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John Perfitt and Jason Neville have come together in Los Angeles to disrupt the homeless housing marketing. Their award-winning first homeless project, Bungalow Gardens, not only will house homeless tenants for at least the next 15 years in compact and dignified style, but is also crowdfunding equity from every day investors on Small Change.
John is the Executive Director of Restore Neighborhoods LA (RNLA), an infill development nonprofit organization based in Los Angeles that has facilitated housing investment of more than $140 million into local Los Angeles neighborhoods. John has 25+ years of experience in community development, leading economic development and affordable housing projects for public, private and nonprofit organizations. He’s held roles as Director of Economic Development for the City of Downey; Senior Project Manager of the Community Redevelopment Agency of Los Angeles and lead administrator for the City of Los Angeles’ Neighborhood Stabilization Program which created hundreds of new affordable housing units in high-foreclosure neighborhoods of Los Angeles.
Jason is founder and CEO of Building Blocks, a turnkey accessory dwelling unit design-build firm in Los Angeles which he formed with John. He also consults as a project manger for RNLA and has had a major role in the Bungalow Gardens project. Jason has worked as a redevelopment and planning professional for over 12 years in both the public and private sector, including both Los Angeles and New Orleans Redevelopment Agencies, for Los Angeles Mayor Eric Garcetti and with a residential real estate development company he founded in New Orleans which has developed 14 units of housing valued at $3.3M. Both Jason and John teach at the USC Price School of Policy.
These boys are innovating where it is hardest to innovate, so take the time and listen in.
Insights and Inspirations
- By using a housing typology that died 70 years ago, the Bungalow Court, John and Jason are stepping back in time to solve a modern day problem.
- Working in a city where real estate development entitlements can take two years and a lot of money, developers like John and Jason, who are always working for the community first, can’t afford to have their project shot down late in the process by a vocal few. This is a tricky dilemma.
- The state implemented Accessory Dwelling Unit (ADU) legislation in California which was contested by single family owners at the time. Last year alone 5,000 ADUs were added to single family homes in Los Angeles and Jason expects that number to continue rising rapidly. ADUs have met a need and may help the affordable housing crisis.
Information and Links
- John is a fan of the architect Irving Gill who was concerned with the social impact of architecture over a century ago.
- Jason is a fan of Reyner Banham and follows the most important contemporary voice on urbanism in Los Angeles, Alyssa Walker.
Read the podcast transcript 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 guests today were John Perfitt and Jason Neville, who’ve come together in Los Angeles to disrupt the homeless housing market. Their award-winning first homeless project, Bungalow Gardens, not only will house homeless tenants for at least the next 15 years, but also is crowdfunding equity from everyday investors on smallchange.co.
Eve Picker: These boys are innovating where it is hardest to innovate, so take the time and listen in. Be sure to go to EvePicker.com to find out more about John and Jason 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: Hello, Jason and John. Thank you so much for joining me today. I am really thrilled to have you here. I would love you to start by just telling our audience a little bit about your background. I know a lot about you guys, but they don’t know anything at all.
John Perfitt: Great. Thanks, Eve. It’s a pleasure to be part of this. I’m really excited about the prospects of crowdfunding for real estate. My name is John Perfitt, and I work with Restore Neighborhoods LA, primarily – RNLA, as it’s called. We’re a smaller-scale infill developer specializing in affordable housing as well as homeless housing. I’ve got 25 years plus of community development experience in both the public sector, as well as the private sector, as well as with nonprofit organizations. I’ve also worked internationally in the former Soviet Union. I’ve been around all parts of community development, commercial redevelopment, and affordable housing projects, both on the financing side, really all the way through the whole project lifecycle.
Eve Picker: Well, now I have to interrupt and ask what on earth you were doing in the Soviet Union?
John Perfitt: Well, I was a Peace Corps volunteer. It was right after the Soviet Union was- basically the government collapsed over there, and they “transitioned” to capitalism. I was working in a very grassroots capacity, doing small micro lending in a rural agricultural area and mostly immersing myself in local culture, which I like to do. That was in the early ’90s and had an indelible mark on my paradigm, oftentimes, on community development and so forth.
Eve Picker: Cool, and what about you, Jason?
Jason Neville: My name’s Jason Neville. I’m an urban planner by training, originally from New Orleans, Louisiana. My first seven years of my career were spent on the public sector side and the redevelopment agency at City of Los Angeles until it was dissolved in 2012. Then at the New Orleans Redevelopment Agency, in my hometown, for a couple of years afterwards.
Jason Neville: It was about that time that I started getting frustrated with and also aware of the opportunity to make an impact in cities outside of the public sector, sort of call it accidentally, founding a company with two buddies of mine in New Orleans to do some historic renovations and got the taste for doing real estate development and also increasing appreciation for the role that entrepreneurial, private-sector, impact-minded real estate developers can have a positive transformation in cities.
Jason Neville: I spent a couple of years in the mayor’s office here in Los Angeles and worked on some of the policies and research related to accessory dwelling units. Left the mayor’s office and founded a design-permit-build ADU company called Building Blocks with my business partner, John Perfitt. It was through that collaboration that we partnered up a little bit on the Bungalow Courts project, which we’ve been working on for the past year and a half.
Eve Picker: That’s why I had invited both of you onto this podcast show, because you were working on a pretty extraordinary little project called Bungalow Courts, or Bungalow Gardens in L.A., and I wanted you to tell us a little bit about that? I’m sure you’re working on other things, as well, but that’s a pretty interesting project.
John Perfitt: Yeah. We have a variety of smaller scale, and when I say smaller scale, kind of up to 20-unit, kind of micro-unit, homeless housing projects in our pipeline. One of our favorites that we’re working on right now is the Bungalow Gardens, as you mentioned. Jason will probably talk more about this, but Bungalow Gardens represents one of the first bungalow courts projects permitted and built in the city of Los Angeles, especially South Los Angeles, in a long time. It was a very common housing typology for a long time, 50-60 years ago, but it’s really kind of … Modern zoning code has zoned it out, if you will, of being a practical way to build housing.
John Perfitt: This is a really great project. We’re highly influenced in the approach and design by Irving Gill, who I think was just a master of fusing together a very modern sensibility with a great precedent that there is for a Spanish revival in Los Angeles. What all that thinking, and wrangling, and so forth produced was the Bungalow Gardens project, which is a really four duplexes or eight units on a kind of long and narrow sight, adjacent to a very busy street called Vermont in Los Angeles.
John Perfitt: We think it’s beautiful. It’s going to house, for at least 15 years, individuals experiencing homelessness. We like to refer to it as compact and dignified living. In many ways, it’s a throwback, we think, very complimentary of the neighborhood; very contextual. It’s a project that we just love and turned into a labor of love. To further extend it, we’re attempting to raise some capital, via crowdfunding, to really make the project even that much more of an example of what can be done in the marketplace here in Los Angeles.
Eve Picker: Full disclosure, everyone, they actually have listed the project on smallchange.co to accomplish the crowdfunding. I’m sort of fascinated … I’m sure everyone else is, as well. If you’re going to house homeless, how do you generate revenue to cover the operating expenses for a project like that?
John Perfitt: It’s a great question, and I’ll let Jason jump in here in a second to add to what I’m going to say, because he’s actually been really the engine behind this and actually a lot of the direction that we had in going the bungalow courts direction was his idea and vision.
John Perfitt: Really, the thing that makes this possible in a lot of ways is we, unfortunately, have a housing crisis, as well as a homeless crisis in Los Angeles. Residents of Los Angeles, and of the county- both the city and county have voted to tax themselves to make capital available for building homeless housing. We were able to go in one of the programs that exists in Los Angeles; just able to go in and secure a rental subsidy from a credit tenant – namely, the County of Los Angeles – and get that commitment for up to 15 years. That really provides to the bloodline for the project, from an operations standpoint.
John Perfitt: Then there’s a local, what’s called a Community Development Finance Institution, or CDFI; really a community loan fund in Los Angeles that’s super-aggressive, and smart, and will see these smaller projects, and see that they’ve secured a rental subsidy, and will land on these projects pretty aggressively. The name of that CDFI is Genesis L.A., and they’ve just been a tremendous partner and lender in the marketplace for many of the projects that we’ve worked on. I can’t say enough about those folks at Genesis L.A. seeing this problem and helping to craft a solution, because it’s really the rental subsidy and then the availability of this loan capital that really makes these projects possible. I don’t know if you want to add anything, Jason?
Jason Neville: Yeah, I think that John explained it well, in terms of what makes it possible financially, but there’s a couple other pieces to this, too, about what makes it possible, including policies. One of the new policies in the City of Los Angeles we’re taking advantage of is called the Transit Oriented Communities Affordable Housing Program, which allows for parking waivers and other incentives for affordable housing projects that are built near transit, as our project is.
Jason Neville: As John was mentioning before, some of the background and history of bungalow courts is that it was a predominant form of housing in Los Angeles from the 1900s to about the 1930s, until modern zoning codes in Los Angeles began requiring parking on site, which made this particular housing typology infeasible. Now, because of the housing crisis we’re experiencing and the efforts from our city planning department to address the housing crisis through innovative policies, such as TFC ordinance, we are able to build this bungalow court, which will be the first bungalow court project in Los Angeles in 70 years. So, there’s a policy piece of this, as well.
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: Essentially, you’re stepping back in time to address a very modern problem.
John Perfitt: Yeah, I always say, when we’ve talked about this, when you want to talk about innovation, and a lot of times, innovation is go back and look at what has worked, and then sort of synthesize that and come out with something that’s unique. Yeah, we’re going back to what worked a long time ago.
Eve Picker: Yes. Interesting. My second thought, first thought, I don’t know, but I think about, like, eight units is not very much for a crisis, right? How do you begin to scale an idea like this, so that it really has a much larger impact?
John Perfitt: It’s a great question and one that we grapple with, because the question of scale comes up all the time. We, admittedly, on this project – which we were trying to accomplish a variety of different things, including innovative financing on this – we probably left some density on the table. We could have built more. That being said, we are building other projects and have them in our pipeline that are three-four stories and 20 units on small infill sites.
John Perfitt: When we talk about scale, it’s not the traditional way that developments looked at scale – large 100- to 150-unit projects, and so forth. We believe those are out there and should be done. What we’re trying to facilitate, and show can be financed, and operated, and can work, and be feasible is the repetition. That would be the scale of a lot of infill sites that are either underdeveloped, or not developed at all, or obsolete uses, and so forth, throughout a county. There are many of these. What type of mechanisms can you use, and incentives can you use to do that, and then repeat it?
John Perfitt: We fully understand, and we experience that age-old sort of paradigm that lenders and developers have that the blood, sweat, and tears on a 50-unit project is the same as 10, and so forth. We fully believe that a multifaceted approach to creating more units is going to potentially mitigate the crisis that we have going on. We are very active in sharing our information about how we do this, because we think there’s a multitude of opportunities.
John Perfitt: We’d like to see other private nonprofit … Especially the folks that are not necessarily not-for-profit … If there is an incentive, a financial incentive, for folks and developers to build housing that we need, i.e. homeless housing, that’s great, but that hasn’t … But that hasn’t- that’s novel. That’s different than has been done in the past. Our scale is that we want to be smarter and be able to optimize or maximize on these small sites, but be able to do it repetitively and have other people do it repetitively [cross talk]
Eve Picker: Yeah, so I’m going to put my urban-designer hat on, because the added bonus of creating a product that is an infill product is that it is a great, sustainable way to build in cities to fill small vacant sites, instead of letting them become what is oftentimes the highest and best-used parking lots, is another thing that’s being solved here. Really large projects tend to take away the fabric of our cities, because they will raise a number of buildings and amalgamate lots for that efficiency and scale and, in the process, destroy the charming little neighborhoods and communities that we actually all like.
Jason Neville: Urban design is very, very important to us. We’ve been working with a great young architect, Studio 15, who’s worked with RNLA on a couple of projects and with our ADU company, Building Blocks, on a few projects. We’re really passionate about design and knew that good design would be a really important part of this project’s success.
Jason Neville: When we won the Los Angeles County Housing Innovation Challenge, earlier this year, we were able to present to the county supervisors and some other VIPs, along with a couple of other winners of this grant challenge … Those other folks were doing great work. However, their particular designs were reusing storage containers. There was a lot of sort of architectural innovation that was happening there.
Jason Neville: When we showed the renderings of our project, we got great response from everyone who was gathered there, including a supervisor, because when they saw that style, it really fit with Los Angeles’s architectural trajectory and is also the scale that really fits in a lot of neighborhoods in Los Angeles; notwithstanding John’s good point about leaving a little bit of density on the table in this round-
Eve Picker: Yeah, it’s really lovely. I can’t wait to see your next project in this little product line. I also want to know a little bit about Building Blocks and the ADU project that you’re working on. Tell us a little bit about why L.A. went down the ADU path; what that means for L.A.
Jason Neville: Happy to answer that; Also, in answering this question about ADUs, I think it will also answer, Eve, your question about how you to get to scale. In Los Angeles, there’s about 500,000 single-family-zoned properties. Up until about two years ago, the City of Los Angeles allowed ADUs, but due to restrictive policies, they were only producing about 150 a year.
Jason Neville: Two years ago, the state legislature adopted a statewide development standard for ADUs and compelled cities to either use those standards or create standards of their own. In doing so, that reform happened at the state level and made it easier for homeowners to build ADUs, which are accessory dwelling units; legal second units you can build on otherwise single-family-zoned properties.
Jason Neville: Production went, in just two years, from about 150 a year to about 5,000 a year, and I would not be surprised … That was as of last year. I would not be surprised at all if, in 2019, we hit the 8,000-, or 9,000-, or 10,000-unit mark, because a) there’s lots of single-family-zoned properties in Los Angeles; many of which, by the way, already have unpermitted ADUs, which are in operation. Many of the permits that are coming- part of that 5,000 number that I just mentioned is legalizations of existing ADUs and don’t really constitute net new units.
Jason Neville: What happened- the trigger was the state law that allowed it. There’s been, as you may have been following, in California, a lot of attention to the housing crisis and increasing attention towards solving the policy related issues at the state level, rather than at the local level, where NIMBYism and other issues can get in the way of housing production. Seeing that there was an opportunity, I approached John about starting a small company called Building Blocks, which was a design-permit-build project- excuse me, company. We just wrapped our first project about two weeks ago, and we’ve got two or three more in the pipeline right now.
Jason Neville: The services we provide, or we have been paid to provide … The goal is to be an all-in-one ADU development company on behalf of other homeowners, where we provide all of the design, permitting, and construction services. John’s a licensed contractor. The value-add to homeowners is that we can provide every step of the process, from A to Z, right within Building Blocks.
Eve Picker: That’s pretty great. That’s two really innovative products out of the two of you. Are you thinking about another one that you should tell us about?
John Perfitt: We would, but we can’t. We’re still too early in the determination process.
Eve Picker: Okay. Obviously, you think socially responsible real estate is necessary in today’s development landscape, because that’s what you’re really focusing on. Are there any current trends in real estate development that interest you besides the ones that you’re focused on?
John Perfitt: We’re constantly thinking about a couple things. At least I am, in RNLA. This may seem small … There’s a real deficit of shade in Los Angeles, and there’s a lot of literature out there, recently, about how that’s a real negative thing for quality of life, believe it or not. We’ve figured out, or budgeted for, and are planning for more shade. We need to create shade. It doesn’t have to be trees all the time, but we’ve sort of changed our approach on that.
John Perfitt: We also are constantly thinking about different modes of transportation because that is changing. I guess it would be- one of the trends is that building without parking is … I’ve never done that before, and we’re doing that routinely. That’s sort of the paradigm we go in on these projects. I will say, too, the thing that I’m bullish on, and I’ve always said, if we can, as practitioners, come up with the right models and the right approaches, we can find the capital.
John Perfitt: That’s why we’re so excited about not exploring, but diving in with crowdfunding, because I think this represents an opportunity. I think there’s a pent-up desire, just amongst my network and talking to folks, with people wanting to … Especially with the problems of homelessness here in the City of Los Angeles, and other cities, and all over the country, for that matter, seeing those, I think there’s just- there’s a lot of potential there, and it’s just a matter of connecting the dots. I don’t think anything we do is just absolutely like, “Oh, that’s incredible …” We’re just figuring things out and connecting the dots.
John Perfitt: As you probably know, there are a lot of people that don’t believe that this will ever amount to anything. That’s the same thing with the trend that we’re embracing of a building small, thinking, small – small ball, as I call it. There’s a lot of people saying that’s just small time. I don’t want to be overly critical, but if you look at the affordable housing real estate delivery mechanism, it’s largely failed, if you look at it on a macro basis, in terms of its ability to deliver units to the marketplace.
John Perfitt: We have huge crises all over in large cities. And I’ve been working at this for 20-25 years. It’s been the same tune. Let’s blow some things up. I’m hungry for, and I think Jason shares this, too, for disruption. I don’t see it- Construction’s not famous for a lot of disruption. Real estate sometimes is. Affordable housing? I don’t see it that often. To me, there’s some room for disruption out there, and I think that’s kind of one of the trends I’m seeing. I’m seeing the trends on things like crowdfunding, and otherwise, and it gets my blood flowing, because I think it’s ripe for disruption.
Jason Neville: Yeah, I would echo that and just add that the partnership with a Small Change has allowed us to expose the thinking that we’re doing on these projects to a wider audience and to give them some actual skin in the game, both neighbors that might be interested or folks that want to invest. That’s a really exciting part, and answers … It’s part of the answer to your question about scale is prototyping this model and demonstrating that it’s viable, so that it can be taken to scale by us and other developers.
Eve Picker: Yeah, I think what’s happening about that listing is that the pace with which people are investing really early on, clearly a lot of people care about this crisis. The question is how can they pitch in and help? I think people really want to pitch in and help. It’s really interesting. We’ll see what will happen. Are you aware of any other innovation or disruption in affordable housing or homeless housing that you’ve seen that is of interest to you?
John Perfitt: Everybody always migrates towards different fabrication technologies, and so forth. I know there are people out there doing hard work on that. I have built, with RNLA, five or six modular projects. I’m hopeful that there is going to be a- that will be the killer app, if you will – infill environments – and in that context. I haven’t seen it, and I run these things down.
John Perfitt: When people started talking about container, there was a local manufacturer in Los Angeles that I spent a lot of time with. I thought that was hopeful, because I thought the cost basis would be low, but … There are a lot of folks that are spending a lot of time. It’s definitely, with the amount of, especially, public capital that’s been put out in the marketplace for people to figure out some solutions, which I think …
John Perfitt: Another thing I’ll step back and say is one of the things I think, as a former government employee in community development, and so forth, is if you can come up with programs, especially rental subsidy programs – and that’s the beauty of the one that we’re using in Bungalow Gardens, is that it’s basically said, okay, when you get this thing built, however you get it built, within certain parameters, the money is there.
John Perfitt: It relies on the private market, developers, funders, and so forth to figure it out and then get there. I think that’s where the innovation can take place. I know there are people that are working on a lot of things. What we are concerned about, and I’m going to be real frank, is that, again, building departments, as someone that’s ran a building department in the past, it’s not the dominion of creative thought. It’s oftentimes, and for good reasons, many times, it takes a while for innovative products to be accepted there. There’s a whole process, at least in a large city like Los Angeles.
John Perfitt: We’ve tried to keep the technology, on terms of the building stuff, to be pretty traditional, making improvements and learning lessons about how to do it faster, and cheaper each time. But I know there’s a lot of other folks, and a lot of my colleagues and friends in cities and otherwise are saying, “Why aren’t you going down the modular path?” I would love to sign up … I’ve spent a lot of time at the factories kind of preaching the gospel about this sort of infill market being big.
John Perfitt: I just have not seen enough proof positive to compel me, and us, to go in that direction, but I know there’s a lot of thinking, and a lot of working. I’m sure you could do a whole episode, and I’m sure you will, with people that are modular builders that will refute what I’m saying. I’m speaking from empirical experience, or empirical evidence of my own personal experience in building these – I don’t find them, in a compelling way, to be faster or cheaper.
Eve Picker: No, I actually have found the same thing. I have tried to go modular for a couple of projects and keep thinking about it. In the end, stick-built is cheaper. When you’re really trying to get something built that is going to serve a more moderate audience, then you just really have to think about that. I think we’re seeing a lot of modular products that are looking like luxury products now, because of that, and that’s not really solving a problem [cross talk]
Jason Neville: -ADU example, just to validate what you’re both saying … An ADU market was created overnight throughout California without any innovation in construction technology, or finance, for that matter. It was merely allowing people to do it was the big innovation, because there was so much pent-up demand. Capital is flowing to it.
Jason Neville: There’s a industry of ADU builders in Los Angeles, including some that are going to fabrication route, and there’s some tech companies that are in the game; people experimenting with leasing out a home … Companies that will lease out your garage, or master lease your garage from you, convert it to an ADU, handle the property management on behalf of the homeowner, and give the homeowner a cut of the money. After five years or so, the company walks away.
Jason Neville: There’s lots of innovation happening, but the part of the problem in California, and other high growth areas of the country is housing just isn’t allowed; even the housing that was allowed 10, 20, 30, 40 years ago. For example, in Los Angeles in the 1970s, we down-zoned vast portions of our city from sites that would allow four to eight units down to one unit.
Jason Neville: Ordinances like the one we’re taking advantage of, the TOC ordinance, which provide a buy-right permissionless path for housing, along with the subsidies- the operating subsidies John was mentioning, along with parking reductions, along with financial innovations, like the partnership of Small Change, those are all the dots. We aren’t seeing, as far as I can tell … I think we’re doing a really good job of connecting all those dots, as John said; that big-picture perspective that comes from our background in broader community development rather than narrow finance, or narrow policy-making, is allowing us to do something really innovative here as a demonstration project.
Eve Picker: Yeah, that brings to mind, I was working on projects in the early 2000s in Pittsburgh, and what … These buildings are called flipper buildings. They’re kind of the interstitial buildings in downtown Pittsburgh that are only 20-feet wide, and over 100-feet deep, and only have windows at the front, and really don’t fit into any modern-day zoning or building codes. The City of Pittsburgh, eventually, as we sort of pushed forward with developing these, they did eventually come up with a over-the-counter sort of checklist for developers who wanted to work on these buildings to save them, which was a lot better than what we originally had.
Eve Picker: I think building code departments are capable of innovating; it’s just it always takes someone, some initial leader in a community, pushing the envelope and saying, “We’ve got to do this. We’ve got to be able to figure out how to renovate our warehouses into lofts. We’ve got to build smaller buildings that are on smaller lots that are not necessarily permitted in the code.” It always takes someone kicking that off, right? It’s not going to happen in a vacuum.
John Perfitt: Right. I always thought when this ADU, the changes made, that it might be valuable for … There’s a lot of attention being directed at ADUs by the policymakers and local electeds, and so forth. I thought, why not come up with a pre-approved 20 x 20 garage conversion-esque model that people could … It’d be a fast pathway; the way that, like that kind of a car port at the building department, that if you just follow this, you get it. It’s really fast and easy.
Eve Picker: I think that’s a great idea, yeah.
John Perfitt: I do, too, but the countervailing argument that I’ve experienced, as someone that is in there permitting these things and doing these things, is that just really what we’ve found, as much as we think our neighborhoods are similar, the conditions, when you go to these backyards are … We toured 20 backyards, and the prototype that we use only worked in one or two scenarios-
Eve Picker: Wow.
John Perfitt: -so different because [cross talk] of the time, incrementally and organically, things have changed and created new conditions that wouldn’t allow the prototypes [cross talk]
Eve Picker: Yeah, yeah, yeah-
John Perfitt: -the thinking on the prototypes is very helpful. You can leverage that into a great solution, but being able to plug and play has been a loose …
Eve Picker: We have a listener who was dying to know what you think about community engagement tools and which you have seen that have worked. We know you’re using crowdfunding as a kind of community engagement tool, but as a non-profit, I’m sure you’ve thought about this a lot.
John Perfitt: It’s interesting. I came from meeting with a organization that works with churches that have underutilized buildings, and so forth, and wants to throw in to help with creating homeless housing. It’s a very interesting thing and an interesting question. You’re going to get a schizophrenic answer from me, as someone that’s worked on all sides of these things.
John Perfitt: Generally, when we pursue homeless housing projects, we try to do them as completely, as Jason said, permissionless. Meaning, we’re [hemming] to the zoning code; we’re using the incentives. There’s a very vocal and, probably with a legitimate point – needing information and good information – but a vocal minority in Los Angeles that could be agitated very easily during the course of an approval process on homeless housing, so we try to avoid public hearings, whenever we can, because this has happened. This is someone that has been on the sponsor side with a project and someone that’s been on a neighborhood council.
John Perfitt: We are absolutely willing to talk to anybody and show them probably too much in terms of what the project- under the hood. When we can hem to the code, and not have to do and have public hearings, we won’t do it. I don’t do that to try to be deceptive in any way. We believe in our product; we believe- we’ve all voted on this, not only with the zoning code, but we voted in terms- to tax ourselves to fund this. We’ve already kind of voted, and we’re going to move forward on these projects.
John Perfitt: That being said, we are going to go door to door near the Bungalow Gardens project talking to neighbors about the opportunities that this project represents. We have no problem doing that, but we generally avoid – and this is the dirty little secret … It’s really, really, really painstaking in many large cities, especially in California, to entitle a project, even if it’s a good project that people want. If you want to go through a protracted zone change or an environmental impact report, and so forth, you’re looking at hundreds of thousands of dollars and potential vocal minority killing the project.
John Perfitt: My long-winded sort of schizophrenic answer is were strategic about this, but when we can avoid the retread, if you will – this re-discussing these projects that we’ve all voted on already – we’re going to go forth, because the problem here is production. It’s disappointing for me, as a resident of the city, that works here, and lives here, and has dug in here … When the first few larger-scale homeless housing projects got funding and got- were up for their [inaudible] decisions, and they’ve got shot down because of a vocal minority.
John Perfitt: There’s probably never a good place for a homeless housing project in the eyes of some people, but we like to engage, when we can, when it’s appropriate, and strategic, and otherwise, and provide tons of information that is authentic. We don’t spin. We know lie. We tell it … We’re probably too honest on a lot of these projects, but when we can avoid that vocal [cross talk]
Eve Picker: Yeah, yeah, yeah-
Jason Neville: -agitating, we will.
Eve Picker: I think Deborah will appreciate that answer, and I do, too, because not many people will actually be honest about that. I’ve worked in community development myself, and it’s extremely difficult. Part of the problem, I think, is that when you’re working in an underserved neighborhood, or for an underserved group of people that are often working three jobs to put food on the table, they can’t show up to community meetings. They don’t have the time to show up at the community meetings, nor do they necessarily have access to the internet or anything else that we expect of everyone to stay informed. You end up with a lopsided group of people.
John Perfitt: Let me add one thing, Eve, if I can, too … I’ve talked a lot on this, sorry-
Eve Picker: No, that’s okay.
John Perfitt: -there’s a straight-up economic reason. It costs money to do outreach. You have to pay people to go out there and do it, oftentimes. The large tax credit projects or other projects that developers do, they’ve got a team of professionals that go out there and do it. If you’re trying to build for $175,000 – $200,000 per unit, which is half the cost of traditional affordable housing, you can’t afford it. You don’t have the luxury of hiring a public relations firm.
John Perfitt: You can do meetings, but it’s going to be me or Jason, on a Saturday, going out there telling you the way it is. That’s how we do it. Everybody wants to throw around – my advocate friends and otherwise – that community outreach, community outreach … I’m down with it. I think it’s great, but there’s a cost to it. There’s a cost to that to the project that has to be borne by the project, and that’s another thing that people don’t talk about.
Eve Picker: But I think the difference is that you two have the community in mind with what you’re doing. Other small developers may not. I think that developers are a really dirty word in this country at the moment, because they are the word that’s linked to gentrification.
John Perfitt: Right.
Eve Picker: I think that’s why there’s so much emphasis on community engagement, but it’s so difficult to get it to work, as you shared. Anyway, that’s a really tough subject, so I’m going to move away from that [cross talk]
Jason Neville: Eve, you reminded me of something that Andrés Duany said at the Congress for New Urbanism Conference that I went to in Detroit, where I met you and heard from Small Change for the first time, which is that one of the things he said in his keynote was part of the reason people don’t want to see development is because development has been so bad in the past-
Eve Picker: Yes.
Jason Neville: -and part of changing the story is to do good development. I think I speak for John here, too; the project that we’re delivering is going to be beautiful. It’s going to have rooftop solar. It’s going to have- it’s completely 100-percent accessible for folks with disabilities, so people who have wheelchairs will have full mobility in the units. There will be fire retention gardens in the front to address the city’s stormwater management goals, while providing beautiful landscaping. There’s rooftop solar.
Jason Neville: It’s going to be something that I- this is going to be probably the proudest project I’ve worked on to date, and I can’t wait to show anyone from the community, or elected officials, or anybody else this project. I think that kind of sets- I think that tells people something about the quality of design that we are achieving.
Eve Picker: Yes, that’s really great. I have a wrap-up question, and that is: where do you think the future of real estate impact investing lies?
John Perfitt: It’s a really good question, and I’m bullish on the ability of smaller-scale projects to be able to raise good sums of money. I’m not an expert on where it’s come over the last three or four years, and I know there are a lot of startup things that had to be sorted out, with the cost and otherwise.
John Perfitt: But I’ve always believed in it the same way that I believe in … This is what’s different, and it’s hard to convince people in the marketplace. You go to conferences on affordable housing, and other wise, and, in addition to talking about innovation, people always say, “Oh, there’s gotta be more money. Just throw more money at stuff …” My thing is there’s other sources of money out there other than the traditional shrinking ones that are out there, and this represents one.
John Perfitt: If we can prove this equation works … When I talk about equation, I’ve been saying this for a long time, that there’s got to be a way to reduce costs, streamline the capital stack, and deliver this in a different way. There’s an equation that works, and this represents, to me, a way. It doesn’t have to be traditional affordable housing. It could be people that are building units in lower-income areas, or straight affordable, and naturally occurring affordable. I think there’s a lot of applications. We’ve got one narrow application of it right here, but to me, it’s unbelievable.
John Perfitt: Also, it kind of connects … What’s beautiful about these offerings is that you can just immediately refer someone over, and they can look at it for five minutes and go, “Oh! I get what you’re doing! Oh, by the way, I can get involved! By the way [cross talk] this is great. I know someone that’s interested.”
John Perfitt: That, I’m bullish on. I’ve been wanting to do this for a while, as I mentioned earlier. I’m bullish because I think there are people out there that once they see that someone has proven that this can work, and it can be … This is cliché in my world to say, ‘double bottom line,’ but on our project, if people are making a return and we’re achieving a social objective, social policy [cross talk]
Eve Picker: Yeah, that’s pretty good.
John Perfitt: That’s one of those things, in grad school, they throw around – the double bottom line, and all that stuff – or in annual reports. Well, this … We’re doing it now on a small scale. That begs the question of scale and otherwise that you asked earlier. I’m bullish, Eve; I’m bullish because it’s really- it’s micro, but the reach is … The thing that’s amazing. It goes down to 81st and Vermont, this project, but the reach is endless. My relatives [cross talk] the world, or their friends of friends of friends of friends of friends could invest in this.
Eve Picker: Yeah.
Jason Neville: John and I both had … John and I both worked – although we didn’t know each other at the time – at the Los Angeles Redevelopment Agency until it dissolved in 2012. When it went away, California lost a really big source of affordable housing funding that was funding this mainstream, somewhat sclerotic affordable housing industry that John was describing earlier.
Jason Neville: I, too, am bullish and think that, as those sources of- traditional sources go away, and as public budgets shrink, and as people realize that the cost to deliver affordable housing is way higher than it ought to be … I mean, $400,000 to $700,000 per unit to build an affordable housing unit in California is insane. We’re doing it for-
John Perfitt: A lot less.
Jason Neville: A lot, a lot less. We’re providing value to [cross talk]
Eve Picker: Yes.
Jason Neville: -investing, including the public sector. John, and I, I think part of what makes us good collaborators is … Well, I’ll speak for myself, here. I sort of see myself, first, as a city making intellectual or thinker around these issues. The way that I go about trying to prove some of my thoughts around it is by doing projects. Bungalow Gardens and the ADU projects are definitely me reverse engineering what I think needs to happen in cities and deciding that execution of these projects is how we get there.
Jason Neville: One anecdote to quickly share is that I was talking with the with Chris Redfearn, who runs the USC real estate program or used to. We were talking about how you could create new models in rapidly gentrifying neighborhoods where prices are increasing to give neighbors a stake in the project, a literal stake in the project, so that, a) they are more likely to support new projects in their neighborhood, and b) they can benefit from the economic upside of real estate development in their neighborhood. We talked about that about three years ago, and at the time, it just seemed like two people wondering about how things might work. Small Change is giving us that opportunity to do it.
Eve Picker: Well, you know, the way you’ve verbalized your projects is exactly the way I think about Small Change. I’m reverse engineering a solution around those funds drying up, because my projects, although non-profit when I built them, relied on funds that the Urban Redevelopment Authority had at the time. Those funds gradually dried up, and loan-to-values got lower.
Eve Picker: All of those things kind of made the business of building projects that are impactful and not just financially driven really difficult. My ultimate dream for Small Change is that we can fund projects like yours, or we can help you find- connect you with people who want to help you. That would be a fantastic solution, wouldn’t it?
Jason Neville: Absolutely.
Eve Picker: We’re just starting, so … Well, I have three sign-off questions I ask everyone, because I want to see what everyone … Everyone thinks differently about this. The first is what’s the key factor that makes a real estate project impactful for you?
John Perfitt: To me, if people can view it as … It’s really a positive externality, if it really is viewed as an asset to the neighborhood, irrespective of its use or otherwise. It can have staying power and can have positive externality. I think that’s what’s really, really …
Eve Picker: How about you, Jason?
Jason Neville: I agree with that. There’s a conversation that one of my favorite voices in urbanism, Alissa Walker, here in Los Angeles, was posing a question recently online. What’s a project in Los Angeles that people are excited about after it got built that they were welcomed and thought this really made the neighborhood better? I thought that was a great question to ask. I feel like, to answer your question, a project is impactful, if you can point to it and other people will look at it and say, “I want that in my neighborhood.” [cross talk]
Eve Picker: So, it’s something that makes a place better. Yep. Yeah.
Jason Neville: -real estate … We have a problem in the real estate industry; even saying ‘the real estate industry’ sounds bad to a lot of people. I’m interested in changing the game, because every house that anyone lives in, any office that someone works in, any place you go to was built by developers at some point … I like to think of real estate as you get a little piece of the city to build. It’s our responsibility to build it well and build it enduring as a piece of this broader city.
Jason Neville: Also, one other thing that with our particular project is we are hopefully making a … Although it’s only eight units, we’re helping put a dent in a very, very serious problem/crisis here around homelessness. I’m very interested, and I don’t know what’s going to happen, but I’m looking forward to meeting some of the folks that are living there and finding out how their lives were changed and, if it works, share those stories to other folks in the city – residents and officials – to demonstrate how these smaller-scale projects are making an impact, in the positive impact on the neighborhood and in the lives of the people who are living there.
Eve Picker: That actually segues right into the second question, which is what’s the one thing in real estate development that you would change to improve buildings and physical places in the country?
John Perfitt: I think flexibility, and this has to do with building code, zoning code, and lenders. One of the things that has been liberating of working on the small-scale and otherwise is that we’re able to find a place where there is flexibility, so we can think about different ways of solving problems. The zoning code … When I’ve worked on the city side and we put in place what, here in California, we call specific plans, I was always arguing for how can we set forth code that is smart and will yield what we want to build, but gets flexibility, because we just cannot predict the future, in terms of the way things are going to go and the technologies that are going to emerge. Flexibility is something I think that is really helpful. That gets back to what I said about rental subsidies. People say, “Here’s your rental subsidy. You have the flexibility now to figure out what’s the best way to get from here to there.”
Eve Picker: Yeah, that’s an interesting answer. What about you, Jason?
Jason Neville: Well, my answer to that question has evolved over time, and has tracked my migration from different facets of urban planning and development. Five, or six, or seven, or 10 years ago, I would’ve said what we need is really robust urban design guidelines to ensure that these horrible developers everywhere are contributing to our neighborhood.
Jason Neville: Being on the side of enforcing design guidelines, I found myself in awkward situations, where we had folks who were trying to do- developers and their architects trying to do a really beautiful, interesting projects that weren’t allowed [cross talk] weren’t foreseen by the developers of those design guidelines.
Jason Neville: Today, my answer is we need a level of public-minded, public-spirited developers in the real estate industry who are modeling good behavior for everybody else and that are passionate about it. I would like to think that John and I are two of those people. If we can make it work financially, then that is something that will make it … I think a lot of developers don’t particularly care about the design, per se. They’re looking at other aspects of it, and that’s fine. If we can model a particular typology that makes financial sense, that helps scale it, that helps bring capital to it, and that helps make the city better.
Eve Picker: The final question is that you’re using crowdfunding for this project, and other than raising money, how do you think crowdfunding might benefit you as real estate developers?
John Perfitt: I think actually it’s going to add an element of exposure, which is not just spin. This is a real project. The reach of that, it could help with people seeing a new model, new methodology. It’s also going to inject a certain element of discipline. We want to show this, and it’s very public, if this works, and we want to make sure that all of our objectives for development, as well as profitability and otherwise, are met because we’re pledging this.
John Perfitt: We know crowdfunding is an equity or an investment that people could lose, but we’re not going to allow that to happen. Two things. There’s a there’s a new exposure, a heightened level of a different way of approaching it and doing things. Then there’s a discipline injected into this that I think is really energizing for me [cross talk]
Jason Neville: I agree with everything John said and would just add that one of my lessons learned from the ADU experience over the past couple of years is that one of the big opponents of ADUs, initially, when the city was trying to pass [its own] ordinance was homeowners who had fears, amorphous fears, about density, and parking, and everything else.
Jason Neville: When the law was passed that allowed homeowners to do it, homeowners became- are now some of the strongest advocates for ADUs, because they are, in a sense, the developers. The miracle, in my opinion, about the ADU legislation as it turned one of the biggest opponents of a particular form of housing into some of its strongest advocates. It was transformational in that regard. I think crowdfunding can do something along the same lines.
Jason Neville: I know people that would never have the means to invest in regular traditional real estate development, or they would be scared, but this project- like the ones that we’re doing, they can put in low amounts, and have a little piece of it, and get exposure to it, and be bought into this idea that great architecture and great real estate development can make cities better and be a part of it. I see it as a as kind of marketing, so to speak, for good real estate development [cross talk] upside, yeah.
Eve Picker: Yeah. Well, thank you, guys. I’ve really enjoyed the conversation, and I am really excited about the current project that’s live on Small Change. Also, I’m excited to hear about the next thing that you’re working on. I’m going to be the first to know, right?
John Perfitt: Of course, we’re very bullish. You’re doing great work. Small Change is doing great work, which is badly needed and has the potential to be very disruptive. I think that’s just fantastic [cross talk]
Eve Picker: That was the other thing I wanted to add to your comment. Disruption and change is really hard, and it takes a long time. It takes early adopters or early disruptors like you and perhaps me to kick something off and then be patient, while people get used to the idea. It takes a while. Most people don’t like that sort of change and come to it slowly. I’m married to one of them, so I appreciate it. Okay, well, thank you very much.
John Perfitt: Thank you, Eve.
Jason Neville: Thank you, Eve.
Eve Picker: Thank you.
John Perfitt: All the best.
Eve Picker: What a great conversation that was with John Perfitt, and Jason Neville. John and Jason are tackling many problems with just one little project. Not only will that project serve homeless persons by providing them with compact and dignified living, but they are stepping back in time to a housing typology that died in the 1950s – the bungalow court – to solve a modern-day problem.
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 to 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 thanks to Jason and John. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.
Image courtesy of RN-LA