Rethink Real Estate. For Good.

Affordable housing

Bellevue Montgomery

✅ Missing Middle housing.  23 townhomes, duplex + 4-plex units

✅ Affordable.  Rents planned at 80% AMI

✅ Additional phases.  For a total of 67 units months construction period

✅  Underway.  Purchase + sale agreement executeduction commencement

✅ Cost.  $3.6M total project costing, dining and at least 3 parks

✅ Deferred real estate taxes.  Project awarded a 10-year PILOT, 75% deferral

✅ Completion.  Q1 2026 anticipated completion for Phase 1aces

A pocket neighborhood adjacent to Memphis Medical District.

Bellevue Montgomery is a multifamily project planned as an infill project in Midtown Memphis, Tennessee, adjacent to the Memphis Medical District. Even at the convergence of Downtown, Crosstown, and Midtown, the neighborhood does not have sufficient housing to fill the need for affordable housing. The Company intends to address this gap in the Medical District with much-needed “Missing Middle” housing. They’re looking for investors small and big alike, just like you, on Small Change. 

https://www.smallchange.co/projects/bellevue-montgomery

This is not a solicitation of an offer to buy or sell any securities. All investing is risky and involves the risk of total loss as well as liquidity risk. Past returns do not guarantee future returns. If you are interested in investing, please visit Small Change to obtain the relevant offering documents.

Image courtesy of Bellevue Montgomery

The case for social housing.

The opera and apple strudel are the hottest tickets in Vienna these days, right?

Wrong!  US natives are invading the Austrian capital to take a look at their social housing projects.  Hordes of politicians, housing advocates and journalists tromping the cobblestones, trying to understand how housing can be more than just a profit center, and probably eating a little apple strudel on the side.  It’s part of the culture.

What’s special about these housing projects?  Through cross-subsidization they offer high-quality housing to everyone.  Rent is based on income with high income earners subsidizing low income earners.  Rent can be as low as 4% of income.

Equal opportunity for everyone. 

Fast Company asks, “Will the U.S. ever embrace social housing?” And we wonder too. The housing market is driven by profit here.  What happens when non-profit projects really start to compete?

Manufactured authenticity.

Scott Snodgrass is a founding partner of Meristem Communities, a Houston-based real estate development firm committed to creating Places for People™️ with mindful, fine-grained developments. Meristem is a resiliency-focused developer whose guiding principles create human-centric design by thoughtfully, sustainably, and holistically connecting the land and its natural resources with people.

Scott is an innovative entrepreneur and former farmer who leads with respect for the land and the environment, carefully strategizing an interconnected resilience of all systems—natural, human, and built. His vision has always been to create neighborhoods that honor and nurture local ecosystems, empowering people to live a more holistic way of life with renewed appreciation for their natural surroundings. This vision is being brought to fruition in Indigo, one of Meristem’s first developments in the suburbs of Houston, designed with a foundational connection to agriculture and built around a human-scale working farm and pasture. The Meristem belief is that it’s the sum of a thousand small decisions that create more engaging, more interesting, and more livable neighborhoods.

Alongside his work at Meristem, Scott works collaboratively with developers and consultants to create unique and exceptional agricultural amenities (agrihoods) within master-planned communities through Agmenity. He has become a thought leader in the national agrihood movement, regularly speaking on the topic at regional and national conferences. Scott is a member of several community organizations including the Urban Land Institute (ULI), currently serving on a national committee and most recently contributed to their 2018 ULI Agrihood Report. Scott holds a Bachelor of Arts in political science and government from The University of Texas at Austin.

Read the podcast transcript here

Eve Picker: [00:00:06] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich, or poor, beautiful, or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone.

Eve: [00:00:43] In real estate development, envisioning how future societies will live can often feel like masterminding a high-tech work of science fiction. Just outside of Houston, a new development of the future is emerging. But instead of flying cars and skyscraping utopias, this version of Tomorrowland has its roots firmly and sustainably planted in days gone by. Indigo, a 235-acre community, is being developed by Scott Snodgrass and his partner Clayton Garrett, both farmers. They have thoughtfully gone against the norm in every aspect of this project, focusing first and foremost on people and a human scale to encourage interaction. Downsized lots and homes, a working farm, the integration of small businesses, careful attention paid to embracing everyone all make this project one worth watching. You’ll want to listen in to learn more.

Eve: [00:01:54] Hi, Scott. It’s really nice to have you join me today.

Scott Snodgrass: [00:01:57] Thank you so much for having me. I’ve been a big fan of yours and the podcast, at least for the past couple of years, and so, excited to be able to join today.

Eve: [00:02:06] Oh thank you. You’ve been heard to say that in community development, envisioning how future societies will live can often feel like masterminding a high-tech work of science fiction. Why is that?

Scott: [00:02:21] Well, uh, we don’t really know what the future holds for how people are going to live, but I think that we have maybe 40,000 years or something of history with how people live. And certainly, in modern history, we have some great analogues to look back at and so, I think it’s really about learning with what we’ve done in the past, but then also applying the technological changes we’ve had to the future. We’re a little slow to adopt some technologies. I think it’s real easy to see technologies and think it’s the future. And these sexy technologies that are always being sold by some company for some high price and you have to sign up for their subscription, and they own all of your data and all that. And we’re a little wary of that. But I do think that as we look into the future, sometimes we are doing the same thing that a science fiction writer would do in imagining what the world’s going to be like in the future.

Eve: [00:03:16] That’s true. So, and you are a former farmer amongst other things. How does a former farmer become a real estate developer?

Scott: [00:03:24] It’s a great question. It’s the one that most people ask, right away off the start. But my business partner and I, we have a company called Agmenity, and it manages farms for master plan community developers, hospitals, school districts, cities and counties. And so, we had experience in agriculture and started that company as a service company to help incorporate agriculture into more real estate developments and have been doing that work since 2015. And we had, our first project is called Harvest Green. It’s here in Houston. The real estate developer was just a wonderful company and their general manager on the project, Shay Shafi, was just an incredibly generous guy. And he brought us into every single development meeting, you know, so every week or every two weeks for years. And sometimes…

Eve: [00:04:18] You caught the bug!

Scott: [00:04:19] Right. We were like, why are we here talking about engineering? And he said, well, hey, this whole like, agriculture in a community thing is relatively new in the modern framework. And so we want to make sure that we’re catching any of those conflict points. And so we got to see the behind the scenes. And we got to ask questions about, well, why are you making this decision and why are you making that decision? And Clayton and I, my business partner, we had always felt like what could be more impactful on someone’s life than the food they eat. Nothing, right? And then we saw this whole real estate development world and said, oh, wow. Like, real estate development actually has a lot to do with what food people eat and a whole host of other things. And so, this is also incredibly impactful work. So, we hired a COO at Agmenity who does a tremendous job, runs the company better than we ever did or could and is really leading that company in a growth throughout the country right now. And so, Clayton and I have been able to focus at Meristem Communities and put our energy there and really work on our first project, Indigo.

Eve: [00:05:23] And so Meristem Communities you launched with your partner. And how long ago was that?

Scott: [00:05:28] Now we just launched meristem in 2021. We owned a piece of property, um, that we had had a large-scale farm on, and we were starting to be surrounded by suburban development outside of Houston. And so, that farm was never going to grow to the full size of the property we had purchased, we realized. And so, we said, okay, well, what do we do with the rest of this property? And so, we had been walking alongside real estate developers and we said, well, let’s look at this. And we started talking to some folks about some mixed-use and sports parks and light industrial even. And none of it felt quite right. And then Covid hit, and everything stopped for a while. And then single-family real estate caught on fire, for good and for bad. And we said, okay, well, this is kind of our only option right now. And frankly, because of the demand that home builders had for lots at that time, it put us in a position where two farmers could become real estate developers because the home builders were so desperate for lots. And that was really the key that opened up financing and all the other agreements that we needed to get moving.

Eve: [00:06:38] Interesting. So, then I have to ask you, does this community differ from conventional urban plan communities? And if it does, how?

Scott: [00:06:48] Certainly for Houston, it is shockingly different, we discovered right away. Our conversations with our home builders weren’t easy, even though their demand for lots was so high. But, you know, we’ve done a number of things at Indigo that are different than the norm. You know, first off, we do have agriculture incorporated into the community. How could two farmers, you know, develop a community that didn’t have agriculture? So, we knew we had to do that, but we actually don’t find ourselves talking about it that much, related to Indigo. We see the big differences that we have are really our focus on walkability, and that means using homes that have their garages on alleys and the front doors either on the street or on a green space. And that was a very difficult framework for the Houston development world to understand. For whatever reason, Houston has just rarely had any alleys since the 50s or 60s. The city’s abandoned a lot of them in the urban core and master plan community developers just haven’t used them. And so, you know, we can easily travel around the country and see alley-loaded neighborhoods. You know, the traditional neighborhood design framework all around the country. Dallas even has a lot of it. And so, it was easy to go see it but we had a hard time getting our, our builders on board with doing that. So that was kind of the first hurdle and something we were doing that was very different. And then the second part of that was smaller…

Eve: [00:08:14] So actually let’s back up. So, the importance of alleys means that, you know, no driveways on the front, the front of the houses are really for people, not for cars and, and trash and cars are relegated to the alley. Right?

Scott: [00:08:29] Yeah. So, our tagline at Meristem Communities is places for people. And you know, we imagine a world where cars, corporations and capital are not the primary stakeholders. And those other three things are tools that humans can use to achieve their goals, but they’re not the primary stakeholders. And unfortunately, our real estate system, as you know and talk about all the time, is currently built for cars, corporations and capital. And so, we believe that it’s an important shift in the design framework as you’re designing a community to look at people first. So yes, garages on the back. That reduces our curb cuts and our conflict points for vehicles and for for driveways and sidewalks. Yeah.

Eve: [00:09:12] And people. Safer for kids.

Scott: [00:09:13] Yep. Safer for kids and all that. It allows us to have on-street parking and a lot more of it because we don’t have all of those curb cuts now, for the driveways. And it also means that when cars pull off of the road onto the alley, there’s a very limited number of cars on those alleys as well, because they serve small pockets of homes. And so even those spaces are relatively safe as well.

Eve: [00:09:35] That’s a really major urban planning feature, but I feel like I need to go back a step and ask you what your vision was. Like, what’s the overall vision for this community, and where did you draw inspiration from? Aside from the farm?

Scott: [00:09:51] And we have this conversation a lot too, like. Our PR team will ask, you know, what’s the theme of the community? And we keep coming back to it’s places for people. That really is the theme. You have to do everything. You can’t just pick one thing to do. And so, we’re incorporating agriculture into our development. We’re using alleys. We’re creating safer streets. Wherever our sidewalks cross the street we have a raised pedestrian crossing or a raised intersection table. We have narrower streets, we have on street parking, we have bulb-outs. We have all these things to create a safer environment for people and focus on that. And then we’ve also done the mixing of uses by having residential and retail and other commercial in the same space and, you know, bringing that into the neighborhood instead of pushing it out onto the major thoroughfare adjacent to our neighborhood and turning its back to the community, we’ve really brought that retail into the community and had it face the community and be really central there. And so, I think you have to do all those things. So, places for people really is the theme but then walkability and safe streets has to be an important part of that.

Eve: [00:11:00] So how big is this community? How many homes are we talking about? How many people?

Scott: [00:11:04] So we have 235 acres within the development. More than 60% of that is open space. So, we have a 25-acre lake. We have, you know, miles of walking trails and sidewalks and everything. And we also have these, we basically created a street grid and then took out every other street and made it a green space. And so, homes still front on those green spaces, and they’re served by the alleys in the back. So, we have a lot of open space there. We have, uh, 661 homes for sale. And then, and that’s a range of attached and detached and cottages and more traditional single-family homes for our market. And then we also have about 150 apartment units, but they’re distributed through a number of buildings. We have these mansion apartments that are six- and seven-unit apartments that just look like a banker’s house, that we’re putting on some of the green spaces. And then we have some, like, smaller 30-unit buildings of micro units that look like brownstones that are in what we call Indigo Commons, which is the real town center, mixed-use area of the neighborhood.

Eve: [00:12:17] And so you’re under construction, right?

Scott: [00:12:21] Correct.

Eve: [00:12:21] How far into this project are you? What percentage complete and how many people live there?

Scott: [00:12:27] So, we don’t have anyone living yet, but our section one, the model homes for the community are going to start construction here in just a few weeks. So, all of section one, which is a little more than a third of the community, all of the storm sewer, the sanitary sewer, water lines, all that’s in the water plant. And, you know, we built our own water plant and wastewater treatment plant because we didn’t have services in our area. And so, all of that is in and the paving starts this week. And so, they’re moving real quick for us. Hopefully the weather holds up for us and they’ll be out there pouring concrete for the next 30 days or so, and then we’ll have those first 265 lots available for sale. And I’ll tell you, we’ve been doing some really intentional, small-scale and intimate cultivation of the potential home buyers. And our home builders are saying the demand is intense and we believe that we’re going to sell out really quickly. So, we’re already getting section two ready. And construction for section two will start in just a few months here.

Eve: [00:13:28] And so, I have to ask how affordable are these homes?

Scott: [00:13:32] So, we are in the probably least affordable quadrant of the city. And again, partially that’s what allowed us as, you know, two simple farmers to deal. But also, what we’ve done is compare ourselves to the communities around us and if we wanted to push towards affordability, what could we do? Because Houston’s always been very affordable compared to the rest of the country but during Covid it changed quite a bit. And so, we’ve seen the same thing now where your firefighters, police officers, teachers, social workers can no longer, or anyone working in retail, can no longer afford to live even in the communities where they work. And it felt really wrong for a community to tell the people serving it they had to go somewhere else. That just felt inhuman. And so, we said, okay, we’ve got to find a way to solve for that problem. And so, one of the ways we did that was by pushing for smaller lot size, because we saw an opportunity where lots in Houston had become huge, you know, mostly in the 70s and 80s and 90s and that mostly that’s wasted space. People aren’t using those portions of their lots. So what we did was really densify our neighborhood, compared to the suburbs, you know, 3.2, 3.4, maybe four units per acre is the standard in the suburbs. I think we’re at almost eight units per acre. And then if you look at like, you know, net density in some smaller pockets in the neighborhood, we even flirt with 20 units per acre in our most dense areas. And so that’s a very different calculation. And that’s just on the first side.

Eve: [00:15:10] What were the zoning restrictions you have to contend with to get there?

Scott: [00:15:15] Most of our property was in the unincorporated county, and the county that we’re in has very little in the way of requirements for subdivisions or development. So, it’s kind of the wild, wild West out here.

Eve: [00:15:26] And that reminds me of, I don’t know if you ever used to play SimCity.

Scott: [00:15:29] Yeah, yeah.

Eve: [00:15:31] I just, you know, no restrictions.

Scott: [00:15:35] Yep.

Eve: [00:15:36] Insanity. Yeah.

Scott: [00:15:38] Yeah. So, then we, but we did have a portion of our property that was in the extraterritorial jurisdiction of the city of Richmond, which is our closest jurisdiction. We reached out to Richmond and said, hey, we’d love ultimately for our neighborhood to be a part of the city. So, we worked with them on a development agreement, and they have the right to annex our property in about ten years when we’re done with the development process. And that development agreement, so their, their minimum lot size was 6000ft², in the city of Richmond. And through our development agreement, we got that down.

Eve: [00:16:11] That’s a really huge.

Scott: [00:16:13] Right. Yeah. It’s big for the minimum. Right.

Eve: [00:16:15] Yes. Yeah,

Scott: [00:16:16] Maybe a maximum. It’d be okay. So, we worked with them and got that down to 2000ft², which is allowing us to do some cottage homes that are in that, like 950 to 1450 square footage range. That really serve, and that’s what we saw, was the suburbs of Houston have almost entirely been built for two parents with children families. There’s just so many homes built for that family formation, which in Texas is now like 20% of our family formation.

Eve: [00:16:49] Oh that’s really interesting.

Scott: [00:16:50] So the other 80% of family formations or household formations we’re just ignoring. People who want to live together, who aren’t married and have trouble with financing. You know, we have single parent families who affording a giant home like that can be really difficult. You know, all these different formations, you know, like couples who don’t want to have kids, which is more and more common today. And so, like, why are we only building these five-bedroom, you know, mini mansions in the suburbs? So, we shifted everything down on lot square footage and home square footage to create more of an ecosystem so that we’re providing homes for that wider range of people. And then especially wanted to do the aging in place concept where you could buy your first home in our neighborhood, you could rent here, then you can buy your first home in our neighborhood, and then you can size up your home as your family grows and size down as it doesn’t, as it shrinks and create all of that in one place for people.

Eve: [00:17:47] This is pretty challenging stuff that you’ve tackled for two farmers. First time real estate development. I have to ask, there’s a lot of infrastructure to put in place. How challenging was it to put the funds together for this project?

Scott: [00:18:01] I think we’re very persistent and we’re very persuasive. And then the market was really hot at that time. Like, we have the privilege of that and the privilege of both being white males, which does make a difference when you’re trying to get financing.

Eve: [00:18:15] Definitely.

Scott: [00:18:16] Absolutely. And then at the same time we were just willing to take no for an answer over and over again and go to the next person. And so we heard no, a bunch of times. We didn’t fit the traditional needs. You know, everybody understandably wanted a huge chunk of cash equity in the deal. And we didn’t have any money, we’re farmers, and we didn’t know anybody who was going to do that for us. And we didn’t want to go out and find an equity partner who would ultimately control the decision making. We wanted that to be us. So, we just kept working and working until we found a private lender that was willing to take on our deal, that was trying to move more into Texas. They had been developers in the past, which we really loved because they understood the development process. They’ve been very flexible. They are not very cheap. And I think that is the place that people need to get over that mental hurdle that, in our minds, we will pay for flexibility over and over and over again because it really brings resilience. When you lock yourself into this tiny little box of requirements and allow that lender or the bank to pull the rug out from under you whenever they decide to, that’s a tenuous place to be that we didn’t want to be. And so, we are happy to pay very high interest rates for very large sums of money for a long time in order to get the flexibility that we need. So, sure, we take a haircut in our profit at the end. And I think that’s what most people struggle with. But it does make our development more resilient.

Eve: [00:19:44] So you will have a working farm in this community?

Scott: [00:19:48] Yeah.

Eve: [00:19:48] How does that go?

Scott: [00:19:50] It’s 42 acres. And really, what most people will experience is the front three and a half acres, which are right at the entrance to the community, and it bumps right up into the town square area. And that’s the vegetable farm. So that’s where vegetables and flowers will be grown. That’s where people can go and buy some vegetables from the farm. They can take classes, they can interact with the farmers, maybe even have their own little plot to grow some vegetables in. And then the, on the back side of the property, the remainder of the farm is pasture and orchards. And so we will probably have laying hens, you know, hundreds and hundreds of laying hens and do egg production on the farm as well. And we’ll have some programming back there, but in a more limited basis that’ll mostly be a farmer’s work area on the back side of the farm.

Eve: [00:20:38] It sounds idyllic. And then also, where did you get your inspiration from for the architecture for the community, like, and what is the architecture like?

Scott: [00:20:48] We have a funny phrase we find ourselves using more and more, and that phrase is manufactured authenticity.

Eve: [00:20:54] Kind of like Disneyland, right?

Scott: [00:20:57] Yeah, in some ways. And there’s some parts of Disneyland that Disney did really well. Right? And really speak to people. There’s other parts of it that are cloying, I would say and, you know, are saccharine. But what we wanted to do, because we were developing what was just entirely farmland, not a single tree on our property, no structures at all. We felt like for people to feel like it was a place we needed to create some age, some patina on the community. So, we’ve done a few different things. You know, one, we went out and bought two 50-foot-tall live oak trees and had them planted at the property, and that was not cheap. But doing that, you know, at least makes it feel like something was here before. And then as we planned the architecture of our buildings, like the first commercial building we’re building is called the filling station. And so, it’s a little bit tongue in cheek that it was a 1930s Art Deco gas station. And then all of the decorations on it had been stripped off. It had been stripped back to its basic form, and it was no longer a gas station. It wasn’t serving cars now, now it’s serving people. So, it’s a general store, coffee, beer, wine, light breakfast and lunch options and then sells vegetables from the farm, eggs, pickles, jams and jellies, all that. And acts as the third place for the community to really activate at the beginning, where there’s cafe seating and it’s like, come hang out here, use the Wi-Fi, do whatever. So, the architecture of that building was really intentional, that it refers not only to an architectural style of the past, but also acts like it had been adaptive, reused, at some point in the future. And that goes all the way to like, choosing a polished concrete floor finish. You know, where do you incorporate some concrete block, like would have been in those buildings before so that you can see it, even if that’s not our modern construction method? So, there’s some touches to it that are Disney but what we’re hoping to do is really just give people that subconscious feeling of like, this isn’t a brand new whitewashed, you know, place. There’s some age here to, to help the community form in the beginning.

Eve: [00:23:11] And so how do you balance, like, modern amenities with this notion of small-town living?

Scott: [00:23:17] Part of that is actually doing your research on amenities and finding out what people want, and then looking at life cycle cost and value to the community. You know, in Houston, we’ve had an amenity arms race over the years, and people in other places in the country are shocked when they hear how low our association fees are compared to the amenities people get. Usually when I say we’re $1,700, they say, oh, $1,700 a month. That’s a that’s a little bit high. But we’ve seen numbers like that, and we say, no, $1,700 a year, is our cost. It’s shocking to people. And so, we wanted to, like we do with so many other things, go counterculture on that a little bit and say, what do people actually want? So, in Houston, every community has a pool, but those pools are only open three months a year. They cost millions of dollars to install, and they cost like a quarter million a year to staff and maintain. And so, we looked at that and said, okay, well, is there really the value? Like I have three elementary aged kids and we have eight pools we can go to in our neighborhood, which is ridiculous. But we go like 5 or 6 times a year. So, the amount of money that I’m paying in HOA fees towards that pool, it probably doesn’t calculate out to where it actually makes sense. And so we decided not to build a pool at Indigo.

Scott: [00:24:35] We have an amenity lake that is like a nature lake that you can swim in that we’re putting a dock on so if you want to swim, you can go there. But also, if you just desperately want to go to a pool, there are private pool clubs in the area, or you can go to a fitness center with a pool and those sorts of things. So, part of it was like getting rid of the big plays. In Houston these crystal lagoons have become all the rage, where people spend $10 million building a beach. You know, it’s an enormous pool, essentially. And we didn’t want to saddle our residents with that kind of debt. And we feel like with those big giant plays may get you a bunch of media coverage, but they’re really risky long term. So, we’ve downsized our amenities and done more of them and spread them out more throughout the community. So, it’s little things like a couple of bocce ball courts here and a natural children’s playground over here, and a small dog park over here, and a meditation maze over here, and some moving water and wind chimes over here. And really just spread those out and diffuse them throughout the community so that they’re more easily accessible. And that’s a part of the walkability. And they’re, I guess, maybe a little more equitably spread out throughout the community too, so that everyone has access to them, but not saddling the community with any specific, really large-scale debt.

Eve: [00:25:55] Yes, yeah. So, who will live there and where are they going to come from?

Scott: [00:25:59] So we did a lot of research at the beginning. We used a company called Kantar that has a giant database of demographics, looked at who lives in our area, which generation do they fall into? And then they even segment each generation by behavior. So, for example, there’s a millennial segment that’s a little more career-oriented, that’s a little more go, go, go. Then there’s another segment. So, I’m in that segment. My business partner Clayton’s in the other segment, which is a little more family oriented, a little more self-care oriented. And so, you know, it’s interesting to see the different segments and how they’re, how they want to live. So, my segment might be happier in a town home in an urban area. My business partner’s, you know, his segment might be a little bit more happy in a home, a smaller home, but with a little bit more of a lot around it and not attached. So, we did that research. Then we went out and looked at who’s in our area of those segments and then designed our home types for them. And then, we actually had 700 people answer a survey with questions about amenities and other things in our community and got amazing feedback from that that we incorporated into what we were doing. And then we took all of that to our home builders and said, here’s really what we want to see for the homes in this area. And we have architectural guidelines that control what they can build. We control the square footage band. We approve the elevations for the homes, what they look like on their facades and all of that. And then the goal is that once we get that done, we can hand it over to the homeowners’ association, and then the control can relax. And we want people to be able to have their own impact on what their home looks like.

Eve: [00:27:46] So how do baby boomers and seniors fit into your plan?

Scott: [00:27:51] Well, I mean, baby boomers are such a huge part of the population right now. And a lot of them, I’m sure everyone’s seen the articles are holding on to to larger homes and not moving out of them. And that’s creating a little bit of a scarcity for homes, for families that are growing. And I think one of the reasons is that they haven’t been given alternatives, other than the age qualified 55 and up communities and we’ve had conversations with a lot of people who don’t want to live in one of those.

Eve: [00:28:19] Me included.

Scott: [00:28:21] Right? They want to be around younger people and specifically probably even their families. And so, at Indigo, we’ve tried to design the community again, where it’s a complete community with opportunities for everyone. So, we looked at what are some good housing types for people who are downsizing, empty-nesters, aging populations. You know, there’s things like more one-story buildings, or if it’s a two-story, try to make sure your primary suites on the ground floor, and then looking at the the walkability for those homes as well. Mobility is different for every different person. But there’s some commonalities and so for people who are a little bit older, having a place to rest every 150ft or so is really critical. And so, we’ve tried to design our walking network so that there is both shade and places to stop and rest as you make your way from your home to the different places throughout the community.

Eve: [00:29:17] So what about cultural and racial diversity?

Scott: [00:29:21] Our county is the second most diverse county in the country after Queens, I think. And so, it is 25% white, 25% Black, 25% Hispanic, and 25% Asian. And the Asian population is incredibly diverse itself with a lot of Indian and Pakistani, Chinese and Vietnamese populations in our area. And so, we feel like, really fortunate to be in a place like that. Yet at the same time, the suburban neighborhoods can still be fairly white in our area. And so I think some of that is like the messaging that you present to the world when you’re asking people to come join you. So, we’ve been really intentional with our marketing team. And we took our entire design team, including marketing through some DEI workshops and learning about cultural differences and how we can approach things maybe differently with that, with cultural differences in mind. And that’s been, I think, really impactful so far in the narrative that we’re telling, making sure that our marketing materials are representative of the communities around us and the people that we are inviting to come join us. And then we’re even working on a home-buyer resources guide. Basically, if people come to try and buy a home in Indigo and are, either think they won’t qualify to buy the home or try and don’t qualify, we have some secondary resources that are designed to overcome the hurdles that people of color and women and other class distinctions have faced in real estate. I mean, I think real estate is in the top 2 or 3, you know, racist and classist…

[00:31:05] Oh yeah,

[00:31:06] Institutions that we have in the country easily. Right? I mean, the prison system.

Eve: [00:31:10] Maybe the top.

Scott: [00:31:11] Yeah. And so, we want to work against those things in every way that we can. And so, we actually are in the process of building out an equity framework for Indigo and looking at like, what are all the spheres of influence that we have and we’re targeting. So, we have eight strategies that we’re ultimately going to be targeting throughout the community for things that we can do to overcome historic barriers to either renting or real estate ownership.

Eve: [00:31:39] Wow! It sounds to me like farmers do a lot of research. You’re used to that. Yeah. So, what have been some of your biggest challenges and disappointments?

Scott: [00:31:49] Challenges and disappointments?

Eve: [00:31:50] Maybe none?

Scott: [00:31:52] Yeah. No, no, we’ve definitely had challenges. I mean, working with the city, everybody told us that our city was like the worst city to work with in Houston. That’s what the development world said. We found them to be great to work with. It just took a lot of work and time to get them convinced of what we were trying to say, but we brought data to them. You know, narrower streets. It’s the fire chiefs don’t like narrower streets because it restricts access, right? So, then we have conversations about, okay, but a narrower street means slower speeds and means less kids die when they get hit by cars. So let’s balance like, how many home fires do you have in your area? Not very many. Okay, well, maybe more kids are being hit by cars and we should balance that out. So, we just went with those things. It took longer than I think we expected, and I think we’d be a little faster next time. But I also think people need time to wrap their heads around things, and you have to give that to them. So that’s maybe one of the big challenges. And then, you know, there’s a bit of a regret, I’ll say, that in the design of the neighborhood, we didn’t like bleed the retail into the residential part more than we did.

Eve: [00:32:56] I was going to ask about that. What is the retail and where is it? Yeah.

Scott: [00:32:59] So, we have what we call Indigo Commons. It’s right next to the farm. It’s surrounded by the neighborhood. But I wish that, you know, we still have like a street as the dividing line between the mixed use and the residential. And I wish that we had been smarter and had retail on both sides of the street, I think, instead of. And so, take more of that corridor mindset than the block mindset when we were looking at land use. And so, that’s a big regret, is like pulling a few little neighborhood retail places, pulling a restaurant to like a busy corner somewhere in the residential section. I mean, all of our homes are within a seven-minute walk of the commons. So, it’s not like you’re that far away, but it still would be nice to have pulled a few things out. So, I think that’s one thing there. You know, definitely on the commercial side, there’s been some challenges. We have what we call our incremental retail buildings. So, we did the whole household formation conversation on the housing side. And we were getting like halfway through the planning of the mixed-use area. And then we said, wait a minute, we need to do the same thing for businesses that we did over there. What about the barbershop that just wants to have two seats and doesn’t need 2000ft²? Why should they be paying for 2000ft² if they don’t need it? So, we did the same thing and started downsizing and right-sizing. And you know, we’re farmers. We’ve known a lot of chefs in Houston because we sold to a lot of them over the years, and just saw too many extractive relationships between landlords and tenant restaurants, where restaurant gets a little bit of press for the chef having great food, and then all of a sudden, they get slammed and they’re just so busy for a month.

Scott: [00:34:40] And then the landlord says, you know what? Your lease is up in a couple months, we’re going to go ahead and double your rent for next year. And that restaurant may not even be making money. They just appear to be busy and got some press. And so, to fight that a little bit, we wanted to have some tenant-owned retail. And so, we’ve designed these incremental retail buildings. It’s an 800 square foot footprint, 2 or 3 stories. So, 1600 or 2400ft² maximum. The bottom floor has to be active retail. We need the foot traffic for those buildings. But then on the second and third floor, it could be more retail. It could be offices. You could live there. You could lease it out as an apartment, whatever you want to do. And we got that through our jurisdictions and approved. So, it is a little bit like a live/work unit in form. But what I’ll say on the live/work units is most of the places people have done those, they’ve been residences first and they’ve been financed as a residence and then just have the retail. We’ve designed ours to where they work with the Small Business Administration’s 504 and 7A loan programs where you can get a 25-year business mortgage on that property, and you can live there and work there or lease it out or whatever. So, we just wanted to provide a bunch of flexibility. And so, that was a little bit of a challenge to get people to wrap their head around. And even the market has taken a little bit, but now we’re really starting to see intense demand.

Eve: [00:36:03] Well wow! I’m really impressed. You guys clearly have thought about absolutely everything. I hope I get to see the community when it’s finished. Is there anything else you want to tell me? I feel like we’ve jumped around everywhere. I’m sure I’ve missed a lot.

Scott: [00:36:18] No, I mean, I think the encouragement I would give to other people working in the space, and you’ve had so many great guests on your podcast. I was actually just listening to my my good friend Jonathan Dodson, to his version, I think, take hope in the fact that there are a lot of people working in this direction right now, and it feels like the tide is shifting a little bit. And thanks in part to people like you, Eve, doing these great communications and, like, sharing this because otherwise, how would we know about all these other people working in these other cities in the same area that we are? And so, I think it’s really, really valuable. And people who are feeling alone in this work out there, reach out to the people on those, like, we’ve had great success connecting with other developers. And, I mean, we flew to Oklahoma City to meet Jonathan, you know, kind of on a whim and then have become really good friends. And so, I encourage people, even if you’re working in this area and you have questions to reach out to us. You know, find us on LinkedIn and reach out and we’ll be happy to chat.

Eve: [00:37:20] Well, this has been delightful. Thank you so much for joining me and spending time. And, um, I do want to know how it ends up.

Speaker3: [00:37:27] We hope to have you down to Houston.

Eve: [00:37:28] I’m a little bit jealous.

Scott: [00:37:31] Well, we’ll look forward to that.

Eve: [00:37:40] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. Please support this podcast and all the great work my guests do by sharing it with others, posting about it on social media, or leaving a rating and a review. To catch all the latest from me, you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing, head on over to smallchange.co where I spend most of my time. A special thanks to David Allardice for his excellent editing of this podcast and original music. And a big 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.

Image courtesy of Scott Snodgrass

Reclaiming Control.

Adriana Abizadeh is the executive director of the Kensington Corridor Trust (KCT) in Philadelphia. The mission, duty and purpose of the KCT is to help the Kensington community reclaim control over a once thriving commercial corridor by reactivating real estate, fostering local entrepreneurship and reinvesting capital in the neighborhood.

With deep interests in public policy Adriana has taken every opportunity to utilize her privileged position as a nonprofit leader in order to speak out for what she believes in and to lift the voices of impacted community members. Immersed in policy initiatives, she has facilitated community collaboration to address the intersectionality between immigration status, housing, poverty, and race.

All of Adriana’s professional working experience has been in the nonprofit sector and she is passionate about serving others. Adriana has a BA from Rutgers University in Political Science with a minor in Security Intelligence and Counter Terrorism. She also has an MS in Public Policy from Drexel University. She has committed herself to serving on several boards that reflect some of her deepest passions: immigration, racial and health equity, and youth development. When Adriana isn’t serving her community, she is at home with her two children and two dogs.

Read the podcast transcript here

Eve Picker: [00:00:06] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich, or poor, beautiful, or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone.

Eve: [00:00:39] Adriana Abizadeh is the executive director of the Kensington Corridor Trust in Philadelphia. You might wonder what that is and why it exists. Kensington was once known as the workshop of the world, with booming manufacturing and a well employed neighborhood. Then Kensington Avenue was a bustling local business corridor. Now there is a lack of economic investment and everything that comes with it. 58% of Kensington residents live below the federal poverty line, and the average household annual income is just over $20,000. Formed in 2020, the trust is tasked with reclaiming control of the corridor. They do this through the purchase of property, which is placed in trust and governed by the neighborhood. Neighborhood trusts are fairly new, but if Adriana has her way, they will become mainstream. Listen in to learn more.

Eve: [00:01:51] Hi, Adrianna. Thanks for joining me today.

Adriana Abizadeh: [00:01:55] Good morning. Thanks for having me.

Eve: [00:01:57] So, unwavering commitment to reclaiming control of the business corridor. That’s the bold statement on your website. What corridor are we talking about? And? And how do you reclaim or regain control?

Adriana: [00:02:13] Absolutely. Yeah. So, we are talking about the Kensington Avenue corridor in the Kensington neighborhood of Philadelphia. And for us, reclaiming control is really a couple of different elements, but all focused on community control. So, reducing vacancy, bringing new businesses into the space with an emphasis on a focus on businesses that are coming from within the neighborhood and then providing affordable residential spaces also on that very same corridor.

Eve: [00:02:40] So when did the need for control become clear and why?

Adriana: [00:02:47] Yeah. So, KCT was formed in 2019. The Kensington Corridor Trust, we were formed in 2019. I would say the need probably became clearer probably sometime in the five years before that and maybe even longer before that. But it was watching, kind of, the wave of gentrification in some of the neighboring neighborhoods following the elevated train, which we call the L, and acknowledging that at some point Kensington would be next. We’d already begun to see at that time some active redevelopment from private developers. Still not a ton of city investment, some nonprofit investment but even with all of that there was still very large vacancy rates, a lot of properties with absentee landlords or not in active use at all. And so it was this mixed space where there was deep investment alongside disinvestment. And so, in 2019 we were formed.

Eve: [00:03:42] So was the next space, right? The next edge. But what did the Kensington corridor, what was it like previously? How did it shift over the last several decades?

Adriana: [00:03:42] Like decades ago?

Eve: [00:03:53] Yeah.

Adriana: [00:03:54] Yes. So, like many neighborhoods, we were one of the workshops of the world. So, it was a manufacturing and factory space, textiles, among other things. And, you know, as we saw that boom kind of shudder and leave spaces like Philadelphia and other major urban centers, we saw increased vacancy. We also saw white flight, and then we saw affordability emerge. And so, the neighborhood is now and has been for several decades, predominantly black and brown, fairly low average household median income around 25,000 a year, which is half of the city of Philadelphia’s AMI, which is at around $54, $55,000 a year. You know, just alongside the disinvestment in the work and the employees leaving, there was also then disinvestment in the neighborhood in itself. And so that’s where we began to see a rise in the vacancy, which then led to an increase in crime, you know, and it kind of trickled from there.

Eve: [00:04:46] All the things that follow. So, what is the Kensington corridor? Is it primarily retail? Is there housing, office, like, what sort of uses are along there?

Adriana: [00:04:55] Absolutely. So, it’s predominantly commercial mixed use. So, most of the buildings are commercial on the first floor with residential on the second and third story. Some of the blocks are two stories. Some of the blocks are three story. But it’s predominantly commercial mixed use.

Eve: [00:05:07] How long is the area that you’re working on?

Adriana: [00:05:11] So we are a 1.4-mile-long corridor, but we’re actively acquiring on three blocks. So, we are using a strategy of density for acquisition.

Eve: [00:05:20] So you launched actually something called the Kensington Corridor Trust and when did it launch?

Adriana: [00:05:27] It was formed in 2019, and then I was hired as inaugural ED in 2020.

Eve: [00:05:32] Okay, so it’s pretty young?

Adriana: [00:05:34] It is. Yes. Still infants.

Eve: [00:05:36] The primary goal you’re trying to accomplish and the target market…

Adriana: [00:05:41] Is community wealth building. Yeah. So, we are trying to have localized ownership and control of the real estate to preserve affordability and localized control. So, making sure that the folks who have lived there historically have access and control over those spaces.

Eve: [00:05:52] So the target market is the people in the neighborhood, like, how do you stop other people from buying in, like…

Adriana: [00:05:58] You can’t.

Eve: [00:05:59] You can’t, right? So let me step back a bit. What is a neighborhood trust? What is the Kensington Corridor Trust and exactly how does it work legally and financially?

Adriana: [00:06:10] Absolutely. So, a neighborhood trust legally is the combination of a 501(c)(3) and a Perpetual Purpose Trust. So, it’s that hybrid construct between those two entities that creates the neighborhood trust model. And then in terms of the way that we operate, we have two governing bodies, both of which are fully comprised of residents and small business owners in the neighborhood. So, of the 19134-zip code, specifically. We touch six census tracts along that 1.4-mile-long corridor. So, in those there’s about 32,000 residents. Again, average household median income about 25,000 a year. On the 1.4-mile-long corridor there are over 600 assets. In our current target acquisition space, which are those three blocks, there’s a little over 100 assets. KCT is in the process of closing on its 20th property now. So, we hold about one fifth of what’s in that three target blocks. When we get to about 40 to 60% of ownership on those blocks, we’ll then begin to move outward one block at a time in each direction towards the outer boundaries of the 1.4 miles. Again, density strategy.

Eve: [00:07:12] So it’s a neighborhood trust. The neighborhood trust owns the property. The governing organizations are also people from the neighborhood in perpetuity. So it can be no one else who controls the property. That’s essentially…

Adriana: [00:07:25] Correct.

Eve: [00:07:25] Do I have that right?

Adriana: [00:07:26] Yes. Yeah. So, a perpetual purpose trust, which is the part that most folks are not as familiar with. Most folks understand the 501(c)(3) non-profit model. In a perpetual purpose trust, you can protect assets perpetually for a purpose. And so, the assets that we are protecting are real estate for collective ownership and localized control and affordability. And then for that purpose that I just mentioned. And so, once the assets go in, they cannot come out.

Eve: [00:07:50] And how do you decide who is on the governing board?

Adriana: [00:07:54] We hold open democratic elections annually. So actually, we’re in open cycle right now. So, anyone from the neighborhood is eligible to apply or be nominated, either, again, as a resident or the owner of a small business. And then the existing governing body selects the folks that applied, bring them in, and then we do rotating cycles so that we’re not losing institutional knowledge as terms are ending.

Eve: [00:08:15] Wow, okay! You said the trust owns about 20 properties now. Total square feet?

Adriana: [00:08:22] Each property is about 2200ft² on average. Typically, 16 foot frontages and 65 foot runs back, in terms of depth. Most of our properties are three-story. We hold a couple of two-story properties, and then we also hold some vacant land which we steward in a community garden. So, we have an 11 lot pollinator garden that we steward directly on the corridor.

Eve: [00:08:42] So these are all pretty tiny properties actually. They remind me of what’s called sliver buildings in Pittsburgh, which are slightly larger.

Adriana: [00:08:50] That’s exactly right. Yes.

Eve: [00:08:50] 20 by 100. Yeah.

Adriana: [00:08:53] Yeah, that’s actually larger. These are small. These are typically 16 by 65.

[00:08:57] Slightly. And what condition are most of these properties when you buy them. And do you renovate them yourselves? I mean, do you have your own development arm. How does that work?

Adriana: [00:09:10] Yes. So, most of the properties are requiring gut rehab. Some of the properties we’re acquiring are coming from private developers, so we’re exiting them so that they can move on and be extractive somewhere else. And so…

Eve: [00:09:23] Not all developers are extractive. Come on.

Adriana: [00:09:26] Not all of them. Just the ones that we’re dealing with, just the ones we’re dealing with. But when we do exit something from a private developer, typically it doesn’t require rehab, and we’re able to pull it back into affordability, right? So, for example, we just acquired a property where the commercial tenant was paying $1300 a month, and we’re going to be able to bring their rent down to $950. So, it is a significant difference in terms of the relationship that I think they’re having with a neighborhood stewarded trust. And then the other assets that we’re acquiring that require a gut rehab, we have a construction project manager that oversees the subcontractors, and we directly sub out the different aspects of the work and get the project back online and activate it as quickly as possible. And then the commercial tenants that are coming into those spaces are approved by the neighborhood. So, we do a ton of community engagement to ensure that the neighborhood wants that business on their corridor before moving someone in and signing a lease.

Eve: [00:10:16] Are the people who come in as commercial tenants sometimes from the neighborhood?

Adriana: [00:10:21] Yes.

Eve: [00:10:21] Like, do you help them with their businesses and growing sufficiently to be able to manage a space like that?

Adriana: [00:10:27] Yes. So, a couple of things. Most of the folks that have come to us so far are from the neighborhood. Most of those folks are folks of color and more than half of them identify as immigrant as well and we have several women owned businesses. And so, those folks, most of them, as I said, have come from the neighborhood. Most of it has been fairly organic. So, folks are referring them to us, we’re having a conversation. The other thing to keep in mind, as we talked about the square footage of the space, these are on average very small spaces. So about 850 square foot frontages on the commercial space. So, they’re small operators.

Eve: [00:11:00] That would be really big in Paris.

Adriana: [00:11:03] Ah, okay. See, all relative.

Eve: [00:11:04] It’s all relative.

Adriana: [00:11:06] For Philly it’s a small footprint.

Eve: [00:11:07] Yeah it is small. That can be good for someone who’s starting out. That’s just way less to take on.

Adriana: [00:11:13] That’s exactly right. So, a lot of the operators that we’ve brought in thus far are single owner, you know, member LLCs. They are figuring out something. Maybe they’ve tried it in a different space. Maybe they’ve been a maker inside their home, and they’re now at the space in the capacity where they’re ready to transition into a bricks and mortar. So, it’s been really exciting for our organization and our partner organizations to support them in, you know, gaining access to physical space, but also ensuring that their business is ready and that they, as entrepreneurs, have the wraparound services that they need to be successful and thrive in that space.

Eve: [00:11:46] And so the properties that you’re purchasing, do you hope to eventually have control of most of the properties in those three blocks?

Adriana: [00:11:54] Yeah. So ideally, we want to hold between 40 and 60%. So KCT, right, when we talked about earlier about like how do you stop other people from coming in. We can’t. That’s not what KCT is doing. I think at the Kensington Corridor Trust, our focus has been on protecting as much as we can by preserving the affordability and the local control, acknowledging that there’s always going to be outside development, there’s going to be city development, and also there’s going to be individual owners, which we want to continue to own and steward their spaces on the corridor, right? We are not trying to exit individual owners who are, you know, operating their business out of their space or, you know, making their own individual generational wealth out of the space. We’re interested in taking on the spaces that no one is activating, or that are highly extractive.

Eve: [00:12:35] Okay. So, then on to financing. How do you finance these projects?

Adriana: [00:12:40] Yes. So, we look at it from kind of like two worlds, if you would. We do have a 501(c)(3). So, we are able to take in subsidy in grants. At this time, we’re not using government funding, so it is all private foundation dollars. And then on the debt side, we’re using program-related investments or PRIs, also known as mission, aligned investments from foundations, from their endowment. And that allows us the space to be able to do the rehab on the, you know, do the acquisition, do the rehab on the properties, reactivate them before we’re moving into repayment. So, we have longer runways on the front end of those debt terms that do either interest only or interest only deferred followed by the P&I. And then there’s a balloon. Most of our terms are between 10 and 15 years. All of our debt is at 2% or below. So, we’re between 0 and 2% interest on all of our debt.

Eve: [00:13:31] Pretty good.

Adriana: [00:13:31] It’s been really, really great. Challenging to scale, but very, very good in terms of the projects and making sure that we can sustain affordability.

Eve: [00:13:39] Okay. So, tell us about a successful project that you’re particularly proud of.

Adriana: [00:13:46] Hmm. Well, one that we have in the pipeline that we’re particularly proud of is not at full fruition yet. We are bringing a small grocery store to the corridor. So, when I first started working at the Kensington Corridor Trust in 2020, you know, I was trying to learn about the neighborhood, meet with residents, meet with small business owners, and the single thing that I kept hearing over and over in every room, different rooms, you know, different people, was, we need a grocery store, we need a grocery store, we need a grocery store. And the second thing that folks were saying is we need more spaces for our youth to engage in positive and healthy spaces after school and on weekends. And so, for the last few years, we’ve been working at trying to figure both of those out. The youth element was a little bit of a lower hanging fruit because there are already partners in the space who, you know, in the neighborhood, rather, who are already doing youth programming. And so, it was a matter of partnering with them, making that activation at our garden, which we now do successfully and have for two seasons, two garden seasons. The grocery store was a harder lift. One, because of the square footage of the buildings, right? We just talked about the average square footage of a building at 2200ft² across, three stories.

Eve: [00:14:49] Right?

Adriana: [00:14:50] Two, parking. Right? So, it’s a very busy and bustling corridor in terms of commuters and for the businesses that are operating. And so, parking is very challenging. And then a loading dock, there really aren’t any buildings that have loading docks on the corridor to bring the grocery pallets in and out. So, last year we stumbled on a gem that came up for sale on the market. There was an artist who had been using it as his studio, his artist design studio, for the last 20 years, and he was moving towards retirement and put his property up for sale. That property is about 3400ft² across two stories. So, it’s a much larger run.

Eve: [00:15:24] Huge!

Adriana: [00:15:24] Yeah, it’s a much larger run than the average building on the corridor for us. And so, we were very excited to bring that in. Just right after we brought it in and we found a local operator. So, this gentleman grew up in the neighborhood, has been operating his business in the neighborhood, doing food imports and exports and is going to move into the grocery space and then is also going to operate a commercial kitchen on the second story, a shared commercial kitchen. And so, we’re really, really excited for that project.

Eve: [00:15:54] That’s a great project!

Adriana: [00:15:55] Yes, it’s going to be super great. The neighborhood is excited. It’s accessible by transit, so it’s literally right outside of the train station. So, for folks who are riding the El it’s been very well accepted and regarded and welcomed by the residents. And we’re really, really excited to bring it online, hopefully by winter of this year.

Eve: [00:16:14] Sounds terrific. So how do you engage community members and stakeholders, so they know what you’re doing and become part of this trust?

Adriana: [00:16:23] There’s a couple of ways. Traditional organizing and engagement, right? Going out, canvassing, being present at events, making sure that we’re visible. All of our staff at this point, right when we’re out on the corridor with our swag, with our KCT-shirts, everyone’s like, oh, hi! Like, you know, we’re very known just from walking so much up and down the corridor. That’s one way. The other way is through our partners. So, engaging in partnership and collaboration as much as we can, right? We’re a very small entity in comparison to some of the larger nonprofits that exist in the space and so really leveraging and pulling shared resources together for events and for activities and programming has been really, really helpful. And then the last way I’ll say, has really been around policy advocacy. Right? So, in addition to thinking about perpetual ownership, we’re also thinking about public policy and systems change. And what does it mean? Or what does it look like to have residents engaged and small business owners engaged in that work? And so, we do have a full-time organizer on staff who’s leading our engagement work, but also doing our policy advocacy. And so, we’ve engaged with a lot of folks in that way, because people want to see change in the neighborhood. And they, you know, we all have a vision for what we want. And so, bringing those folks at City Hall to do testimony and meeting with legislators and council, and having them hear directly from the folks on the ground. So, I think through those kinds of three different avenues, we’ve been pretty successful in engaging with folks.

Eve: [00:17:39] So that was going to be my next question. Is the city of Philadelphia supportive of the trust and its goals and how?

Adriana: [00:17:45] Yeah, I think the city has been supportive. I was invited to be on the Mayor’s Transition Committee for Economic Development this past winter. I think we have a strong presence in the city of Philadelphia as a new and innovative model. What I think we haven’t quite cracked the code on is determining funding and land, so.

Eve: [00:18:03] I was going to ask about that.

Adriana: [00:18:04] City of Philadelphia has a land bank and so we are working with our local councilwoman who was recently elected. So, a new rep to determine how we can move forward with doing that, with unlocking some of these properties that sit within the target boundaries of where we’re currently doing acquisition, and then trying to learn more and be in the right spaces and places with the right people at the right time to determine how we can unlock some funding from the city of Philadelphia. And I think we’re getting closer every day but, you know, when we look at other cities across the country, you know, some cities are making multi-million-dollar investments into innovative trust structures. That has not yet been the case in Philadelphia. But I am very, very hopeful that we can unlock some land and some dollars to make this work possible.

Eve: [00:18:46] So is the Kensington Corridor Trust unique in Philly or anywhere?

Adriana: [00:18:53] It is, yeah. So, it’s the only one in Philly and then the other folks who are using the same legal infrastructure and also building a neighborhood trust structure are based in Kansas City, Missouri. And we both formed around the same time. They’re very focused on the residential aspect, we’re more focused on the commercial aspect but we use the same legal infrastructure and back end and we’re both neighborhood trust models. But, outside of us, to our knowledge, there are no others.

Eve: [00:19:16] Should there be more of you?

Adriana: [00:19:18] I think so. We at KCT have been very cautious. Just to say, let us make sure that this is sustainable first, before we begin to replicate. We don’t think that neighborhoods are stomping grounds for experiments. So, we want to make sure that this is viable and sustainable and that it has impact, and that it can be governed locally and that you can, you know, secure sufficient funding and land to make it work long term. I think we’re still maybe another year or 2 or 3 out from that determination. But we have conversations with communities across the United States and some international conversations as well, regularly. Just like, what would it look like to replicate this? What does it look like to scale it in Philadelphia? I think folks are very interested in the model and particularly in the governance and the financing of the work. And so, we, on our website, we have a document center where we share all of our learnings, and we’re dropping reports on a fairly regular basis. We define common terms, because it’s not just there for folks who are looking at our model externally, it’s also there for residents who want to understand and learn more about the work as well. And so we try to make sure that it’s very transparent and that it’s easy to access and to grasp.

Eve: [00:20:23] Do you think, is there another neighborhood in Philly that you think is ripe for a trust like this? I’m sure you’ve thought about it.

Adriana: [00:20:32] Yeah. And there’s several that have approached us. I think there are some that could be ready. I think one of the things, I think there are two things. One is, it should come from the residents. Right? So, it should really come from the folks who are there who have lived there historically, those legacy residents and those legacy business owners wanting to preserve and protect for themselves. So that’s part one. So, you have to have like a ready neighborhood. Those folks are ready to go. The second part is the financing of the model. Right? Like going out to national foundations and securing these program-related investments is not light work. And it’s not for the light-hearted. And so, you know, having folks who are ready and prepared to do that work and to make those pitches and to have those very financial conversations alongside, you know, the societal impact conversations. So, yeah, there’s a couple that come to mind, but I wouldn’t name one specifically now. I would say that there are some who are already exploring and thinking about it. And, you know, we want to be of support wherever we can. To all of those folks.

Eve: [00:21:30] You mentioned that you have a small team. How big is your team?

Adriana: [00:21:34] There are four of us as of January 2nd.

Eve: [00:21:37] Small but mighty, right?

Adriana: [00:21:39] Small but mighty. So, it’s myself, the construction project manager, the lead community organizer, and then we just brought on a part-time operations assistant in January, just to give us a little bit of extra capacity boost for everybody to get their projects across the line.

Eve: [00:21:52] And how big were you when you started? Just you?

Adriana: [00:21:57] One. Just me. For the first two years, it was just me.

Eve: [00:22:00] That’s pretty decent growth, right?

Adriana: [00:22:02] Yes, I think so. Slowly but surely.

Eve: [00:22:06] So what excites you most about the work you are doing?

Adriana: [00:22:11] Mhm. Really the community-led aspect, right. So, I’m an organizer by background. I have a public policy background, which is what attracted me to this work and to exploring the development of the neighborhood trust model. But to me, there’s nothing more exciting than folks leading the way forward, the folks who are most closely impacted, the folks who know the best solutions to the work, and to the issues and the challenges. That’s the best part. Like, our governance is amazing and bar none. I love working with the residents and small business owners to design and to determine what it is that they want done, and for our team to just go and implement it and serve as the stewards.

Eve: [00:22:44] I hope people are listening to this because a lot of people are very scared of that.

Adriana: [00:22:48] Oh no, I mean, it’s my favorite part. It really is.

Eve: [00:22:52] But I mean, working with people who don’t necessarily have the skills or understanding around real estate development, that can be really tough.

Adriana: [00:23:01] Yeah, it can be, 100%. And we’re so grateful to have funders that have supported us in doing governance education. So, we’ve brought in outside facilitators to have discussions with our boards around the different issues where they felt they could have some skill strengthening. Right.? So, thinking about how to make a real estate deal, right? When do you know something is the right acquisition? How do you, you know, put together your portfolio. But even other things like marketing and communications and thinking about social media and press hits, you know. Development and fundraising, making a pitch, right, like all of those things, if you haven’t served on a board before or if this isn’t an area where you’ve had space.

Eve: [00:23:36] It’s all new. It’s all new.

Adriana: [00:23:38] All new, right? And so, making sure that folks feel like they are equipped to support our staff team, but also each other and the broader neighborhood in executing the work. But, yeah, I think so, oftentimes, particularly in the nonprofit sector, we feel like, you know, you’ve got to have the attorney, the HR consultant, you’ve got to have a finance expert to be your treasurer. Right? Like all of these things are necessary. And it’s just so untrue. You can bring in those external supports to make sure that the folks who are closest to the works are the decision makers, but that they have expertise at their side when they’re making those decisions.

Eve: [00:24:10] So you don’t have any requirements for skills for the governance board?

Adriana: [00:24:14] We do not. Open applications every year. The only requirement is that you live in or have a small business in the neighborhood. Outside of that, there are no formal requirements for skill sets or education or anything else.

Eve: [00:24:28] So looking ahead ten years, what potential do you think trusts like this hold?

Adriana: [00:24:33] Yeah. One, I think preserving pockets of affordability. Right? The private development is coming, city development is coming. Individualized donor development is coming. And so, I think, you know, making sure that the folks who have lived in a certain space in place historically can afford to continue doing so. And so, reducing some displacement is my hope. I think scaling is definitely viable in ten years. Right? So, thinking not just only in Philly, but also in other places and spaces, and acknowledging too that the model is not a one size fits all, right? You can use this legal infrastructure in back end, and you can think about neighborhood-led governance and work on residential. Right? Strictly residential, as they’re doing, you know, trust neighborhoods out in Kansas City, Missouri. Or, you know, potentially other uses. Maybe you use it just for green spaces, right? Like we’ve been able to integrate. Right? So, we’re working on residential and commercial and green space. But you know, you could have focuses based on the needs of any specific neighborhood or place at any given time. And then my hope is that ten years from now, this really won’t be seen as innovative or othered, right? It’ll be very, this is normal, right? Just when you think about community land trust.

Eve: [00:25:36] Mainstream.

Adriana: [00:25:38] Mainstream, right? When community land trusts first emerged, everyone was like, what is this? This is not a thing. This won’t be viable. And look now, right, there are hundreds of commercial land trusts, but maybe thousands. I don’t know the statistics, but there are many across the United States, several of which are in Philadelphia and have been very successful at preserving green space and doing affordable housing construction. And so, you know, I think getting it less from like this shiny new thing into like a this is a place where we can invest, and we know it’s a sure investment and there’s space to have real impact in neighborhoods through this work.

Eve: [00:26:08] And it will unlock financing, because financing is definitely mainstream, right?

Adriana: [00:26:14] 100%. The way that we define risk is very mainstream.

Eve: [00:26:17] Very mainstream. So one final question for you. What keeps you up at night?

Adriana: [00:26:22] Oh! Moving too slow.

Eve: [00:26:24] Interesting.

Adriana: [00:26:25] Like are we moving too slow? That question of just like, what is the right pace and scale in order to make sure that there is sufficient impact, and you are preserving enough affordability, meanwhile, making sure that there is sufficient external investment to take, you know, care of some of these larger things that folks want to have taken care of, like crime and education and public transportation. Right? Like all of these societal benefits that we have at large, it’s like a little bit of a coin toss, almost, right? Like if you have too much investment in one place, you have really active displacement of low-income folks. And if you have so much preservation of affordability, it makes it difficult to have investment, perhaps, in some of these other areas. So, yeah, sometimes I’m just like worried about the pace and the scale at which we’re doing the work. We’re acquiring about five properties a year right now, which when I say that to some folks, they’re like, that’s amazing. I’m like, yeah, but remember, they’re like 2200ft² apiece. There’s over 600 of them on this 1.4-mile-long corridor. So if I buy five a year, we’re like, really, the impact, you know, this feels fairly small. It’s very impactful for the folks who take on those spaces as commercial tenants or as residential tenants. But in the larger scheme of things, like I’d love to see us acquiring more each year, bringing more properties online each year, attracting more businesses each year, and making sure that there’s more residential affordability annually as well. So yeah, just like pace and time, I always feel like I’m fighting some clock, some like non-affordable clock.

Eve: [00:27:50] Well, it sounds to me like you’re going gangbusters and I expect in a year or two you’re going to be buying 20 properties a year. I don’t expect less from you okay.

Adriana: [00:28:01] OK then, the pressure is on!

Eve: [00:28:03] So thank you very much for joining me. And I can’t wait to see what else you do.

Adriana: [00:28:08] Thank you. Thanks for having me.

Eve: [00:28:28] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. Please support this podcast and all the great work my guests do by sharing it with others, posting about it on social media, or leaving a rating and a review. To catch all the latest from me, you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing, head on over to smallchange.co where I spend most of my time. A special thanks to David Allardice for his excellent editing of this podcast and original music. And a big 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.

Image courtesy Adriana Abizadeh

The Great Real Estate Reset.

Dr. Tracy Hadden Loh is a Fellow with the Anne T. and Robert M. Bass Center for Transformative Placemaking at Brookings Metro. Her research focuses on commercial real estate and how place-level assets interact and affect the prospects and resilience of the people and enterprises that call a place home in urban, suburban, and rural settings.

Tracy has recently written about the need for reform of the real estate sector, including who benefits from new development, and the governance challenges that exacerbate the extreme and growing spatialization of inequality in U.S. metropolitan regions.

Prior to joining Brookings, Tracy was senior data scientist at the Center for Real Estate & Urban Analysis at the George Washington University School of Business where she was the lead author of “Foot Traffic Ahead 2019.” This study ranked the 30 largest US metros based on percentage of office, retail, and rental multi-family space each area had in their walkable urban space. She also worked on the creation of a strategic plan to bring inclusive and equitable economic development to the area around the former Charity Hospital in New Orleans. In 2022, Tulane University announced plans to redevelop the building into a mixed use complex including research and educational facilities. Prior to her role at GWU, Tracy was the director of research at the Rails-to-Trails Conservancy.

Tracy is a graduate of DC public schools and holds a Ph.D. in city and regional planning from the University of North Carolina at Chapel Hill. In addition to her research interest in placemaking, Dr. Loh served two years representing Ward 1 on the Mount Rainier City Council in Prince George’s County, Md. She is currently a member of the board of directors of Greater Greater Washington.

Read the podcast transcript here

Eve Picker: [00:00:03] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich, or poor, beautiful, or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone.

Eve: [00:00:38] As we embark on a new year, we’re all thinking about fixing things.  I bumped this podcast up on my list, because Tracy Hadden Loh has a much bigger and more inspiring fix list than most of us do. Tracy is bi-racial and has experienced inequity first hand.  Even as a young child she knew something was wrong.  Her career has been a purposeful exploration of how to fix things. As a Fellow with the Center for Transformative Placemaking at Brookings Metro, a branch within the Brookings institution, Tracy focuses on cities, downtown metropolitan areas, placemaking, diversity in cities and reinventing cities post-pandemic. And of course, fixing things. You’ll want to listen in to learn more!

Eve: [00:01:39] Hello Tracy, it’s really great to have you on my show.

Tracy Hadden Loh: [00:01:42] Hi Eve. Thank you so much. I’m thrilled to be here.

Eve: [00:01:45] So you’ve researched and written on so much that interests me. Like what’s next for downtowns? The devaluation of assets in black neighborhoods, diverse neighborhoods, the office re-imagined lots of stuff around cities that I think is really important. But can you tell me a little bit about your background and how you came to be researching these issues at the Brookings Institute?

Tracy: [00:02:08] Sure. Well, I was born and raised in Washington, D.C. I grew up in the city in the eighties, which was a time when the city’s population was still declining, and it was very segregated. I am biracial myself and I was raised by two working parents and my mom is an immigrant to the United States. So, when I was growing up in the eighties, I felt, even just as a child, I could sense how segregated everything was and that it wasn’t right. But I didn’t know why or what to do about it. And now, DC’s population is growing again, and the trajectory of the city is really different. But that raises a different set of questions about who is winning and losing when there’s change. So, that is that kind of big question about who’s winning and losing and who decides the rules by which that happens. That’s really sort of the motivating question of my life. And I went from being a D.C. public school student and living it as a child to wanting to work on it and help solve it as an adult.

Eve: [00:03:37] That’s a great goal. I love what you said, winning and losing. Who’s winning and losing? Because I think that’s a really big question. So, I’m really interested. You’ve done a lot of different things, but I’m really interested in your work around what you call the great real estate reset initiative. Can you tell me what that is, what that means?

Tracy: [00:03:59] Sure. So, during 2020, after COVID had arrived in the United States and then that summer, after George Floyd was murdered, I was really kind of feeling the moment and feeling like it was a good time to try to say something big and systemic about the way things work. And I was talking to a friend, his name’s Christopher Coes, and at that time, he ran an organization called Locus that is a group of smart growth real estate developers. He was like full time staff on that at Smart Growth America. And so Christopher and I were just kind of talking about the big picture and how to frame what’s going on and who’s needed to be part of the solution. And we really wanted to explain to a broad audience why government alone is not going to be able to address the way things work in the United States and the big trends that are shaping our society. It’s going to take every sector. But we wanted to write a piece that really kind of specifically highlighted the role of the private sector in driving how things work through the lens of real estate. So that’s what motivated us, this project was really a collaboration between myself and Christopher Coes and my colleague at Brookings, Jennifer Vey.

Eve: [00:05:49] So, but why is real estate so important?

Tracy: [00:05:52] Well, you know, the built environment determines so much of our lives. I think we hear people say all the time this phrase: place matters. So, digging in, what does that kind of little shortcut mean exactly? The physical condition and location of our neighborhoods is something that determines a lot of a child’s access to health, opportunity, their odds of being incarcerated, their earning potential. You know, the conditions of your neighborhood determine a lot about your life. It’s not just the conditions of your family and you as an individual. And so, we have to ask these questions about real estate and then just kind of looking at real estate as a sector. It’s a huge piece of the American economy. If we understand real estate as an asset class, these are not small potatoes. It’s not as big as the stock market. But it is, this is a huge asset class and it’s the second most common asset class that touches people’s lives. And, you know, the only thing more common than real estate is cash.

Eve: [00:07:09] How big is it?

Tracy: [00:07:25] Let’s see. I have an exact estimate for you. So, if you combine commercial and residential real estate, you’re going to be looking at about 45% of assets in the United States. And that makes it the single biggest asset class. If you separate commercial and residential, then of course it’s smaller, but on its own real estate is the single biggest investment asset class in the United States by far.

Eve: [00:07:40] I think I read in another article, and this is how I found you, that no one will be surprised by this, but a very small percentage of minorities actually own the commercial assets in this larger group of real estate assets, right?

Tracy: [00:07:57] Yeah, that’s right. With my collaborator Jonathan Rothwell and my colleague Andre Perry, we did an analysis of consumer finances and what the most recent version of that survey found is that only 3% of black households own any commercial real estate, and that’s compared to over 8% of white households. So, these are small percentages. Most people don’t own commercial real estate, but we can see that even within this sector, there’s tremendous inequity.

Eve: [00:08:27] A very big difference. Yeah. So, what else did you notice in your research?

Tracy: [00:08:32] With my most recent research project, what I was digging into is what’s going on with retail real estate right now, because I spent the first couple of years of the pandemic seeing these huge impacts to the leisure and hospitality sector and a really rapid evolution of retail business models and kind of the scale of the crisis and then the speed of adaptation. It’s been fascinating to watch, but the built environment itself doesn’t change like that. So, these are new retail business models that are still trying to locate themselves in the same old retail landscape. And I wanted to just kind of take a look at how that was playing out in terms of operating income and tax assessments for different jurisdictions. Because I know from my own service and local government in the past that commercial real estate is such an important part of a jurisdiction’s tax base. And so, the health of commercial real estate is something that we all have to be very concerned about.

Eve: [00:09:39] I’m fascinated by how it’s playing out physically, because recently I was somewhere in the suburbs, which is unusual for me, but still. I landed in this little medium sized strip mall, and I noticed there were many, many storefronts vacant. And at one end of it, I noticed that a storage facility was starting to occupy the storefronts. I mean, I’ve really never seen a storage facility like that. They had pods in the parking area and one storefront after the other was being converted into storage, which is at least a use, but it’s kind of a sad use.

Tracy: [00:10:16] It’s extremely marginal.

Eve: [00:10:34] Yes.

Tracy: [00:10:21] So, what I found in my most recent research project is that what’s happening with commercial real estate in the retail subsector of it is that even after controlling for every single variable that we could think of that is related to real estate valuation, we found that commercial real estate in zip codes that are majority black in terms of their residential population, we found that race explains an across the board 7% devaluation of that property. And so, and previous research found extensive, much bigger, like three times as big levels of devaluation of residential real estate in black neighborhoods. So, we had reason to suspect that we would find this on the commercial side, too, but I wanted to just estimate a parameter around it, try to get a sense of what the size of the devaluation effect was so that I could start exploring the implications to tax basis to neighborhoods and think through the dynamics of what devaluation on the commercial side means and what it does.

Eve: [00:11:33] Okay so, I’m going to go back to something that you said which caught my attention and that the American real estate industry can create communities of opportunity or face a future, both figuratively and literally underwater. What do you mean by that?

Tracy: [00:11:49] So, climate change is another one of these really big generational trends that is going to totally reshape real estate in the United States. But we are really only just at the beginning of the days of seeing how and where that’s going to be priced in and how we’re going to respond. And so, for an industry that is hyper interested in trends, I think that real estate as a sector has been very, very slow to understand the implications of climate change and to figure out how to approach it. There should literally be a fire under the entire sectors butt about it. And so, I wanted to sound the alarm on the fact that right now the bulk of the real estate industry is still very busily building the wrong stuff in the wrong places.

Eve: [00:12:51] Yeah, I think you’re right. The world is moving very fast and real estate doesn’t. And much of the real estate that we have now will be 80% of the real estate that we have in 2040. So.

Tracy: [00:13:04] That’s right.

Eve: [00:13:04] It’s also about reconfiguring it, right?

Tracy: [00:12:54] Yeah.

Eve: [00:13:09] In that great real estate reset initiative, you focused on five key trends, which I found really interesting. The first was separate and unequal. The second was modernizing family. The third was risky housing business. The fourth was the office reimagined. And the fifth, as you’ve mentioned, the retail revolution. I’d really like to talk about each of them. Like, I suppose we’ve talked about the persistent segregation in the country. What about modernizing family? What does that mean?

Tracy: [00:13:41] So, this is another one of these big macro trends that’s going to change everything about real estate that it seems like we haven’t woken up to yet, which is that the types of households that young people in the US are forming today are radically different than what they were one generation ago. So, in that piece I present just a very simple analysis of the census. And what we found is that if you look at young adults, so Americans age 23 to 38. Right now, we would call those people millennials. But if we look at that same age bracket, but back in 1968, so this is my parents, at that time, almost 70% of young adults in that age bracket were married with at least one child. So, that’s pretty much just the vast bulk of people. We’re forming one type of household and there’s one type of housing that is highly desirable to accommodate that type of household. So, as far as housing goes, real estate was pretty simple back then in terms of what the demand was. But today, less than 30% of young adults are married with at least one child.

Eve: [00:15:03] That would be two of my children.

Tracy: [00:15:05] There we go.

Eve: [00:15:06] They fit right into that group.

Tracy: [00:15:08] And so, it’s less than 30%. And every other kind of household has increased in terms of how common it is. So that’s living alone, living with roommates, being a single parent. So having a child but no spouse or having a spouse but no child or still living with your parents. Right. Like all these things are more common now. And so, the issue is that we’ve gone from one kind of household that needs one kind of housing to many kinds of households that need many kinds of housing. And we don’t have that kind of flexibility in our housing inventory. If we look at housing inventory change since 1980, the only type of inventory that has grown in terms of its share of US housing inventory is houses with four or more bedrooms.

Eve: [00:16:00] Oh.

Tracy: [00:16:03] Which is literally the opposite of what’s happening demographically.

Eve: [00:16:09] So the rise of the ADU hasn’t been fast enough.

Tracy: [00:16:14] Not nearly fast enough.

Eve: [00:16:16] And that is because probably if zoning laws and…

Tracy: [00:16:19] That’s right.

Eve: [00:16:19] …financial restrictions, banks don’t really want to lend, all of those.

Tracy: [00:16:23] And builders don’t know how to build them and ADUs require subordinate electricity from a main house. Pretty much like most American houses would need a heavy up to support an ADU. There’s a billion barriers to ADU production.

Eve: [00:16:38] You know, we talked about retail and there’s also the office.

Tracy: [00:16:43] Yeah.

Eve: [00:16:44] The nature of office work is really shifting.

Tracy: [00:16:47] Yeah, that’s right.

Eve: [00:16:48] And I don’t know where the percentages lie right now, but I love the freedom of remote working. I mean, I’ve always worked that way, but the pandemic I think normalized.

Tracy: [00:16:58] Yeah. So, the big picture is that a majority of Americans don’t work in offices. So just slightly more than half of the United States is, they’re working in schools or hospitals or on the road or in a kitchen. They’re working somewhere that’s not an office. But in cities, in metro areas, it’s a majority of the workforce that does work in offices. And where we are right now is that at the beginning of the pandemic, the vast majority of office workers immediately pivoted to full time remote work. That has gradually decreased. And so, at this point, it’s only 25% of the office workforce that is fully remote. But that means that a lot of people are back, but back less than they were before. So, hybrid work is becoming the new normal for office workers. So, this has a bigger impact in cities because it’s in cities where a majority of the workforce is in office using occupations and it’s also in cities where you find central business districts that are heavily dominated by office real estate. And so, those labor markets and then these particular neighborhoods within those labor markets feel very different now than they did prior to the pandemic, because they’ve experienced a massive structural shift that’s now looking pretty sticky.

Eve: [00:18:34] Right. Yes, I live in downtown. It feels very different. It’s very emptied out. And there’s lots of adaptive reuse going on in office buildings.

Tracy: [00:18:46] Yeah, I think the right thing is for the owners of office real estate to conclude that this shift is permanent and to stop waiting for a time machine to take them back to February of 2019 and to instead adopt forward looking strategies that will lead to productive adaptation.

Eve: [00:19:11] I’m going to go back to something you said about the real estate industry moving very, very slowly, which is true. Part of that is because when you want to build a building, you have to design it and you have to get entitlements and permitting and a budget and build it. And by the time you’re done, if you’re in a market that’s shifting, if it’s a larger building, it’s three years later and it may no longer be completely relevant. How do we tackle all of this? How do we incentivize the right sort of practices?

Tracy: [00:19:40] The problem that real estate has right now is that, given how huge the sector is and how it touches all of us and is so important to everyone’s life and entire communities, there’s just a really astounding lack of dynamism in the sector. There’s a lack of innovation. There’s a lack of growth and productivity, a lack of change. And that is, I think, because of a complicated and toxic set of factors, but that we have the ability to do something about. So, first is that the sector is overregulated. And a really complex regulatory environment makes it higher, it slows things down and makes it more complex so, that favors established and big firms. This sort of classic like giant evil developer that seems to live rent free in a lot of people’s heads. So, I think there’s a lot that communities can do with the way that they regulate both zoning and building codes in order to streamline the kinds of development that they want to see. So, you mentioned ADUs earlier. There are multiple communities in the United States that have made it incredibly easy to build an ADU. Pre-approved floor plans and permits.

Eve: [00:21:09] Yeah, I know. Portland, Oregon.

Tracy: [00:21:11] Apply one day, have permission to build an ADU the next day. So, streamline and make super easy the kinds of buildings that you want to see. Which requires that first initial consensus building about what we want and what we need. But do that work, and then enact the necessary reforms. This is something that communities have been very slow to do. It is incredibly stimulating to the economy and to communities to promote the right kinds of dynamism in real estate, and ADUs is an example of that on the residential side. But the same thing applies on the commercial side, that we know that retail business models are rapidly evolving. And yet, we are expecting this retail vibrancy to figure out how to locate itself in yesterday’s retail building stock. So, I think it’s even more complicated on the commercial side than just the regulatory environment. I think what’s going on the commercial side is also that it’s very difficult to obtain financing and access capital to do commercial real estate projects. And banks want projects that feel familiar, that they understand. And the problem is that what’s familiar is obsolete.

Eve: [00:22:38] I’m so with you on that.

Tracy: [00:22:41] So, there is a huge opportunity to make a ton of money in commercial real estate by leaning in even just a little bit more to innovation and inclusion, because it’s a sector that’s desperately in need of new ideas. And so, that means that we need to see new faces.

Eve: [00:23:01] If you were a developer, what would you focus on first?

Tracy: [00:23:04] To be honest with you, I think that the lowest hanging fruit is still housing, just because there is so much pent up demand, we have under built for so long. It’s just not rocket science to make money building housing if you can find your submarket niche and if you have access to capital. So, I think that the low hanging fruit is in ADU and missing middle housing production in US cities of all sizes at this point.

Eve: [00:23:34] But that goes back to something you said before about the racial divide. So, who has access to capital, and will that capital be deployed in disinvested neighborhoods that need the housing the most? I mean, you know, we’re back into this whole cycle of what sort of housing gets built and who does it serve and who does it make money for.

Tracy: [00:23:55] Yeah, and the money to build real estate largely comes from banks. People typically don’t have huge amounts of personal wealth. The people who do have that kind of money aren’t doing neighborhood real estate. So, I think that there is a systematic problem with the kinds of projects that it’s easy to get a loan for and with who can get them. And, I wrote the great real estate reset, wanting to connect with lenders and with lending institutions. It’s been a tough row to hoe. It’s an insular world, and I am not an economist. And so, I think that there’s a need right now for thought leaders with a lot of credibility in the sector to start talking about these ideas. I earlier this year did a fireside chat with the folks at Capital One. It was so wonderful to be invited to do that and to be able to share these ideas in that kind of space. And I think that I plan to just keep knocking on every door and window and trying to have these conversations, because I think it’s clear that capital flows, that’s something that has to change. If we want to start responding in a way that’s smarter, that’s more dynamic to things like these demographic trends, to climate change, to the persistence of white supremacy in the United States.

Eve: [00:25:27] You could also talk about incentivizing innovative projects through city government. I mean, if, as you said, if you take the pain out of building ADUS or you take the pain out of taking an empty strip mall and converting it to housing, that’s a way to provide a very powerful incentive to make things happen.

Tracy: [00:25:49] Yes, I definitely think that there’s a huge role for government in streamlining, making the right thing easy, legal and easy. And then there’s also a role for philanthropy, right? Philanthropy is a huge sector in the United States that in addition to the dollars that they’re legally obligated to spend, there is a huge opportunity for impact investing with their seed corn. Philanthropy has been very hesitant to embrace the opportunity that American real estate presents for impact investing. I don’t know why. This is another one of these conversations I want to have, like, why not? And what would it take to make it happen?

Eve: [00:26:35] Oh, can I join you on that one? So, do you have any examples of people doing some things that you think are great and moving in the right direction?

Tracy: [00:26:45] Oh, sure there are. So first off, Eve, you are an incredibly inspirational innovator in real estate, and you embody the exact opposite of the problems that I’m talking about. You are real. And I just want to validate the incredible work that you do. And Small Change as a platform also is lifting up so many other innovators in real estate. I mean, if someone wants to just like browse, what are the fresh ideas in real estate right now? They can just go to your website and look at so many projects that have been made possible through your platform. So, I think that you are a repository for those examples. But yes, there’s also I think that.

Eve: [00:27:32] But let me tell you where the problem lies for me. Okay. We’ll go back to the systemic problem. So, VCs have on average invested 2 to 3% of their funds in women. So, I am a woman founder of a company, which makes it incredibly difficult for me to raise money and grow. And as well as that, those holders of money are looking for rapid growth and an exit. And when you build something that’s really going to build change over a long time, you have to expect it to take a long time. So, now we’re talking about a whole system of making money on companies that expects immediate gratification. And I know as a developer working in disinvested neighborhoods, that’s not how it works. It’s not Sesame Street. It’s a long hold. You’ve got to be patient and building towards something. We don’t seem to have enough people that understand that.

Tracy: [00:28:38] Yeah. And I think that you will not find that from institutional capital and that we should save our breath from trying to find it. I think that the most innovative projects that I’ve seen that that have been able to do big things, they have a source of patient capital, whether that is like a single extraordinary high net worth individual or whether it’s a foundation or whether it’s a public institution. So, you start with a source of patient capital like that, and then you build a capital stack on top of that. That does include, frankly, it could be majority conventional debt. But you need that patient, you need that big fat patient slice at the bottom to be the foundation of your stack. So, you’re right that the types of projects that we’re talking about, especially at scale, they’re not going to happen without this patient capital piece. And so, that is the piece that I am most focused on motivating, educating, finding and turning out.

Eve: [00:29:49] Sorry I stopped your other train of thought. What were the other great things you’ve seen happen? You said you had other.

Tracy: [00:29:57] Yeah. So, I did a set of six case studies a couple of years ago. This is right before the pandemic on what myself and my collaborator Chris Leinberger call catalytic development projects.

Eve: [00:30:10] Chris, well, he’s the patient capital man.

Tracy: [00:30:13] A lot of what I know about real estate, I learned from that guy.

Eve: [00:30:17] I’ve watched him for years, yes.

Tracy: [00:30:19] I read “The Option of Urbanism” years ago. It’s a life changing kind of book. And then I was incredibly lucky and privileged to have the opportunity to work for Chris for a few years. And we did a paper together where we looked at six case studies from across the US, each with a different source of patient capital and a different source of fairly large parcel assemblies, something between 20 and 100 acres. And in all six of these case studies, we found that they were able to build really enormous at scale transformative neighborhoods that were also, by the way, like extremely financially successful. Very, very financial, very lucrative for their investors. The keys were not just access to patient capital, but that employers were a part, were either the source of the patient capital or part of it from the get-go. These are actually residentially driven projects, although they include a lot of residential. It has to start with something that’s tenant driven in terms of commercial real estate.

Tracy: [00:31:32] And then the final key being that all of these places, the impetus to assemble the capital, to assemble the parcels, it all comes from some kind of crisis. This kind of innovation and real estate doesn’t happen when things feel okay and and things are going well. And that sense of crisis has to be felt outside of the disinvested neighborhoods that are held in an artificial state of crisis all the time. It has to become something that’s felt more citywide, and then these kinds of transformations start to be possible.

Eve: [00:32:07] So, like Pittsburgh losing more than half of its population, that was a crisis.

Tracy: [00:32:11] Yes.

Eve: [00:32:26] And I think the Urban Redevelopment Authority in Pittsburgh really kind of found a whole, I mean, I really admire what they did. They found a whole range of tools to deal with it, as did Mayor Tom Murphy. He really kind of stepped up to fill that patient money gap, right?

Tracy: [00:32:29] Yes. So, I think Pittsburgh is the OG like citywide case study of this. And then Steve Leeper left Pittsburgh and went to Cincinnati and did it again. And that, it’s another incredible story, but this is the model.

Eve: [00:32:48] Yes.

Tracy: [00:32:51] That’s 3CDC in Cincinnati. And I think that the crisis in Cincinnati was multiple days of riots that happened in 2001 after a black teenager was shot and killed by Cincinnati police. And people understood that things needed to change after that tragedy. And, you know, from that moment of crisis, 3CDC was born. And that’s what motivated the private sector in Cincinnati to capitalize 3CDC to the tune of $50 million.

Eve: [00:33:28] Okay. So, I’m sort of speechless. It’s a really big hairy problem, isn’t it?

Tracy: [00:33:39] It’s a big, hairy problem, but it is solvable. To me, the biggest challenge is getting all of the sectoral players to agree that there is a problem and to agree and co-invest in a solution. In places where whatever crisis has provided the extra motivation for that to happen, I have seen extraordinary transformations. The question is just, how can we learn how to do this without the crisis? Because climate change is more like the frog in a bucket of water that’s gradually getting warmer and warmer. It doesn’t create that day-to-day sense of crisis in the same way.

Eve: [00:34:33] No. Yeah. But the pandemic did.

Tracy: [00:34:39] Yeah.

Eve: [00:34:40] The Black Lives Matter.

Tracy: [00:34:42] That’s right. And so, I hope that we can learn the lesson of the pandemic. And it is hard after a time of isolation and great division to emerge and come together, around solutions, but that’s what we need to do right now.

Eve: [00:35:04] So, what excites you most about the work you’re doing?

Tracy: [00:35:10] You know, real estate is fascinating because it affects all our lives. And what excites me most about it is the transformative potential for the fruits of growth to benefit everybody. I envision a world where there are just more great places that work for more people, and I’ve seen it happen many times, so I know that it’s possible and I just wish it at scale for everyone.

Eve: [00:35:42] Yes. And what keeps you up at night?

Tracy: [00:35:48] Segregation. Right. The same thing, and I don’t just mean racial segregation. I mean that kind of these same, like silos between sectors, between jurisdictions. We are right now in our country at every spatial scale, like nationally and in each of our neighborhoods, we are more divided than ever. But we have to build unity in order to confront these big problems like demographic change, climate change, the structural changes that are happening to our economy. It can’t just be everyone for themselves. You know, I am a fundamentally prosocial person that wants to get all hands on deck. I’m not in a particularly extraordinary position of power, but I hope that if I speak this truth that some powerful people might hear.

Eve: [00:36:47] Well, I’ve really enjoyed talking to you, and I would love to stay in touch and learn more about what you’re researching, because it’s fascinating and incredibly important, I think. I’ve learned a lot. So, thank you very much.

Tracy: [00:37:00] Eve I’d love to stay in touch. You’re a personal hero. And you’ve had so many people on your podcast that have, like, greatly shaped my thinking around these things.

Eve: [00:37:10] Well, that’s great. That’s really great to hear. We really, I try to pull together people who I consider, I suppose, instigators. People are thinking a little bit out of the box and pushing the edges of that very traditional.

Eve: [00:37:23] That’s exactly what you do.

Eve: [00:37:25] Yeah. Thank you very much.

Tracy: [00:37:29] Let’s stay in touch.

Eve: [00:37:36] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. Please support this podcast and all the great work my guests do by sharing it with others, posting about it on social media, or leaving a rating and a review. To catch all the latest from me, you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing, head on over to smallchange.co where I spend most of my time. A special thanks to David Allardice for his excellent editing of this podcast and original music. And a big 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.

Image courtesy of Tracy Hadden Loh