealers and compliance departments are ... Those functions are going to be fundamentally changed by this technology because, essentially, blockchains can be structured so that they are immutable - we'll talk about the security aspects in a second, I'm sure - they provide this independent reference point that has heretofore been provided by auditors and broker-dealers. There are some pretty exciting developments on the horizon, across multiple industry sectors.

Eve Picker: So, you really are at the cutting edge. It's really not- it's not found a path yet in the everyday world, except as cryptocurrencies, which are kind of a little bit of a gold rush, I think, right?

Sandy Selman: Cryptocurrencies were a big gold rush and, unfortunately, a huge distraction for government and the public to understand what blockchain really is. Fortunately, that gold rush ended in what they call the Crypto Winter of 2017 and '18, and things kind of came back down to earth. Projects like the JPM coin, although you could call the JPM coin a cryptocurrency, I prefer to call it a digital currency, because it doesn't have that tarnish of the whole crypto thing that went on; the craziness in 2017. Actually, it bears mentioning - why do they call them cryptocurrencies to begin with? Because blockchain technology is underpinned by cryptography, the science of cryptography. So, that's probably where crypto came into play here.

Eve Picker: Interesting, interesting.

Eve Picker: You told us about insurance, and securities, and all sorts of ways that it might be applied to real estate. Can you tell us about a project that you're tackling right now at CPROP that we can sort of walk through and see how it works?

Sandy Selman: Yeah, no question. So, I think the one, probably, that's the most relevant to the impact-investing space is we are preparing to launch a platform that will be a specialized platform for the listing, and the posting, and eventually the trading of - and every word here is important - real estate-backed security tokens. Why are all those words important, I guess, is the question.

Sandy Selman: So, in general, blockchain has two kind of broad uses. One has to do with the validation and time-stamping of data to create audit trails, and the other broad application is in the creation of digital currencies, which are essentially like digital twins of what they initially called fiat. So, fiat currencies would be dollars, euros, what have you.

Sandy Selman: The world of real estate finance is on - I believe, personally - is on the precipice of a sea change in the way properties will be financed because the efficiencies and the cost drivers for transacting, and fundraising, and such, through the use of digital currencies, are so incredibly significant that it's creating this sort of persistent pressure for companies and regulators to work out how to bring these business models into existence to unleash the power of the onset of this digital-financing world that we're now stepping into.

Sandy Selman: The project that I wanted to talk about is really kind of at the forefront of that transformation. Hopefully, we're on the leading edge and not the bleeding edge. The bleeding edge is not a good place to be ... We're not the very first company to try this, but we're going to try and come to market with a practical implementation that falls well within existing securities regulations that has a user interface and a user experience that is going to be very comfortable for mainstream retail institutional investors. We're going to try and have our cake and eat it, too, here, with this project.

Eve Picker: Wow, interesting. You know that I'm really interested in impact in the real estate world, and I'm wondering how you think blockchain, or even cryptocurrencies could be best deployed, I suppose, to make impact investing easier?

Sandy Selman: Well, to provide ... I guess the sort of broader question is what can projects like this do to support impact investing, and intelligent real estate investing, which is, I know, near and dear to your heart, and near and dear to my heart, as well? Here's the answer to that question. The answer is that once you make the transition into the digital world of finance, one of the immediate benefits is democratization; meaning that you can make that asset class - commercial-property investing, or whatever type of property investing - you can make it accessible to a much wider range of investors.

Sandy Selman: I'll give you two specific examples. One is that when you work in the digital world, being able to interact with investors globally becomes greatly facilitated. Essentially, any investor with an internet connection that qualifies to invest in whatever it is that you're doing can now participate; whereas, when you're working in the fiat world, in the conventional world, it's just a lot more cumbersome. There's paperwork; there's a lot of friction associated with getting an investor [cross talk]

Eve Picker: Yeah, there's a lot of ... It's not even the paperwork; it's actually the banking systems. It's very difficult coming up with a solution for sending money back and forth to an investor who might be in Italy-

Sandy Selman: Correct.

Eve Picker: -which is very difficult.

Sandy Selman: Yeah, it's clunky. When you're operating in the digital world, if that Italian investor can get their euros- deposit their euros into a bank that is connected with a secondary trading platform, it's very easy, at that point of deposit, to essentially create a digital twin of that euro deposit. That becomes, essentially, their currency with which they- or the medium by which they can then acquire security tokens that represent undivided interest in property, or within fund, or however they're structured-

Eve Picker: Even better, the developer, or the issuer can then, when they make distributions ... Let's say it's a quarterly distribution that they need to make, if they can very simply send the funds back to that investor by the same platform-

Sandy Selman: That's exactly right.

Eve Picker: Yeah, and that's really probably one of the most difficult things.

Sandy Selman: Yeah. So, these are the sorts of cost drivers that are creating the pressure to move this- to sort of push this digital phenomenon forward. The other aspect of democratization, in my view, is that- there was something like ... According to this report I read this morning, there was over $900 billion in assets under management in U.S. private equity funds that were focused on the real estate at the end of last year; almost a trillion dollars. By and large, those funds are accessible only to investors that have the ability to put up pretty high minimum investments.

Sandy Selman: In the world of digital finance, because the costs are so much lower, these security token offerings ... And I keep saying security tokens, because these undivided interests represented by digital currency that we're calling a token, for the lack of a better term, are securities by any sort of assessment of U.S. securities law. They fall squarely under the Securities Act, that's why we call them security tokens. If we have time, I want to talk about another topic related to that, about utility tokens. But sticking on security tokens for a second, because the costs of issuance are so much lower, and the cost of transacting is so much lower, an issuer of a security token can structure their offering so that it's accessible to investors with much lower minimums; thereby sort of promoting democratization.

Sandy Selman: A good application of this, in the impact world, is supposing you're involved in a development in Pittsburgh that's an impact type of a project, and you want to attract capital from local investors in the community who really want to be supportive of that project, it's therefore possible ... You're doing this, I know, with your Small Change platform. It then becomes efficient to be able to allow those investors in, provided they qualify with whatever part of the securities regulations the security tokens are issued under. It provides a very easy and low-cost way to allow those investors in, without requiring them to be subjected to a $250,000 minimum, for example, in a PE fund.

Eve Picker: Right. I have to be convinced, because we've got a pretty easy way for them to get in, using ACH, right now. I think, for me, I'm going to push you a little bit on this. I think the beauty of it is in foreign transactions, which are really difficult, and the ability to be able to tie information about each investor together, so that you don't lose it, right? You might have W9 information, and you have to issue a K-1; you need to keep track of the percentage of the total investment pool that they have invested, so you can distribute the correct amount to them. Those things are really super-time-consuming and require someone with quite a lot of skill to keep track of them and make sure everything is correct. That's what I'm hoping that blockchain can solve. Am I wrong?

Sandy Selman: Yeah, the distributed ledger ... No, no, you're not wrong at all. The distributed ledger does that, by definition. It captures every element of that workflow that you just mentioned - keeping track of people's respective ownerships; keeping track of the way that dividends should be apportioned. I think, to your point on the ACH, yes, you can allow people in - send $1,000 by ACH - but now, you've got this $1,000 investor in, and there's this carrying cost of making those distributions, importing, and so on. When you're operating in the digital world-

Eve Picker: That's the expensive part; it's the carrying cost-

Sandy Selman: Right. Exactly.

Eve Picker: Our issuers are always thinking about the lowest minimum they can allow, because we can accept $10 by ACH, but then they have to manage that $10 investment, and that's pretty excruciating, so-

Sandy Selman: So, in the digital world, if that administration of that $10 investor can be automated, then it doesn't become so out of reach.

Eve Picker: That's right. Okay, now you've convinced me.

Sandy Selman: Okay, good.

Eve Picker: So, that's how it might be applied. Let's look at Small Change. We are a funding portal, at least for one of our offerings; so regulation crowdfunding. We have to abide by many different rules, in order to let people invest small amounts; fractional investments. We sort of put the whole securities package together. Right now, we are accepting investments by ACH, and some bigger ones by check and wire. What would it look like to convert an offering on our platform to blockchain, or cryptocurrency, instead of accepting ACH?

Sandy Selman: In the ideal world ... I'm going to talk about the ideal world, and then I want to dial it back to the practical. In the ideal world, Small Change would be a what's known as an ATS -an alternative trading system - which is a form of exchange. It's a term of art within the securities world. Investors would deposit their U.S. dollars into a bank that will be part of this ATS, or a settlement agent; again, fully regulated. The depositing of those dollars would result in the creation of sort of a digital equivalent on your digital platform which, again, would be the medium with which those investors could acquire security tokens representing undivided interest in the [subject] properties or portfolios.

Sandy Selman: Then, whenever there's a dividend that's to be distributed with any of those income-producing properties, the blockchain provides you with a perfect record of who owns what, so that the dividend can be readily distributed digitally to those accounts on a pro rata basis, according to each investor's ownership in that particular security token. Then, when an investor wants to withdraw, they can simply- their holdings in their portfolio of security tokens are then correlated with the U.S. dollar account that resides with that custodian banker or settlement agent.

Eve Picker: Okay, that's pretty easy.

Sandy Selman: So, at any time, they'd have a way to withdraw cash if they needed to or deposit more cash if they want to. There's this dividing line between the fiat world and the digital world that remains very, very distinct. All the transacting occurs on the digital side, but the cash in and out still occurs the way it does today on the fiat side.

Eve Picker: Okay. Well, you, and I are going to have to talk about this outside the podcast, all right?

Sandy Selman: Yes. But I mentioned, that's in the ideal world, so I just want to dial it back to the practical world ... There are still a number of important operational details that need to be worked through with the SEC. The SEC- the state of regulation at the SEC is still at a fairly early stage regarding how the treatment of these digital platforms will exist. They've issued some guidance on it. It's not super-specific, and there are series of no-action letters and things of the like that are being issued or will be issued in the future that will provide more, and more specificity as to how to structure these things so that, from a regulatory standpoint, everything is compliant.

Eve Picker: Yeah. I've been watching that. That's why I've been staying away from it.

Sandy Selman: Yeah, but I think our goal is to try and sacrifice functionality, and operability for speed to market. What we're trying to do, and working through it with the SEC, right now, is we're trying to touch bottom on how do we bring to market a system that is compliant, even if we have to sacrifice ... We're not going to be an ATS, obviously, out of the gate - the bar for that is pretty high, in terms of cost and time to get that approval - but we're looking to touch bottom with them, early on, as to how we can come to market with what would be known as a bulletin board for this sort of special-purpose platform that's focused specifically on real estate.

Sandy Selman: Now, like I said, we don't want to be on the bleeding edge; we want to be on the leading edge. There are companies that have gone before us and have gotten the approval to operate as an ATS from the SEC and have digital currencies on their platform. They're not specific to real estate, but they have been approved, so there are go-bys that are out there, and that's a very, very important thing to consider. It's what gives us confidence that the path that we're on is going to ultimately bear fruit.

Eve Picker: Interesting.

Sandy Selman: We're not the first.

Eve Picker: What do you think all of this is going to look like in five to 10 years from now?

Sandy Selman: Wow, that's a really good question. I can tell you that every money-centered bank that I've spoken to has an internal department that is focused on digital securities and blockchain applications. They don't talk much about it. My personal view is, I think five years is probably a good number, but I don't have a crystal ball, obviously. But I think that a greater proportion ... You're going to start to see platforms pop up all around the world that are these digital platforms that create this paradigm that I was just describing, where there's a portal for getting fiat currencies into a system - whatever that fiat currency might be - and then, a digital equivalent which is where all the transacting and the reporting takes place.

Eve Picker: Do you think this is really going to impact the way our banks look? Are banks going to become a ATSs?

Sandy Selman: You could ... Yes, you can rest assured that banks, and the investment banks, they're not going to let this opportunity go by and have new entrants step in there, and not participate in it ... I think you can be confident in assuming that the traditional financial system players are going to be front and center in all this [cross talk]

Eve Picker: I mean, that's a good thing because they have a reputation and have been in business for a long time, so that means that the general public will become more, and more aware.

Sandy Selman: Yes. It's sort of the next evolution in the way the financial markets operate. It's good in the sense that it lends itself to greater efficiency, which is obviously more cost efficiency, and greater transparency, and greater security.

Eve Picker: Yeah. Interesting. You talked about the regulatory hurdles. What are the perception hurdles?

Sandy Selman: The perception hurdles, that's another really good question. The perception hurdle is that people hear crypto, and they run from the room screaming, with their hair on fire, because of all the well-publicized hacking incidents. People hear bitcoin, and they just shudder and this kind of stuff. There's kind of two issues here, I think, that are uppermost in most people's minds.

Sandy Selman: On the hacking, the items that are hacked, and the famous hacking incidents tend to be the wallets rather than the blockchains, themselves. I'm not going to say that there's never been a blockchain successfully attacked, because that's not the case, but there are ways to structure blockchains to make them virtually impossible to hack. I would like to say impossible, but I've been told many times never say anything is impossible.

Sandy Selman: Wallets, where tokens are often held, are vectors for attack. Think of it like this - an electronic wallet is nothing more than sort of like a file folder, in a sense, on your computer, that you keep on your computer, or you keep on an exchange, or you keep on an external device. If you are sloppy with the private key, which is just a fancy password, then anybody can ...

Sandy Selman: If someone is able to get your private key because you're sloppy with the way you keep it ... Let's say that you store your private key in an Excel file that's on your computer, and your computer gets attacked, and someone finds that file, and they'll have your private key, you're done for. Once that private key is compromised, people can get access to your wallet. They can take your tokens out of it and send them into the ether, and you'll never find them again, because even though you can see where all the transactions are on the blockchain, the wallet ownership is anonymous; it's anonymized, so you don't know who owns the wallet.

Eve Picker: But that's personal security. That's like deciding whether to leave your front door unlocked or not. That's not so much an issue of blockchain as it is of people's behavior, right?

Sandy Selman: That's correct, and I think that ... Again, my personal view is that, in the future, institutional investors ... By the way, this is anathema to institutional investors because they're used to dealing with banks and other depository institutions where, if something ... If the bank gets hacked, there's insurance, and the money can be recovered, and so on, so forth. In the digital world if a wallet gets hacked, good luck. It's the Wild Wild West.

Sandy Selman: My personal view is that the way this is going to get worked out is that there won't be wallets, and there won't be tokens to worry about that because of [attack]. The blockchain is really just being used as a method of accounting more than sending tokens from one place to another ... This is a nuance that's lost on, I think, on most people that I speak with. It's a distributed-ledger technology, as I said before, that provides this accounting mechanism. So, you can make adjustments to the accounting based upon how transactions ... The accounting is automatically adjusted as transactions occur. Depending upon how the platforms are structured, you don't necessarily need to have wallets with tokens sitting in them. It can be just a method of accounting.

Eve Picker: Yeah, I mean, I can really see the value for ... If you have 1,000 investors, that could be enormously useful.

Sandy Selman: Yes. That's one big perception problem. The other big perception problem is people hear cryptocurrency, and they think of Bitcoin, and the wild price fluctuations of Bitcoin. The price of Bitcoin- ask 10 people what moves the price of Bitcoin, and you'll get 10 different answers. It's kind of nuts. It's not correlated to anything. The same is true for all the other cryptocoins that are out there.

Sandy Selman: In this world, this world of digitized real estate finance, we're not subject to those same ... That whole paradigm just doesn't even ... It's not even relevant because the digital currencies that are used to mirror an investor's fiat deposit are not going to be ... It's not going to be Bitcoin, or Ethereum. They're going to be special-purpose utility tokens that are just there as a marker to mark the accounting of what that investor's entitlement to those fiat deposits with that custodian, or that settlement agent are. They don't have a price attached to them. They're just there as a marker, if that makes any sense-

Eve Picker: I think your description as digital twins of actual fiat money is really a great way to think about it. It's just a little clone of the actual cash, right?

Sandy Selman: It's a digital clone, exactly.

Eve Picker: Whatever the cash is worth, that little clone is worth the same amount.

Sandy Selman: Exactly.

Eve Picker: Yeah, I like that. There's another coin out there, stablecoin. I don't know if that follows the same principles?

Sandy Selman: No .... Yes, and no [cross talk]

Eve Picker: Maybe I shouldn't have asked.

Sandy Selman: There's a class of coins that are called stablecoins. Tether, for example, is one of the more well-known ones ... There is a token out there called the USDT, which is a Tether coin which is pegged to the U.S. dollar.

Eve Picker: Right.

Sandy Selman: But ... All right ... And Facebook, with their Libra project; they want to come out with ... Libra is going to be tied to ... I'm not 100-percent familiar with the Libra project, but as I recall, it's tied to a basket of currencies. The problem, or the potential fly in the ointment with those stablecoins is that the coin needs to be backed by something. If there's a run on USDT, for whatever reason, then it needs to be backed by enough U.S. dollars so that the correlation stays intact.

Eve Picker: Right.

Sandy Selman: That's sort of the chink in the armor there.

Eve Picker: Interesting.

Sandy Selman: When we started ideating on our platform, initially we thought maybe USDT's something that we could use. Then, we quickly realized that that wasn't going to work, because any stablecoin that isn't backed by the full faith and credit of a government issuer, like the U.S. dollar, potentially has that flaw.

Eve Picker: Yeah, that's interesting ... This has been really fascinating, and I have three sign-off questions, but I think you said you wanted to talk about one other thing.

Sandy Selman: Yeah, I wanted to talk about one other thing and that is I wanted to touch very quickly on utility tokens and their use in this space of impact investing, and affordable housing. So, we're working on a couple of projects now where, again, we take advantage of the accounting aspects of blockchain to create some value within this- let's call it the affordable housing space.

Sandy Selman: One sort of obvious application is in the rent-to-own industry, which is an industry that is not known for ... Well, let's put it this way. There have been a lot of instances where the accounting is between landlords/property owners, and the tenants have kind of gone astray. Blockchain provides a superb solution to ensuring that the accounting on a tenant's journey from renting to owning is well-documented and is cast in concrete. You can't mess with it. You can do this with simply just using utility tokens, which are not a security and therefore, can be implemented without having to file a registration statement, or anything like that.

Sandy Selman: The other application for utility tokens, which I think is really interesting, in the affordable housing space is the ability to create reward systems that incentivize tenant behaviors that are favorable to ownership; for example, paying your rent on time; paying utility bills on time; for master-metered buildings, keeping your utility consumption below a certain level; things along these lines ... The utility token, again ... Do you need blockchain absolutely to implement those systems? Maybe not, but blockchain makes the implementation of those systems super-easy, super-transparent, and secure, and therefore, trustworthy because the data is held in an architecture that's outside the control of the ownership of the property, and therefore, it's more trusted. I just wanted to throw those out there real quick-

Eve Picker: In other words, pay your rent on time, and you get a token, which you can put towards something else or-

Sandy Selman: Yes, exactly.

Eve Picker: That's really interesting. Are you working with anyone on a project like this?

Sandy Selman: Yes we are. We're actually in discussions with two different large companies about this. They both have their own views as to how they want to utilize those ... How they're going to be ... What the reward is for accumulating the tokens. You've got to be careful to steer around them and not make the reward systems such that it turns that utility token into a security, but I think that's pretty easy to do, as long as you're mindful of it, where the trip wires are.

Sandy Selman: It's, again, something that I think you'll start to see pop up. These two companies that we're working with are pretty serious about implementing this, and I don't see any technical reasons why it couldn't be implemented. So, as long as we structure it so that we don't hit those regulatory trip wires, I don't see any reason why it won't be implemented, so, I guess, stay tuned on that.

Eve Picker: Wow. So, it's a brave new world when it comes to banking now.

Sandy Selman: Yeah, yeah. I feel like I'm 20 years old again. It's great.

Eve Picker: Well, it sounds like fun, Sandy. So, I need to ask you three sign-off questions, which are probably not exactly what you think about all day, but I ask them of everyone, so I'm going to ask them of you. I want to know what you think is the key factor that makes a real estate project impactful to you.

Sandy Selman: I can answer that by relaying an experience that I had last year. The company that's redeveloping the Tampa waterfront is a company called Strategic Property Partners - SPP. Their head of development, I had a conversation with her that really kind of struck me. In redeveloping this waterfront area, downtown Tampa, which should be a great ... The natural attributes of that real estate are such that ... It's proximate to the downtown core; it's got water around it; there's an island; there's all kinds of natural attributes ... There's a highway that goes straight to it.

Sandy Selman: What they're trying to do is they're trying to create a development, which, it's a huge mixed-use property development, and they're trying to design it with livability in mind, where people can feel connected to the spaces the open spaces that are created. The emphasis really is on the experience more than the ... Or of the priority of functionality, which I think is a really interesting approach to development. These urban and semi-urban developments, which I think are lacking, there's the high demand for because of commute times, which is an incessant problem.

Sandy Selman: I mean, I live in a New York suburb, and we deal with this every day. It's just kind of absurd the extent to which it degrades the quality of life having to sit in traffic for hours on end each day. It's very frustrating, and unproductive, and expensive. Creating these communities that are urban and semi-urban, where people can work, and they can live, and they can have a quality of life, and feel connected to the community and, therefore, to one another, I think is ... To me, this is something really, really important.

Eve Picker: Yes.

Sandy Selman: By contrast, not to pick on it, but I used to work in a place in Stanford, Connecticut, which, to me, was sort of the antithesis of this. It's not walkable; you're constantly having to cross major boulevards. There just was no sense of community, at least at the time that I worked there. I thought, gosh, this place could really stand a makeover to make this a more comfortable place to be. It was a place I dreaded going.

Eve Picker: Yeah, yeah. I just actually read an article about the suburbs starting to become little transportation nodes around railway stations and reinventing those places for remote workers. They're kind of new little towns that are popping up. It's fascinating what's going on at the moment.

Sandy Selman: Yeah.

Eve Picker: Other than raising money, in what ways do you think involving investors through crowdfunding can benefit impact real estate development?

Sandy Selman: It kind of goes back to my democratization comments. Finding a way to reach that target audience and reducing the friction as much as possible, and the costs in interacting with them, to me, is the pathway to liberating more capital. I'm constantly amazed, actually, at how successful a lot of these GoFundMe campaigns are for causes, like someone has a terrible health problem in a family, or an accidental death, or some family tragedy; how quickly I've seen families, through GoFundMe campaigns, raise copious amounts of capital to deal with medical expenses and the like. If it works for that, it should be able to work for impact investment.

Sandy Selman: I think that the more the local community to an impact- a development can be tapped for capital, it creates more stickiness and a higher likelihood of success for whatever that local development is going to be. I think in this strange point in U.S. history, where we're more divided than we ever have been, as far as I know, I think these political divides are tearing at the threads of community cohesiveness. I think this is one small way that can sort of fight back against the tendency to become separated from one another, if we can remain connected to our communities because we're both living there; we're working there; we're playing there, and we're invested there. That's a very interesting paradigm, at least from my standpoint.

Eve Picker: Yeah, that's true. You got me all excited. Then, finally, what is the one thing about real estate development in the U.S. that you would like to see improved?

Sandy Selman: More mindful development. Again, the comments from this development professional in SPP really run true with me. I travel quite extensively, and I see things going up ... Take my hometown of New York City - I see high rises going up there, left, right, and center, with total disregard, in my view - I'm not involved in them, so it's easy for me to throw rocks at them, I guess - but, in my view, total disregard to the impact on the community, particularly around transportation.

Sandy Selman: I thought that this whole brouhaha over Amazon and them not going into Long Island City, for example ... Long Island City is an area that is massively under construction and has been, now, for the last couple of years. Consequently, the traffic around getting through and around Long Island City has become absurd, and the public infrastructure, transportation infrastructure, has not been touched - the subways the trains, and such.

Sandy Selman: They're still the same subways and trains that existed before- when this land was brownfields. That kind of development just- it just makes me crazy, and I just don't understand how urban planners and city planners can engage with these developers developing these massive developments that are going to bring literally millions of people to live and to work in these very, very congested areas without, at the same time, addressing the ripple effects, particularly on public transportation.

Eve Picker: I think this may be your next calling.

Sandy Selman: Yeah, maybe. Like I said, I was an infrastructure junkie, earlier in my career, so this is something that particularly gets me going.

Eve Picker: Well, Sandy, thank you very much for joining me. I really enjoyed chatting with you. We'll sign off, and I'll talk to you soon.

Sandy Selman: Yeah. Thank you very much.

Eve Picker: That was Sandy Selman, founder of the startup, CPROP. I learned about the power of the blockchain and how it might be unleashed on real estate. Accounting and auditing trails would be handled fluidly, and blockchain would support fractional investment, which is dear to my heart. But I also learned that blockchain is a nascent industry, and it's too early to point to some really purposeful applications.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate, while building better cities. Thank you so much for spending your time with me today, and thank you, Sandy, for sharing your thoughts with me. We'll talk again soon, nut for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Majora Carter, and, wow, you won't want to miss this. It's hard to know where to begin describing Majora, who is, quite simply put, a powerhouse. Described as an urban revitalization strategist, her career has spanned environment, economy, social mobility, and real estate development, and her work has won major awards in each sector, including a MacArthur Genius Grant, a Peabody Award, the Rudy Bruner Award – Silver Medal, and nine honorary doctorates amongst many, many more.

Eve Picker: Majora is quoted on the walls of the Smithsonian Museum of African-American History and Culture as saying, "Nobody should have to move out of their neighborhood to live in a better one." There is no way around it; if you are really interested in impact investing, this podcast is a must-listen. Be sure to go to EvePicker.com to find out more about Majora on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Good morning, Majora. I'm so delighted that you're on the show with me.

Majora Carter: Good morning. Thanks for having me.

Eve Picker: I was reading a little background on you, and the thing that stood out to me is this quote, "Nobody should have to move out of their neighborhood to live in a better one." These are your words, and they can be found on the walls of the Smithsonian Museum of African-American History and Culture. I just wonder how these words play into your work?

Majora Carter: Oh, those words are- were actually not my words, but they've certainly been attributed to me. They were the words of a woman who worked with me - Marta Rodriguez - as a organizer, when I ran Sustainable South Bronx, and it really embodied exactly what we were trying to do at the time, when I was running a small environmental and economic development organization - which is this is our community. How are we not creating the kind of community of our dreams here? It really continues on, as we're thinking about real estate development, and how do you use real estate development to truly transform your community into something that you can age into, and stay there, because you feel as though everything that you need and want is actually part of it?

Eve Picker: Yeah. So, you're working- are you still working mostly in the South Bronx?

Majora Carter: No, I work nationally. I certainly do have some projects that I'd love to get off the ground, here in the South Bronx, and some that we're working on, but we actually work nationally, as well. We've got a really amazing real estate development project, a mixed-income housing, mixed-use development, going on out in Mapleton-Fall Creek, Indianapolis, which I'm absolutely delighted about. There'll be about 50 units of home ownership; another 150 units of mixed-income housing, and about 50,000 square feet specifically for light manufacturing, commercial, and cultural space. We're delighted to be the developer on it.

Eve Picker: Wow. You weren't a developer when you started out, right?

Majora Carter: Oh, no! Although, interestingly enough, I've been developing a lot longer than I actually gave myself credit for. I was a card-carrying member of the non-profit industrial complex, and moved out of my neighborhood, or left my neighborhood for college, and didn't really want to come back, because it's really like America's low-status community - one of America's low-status communities.

Majora Carter: I want to just articulate what I mean by 'low-status.' We don't generally use 'disadvantaged,' or 'low-income' to describe the communities that we want to work in most; but low-status are the kind of communities where there are more liquor stores, and corner stores than there are opportunities for good, affordable, different, diverse options for food. You'll find, instead of banks, or credit unions, you'll find payday-loan places, and check-cashing stores. You'll find the kind of places where there's an enormous amount of very highly subsidized affordable housing, and very little economic range between.

Majora Carter: Essentially, in those areas, inequality is assumed, both inside, and outside the community. These are the places where, if you're a bright, talented kid, you are taught to measure your success by how far you get away from those communities. We don't have a way to think about retaining talent in those neighborhoods.

Majora Carter: When I was growing up in the South Bronx, I was one of those bright kids who was definitely told, "You're going to grow up and be somebody," which meant you get out of the neighborhood. I embraced it hook, line, and sinker. Only when I came back to the neighborhood and realized that the way our communities were being used via real estate - in particular, for us, it was environmental burdens that just kept getting heaped upon us - I also started realizing that we could use real estate as a way to transform our communities to benefit us.

Majora Carter: I first started in park development, and riverfront restoration, green jobs, training, and placement, and literally just moved into real estate development, when I realized that ... It seemed to me like a very natural trajectory to go at scale, in terms of creating the kind of community that you really felt you didn't have to move out of, in order to live in a better one.

Majora Carter: My first development project was literally squatting a building across the street from the house that my parents lived in, and I was born and raised in. It was a crazy story because it kind of technically had been in my family for decades at that point. The woman who owned it died 20 years before I decided to move in, and no one in her family wanted the house.

Eve Picker: Wow.

Majora Carter: Yeah, so it was like I'd move back in, and I'm like, "I want to set some roots down." What did I do? I moved in there, took over all the bills, the taxes, and everything. That's when predatory speculators obtained a fraudulent deed for my house, just as I was in the process of trying to purchase it and finding - getting title. It was a crazy, crazy story.

Majora Carter: There I was, acting as an owner/landlord for years, at that point, and it was a wonderful, just crazy opportunity to realize that, no, I am actually developing this space. and preserving affordable housing in my own community, and generating wealth for myself, because it's like, look, we're losing that. I wasn't thinking about the wealth gap or anything like that, I just needed a place to live. I wanted the people who were living in my building to continue to have a place to live. But I was a developer back then, and I'm a developer now.

Eve Picker: Right. That's really interesting to me, because I've been lots of places lately where 'developer' is just a bad word.

Majora Carter: It still is. Oh, my gosh, yeah-

Eve Picker: Yeah, I know. It's getting worse, I think. Not just still ... The question is, I mean, we know that just like there's good doctors and there's bad doctors-

Majora Carter: Exactly.

Eve Picker: -there's good developers and there's bad developers. But the narrative is really all developers are bad.

Majora Carter: Right [cross talk] and there's no space in it for those of us who are trying to use development for what it actually could be, which is a truly transformative way to support communities that we love. We really think about how do you use it as a tool, specifically, to support the visions and the values that we have, which is that [inaudible] and no one should have to move out of their neighborhood to live in a better one. You should have opportunities to live, work, and play, in wonderful ways, in ways that match your income, but there's all sorts of opportunities for you to engage in a beautiful community that actually does not require money, but builds community, and through [cross talk]

Majora Carter: Why is it that, in low-status areas - whether it's an inner-city community, like the South Bronx, or a Native American reservation, or a former coal-mining town that has no real jobs anymore, where it was all white - why do we think of those, of developing in those places, where it's only two kinds of development, where it's either the poor folks that are there are either bought it; generally bought out, or displaced by people with higher incomes - that typical gentrification kind of phenomena - or its poverty-level economic maintenance, which is still real estate development, wherein there's [cross talk]

Majora Carter: The whole idea is that why are there only two kinds of development that happen in low-status communities? Why can't we use it as a way to increase economic diversity, and to build wealth creation, and just make it so that people love their neighborhoods, as opposed to feeling like they've got to move out of them in order to live a little bit better? I accept that challenge, and I really believe that that's what I'm doing. So, yeah, as a developer, and as a black woman developer, whose working in this really interesting way, where I absolutely ... There is no way I would ever build an exclusively affordable-housing complex for the lowest-

Eve Picker: I'm glad you said that.

Majora Carter: Never, never! I've been, in some circles within the non-profit industrial complex, demonized for that, because I should be doing the kind of things, where it's like [cross talk] for the people. I'm like, poor communities concentrate- low-status communities concentrate poverty and all of the issues that are associated with it - low health outcomes, poor educational attainment, higher rates of being involved in the justice system, or being touched by it in some way, and your family ... Obviously, higher rates of unemployment, and poverty, and just creating a sense of lack of hope within those communities.

Majora Carter: Why would I want to build more of that?

Eve Picker: Yeah.

Majora Carter: Unless, of course, you're getting big developer fees, and you really don't care about the communities that you're working in, which is why I understand why most people hate developers so much.

Eve Picker: Yeah, no, I get it, too. But I'm really fascinated by what you're saying, and I totally agree with it. I've watched, for years, in Pittsburgh, the affordable housing product sort of live in neighborhoods that all start looking the same - this cookie-cutter affordable-housing product. It doesn't ... While, definitely, people need decent places to live, and it accomplishes that, it doesn't change the nature of what's happening in those neighborhoods. The moment you kind of push that edge of that, that's when ... I don't know, how do you stop speculators? It's something I think about a lot.

Majora Carter: We [cross talk] try to and are still trying a number of things. One of them is to continue talking about the approach that we've taken with our own real estate development and actually putting our own money where our mouth is. So, as developers, we did spend a lot of time within our own community just really understanding what are some of the hopes, and dreams, and aspirations, and, of course, needs within the community.

Majora Carter: We did hundreds and hundreds of surveys; realized that what people in a neighborhood, like the South Bronx, which is one of the poorest parts of the country within congressional districts, are the kind of the same things that anybody in a middle-class community wants. They want great places to work, with housing that- quality housing that matches their income. They want places where they could afford to buy new things that they need. They want lifestyle infrastructure, like cafes, and coffee shops, and bars, and things of that nature. They want those kind of things so they can feel a sense of value that is inherent within their own community. That goes back to that ...

Majora Carter: What happens within low-status communities a lot ... Because, of course, real estate developers, they take the kind of 20-, 30-year long-term view of what's happening, in terms of how communities are going, to plan; whereas, in our communities, we're taught that there's no real value in them. So, it's easy, I think, for them, if your family owned a home during a time of severe financial disinvestment in America, like the way that my family ... My dad bought the house I was born and raised in the 1940s. By the time the '60s, and the '70s rolled around, there was so much white flight and disinvestment within the community, and arson, because landlords were torching the buildings there, because there was no financial investment coming in, so the most they could do is get insurance money.

Majora Carter: It was a really bad kind of space. That kind of lingering understanding - this is what our community is ... Of course, you own property. It's going to have an impact on you, and you're going to feel like ... The second you can move, you're going to get out. Predatory speculators understand that. They're counting on us not knowing the value of our own home. I can't tell you how many little notes I get under my door, or they found my cell phone ... They're telling me they can buy my house for cash, and close within a week. This is a common occurrence.

Eve Picker: Wow.

Majora Carter: For folks that don't understand what they have, guess what? They're going to be like, "You want to pay me what for this crap that I'm living in right now?" So, they end up selling, actually, generally for less than what the house is worth, because they just don't know. Then the predatory speculator makes out really well.

Majora Carter: Since there isn't a whole lot, from what I've seen, within the non-profit industrial complex and communities like this, that's actually going to support homeowners within a community; which I think home homeownership is actually often - especially in areas where there's a rental unit in them - there's very little support to support those folks, like there's [cross talk] non-profits or government. They're like, "Oh, we're going to focus on the poorest people in those communities," and anybody else, it's like sucks to be them, because it's almost like they're invisible.

Majora Carter: What we've actually been doing on our own is trying to identify what are ... First of all, some of the homeowners, and just letting them know, "You're sitting on your family's legacy. You should be using this to help create wealth and retain it within your own family. Or, if you want to sell, at least understand what you got so that you're not being reamed for it."

Majora Carter: The other thing is we've actually hosted things like small zero-percent-interest loan workshops, and low-interest-loan workshops and you specifically - on our own dime - just so that folks have an understanding of what that is. On another level, and I think funny, because this is, again, on my own time, because we don't have funding to do this; it's just that we saw that it was a need ... We're really hoping that we are going to be able to convince somebody or other to develop some kind of a fund that supports low-income homeowners in low-status communities.

Majora Carter: You know there's that cooling-off period, if you change and get insurance, or you buy a house, or whatever, and you've got a little bit of time where you've got to prove that this is what you want? Wouldn't that be kind of great that before any kind of real estate transaction goes down in a neighborhood like this, that there's actually folks just making sure that folks understand what their options are?

Eve Picker: That would be great. What would the fund ideally do?

Majora Carter: It would, number one, support folks to actually be in that role, to play that kind of adviser role to the folks to let them know what their options are. But also, people may need ... We find that some folks are selling their homes [cross talk]

Eve Picker: -could not repair the roof.

Majora Carter: Yeah!

Eve Picker: I know, I know.

Majora Carter: One little thing, and it's just like [cross talk]

Eve Picker: So, a neighborhood fund- a neighborhood fund for people who really need help to keep them in their homes. I thought Philadelphia was doing a program like that.

Majora Carter: It is ... New York is definitely not; New York City, at least [cross talk]

Eve Picker: Yeah.

Majora Carter: -sad how little they think about it-

Eve Picker: I think there are ways to do a fund like that. Do you think there are people in the neighborhood that would contribute to a fund like that, themselves, in their own neighborhood?

Majora Carter: I'm not sure about that. I think it's something that, frankly, should be a part of city government. I really do, because I feel like they've just- they watch the tax rolls in communities like ours, and it does fall along racial lines, as well. Nobody pays attention in poorer communities of color to supporting the homeownership right here. It's not in our government. There are non-profits; there are a few nonprofits that work on- none in the area that I'm in, actually, which is why we've been posting those type of meetings and bringing those resources in. It's really challenging.

Majora Carter: Another thing that we're working on and is literally building our own projects to prove this talent-retention strategy that we have. It's like if you build the kind of community that makes people feel like they don't have to move out of it, in order to live in a better one ... But you've got to build it. One of the things that we saw in all of our research, in the market research that we did here, was that people were leaving the community across income levels; not because they thought the neighborhood was dangerous or anything like that.

Majora Carter: It was because it was- there was no real lifestyle infrastructure here. There was no place to get a drink, if you're an adult, that wasn't a topless bar; there wasn't a coffee shop, or a bookstore, anything like that. Even the kind of cute stores that people want to go to, or a place to get dinner. There's plenty of greasy spoon places, and, of course, fast-food chains, et cetera, but nothing that actually spelled quality in any real way, and no attractive third spaces that made people want to stick around, like a coffee shop with Wi-Fi.

Majora Carter: We actually were able to acquire the lease on two very inexpensive leases on the main street in our community. It was just a wonderful deal that we got, long term. So, we were just like, "This is great." We looked, actually, for a coffee-shop operator for years-

Eve Picker: For years?

Majora Carter: Oh, yeah, literally. We had that lease for a while [cross talk] and basically, it was clear, because it looked like the market here wouldn't appreciate anything like this, even though we knew that our data proved otherwise, because we knew people were leaving the community to experience things like that-

Eve Picker: I know what happened. You started it yourself, right?

Majora Carter: Exactly. I was never planning to be a barista [cross talk]

Eve Picker: Well, there's not many developers who've done that in areas where no one sees the market potential, because our financial institutions - I sound a little bit like a broken record, because there's lots of reasons to say this - financial institutions, really, they're crushing the innovation of the cities-

Majora Carter: Exactly.

Eve Picker: They're really just financing cookie-cutter projects, so the moment you do something different ... I mean, I get it. They have regulators, but shouldn't someone step up?

Majora Carter: Yes! Yes! You know what? What was wonderful is that, in our example ... We decided to open- we first started- it was a joint venture with a really amazing coffee shop and roaster downtown. They'd never had a Bronx presence, and was kind of interested in the idea, called Birch Coffee. So, we partnered with them for almost a year. First, it took six months just to understand the business. Then, we actually opened in the latter half of the year. We learned everything from them about how to actually operate a coffee shop, and bringing people in, all that stuff. It was amazing. It really was their guidance [inaudible] I am so grateful.

Majora Carter: But it was sort of clear that the market up here was a little different than this very high-end big coffee shop downtown, where there'd be no flavors, or whipped cream, and syrups, and people ... That's what, frankly, people wanted up here. We also wanted to provide healthy options, as well, but we had- in order to stay in business, we actually had to respond to the market. So, we actually [cross talk]

Eve Picker: They wanted over-the-top luxury, right?

Majora Carter: Yes, and it's just like no. I know expertly steamed milk is beautiful, on its own, but, look, if somebody wants whipped cream on top of it, I'm going to give it to them.

Eve Picker: Yes!

Majora Carter: Oh, it was just [cross talk]

Eve Picker: That's a Viennese, right? [cross talk]

Majora Carter: -we should start calling it that now. You're totally right.

Eve Picker: Yeah, and they're all over the ... Call it a Viennese.

Majora Carter: What was so interesting is that it ... It also gave us an opportunity to stick our own swagger on it, quite frankly-

Eve Picker: Right.

Majora Carter: -because, after all, this is the South Bronx. It is the birthplace of hip hop. We are all about innovation. We were like, we need this cafe to pay homage to that. We literally ended up moving it to a larger space, and then we actually hired a two hip hop historians to actually help us curate the actual wallpaper, which is literally the early days of hip hop, mostly [broad] space. We just built this ... It's like an homage to graffiti, and it's just beautiful.

Majora Carter: We use it as this tremendous third space for open mikes, and art shows. It's just really this beautiful community gathering spot. It did take us a while to get to that point at a place where we won't be losing money soon, which is awesome. But what was fascinating about it was the fact that, early on, we literally ran out of money to do it, because we were not anticipating ... First-time coffee shop owners not knowing anything [cross talk] One of the members of the advisory board that we had that was literally giving us intel about how to do our projects better, actually, they volunteered to invest- her family volunteered to invest in our project-

Eve Picker: Isn't that great?

Majora Carter: It was just like ... What was amazing was that we didn't talk about it. We socialize a lot of things, and it's a small community, but what was interesting is that the way people found out that another family in the community had invested in this business was just like, "Wait, we can do that?" I'll never forget some of the conversations we've had about it. It was just so beautiful that it was ... Because people just did not realize that this was like within their grasp.

Eve Picker: Yeah.

Majora Carter: For our next project, we acquired [cross talk]

Eve Picker: I think you should- I think you should be the spokesperson for Small Change [cross talk] that's really what my hope is for it, that people can invest in the way big investors can invest and they can get the same return. Because, you know, hey, it's money, right? Why should they get less than someone else? Anyway, I'm sorry to interrupt you-

Majora Carter: -powerful place.

Eve Picker: Very powerful.

Majora Carter: -just to even know that you can add value. Literally, you are adding the value to make this project grow. It is really amazing. Our next project, we acquired a rail station, a former rail station, that was designed by the same architect that did the Woolworth Building, and the U.S. Supreme Court building - his name's Cass Gilbert. Of course, I'm sure you know who that is. I owned a little piece of Cass Gilbert, like Woo-Hoo!, Which just makes me very happy. It really does! It's only about 4,000 square feet. Our goal is to transform that into a restaurant incubator, or a food hub for local chefs, because we've ... Interestingly enough, the Bronx has some tremendous culinary talent that comes out [cross talk]

Eve Picker: I'm sure it does, yeah.

Majora Carter: There's this one group called Ghetto Gastros. It is four young men from the Bronx; [cross talk] one of them I mentored 20 years ago, which I'm so proud of. Now, they're like these ridiculous caterers that are flown all over the world to do their version ... Haute couture is- I think that's a fashion term. That's not a food term. It's like nouvelle cuisine, except they put their spin on it, because they're these wonderful boys from the hood, but they're all trained chefs. It's unbelievable what they do, and it's just extraordinary. Ghetto Gastro - you look it up [cross talk] There are folks like that literally come from our communities, but then kind of parachute out, because there aren't many opportunities for them to open up businesses here. I'm like, how cool would it be if we had this restaurant [cross talk]

Eve Picker: Yeah, that'd be awesome. You know, we have an incubator like that in Pittsburgh that's done very well. I think they've got three stations, and they have like rotating startups in there.

Majora Carter: Because the restaurant incubatees, all they do, they cook ... In our version, we would manage the bar and the dining area, and each one of the restaurateurs, either three or four, depending on what we can fit, is literally what ... They would, instead of rent, we would get a gross percentage of sales [cross talk]

Eve Picker: Right, right, right, right.

Majora Carter: -they get a chance to really hone their craft-

Eve Picker: Right.

Majora Carter: -and at least focus on building their market, but the-

Eve Picker: What's the holdup? Why can't you get that off the ground?

Majora Carter: We're in a neighborhood that's not ... You can read lots of real estate development articles about the South Bronx, and how it's like the next ... It's like the next extension of Manhattan, and it's booming, and there's a lot of market rate development going on, and a lot of commercial things happening in it. But that's the part of the South Bronx where that's happening. There are other parts of the South Bronx, which is where I'm in, and born, and raised, and still live, that's the part that's sort of being reserved for poverty level economic maintenance [cross talk] Yep.

Majora Carter: There is one big project that's coming up here that's about ... Basically, it's another low-income-housing project. It's so crystal clear that all that's happening is they're trying to concentrate more and more poverty here. I think that's one of the reasons why it's kind of like, "Well, that's what happens here, so we can't really think about investing in it." Also, it seems like it might be considered a smaller- like almost too small a project for some folks, as well, because-

Eve Picker: How many square feet is that?

Majora Carter: It's only 4,000 square feet.

Eve Picker: Oh, that's big enough.

Majora Carter: That's about- with all the added ... We actually, interestingly enough, discovered a basement [cross talk] found the other room up top. It was- we discovered another basement [cross talk]

Eve Picker: That could be the speakeasy [cross talk]

Majora Carter: You know that to redevelop a 5,000-square-foot space, it's almost as ... The brain damage is about the same as a 50,000-square-foot space, but the returns are much higher for the 50,000-square-foot space. So, I think that's also part of it, as well.

Eve Picker: Yes, but the return on this would be phenomenal for that neighborhood [cross talk]

Majora Carter: Oh, absolutely.

Eve Picker: -the triple-bottom-line return that really we're talking about here. I don't know. I think there would be people who would invest. I really do. It's really an amazing story. I want to come see the building, and I want to eat with Ghetto Gastro, and-

Majora Carter: I know! Oh, my gosh, who knows where they are right now? [cross talk]

Eve Picker: -because the neighborhood sounds amazing, and I want to cry when I hear about more and more affordable housing being built.

Majora Carter: I know, I know, and it's just like ... I know whenever I say that, I have to preface it with, "Please don't think that Majora Carter hates poor people," because I think that's the way that folks immediately go, like, "Oh, she doesn't want any more affordable housing." I want- Actually, I do want more affordable housing. I want affordable housing for a range of incomes, because we know that economic diversity needs economic stability and community stability. Whereas, the concentration of poverty is exactly opposite that.

Majora Carter: But again, if we've been led to believe that this is all that happens in low-status communities, we start to believe it, and then feel the only option is to leave, if we have an opportunity to do so. Who does that benefit? It benefits the predatory speculators and the government programs, who take advantage of the fact that there are really poor people in our communities that probably have lifestyle-related illnesses, low educational attainment, or who'll probably be within the justice system. They make money for somebody; not for the people that are here. It just seems like such a tragically obvious thing that we see happening over, and over, and over again, and since we're led to believe that there's no real value in our communities, we internalize it.

Eve Picker: Yes. A lot of this is about educating community, right?

Majora Carter: Yeah.

Eve Picker: What community-engagement tools do you think work best?

Majora Carter: Honestly, opening our coffee shop [cross talk] having a presence, and being there has been so transformative. My husband and I both work there [inaudible] and work out of it a lot. We've met ... I thought I knew a lot of people in my own neighborhood, but I have met so many more, as a result of having that space, opening it up in a way that is just- it's not a community center that people feel like they've got to tip-toe in, or have a problem to be in. No, this is a place of joy, and access.

Majora Carter: I'll give you an example of how I knew that we were really something that our community appreciated, because, again, the idea ... I mentioned before that some folks within the social justice industrial complex totally demonized me and think that I'm bringing in developers to kick out poor people. Some of the stuff is just insane, and they won't acknowledge that I'm actually a developer. It's like, no, no, no, I'm the developer. I want to be called a developer ... I have my own ideas. I don't want to talk to these guys.

Majora Carter: We were hosting a workshop for small business owners in the community, as well as homeowners to get access to capital for zero-percent-interest loans and low-interest loans and also figure out other ways ... There was going to be a presentation on how to make your building- add additional units on top of your building, to see if this is something even you could do. We were protested. We had 40 people inside the space waiting to hear more about these zero-percent-interest loans and how do you make your actual building work for you, and there were like 10-15 people outside yelling about how I was destroying the neighborhoods with bringing a coffee shop there.

Eve Picker: Really?

Majora Carter: Yeah, and I have to tell you, I was ... The signs were huge. They were saying, "Majora Carter destroys the South Bronx one coffee at a time." That I'm a community destroyer. It was just like, "Some of you people know me ... You could've just literally knocked on my door and said, 'Can we talk?'" But they wouldn't do that. But I have to say, after that, I'm like, "Oh, my God, my whole neighborhood is seeing people yelling, with my name on a sign, talking about how evil I am.

Eve Picker: Yeah.

Majora Carter: I was just like, "We might have to close this stupid coffee shop. I mean, who's going to want to come?" The next day, we had the best day ever-

Eve Picker: Oh, that's really great.

Majora Carter: The best day ever. We had people coming in, one after another. It was like, "You know what? I've actually never even been here before, but I saw that, and I thought that was stupid. I'm going to buy a cup of coffee just to support you." I was just like [cross talk]

Eve Picker: That's really lovely. That's really lovely. Yes, yes, it is. Many people just fear change, right?

Majora Carter: Yes, and I get it, and I understand ... That's like to your point, it is we fear what we don't know, but if we don't actually look at ... Because real estate developers ... You know that Bishop Desmond Tutu quote? A knife's a knife. You could either use it to cut a hole in somebody or to cut a slice of bread and feed it to your child ... It's a tool. We can use it for horrible things, or we could use it for great stuff, but it is what it is. But how we use it, and unless we are empowering ourselves and other folks who are actually looking at places that actually have that triple bottom line and going, "That's valuable. Maybe I won't make the kind of returns ..." because I'm sure ... My rail station, one of the reasons why it's also empty is because I've been very choosy. I am not going to open it up to another health clinic, or a tax-prep place that's [cross talk]

Eve Picker: Yeah, yeah, yeah ...

Majora Carter: We've said no to folks like that.

Eve Picker: Yeah.

Majora Carter: No. So, yeah-

Eve Picker: So have I, so you're making me feel stronger.

Majora Carter: Good, good. No, I don't mind at all; at all.

Eve Picker: I said no to a tax-prep space. I couldn't bring myself to sign the lease. I just couldn't do it.

Majora Carter: They have so much money, and they don't even have to be open. It's really crazy.

Eve Picker: No, they don't have to be open. That's the really bad thing. What a horrible thing to do in a neighborhood, just have a place that's open for three months and then a shuttered storefront [cross talk] Anyway, now we've said what we think ... Just like there's been a wave of green-washing in this country, but I feel like there's a wave of good-washing. People are talking about impact investing.

Majora Carter: I hope so.

Eve Picker: But when I hear you, I really wonder if they're really impact investing.

Majora Carter: Nope.

Eve Picker: What do you think the future holds for impact investing? What do we have to do to change that?

Majora Carter: I am actually hopeful about some of the smaller-scale investment platforms that are out there, and just crowdfunding, in general, for real estate. I'm still learning about it. I do feel like our communities and our country, as a whole, is really only going to be changed when we start seeing each other in ways that we want to support. Look, I'm a woman of faith, so I think I actually really do believe that we can create a kind of heaven on earth, if we were really good at it, but I also think that- I am hopeful that ... People are really tired of the expecting the status quo, because, by all accounts ... I've got great vision. I have no balance sheet, so I don't look good to anybody, and I get that, but I have a track record of getting things done, and-

Eve Picker: No, you don't look good to very traditional financial [cross talk]

Majora Carter: No, I look miserable.

Eve Picker: You look great to other people, so that's-

Majora Carter: Yes, and those are the people that I'm hoping will go, "Oh, wait ..." But in order to continue to do that great work, she needs something that's a little bit different than what she was getting before." That's what I'm hoping. Because I do- I also love the idea of people really taking ownership. I think that's been one of the reasons why our low-status communities in America feel so disjointed and so destabilized is because we don't have a way to really keep and retain roots in those areas where there's access to capital, or predatory speculation. It's all up in there, just [cross talk]

Eve Picker: But it's really hard to get a neighborhood to focus, when has more than its fair share of single parents and people with two or three jobs.

Majora Carter: Those are the people that want more, and you know what? Believe me, and not to pooh-pooh it at all, yes, there are those who are not going to get out of their heads at all, but then there's those are just like, "You know what? Why can't I have it?" There's always a critical mass of folks who are just literally waiting for something to do, like, frankly, the folks who saw me being bullied with this protest and who were just like, "No, wait ... I see that. I know what I can do." You may think that just buying a cup of coffee, a specialty cup of coffee, might not be an act of rebellion or resistance, but I absolutely looked at it like it was.

Eve Picker: Yeah, I think you're right.

Majora Carter: I think there's more of that that's just waiting for a reason to be there, to actually stand up and be counted, and maybe even count a little bit of their own dollars to say, "You know what? Yeah, I believe in it. I believe in it so much that I'm going to invest in it."

Eve Picker: So that's what we've got to make happen at the train station, right?

Majora Carter: Yes [cross talk]

Eve Picker: I'm going to ask three sign-off questions that I ask of everyone, because I think I've taken up enough of your time. I could keep talking to you all day long.

Majora Carter: I know. I love it [cross talk]

Eve Picker: I think I know the answer to this, but we may as well reiterate - what's the key factor that makes a real estate project impactful to you?

Majora Carter: Mixed-income housing, mixed-use ... Well, the actual specifics - mixed income housing and mixed-use economic developments. But I think the real vision is talent retention in low-status communities.

Eve Picker: Then, do you think that crowdfunding might ... I mean, you touched on crowdfunding. Do you think it might benefit impact real estate developers in more ways than just raising money?

Majora Carter: Would it impact real estate developers?

Eve Picker: Well, or neighborhoods or any [cross talk]

Majora Carter: -no, I think that you couple the idea of putting your cash into something that you believe in that is actually going to support your community creates a level of ownership that, you can't buy that; you just can't. It sets up a foundation and roots in ways that I think a lot of folks wouldn't know what else to deal with.

Eve Picker: I think that's right. Then, this is a really hard one - if you were going to change one thing to make real estate development better in the U.S., what would it be?

Majora Carter: Just one?

Eve Picker: Blow up all the Walmarts ... I'm just joking ...

Majora Carter: You know what? Honestly, I really would go back to ... It's very practical. Creating a fund and education platform specifically for people in low-status communities to either retain their properties or purchase them.

Eve Picker: Like a land bank.

Majora Carter: Mm-hmm. It's not necessarily a community land trust, although that could certainly be a byproduct or a result of it, absolutely. But I think, ultimately, right now, we just have to stop the bleeding. I just think about my own neighborhood, whereas, I think within the past 10 years, our local homeownership rate has gone down from like 20 percent down to less than seven.

Eve Picker: Oh, why? Why did that happen?

Majora Carter: Because predatory speculators [cross talk]

Eve Picker: -foreclosures ...

Majora Carter: Yeah.

Eve Picker: That's really bad.

Majora Carter: Yep, exactly.

Eve Picker: Well, on that sad note, I'm going to say [cross talk] I'm going to say thank you very much for talking to me. I thoroughly enjoyed it-

Majora Carter: Thank you. Right back at you.

Eve Picker: -and I really hope we'll continue talking.

Majora Carter: Cool. I hope so. Yes.

Eve Picker: That was Majora Carter. I'm in awe. Majora is uncompromising about her mission. She lives and works in Hunts Point in the South Bronx, one of America's lowest-status communities, just two blocks from the house she grew up in. Majora is undaunted by taking new and necessary steps. When it became clear that no coffee shop operator wanted to operate out of her space in the neighborhood, she created a own business to achieve her goal. She's committed to further developing the neighborhood where she lives and has now set her sights on the conversion of a former railway station into a food hub. She lives in a brownstone, two blocks from the one she grew up in. Now that is putting your money where your mouth is.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Majora, for sharing your thoughts. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Matt Hoffman, whose primary interest these days is the intersection of housing and technology. He's an active early-stage investor in companies with tech-enabled solutions that can transform the housing sector in a way that increases affordability and sustainability.

Eve Picker: He's also a founding partner in HEALTH+, a suite of telehealth services bringing healthcare and lower-cost prescription medications to lower-income residents of multifamily housing. This is built on his background of over 25 years' experience in the private, public, and non-profit sectors, as a social and business entrepreneur and serving as a policy advisor to the U.S. Secretary of Commerce.

Eve Picker: Be sure to go to Eve Picker.com to find out more about Matt on the show notes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Matt. Welcome. Thank you for joining me.

Matt Hoffman: Pleasure to be here, Eve.

Eve Picker: I know that your interests have shifted over the years, and you worked as a developer in a large mission-driven organization for a while, but you're now pretty squarely focused on technology and innovation. I'm just wondering how that shift happened.

Matt Hoffman: While working in residential development for 15 years, in one capacity or another, it became very clear that the housing market was getting away from most Americans, whether they were renting or seeking home ownership. By that, I just mean it just wasn't accessible or affordable. People obviously are housed, but not in an optimal way. Looking at the market, a question that I asked myself, coming from a policy background, was how could we transform the way that we build, that we preserve housing in the country?

Matt Hoffman: Although there certainly are some key policy levers that we could pull, I felt that the biggest shift could come from the market side, itself, and through the application of technology, which really has not penetrated the housing sector like it has most other sectors of our economy. That really was the draw - trying to solve for the housing affordability challenge that the US faces right now and looking for entrepreneurs who were looking to apply technology and business model innovation enabled through technology to the housing market.

Eve Picker: You created HousingTech Ventures?

Matt Hoffman: I did. HousingTech Ventures is a technology-focused venture fund seeking early-stage companies - seed stage and Series A - that have solutions that are tech-enabled solving a problem in the housing market in a way that, at scale, could increase housing affordability. The way I think about it is where are the entrepreneurs in the housing sector that could provide that kind of transformation or disruption, even, to the marketplace that Uber did to the taxi market or Airbnb to the hotel market? It's not so much that they eliminated the incumbents, but they really forced those incumbents and the regulators who oversee those markets to change their business practices.

Matt Hoffman: We need to see that in the housing market, and the evidence is clear. We have 7.4 million units- a shortage of 7.4 million units that are affordable to lower-income Americans. We need to add 400,000 new units per year - that's a net number - to serve the number of renter households that are coming into the market over the next decade; that's 4 million units right there. We need to add 8 million units of home ownership over the next decade for the new household formation. We clearly are not going to get there using the same practices that we've been using over the past several decades. In fact, it's getting harder as we try and address existential issues, like climate change, which, rightfully so, are forcing us to change our policies, which unfortunately make it harder to produce housing.

Eve Picker: Yes.

Matt Hoffman: We need that kind of disruption and transformation in the housing sector.

Eve Picker: I usually think about this in terms of building, construction, disruption, but I'm sure you're thinking about it in in other ways. Can you tell us about any disruptors that you are seeing that are very different?

Matt Hoffman: Sure. I'm very excited, first, about what we're seeing in the construction-tech sector; entrepreneurs who are applying technology to how we build. Fortunately, there's a lot of capital flowing to those companies; whether that's 3-D printing, or construction-site management, or the use of drones, or robotics, especially related to bricklaying and drywall hanging; lots of opportunity in construction tech, and that's all good. That's automation, which produces greater efficiency, which will lower the cost of inputs to produce housing.

Matt Hoffman: I have been focused more on business-model innovation that's enabled through technology. What excites me about that, first and foremost, is it's less obvious, and there's not as much capital flowing, so I tend to be attracted to harder problems to solve. Automation, in general, is happening throughout the economy. It's finally penetrating construction and the building trades, and that's going to happen over time. The real challenge is how can we accelerate change? I think that's through business-model innovation.

Matt Hoffman: Let me give you a couple of examples of the type of companies that I'm interested in. There's a company, for example, in Seattle called CityBldr, an early-stage company that is using machine learning in identifying opportunities to build housing, by-right, according to the zoning code, by aggregating potential development parcels, which is a very difficult [cross talk]

Eve Picker: -it's very difficult. Yeah.

Matt Hoffman: What I like about the CityBldr's approach is there are sophisticated software tools for developers to use to do that type of modeling, but the approach that CityBldr is taking is both on the supply and demand side. So, the supply side are the landowners, the current landowners, who essentially have a lock on the property. The demand side, in this case, is the developers or even cities that are seeking economic development and revitalization for an area. This tool is egalitarian in that it enables both parties to come to the table and look what could be built and does a pro forma that demonstrates to both sides what the economics are of the deal and what the land value the deal can tolerate.

Matt Hoffman: I'm hopeful that through this type of analytics being applied in the marketplace, we'll be able to unstick deals that don't get done for a variety of reasons and put tools in the hands of both buyers and sellers to enable development to happen and to enable it to happen by-right, so we can get the highest and best use for land that's appropriately placed, that's in demand, and that can help alleviate the housing challenge. That's a machine-learning example.

Matt Hoffman: We also have companies that are unlocking credit opportunities for people who've been shut out of the credit markets. There's a company based here in Washington, D.C., where I am, called TILL (T-I-L-L) that's working with renters who are either no-file, or thin-file, to use the credit vernacular. In other words, they have no credit or poor credit. These renters, like anyone, sometimes experience unforeseen challenges that restrict their cash flow.

Matt Hoffman: Example: someone is doing all the right things. They're housing themselves and their family. They're working, and the car breaks down; they need to pay $1,000 to get the car repaired, and they need the car in order to get to work. But now they've spent $1,000 on the car that they were going to spend on rent. They don't have savings. What do they do? Really, their only ... They have two options. One is to not pay the rent. They don't pay the rent, not only do they face late fees, but they could get evicted. The other option is to go to a payday lender, which will likely charge upwards of 400-percent APR and put them into an endless cycle of late fees and loan renewals. These are loans that are designed for the customer to fail.

Matt Hoffman: TILL saw the opportunity with these borrowers to provide them with a loan structure that's designed for them to succeed. In other words, it's not a predatory situation. TILL can provide the service and make money without preying on these very vulnerable borrowers. What does that do? That's essentially de-risks the credit from the landlord because TILL pays the landlord directly, and it also enables the tenant to bridge whatever minor financial crisis that they're currently facing, get back on track, and, most importantly, stay housed. They don't have to move themselves or their family and potentially end up on the street. Those are just two examples. One is, obviously, zoning. One is credit. There are many others I could give, as well.

Eve Picker: Yeah, I think I saw one ... I think it was New York Times, just this week, where these two guys started a company where they help people with rental security deposits, which I suppose might be another barrier of entry for a lot of people.

Matt Hoffman: Exactly. Again, that's a credit-based model, or financial-services- based model. There's so much opportunity for business-model innovation around financial services and credit. In the US, if you want to house yourself, most people have only two options. You either sign a 12 -month lease, which does require an additional security deposit, or you sign a 30-year mortgage.

Matt Hoffman: We are much more sophisticated than that. We can offer people a host of options for both home ownership and for renting that can better suit their economic situation, and even their temporal needs. Maybe someone only is prepared to obligate themselves for three or six months instead of the standard 12 months. Unfortunately, the business models have not only been locked in by the market side, but also by regulation, much of it very well-intentioned for tenant protection, but, to a large extent, I think that's inhibited owners and landlords from innovating and offering other solutions. I think that's largely, in part, because we've had too many bad actors in the real estate market who've preyed on tenants who, especially at the lower end of the income spectrum, are very vulnerable. We've had some pretty heavy handed regulations which, when that occurs, tend to inhibit innovation.

Eve Picker: Well, I can see why you're fascinated by all of this. Still, that's like how on earth do we bridge the 7.4 million short? That's crazy. That's a very big number.

Matt Hoffman: One way to do that is not only through production. There's no way we're going to build our way out of this in the near term. The shortage for affordable units is actually 7.4 million. That's according to the Harvard Joint Center for Housing Studies, which is the annual report, which is the Bible of the industry. If you put a number on that of $200,000 per unit, that's $1.5 trillion of capital, we would need to build our way out of it. Not to mention, how would we address the labor issues, the labor supply issues? We clearly don't have enough construction workers in the country, right now; as well as where would we build it, permitting, et cetera? We could not build our way out of this.

Matt Hoffman: We also need to look ... That's the supply side, but there is the demand side. We are seeing co-housing and other models emerge where, again, we're moving away from the traditional model of one tenant or two tenants per unit and looking at unrelated parties sharing spaces in ways that are not locked into that 12-month lease. There are companies, like Nesterly, out of New York, which is opening up a service in Boston that matches millennials with seniors who have extra rooms in their apartment that they'd like to rent. The millennials that they're targeting are typically seniors- I'm sorry, students, of which Boston has only 250,000 full time students. Plenty of market share there for them to penetrate.

Matt Hoffman: Then, other companies, like Common, and Starcity that are bringing co-housing to the multifamily market. PadSplit, which is bringing co-housing to the single-family-rental market. On the demand side, we're filling in with different models that can not necessarily produce new units but can house more people. That's going to be essential because the two biggest demographic cohorts in our country are millennials, which is a bigger cohort than the baby boomers, and seniors. Those two cohorts - millennials, and seniors - will continue to be the largest for the next couple of decades. Their housing needs are significantly different than what has become the typical housing scenario - which I referred to earlier - of 12-month lease or 30-year mortgage that has dominated the marketplace for the last multiple decades.

Eve Picker: Yeah, okay. I think that's right. Family structure is also changing. The house for mom, dad and 2.3 kids isn't really quite the way we live anymore is it? Or many of us-

Matt Hoffman: It's not. You actually have a pretty interesting innovator in Pittsburgh who's addressing that. Brian, at Module, has a company that's thinking of the home as essentially an expanding unit. Constructing a new home, starter home, that's two bedroom/one bath, but it's built in a way such that you can add on additional components as a family's needs change. Add a bedroom and a bath as children are introduced into the equation; add an accessory dwelling unit, if parents come home to live, or even students who've graduated and return to live at the family home while they start their careers.

Matt Hoffman: This notion of being able to stay in place ... When we talk about aging in place, we often think of people in their 60s, 70s, and 80s not wanting to go to a nursing home and holding onto the family home or an apartment. What I think the new definition of aging in place, that Module and others, who are introducing the concept of a transforming home, bring to the market is that the home can be more than just a single- serve a single purpose or a single point in time without major renovation.

Eve Picker: Yes. Still, my frustration with a modular market like that is it's so expensive. It really- it just hasn't reached the point yet where it makes a lot of sense for most people. It's, I think, a good idea, but it's still extremely expensive, but maybe that will change really soon.

Matt Hoffman: One of the things we need to change, I think, with regard to that - and I'm not a modular expert per se - but oftentimes the cost of development or construction only looks at the structure until the point it's delivered to the marketplace and not at the ongoing operating costs. I think that factory-built housing, whether it's modular, or panelized, or manufactured, most people would agree it produces a better product. It's better built.

Matt Hoffman: It's not built in the environment where it's exposed to rain, weather, and other issues, so the operating costs can be reduced - there's fewer repairs, the seals are tighter, et cetera. I think, over the next few years, my prediction would be that we'll find that people who are developing and financing housing will do a better job of calculating forward costs and not just the project-related costs, when they're factoring in the viability of factory-produced housing.

Eve Picker: Really, what it requires is for financial institutions to factor in those forward-looking costs so that someone building a modular home gets a credit for it, because the operating expenses are going to be lower, and therefore, they can maybe borrow more. I think that's part of the problem. People are trying to hit a budget at the beginning of a project. They only have this much money, and they need that much space.

Matt Hoffman: That's exactly right. I think that this all goes back to a very valuable lesson I learned called the Golden Rule. I didn't learn it in Sunday school. I actually learned it early on in my career as a developer. It's not the Golden Rule that you think. This Golden Rule is he or she who has the gold, makes the rules. I learned that as a developer, getting very frustrated, going to banks, trying to borrow money for projects that I thought were extremely compelling and would be financially rewarding. But as a new, young developer, I was consistently getting rejected for my loan applications. A more seasoned developer said that my problem was I didn't understand the Golden Rule when I was trying to argue the logic of investing in my project.

Eve Picker: That's right. Anyway, I do think that innovation has to occur at the bank level, at the mortgage level, along with all of this. It's pretty hard to borrow money, as you know, not only because it's the first project you're doing, but also because it's different. It doesn't fit the cookie-cutter project that banks want to invest in. I hope bankers are listening here ... Anyway, you also have another company that you're a partner in, HEALTH+. I'm wondering how that fits into all of this.

Matt Hoffman: I decided that one of the best ways to be a venture capitalist was to understand the other side of the table. It was actually a little bit more serendipitous than I'm presenting in that expression. As I started to structure HousingTech Ventures, I was approached by someone in the insurance business I'd known for a long time. He explained that one of the products that he sells to employers is a telehealth product that rides alongside the standard health insurance that people get offered from their employers.

Matt Hoffman: It's a 24/7 service called Teladoc that any employer that offers it to their employees, the employee can call, speak with a licensed medical doctor, 24/7, either over the phone or video-chat platform that's offered through their app. What he explained was that employees love this, because most of the time ... In fact, the industry reports about 70 percent of the time, visits to the doctor could be handled over the phone. This is cold and flu, upper respiratory, sore throat, earaches, stomach ache, things of that nature.

Matt Hoffman: Oftentimes, I'm sure you've had the experience where you know that you need an antibiotic or some other medication, but you need to go see the doctor in order to get the prescription written. You go, and it turns out to be the exact scenario you predicted. With the tele-health, you obviate the need for transportation, for the unexpected hours that you can end up waiting in the doctor's waiting room, even though you have an appointment, or worse, for some people who go to emergency rooms for non-emergency care, that can be a significant amount of time - four to five hours - not to mention that it's a use of resources that are needed elsewhere.

Matt Hoffman: His epiphany was what if we replace the employer with the landlord and offered this product to especially lower-income renters who struggle to access health care? Having spent 15 years in affordable housing and interacted with many lower-income renters and understanding the difficult situation that they're often in having to make difficult choices, I recognized that this would be an invaluable tool. The question really was, could we get landlords to see that by having healthier tenants, it would be worthwhile them paying for the healthcare.

Matt Hoffman: It's at a price point where it really does make sense, because a healthier tenant is someone who goes to work, and lower-income people mostly or hourly workers, which means shift work. So, if they are awakened at 3:00 in the morning by a child who is not feeling well, and they have to be at work at 6:00 or 7:00 in the morning, they're put in a very difficult situation. Do I take my child to the doctor, and if I do, do I potentially miss work, and if I miss work, do I get fired? Since, most shift work, that is the penalty for not showing up. Or, do I go to work, and my child remains untreated? In this country, with the resources we have - the doctors, not to mention the capital - people shouldn't be in that situation.

Matt Hoffman: This really isn't a social program because, for the landlord, if that tenant misses work and it disrupts their income, they're likely to have to move out, either of their own choice or through eviction. If that happens, it can cost the landlord $2,500 to $4,000 in turning that unit. So, it really does make sense to prophylactically provide a tenant with access to this type of healthcare. We started this company about five months ago, and we've already started rolling out with several landlords, and we're getting very positive feedback.

Eve Picker: That's fabulous. So, you're a startup?

Matt Hoffman: I'm a startup, so that's why I'm kind of eating my own lunch ... That's not the right expression, but eating my own cooking, because I am out in the marketplace with large- and medium-sized landlords, primarily, trying to sell them something, just like startups are coming to me, trying to sell me on an investment in their company. I understand the challenges of presenting your case, knowing that you're right, and believing in what you're doing, and having people on the other side of the table say no, or even worse than no is maybe [cross talk] maybe puts you in no man's land.

Eve Picker: I'm going to connect you to a landlord who I think might be interested, in D.C., okay, when we're finished. I think it's a fabulous idea.

Matt Hoffman: Wonderful.

Eve Picker: What do you like best about the world of real estate impact investing? We're clearly in the middle of it.

Matt Hoffman: What excites me about impact investing in real estate is that traditional real estate investing is all about yield. I think whether it's commercial or residential, we've really gotten away from the power of architecture, and design, and the effect that the built environment has on the human condition. The impact side of real estate investing brings that back to the table.

Matt Hoffman: I'm in Washington, D.C.. If you come visit us downtown, now, every new building, because of the height restriction we have here, is a glass box that's built out the lot line. I can put you on almost any street, and there's very little distinction between any of the buildings, and you'd have no visual reference for where you were, especially if we took away the street signs. I think that's really a missed opportunity, not just for the aesthetics of the city, but it really diminishes the livability of the city, because it becomes just a purely functional place. I think that architecture, both on the commercial and residential side, and how we build communities is so critical to our existence, to our positivity, to our engagement with each other.

Matt Hoffman: Impact investing, in my opinion, is bringing that element back in. Maybe less so on the design side, because you still have the economics of the deal, which are largely driven by land costs and the cost of capital, which we were talking earlier, but how people live in structures, whether they're single-family, or multifamily, or even commercial properties. The impact investing side is bringing that element to the table again. For people who are passionate about society, whether it's connected to real estate or not - if that passion is connected to real estate or not - I think can participate now in real estate investing and the power of real estate to determine what our society- how it evolves.

Eve Picker: Maybe equity crowdfunding has a little role in that, because communities can actually also participate in what's going to happen in their community. That's what I would hope for it anyway.

Matt Hoffman: Oh, absolutely, because impact investing is all about alignment of values with the investment. You have capital; you have values; you deploy the capital in a way that aligns with those values. I think that's what I'm driving at with how we can connect something more than just the economics of a real estate deal to that deal, whether that's about affordable housing, education, health care, job training, employment, whatever that might be. Certainly, climate change, that's the most obvious one. We're seeing a decent amount of capital, I think, flow into real estate that is more sensitive to climate change. We have a long way to go, though.

Eve Picker: Where do you think the future of real estate impact investing lies? You say we have a long way to go; what's kind of the [cross talk]

Matt Hoffman: When it comes to money, I think that people have good intentions, but, at the end of the day, most people want the highest deal that they can get in any investment. We need to build awareness globally, not just in the US, about the long-term effects of any investment and make more transparent that the investments that you make that yield the highest returns often fly in the face of your personal values. We, as an impact ... Someone who's been involved in impact investing for the last decade or so, I don't think we've made that message very clear to people. I think it's the most powerful element of impact investing.

Matt Hoffman: I think that most capital that's deployed in impact investing in the future will be done at the local level, because that's where people will be able to touch and feel their money making a difference. When we abstract investing, like we have, the sophistication of the financial markets now is such that if you have some means and are invested, you have exposure globally, and you don't have to have millions of dollars to do that. You can do that through unsophisticated retail accounts and financial advisors, as most for 401ks, or those types of vehicles have access to. When you abstract it, you remove that personal connection. Impact investing enables us to reinstitute that connection, and I think that's going to be the most compelling thing that unlocks more capital that goes into charter schools, affordable housing, healthcare clinics, et cetera, that we deem to be true impact.

Eve Picker: I hope that's right, because I think you're right; I think people still thinking, first and foremost, about the financial return and not the triple bottom line. It feels to me like, in the impact investing world, people want both. They're not willing to compromise yet. I hope that changes a little bit.

Matt Hoffman: Well, I think if you continue to promote these types of conversations and raise awareness, it'll be a big step forward to doing that.

Eve Picker: Good, good. I have three sign-off questions for you that we talked about before, and I'd love to know your answer. The first is what do you think is the key factor that makes a real estate project impactful to you?

Matt Hoffman: For me, the key factor is does it have an element that can be modeled by others to change how we house people? Impact is about transforming what we're doing right now. I love projects where I can look at something and say, "I haven't seen that before, and that can be applied over there, and over there, and over there, and replicated time and time again, at scale." I think that that's the key factor for me.

Eve Picker: That's pretty interesting. Then, crowdfunding can benefit an impactful real estate investor in just raising money, but I wonder if you think it can benefit in other ways, as well.

Matt Hoffman: I do. I think that crowdfunding has the ability to bring new partners together at the local level. As I was referencing a few minutes ago, these local projects, whether they're economic development, trying to drive new jobs, or retain jobs in a community, or build senior housing, which we need a lot more of, or transform a downtown, all of these elements, I believe, get people excited. It's the crowdfunding element, where everyone can participate in achieving that vision that I think can make the big difference. Obviously, bringing the capital to the table is essential and the primary purpose of crowdfunding, but there's a strong social element to it that can bind a community together that I think is equally as valuable.

Eve Picker: I do agree with you. Finally, this is a really hard one - if you could change one thing that would make real estate development better in the US, what would that be?

Matt Hoffman: Without a doubt, it would be eliminating or, at best, modifying single-family zoning. We've seen two examples of it in this past year, in Minneapolis, and the state of Oregon. Those regulations have been passed. I'm a firm believer that we need to densify many- not all, but many neighborhoods and at least put the power of that densification back in the hands of property owners and local urban planners.

Matt Hoffman: Without that, and our inability to continue to sprawl - we shouldn't do anyway, but especially in light of climate change - and our lack of ability to invest in new infrastructure, we're going to continue to languish in this current period of having an immense shortage of affordable housing. Without a doubt, for me, it's eliminating single-family zoning and allowing much denser development to happen in neighborhoods that are well-located, connected to transit, near good schools, and in economically thriving areas.

Eve Picker: Well, that was really fabulous. Thank you, Matt. I really enjoyed talking to you, and I'm sure we'll talk again.

Matt Hoffman: Thank you, Eve.

Eve Picker: That was Matt Hoffman. There is no doubt that finding affordable housing solutions through technology is foremost in Matt's mind. He's thinking big, sourcing companies like CityBldr, which uses machine learning to aggregate land, or credit companies, like TILL, trying to solve credit issues for low-income tenants, and Matt has thrown his hat into the ring by launching his own startup, HEALTH+. With a shortage of 7.4 million affordable housing units today, we need Matt to keep thinking big.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website site, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Matt, for sharing your thoughts. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Liz Falletta. Liz teaches architectural and urban design at USC's Price School of Public Policy, where she's taught for over 15 years. But that's not all Liz does by a long stretch. Liz is also a small-scale developer, having developed, painfully, one of LA's first small-lot subdivision projects. She sits on LA's Zoning Advisory Committee, which is tasked with critiquing the city's Recode LA Project, a $5 million five-year plan to overhaul the zoning code. Last, but not least, Liz has just published a book, "By-Right, By-Design," where she researched housing solutions. Be sure to go to EvePicker.com to find out more about Liz on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Liz. Thank you very much for joining me all the way from California. It's earlier for you than me, right?

Liz Falletta: Yes.

Eve Picker: I know you teach architecture and urban design at the University of Southern California's Price School of Public Policy. I think you also have your own development firm, wrote a book, and you were one of the first developers to develop a small-lot subdivision in LA. You're a very busy woman.

Liz Falletta: Yes. I do teach design across disciplines at the Price School at USC. I'm an architect and, for a long time, I taught in our architecture school, but now I'm exclusively in our policy-planning environment. Thinking about design from multiple perspectives is something that I do a lot. I guess it's been a long time now since I did that small-lot subdivision project, and I think I've blocked a lot of it out.

Eve Picker: Well, I wanted to hear a little bit about your development work. What prompted you to test out the small-lot subdivision? It might be worth telling our listeners a little bit about that zoning-code overlay, which I kind of find fascinating.

Liz Falletta: Sure. The small-lot subdivision came out of an effort by the LA Planning Department, in 2004/2005, to really address housing and our mounting housing crisis, which is now even more of a crisis. They actually invited an interdisciplinary group of designers, developers, planners, other stakeholders in housing to brainstorm what are some ideas, from a policy-planning perspective, that could engender housing production.

Liz Falletta: The small-lot, or, aka, zero-lot-line housing was one of hundreds, I think, and was really the one that got pursued. I think the idea was if you were able to scale down homeownership and also allow development outside a condominium model ... Because, really, what the small-lot allows is feasible homeownership on a smaller scale. Contractors and builders don't have to get onerous builders risk insurance like they do when they build condominiums.

Eve Picker: Interesting.

Liz Falletta: Yeah, no, it's ... I think planners really thought that the smaller scale would create for more affordable housing.

Eve Picker: I've seen some of that, and it's not affordable, is it?

Liz Falletta: No, no. That is the thing that struck me the most is that, if you build a small-lot in Venice on the west side, it's going to be $2 million a unit, because it's the west side. Build one in Silver Lake, it'll be a $1.5 million. Smaller-scale solutions, I think, are a good option. I think ultimately, after having done one, and having seen how the small-lot has evolved since I did the one that I worked on, I think it's one tool amongst many [cross talk]

Eve Picker: I think what it does do is it sort of maximizes the use of infrastructure that's already in place. I know that there are cities all over the world kind of densifying areas through zoning so that they can maximize their transit [cross talk] and utility lines. One little house in the middle of a very large lot in a highly desirable neighborhood doesn't really ... It just makes the sprawl go further, right?

Liz Falletta: Exactly. I think one of the things that was actually brilliant about the way the ordinance was written is that it didn't have anything to do with the zone change at all. It had nothing to do with zoning. It just allowed you to use lower-density, multifamily-zoned sites in a different way. They might have been built as apartments or condominiums before, but this allowed ... We have a restricted-density zone, for example, probably 20 dwelling units an acre, density-wise; it allowed those sites to be developed with for-sale housing, which, at the time, was ... The small-lot subdivision came out pre-crash.

Eve Picker: If you were to rewrite that today, what would you change about that small-lot subdivision overlay?

Liz Falletta: That's such a good question. I do think ... Because it's actually not an overlay, but I think using it as an overlay, and being more targeted and specific about where it could be used and how, I think, would be helpful [cross talk]

Eve Picker: So, it's LA-wide. It's just a change for the zoning-

Liz Falletta: It's LA-wide, yeah [cross talk] It's an ordinance that allows you to develop with a different model. It was sort of marketed as small houses on small lots, and it really has turned into giant houses on small lots.

Eve Picker: Yeah.

Liz Falletta: So, I think [cross talk]

Eve Picker: It's an interesting- it's like an interesting lesson in how much you'd have to think about the details of a code like that.

Liz Falletta: Oh, yeah. Also, you have to ... I feel terrible saying this - you have to think about the bad actors.

Eve Picker: Yeah. I think that's right.

Liz Falletta: Who's going to abuse this, and how, and-

Eve Picker: So, this is not a democracy. It's [cross talk]

Liz Falletta: Yeah. How do we head off the bad acting? I think we saw a lot of really bulky design that communities pushed back against. You saw a lot of projects ... There were a lot of single-family homes that were built on multifamily-zoned sites, so you saw a lot of turnover of those kinds of sites, and communities ... You know, communities, in the main, don't really understand zoning.

Eve Picker: Yes, that's right.

Liz Falletta: And were very upset to see houses being demolished to build these giant things. Then a lot of rent-controlled small-scale housing from the '20s, '30s, and '40s has been demolished to build them, also.

Eve Picker: Maybe even just saying that if you have the privilege of adding more units to a lot like that, there's a maximum size to each of them would have kind of stopped that. It's interesting. What other development are you doing?

Liz Falletta: I have done development in the past. I did two or three small-lots, also, that, in the end, didn't get built. Then, the market crash happened, and then I started teaching full-time, and then, I started writing this book, which, it turns out, takes a long time to write a book. So [cross talk]

Eve Picker: Yes. So that's taken over. Okay- [cross talk]

Liz Falletta: -yeah, but I am actually, I should say, looking to do another development. I feel like I learned a lot by doing all the research for the book. I would like to get back into small-scale development in LA.

Eve Picker: What's interesting about small-scale development?

Liz Falletta: Personally, it's just the financial scale [cross talk]

Eve Picker: -in LA, small-scale is still really big, and expensive, right?

Liz Falletta: -yeah, still pretty expensive. But also, I think that's where we can build successful communities. Not that we can't have large-scale communities that are successful, but I think neighborhood change in giant steps is not palatable to communities. I think smaller-scale changes can be really impactful [cross talk]

Eve Picker: Right. It's a way to innovate change slowly and gently, right?

Liz Falletta: Yeah, and in ways that people can embrace and see immediate benefit from, as opposed to this 200-unit housing project that assembled 10 lots, and suddenly, the neighborhood is totally different.

Eve Picker: Yeah, I think that's right. Your work focuses a lot on LA. What conditions have you found that are unique to LA versus just across the country [cross talk] in the research that you've done?

Liz Falletta: One of the reasons why this research was well-suited to LA is we really do have a strong history of design innovation, but also a really interesting history of multifamily housing and different multifamily housing types. They're different types than we see maybe in Chicago or New York. Then we also see these types have persisted. Our city is younger than many on the East Coast, so these types are still extant in a way that maybe they aren't in some other communities. I think, also, LA has the reputation - and it's somewhat true - super pro-growth; really driven by development and developers. There's long been a close association with the city with the development- development as a profession.

Eve Picker: Your book is called "By-Right, By-Design." I'd love to know how you came to that name.

Liz Falletta: So, by-right, as I'm sure you know, just means by-right projects can be built with ministerial approval - approvals where nobody can say ... If you meet all the criteria, and the criteria are laid out, nobody can deny approval for your project. Developers really like by-right projects, or permissionless projects, because they're a lot more certain, and they're less risky, and they usually take less time. Developers would prefer to build by-right if they can. That's become increasingly impossible in Los Angeles. There's been a lot of discussion about by-right housing- elevating the threshold of by-right and actually making more projects able to be built by-right.

Liz Falletta: For my purposes, I needed a second category that was a corollary to by-right, and that's where by-design came from, because the book really looks at a set of six case studies that look at really famous Los Angeles housing precedents by famous architects, aka by-design, with their by-right counterparts. By-design could also mean by-discretion, or by-variance. All of the by-design projects actually required some sort of discretionary approval to be built.

Eve Picker: Interesting. And do you think they're better?

Liz Falletta: Not always, actually.

Eve Picker: That's interesting.

Liz Falletta: No, I was ... Because one of the questions I had when I started out on this is like I wonder if all these projects that are really famous, you know, that I studied in architecture school, I wonder if they broke the rules; if they could only do these innovative things by not following the rules. It was true. They all required variances of different kinds. I don't think being by-design means they're necessarily better, or better designed, or that if they're in the by-right category, they're poorly designed.

Liz Falletta: One of the things that really started this research is some annoyance at the fact that architects always ... A. they always believe that unless it was designed by them, it's not really well-designed, and B. that - I should also say that I'm a licensed architect - but that they really thought more design was always better in every situation, and it's not necessarily true. I was frustrated-

Eve Picker: That's a pretty damning thing for an architect to say.

Liz Falletta: I know. I'm sorry [cross talk] bad. I guess typically what I say is I think design really, really, really matters. It just doesn't matter in the way that many architects think it does.

Eve Picker: How so?

Liz Falletta: I think architects are trained to be innovative all the time, to be focused on image, to be focused on creating things that are new, that are this, that are that. I think that allows them to not see, or to discount other aspects of design that are maybe tried and true, or repetitive, or something that actually really matter to quality of life; because I think the design of housing, for example, really matters, but I think what really matters about it is a lot about density, about spatial organization, about circulation, about how common space and open spaces organize. I should say, also, I think there are a lot of amazing architects doing really great projects who don't maybe share these attitudes, but I think the profession focuses less on these things; doesn't feel like these things are as important.

Eve Picker: Yeah. As you know, I'm also a trained architect, and I went to the dark side, too, and became a developer.

Liz Falletta: Yay!

Eve Picker: Yeah, but, you know, I have a sort of similar frustrations with the architecture profession, which I adore. I think that architects are trained in a unique and priceless way, but I think they are not necessarily ... Especially young architects don't really understand how much they've learned and how they can put that to use in other ways and follow a traditional path in sort of that branded architecture studio that may not always make the world better.

Liz Falletta: Yeah.

Eve Picker: I wish they'd learn a little more about real estate development, as well, because the pragmatic side of architecture is sometimes overlooked, right? I remember having conversations with an architect about the fact that five units would be so much nicer than six. I'm thinking, "Well, five units won't be built and six will be ..." It's that sort of basic thinking, yeah ...

Liz Falletta: Yeah, because that sixth unit is your profit; that's your cash flow [cross talk].

Eve Picker: -or I'll break even. It may not even be profit, you know?

Liz Falletta: Exactly. One of the reasons I wanted to write this book is because I wanted to help architects, and planners, and real estate developers better understand each other's goals and values so that that architect could use his understanding of the profit motive in real estate to get his or her own goals addressed, or met, or something. Because, if architects just sit there and say real estate developers are terrible because they don't understand that the five-unit design is going to be better than the six-unit design, that's completely unhelpful. It's not going to get us anywhere.

Liz Falletta: I think what architects don't understand is they have an interest, a vested interest, in the planning and real estate development strategies of the projects they design, right? A good example from the book is Gregory Ain's Mar Vista Tract, which had a very enlightened developer who had done some development in the '20s, or early 20's; hadn't done anything in the '30s, during the Depression, and really wanted to build a community, which is fantastic. Ain was also very interested in that. They got a lot of pushback from lenders, and they got a lot of pushback from the city planning department, in terms of how it was laid out, and the style the houses; did it have flat roofs or not? Ultimately, they could only build half of the tract, and that half was a financial failure. So, if people wonder why we don't have modernist communities, that is one reason.

Eve Picker: Yeah.

Liz Falletta: They had to sell off the rest of their land. and it got developed in the traditional kind of manner.

Eve Picker: Talking about by-right, I know you're a fan of the recent offering we had on Small Change, Bungalow Gardens, which is in your neck of the woods. It's a little homeless housing project. I believe that's a by-right project [cross talk] and I'm wondering why you like that project.

Liz Falletta: I personally would love to build a bungalow court for myself. My goal - I think a lot of people have this goal - it's going to be hard to do here in Los Angeles. Everybody wants to build a compound, where you can live with your friends and have communal dinners. Actually, also, I should say that the first place I lived when I moved to Los Angeles was a very small bungalow court, and that-

Eve Picker: Oh, cool!

Liz Falletta: It was interesting. I moved out here from D.C. to go to SCI-Arc, actually, for grad school. Finding housing was really interesting, because I had lived in a rowhouse, I think, in D.C., in a basement apartment. I'd never encountered a bungalow court, but I was driving around, and they're just ... Everybody loves them. They are the best places to live.

Eve Picker: That's really sweet.

Liz Falletta: You know your neighbors immediately [cross talk].

Eve Picker: How big are they, typically?

Liz Falletta: Oh, gosh. They can be relatively large. The one I lived in was probably six units, eight units-

Eve Picker: For our listeners, the bungalow court typology, I think, start being built in the '50s, right?

Liz Falletta: Really much earlier than that. Probably the latest ones are in the '30s.

Eve Picker: In the '30s. This little one that Jason and John built - a building, Bungalow Gardens - is the first one in almost 100 years.

Liz Falletta: You can't build them now, mainly because of the parking requirements, but also just underlying density is reflected in land values, so you can't ... Basically, if I wanted to build a bungalow court, I would overpay for land and then under-develop it. Part of what makes the bungalow court work, really, is the scale and the individuality of units.

Liz Falletta: Many of the units actually- these were often built for tourists, because people would come to LA for their health, but would also ... It took a long time to get here, then, so you stayed for months. They had all this built-in furniture and fun things that allowed you to live in the unit, easily, for a few months, as opposed to having to bring all your belongings and actually move here for real.

Liz Falletta: They're very efficient; they're laid out, really, very functional. They've got a lot ... They're high, in terms of individuality, so you have a lot of identity with your unit and your space, but then there's that communal scale. That actual courtyard usually then connects to the block and the street [cross talk]

Eve Picker: It's very nice [cross talk]

Liz Falletta: -if we could all live in bungalow courts, we would [cross talk]

Eve Picker: -maybe the issue is not ... Maybe the issue is not just by-right, and by-design, but also by-cost, because the cost of land clearly drives development, as well, right?

Liz Falletta: You have done your deal when you bought the land, right?

Eve Picker: Yes.

Liz Falletta: If you overpay for land, you're done. You have determined sort of what kind of project you're going to do and whether that project's going to be a success or not.

Eve Picker: How does all of that fit in with affordable housing?

Liz Falletta: One of the other benefits of building small-scale housing and even this- the whole explosion of ADUs is many of those are going to hopefully provide inherently affordable housing, as opposed to subsidized affordable housing. Getting subsidized affordable housing, we just haven't been able to build a huge number of units. There's a lot of competition for those funds. We now have transit-oriented communities. It does incentivize the development of affordable units in mixed-use projects. You get some extra density and some parking reductions, if you're near transit, and they have a pretty liberal definition of transit. I do think that is generating way more affordable units than maybe some of our other mechanisms have in the past [cross talk]

Eve Picker: Interesting. Zoning becomes a serious mechanism for affordable housing. Actually, that brings me to the other thing I'd like to talk to you about. I think you were appointed to LA's Zoning Advisory Committee? The Recode Project-

Liz Falletta: Yeah. Mm-hmm.

Eve Picker: You're one of not many people who are critiquing that and leading a subcommittee on housing, right?

Liz Falletta: Yes. I was just talking about this with my students yesterday and realizing that I needed to check in with people at the City, because we haven't had a meeting in a while. LA's zoning code that we are still using today was officially created in 1946, even though we had a code prior to that. We had residential districts as early as 1908.

Liz Falletta: Our code has been frustrating to use for ... It makes it really difficult for people to do good projects; the kind of projects that the city wants to see. Mixed-use has always been a problem with our code, because it's very single-use oriented, so it's confusing to use. There was also a substantial sort of phantom code, or ghost code that, if you were in the know, you knew [cross talk]

Eve Picker: Oh, really?

Liz Falletta: -you didn't? Yeah, that wasn't very transparent. It meant that certain people got certain favors. The planning department wanted to do several things. One, make the code more user-friendly; I think, two, make it more modular. Basically, it's a form-based light code. It disassociates use and form. The idea is that the modularity will make the code more flexible, but then, also, as people want to do different kinds of projects, the tools are already there, in terms of making a zone combination that will facilitate that kind of project. I think the third thing they wanted to do is elevate by-right processes. So-.

Eve Picker: Interesting.

Liz Falletta: -allow more projects to be built by-right, because virtually no projects are built by-right.

Eve Picker: Yeah, and the entitlement process takes a really long time in LA [cross talk]

Liz Falletta: Oh, yeah. No, the first small-lot project I did was the real education because I was like, "This makes no sense ..."

Eve Picker: How long did it take?

Liz Falletta: Oh, my God. At least two years, yeah. It was like banging your head against a wall.

Eve Picker: Now, I know, with the Bungalow Court listing, I talked to them probably for two years before we listed it. All along the way, there was entitlement, entitlement, entitlement, right up until the end.

Liz Falletta: Yeah. What I learned is that part of that is inherent in development. Every week, something happens that's going to kill your project. It's just how it is, here. I would get upset and there would be crying. Finally, after a few months of this, I was like, "Oh, this is what development is. This is how it works. Okay. I need not get so upset about this, because it'll kill me, A, and B. that's the work site traffic control inspector. Sure, he's going to deny your work site traffic control plan ..." That I even had to have a work site traffic control plan was ridiculous, but-

Eve Picker: How many units are we talking about?

Liz Falletta: Four!

Eve Picker: That's crazy. That's crazy.

Liz Falletta: It's crazy, and they already existed. I was using the ordinance. The ordinance was silent on whether it had to be new construction or if it could be existing construction. Basically, I bought two duplexes on a big lot, and cut the duplexes apart, and cut the big lot into four.

Eve Picker: And it took two years to get it approved.

Liz Falletta: Yeah.

Eve Picker: That's nuts.

Liz Falletta: It was insane. Then they wanted me to build a public sewer.

Eve Picker: Oh ...

Liz Falletta: Yeah! It was ... I think my experience was maybe more extreme than some.

Eve Picker: I had the public sewer experience in Pittsburgh once.

Liz Falletta: Did you?

Eve Picker: Yes. The sewer was out on the main street, and they'd been wanting to move it into the alley for a long time, behind the building. Our building was at least 600 feet from the crossroad. They wanted us to lay an entire line to the [cross talk] So, every other building on the both sides of the alley could feed into it. It was really awful.

Liz Falletta: Yeah. No, they wanted me to build an eight-inch line with a manhole on my property for four one-bedroom/one-bath units.

Eve Picker: Now you're in the middle of the Recode Project. How long has that been going on?

Liz Falletta: You know, it was supposed to be a five-year project, so it's gone on six and maybe seven years, now.

Eve Picker: For a five-year project?

Liz Falletta: Yeah, five years; $5 million dollars. It's going to be interesting to see how it plays out.

Eve Picker: Do you think that it's going to be successful? Are there pitfalls that you're seeing already?

Liz Falletta: There are several. There are many pitfalls, I think. One is mixed messaging about the project and what it would do. I think they promoted it differently to different constituencies. That's fine, but they have not been very clear about that. I think, two, they have- this is a critique of urban planning. I think there's a whole sector of urban planning that feels like if they did 800 community outreach meetings, they've done their job, and I don't think that's the measure of whether this is successful or not [cross talk] I kept getting emails; "We've had 800 meetings ..." and I'm like, "Great ..."

Eve Picker: Wow, that's a lot meetings.

Liz Falletta: It was a lot of meetings. It definitely was. Then, thirdly, these zones are basically being applied in a community planning process ... I unfortunately know very little about planning on the other cities or the East Coast but, in California, every city has a general plan, which is sort of the constitution for growth and development; has different elements. One of them is about land use and planning for land use. In the city of LA, we have 35 different community plans that basically apply zoning and apply various planning tools to specific parcels and talk about how neighborhoods are going to grow and change.

Eve Picker: Right.

Liz Falletta: We update ... We don't update those very often. Five or six years ago, we'd updated four or five in the past 20 years. We didn't update them very often. What that meant for the zoning code was that most communities wouldn't see the benefit of this new code for decades. We'd have a dual kind of code system. The mayor, then, vowed to update all the community plans within six years. I don't know the status of that, right now [cross talk]

Eve Picker: It sounds like a monster project.

Liz Falletta: Yeah, no, it's just ... I fear that it was oversold, and people aren't really going to see the benefit of it.

Eve Picker: That's a shame. What do you think is the best possible outcome for this code overhaul for LA?

Liz Falletta: What all of us really focused on was identifying and reducing the barriers, which are legion. But then there was a lot of ... I think there are a lot of people out there ... I'm one of these people who want- I want to do interesting small projects, and I can't, for a variety of reasons. You have to cobble together ... It's so interesting to me that the Bungalow Gardens project really could only exist because it's in a TOC designation, because they don't have to have parking.

Eve Picker: Oh, and probably because the developers are non-profit [cross talk] they spent two years on that project, and I don't know what for-profit developer could do that.

Liz Falletta: Right. No. A for-profit developer would slide right past that project, or at least definitely not do it in the same way-

Eve Picker: Yet they got an award for innovation on that project. So, there's something really broken, right?

Liz Falletta: Yes, that is- that's exactly right. Part of the reason, also, that I wrote the book is I think ... We're having to have a citywide conversation about housing and how to produce it. Our ability to have that conversation is just as broken as all the tools that we use to try to generate housing - affordable housing that costs $500,000 to $700,000 a unit to build. I'm even beginning to think that these sort of silos that we exist in are a problem, when we think about gentrification, also. It stops the conversation. We just don't get anywhere.

Eve Picker: Yeah, I think that's right. It's kind of depressing.

Liz Falletta: Yes. I'm sorry. No, I mean-

Eve Picker: You know, John Perfitt said something, actually, in the podcast I did with him and Jason about the work they do as a nonprofit housing developer that I think was really sad. That was engagement of community is very difficult for them and very expensive, if they're going to ... It's kind of had the reverse impact on involving community because if they're going to spend a long time on a housing project, they simply can't afford to have it shut down by someone at the end of a two-year process. They don't have the money for it. That means that they almost have to avoid some community engagement, which is kind of the reverse that you want, right?

Liz Falletta: I think that's one of the big reasons, also, that you've seen more housing initiatives in California at the state level. People interested in taking local control over housing away, because communities have shut down projects, basically because they're only looking at them from a singular perspective, which is their own. We can't move forward, as a city, with that.

Liz Falletta: For a long time, Christopher Hawthorne, who is now the city designer; I forget exactly what his title is, but he was the architecture critic for the LA Times for a long time. Then, Mayor Garcetti hired him recently. Basically, his analysis of the city really was for a long time we had so much- enough space to be 10 different cities. We could be the industrial engine. We could be the idyllic single-family home and the garden. We could be the diverse multifamily community. But now, we've run out of space, so all of those images and versions of the city are competing with one another and conflicting. We have to have a higher-level conversation. There needs to be a lot better education of the public about housing and how housing works [cross talk]

Eve Picker: -just on a broader level, impact investing ... How do you think it's aligned with real estate and the importance of it in your mind?

Liz Falletta: Well, like I said, I was super-excited to be able to invest in John and Jason's project. I actually have been teaching design to real estate development students for about 15 years, 16 years; increasingly horrifying amount of time. It's interesting, the evolution of the students that I've encountered, because when I first started doing it, none of them thought design was important. None of them wanted to be there. I got ones on my evaluations. Everybody hated me. It was demoralizing and terrible.

Liz Falletta: Now, the students are not only aware of issues of gentrification; really aware of the perception communities have of developers and development; aware of social issues, like homelessness. Also, they're really interested in building communities, and innovative communities. I think the interest in impact investing is going to track that. I think my generation screwed it up or it was part of the problem. I think the students- I think kids in their 20s and 30s are going to really change things.

Eve Picker: They really care about the world, I think, in a way-

Liz Falletta: They do. Climate change ... I think they really understand development as a responsibility, as opposed to a way to make money. Don't get me wrong; they want to make money, totally, but it's interesting; a lot of them have fathers or mothers who are developers, and their parents' development practices really bother them. They're like, "You know, my dad doesn't spend any money on this part; this thing that I think is really important."

Eve Picker: Interesting, yeah-

Liz Falletta: Things are changing.

Eve Picker: I think that's right. I think my parents didn't think that way either. It's a definite shift, which is great.

Liz Falletta: Yeah, and I'm wondering how it happened. I'm not sure I know. I don't know if you have children, because I don't. I just see the students and see how they how they shift and change.

Eve Picker: Yeah. I think climate change is probably- is there, and people are thinking about it at a much earlier age. That surely has to impact the way they think about the world. Then, there's so much access to information easily-

Liz Falletta: That's true.

Eve Picker: -that a generation or two ago, we just didn't have [cross talk] there's more knowledge to- or more access to knowledge, whether it's fake or not. I mean, you have to sift through it all, but there's just more access. I don't know. I think all of those things together change things.

Liz Falletta: I think, too, their expectations have changed, in terms of how they're going to live. They don't all assume they're going to buy single-family homes; either because that's out of reach or because it's just not something they're going to value-.

Eve Picker: Or because it's illegal in some cities, now.

Liz Falletta: Right, exactly.

Eve Picker: So, I'm going to I'm going to sign off now. We've been talking for a while, but I wanted to ask you three questions that I ask everyone. That is what's the key factor that makes a real estate project impactful to you? What really matters to you?

Liz Falletta: I talk about triple-win projects in the book, and these are projects that perform well from the perspective of design, planning, and development. For me, that's the real hard hallmark of a good quality project. Because the interesting thing to me was the projects that balanced those perspectives from their inception really were the more resilient projects, over time, in terms of being valuable projects from all three perspectives. The Village Green, which is a really famous Garden City garden-apartment projects in LA is a really good example. It was definitely innovative, when it was built, but also very financially successful, when it was built, and really created a community. It's performed well in all those measures, throughout its history.

Eve Picker: That's really interesting. Other than by raising money, do you think that crowdfunding could benefit small-scale or impact real estate developers like you?

Liz Falletta: Yeah, I hadn't really thought about using it as a tool, but I do think, as John and Jason talked about, it is an interesting way to do community outreach and involve neighbors in projects. I think that is pretty brilliant, giving people the opportunity to invest in something next door. I think it's probably also a really great networking tool. I could imagine that, for John and Jason, the people who invested in this project are probably going to invest in other projects [cross talk]

Eve Picker: -we can only hope, right?

Liz Falletta: Yeah, no, I'm up for it-

Eve Picker: We hope that they build more. Then, if there was one thing that you would change to improve real estate development in the United States, what would that be?

Liz Falletta: Oh, gosh, what would that be? That's such a good question. I think it really comes down to bad acting. I think a lot of our policy is retroactive and is responding to bad acting instead of promoting high-quality, community-oriented projects created by people with good intention.

Eve Picker: Oh, yeah.

Liz Falletta: So, I guess that's really about changing the culture of the profession, which I do think is changing. Maybe it could change quicker.

Eve Picker: Well, thank you very much. I really enjoyed talking to you and good luck with everything.

Liz Falletta: Yeah, thank you. You, as well.

Eve Picker: Actually, I have another question for you, Liz, I think I'm going to add in. What's next for you, now you've written the book?

Liz Falletta: Oh, gosh, I have to say that-

Eve Picker: A break?

Liz Falletta: -yes, it is ... I'm doing some book promotion, and I am looking for a real estate project right now, in between teaching, and also sort of ... I've been teaching now for nearly 25 years, and I'm wondering if it might be time for a larger-scale change; maybe doing something more entrepreneurial with real estate.

Eve Picker: Oh, wow.

Liz Falletta: Yeah.

Eve Picker: Keep me posted!

Liz Falletta: I will.

Eve Picker: Okay. Thanks, Liz.

Liz Falletta: Okay, thanks so much. Take care.

Eve Picker: That was Liz Falletta. What an amazing woman. Here are some of the takeaways from what Liz shared with us today. First, through research from her book, "By-Right, By-Design," Liz learned that more design is not always better. She also learned that some of the best housing solutions might not be the most innovative designs. Over the years, her students have evolved from not caring one iota about design to caring very much today, and that bodes well for the future of cities.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Liz, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker. If you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Adrian Washington. Adrian is the founder and CEO of Neighborhood Development Company, a Washington, D.C. real estate company focused on rebuilding vibrant communities through their work. Adrian fell in love with this type of development work and decided to make a career out of it, much to the good fortune of the neighborhood he works in. For Adrian, greenfields are boring. Nothing gives him greater pleasure than digging into a forgotten and neglected site and turning it into a neighborhood asset. I've had the good fortune of working with Adrian at Small Change, helping to raise funds for some of these projects.

Eve Picker: Be sure to go to EvePicker.com to find out more about Adrian on the Shownotes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Good morning, Adrian. Thank you very much for joining me.

Adrian Washington: Thank you, Eve. It's a pleasure to be here.

Eve Picker: So you have a real estate company called Neighborhood Development Company, and we've been lucky enough at Small Change to help you raise funds for one of your projects. Your company is in Washington, D.C. I'm just wondering if you'd like to tell us how long you've had Neighborhood Development Company, or NDC, and have you lived in D.C. all of your life?

Adrian Washington: I'm a native Washingtonian. I've lived here most of my life. I went away and went to school down in California; lived out there for a while; lived in Boston, but, essentially, I've been in D.C. all of my professional ... I grew up here, and I've lived here all my professional life. I've been involved in real estate, altogether now, going on over 30 years and formed Neighborhood Development Company a little over 20 years ago, back in 1999.

Eve Picker: That's quite a stretch. NDC's mission, in your words, is to develop exciting residential and commercial properties that cultivate vibrant communities. What does it mean to you to cultivate vibrant communities? How does a developer do that?

Adrian Washington: We've always operated in urban areas of primarily Washington, D.C. and really always neighborhoods that were emerging; that were maybe down and out at one time or were starting to turn around. What we found in these neighborhoods is that we don't look at them just from a brick-and-mortar perspective. We see the people that are living there now. They want their neighborhoods improved, but they don't want to be displaced. They want shops and things that serve them, but don't serve just outsiders. They welcome newcomers, but they want to feel those newcomers respect the place that [inaudible]. We see our role as balancing those things of making a neighborhood better for people who are living there, attracting new residents who want to be part of those communities, attracting businesses that want to be part of those communities, but not to displace people and not to alter the fundamental character. As developers, I think it takes like a real balancing act that we work with on a day-to-day basis.

Eve Picker: I do think it is a real balancing act. How do you fend off displacement?

Adrian Washington: We do it in, I guess, a number of ways that I think are unique in some developers in that we do both very high-end market-rate developments, but we also do affordable housing. We do affordable housing in a number of ways. We do it in traditional ways that more traditional developers do it, using government subsidy and the many programs involved. We also do it in more creative ways. For instance, we've worked in the past with failing cooperatives, where a group of tenants own their building collectively, and it's just not working out, either because of bad management, or whatever. We team with them to provide our services with them but do it in a way that allows them to stay in their homes. That's one way we do it.

Adrian Washington: Another way we do it is we really, in our commercial work, really like to work with entrepreneurs. Your typical developer may want that credit tenant. They want that CVS, or that Walgreens, or someone national. We really- we don't go that way. We go in the opposite direction. For instance, in one of our developments, we have a salsa teacher, and she was doing lessons- it was a nice young couple. They were doing lessons out of their basement in the neighborhood.

Adrian Washington: They were so successful, they wanted to have their first studio. They came to us, and we had a space in one of our buildings, so we worked with them on the design; we worked with them on getting government grants to help them build out. We helped them with the construction. We gave them a favorable lease that started out low, and it allowed them to develop the business.

Adrian Washington: It was just a great neighborhood success story, where they stayed in the neighborhood. They had a service that appealed to both the newcomers and people who were in the neighborhood. They successfully grew their business. They're now opening a second location. I think it's really about creativity; using the skills we have as developers and businesspeople and connecting with people who have hopes and dreams - maybe not the same skills - and working out win-win solutions.

Eve Picker: That's a really lovely story. Other developers might say that's taking a risk with a little startup business that you don't necessarily need to take. You could go get a credit tenant. So, why do you take that risk?

Adrian Washington: Well, I think a couple of reasons. It is kind of, on paper, riskier. Although we see with all the changes in the retail economy, yeah, you could have some business like a Blockbuster - going back in time, when everyone thought it was really successful, and now it's out of business [cross talk]

Eve Picker: Yeah, that's true.

Adrian Washington: Or even something like a McDonald's, where everyone thought McDonald's used to be the gold standard. Even now, you see some of those stores shutting. There's not 'no risk' in a credit tenant, but I agree that there's more hand-holding; there's more involvement. You've got to pick your entrepreneurs carefully. You've got to help nurture them. Typically, they're people who are great enthusiasts about what they know - if it's salsa dancing or handmade pottery - but they don't know about marketing; they don't know about financing. You've got to work with them more.

Adrian Washington: We just find that more rewarding. It's just fun. It's creative. We feel like we're helping people. We feel that we're seeing eye to eye, because even though we've been in business 20 years, we're still thinking of ourselves as an entrepreneur. The neighborhoods love it, so I think it makes us more popular in the neighborhoods. We've found that the success rate that we've had with these businesses is really pretty high and that the occasional failure that comes along, we just kind of build that into our pro forma. We've found that we were able to replace people who don't like it with other people. All in all, we just find it's more socially rewarding, it's financially fine, and it's just a lot more fun.

Eve Picker: It adds to the economy of the neighborhood you're in, which is really lovely. Developers do lots of different sorts of things, and I'm wondering how you ended up here. How did you ...? There must have been a path that took you towards this type of development.

Adrian Washington: Eve, I think it's like a lot of things in life. I don't know, maybe there are people who have these- design these great plans at age 12 and follow them through. I really didn't. I went to undergrad; I went and got an MBA. I worked for a national consulting firm, and I thought that was my path, but I really hated it. At the meantime, I had bought a house in an emerging neighborhood and fell in love with that culture. I think I was really ahead of my time. I saw the appeal of walkable, livable neighborhoods. I saw the appeal of eclectic neighborhoods that had different types of architecture, that had different types of people, different races, different income groups, that was close to urban centers. I just thought that was great. I loved being in that neighborhood. I loved the change that I saw was going on. I loved the physical aspect.

Adrian Washington: Back when I was younger, I did everything. I did carpentry; I did plumbing [inaudible]. I just loved that whole environment. I think I was always an entrepreneur at heart ... I was going to a day job that I hated, and I had this hobby that I loved, so I said, "Well, why don't I see if I can turn this hobby into a business?" That was 30 years ago. It hasn't been a straight line. There were struggles; there were failures; there were just dumb-ass things that I did that didn't work out, but I always came back the next day and tried to do it better, and I'm really glad I did.

Eve Picker: That's a great reason why. It's pretty wonderful to be able to be doing something that you really love and that adds to communities everywhere. So, I'm going to move on now to a project that I know you're working on, called 1100 Eastern Avenue, which is one of your latest projects. We're fortunate enough, at Small Change, that we're going to be helping you to raise a little money for this project. I wanted to talk a little bit about it. Can you just tell us a little about what the project is, how big it is, the uses, where it is?

Adrian Washington: Well, sure, Eve. I'm really excited, and our whole team's excited about 1100 Eastern. It's really a project that embodies our beliefs, and uses all of our skill sets, and is just very exciting. It's a mixed-use projects. Ground floor is a retail component; not that large, about 4,000 square feet. I think one of the great things about it is that there were ... The site is sort of a rundown former- like a strip shopping center. A couple of the tenants there were folks that, frankly, the neighborhood was happy to see leave. It was a liquor store and an old carry-out. Not to knock those people, but they weren't really what the community wanted.

Adrian Washington: There were a couple of tenants the community really did like. It was a barbershop that had been there for really a couple of generations. The current owner's father had founded it back 35 years ago. She was still running it, and it was really a neighborhood institution. Then there was a daycare center. One of the things that we're doing is allowing those people to come back to the new development in brand-new facilities. We're even able to offer them, starting out, kind of with our philosophy, at the same rents they were paying, which were far below market. It'll allow them to build up the market over a number of years, so we're very excited about that.

Adrian Washington: Now, on the floors above it, there are five stories above it. These will contain 65 units of mixed-income housing. There's housing for very low-income people, who were formerly homeless, who will be able to get wraparound services to allow them to transition to a more normal life. Then there are other units that will be for people of moderate incomes; people anywhere from - these are technical terms - but from 40 percent to 65 percent of the area median income. These range from what we would call pretty subsidized housing to more workforce housing, so we'll have a range of people there.

Adrian Washington: We're also very proud of what we're doing is that we're giving a really big mix of unit types. Typically, in any kind of new construction development, you're seeing just people were just building one- and two-bedrooms, or studios. What we're able to do in this building is to provide one-bedrooms, two-bedrooms, three-bedrooms, even a few four-bedroom apartments. It really will serve a number of different types of people in the neighborhood - seniors, people with families, people with kids. It's just a great project that will really help everyone in the neighborhood, so we're very proud and excited about it.

Eve Picker: That sounds really, really wonderful. The four-bedroom units are so unusual nowadays, and extended families are important, so that's pretty great. I understand it's also an Opportunity Zone, which is, as we all know, a very hot topic right now. How will that impact the development?

Adrian Washington: Opportunity Zones are exactly what you said, Eve; it's a very hot topic. People are still figuring it out. I think that, unfortunately, early on, a lot of the Opportunity Zone benefits are going to people who are creating projects that would have been created anyway. We're very proud that we feel this project will fit in what the Opportunity Zone true mission is, which is to bring capital to underserved neighborhoods - as I said, our commercial businesses, our neighborhood-serving businesses that were going to be displaced and that people in the community wanted to stay.

Adrian Washington: What we're doing is we're using Opportunity Zone benefits to attract capital to help keep these businesses in. So, I think that's important. But, also, I think one of the key things I feel that Opportunity Zones is that the projects have to make sense, even if they weren't in Opportunity Zones. We are a business that prides itself on not just being do-gooders, but being solid businesspeople, so we've underwritten the project carefully. We understand the costs, and the risks, and all of the factors. We think this is a project that works, even if it wasn't in an Opportunity Zone. But we're very happy to allow people who are investors who want to get a good return on their money, but also to have a meaningful social impact, to have all that, plus the tax benefits of the Opportunity Zone.

Eve Picker: For listeners who don't really understand Opportunity Zone funds, because they are very complicated ... Took me a long time to understand. The fund, in this case, is actually the project. It's just the entity that the project is using as a legal entity, the LLC, that will become a fund, right? If people invest-

Adrian Washington: Yes, that's right.

Eve Picker: It's a 100-percent Opportunity Zone fund because it's just a single-use fund, just one project. So, if people invest in it, they're investing actually into the project itself, not into a fund that then serves a whole series of projects. They can take a really close look at the underwriting and see if they like it. I would agree with you, at the moment, the Opportunity Zone fund benefits are kind of gravy. I have yet to see a project that is moving forward simply because of those benefits. They don't seem to be enough to make a project happen, right?

Adrian Washington: Exactly. We've used that approach, not just in Opportunity Zones, but with our other investor- projects. What we found over the years is that people- they want to know what they're investing in, both from a business standpoint ... They want to kick the tires, see if they believe in the construction costs, and the neighborhood statistics, and the tenants that are being there. They want to understand that. They also want to understand the story behind it. What's going into the neighborhood? How will my investment benefit [inaudible] neighborhood? They really want to touch, and feel, and see that. We've had a lot of success over the years in doing that. This project really works in the same manner, where people can really learn about it, learn about us, learn about the neighborhood, learn about the businesses, and say, "Yeah, I want to put my money here. I believe in it as a financial investment. I also believe in it, in terms of its social [mesh].

Eve Picker: I think what I'm most excited about for Small Change is the fact that we're helping you raise money for this Opportunity Zone fund. We may very well be the first Opportunity Zone fund offering investments- very small investments to everyone over the age of 18, not just accredited investors. I think many of the funds that we see around the country have really big minimum investment amounts of $100,000 or $200,000, or $500,000. This is going to be much smaller for everyday people, which personally I find very exciting. It's yet another way to make it accessible to your investors in your neighborhood, right, Adrian?

Adrian Washington: Right, and we're excited, too. Eve, as you know, and the audience may not know, is that you guys raised money for us on another project, our Benning Market project - a neighborhood called River Terrace. It was a nice way to raise money, but I think more importantly, it helped build support and build involvement in the project. I have people in that neighborhood who told me, "Yeah, I saw ... I'm an investor in your project, and ..." [cross talk]

Eve Picker: That's great. That's really great, yeah.

Adrian Washington: -"... and I saw it because I lived down the street and I wanted to be a part of it. I just thought it was cool that you allowed us to participate in that." I think it really does build more of a sense of community; it builds more of a sense of involvement; it invokes transparency, because, frankly, I think that, in these days, developers are viewed with a lot of distrust. I think that by allowing community members to invest at investment levels that they can afford really helps to break down those walls, and do that, and helps to increase visibility. We were really happy with the results we had with you on our first investment, which is literally breaking ground in a couple weeks, and we are very excited to work with you again on the Eastern Avenue Project.

Eve Picker: That's great. You're going to have to send me updates on the first one, because we'll post them for our other investors. People like to see [cross talk].

Adrian Washington: We'll send you groundbreaking pictures. How about that?

Eve Picker: That'd be fantastic, yeah. Talking about this little piece of community engagement - crowdfunding - community engagement has to play a big role in your projects. I'm wondering how you handle that. That can be tricky sometimes.

Adrian Washington: It can be tricky. Like I said, there's just a lot of distrust around development, and in our political climate, I think there's just [riding] distrust in everything, so I don't take it personally. I think the key is you've got to be out there early and often. We're working a different project, in a different part of the city, and we're a couple years away from groundbreaking; really a year away from an actual serious design and engagement, but we're already out there in the community, asking people what they want, telling them about ourselves, letting them see some of our other projects.

Adrian Washington: You're never going to please 100 percent of the people in any community. What I've found over years is that what you can do is the best you can do, which is to be accessible, be transparent, to listen, to be honest. Sometimes, people want something, you're like, "Yeah, we can do that." Other times, people want something, and I've seen a lot of developers be vague and sort of say, "Oh, well, maybe we'll look at that." I try to be honest; I try to say that, "Sir, ma'am, we just can't do that, and here's the reason why. I know you won't be happy about that," but I think it's more important to be honest than it is to try to gloss over a problem.

Adrian Washington: It really takes a lot of work. It's changed over the years. 20 years ago, we didn't have to do nearly this level of community involvement. I think, particularly in underserved neighborhoods, that people were happy that you were just there and building something; pretty much, you didn't have to do more than that. Nowadays, it's different. People realize that their neighborhoods are an asset, and that people want to develop there, and they are demanding to be heard and respected. If you're not there, you don't hear them, you don't respect them, you're gonna suffer for it.

Eve Picker: Yeah, I think that's right. Moving on to more global themes, here, I'm just wondering what you think we all need to do to make our cities and neighborhoods better places for everyone, so that no one gets left out.

Adrian Washington: That's a big question-

Eve Picker: It is a big question.

Adrian Washington: -I don't know if we can solve that all in one podcast. I'll focus on our roles as developers. Clearly, there is a need for more housing in our cities. There's a need for housing that serves all different income levels and all different family types. It's not the '50s anymore. It's not just mom and dad, and 2.3 kids, and a picket fence. There are all types of households.

Adrian Washington: The development process has gotten tougher. Besides the community involvement piece, the environmental and sustainability requirements are much higher, the zoning is trickier. It's hard work. I think our job is to use the skills that we've developed over the years to work in partnership with communities, to let them see how they can help us, and, in turn, using our skills to help them work on win-win solutions; involve government, because, obviously, they're important, and have patience, but have perseverance. Development is tough.

Adrian Washington: I think that to be successful, you've got to have a long-term view. You can't feel like you've got to make a killing on every project. You've got to look at your entire body of work, so at the end of the day, at the end of your career that you've made a fair return on your investment, your time, and your risk, but you've also contributed to society. I think it's possible, if you have those things in mind. Honestly, it's more rewarding and it's more successful, if you do it that way.

Eve Picker: Clearly, you think socially responsible real estate is necessary in today's development world, and that's the way you manage your business, but I'm wondering, are there enough developers out there thinking about impact and thinking in the way that you're thinking? If not, how might we improve that? I still see a lot of greenfield developments that, quite frankly, shock me in this day and age; that that sort of work continues. I still see banks wanting to finance those models over and over again, because it's easy to think about them. I'm wondering how we shift to a [kinder] development world.

Adrian Washington: I think it certainly is growing. I agree with you completely. I drive around, particularly when I'm not in D.C., and I see so many greenfield developments. Just to me, personally, it's just kind of boring. I didn't get into this just to make a ton of money. Like I said, I want to be fairly compensated for what I do, but it's more about that.

Adrian Washington: To answer your question, I think I see more and more of it. I think, particularly the younger generation ... I'm older. I'm not a millennial. I guess I'm a young baby boomer. But, particularly in the generation behind me, I see people who want to do that, and not just in real estate development, but in other fields in life. They want to do more than just do a job and make money. They want to make a meaningful impact on the world. They want to have that reward, which helps them feel better.

Adrian Washington: Also, what I've found in my business, is it helps to attract and retain young employees. They don't want to just build some cookie-cutter, 200-unit apartment building in a greenfield, just like everybody else. They want to do projects that are creative, that involve different financing sources, that touch people's lives, that take challenges [cross talk] and from a business standpoint. I think it's a movement that is slow in coming, but I clearly see it's building, and I think it'll be more and more.

Eve Picker: Yeah, I think you're probably right that it's gradually building. Do you see any current trends in real estate that you're fascinated by or you think are going to make a difference moving forward?

Adrian Washington: Yeah, I see ... Clearly, the trend for co-living and coworking is the big trend. WeWork is obviously the big kind of corporate behemoth example of that, but there are a lot of other smaller, more entrepreneurial types of interests. I've see coworking spaces designed around women, or women with kids that have daycare centers, or people with social causes, like a nonprofit type of thing. I see that as a big trend.

Adrian Washington: I see co-living. I think that where people, either because of monetary reasons, or because of social reasons, don't want that house by themselves, but want an opportunity where they can either live with roommates or live in a more communal environment, where things like kitchens and things are shared, and where there's a social network in place that typically people who are new to an area- it's a way for them to connect. I see a real sort of striving for more connectedness, as our world, in a way, becomes less connected. I think there are great opportunities to expand on that model. I've seen some very successful ones here in Washington, D.C., so it's something I'm keeping my eye on.

Eve Picker: Yeah, I think a lot of people are. I'm going to ask you three signoff questions that I ask everyone. The first one is what is the key factor that makes a real estate project impactful to you?

Adrian Washington: I'd say the key factor is that it meets the needs of the community that it's in. The only way you get that is to get out, and talk to the people there, and understand what they want. Some communities, they want more affordable housing. Some people, they want less. Some people want retail that's a particular type; other people might want a retail that's missing, like, say, a Fresh Grocer, which is like an example of another project that we did. We put in a Fresh Grocer where it'd been a food desert. It really involves talking to the community, understanding what they want, and then using your skills to develop- to deliver it.

Eve Picker: When it comes to crowdfunding, do you think there are other things that can help you as a developer, not just involving investors, but how might crowdfunding benefit your project, as a whole?

Adrian Washington: I think crowdfunding benefits us in a number of ways. The couple that most come to mind - and I [inaudible] an example earlier for one of our projects - is many people in the neighborhood become investors in the projects. They're invested not just financially, but they're invested emotionally. They tell their friends; they frequent there more often. I think the crowdfunding helps allow, particularly, local residents to be involved.

Adrian Washington: I think the second way that that's really helped us and helped the project is that it's a real brand builder. Eve, when we did the project with you guys, we got so many press kits about the project. We were [cross talk].

Eve Picker: That's fabulous. That's really fabulous.

Adrian Washington: I was interviewed a couple of times at the local news station, I was interviewed by national publications. People that I would- said "Hey, I heard about your project. What's crowdfunding like, and how do you like it? It just really enhanced our company's visibility, our project's visibility; it was a real brand enhancer, and it's something that I did not expect and something I was very pleased with.

Eve Picker: I'm grateful to hear that. That's wonderful. Then, this is a really big one - if there were one thing that you could change about real estate development in the U.S. to make it better, what would that be?

Adrian Washington: I think that the thing that I would really change is not so much government policies. I understand the need for regulation around safety, and sustainability, and community impact, but I would change more the attitude of the people in government who do those. I think there is too much of a - particularly in inspections - 'gotcha' mentality, where, instead of working with us, and understanding that we're doing the best we can ... Yes, maybe this one particular light switch was two inches too high or too low-

Eve Picker: Oh ...

Adrian Washington: Not just a 'gotcha' mentality, not just, "Okay, you messed up on that. Fix it, and we'll come back when we're ready and tell you whether you missed anything else," more a partnership for governments to understand that we're good guys. We're doing the best we can; that we want a safe project, a sustainable project, and to work more cooperatively with us, and help us succeed as partners, and not to be adversaries.

Eve Picker: That's a great way to end this interview. So, Adrian, thank you very much for your time. I really enjoyed talking with you, and I'm sure we're going to be talking again.

Adrian Washington: Great, Eve. Thanks for having me.

Eve Picker: That was Adrian Washington. Adrian is not afraid of a challenge. His company focuses on challenging sites in challenging neighborhoods, always making sure that neighborhood folks are involved and that their neighborhood is improved by the final project. I love that Adrian finds greenfields boring. I love that he sees the people in a neighborhood first, and I love that he nurtures local businesses, bringing even more value to the projects he develops.

Eve Picker: You can find out more about impact real estate investing and access the Shownotes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thanks so much for spending your time with me today, and thank you, Adrian, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve Picker:

Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Laura Callanan, The founding partner of Upstart Co-Labs. Upstart believes that creative people solve problems. It is disrupting how creativity is funded by connecting impact investing to the creative economy. One way the creative economy drives impact is in communities.

Laura brings a powerful background to Upstart Co-Lab. Just a few of her many past roles include serving as senior deputy chairman of the National Endowment of the Arts; consultant with McKinsey & Company’s Social Sector Office and associate director at the Rockefeller Foundation

Be sure to go to evepicker dot com to find out more about Laura on the shownotes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, SmallChange.

Eve Picker: Be sure to go to EvePicker.com to find out more about Laura on the Show Notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Laura. It's really a pleasure to have you here. Thank you for joining me. I've come to know you through your most recent enterprise, Upstart Co-Lab, where you're a founding partner. I'm wondering if you could just tell us a little bit about Upstart's mission and goals?

Laura Callanan: So Upstart Co-Lab is a field builder, a catalyst, a connector. We are connecting impact investing to the creative economy. We know that creative people solve problems. Like all entrepreneurs, they need capital to do it. Most creative entrepreneurs are very socially minded. Artists care about the human condition and that extends to the work they do through an enterprise model. So, the capital that fits them best is social capital, impact capital. Upstart Co-Lab is trying to unleash more of that impact investment capital for the creative economy.

Eve Picker: That's great. How do you propose to accomplish that? I know you have a few different strategies you've been working on, but I'd love to hear more.

Laura Callanan: Well, from the beginning, we realized that what we were doing for the creative sector, in a lot of ways, followed on from what leaders had done around gender lens investing, so we went to the mothers of gender lens investing, and we said, "How did you do it? How did you take this idea, and, in a pretty short period of time, it really infused the notion of gender lens throughout the impact investing space?" They said it was a three-part recipe: make the case, build the coalition, and bring investable products to market. So, that's what we've tried to do.

Laura Callanan: We have undertaken research to get facts, and case studies, and examples in hand to be able to really articulate the opportunity for investors and the demand for capital in the creative sector to really represent that case. We have shared what we've learned through the research published on our website, through opinion pieces in the Financial Times and other publications, in conference panels and keynote talks. We've been trying to get these ideas out into the world. That's how we've done the first step.

Laura Callanan: Building the coalition, we have been working with strategic partners from the very beginning. We've taken an approach of being small, nimble, spunky; trying to take our ideas and work with much larger, older, better-established partners to get the idea of the potential for the creative economy to make change and do good, infused into the work of community development - finance institutions, impact platforms, like CapShift, and Small Change, your own platform, and work with partners who can help us make these changes happen quickly.

Laura Callanan: We've also been building relationships on the investor side. Through a number of conversations in small and large meetings, we've really started to build this community of impact investors who recognize the power of art, and design, and culture, and heritage, and creativity to drive change. We have recently re-oriented our approach to what we're calling Upstart 2.0, and we're really going to focus on building a member community of the ambassadors, the evangelists who - as donor-advised funds, as private foundations, as endowed cultural institutions - want to take these ideas back to their peer group.

Laura Callanan: Then, the third step - bring investable products to market - our greatest example of that to date is work that we did with the Local Initiative Support Corporation (LISC) to launch a New York City Inclusive Creative Economy Fund. This is working with the oldest and largest national community development finance institutions, harnessing the power of their AA rating; harnessing their ability to underwrite and manage loans to real estate projects - in this case, affordable workspace for multi-tenant creative economy businesses.

Laura Callanan: We've found this to be really exciting, because we set out to raise $5 million of impact capital for the New York City Inclusive Creative Economy Fund. We closed the fund after about six months, having raised $6.2 million [cross talk] all Foundation that capital is fully deployed. We're talking with LISC now about what a $100 million National Inclusive Creative Economy Fund could be [cross talk] That's been our approach: make the case, build the coalition, and bring investable products to market to make it easier for investors to deploy their capital.

Eve Picker: I think you must be a very focused person not to get distracted, because that's ... You make it sound easy, but it's pretty big. I'm very familiar with LISC; one of our would-be issuers on Small Change actually tried to use that program. She didn't end up being able to buy the building, but it was that program that would have made it possible for her. That's pretty great. How do you think that LISC might expand that? Are you talking to them about expansion?

Laura Callanan: As I said, the national fund is in the works, so let's just wait and see when that's ready to be announced.

Eve Picker: Okay, very good. I have to backtrack a little bit and say, why is all of this important to you, personally?

Laura Callanan: I majored in theater in college. I started my career working in the arts. My husband, my late husband, was a playwright and a novelist. So, in my personal life, I've always had a connection to creative people and the work that they do. I guess, now about eight or nine years ago, I had a lunch with a guy named Jim Howden, a founding artistic director of an off-Broadway theatre company in New York, Signature Theatre Company. And I at that point, I'd known Jim for about 20 years. I had known him from the very first days at the very beginning of his founding Signature Theatre Company.

Laura Callanan: We were having a lunch, and catching up, and he was talking to me about the $70 million Signature Theatre Company had raised in a public-private partnership to create a new three-theatre complex in West 42nd Street in the Times Square area. He was talking about how that new space would allow Signature Theatre to expand their programming. He reiterated the commitment to be sure that every ticket for every play was affordably priced at about $25. He was just describing all of the vision and what was going to happen next.

Laura Callanan: The architect on the project was Frank Gehry. They were designing a 7,500-square-foot open lobby space that would be a community center ... A community green in the middle of Hell's Kitchen was how Jim talked about it. He was just describing all of these plans. I knew where this company had started. The budget for their first year with $30,000. They were in a borrowed space way downtown. Things had not always been smooth and easy. They had made a commitment to equity and access from the early days. I knew that it had not been a smooth trajectory, but here was Jim talking about what was happening next.

Laura Callanan: It was at a moment that I was working at McKinsey & Company in the social sector office. I was in the middle of an engagement with the school foundation, so I was thinking a lot about social entrepreneurship. I heard these words coming out of my mouth. I said, "Jim, you're what they call a social entrepreneur, but nobody calls you that because you're working in the arts and you don't call yourself that because you're working in the arts. But take it from me. I am a highly paid McKinsey consultant. I know this stuff, and this is what you are."

Laura Callanan: I left the lunch really scratching my head and thinking, if this guy were not a friend, would I put him in the same group as Muhammad Yunus, Wangari Maathai, Paul Farmer, Wendy Kopp, all of these card-carrying social entrepreneurs? If Jim is objectively a social entrepreneur of that caliber, is he the exception that proves the rule? Is there nobody else in the arts who could be called a social entrepreneur, or is there this whole overlooked cohort of talented, socially oriented, potentially hugely successful leaders who, for some reason, have not benefited from the grants, the networks, the incubators, the accelerators, the impact capital that other social entrepreneurs have access to?

Laura Callanan: I thought about this for a while. A few years later, in my role as the senior deputy chairman of the National Endowment for the Arts, I started to explore what it would take to close this gap for creative people who've decided to move beyond the studio, beyond the theatre, beyond the concert hall, and to work in their communities and to work as every bit of a social entrepreneur. That's the background and how we got started with Upstart Co-Lab.

Eve Picker: That's pretty fabulous. So, I suppose the question is - what's the end goal for Upstart Co-Lab? What does it look like when you've succeeded?

Laura Callanan: When we've succeeded, every impact investment advisor on their website, next to talking about how they can help their clients invest in community development, and environmental sustainability, and by using a gender lens, they'll also have a nice tab, a nice page, that talks about all of the ways that their clients can invest in the creative economy. We want to see this be as much of a theme, as much of a focus for impact investors as all of the other things that are already grabbing attention and investment dollars.

Laura Callanan: Our goal is to integrate this into the thinking of all impact investors and, frankly, to welcome a whole set of potential impact investors who've been sitting on the sidelines up to this point. By our calculation, more than $58 billion sits in the endowments of our museums, performing arts centers, libraries, or just endowed foundations, schools like Juilliard and RISD.

Laura Callanan: These are institutions that are, at the moment, under some pressure for taking small donations from folks connected with opioids, tobacco, fossil fuels, and weapons. There's been a lot in the headlines in recent months about cultural institutions declining contributions from these tainted sources. But the conversation stopped a bit short, and folks have not yet recognized that these are institutions controlling billions and billions of dollars and, unless they have taken active steps, are likely invested in, and earning returns from tobacco, and fossil fuels, and weapons, and private prisons, and some of these other things.

Laura Callanan: The future that we hope we're building through Upstart is one where all impact investors have more access to the great opportunities happening in sustainable food, ethical fashion, social-impact media, and other parts of the creative economy, and that artists, art lovers, arts institutions, who are investing, are able to learn about and are welcomed into a larger conversation about socially responsible investing through the door of the creative economy.

Eve Picker: It's really a shift in thinking, isn't it? You're an early pioneer in thinking that the creative arts are social impact, and you really have to wait until that idea takes hold with the masses. That's a pretty hard road-

Laura Callanan: Introducing any new idea takes some time, and some patience, and some moral fortitude. We're trying to bring all of that to our work.

Eve Picker: Yeah, that's pretty wonderful. That brings us to real estate, which is really my interest and the interest on this show. You talked about investment in creative enterprises. What do those enterprises look like?

Laura Callanan: Let me describe one where real estate is a really core component. It's interesting because it's actually in the social-impact media space. When you hear social-impact media and you think about film and TV, music, video games, things like that, you think about content. That seems to be the furthest thing- as far as away as possible from real estate. But actually, real estate can play a crucial role.

Laura Callanan: I'm speaking to you today from the Hudson Valley of New York. One of my neighbors is the actor-director Mary Stuart Masterson. She is an example of a creative person who is also very much a social entrepreneur. She is launching a film and TV studio here in the Hudson Valley called Upriver Studios. She is doing it, in part, because she would like to be able to work where she lives, when she acts, and directs, and produces. But she also understands that film and TV can be a significant economic driver for a region.

Laura Callanan: There's a tax credit in this region of New York state, as in the rest of the state, and other places around the country, that incents producers to bring their projects here. One of the obligations to qualify for the tax credit is that your project needs to spend two days shooting on a certified soundstage in the geography, or the tax credit doesn't apply to you.

Laura Callanan: Mary Stuart, and her business partner, Beth Davenport, are launching Upriver Studios, a women-led New York State benefit corporation that will be environmentally friendly. They're looking at solar power, and a green roof, and some other features like that, as well as environmentally friendly on-set practices.

Laura Callanan: It's a hoteling model. They will have the state-of-the-art facility, and producers, directors, projects will come in; rent the space. It's very fit for purpose. It's a specialized space. There is sound attenuation; there are loading docks. There are high ceilings. There's shop space. There are all of these things that are very particular to what it takes to film a TV series.

Laura Callanan: The advantage of this, for the community, is a couple-fold. First of all, every TV series generates between 150 and 200 production-crew jobs. We all think about the actors, and the writers, and the directors who are behind some of our favorite programs, but in fact, they're the minority of people working on the show. There are all of the electricians, and the grips, and the sound folks, and the hair and makeup folks. You look at all those names that run on the credits at the end of a movie or at the end of a TV show [cross talk]

Eve Picker: -Yeah, pretty long list.

Laura Callanan: -150 to 200 people. These are quality jobs. Most of them are union jobs. They pay between $75,000, and $250,000 dollars a year. They have excellent health benefits. To bring this sort of work to this region creates a real opportunity for folks to work in those jobs. There's a sister nonprofit to Upriver Studios, called Stockade Works, that is training the 21st century production crew to be ready to take those jobs.

Laura Callanan: There's also an economic multiplier benefit. There's also a tourism benefit. People like to go to the place that they learn about on their favorite TV show. So, the real estate is crucial to all the rest of this working; to the training program paying off; for the graduates of the training program to have a place to work; to attract folks to come, in partnership with the tax credit; provide the access to the sound stages that will make people really want to come to this region. That's an example of real estate, as I said, connected to a content-focused industry - TV and film.

Eve Picker: So, that's a pretty sexy use. While you're speaking, I'm thinking that also, I think, restaurants are creative.

Laura Callanan: Absolutely. We are working right now on a deep dive around sustainable food, as it pertains to the creative economy. Obviously, there's a big focus, within impact investing, on food and agriculture. We're not looking at the crop. We're looking at what it is on your plate. As I was thinking about it earlier today, we're not focused on the milk, but we are focused on the cheese, right?

Eve Picker: Yes, yeah ...

Laura Callanan: So, the cheese factory is an example. We're not focused on the groceries as much as we are the recipes. Those recipes get turned into delicious dishes in kitchens ... We see a lot of community kitchens and commercial kitchens that can support multiple small-scale entrepreneurs. So, absolutely. Then, the restaurant, as an experience - the setting, the location, the ambiance, the type of building that it's in - it's all part of thinking about food and eating as a form of culture and community, not just nutrition.

Eve Picker: So, I'm realizing we're actually talking to someone who may be a neighbor of yours about a restaurant idea, which is really immersed in the community. They would like to open the door for investment at a very small amount - $250 per investor - because they really want to involve the community. That's another interesting way to look at it. From what I understand, creative enterprises seep into a lot of different things. I have to remind myself from time to time what a creative enterprise is; probably, Small Change is a creative enterprise, because I'm trained as an architect. Do architects count, Laura?

Laura Callanan: We see that a lot of creative people are creative in many ways. They get trained as architects, or painters, or actors, and they decide to start different enterprises. We don't talk about creativity as a skill set or a mindset. We focus on creativity from an industry perspective. We think that's the way that investors can understand best. We had to do a lot of thinking early on about how we were going to scope our focus, because you're right, people can be creative in many fields. But in terms of the type of work we're trying to support and that we're trying to get impact investors to pay attention to - food, fashion, media, other types of creative businesses, and the sorts of real estate projects that we're describing here that make it possible for those creative activities to take place.

Eve Picker: That makes a lot of sense. This is a general question I usually ask - do you think socially responsible real estate is necessary in today's development landscape? I don't know how much you know or are involved in just real estate development. Do you have thoughts about that?

Laura Callanan: Well, it's something that people who think about arts and the creative sector can't overlook, because, as I'm sure you think about often, creative people are pioneers in different ways, not just in terms of the work they do, but where they choose to live and do their work; often looking for affordable places to be to give themselves the flexibility and the capacity to experiment and take risks.

Laura Callanan: Increasingly, we see examples where creative people are in neighborhoods that are ripe for gentrification. There can be confused conversations about the role that the presence of creative people plays in stimulating or contributing to that gentrification. Obviously, I believe that gentrification is a problem that lands on the doorstep of the asset owners and the developers, not the residents and the renters in a neighborhood. The creatives are frequently, like other residents, in a renter capacity.

Laura Callanan: We spend a lot of time looking at academic research and other reports about how the presence of artists and creatives in a neighborhood is not the precipitating factor for gentrification, but actually occurs after the gentrification has begun. We think a lot about what different paradigms could be that would enable residents in a neighborhood to benefit as the neighborhood strengthens; how they can be rewarded for being good neighbors, for sweeping their stoops, for keeping their sidewalks clean - all that stuff that makes the neighborhood inviting and habitable - and what the system could look like - where the folks who are responsible for growing the value of the real estate assets in a community can actually benefit, even if they're not the owners, themselves.

Eve Picker: Yeah, I do think that there is also a piece of this that government is responsible for, because if there's an open free market, then it's very difficult to control, but there are ways to control gentrification that benefit everyone, if you think about it early enough. I'm wondering, are there any current trends in arts innovation that interest you?

Laura Callanan: We don't think about arts innovation, specifically. We're thinking about that larger creative economy; we're thinking about the role that industry plays [cross talk]

Eve Picker: -that's Upstart Co-Lab, but I'm just wondering if there's anything that fascinates you.

Laura Callanan: Anything that fascinates me ... I'm intrigued by our hunger for experience, and this is something where creative people are playing a role. I'm sure that you're familiar with Meow Wolf, the phenomenon that started in Santa Fe that's spreading to Denver, and Las Vegas, and Phoenix, and Chicago, and Washington, and on, and on, and on.

Laura Callanan: This is something where artists have come together. They transformed - in the Santa Fe example - an abandoned bowling alley. They turned it into this funhouse; this art gallery; this community space. It's a place that attracts folks of all ages. All economic, demographic, sociological backgrounds, come, and walk through, and participate in Meow Wolf and find it intriguing.

Laura Callanan: The appetite for these types of immersive experiences, I think, is a reflection of our very isolated, tech-enhanced daily life. I love it that creative people - whether it's through a food experience, whether it's through an art experience, a music experience - that they are at the heart of what people choose to do when they leave their laptop.

Eve Picker: Yes. I think probably Starbucks was one of the first companies that realized this and created an experience out of coffee, right?

Laura Callanan: Exactly.

Eve Picker: What should those of us who are not in the creative world be following? What of these trends do you think is most important for the future of our cities?

Laura Callanan: There's an important role in the creative future for diversity, equity, and inclusion. Put aside the moral and ethical imperative. There's just an imperative in terms of what's going to come out- what's going to generate the most intriguing content, the most relevant experience, the most interesting food, or fashion.

Laura Callanan: As you know, heterogeneous groups of people have been shown to solve harder problems, better and faster. If you think of both challenges and opportunities as problems to be solved, the more engaged the broader set of actors can be in contributing to imagining what comes next, the better the results will be. From a serious point of view, it's a more effective solution. From a more lighthearted point of view, it's that beautiful, delicious, joyful, wonderment experience, right?

Eve Picker: Yes.

Laura Callanan: That having a variety of perspectives, a variety of experiences, a variety of backgrounds, a variety of skills brought together to imagine what's next will get us the best result.

Eve Picker: Yeah, I think you're probably right about that. It's just very hard getting there, isn't it?

Laura Callanan: It depends. If you hang out with enough creative people, it can make you ridiculously optimistic, so ...

Eve Picker: That's what I need to do, then ... Because you have a very different point of view than many of the people I've talked to, who are developers, or work in the securities world, or are really focused on the built environment. You have sort of a more expanded view, I think. How do you think we need to think about our cities and neighborhoods so that we build better places for everyone? You may have just answered that.

Laura Callanan: Well, we think that the creative people and creative organizations, meaning arts- and design-type organizations, have some lessons that are useful to the rest of the economy. We've started to articulate values for an inclusive, creative economy. I can just share them with you because our hope is that we can transform; we can improve; we can strengthen the entire economy by sharing some of these lessons from the creative economy.

Eve Picker: Yeah, that would be great.

Laura Callanan: These are things that we've touched on already, but one is an orientation that's open and experimental. So, openness and experimentation, I think, is crucial. It will help us to keep pace in our rapidly changing world. Continuous improvement, radical new approaches, that's what we need. Incremental change is insufficient given the dynamism, the complexity of the world that we're in. Sometimes, small improvements are just simply inadequate, and you need something that's much more bold.

Laura Callanan: You get that by being curious and having this learning orientation. Artists, designers, very much are built that way, and I think that's a general approach that can benefit all types of businesses, all sorts of real estate projects, governments, philanthropy. I think everyone benefits from that approach. That's the first value that we think the creatives can share with the rest of the economy.

Laura Callanan: The second one - diversity and inclusion - we've already talked about; the capacity to solve problems better and faster that comes when you've got diverse perspectives on the task. It's not just that it's the ethically right thing to do. It's that there's business value. There is a strategic advantage to approaching it in this way. Creativity simply can't be optimized if you don't have both diversity and inclusion at play.

Laura Callanan: The last idea is one around tradition and innovation and recognizing that communities have both - I'll call it - knowledge and wisdom. With that, they're able to learn from the past experience and apply that to what's coming up next in the future. You know that creative people are always reacting to what came before. They might be building off of it. They might be rejecting it outright and trying to do something very different, but creative work is always in context, and it's in context with what has preceded it.

Laura Callanan: The long-term thinking, the sense of stewardship that social-sector leaders and impact investors hold, I think, is very compatible with the way creatives do their work. I think creative take it even a step further; having a really deep respect and awareness of prior tradition, but not being restrained by that or being held back by that; using that actually as a launch pad to innovation.

Laura Callanan: Those are the three ideas that we think are crucial. Creatives just know this in their bones to be open and experimenting, to welcome in diverse perspectives and be very inclusive of various voices and to connect to tradition and innovation. We think that those are ideas and lessons that can strengthen the entire economy.

Eve Picker: I'm very honored that you asked to partner with Small Change and that we're now highlighting creative economy projects on our site. I'm just wondering what you think equity crowdfunding- how you think it can play a role in building these special creative economy projects and communities?

Laura Callanan: I think it's crucial as a way for projects like Upriver Studios that I mentioned a minute ago, or a Meow Wolf, that started in one community and is now expanding to the next six or so communities around the country. I think it's important for these organizations, these enterprises, to engage the communities that they're in, in an active way.

Laura Callanan: This is a way to signal that it's not just building something for a small group of employees or a small group of investors. If you are a Mary Stuart Masterson and you're launching something that you hope is going to really boost the economy of the Hudson River Valley, this is a way to say, "And you, my neighbor, can have a stake in this. You can benefit as we grow this thing together," whether or not your $250 dollars, your $1,000 dollars, whatever the small bite size might be of investment that's facilitated through Small Change ... It's a really clear communication to local folks that this is for them and that they're welcome.

Laura Callanan: I think it's a really strong indicator for larger-scale investors who want to test the morals and the intentions of a real estate developer. It gives them a really strong indication. If the developer is going to take the time and engage with the local community and allow them to participate through a crowdfunding structure, then they're serious about boosting the local community. If they can't be bothered, I think that is a real question mark about the intention of the developer.

Eve Picker: That also extends to planning departments and zoning hearings. If you can bring along a crowd of people who are supporting the project, that's a very strong statement, I think, in many ways-

Laura Callanan: Absolutely.

Eve Picker: Where do you think the future of impact investing lies? I ask this because I'm afraid it's still just a word that people use. I have yet to really believe that people will take a lesser return because a project is socially responsible. Perhaps that's coming, but still hard to believe.

Laura Callanan: Well, I would disabuse you or anyone listening to this podcast that impact investing is asking people to take a lesser return. I know that 25 years ago, when I started to get into the impact investing space - when the space was very new and impact investing was not the term it went by - that there were a few early, less sophisticated, less professionally managed investment opportunities, and that might have been the story back in the 1990s.

Laura Callanan: I would say that we have Goldman Sachs, BlackRock, UBS, Morgan Stanley - all these large names, these premier financial institutions, participating in the socially responsible and impact investing sector, not because they and their clients are expecting to make less money. We can have a whole separate conversation about the whys and wherefores for this. We can talk about the risk management component of introducing social, responsible ESG factors into decision-making, but I would hate for anyone to hear this conversation and walk away thinking that they're going to lose money by engaging in impact [cross talk]

Eve Picker: I don't think lose money but let me just pose the question a bit differently in what I see, and that is, in particular, affordable housing. As a real estate developer, when you work in an underserved neighborhood, it is very hard to get projects to pencil out; very, very difficult. That's why there are so many subsidies around affordable housing projects, and that's why it's slow to build them fast enough.

Eve Picker: If you want to keep a project- an asset like that affordable for the next 15 or 30 years, it's not an asset that will increase in value. It's a difficult thing to invest in. Absolutely, investors in those types of projects will have to take a lesser return than if they invested in a more traditional real estate project. There's a real differentiation there, and I would love to have this conversation with you-

Laura Callanan: No, that suggests that each investment's looked at in isolation, and an investor is looking at their total portfolio. There should be some things that are lower risk and commensurate return, and here are some things that are going to be higher risk and commensurate return.

Laura Callanan: When we were talking with investors about the New York City, the LISC New York City Inclusive Creative Economy Fund, we were talking to them about an eight-year note with full recourse to a AA-rated issuer that was paying 2.75 percent annual interest. As I talk to you today, in September of 2019, and we sit with an inverted yield curve, the 2.75 interest on a seven-, eight-year investment from a AA-rated issuer is looking awfully good. So, a lower-risk commensurate-return opportunity, which has a place in everybody's portfolio.

Eve Picker: I see it- I'm not seeing it yet in my world, but I hope to see it. I think there's still a lot of people who don't think that way ... Maybe we can convince them. There's just some sign-off questions that I'd like to ask.

Laura Callanan: Sure.

Eve Picker: What would be the key factor that makes a real estate project impactful to you?

Laura Callanan: Well, the community orientation, clearly, is something that we would probably both agree on. I see that- it's not a surprise to me that a lot of the creative economy real estate projects that I'm aware of are deeply focused on their role in their community, whether it's Meow Wolf, Upriver Studios ... We haven't yet talked about Greenbelt Hospitality, which is launching out of Phoenix. These are examples where the entrepreneurs behind the projects all are really thoughtful about their community, and real estate is core to what these businesses are all about. The businesses can't succeed if the community is not engaged. I think that that's fundamental.

Eve Picker: Yeah, I agree. If you're looking at the real estate landscape in the U.S., which you see every day, if there were one thing that you could change to make it better, what would that be?

Laura Callanan: Well, I think there's got to be a regulatory solution to the gentrification question. Obviously, improving communities is a good thing. The only reason that we have a term like gentrification that conjures up something that's really, really bad is because when the community improves, there are winners and losers. I think there needs to be a regulatory fact or a solution that comes into play to close that gap, because the notion of keeping communities where they are already and not allowing them to strengthen is not an alternative. It's not a solution to the issue.

Eve Picker: Yeah, I totally agree with you. Thank you very, very much. Thanks for spending the time with us. I really enjoyed the conversation, and I'm going to continue having conversations with you off the air, okay?

Laura Callanan: My pleasure. Thanks, Eve.

Eve Picker: Thank you. Bye-bye. That was Laura Callanan of Upstart Co-Lab. She shared some powerful concepts with me. First, that strategy and focus are key to accomplish big goals, like the goals that Upstart Co-Lab has. Second, that creative endeavors can bring every bit as much to the economy as any other enterprise. Third, that artists, by nature, are suited to community development. Art is built on tradition, whether it embraces it or not. Expect to hear more about creative economy investment opportunities in the next few years, because that is what Laura is determined to do.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Laura, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Scott Choppin. Scott is the founder of the Urban Pacific family of companies, and he likes to describe himself as a contrarian developer. What's that, you ask? Urban Pacific's workforce housing projects use private equity, while serving middle-income stable multigenerational families. Their townhouses are generally five bedroom, an anathema in this millennial studio apartment era. That's why they are contrarian.

Eve Picker: Still, Scott's projects have historically generated 25-percent-plus investor internal rate of return. Scott points out that multigenerational living is growing in the US. A report from the Pew Research Center shows that 20 percent of adults, or 64 million people, are living with two or more adult generations in a single household.

Eve Picker: Be sure to go to EvePicker.com to find out more about Scott on the show notes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Scott, thanks so much for joining me on this podcast. I've been really fascinated to see your e-newsletters arrive in my inbox talking about contrarian development and other things like that. I was hoping you could just tell us a little bit about what you do and what you're working on today?

Scott Choppin: Sure, sure, absolutely. Thank you, Eve. Happy to be with you here. Let me do this - let me just give the briefest of backgrounds, and this will build background for yourself and your audience about why we are then doing what we're doing in our development operations today.

Scott Choppin: Scott Choppin, founder, and CEO of the Urban Pacific Group of Companies. Basically, background, probably 30-plus years in various forms of the real estate development business, away from working in the field as a construction worker, all the way up through today, running a development company as the CEO.

Scott Choppin: Two key points in my career really guide what we do today. My first job out of college, I worked for a guy named Mike Costa at a division of company that was called, at the time, Kaufman & Broad; now known as KB Home. Our division that Mike ran and where I worked was called Kaufman & Broad Multi-Housing Group. That was a developer and syndicator of affordable housing communities really throughout the nation.

Scott Choppin: It was a corporate in-house offer, meaning it was KB investing in affordable housing projects, and then it grew into a full syndication shop. My role there was as a project manager on the development side. So, I joined Mike's team as the really super-green assistant project manager and left there as their most seasoned senior project manager with full P&L responsibility for multiple projects at any given time - all development, all new construction, and all affordable housing.

Scott Choppin: I left there, and I went to work for a couple of different companies, but the most noteworthy one is a group called Sares-Regis Group in Orange County, here in Southern California where we live. I worked there for a period of time, and that gave me exposure on the market rate side. KB was affordable; purely new construction. Sares-Regis was new construction, but market rate.

Scott Choppin: Then I left Sares-Regis Group to found what is now the Urban Pacific Group of Companies. We're on our 19th year of operations now, and we have always focused on infill development. That's our specialty. That's something that we are passionate about. We have done various product types, as you would imagine. We've done affordable housing. We've done market rate. We've done both for sale and rental projects. Over the last few years, let's say since about 2012, we've been entirely focused on rental housing only, and that's both market rate and affordable, as I said before.

Scott Choppin: Then, in 2016, we started to note that in particular marketplaces where we're in action on projects, particularly Southern California, it appeared that there was starting to be a pretty big wave of a certain type of project. That was what we describe internally as a podium project, but specifically built and designed to serve the millennial market, meaning a lot of studio, and one-bedroom units.

Scott Choppin: In 2016, we made the conscious decision to exit all the projects that we had that were that type of project. Of course, they were they were the right projects at that time, meaning demographically, the millennial generation is the largest single cohort, demographically, that we've ever had in the United States.

Eve Picker: Just to explain to our listeners who may not be real estate developers, a podium project is one that has a first floor that's retail, or other uses like that, acting as a podium for upper-floor residential, right?

Scott Choppin: Correct. I would only add to that description that it's ... The way I describe it, Eve, is that it's parking underneath in a concrete parking structure, many times faced with retail on the street, as you describe - mixed use. Then, three, four, five or more stories of stick-built wood-framed apartment or condo construction sitting on top of the parking deck. In other words, you've got the podium is the parking garage, and then the units above that, so-

Eve Picker: I think for those of us in the industry, we know what it looks like, but I think for people who are not, they're going to start realizing how many of those projects [cross talk].

Scott Choppin: Yeah, they'll start to show up for them ... Thank you for asking. I use it commonly, but in the industry it's- even sometimes, I get people who are investors that may not use that terminology, so thank you for that.

Eve Picker: Oh, that's okay.

Scott Choppin: Just to completed ... Back to the second question, which is what are we doing now, I think relevant to what your podcast subject is - focus on impact investing - in 2016, we were very aware of how much new product was coming into the marketplace in this specific demographic. In other words, a lot of studio and one-bedroom units in these downtown infill locations. Again, a great business plan, but we have always been a company that looked for specialized niche products, or contrarian investment and development type of opportunities.

Scott Choppin: In 2016, we basically sold everything off that was a podium, or studio, and one-bedroom type designs, and we started to look for, very consciously, a new type of product that we could develop that would be different; that would be something that wasn't mainstream in the marketplace. What we basically settled on, or not even settled on; what started to appear for us was a middle market workforce housing product.

Scott Choppin: As I spoke before, I was in affordable housing, and then I went into market rate housing. You can think of those as two ends of a spectrum. You've got true affordable housing on one side - 60 percent and below on median incomes, government-subsidized, using tax credit financing. On the other side of the spectrum is pure market rate - your standard LP market rate equity; pretty mainstream debt products on construction, on-prem loans.

Scott Choppin: We saw a gap in the middle. We can talk more about the middle, but the middle, for us, is really from an income and rental standpoint. We want to serve middle-income families with a rental product that's purposely designed and built to serve them as a family, and obviously relative to the markets that we're in, particularly Southern California. We created a new product we call UTH, which stands for urban town house. We're exclusively focused on that particular product, which is a middle-income, privately financed workforce housing product type, or rental housing offer. Let me stop there, and then see what questions that generates.

Eve Picker: The big question is how does that serve the middle market, that particular housing type?

Scott Choppin: The middle market, really, I think of in three ways. The first way is really the most important, which is that this is a middle-income offer. You call it moderate-income housing; call it middle-income housing; call it workforce housing. There's different definitions of it, and it all depends on the person who's listening, the definition.

Scott Choppin: From our standpoint, the most important thing that we focus on is being in between those two spectrums that we talked about - true affordable housing, and market rate - right? If you look at, statistically, in the US rental housing markets, what you're starting to see is a movement of the middle class, or moderate-income families, into a higher level of their incomes going towards rental housing-

Eve Picker: Traditionally, the rule's been never spend more than a third of your income on your housing needs, right?

Scott Choppin: Exactly [cross talk]

Eve Picker: -seen statistics lately, which are closer to 50 percent.

Scott Choppin: Correct. In fact, I was reading an article today that ... I think these are for true lower-income families and individuals. Some people are paying up to 90 percent [cross talk]

Eve Picker: Oh, that's shocking.

Scott Choppin: -that's an extreme, and we know that exists, because that's what the true affordable-housing market serves. I have a graph, which I can share with you as needed, but basically the graph tracks average incomes across the US, and average rents across the US, and graphs those two, relative to each other.

Scott Choppin: What you see, what's really apparent when you look at it visually, and we know this - incomes are stagnant, or flat, and rents are generally trending up at a good clip. What we're dealing with, and what we are seeing, and why we created this product type is an ever-widening divergence between the rental rates and median incomes, or average incomes, however you want to describe it.

Scott Choppin: What's happening, what that does is that moves that middle-income family, or that moderate-income family into a housing distress mode, where traditionally, if you went back 10 years, 20 years, 30, and longer in the history, a average working-class blue-collar moderate-income family could afford to rent. In fact, in many cases, they could afford to buy houses. That's starting to lessen at a fairly dramatic pace, and our UTH product is there to address that. I'll stop there ... There's a couple other ways that we talk about it, why it's middle. I'll let you guide me as to how we continue on that.

Eve Picker: I know that you're focused on multigenerational, which is pretty unusual, too. You've mentioned before that many of these podium projects were focused on millennials. I'm in Pittsburgh, which sees these trends a little later than on the West Coast, certainly, but I've noticed here the abundance of that type of housing-

Scott Choppin: That abundance of the studio, and one-bedroom housing, you mean?

Eve Picker: Yeah.

Scott Choppin: Exactly right. UTH is unique for what we described previously on serving a moderate-income family, and we can talk in more detail later about how the rents work, and what makes them a naturally occurring moderate-income housing offer. The main mechanism of how we produce that benefit to the families ... In other words, what is the mechanism, financially, that has a non-covenanted- I mean, no true government rent restriction model- allow it to naturally serve moderate-income families ...

Scott Choppin: The way we do this, Eve, is UTH is unique in that all of our units are designed and built to be five-bedroom townhouse units. All the units have five bedrooms, four baths. They're in a three-story town home model - garage on the ground floor, and a bedroom/bathroom on the ground floor. In fact, that ground-floor bedroom/bathroom is what provides the multigenerational component. Then, we have kitchen, dining, living, and the rest of the bedrooms throughout the two upper floors.

Scott Choppin: Where the multigenerational design component ... We didn't start with that. We actually started, originally, with a four-bedroom product type. As we were developing the business plan of UTH and coming up with a strategy of how this would work, in totality, it sort of showed up for us that we're serving middle-income families, blue-collar working families in Southern California, because that's where we're predominately developing the UTH model. From a demographic standpoint, our main renter profile are Hispanic families in low, and lower-middle-income neighborhoods throughout, let's say, Southern L.A., and northern Orange County, around where we're based.

Scott Choppin: What that provided for us with some guidance. We said if we're going to serve these families- we already knew we were going to do five bedrooms. We know we are renting purposely to larger families. What is the makeup of that family? Typically, you have two to four wage-earners; that might be mom and dad, aunt, or uncle, and then, maybe an adult child or two that are still living with their family. Then you have some number of small kids that are either kids of the parents, or possibly kids of the adult kids. Always, we were seeing grandma, or grandma and grandpa being part of that family group. When we would talk to them when we were renting units, we would see this.

Scott Choppin: Combining with other signals that we were seeing in the marketplace, we said we've got to do this ground-floor bedroom/bathroom. That would serve the older generations of that family, where they don't have to necessarily walk up and down the stairs. We don't have elevators in these units, in part, to keep them cost-effective, but this is a way that a person can live with their family; even be separated a little bit. For their own privacy, they're downstairs. This has turned out to be, really, a very primary part of our offer. We now only do five-bedroom town house units with that ground-floor bedroom/bathroom. We're not doing any units that don't have that.

Eve Picker: It's really interesting, because that's quite contrary to US culture to have many generations living together. Although, I think that's being forced upon us now with the boomerang kids, right?

Scott Choppin: Yeah. The way we look at it is this, and you make an excellent point ... If you look at traditional American '50s-era nuclear family - mom, and dad, and 2.3 kids; a garage, and two cars in the garage, that kind of thing .... If you look even further back in history, in both American culture, but let's just say European culture; really, anywhere around the world, the lifestyle of the '50s-era nuclear family in America was an anomaly.

Scott Choppin: It was an anomaly because, if you look back historically ... I did research, and we looked up what was the makeup of the household in the Medieval era in England, as an example. It was interesting because the way they described it is they said the household in that era was multigenerational, already. That existed just inherently, and that was a function of multiple reasons. The two primary reasons and really the main reason was economics. The idea of maybe one, or two wage earners affording a house by themselves was really- it didn't exist. What that caused people to do is they would have other parts of their family who were also bringing income to the family group to afford this house, or even that described, in older eras, taking on boarders; almost complete strangers.

Scott Choppin: The idea of this nuclear family house is really ... If you look at it historically, it's a blip on the timeline. If you go forward, now - I have a graph which I'm happy to share with you - we're now in a multigenerational growth cycle in the American housing markets, where one example is the boomerang kids. I think that, for economic reasons, people are starting to live multigenerationally, and we're at the highest point of that amount of families that are living multigenerationally. At least the stat that I have shows that 64 percent of households in the United States live multigenerationally, and it's an upward trend on the graph. It's at its highest point. I think that, again, is an economic function.

Eve Picker: Yeah, I grew up in a multigenerational family, and I think it was way more than economics. There was always an adult around for kids, and it just made life so much easier [cross talk]

Scott Choppin: Great. So, let me add something. The way we think of these tenants, the family profiles, we really think of them in three ways. You've triggered me to think about this. The first way that these families live is that they basically share incomes, and they share costs among the larger family group. That's the economic part of it that I described.

Scott Choppin: Two is that, because of the incomes that they're at - either low, very low, or moderate incomes - they tend to have a limited number of cars. Cars are a thing in California and designing buildings to house cars - it's a pretty sensitive subject in some parts of people who are in the business. The reality is, functionally, this is what's needed, but we don't see a high car ownership. Your classic suburban house would have a family of four or five, and they'd have like 10 cars. I'm being [cross talk] right? We get this come up as we present this model to cities. The reaction is, "Oh, my gosh, we're gonna have so many cars." Functionally, again economics, they don't own so many cars.

Scott Choppin: The third component- sorry-

Eve Picker: Well, it's better for the environment, and better for cities, and better on so many levels, right?

Scott Choppin: Absolutely. Agreed. Then, the third component is, just to wrap up, and this is what you alluded to, is because we're multigenerational, and because we are multi-wage earners, the way we look at it, and the way we've seen it actually work is that generally an adult will be at home at all times during the day. That means when kids get home from school, somebody will be there for them. There's no economics around that.

Scott Choppin: You could maybe say it's a cultural thing, but, to me, this is when we think about social ethics, and social impact ... How do we, as a developer, and how do I, as the CEO, want to present our model to the marketplace? Although investors go, "Maybe that's important, maybe that's not." For me, I go, this is a really important thing that avoids latchkey-kid syndrome. It keeps the family tighter. This is, Eve, in your experience living multigenerationally, is that you're going to always have an adult; it might be grandma, it might be Uncle Joe, who works the night shift, but it's a real key component of this model that we very much are encouraged by and even want to do more of.

Eve Picker: I really like it. In a way, it reminds me of the trendier version of this, which we call co-housing, right?

Scott Choppin: Mm-hmm. Co-living, right. Agreed, yeah.

Eve Picker: Co-living, co-housing, which is popping up to serve, I think, probably more millennials, who want to share costs and amenities, so, for a different reason. It's all kind of this sharing economy, isn't it?

Scott Choppin: It is, it is. In fact, we think of this in really three ways. In fact, we have a relationship with the folks at Common, which is one of the primary sort of co-living offers that we've seen in the marketplace. I actually sat on a panel at a conference with Shana Lee, who was one of their acquisitions folks in California at the time. It was interesting, I hadn't seen her presentation in full until I sat on the stage with her. It was amazing to me, because as she started to describe their product, she goes, "We build five-bedroom units, or six-bedroom units." She and I connected after the panel, and we said we should really meet, because clearly what we're doing and what you guys are doing has a lot of alignment, but for different marketplaces, right?

Eve Picker: Different market, yeah.

Scott Choppin: As you described, this is millennial. This is sharing economy. Very high-end finishes. They want to locate in trendier neighborhoods. Our model, you [cross talk].

Eve Picker: They want yoga.

Scott Choppin: Yeah. Well, they want yoga, and they want rooftop decks, and really high-end kitchen finishes. I mean, the product is beautiful, no doubt. What this did, in this conversation, Eve, is it really opened my eyes that basically our model, UTH, is a co-living model.

Eve Picker: Yes.

Scott Choppin: We just happen to be oriented around single-family groups, or family groups, generally. The economics benefit of the sharing are the same. In other words, if you say I've got ... Maybe in a co-living for millennials, everybody's an income generator for each bedroom, so a five-bedroom unit would have five income-earners. Our model is the same, except maybe we have two to four wage-earners. Again, it's sharing costs and sharing ... Well, not really income on the co-living millennial side, but certainly, these families are [cross talk]

Eve Picker: -sharing responsibilities and sharing products. I mean they may not be sharing- there's cost-sharing, as well.

Scott Choppin: Yeah, true.

Eve Picker: The fact that we were building for 10 vehicles in the suburbs was kind of crazy. How much could you possibly drive one vehicle?

Scott Choppin: Right. Agreed. In fact, just an interesting note, as I was having a conversation with one of our project managers - he's managing one of our projects in Montebello, up in San Gabriel Valley - he and I were having this conversation about families, who would come to look at the units, would start to have a conversation as he was talking with them, and touring them. They really broke it down into what is the cost per bedroom. They were, of course, looking at the whole-dollar rent, and for our five-bedroom units, were averaging between $,3000 and $3,500 ... The families were going, "How much per bedroom? Is it $500, $600, $700 per bedroom?"

Scott Choppin: For them, they were like, "That's actually affordable." Now, we know that in the marketplace, on a whole-dollar rent basis, $3,500 a month is not affordable in that context of how people think of it generically, but when you overlay that rent amount, given the total income that's produced in a family group with four wage-earners, then it actually does drop truly into the 80 to 120 percent of median area income, so our product is a naturally occurring moderate-income housing offer, truly.

Scott Choppin: Now, we don't put a covenant on it. People, when they look at it, like when I have conversations with affordable housing- pure affordable housing people, they go, "Oh, that's not really that, because that's ... It's not restricted, and it doesn't have a 55-five year covenant." I go, "True," and we do have projects that have a certain number of units restricted in them.

But, what I go is, "If you put a covenant on it, then it will change the dynamic of the investment model for raising capital," and then we go back to, now, this true affordable housing model where I always say that total subsidy to develop a true affordable housing is always going to be finite. There will never be enough subsidy to subsidize enough projects to serve all that very low, and low-income families across the US. There's not enough capital in the marketplace to do that. There never will be, so I say it's finite.

Scott Choppin: Our model, then, yes, we don't have a covenant; yes, there is some potential for rents to rise, but we are serving a family group, at least in the early stages of it, that didn't have that offer. They couldn't go rent a five-bedroom unit for $3,500. Their next choice was to rent a five-bedroom house for $4,000, $5,000, depending on the market.

Eve Picker: Yeah. No, no, it's great. How many of these units have you built?

Scott Choppin: The early stages of the cycle in, let's say, 2017-2018, we were very careful to keep the project sizes low and the number of projects low in what we call our demonstration phase. We were literally doing three-, four-, five-, seven-unit projects. We did that purposely, because I had three things that I wanted to prove in the demonstration phase.

Scott Choppin: One is that we could rent the units for what we projected; that we truly were going to deliver the rents at the amounts that we thought we should get. Two is that we could build them at the cost that we projected ... Rising construction costs, everybody's dealing with that, and it's particularly distinct in California. Third and most importantly for us, as a non-affordable housing, or at least development projects that don't have subsidy and covenants, we have to have a certain value when we get to the end of the project; that it delivers the value or valuation that we intend. We've actually closed and completed the demonstration phase. We've been able to deliver, on average, about 26 percent internal rate of return to our equity investors [cross talk]

Eve Picker: That's pretty fabulous.

Scott Choppin: We've sold those projects, and now we're moving into a new phase which I'm calling our production phase, and we're probably about a year into that. What that has us do is go up in volume, but particularly go up in project size. As an example, we recently won an RFP in a city called El Monte, in Southern California. That's a little over a five-acre site, and we'll end up doing somewhere around 53 of these UTH units in a single project. The total unit count is probably no more than about 70 units right now, all told, between what's in the pipeline and what we've built and sold, but I consciously wanted to go in a very disciplined [cross talk]

Eve Picker: You should not apologize for innovating something brand new. 70 units is pretty, pretty fabulous, considering-

Scott Choppin: Well, I appreciate that. I think that one of the reasons why I was attracted to being ... I mean, you and I know each other, and we've had many conversations, but part of my obligation is I need to get the news about this innovation out into the marketplace, one, to raise more capital, but also, I think this is a solution amongst many that are needed in this new environment of just highly constrained development pipelines and low production of housing. We're going to need many answers, and this is one of them.

Eve Picker: This is just one of them, yeah. Tell me, how did banks receive this, when you went to finance the earliest project?

Scott Choppin: Sure. We actually used-

Eve Picker: You know that's a loaded question, right?

Scott Choppin: Yeah, of course, and it's a valid question. It's one we considered. We went out and talked to about 10 different banks, and we got a variety of answers, as you would well imagine, right? Everybody looked at it differently. It sort of fell into two categories of reactions. One, to be honest with you, on the commercial banking side, without having a demonstrated pipeline of successful projects and the product being so innovative, and different, and uncommon, we just- we got a lot of ... They were nice, but they were like, "Yeah, we don't think this is for us. This is so unusual. We don't know the valuation model. We don't know who buys this." We were prepared for that. I went into those meetings knowing that that was probably what we were going to hear.

Scott Choppin: The other group of lenders that we talked to were a variety of ... We have some private lenders that we have longstanding relationships with, and then we have a small group of, I'll call, community lending groups [cross talk]

Eve Picker: Institutions, yeah.

Scott Choppin: -or institutions. One of the one of the folks that we've had conversations with is Century Housing, which is a local nonprofit in Southern California. They have something called the Century Community Lending Fund, and that's run by a woman named Tracey Burns, who's a longtime colleague of mine from the Kaufman & Broad days. We haven't done a project with them yet, but it very much fits inside what they are after. Their fund is a conglomeration of monies from B of A, Wells, and US Bank. Their business plan, their mandate, is to lend to projects that have unusual characteristics. Maybe they're true affordable, but maybe they're just infill in communities that need it, and certainly UTH fits in that well-

Eve Picker: But this is my beef ... You're innovating, and you're doing it very carefully, and you're showing that it's successful. It's very difficult to find funding for that [cross talk] traditional financing for that innovation. Yet, we all know how much this sort of housing, or any sort of affordable housing is needed. Why on earth should it be so difficult? It's easy for the podium projects to get financing.

Scott Choppin: Amazingly so, right.

Eve Picker: Yet, we don't really need them anymore. In fact, quite the reverse; we need them to stop, because they've flooded the market.

Scott Choppin: Agreed, yeah.

Eve Picker: I don't get it [cross talk] change this ... Can we really wait five to 10 years, while a bank, or banks, or traditional financial institutions become comfortable enough with a new model?

Scott Choppin: The joke that I would say to the commercial banking guys, and folks that we knew, and these were usually people I already knew and had relationships with ... I said, "Hey, look, by the time the model proves itself the way you guys want, this cycle will be over [cross talk] saturated ..." That's maybe why the podium projects are the way you describe. It's lemmings into the sea. Everybody is going to follow what everybody else is doing.

Scott Choppin: For me, Eve, I'm sort of ... I've made peace with that process of frustrating bankers, or having them frustrate me, or the projects, because this project and product type is so different that, almost at every turn, city- conversations with council members and planning staff, I know I'm either going to get, "Wow, this is great! I love this," or, "Wow, holy cow. I don't even know how to deal with this. In fact, I'm sort of freaked out by the number of bedrooms," imagining the worst case scenarios.

Scott Choppin: Equity investors have been very polarized. They either get it, and they're like, "Wow, this is ..." but people who know, like particularly what I find is people that are from already existing housing-constrained marketplaces ... Let's say an investor's from New York, or Southern California, from the Bay Area. They already know this housing constraint story. When this shows up, they go, "Oh, I get it." Not even a thought about it. I don't even have to really describe it to them much more.

Scott Choppin: People who are from maybe more non-constrained markets, let's say somebody's from Texas, and I don't have any specific example of anybody who's done this, but when you can build housing really unfettered from a zoning, or capital-constraint standpoint, well, then you don't have that issue of constrained housing and rising costs. I can say any coastal urban market pretty much has this issue, and so, in fact, the larger-

Eve Picker: We have this issue in the Rust Belt cities for different reasons, but I am extremely frustrated by it. You know that's why I built Small Change. It was really because I had this feeling that innovative projects were really being squashed by our financial institutions-

Scott Choppin: I agree, yeah.

Eve Picker: -yet innovation is the only way we're going to solve these problems, build better cities, house everyone, and all of the other things we need to do. It's [cross talk]

Scott Choppin: Agreed. Eve, this is what I love about ... Although I'm looking for the right deal to do with you guys, I will tell you, as we have conversations with other groups that are in the same space that you are, everybody is so focused on just whatever is the path of least resistance. Many groups that I'm talking to now are all about value-add apartment acquisition. Even just the development model is anathema to them. Again, I understand that, but they're so not creative.

Scott Choppin: I think part of what happens, particularly in the crowdfunding space, is I think you get a lot of people who are tech people going into real estate. My opinion, my assessment of it, is they are scared of it. Whereas, you ... In fact, I was thinking about it this morning, as I was getting ready to do this interview. You've developed your own projects, right, Eve?

Eve Picker: Yes.

Scott Choppin: You've gone through the process of doing that. I would say 99 out of 100 people that I talk to in the crowdfunding space, usually they're very early in their careers, so they haven't gone through any seasoning, and real estate's just a product that happens to be combined with tech, in this standpoint. They're not seasoned in the way that folks like you and I are. I mean that in the best way. It's just real estate development is a very, very tricky business, and it takes a lot of strategic knowledge to be able to do it competently. That doesn't happen when you're in early phases of your career.

Eve Picker: It takes a long time to see the results, too, of your hypothesis, right?

Scott Choppin: Agreed.

Eve Picker: Whatever you take on, it takes a while before you can actually see the results-

Scott Choppin: Correct, and that's, in fact, why we did the demonstration phase, because I've certainly been guilty, as any other developer, of finding what I thought was a great idea and just launching as big as you could. I've had some successes in that manner, or methodology, and I've had some failures. From that, I just said, "Hey, look, let's do this very rigorous and disciplined; let's prove the model ..." because we could've done the early projects, Eve, and they would've failed, or at least- not failed, because any housing you build new in California is pretty much going to have good value, but does it ...

Scott Choppin: My criteria was does it serve the families that we intended in the way we intended, in the way they need, and does it produce sufficient yield to investors for me to compete in the capital-raising process? Those were the two criteria. If either one of those failed, then we were done and go on to do something else.

Eve Picker: I think you described why we called ourselves Small Change. Small change leads to big change, right? [cross talk]

Scott Choppin: Right, right, and I am very encouraged. If anything in new trends - not that crowdfunding is a trend - but we haven't seen the broad base of different types of offers and different ways of looking at it. I mean, your combination of social impact and crowdfunding is, to me, just amazing. I'm rooting for you guys to grow, to be bigger than-.

Eve Picker: Well, we're going to talk about that, because you might help us.

Scott Choppin: Okay, great. Looking forward to it.

Eve Picker: Yeah, so I think this is really interesting stuff. You have some investors who took the plunge with you.

Scott Choppin: Right.

Eve Picker: They're interested in impact, really. I'm wondering what you think the future of real estate impact investing looks like?

Scott Choppin: That's an excellent question, and I might just answer it in a different way than you had conveyed the question. Our early investors, they recognized the social impact, but I don't think they were driven by it primarily. Of course, any investor that's not purely social impact coming from a source of capital that doesn't need to produce returns, they need to produce returns. They're looking for me to do that, and that's primary. I would say they are predominantly oriented around making a profit, and receiving yield back, and getting their money back in the first place.

Scott Choppin: I have had many conversations with ... We, in the beginning of UTH, thought social-impact funds, social-impact organizations - this is just right in the right space for them, meaning UTH, naturally occurring moderate income. I personally have found it a little bit of a challenge to get on people's radars for a couple reasons. This is no complaint; this is just me being my blunt, honest self.

Scott Choppin: One is that, rightly so, most social-impact organizations, housing is low on the priority list and I don't ... Go get it, right? If you're oriented to making the highest impact with the dollars that you have available to do that, housing may or may not be functionally appropriate for that.

Scott Choppin: Also, what I found was that when I started to talk about moderate-income housing, we didn't fit the model of what people were looking for in the social-impact space, relative to housing. What I mean by that is that they said, "Look, if we're going to invest our dollars in projects, we want to invest in neighborhoods and the demographic profile, the renter profile, at 20, 30, 40, certainly below 60 percent of median income, because that's where the need is highest. That's where the housing constraint and strain on families is the highest. I completely acknowledge that. My background in affordable housing has me understand that intuitively.

Scott Choppin: Social-impact capital coming into that space will have an impact and, in fact, will arguably ... I said earlier, subsidy is finite, right? I was meaning government subsidy, but you could argue social-impact capital appropriately invested could raise that level of finite-ness. I would also say, still, without just a natural market mechanism, I think that we're going to always have some constraints.

Scott Choppin: Again, no complaint. Just an observation. I saw social impact, at least the groups that I talked to, said ... They got it. They said, "We get this, and we see the value and the social-impact value for it, but we're focused in this 60-percent or below space." I had a great conversation with the person who runs The Enterprise Group in Southern California. I think it was just like she got it, but I think it was just not where their focus was. They were focused on true affordable housing. When that started to become a theme or regular reaction ... I mean, we continue to track social-impact investors, and I think there will be a time when that's appropriate, or at least somebody has the investment mandate or the criteria, where middle-income families will be part of what they need to point their dollars at.

Scott Choppin: I think there's almost a little bit of a competitive feeling, like, "Well, if I invest dollar in your project that's serving working families that takes a dollar away from the homeless project that I need to support." Again, I don't dispute the idea. To me, it was almost too ... The story is a broader story of that [cross talk] housing constraint and the pressure on families across the income spectrum is happening at all levels. That then, to me, says then solutions need to be at all parts of the spectrum. We just happen to be in this particular moderate-income part of the spectrum.

Eve Picker: Well, this has really been fascinating. I have three final questions that I'd like to ask you, if that's okay?

Scott Choppin: Sure, absolutely.

Eve Picker: What's the key factor for you that makes a real estate project impactful?

Scott Choppin: Where I'd go to is neighborhoods and demographics relative to the locations of those neighborhoods, and I'll tell you what I mean by that. In essence, our UTH model, really ... We seek out lower, and lower middle-income neighborhoods that traditionally don't see much development, because the economic conditions of those neighborhoods don't suggest to the development marketplace that this is a place to build. Maybe affordable housing, but nothing other than that.

Scott Choppin: As an example, in Fullerton, we're developing a project in West Fullerton that hasn't seen any new housing developed in that neighborhood, let's say in a few blocks' radius from our site, in probably 40 or 50 years, which is amazing to me. We're in probably the most constrained marketplace in United States, and this neighborhood is untouched, right?

Eve Picker: Right.

Scott Choppin: There's different reasons for that - zoning, economics, and that kind of thing. I'm encouraged to be able to go into a neighborhood and say we can create this new housing opportunity for families that, by the way, already live there. The families that rent our units are already in this neighborhood, or they're a couple neighborhoods over, but they're already living in this neighborhood, except that they may be living in two two-bedrooms, side by side, or one part of the family lives in this unit, and the other part of family is a couple blocks over. We're just giving them a space to come together.

Scott Choppin: The other part of it that I see as impactful is that, naturally, because of the neighborhoods that we select, and because of where the folks who rent our units already live, this naturally has them be closer to the important things in their lives. In fact, I describe this tenant profile as sticky. What I mean by that is that they have things that exist for them already, where they live, and where our new units are located that have them be very stable and families that basically stay. Social networks is that the main way to describe that. That's churches, community, community work or involvement in the community that they have; that's schools. Their kids go to school ...

Scott Choppin: Most importantly is that these units, because of their infill locations, are generally closer to the jobs these folks work at, which, as you would imagine, are more blue collar, or service worker jobs where ... None of our families who we've rented to or in our units now, none of them commute- do this hour or two-hour commute each way. They just don't do it. What they do is they look for the unit that is close by to their work, and that's ... They don't do it in a way that we think, where a millennial person might say, "Look, I really want to live close to my job, because I want to ride my bike, or I want to ride and train."

Scott Choppin: These families make the same decisions, but for different logic. One is, "I don't want to drive my car that much because maybe it's not a great car. It still runs good. Gets me to work, but I can't drive it two hours back and forth." Plus, I think just naturally, they understand the trade-off of that. Because the way they share rents and incomes, it gives them the capacity to stay in infill locations. By sharing more costs amongst the bigger group, that allows them now to stay ...

Scott Choppin: In one of our downtown Long Beach projects - we have actually two - we say that, just generally, our tenant profile is the dad is a truck driver at the Port of Los Angeles, or Port of Long Beach. That's where his job is. He goes there. Then, our two new communities that are in downtown Long Beach are between 10 and 15 minutes away from that job on surface streets. Doesn't get on the freeway; drives to his job. That job probably produces $50,000 or $60,000 a year; maybe less, maybe more, depending on the person. When that's combined with the other incomes for the families, now they can afford that $3,000 or $3,500 a month rent at 30 percent of their income, because [cross talk] jointly, they're making $100,000, $110,000, $120,000 a year.

Eve Picker: The next question I have is it that you can raise money through equity crowdfunding. Is there another reason to use it, to involve investors through crowdfunding that you can think of?

Scott Choppin: Well, there is. It's a great question. I haven't thought of it this way, but I think ... Look, I think, as any developer, our job is to raise capital. If I look at my primary responsibility, I'd say I have to always be raising capital. I see crowdfunding in a couple different ways that way.

Scott Choppin: One, it's a new technology, or it's a new process of raising capital. I'm always- just naturally, how I am as a learner, and a person of business, I'm always looking for that more effective, more technologically efficient way to manage our business. I see crowdfunding as having ... It gives us the capability to have a wider audience for our product offer. A project goes out, and now we can see where ... I have my network of investors, and I'm always expanding that network. I am building networks of networks to produce new capital opportunities, new investors. But crowdfunding is like that, on steroids, right?

Eve Picker: Yeah.

Scott Choppin: We have technological platforms. Obviously, crowdfunding groups like yours have their own investor base, so I'm able to broaden the reach of our offer, but also, yours is a separate new network [cross talk] so that is a capability to access that.

Eve Picker: This is a big question, but if you could do one thing to improve real estate development in the US, what would that be?

Scott Choppin: Yeah, so, [cross talk] easy question. I would ... There's a lot of dialogue on the social media platforms about zoning reform. If you look at your standard American city, almost any major urban metro, in the '50s, and '60s, and '70s, many cities converted what was historically neighborhoods or zoning areas that allowed apartments, or more dense housing. They down-zoned almost consistently across major urban metros in the States.

Scott Choppin: We are seeing the very cutting edge of that right now. Oregon is working on removing single-family zoning entirely. I want to say it was Minnesota, or Wisconsin, I can't remember which, they are starting to say, "Look, we are eliminating single-family zoning." That, as a zoning tool, or at least that type of zoning is-

Eve Picker: That's interesting.

Scott Choppin: -very ineffective in solving housing constraint. In fact, it's the reason for housing constraint; in my mind, the primary reason. Also, if we're going to meet our environmental greenhouse gas emissions standards, we cannot continue to build, nor can we allow single-family neighborhoods to exist as they are, because basically, when we build dense housing, it's proven by research, that type of lifestyle reduces vehicle trips; has people use more transportation that's alternate to cars.

Scott Choppin: In fact, in California, there's a new ... I don't know if it was a report, or an article that basically said California will not meet its greenhouse emissions gas levels by just having cars be better at producing less smog. Their claim - I believe it, and I think it was based on real research - said the only way we're going to get there is that we need to reform zoning, and we need to basically build more dense.

Eve Picker: Yeah. Well, look, thank you very much. This was really fascinating. I feel like I learned a lot [cross talk] and I want to talk to you a little bit more about it off the air, but I really appreciate the time you've taken with me today. It was a really interesting conversation.

Scott Choppin: Thanks Eve. Appreciate the invite, and I enjoyed the conversation, as well. Thank you so much.

Eve Picker: I really enjoyed talking to Scott today, and I learned a lot. I hope you did, too. Scott reminded us all that subsidy is finite, so building market rate solutions for the housing crisis is an imperative. He noted that the '50s-era household in the US - a suburban home with mom, dad, 2.3 kids, and five cars - was an anomaly. We need to get over it. I love that he has shown a much needed, and affordable housing model can be financed through private equity.

Eve Picker: To find out more about impact real estate investing and to get access to the show notes for today's episode, please go to EvePicker.com, where you can also sign up for my newsletter to find out more about how to make money in real estate, while doing good for society at the same time. Thanks so much for spending your time with me today, and thank you, Scott, for sharing your thoughts. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE. Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Joshua Lavrinc, a colleague of mine in Pittsburgh. Josh is the CEO of Grove Community Development, a real estate development and consulting company. He's also the CEO of Callay Capital, a fund advisory and management company.

BE SURE TO LISTEN TO THE PODCAST AND SEE THE SHOWNOTES ON THIS PAGE HERE.

Eve Picker: While Josh started his professional life as an attorney, he pretty quickly moved into the capital-raising world and has stayed there ever since, but he shifted his role to developer, development consultant, and fund manager, squarely in the impact arena. What sets Josh apart is the type of funds and projects he's involved in. He's carved out a little niche for himself in Pittsburgh, helping to raise and manage funds like the Strategic Investment Fund and the Power of 32 Site Development Funds.

Eve Picker: In this podcast, we explore the inherent challenges in impact investing. Be sure to go to EvePicker.com to find out more about Josh on the show notes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Josh, how are you?

Josh Lavrinc: Good morning, Eve. I'm very well, thank you.

Eve Picker: Josh, I know a lot about you, but our listeners do not. I would love you to just tell us a little bit about yourself.

Josh Lavrinc: Fantastic. Well, thanks for the opportunity to speak. I'm in Pittsburgh, as you are these days, working on real estate investment, in particular, for socially responsible mission-based investments, which we'll talk about as we proceed in the conversation.

Josh Lavrinc: My background ... I've lived in several places in the Northeast and went to college, undergrad, at Penn State, where I learned accounting, among other things; started my career as an accountant very briefly, before deciding to continue on to law school. After studying accounting and being in an accounting firm for a short while, I decided to proceed to law school, and went to the University of Pennsylvania in Philadelphia with my now wife.

Josh Lavrinc: We stayed there for about five years, through law school and practicing law, really in the areas- two areas - one, real estate finance and development and the other area, structured finance, working, in particular, on commercial mortgage securitization for large rating agency clients and large investor clients. Then combining that with a more traditional dirt practice, as they call it, on real estate development, and then representing banks, insurance companies on lending and investment, as well.

Josh Lavrinc: When it was time to have children - my wife is from Pittsburgh - we came back to Pittsburgh and here we've been since about 2005. I continued practicing law for a few years until the market crashed in 2008. I had left the law firm to start a development career and started, actually, a distressed debt strategy that was difficult to pull off, raising capital and sourcing distressed debt transactions as a way to try and acquire property at the right basis during that cycle.

Josh Lavrinc: With little resources to pursue that strategy, my partner and I at the time - he was also young with new children in the house, like I - we decided to look at residential real estate as an overlooked asset class; something that had been hit pretty hard by the financial crisis. We started a real estate development and construction company in Pittsburgh, which went on. After starting that up. about 24 months into it, I sold my interests and moved on to the mission-based investment fund management platform that I've grown and am part of now. I sold those interests, and he went on to become the largest owner of houses in Allegheny County, where Pittsburgh is located, in 2014..

Josh Lavrinc: I have a residential development and an investment background thanks to those couple of years, but I've moved back into commercial, which was much more of my professional training. I'm excitedly applying my skills for a particular mission rather than an array of clients, an array of projects, where I had responsibilities previously, just to execute on a transaction somewhat disconnected from the underlying projects. Now, I'm on the front side of the transaction, helping, assisting clients in figuring out how to finance those projects or actually providing the capital for those projects, and with a particular mission, as I was saying [cross talk] I can talk a little bit about that.

Eve Picker: Yeah. Can you tell us a little bit about the mission? That'd be really great.

Josh Lavrinc: My current partner, Jim Noland, had a mortgage banking firm back in Pittsburgh that he had started in the late '70s-early '80s. At some point, towards the end of that decade, some of the local union building trades came to him and said, "We've been investing in these national strategies with our local pension fund money. They will create financial returns, but they're invested in projects at major metros that are very large, and they don't really have any impact on us, here locally, so we would like to see if we can invest our money in local projects, create jobs, and create financial return."

Josh Lavrinc: So, before it became popular to talk about responsible investments or mission-based investment, here was a fund that formed. Fast forward, that fund is called the Employees Real Estate Construction Trust. It's a regional fund from Cleveland, Ohio, through West Virginia that has a collection of union, municipal and private pension fund investors, the majority of whom originally were local union building trades. There is a 100-percent union building-trade labor requirement attached to those funds for every investment they do, in order to create high-quality jobs through the union building trades and invest that money for financial return, locally.

Eve Picker: How much has been invested locally through that fund over the years?

Josh Lavrinc: It's been, I believe, over a billion dollars at this point, although the corpus of the funds is in the $200 million range, a little over that [cross talk]

Eve Picker: -that's pretty high impact, Josh.

Josh Lavrinc: Pretty high impact, and that's not a track record I can claim responsibility for. There's a great team. There's a trustee of those funds, AmeriServ Bank. My partner, Jim Noland, and his company, Penn Trust Real Estate Advisory Services, Incorporated, of which I was part, has served as the real estate advisor, essentially in charge of origination, and execution, and servicing of all those assets. There are strategies within those funds - a debt strategy and an equity strategy. They've been very flexible in the market; able to do things a little more aggressively than conventional lenders and have built up a great reputation in the development community in this region, as a result of that, and their great, diligent, and friendly relationships.

Eve Picker: That's how you dipped your toe in the water of impact and socially responsible developments. If you fast forward today, what other projects have you worked on or what other funds have you managed that fit that criteria?

Josh Lavrinc: Great. When I met Jim Noland on a nonprofit board he and I were serving on, he was pursuing a program with the State of Pennsylvania - the Commonwealth of Pennsylvania, I should say - called the Building Pennsylvania Mezzanine Loan Program, trying to do support; provide gap financing to support commercial projects in promoting an economic development mission in the state. That program successfully was pursued, and we've used that a number of times, including to finance the Ace Hotel here in Pittsburgh. That's one additional mission-based fund that we continue to manage from time to time.

Eve Picker: We should tell people, the Ace Hotel in Pittsburgh is a pretty high-impact project, because it's a hotel that was ... The hotel actually re-utilized, renovated a beautiful old building that had been long vacant in a very underserved neighborhood that was quite poor at the time. It really did a number of amazing things. It's not just an Ace Hotel. It's an Ace Hotel that really made an impact, I think.

Josh Lavrinc: Yeah, it came at a time, just before this ... Really at the cusp for ... This neighborhood in Pittsburgh, East Liberty, had been, prior to that, fairly distressed. Certainly, the Bakery Square project and the folks at Walnut Capital helped to transform that neighborhood, among others, but our friends, Nate Cunningham and Matthew Ciccone - Matthew sort of envisioning that project ...

Josh Lavrinc: A former YMCA associated with a church across the street; had been sort of mid-block. Not a hard corner. Not an easy site to see, and certainly, at that time, not a neighborhood where you thought about hospitality assets, nor a brand, in Ace, that lenders still to this day think about wanting to see a major franchise and the loyalty customer base of that franchise brought to bear. Difficult to do boutique hotel financing in this neighborhood, mid-block, in the conversion of a former YMCA, but it turned out beautifully. It has been a social magnet for that neighborhood and certainly part of the recovery, I think [cross talk]

Eve Picker: So that's what-

Josh Lavrinc: Interestingly enough, another- Oh, go ahead, Eve.

Eve Picker: No, you go ahead.

Josh Lavrinc: Interestingly enough, at that time, we also arranged senior financing, or I should say bridge financing, with a fund called the Strategic Investment Fund, which I now manage through our company, Callay Capital - a third fund in our portfolio of funds that we manage. At that time, we were doing servicing for this fund and had helped with origination. We weren't formerly the fund manager, we were just a particular service provider, but it was a good fit for that mission.

Josh Lavrinc: That fund now has recently changed its mission a bit but was originally formed in the '90s to revitalize downtown Pittsburgh in the wake of the collapse of the steel industry. I should say not just downtown Pittsburgh, but also industrial reparation of the river valleys, where so much steel job loss actually was experienced. The Strategic Investment Fund's intent was to create economic development - primarily its focus - in those river valleys, but also to revitalize housing and make a vibrant downtown community in the Pittsburgh CBD, in particular. It was very active in financing residential, retail, some hospitality, and a lot of commercial in the region, but focused on those two strategies.

Josh Lavrinc: Again, subordinate financing, taking aggressive pieces of the capital stack that were unable to be financed by conventional lenders - second, third mortgages, bridge loans, those kind of financing. We now manage that. The strategy is shifting a bit. We're looking at- now that downtown Pittsburgh has essentially become revitalized, although, perhaps not at 100 percent, it's drastically different than it was even 20 years ago. The mission now is to try and spread that growth into other neighborhoods that have more challenges for resources and try and help those more challenged communities. There's also a sub-mission to assist with the affordable housing crisis that we have nationally and trying to create affordable housing. We're looking at affordable housing in well-resourced communities, as well as lesser-resource communities [cross talk] In the last-

Eve Picker: No, you go ahead. Go ahead.

Josh Lavrinc: I was just going to say the last fund that we're managing currently, as an active fund, is the Power of 32 Site Development Fund. This was a fund in 2014 that we raised to assist in creating shovel-ready sites for our region to promote a land development and attract companies from across the globe to locate here in our region and create jobs.

Josh Lavrinc: It's called the Power of 32, because there was a larger think-tank initiative trying to promote the greater Pittsburgh region, identifying with four states: Ohio, Maryland, West Virginia, Pennsylvania - 32 counties in those states - and really community development, broadly - rails to trails, and venture capital, and site development. A bunch of initiatives were discussed, and we were one of those initiatives was to do the site development and we were chosen as the fund manager and helped to raise and implement that fund. It's been successful to date. We've raised about $50 million and have ... We've done about $25 million of projects right now, and we're continuing that investment.

Eve Picker: That, in itself, is a huge body of work, but I know you're squarely involved in socially responsible real estate and finance in Pittsburgh, but I also know that you are working on your own real estate development projects. You and I have partnered to try and raise money for Opportunity Zone real estate, which I'd love us to talk about and the difficulties around that entire tax law and how it's playing out. Do you want to talk about that?

Josh Lavrinc: Yes, absolutely. That's the fund that has not been named yet-

Eve Picker: That's right.

Josh Lavrinc: and we are ... Eve and I have been actively involved since the tax cuts and JOBS Act of 2017 came out. In the wake of the announcement of the designated Opportunity Zones in April of 2018, or March of 2018, we've been actively monitoring this potential huge impact game-changer for socially responsible investment and impact investment. Maybe I'll unpack that a little bit and just-

Eve Picker: I think that's a great idea.

Josh Lavrinc: -how it's set up.

Eve Picker: I was going to suggest that, yep.

Josh Lavrinc: When we talk about impact investment or social responsibility and investment, these all sort of have a categorical place, I think, in my mind, around certain missions. I think any time we're talking about investment funds, there's obviously a financial mission, but when we talk about socially responsible or impact investments, we're coupling financial investment, without trying to compromise it, with some social mission and likely environmental; which might be part of social, but I would break out as a third category. So, financial, social and environmental missions; social sometimes is referred to as community.

Josh Lavrinc: I think that community development should and does occur in all communities. Most of the time, when we talk about community development, we're talking about low-income communities and trying to help the communities with less resources, but really, there can be good community, positive community development. For instance, we're pursuing right now an affordable housing project in Pittsburgh's Strip District, which is a neighborhood that's on fire for job growth, and retail development, and hospitality resources, adjacent to the CBD, and multi-family apartment, market-rate apartments, condominiums, office. All of the commercial real estate products are well represented there, but not affordable housing.

Eve Picker: In other words, it's gentrifying very, very quickly.

Josh Lavrinc: Yes, and I think it was a fairly low population community to begin with, because it's primarily industrial in nature, right? [cross talk]

Eve Picker: It was. That's correct. That's correct.

Josh Lavrinc: -there are concerns about displacement and gentrification throughout all of these conversations about responsible community development, but here's a community that maybe did not have a large, low-income population, and we need to try and develop it in a balanced manner and help-

Eve Picker: That's correct.

Josh Lavrinc: I think a key to creating affordable housing and creating a region, a strong region for all, is in those hot neighborhoods to try and remember the responsible uses, as well. We're working on a project that I hope we'll be closing on later this summer to create a significant amount of affordable units in that neighborhood. A slight digression there from our categorical discussion of impact investment.

Josh Lavrinc: Just one example of community development, though, is affordable housing, and most of the time, that market, whenever we have a use that doesn't bring in rents that are sufficient to motivate investors on their own - hence the crisis we're in, where we don't have enough supply because there's not enough financial investment incentive to attract investors and developers to create that product - there's some subsidy or incentives. And in this case of affordable housing, obviously, there's the Low Income Housing Tax Credit, and those-

Eve Picker: Well, I've got to interject here. You have said a couple of things now that I think are absolutely key. That is that there's not enough financial incentive; that we're trying to do socially responsible projects, while at the same time keeping the financial returns the same. That, I think, is the crux of the issue. I think that perhaps we've all gotten a little bit too greedy, but it isn't- it isn't always possible to keep the financial return in the 20-to 25-percent internal rate of return arena for a project that is socially responsible. Yet you and I have not ... I think we both don't believe that we have investors really ready to invest for less. They really want both. Am I right? They want the financial returns, and they want [cross talk]

Josh Lavrinc: Yeah, they do. They do [cross talk] and it's tough to deliver both. It's tough to deliver both, especially when you get into ... When you get into a structured product like the Low Income Housing Tax Credit, you've got rent restrictions - for good reasons - that go on for sometimes upwards of 20 years. That's difficult to project a financial return on sort of ... All real estate is perhaps a depreciating asset, other than their land value, that require repair and reinvestment over time. If you have a challenged underlying land value because it's in a less-resourced community, you have a restriction on the income potential of that property, it really becomes a very specialized, niche investment opportunity [cross talk] like most other investments.

Eve Picker: -yeah, because the asset value can't increase over time because it's restricted. Typically, investors- or often investors are looking for some return over the years and then some share the upside at the end, when the project is sold. But the upside on an asset, on a building that has been restricted, is just not going to be there.

Josh Lavrinc: That's right. Sometimes, it is. Obviously, on the margins, there are exceptions. When you have something in a rent-restricted unit to a project in a rapidly, or even not rapidly, but a neighborhood that changes over the course of 20 years and becomes very valuable at the end and you lift the restrictions. That's no longer developed for the same mission. That then, perhaps ... The value becomes in converting that to another use. I think the silver lining to all of this, interestingly ... How do we reconcile financial return and investment? You hit the nail on the head. There requires some compromise, in the absence of other incentives. I think the Opportunity Zone program or incentive is potentially one of the solutions that can really spur new impact investment in communities. The reason I say that- oh, go ahead.

Eve Picker: No, I was going to say for our listeners who don't know what Opportunity Zones are, they were introduced as part of the 2017 JOBS and Tax Act. I think there are over 8,000 of them. Am I right, Josh? 8,000 [cross talk]

Josh Lavrinc: -25 percent of all eligible low-income census tracts in the United States were delegated to the state level to be selected by the chief executives in each of those states, and then they designated 25 percent of those. It is a large number, as you said, Eve, across the country. There has been a lot of focus on this program, about whether it's really a program. I've used that word a couple of times. It's an incentive, for sure, but it is different than a tax-credit program or other incentive program that we've seen in the past in that only those with capital gains can directly benefit by investing into an Opportunity Zone - one of these designated low-income census tracts.

Josh Lavrinc: The benefit is in a short-term deferral of a prior capital gain. If, meeting the qualifications, you can maintain that capital gains investment in an Opportunity Zone for a whole period exceeding 10 years - a long-term investment -then you would receive a step up in basis for that capital gains that was reinvested into a new investment to the fair market value of that investment at the end of that hold period [cross talk] has the potential for tax exemption, essentially.

Eve Picker: That's correct. I think it's actually a great program. It could be a great program. It has a couple of really, I think, serious flaws, and it's inequitable in the fact that only someone with capital gains can really take advantage of it. That already skews it towards wealthy investors. Secondly, in the selection of these census tracts, one can only imagine how much politics was involved, because you and I know that the tracks that were selected in Pittsburgh, particularly difficult, and they were selected for the right reasons, because those really need the most investment. But other states didn't really think about it that way, or other cities. They selected tracts that already had investment and they thought they could attract more dollars to. Even the selection of the census tracts has been inequitable. I don't know what you think about that, Josh, but ...?

Josh Lavrinc: Yeah, I think it may have been equitable in that everyone every state was participating, and every leadership group had discretion to choose the census tracts that made sense for their for their states. But when you do things equitably, it doesn't necessarily always result in an equitable distribution of resources after that. I think, unfortunately, there will be ... With our real estate lens, thinking about it in a real estate investment perspective, over the past 18 months, as we have ... When I say 'we,' I mean all of us; all of the thought leaders on the investment, accountants, lawyers, investment professionals coming together, talking about Opportunity Zones.

Josh Lavrinc: There has been concern about how will this come about? What is the financial impact of this incentive? Will it really be a game-changing flow of capital to all the Opportunity Zones? Obviously, I left out, in that conversation with the communities and economic development trust professionals across the country, who are hoping that this is a new resource to help revitalize their communities. There is certainly, when looked out through the lens of investment capital, in projects out, real estate projects out, there will be some lowest common denominator that attracts capital to the primary market.

Josh Lavrinc: Rather than changing a capital flow from Silicon Valley to Pittsburgh, which may have been the original intent of the program, and I think was, based on the political leadership that have spoken about it, if there are qualified Opportunity Zones, designated Opportunity Zones in Silicon Valley, in New York, in L.A., then those folks that are already investing in those communities don't have to look very far to find another opportunities. In fact, West Hollywood, and East Palo Alto, and portions of New York City - of course, they have low-income communities and have been designated Opportunity Zones..

Josh Lavrinc: If there's a competition among Opportunity Zones across the country for limited dollars, there will not- the problem necessarily won't be solved by the Opportunity Zone designation, itself. But I think, and reflecting on it 18 months in, I think the real change that can come through Opportunity Zones is the operating business incentive. This doesn't just apply to real estate projects. The Opportunity Zone benefit applies to capital gains of any type, with some exceptions - some very nuanced tax exceptions - but operating businesses are squarely within the regulations that have come out from the IRS.

Josh Lavrinc: I think that when we see greater investment in operating businesses ... There are already folks saying that private equity shops looking to invest in venture capital, looking to invest in companies; Company A is located outside an Opportunity Zone. "Why don't you just move down the street to an Opportunity Zone, and we'll make an investment, because it'll be more tax advantaged for us."

Josh Lavrinc: When that flow happens, when we see venture capital, private equity, and investment, and operating businesses start to prefer Opportunity Zones, I think that tide - that's a trend that can occur throughout the Opportunity Zones, not just isolated ... When that happens, we're going to see real businesses relocate, real jobs relocate, real homes relocate. That will attract more jobs, more retail, more housing, and start to really revitalize a community in a fundamental way that I think we talked about revitalization, which is putting dollars into a community.

Josh Lavrinc: There may be adverse impacts of that, if we don't use those dollars responsibly by providing for affordable housing in those communities, along- maintaining affordable housing at a high quality, for instance, as a community is revitalizing, but hopefully, those jobs that are moving down the street initially ... Although the people in those jobs may or may not have come from the target Opportunity Zone community, new jobs that are attracted to that new company, whether they are community goods and services, like retail, or strategically associated companies with the original company that moved, or some other service in the community that has more demand, those hopefully will be employing folks in the community, and is such that, hopefully, the gentrification that happens is inclusive and participatory, so that we're not seeing a series of outsiders coming into this community alone, but that there is a strengthening of the existing community that may not touch and concern every person.

Josh Lavrinc: Therefore, there's a need to make sure we're thinking about responsible community development goals, like affordable housing and investing in social services. That program, creating new businesses in an Opportunity Zone and the downstream impact of a new business locating in a community, I think, is the opportunity to bring together financial return and impact investment, social responsibility, because we'll then [cross talk]

Eve Picker: -where does that leave real estate in the equation?

Josh Lavrinc: That's the downstream effect. I think that it only takes one company moving into East Liberty, for instance - Duolingo moving into East Liberty; Google moving into East Liberty - to suddenly revitalize that community. There are much more real estate- many more real estate projects taking place in that community as a result of those business moves..

Josh Lavrinc: If we can continue to see more businesses move into Opportunity Zones that will beget more real estate investment, and folks that say, "We're going to invest in this community ... We wouldn't have otherwise, because we were worried about compromising our financial return." But then, when we combine the incentives for capital gains with the Opportunity Zone incentive with the potential transformation of this community over 10 years - transformation meaning revitalization; hopefully, appreciation - now we have a large enough financial return to incentivize us to invest and in this particular community. That's what we've been trying to accomplish all along.

Josh Lavrinc: Obviously, there is place-based responsibility. Just investing in a low-income community is helpful, but it's also subject-based, use-based responsibility. What are we building in that area? We're building commercial real estate to support jobs. That's a that's a version of social responsibility. If we're doing it to support housing, that's a version. Obviously, we want to consider the environmental impact, which I've kind of left out of this conversation about financial incentives and social responsibility. All of those things can be serviced. We'll still have, however, a need for some segment of the market to support the under-resourced portion of the community through other affordable housing, or social services. I think [cross talk] role of responsible tax management and those kind of things for the governing bodies, in addition to charitable and private efforts.

Eve Picker: But also, there's people in the community who want to invest, as you know, right? I do believe that equity crowdfunding can play a huge role in the revitalization of communities, because now, if you have a business that moves in, or a building that is revitalized, the people in that neighborhood can actually invest in it. That's a really important piece of building wealth within a community for the community, not just making it better for the community and leaving them on the outside. Difficult, as you know.

Josh Lavrinc: I think that's a great point that the community, itself, with new financial tools and e-commerce, information-age tools, like crowdfunding and the regulatory predicates of crowdfunding that you've harnessed with Small Change, bringing not just capital into these communities for financially viable projects, but also on tapping neighbors, and neighbors, perhaps in a colloquial sense, that might be stretching across the globe that are motivated about something that compromises financial return in order to accomplish impact. That's a real experiment with social capital [cross talk] can be accomplished. That story hasn't been told yet, entirely.

Eve Picker: In my time in Pittsburgh, the thing that has had the biggest impact on me is - this is true throughout the Rust Belt, I think. I'm not sure about other cities, but certainly many places I've been - how much people love the cities they live in, and how much they want to be engaged in making them better. It's a pretty astounding phenomenon..

Eve Picker: Give them an opportunity to invest $500, $1,000, $2,000, or whatever, in the place they live, rather than put it in a mutual fund, where they don't know where it's going to go, that circulates money locally, and it gives them an opportunity to share in making that place better. It's an amazing opportunity. Now we just have to educate investors, right, Josh?

Josh Lavrinc: Of course. Yeah, that's right. Not to mention the bite-sized piece of the investment that you're talking about. The other power of this is we would all like to own the local restaurant, or the local general store, or name any other part of the community that you utilize and would like to support or own. Without a large amount of resources, it's practically very difficult to accomplish that.

Josh Lavrinc: This allows, through fractional ownership at very humble investment levels, the opportunity to make a change and invest in something that ... Whether it's financially motivated, or more community motivated, depending on the mission of that particular project or fund, crowdfunding certainly is a powerful tool to try and unlock investment and change for the masses.

Eve Picker: Yeah. Moving away from Opportunity Zones, what other current trends in real estate development are you seeing that you think are really important for the future of our cities?

Josh Lavrinc: I think I would focus on the word 'community.' What by that is I think we're defining the way - in particular, in cities and urban environments - the way people come together, and live, work, and play. Those are terms popularized by commercial real estate development to try and identify or put a friendly face around mixed-use projects and make them simple to understand, but fundamentally, there is a big social change there of trying to make productive and as accessible a community as possible.

Josh Lavrinc: I was listening recently to another podcast with the co-founder of WeWork, talking about their perspective on co-working, how that came out of a desire to create community. I'm involved with a co-working company here, locally, called The Beauty Shop, in Pittsburgh, where we're trying to develop similar communities, but growing that community outside of just an office space. Their first thought, back right around of the time the financial crisis, was that people working in isolated environments can be more productive, more happy, more engaged, and feel more appreciated and better-served by those around them that are similarly motivated; similarly making sacrifices for their businesses, if they are put together in a community.

Josh Lavrinc: When you combine that and expand that into residential real estate, can those people perhaps live in environments where they feel more supported and have more of a social fabric? I think this comes along with trends on isolationism and depression that are plaguing our country these days. Those are growing problems for our nation. This is one way to tackle that social problem is bringing together community.

Josh Lavrinc: Obviously, it can extend into other parts of the community, where instead of spending time isolated, commuting to your job, you might be able to create an entire ecosystem around your business, or your apartment, or your entertainment venue, and have that all in one ... Obviously, that's what a city represents [cross talk] extending that community into a broader scale about technology, connectedness, and resource- infrastructure resources in a particular city - all of these things are really the same concept, at a different scale.

Eve Picker: I can't help but think it's the modern-day version of the kibbutz [cross talk]

Josh Lavrinc: Yes, right, and-

Eve Picker: -the kibbutz probably got all of this right a long time ago.

Josh Lavrinc: That communal living is exactly what is perhaps needed to get people back, attached, especially in the age of digital devices and the connected-with-ness we have, and yet, perhaps, the over-connectivity that's coming with that, without having perhaps enough emotional and human support with that connectivity. Definitely, it's funny [cross talk]

Eve Picker: It's also affordability, because if you share resources, whether it's a shared kitchen or whatever it is, then your living costs are going to go down. I think that's also part of the reason why co-housing options are being explored.

Josh Lavrinc: That's right. You're right, when we talk about the impact of an urban environment, or it doesn't necessarily have to occur just in an urban environment, the community, generally, there are social health and well-being aspects. There are business aspects, and there are certainly affordable aspects of the development that can be brought to bear as a result of the sharing of a common amenity base and spreading those costs across many uses.

Josh Lavrinc: That's one of the focuses of my current development [audio cuts] in addition to fund management and the structured finance consulting, new markets, tax credits, historic tax credits that I work on in my primary business, I also spend a lot of time on commercial real estate development; in particular, recently, anchored by coworking, but has molded that into a strategy around community, where we are looking at secondary and tertiary cities, not primary markets, to try and create these full-scale communities in urban environments. Although I think suburban environments are a huge untapped market, as well, to try and bring together a greater sense of community and all of those benefits that come with it - the social, the financial and the affordability.

Eve Picker: Probably in suburban markets, people are even more isolated.

Josh Lavrinc: Exactly, exactly. When we talk about commute times and disparate destinations for live, work, and play, bring those things together into a town center, into a real Main Street ... Revitalizing the main street. Obviously, there are a lot of Main Streets programs across the United States. It's a very similar theme for community development. But bringing an urban spin to it, with a responsible amount of density and set of uses, I think has a lot of power, and I think we'll see a lot of that coming up.

Josh Lavrinc: Hopefully, we'll see that happening in Opportunity Zones. I think if we can bring together Opportunity Zone development and businesses locating in those Opportunity Zones and then try to develop more community, then we'll see some pretty significant change in the next decade of real estate, business, and real community development conspiring together to implement improvement or accomplish improvement.

Eve Picker: Given all of this, where do you think the future of real estate impact investing lies?

Josh Lavrinc: Well, I think that it probably is the future. I think that the days of solely focusing on financial returns are probably starting to narrow, and it seems that the aware, responsible person is going to make more decisions. As we provide more information and more connectivity to individuals to not only their investments, but to the world around them, and their neighbors, and the people in the communities around them, they're going to make more conscious decisions to better ... To increase their efforts to deploy what investment funds they have into those things that help people around them and the environment around them.

Josh Lavrinc: Whether it's crowdfunding, whether it's an Opportunity Zone fund, whether it's a tax credit incentive, there are ... We are seeing a growth in responsible investment, in mission-based investment, and for good reason, because, fundamentally, we aren't robots. We're humans, and we have a moral compass, and we have emotion, and emotional intelligence that directs our activities to things that we favor for reasons other than purely financial. The closer we can get to combining financial return - which is almost a third-party neutral arbiter, selecting return responsibly for our good of our income and wealth in the future - if we can start to align that financial return, even more strongly than just the Opportunity Zone, with responsible investment, I think I think we'll get there.

Eve Picker: We have, in fact, lived through the era of green-washing, and we're heading into the era of good-washing, right?

Josh Lavrinc: Yeah, that's an interesting way ... Hopefully, it's not washing at all, but you're right. You're right that there's been popularization, perhaps over-popularization and overuse of terms around, for instance, green. I think we're getting into a period, an enlightenment, if you will, where individuals are receiving information about their investments, receiving information about what's happening in the world around them, and then are given opportunities to vote with their own dollars in projects that have real meaning to them and to the people around them that they care about.

Eve Picker: I have three sign-off questions for you that I ask everyone. I'm wondering what your answers are going to be. The first one is what's the one thing that makes a real estate project impactful to you?

Josh Lavrinc: The impact for me, although I skew towards economic development, I would say it's serving the people. Keying in on that community that we have spoken about here, we could easily talk about the environmental crisis that we face as a globe. We could talk about the lack of social services and the need in our community for the poor. But I think that cutting across all of those for impact, in my mind, is assessing whether a project is responsibly targeting its community.

Josh Lavrinc: I'm not inventing anything new with that response. When you think about the New Markets Tax Credit program and what community development enterprises across the country look at, when they're assessing projects, one of the first questions they ask are what are the community's plans? Does the community have a development plan? Is there community support for a proposed project, prior to awarding a subsidy or incentive? I think there's really good wisdom in that practice. It doesn't necessarily mean that you're getting the best project, or necessarily a particular outcome, but it does mean that you're considering what that community's needs are and trying to address it responsibly. That's how I would answer that.

Eve Picker: The second question - other than by raising money, how do you think crowdfunding might benefit the impact real estate developer?

Josh Lavrinc: Well [cross talk] obviously-

Eve Picker: These are not trick questions.

Josh Lavrinc: No, no, I think ... Obviously, I think, when we think about influencers, and social media, and the power of marketing in our current environment, crowdfunding has a way of making something more popular, more highlighted, and can be a great marketing tool, and perhaps a vote of confidence from the community. It might be a third party, whether those people are local to the community or outside, it's a third-party validation of whether this investment is responsible, or desirable for whatever- depending on the purpose of the crowdfunded group, that it's meeting their mission. I think there could be strong marketing efforts as a result of the crowdfunded opportunity, but I'm sure there are a couple of other [cross talk]

Eve Picker: -in effect, a community engagement tool.

Josh Lavrinc: That's right.

Eve Picker: Yeah, yeah. Final question - what one thing in real estate development do you think would improve ... I'm going to ask that question again. How do you think real estate development in the US could be improved by just one thing?

Josh Lavrinc: I think that if we could ... We can work hard to tie together our incentives, make sure they are aligned. We have a lot of ... All of the real estate industry is motivated fundamentally by financial return. We have folks whose livelihood is based on their development project, their construction project, their leasing of the project. That is a powerful tool to impact activity, to create activity financially, for each one of us.

Josh Lavrinc: The more we can align incentives, like the Opportunity Zone, to create the outcomes we want and make sure that those incentives are narrowly tailored to really accomplish what we want ... For instance, I think there are some great things about the Low Income Housing Tax Credit, which is an area I don't practice a lot in - although we're investing in affordable housing, regionally, that's not a national practice that I participate in - I think that we see the competition over the program; the structure of a program that tries to compensate with fees, given the lack of value creation. Those fees then create outsized projects that maybe are more expensive than they need to be, or more inefficient than they need to be.

Josh Lavrinc: If we can go back and fix programs to address the value equation differently and think about the model we're setting up and the downstream impact of that model to be more efficient and more effective for our goals, I think that would have perhaps the most profound effect, because you're not ... Instead of trying to change the fundamental capitalistic income-driven goal of a professional, which I don't think we can change - other than to redirect it through incentives - and if we can align those incentives with what we think currently are the crises facing our country, which are probably the social isolation, the isolation of resources, so that everyone has access to good education, and training, and jobs, and economic advancement of themselves, and healthcare, and all the rest of those basic needs, and hopefully in a way that's aligned responsibly for the environment, long term ... We have a lot of great rapid change happening there, obviously, with autonomous vehicles and renewable energy. The more we can align these programs into creating a community that's hitting on all cylinders across both of those major programmatic missions, I think that the better our commercial real estate market will be, the better our professionals will be in accomplishing those goals and the end result for the community.

Eve Picker: Yes. Agreed. Well, Josh, thank you very much for talking with me today. I really enjoyed our conversation, and I'm sure we'll be talking again soon. Thanks so much-

Josh Lavrinc: I did as well. Thank you very much, Eve.

Eve Picker: Bye.

Eve Picker: That was Josh Lavrinc. Today, I learned that the capital markets can be squarely directed at impact investing. There are some large and strategic funds in Pittsburgh that have been doing this for quite a while now. Impact investing in real estate spans the spectrum from tiny projects, some of which we've listed on Small Change, to large funds that focus solely on impact.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Josh, for sharing your thoughts with us. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE.

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you're going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Jennifer Castenson. Jennifer is the VP of programming at Hanley Wood, a company which serves the construction and design industry through their analytics-driven Construction Industry Database. Based on this information, Jennifer establishes themes and develops content to provide Hanley Wood's audience with up-to-date industry intelligence. As such, Jennifer has her finger on the pulse of innovation in the building industry, and she loves it.

Eve Picker: Be sure to go to Eve Picker.dot com to find out more about Jennifer on the Show Notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Jennifer. It's really lovely to have you here. You have a fascinating job. I know that you've been on the marketing side of the building industry for at least a dozen years. Is that right?

Jennifer Castenson: Yeah, for a decade.

Eve Picker: A decade? Yeah. Now, as I understand it, you use leading data or research information from the industry to help establish themes and content for Hanley Wood, is that correct?

Jennifer Castenson: That's correct. Yes.

Eve Picker: So, that means that you have your finger on the pulse of innovation in the building industry, which is pretty fabulous.

Jennifer Castenson: It's amazing. It's a really fun job, and it's also very amazing to see the innovators who are behind the scenes and actually doing something to change all of the challenges that are facing the housing industry right now.

Eve Picker: Tell us a little bit more about what you actually do.

Jennifer Castenson: What I do at Hanley Wood is mostly programming for our events. Hanley Wood has a number of different publications and mediums, and we have conferences associated with a lot of those that we call branding conferences. Then we also do custom events where we program for our partners in various capacities.

Jennifer Castenson: For our conferences, we are very focused on creating a theme, and sticking with the theme, and finding experts who can deliver the content in the best way; who can deliver best practices; who can talk about research, innovation within a certain space. I work on the conference program in determining, with our editorial team, what is the right focus. Then I go out, I search for, find the experts, and then work with them to deliver the content at the event.

Jennifer Castenson: I also work on editorial content, working with some of those leaders in the industry to write certain material for our websites. That could be Builder, which focuses on single-family; for Multifamily Executive, for Architect, for Journal of Light Construction, or Remodeling or ProSales. I'm looking very holistically at the industry and then solutions for each one of those verticals within the industry and how we can help the industry leaders move forward strategically into the future.

Eve Picker: I was one of the fortunate ones who was found by you a couple of years ago, right? That's how we [cross talk]

Jennifer Castenson: Yeah. Thank you so much for being part of Hive.

Eve Picker: Yeah, that was great. How did you end up in this role? This is pretty recent, right?

Jennifer Castenson: I'm going on four years that Hanley Wood. Before that, I worked for Organized Living, which is a building products supplier. Like I said, I was there for about a decade doing marketing and sales, and I was working with Hanley Wood. I had been part of the events from a sponsorship and exhibitor standpoint and knew the folks very well, and they recruited me in to be part of the Hanley Wood team.

Eve Picker: Pretty great. Your world intersects, then, with ... You know this podcast is about impact in real estate, and the building industry is part of real estate, so your world intersects pretty squarely with that, as you see innovation emerge. I've seen that you're a prolific speaker, as well as being an organizer, and you actually moderate panels yourself. So, you've touched lots and lots of topics; some of them, really big ones, like power, or affordable housing, or ADUs, or prefabrication. What theme do you think has the loudest drumbeat in the building industry today?

Jennifer Castenson: That's a really good question, and I really have to think that there are two, and they, just like you said, intersect with each other. I think prefabrication/offsite construction and vertical integration are the two that I'm referring to.

Jennifer Castenson: I think modular and offsite are getting more and more attention. They've been around for a very long time. However, in today's age, they are getting the benefit of new and enhanced technology. Then, they are extending the benefit to many different aspects that are really important to today's construction environment. There's more sustainability factors. There are more efficiency to respond to the need for more affordable housing.

Jennifer Castenson: That touches on the less need for less labor, faster construction cycle, less labor, and therefore reducing the time, reducing the costs. That's just really, really critical in today's age that we're pulling together projects faster and at lower cost to put homeownership or rent in the hands of more people. But then, also the sustainability factors. There's less onsite waste. There's less waste altogether.

Jennifer Castenson: The projects can happen in any type of environment, which is also important, because if you look at climate change, we're dealing with a lot of different climate factors, but if you're inside of a factory, then the housing can continue to be built regardless of what the conditions are outside of that factory. Prefabrication/offsite construction just has a lot of different benefits right now.

Eve Picker: I never thought of that last one. That's really interesting. But still, I'm in Pittsburgh. When I talk to some builders here, they still say that stick build is cheaper here than prefab. How much does that have to do with the labor in any particular market or the building conditions in any particular market? Is it really equally efficient everywhere?

Jennifer Castenson: No. Actually, I would say, nationwide, you'll find that stick build, traditional build is very similar in cost to prefabrication. However, the time savings reduces the cost. The hard costs are there, and they're probably the same. Sometimes, prefabrication might cost a little bit more. There are actually markets, right now, where prefabrication is so popular, for a variety of reasons, where the manufacturers are able to then bid up, and it's ... The costs are rising for factory construction. So, all those things are coming together.

Jennifer Castenson: Actually, if you think of labor unions, the costs involved with labor unions, sometimes the offsite construction might help avoid some of the labor unions. It depends on what kind of market you're in and all of those variety of factors - how many offsite manufacturers are there, and what the demand is for that type of construction, along with labor unions, the amount of transportation to site, because that's a huge component of it that will drive up costs. All of those things factor into the cost, but then the time savings is the real savings.

Eve Picker: Interesting. So, someone might argue that you're putting people out of jobs. I'm in a heavy union-labor market in Pittsburgh, so they might not be happy to hear you say that.

Jennifer Castenson: No, I know, and it's actually ... Those jobs are evolving, and it's a real big question right now. I said the second thing, for me, that I see impacting housing the most is vertical integration. There are a lot of organizations, like Katerra, and I'm also working with another one in the multifamily realm that's called Cortland, who are trying to vertically integrate more and more and to take parts of the process that weren't together under one roof and make them seamless under one roof where-

Eve Picker: I'm sorry I interrupted you, but I'm wondering what precisely you mean by vertical integration here? What is all part of that?

Jennifer Castenson: It might be different with different organizations. In the two examples I just gave, it's very different. Katerra, for instance, is bringing in design, and development, and the manufacturing all under one roof. They're bringing in even more than that, because they're manufacturing some of the products that they're using in their projects and some of the software that they're using in the design regard.

Jennifer Castenson: It's making the process- it's making it more seamless and making fewer connections so that it can happen more efficiently and more effectively. They're one of the biggest examples of it, but I was talking about Cortland, as well. They're taking a lot of things under one roof that weren't considered before, in terms of property management. It's happening more and more with more organizations-

Eve Picker: Where do you think all of this is leading?

Jennifer Castenson: I think that it's leading to more affordable housing, for one. That's the aim that most people have; most organizations have, when they start doing vertical integration. That was why and how Katerra kicked off; and creating efficiencies. It will take some time to ramp up, because those, let's say, legacy organizations - the big developers, the big builders - they have relationships that will be very hard to break. If you look at- I'm talking about the top 10 developers, legacy developers have relationships, in all the markets they're building, with general contractors. Once they start saying no to the general contractors and start doing offsite construction or changing the parameters of those relationships, it's going to be really taxing on their business to, one, just to figure out how to do it-

Eve Picker: Yeah.

Jennifer Castenson: -how to restructure their organization. But, two, what will, then, that general contractor do? That general contractor might go from being involved in 50 percent of the project to only having 10 percent of the project. Is he going to ratchet up his pricing? Those dynamics aren't-

Eve Picker: Or is he going to be innovative and figure out how to become part of the industry, himself?

Jennifer Castenson: Exactly. Hopefully. Hopefully, there's innovation behind it.

Eve Picker: That's absolutely fascinating. The ramifications of one change towards the top can be huge, can't they? Other than these two, which obviously really interest you, are there any other current trends in the building, or the real estate industry, or in cities that interest you the most?

Jennifer Castenson: There's so much that's happening, and I think there's some really big trends in health and well-being from a living standpoint. It's going to be a massive culture shift within the United States. We have been looking at housing as a shelter, but we're going to be ... As homeowners and as renters, we're going to be thinking about our housing needs to be delivering more than that. That's not only from health and well-being; that's the builders and developers thinking about how to integrate technology in order to do that.

Jennifer Castenson: We are going to be able to, as homeowners, walk into our home and think of it as a character in our lives; to be thinking of it as we can have ... Not only can we ask our house to put something on the grocery list, but we can also ask our house to get us ready for bed. That is a whole series of things that will be kicked off by a technology that's behind the walls, and that will literally help us get to sleep and have better sleep during the night and, therefore, better performance during the next day.

Eve Picker: That is so awesome. It brings to mind a show I used to love called The Jetsons.

Jennifer Castenson: Yeah, right? Yes.

Eve Picker: It feels like we'll be entering the life of The Jetsons.

Jennifer Castenson: It is. There's so much. Years ago, I heard somebody talking who was an employee of Disney, and he was saying that we will have characters in our home; characters who speak to us. I feel like we're almost there. Now, there's a whole bunch of hurdles with security issues, and there's also hurdles in terms of integration and what people are willing to pay for these sorts of technologies. However, we are on a fast track because of the way that technology accelerates, so [cross talk]

Eve Picker: -yeah, interesting. But do you think these trends will make for better cities? Are these really important, impactful trends, having [cross talk]

Jennifer Castenson: -I was talking about health and well-being. I think health and well-being, I was focused on it in terms of just one residence. However, more and more people, from an urban planning standpoint, and smart cities development standpoint, are working together. There are more and more collaborations, and more people are understanding, recognizing the benefits of collaboration.

Jennifer Castenson: You'll see more cities are creating- working with developers or leading organizations in order to change the city; in order to mold it to be not only prepared for the smart city infrastructure, but to have a focus on health and well-being and creating a more strategically resilient community, where people can prosper; where they can, not only economically, but healthy- from a health standpoint.

Jennifer Castenson: Putting access to fresh food in walking distance of residences; putting more public transportation options in place. We are a nation that's growing older. So, a lot of folks are starting to think about how are we thinking about accessibility, and how are we making that available for this aging population?

Eve Picker: Yeah, that's really interesting because actually everything you touched on there is part of the Change Index on Small Change. I don't know if you've looked at it lately, but those are the key things - livability for everyone, whether they're three years old, or 85 years old, right?

Jennifer Castenson: Right. Exactly.

Eve Picker: An accessible, healthy place to live where you can move around, and reach good food, and all of those things. I was having a conversation with someone the other day about assisted living and how it needs to evolve. I think there was an article in The New York Times about how broken the system is. Do you see any innovation in assisted living or the way that people are thinking about housing our aging population?

Jennifer Castenson: Oh, for sure. I think there's so much that's going into that. There are new design guides that are going into that and actually being picked up by certain legislations that have to meet- or building code that are being incorporated into the building code.

Jennifer Castenson: Then, there's so much in terms of technology to help people. I've seen projects where there is technology that can alert a caregiver of somebody who is in a home alone - if they've fallen, if they haven't moved for a certain amount of time; can tell them when to take their medications, can do so much for the aging population, assist them in just living for day to day and [cross talk].

Eve Picker: -help them age in place.

Jennifer Castenson: Exactly. Well, the age place ... That's also, when I was talking about having the access to the public transportation, when people live that- age out of the ability to independently drive their cars, they lose a little bit of independence. So, having access to public transportation or having things within walking distance is really important. That's why so many people are thinking of community design and not just how someone lives within their own residence.

Eve Picker: Yeah, I know everyone's thinking ADUs as a way to deal with affordable housing, but I actually think about it a lot as a way to deal with the aging population, because, when I get old, I'd love one of my kids to have me in an ADU in their backyard. That sounds to me much more appealing than an assisted living community. If there's technology developed that helps keep me safe in that place and able to age like that, that would be amazing, right?

Jennifer Castenson: Yeah, absolutely, and you're right. They are an option for affordability, but it's also being looked at as a second home on property that could house in an older relative. A lot of people are looking at it as that option.

Eve Picker: Or a teenager you don't want to see every day, right?

Jennifer Castenson: Right.

Eve Picker: Okay, so the big question is, really, do you think socially responsible real estate or building methods necessary in today's still development landscape?

Jennifer Castenson: Oh, for sure. It's actually really impressive that we talk about that change in the building industry is very slow. But if you look at change in terms of code, all of it has been socially responsible, right?

Eve Picker: Yes.

Jennifer Castenson: We've actually layered on so much code to be more responsible in terms of environmental impact. Now, we're using codes in projects, and certifications that also - like the Fitwel program - that are focused on health and well-being in our communities and in our homes. Then, we're also taking on codes, and we're involved in another project at Hanley Wood that's focusing on reducing the amount of embodied carbon. Those types of things are the responsibility- are things that builders and developers are owning. They've been evolving quite quickly over the years. They're taking more and more responsibility for providing housing in a way that is socially responsible, environmentally responsible, and then that is comfortable, and also will help people from a perspective of emotionally, psychologically, and mentally growing. It's a lot to combine into a home.

Eve Picker: Maybe eventually we'll become the happiest country on the planet.

Jennifer Castenson: Right.

Eve Picker: We're far from that right now, right? We're sort of gradually catching up on some European standards, which is really pretty fabulous. My big wrap-up question is where do you think the future of real estate impact investing lies?

Jennifer Castenson: I was talking about before that we're working on various conferences, and the one that we had you involved in was called Hive, which stands for Housing Innovation Vision Economics. Through that conference, we do an honors program that's called the Hive 50, which our editors select the top 50 innovations in housing. I would say that a lot of the innovations are around finance.

Jennifer Castenson: Impact investing has had a smaller presence on that list, and I think that there's a lot of opportunity for that to grow. I think that as more cities and their collaborations come into the picture, we'll see more and more of that happening. Tangentially, you see a lot of organizations getting involved in sponsoring, donating, subsidizing affordable housing construction in various areas. That actually has picked up a lot in the last 12 months-

Eve Picker: In fact, there's impact investing, right?

Jennifer Castenson: Yeah, absolutely. And I think we'll see more and more of that, just as we are not able to meet the demand of housing in this country, and we're not actually on a trajectory to meet it anytime soon. So, hopefully we see more of that; more of the money coming in so that we can develop the housing that we need.

Eve Picker: I also have three sign-off questions that I usually ask, because I want to hear everyone's answer on these. The first one is what's the key factor that makes a real estate project impactful to you?

Jennifer Castenson: I think what makes it interesting to me is that it becomes something that teaches the industry, the rest of the industry, and that we can pick up at a volume scale and bring it to more places.

Eve Picker: That sounds like innovation-

Jennifer Castenson: Yeah.

Eve Picker: -really is the most important thing to you. You know I have a crowdfunding platform, right? Do you think there could be other benefits, other than raising money, that could come out of crowdfunding in real estate?

Jennifer Castenson: Oh, for sure. Absolutely. I think you have done such an amazing job bringing crowdfunding to a more visible level in housing, and that means ... I give you all of the kudos in the world, and I hope that you guys keep elevating that. It has done a tremendous job to give visibility to projects that wouldn't have made it otherwise. Those projects are the ones that we need more of, because they're innovative. They're new approaches to what traditionally, or legacy organizations, are not approaching because of their capital streams, so it's ... I think it's amazing.

Eve Picker: Well, thank you. I feel like we're just scratching the surface. There's so much to do, right?

Jennifer Castenson: Right.

Eve Picker: This is a really big question: if you want to improve one thing about the real estate industry in this country, what would that be?

Jennifer Castenson: If I could change one thing, I think it would just be something about regulation, which I wouldn't know how to approach because it's such a complicated web. But I would say that there's something either to policy and regulation that would remove some of the hurdles and allow building to happen in a more efficient way with maybe some of the responsibilities back on ... I'm not sure. There's just so much to do there.

Eve Picker: No, I think you're talking about zoning and building codes all wrapped up together, and that's a lot of stuff to unravel. I know some cities are trying to unravel bits of zoning codes and move things forward in a different way, but, yes, it's a lot. Jennifer, this was just delightful. Thank you very much for taking the time to talk with me [cross talk] I'm going to call this Entering the Life of The Jetsons.

Jennifer Castenson: I like it.

Eve Picker: Okay. Have a great day. Bye.

Jennifer Castenson: Thanks, You, too. Bye.

Eve Picker: That was Jennifer Castenson. She gave me lots to think about. First, she thinks that a focus on health and well-being is having massive cultural implications in the building industry. Second, in the future, she believes that housing will need to deliver far more than just shelter. And third, innovations in prefab may well be a major part of the solution to the lack of housing in the U.S..

Eve Picker: You can find out more about impact real estate investing and access the show notes for today's episode at my website, Eve Picker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Jennifer, for sharing your thoughts with me. We'll talk again soon, but for now, this is Eve Picker signing off to go make some change.

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Rethink Real Estate. For Good.