Sustainable, affordable and beautiful.

Eve Picker: [00:00:06] Thanks so much for joining me today for the latest episode of Rethink Real Estate. For Good. Today I’m going back to a favorite interview from Season 1. My guest was Jeremy McLeod, founding director of Breathe Architecture in Melbourne, Australia. This is one I just haven’t been able to forget.

Eve: [00:00:33] “Every project manager in Melbourne will tell you that you can’t build something that is both affordable and sustainable,” says Jeremy. No wasn’t an option for Jeremy so he embarked on a journey to define sustainability through reductionism. And along the way he discovered that what people actually want is really good and meaningful housing with space, light, outlook and plants — not marble countertops, 3 bathrooms and shag carpet. With a waiting list of over 8,000 people for his projects, he can’t be wrong. Take a little time and listen to Jeremy. You won’t regret it.

Eve: [00:01:18] 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.

Eve: [00:01:43] So hi, Jeremy. It’s really lovely to finally meet you.

Jeremy McLeod: [00:01:48] 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: [00:01:54] 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: [00:02:24] 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: [00:03:26] So, not held accountable for the economy at all.

Jeremy: [00:03:28] 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: [00:05:43] You thought this was an important role for you as an architect? Because it’s an unusual role for an architect.

Jeremy: [00:05:52] 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: [00:06:34] That makes sense.

Jeremy: [00:06:36] Yeah. And to basically build a system that could be replicated, that was kind of the birth of Nightingale.

Eve: [00:06:43] 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: [00:06:56] 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: [00:07:05] I think it’s one of the fastest growing cities in the world, right?

Jeremy: [00:07:08] 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: [00:07:16] 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: [00:07:58] 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: [00:09:12] Yes. NIMBY, right?

Jeremy: [00:09:14] 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: [00:09:30] Yeah, you’re very far away.

Jeremy: [00:09:32] 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: [00:09:44] Wow.

Jeremy: [00:09:37] That’s three hours every day. Yeah.

Eve: [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: [00:09:48] Absolutely.

Eve: [00:09:49] And of all of those things to make, to make their lives work.

Jeremy: [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: [00:10:49] Wow.

Jeremy: [00:10:49] So I see that as this incredible, this madness of us building over all of our good farming land.

Eve: [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: [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: [00:11:36] And is that, like, little single-family houses or…

Jeremy: [00:11:38] No, so it’s all apartments. So the whole, nearly all …

Eve: [00:11:41] So it’s a bit of a ghost town then? Or is it just all rental?

Jeremy: [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: [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: [00:12:35] Yeah.

Eve: [00:12:35] And, so where did you begin?

Jeremy: [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: [00:13:18] And the toilet details, right?

Jeremy: [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: [00:13:29] Oh, that’s really crushing.

Jeremy: [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: [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: [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: [00:15:22] Why did you lose the funding, is it because banks just got more conservative? Or..

Jeremy: [00:15:28] Yeah, banks just got more conservative.

Eve: [00:15:30] So the same reasons I saw in the States.

Jeremy: [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: [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: [00:17:01] Well, that was one of my questions here. Has your work influenced the status quo?

Jeremy: [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: [00:17:26] Interesting. And like just breaking up a bit. So what is different about the Commons, this building?

Jeremy: [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: [00:18:14] What they think they need because everyone else has it right.

Jeremy: [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: [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: [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: [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: [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: [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: [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: [00:22:47] That’s smart. That’s a very good idea generally to buy it as a retailer.

Jeremy: [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: [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: [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: [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: [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: [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: [00:24:29] And to be fair, in a beautifully designed building.

Jeremy: [00:24:33] Thank you.

Eve: [00:24:35] I’ll sign up for the waiting list!

Jeremy: [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: [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: [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: [00:25:16] And the garage packed full of bikes.

Jeremy: [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: [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: [00:26:23] How did they do then?

Jeremy: [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: [00:26:35] There you go!

Jeremy: [00:26:36] But interestingly, everything sold in The Commons. The project was delivered on time and on budget. And you know.

Eve: [00:26:43] And did it sell quickly?

Jeremy: [00:26:45] Yes. And that kind of thing else was.

Eve: [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: [00:26:54] Yeah. That didn’t happen here.

Eve: [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: [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: [00:27:25] Oh, yeah, absolutely.

Jeremy: [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: [00:28:15] And that’s a non-profit driven.

Jeremy: [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: [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: [00:29:49] Did you return the 15 percent?

Jeremy: [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: [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: [00:30:53] Yeah, absolutely. It’s all you know, it’s all for sale. Everything’s for sale.

Eve: [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: [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: [00:31:18] How many units did you build?

Jeremy: [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: [00:31:37] So that’s a real mixed income project.

Jeremy: [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: [00:32:19] And so you want to keep it affordable.

Jeremy: [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: [00:33:04] That’s astounding.

Jeremy: [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: [00:33:50] I don’t know what balloting is. Can you explain that to me?

Jeremy: [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: [00:34:22] Because they’re going to sell all units for that.

Jeremy: [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: [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: [00:35:43] So how do you find those people, though? How did they find you?

Jeremy: [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: [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: [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: [00:38:03] That bad thing was great marketing.

Jeremy: [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: [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: [00:38:42] So because we’re running out of time. But I really want to know what’s next.

Jeremy: [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: [00:39:18] Well, it’s wonderful. And so you’ve started to see really build a community here.

Jeremy: [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: [00:41:32] But who does the Property Council represent.

Jeremy: [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: [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: [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: [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: [00:43:41] Correct. In the building. Correct. No gas made a room. No gas particularly. Right. Right. Yeah.

Eve: [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: [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: [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: [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: [00:45:11] So do you think the interest requirement of 15 per cent is going to grow?

Jeremy: [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: [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: [00:46:19] That was Jeremy McLeod of Breathe Architecture and the Nightingale project.  He’s designing and building the real deal – Sustainable, affordable, and gorgeous too.

Eve: [00:46:16] You can find out more about this episode or others you might have missed on the show notes page at our website, rethinkrealestateforgood.co. There’s lots to listen to there. 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.