Rethink Real Estate. For Good.

Affordable housing

The poverty trap.

Let’s talk about the concept of mixed-income development. Sometimes mixed-income projects are viewed as the first step toward displacement or gentrification. And to be honest, these fears are not entirely unfounded. The introduction of mixed-income developments was the first step in many rapidly gentrifying areas, followed by luxury housing and upmarket conversions that lifted property values to displacement levels, and the subsequent exodus of long-time residents.

Surely we can learn from the mistakes of the past. Is the concept of mixed-income developments entirely misplaced? The Urban Institute found, in a landmark 2010 study, that thoughtfully planned mixed-income communities can provide unexpected community benefits. The report concluded that mixed-use developments offer tremendous benefits to communities, as long as they are designed in a sustainable, community-oriented manner. Conversely, communities without mixed-use development can suffer adverse effects, including economic stagnation, higher crime, lower educational attainment levels, and a whole host of other negative consequences related to concentrated poverty.

The corrosive effect of concentrated poverty

We’d like to believe we live in a genuinely meritocratic society, But that just isn’t true. Where you are born has a tremendous bearing on how likely you are to succeed. Robert Sampson, a noted Harvard researcher, has spent decades studying poverty along with other academic luminaries. He concludes that concentrated poverty leads to profound suffering in affected communities, as well as limited social mobility. This is magnified in children and adolescents who have a much lower chance of success, even after leaving the low-status community they live in.

Economic diversity as an antidote

There are many possible ways that society can work to end concentrated poverty including legislating racial justice, ensuring gender and sexual orientation-based equity, green/environmental solutions, and a whole host of additional strategies. Mixed-income developments can offer one potential solution.

We all know that there is a great need for more affordable housing. In order to create economies of scale in investing and building affordable house, cookie-cutter affordable housing products have been developed everywhere. These housing products trumpet the boundary of low-status neighborhoods from Baltimore to Boise. While they solve immediate and urgent housing needs, they often fail on many other counts. Are they adding to the vitality of the neighborhood? Are they making the streetscape better? Do they contribute holistically to the place they are built in? Are they sustainably helping to build a better community or will they simply perpetuate the current economic status of that place. Perpetuation means that those social ills caused by redlining, white flight, and urban renewal, will never be solved.

Affordable housing developers should remember that residents in low-status neighborhoods want the same things that everyone else wants.  They want access to the same high-quality infrastructure and commercial options that usually grace only middle and upper-income neighborhoods. Cafes, restaurants, grocery stores and shops have a better chance of survival in mixed-income neighborhoods and can act as an anchor for low-income residents. They also provide valuable employment and networking opportunities cementing the community together, instead of breaking it apart.

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Fostering thriving mixed-income communities creates opportunity far beyond just affordable housing.  Mixed-income communities have the potential to bring us all together.

Image of Malmo, Sweden by Eve Picker.

Innovation in real estate. An inevitability.

In order to keep a-pace with the quickly changing world, the real estate development industry needs to change. One way is to focus on strategies for business model innovation. Let’s take a look at a few forward-thinking real estate development and investment firms that are leveraging technology and modern business strategies to create sustainable development projects.

Machine learning

Some early-stage companies are using machine learning to identify optimal opportunities to build housing. CityBldr, for example, have positioned themselves as the first “Smart Brokerage.” They use AI and machine learning to determine the market value of a property. And they connect those property owners with buyers willing to pay the market price. This is a win for the property owner who may not have known the value of their property. At the same time, they are providing previously unrecognized (and unavailable) property opportunities to developers. Property owners can see if a builder or developer would pay more for their property in thirty seconds by visiting CityBldr.

CityBldr’s solution could help to build more by-right housing which conforms to local zoning codes. By aggregating potential development parcels and providing developers with access to their advanced software tools that model potential development, they are impacting both the supply and the demand side. The supply side is represented by current landowners, who hold rights to any potential project on the site. The demand side is represented by developers or other stakeholders who are intent on revitalizing a given neighborhood or geographic area.

Analytics systems like those offered by CityBldr and other similar data companies have the potential to take the guesswork out of development and facilitate projects that would be otherwise overlooked due to financial constraints and the time cost of negotiating with landowners.

Unlocking credit opportunities

Many hopeful homeowners are locked out of traditional home financing solutions. Credit problems, bankruptcies, alternative income streams, and lack of credit history all prevent many people from buying a house. This is especially true for low-income Americans and those with little history of homeownership in their family. In the mortgage lending arena, renters that have troubled credit histories are known as no-file or thin-file. These individuals, like many others, experience issues related to cash flow. This is where payday and short-term lenders come into play- these lenders often prey on lower-income or cash insolvent individuals with high-interest rate loans with terrible terms. And so the cycle of credit and other financial problems begins.

Many companies and nonprofits are working to serve these consumers with housing-related credit, offering opportunity without the onerous loan terms. They act as go-betweens for landlords and renters – the renter pays the company directly, and the company pays the landlord. They can provide bridge financing when times are tough, thus ensuring people stay in their homes. Landlords work with these companies due to the guarantee of rent coming in on time, every month, regardless of the financial circumstances of tenants.

In many ways, the housing and rental credit industries are among those most in need of disruption. Increasing access to mortgage loans and other housing-related finance will reduce housing insecurity, while also providing the industry with much needed growth from customers they would traditionally not be able to serve. This means more transactions, more filled properties with rent-paying tenants, and an overall boost to the real estate industry and the companies that work with real estate professionals.

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When we think about business technology, we’ve been programmed to think about gleaming data centers, mobile apps, and other common examples of tech-driven solutions. But new business and development models are also a form of technology. They can disrupt and improve the industry just as much as (if not more than) any technical solution. Companies and investors who embrace these new methods will find that they’ve provided more housing, to more people, while improving their overall profitability at the same time. It’s a win-win for everyone.

Image by Gino Crescoli from Pixabay

Revitalization strategist to barista.

“Nobody should have to move out of their neighborhood to live in a better one.”

Majora Carter is an American urban revitalization strategist and broadcast producer/host from the South Bronx in New York. Her career has spanned environment, economy, social mobility, and real estate development. Her work has won major awards in each sector including a MacArthur ‘genius’ Grant, a Peabody Award, the Rudy Bruner Award Silver Medal, nine honorary doctorates, and accolades from various professional groups too many to mention here.

The quote, on the walls of the Smithsonian Museum of African American History and Culture, is attributed to Majora. In fact, that’s just the opposite of what Majora was taught to do as a young woman growing up in the South Bronx. She believed, as she was taught to believe along with many others, that her only hope was to get out and abandon her neighborhood.

But she defied the norm and moved back to the very street she grew up on, bringing back with her what she had learned through her corporate consulting work. Her take on real estate and economic development is based on this understanding – that talent retention is key to building better neighborhoods.

Majora believes in talent retention. By placing higher quality third space enterprises for social gathering (cafes, bars and restaurants) ahead of the typical market curve, she believes that talented successful people who would ordinarily migrate out will stay, and keep their spending, reinvestment acumen and day to day example where they grew up. In a stagnant neighborhood , their only option is to flee, leaving communities in a constant talent deficit situation, that (again) makes the place a bargain for those who see value.

Majora is uncompromising about her mission. She lives and works in Hunts Point in the South Bronx, one of America’s lowest status communities just two blocks from the house she grew up in. And she is undaunted by taking new and necessary steps. When it became clear that no coffee shop operator wanted to operate out of her space in the neighborhood, she created her own business to achieve her goal. She’s committed to further developing the neighborhood where she lives and has her sights set on the conversion of a vacant building into a food hall. She lives in a brownstone, two blocks from the one she grew up in.

So listen. You must.

Insights and Inspirations

  • Majora uses the term “low-status” to describe communities where the schools are worse, where there are more environmental burdens, where the air is more polluted, where there are fewer and less well-maintained parks and trees and where the local population’s health statistics are worse. While philanthropy and elected officials acknowledge these endless disparities, they do little to change them except to use them as campaign tools to get elected, raise money and congratulate themselves.
  • South Bronx is one of the lowest-status neighborhoods in the country.
  • Talent retention is key to stopping the typical, stagnant economic cycle of low-status communities.
  • Billions go into low-status communities every year, but with little impact. You need to mix it up to lift a neighborhood up.
  • Mixed income and mixed use are key to building stronger communities.

Information and Links

Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you’re going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Majora Carter, and, wow, you won’t want to miss this. It’s hard to know where to begin describing Majora, who is, quite simply put, a powerhouse. Described as an urban revitalization strategist, her career has spanned environment, economy, social mobility, and real estate development, and her work has won major awards in each sector, including a MacArthur Genius Grant, a Peabody Award, the Rudy Bruner Award – Silver Medal, and nine honorary doctorates amongst many, many more.

Eve Picker: Majora is quoted on the walls of the Smithsonian Museum of African-American History and Culture as saying, “Nobody should have to move out of their neighborhood to live in a better one.” There is no way around it; if you are really interested in impact investing, this podcast is a must-listen. Be sure to go to EvePicker.com to find out more about Majora on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Good morning, Majora. I’m so delighted that you’re on the show with me.

Majora Carter: Good morning. Thanks for having me.

Eve Picker: I was reading a little background on you, and the thing that stood out to me is this quote, “Nobody should have to move out of their neighborhood to live in a better one.” These are your words, and they can be found on the walls of the Smithsonian Museum of African-American History and Culture. I just wonder how these words play into your work?

Majora Carter: Oh, those words are- were actually not my words, but they’ve certainly been attributed to me. They were the words of a woman who worked with me – Marta Rodriguez – as a organizer, when I ran Sustainable South Bronx, and it really embodied exactly what we were trying to do at the time, when I was running a small environmental and economic development organization – which is this is our community. How are we not creating the kind of community of our dreams here? It really continues on, as we’re thinking about real estate development, and how do you use real estate development to truly transform your community into something that you can age into, and stay there, because you feel as though everything that you need and want is actually part of it?

Eve Picker: Yeah. So, you’re working- are you still working mostly in the South Bronx?

Majora Carter: No, I work nationally. I certainly do have some projects that I’d love to get off the ground, here in the South Bronx, and some that we’re working on, but we actually work nationally, as well. We’ve got a really amazing real estate development project, a mixed-income housing, mixed-use development, going on out in Mapleton-Fall Creek, Indianapolis, which I’m absolutely delighted about. There’ll be about 50 units of home ownership; another 150 units of mixed-income housing, and about 50,000 square feet specifically for light manufacturing, commercial, and cultural space. We’re delighted to be the developer on it.

Eve Picker: Wow. You weren’t a developer when you started out, right?

Majora Carter: Oh, no! Although, interestingly enough, I’ve been developing a lot longer than I actually gave myself credit for. I was a card-carrying member of the non-profit industrial complex, and moved out of my neighborhood, or left my neighborhood for college, and didn’t really want to come back, because it’s really like America’s low-status community – one of America’s low-status communities.

Majora Carter: I want to just articulate what I mean by ‘low-status.’ We don’t generally use ‘disadvantaged,’ or ‘low-income’ to describe the communities that we want to work in most; but low-status are the kind of communities where there are more liquor stores, and corner stores than there are opportunities for good, affordable, different, diverse options for food. You’ll find, instead of banks, or credit unions, you’ll find payday-loan places, and check-cashing stores. You’ll find the kind of places where there’s an enormous amount of very highly subsidized affordable housing, and very little economic range between.

Majora Carter: Essentially, in those areas, inequality is assumed, both inside, and outside the community. These are the places where, if you’re a bright, talented kid, you are taught to measure your success by how far you get away from those communities. We don’t have a way to think about retaining talent in those neighborhoods.

Majora Carter: When I was growing up in the South Bronx, I was one of those bright kids who was definitely told, “You’re going to grow up and be somebody,” which meant you get out of the neighborhood. I embraced it hook, line, and sinker. Only when I came back to the neighborhood and realized that the way our communities were being used via real estate – in particular, for us, it was environmental burdens that just kept getting heaped upon us – I also started realizing that we could use real estate as a way to transform our communities to benefit us.

Majora Carter: I first started in park development, and riverfront restoration, green jobs, training, and placement, and literally just moved into real estate development, when I realized that … It seemed to me like a very natural trajectory to go at scale, in terms of creating the kind of community that you really felt you didn’t have to move out of, in order to live in a better one.

Majora Carter: My first development project was literally squatting a building across the street from the house that my parents lived in, and I was born and raised in. It was a crazy story because it kind of technically had been in my family for decades at that point. The woman who owned it died 20 years before I decided to move in, and no one in her family wanted the house.

Eve Picker: Wow.

Majora Carter: Yeah, so it was like I’d move back in, and I’m like, “I want to set some roots down.” What did I do? I moved in there, took over all the bills, the taxes, and everything. That’s when predatory speculators obtained a fraudulent deed for my house, just as I was in the process of trying to purchase it and finding – getting title. It was a crazy, crazy story.

Majora Carter: There I was, acting as an owner/landlord for years, at that point, and it was a wonderful, just crazy opportunity to realize that, no, I am actually developing this space. and preserving affordable housing in my own community, and generating wealth for myself, because it’s like, look, we’re losing that. I wasn’t thinking about the wealth gap or anything like that, I just needed a place to live. I wanted the people who were living in my building to continue to have a place to live. But I was a developer back then, and I’m a developer now.

Eve Picker: Right. That’s really interesting to me, because I’ve been lots of places lately where ‘developer’ is just a bad word.

Majora Carter: It still is. Oh, my gosh, yeah-

Eve Picker: Yeah, I know. It’s getting worse, I think. Not just still … The question is, I mean, we know that just like there’s good doctors and there’s bad doctors-

Majora Carter: Exactly.

Eve Picker: -there’s good developers and there’s bad developers. But the narrative is really all developers are bad.

Majora Carter: Right [cross talk] and there’s no space in it for those of us who are trying to use development for what it actually could be, which is a truly transformative way to support communities that we love. We really think about how do you use it as a tool, specifically, to support the visions and the values that we have, which is that [inaudible] and no one should have to move out of their neighborhood to live in a better one. You should have opportunities to live, work, and play, in wonderful ways, in ways that match your income, but there’s all sorts of opportunities for you to engage in a beautiful community that actually does not require money, but builds community, and through [cross talk]

Majora Carter: Why is it that, in low-status areas – whether it’s an inner-city community, like the South Bronx, or a Native American reservation, or a former coal-mining town that has no real jobs anymore, where it was all white – why do we think of those, of developing in those places, where it’s only two kinds of development, where it’s either the poor folks that are there are either bought it; generally bought out, or displaced by people with higher incomes  – that typical gentrification kind of phenomena – or its poverty-level economic maintenance, which is still real estate development, wherein there’s [cross talk]

Majora Carter: The whole idea is that why are there only two kinds of development that happen in low-status communities? Why can’t we use it as a way to increase economic diversity, and to build wealth creation, and just make it so that people love their neighborhoods, as opposed to feeling like they’ve got to move out of them in order to live a little bit better? I accept that challenge, and I really believe that that’s what I’m doing. So, yeah, as a developer, and as a black woman developer, whose working in this really interesting way, where I absolutely … There is no way I would ever build an exclusively affordable-housing complex for the lowest-

Eve Picker: I’m glad you said that.

Majora Carter: Never, never! I’ve been, in some circles within the non-profit industrial complex, demonized for that, because I should be doing the kind of things, where it’s like [cross talk] for the people. I’m like, poor communities concentrate- low-status communities concentrate poverty and all of the issues that are associated with it – low health outcomes, poor educational attainment, higher rates of being involved in the justice system, or being touched by it in some way, and your family … Obviously, higher rates of unemployment, and poverty, and just creating a sense of lack of hope within those communities.

Majora Carter: Why would I want to build more of that?

Eve Picker: Yeah.

Majora Carter: Unless, of course, you’re getting big developer fees, and you really don’t care about the communities that you’re working in, which is why I understand why most people hate developers so much.

Eve Picker: Be sure to go to EvePicker.com and sign up for my free educational newsletter about impact real estate investing. You’ll be among the first to hear about new projects you can invest in. That’s EvePicker.com. Thanks so much.

Eve Picker: Yeah, no, I get it, too. But I’m really fascinated by what you’re saying, and I totally agree with it. I’ve watched, for years, in Pittsburgh, the affordable housing product sort of live in neighborhoods that all start looking the same – this cookie-cutter affordable-housing product. It doesn’t … While, definitely, people need decent places to live, and it accomplishes that, it doesn’t change the nature of what’s happening in those neighborhoods. The moment you kind of push that edge of that, that’s when … I don’t know, how do you stop speculators? It’s something I think about a lot.

Majora Carter: We [cross talk] try to and are still trying a number of things. One of them is to continue talking about the approach that we’ve taken with our own real estate development and actually putting our own money where our mouth is. So, as developers, we did spend a lot of time within our own community just really understanding what are some of the hopes, and dreams, and aspirations, and, of course, needs within the community.

Majora Carter: We did hundreds and hundreds of surveys; realized that what people in a neighborhood, like the South Bronx, which is one of the poorest parts of the country within congressional districts, are the kind of the same things that anybody in a middle-class community wants. They want great places to work, with housing that- quality housing that matches their income. They want places where they could afford to buy new things that they need. They want lifestyle infrastructure, like cafes, and coffee shops, and bars, and things of that nature. They want those kind of things so they can feel a sense of value that is inherent within their own community. That goes back to that …

Majora Carter: What happens within low-status communities a lot … Because, of course, real estate developers, they take the kind of 20-, 30-year long-term view of what’s happening, in terms of how communities are going, to plan; whereas, in our communities, we’re taught that there’s no real value in them. So, it’s easy, I think, for them, if your family owned a home during a time of severe financial disinvestment in America, like the way that my family … My dad bought the house I was born and raised in the 1940s. By the time the ’60s, and the ’70s rolled around, there was so much white flight and disinvestment within the community, and arson, because landlords were torching the buildings there, because there was no financial investment coming in, so the most they could do is get insurance money.

Majora Carter: It was a really bad kind of space. That kind of lingering understanding – this is what our community is … Of course, you own property. It’s going to have an impact on you, and you’re going to feel like … The second you can move, you’re going to get out. Predatory speculators understand that. They’re counting on us not knowing the value of our own home. I can’t tell you how many little notes I get under my door, or they found my cell phone … They’re telling me they can buy my house for cash, and close within a week. This is a common occurrence.

Eve Picker: Wow.

Majora Carter: For folks that don’t understand what they have, guess what? They’re going to be like, “You want to pay me what for this crap that I’m living in right now?” So, they end up selling, actually, generally for less than what the house is worth, because they just don’t know. Then the predatory speculator makes out really well.

Majora Carter: Since there isn’t a whole lot, from what I’ve seen, within the non-profit industrial complex and communities like this, that’s actually going to support homeowners within a community; which I think home homeownership is actually often – especially in areas where there’s a rental unit in them – there’s very little support to support those folks, like there’s [cross talk] non-profits or government. They’re like, “Oh, we’re going to focus on the poorest people in those communities,” and anybody else, it’s like sucks to be them, because it’s almost like they’re invisible.

Majora Carter: What we’ve actually been doing on our own is trying to identify what are … First of all, some of the homeowners, and just letting them know, “You’re sitting on your family’s legacy. You should be using this to help create wealth and retain it within your own family. Or, if you want to sell, at least understand what you got so that you’re not being reamed for it.”

Majora Carter: The other thing is we’ve actually hosted things like small zero-percent-interest loan workshops, and low-interest-loan workshops and you specifically – on our own dime – just so that folks have an understanding of what that is. On another level, and I think funny, because this is, again, on my own time, because we don’t have funding to do this; it’s just that we saw that it was a need … We’re really hoping that we are going to be able to convince somebody or other to develop some kind of a fund that supports low-income homeowners in low-status communities.

Majora Carter: You know there’s that cooling-off period, if you change and get insurance, or you buy a house, or whatever, and you’ve got a little bit of time where you’ve got to prove that this is what you want? Wouldn’t that be kind of great that before any kind of real estate transaction goes down in a neighborhood like this, that there’s actually folks just making sure that folks understand what their options are?

Eve Picker: That would be great. What would the fund ideally do?

Majora Carter: It would, number one, support folks to actually be in that role, to play that kind of adviser role to the folks to let them know what their options are. But also, people may need … We find that some folks are selling their homes [cross talk]

Eve Picker: -could not repair the roof.

Majora Carter: Yeah!

Eve Picker: I know, I know.

Majora Carter: One little thing, and it’s just like [cross talk]

Eve Picker: So, a neighborhood fund- a neighborhood fund for people who really need help to keep them in their homes. I thought Philadelphia was doing a program like that.

Majora Carter: It is … New York is definitely not; New York City, at least [cross talk]

Eve Picker: Yeah.

Majora Carter: -sad how little they think about it-

Eve Picker: I think there are ways to do a fund like that. Do you think there are people in the neighborhood that would contribute to a fund like that, themselves, in their own neighborhood?

Majora Carter: I’m not sure about that. I think it’s something that, frankly, should be a part of city government. I really do, because I feel like they’ve just- they watch the tax rolls in communities like ours, and it does fall along racial lines, as well. Nobody pays attention in poorer communities of color to supporting the homeownership right here. It’s not in our government. There are non-profits; there are a few nonprofits that work on- none in the area that I’m in, actually, which is why we’ve been posting those type of meetings and bringing those resources in. It’s really challenging.

Majora Carter: Another thing that we’re working on and is literally building our own projects to prove this talent-retention strategy that we have. It’s like if you build the kind of community that makes people feel like they don’t have to move out of it, in order to live in a better one … But you’ve got to build it. One of the things that we saw in all of our research, in the market research that we did here, was that people were leaving the community across income levels; not because they thought the neighborhood was dangerous or anything like that.

Majora Carter: It was because it was- there was no real lifestyle infrastructure here. There was no place to get a drink, if you’re an adult, that wasn’t a topless bar; there wasn’t a coffee shop, or a bookstore, anything like that. Even the kind of cute stores that people want to go to, or a place to get dinner. There’s plenty of greasy spoon places, and, of course, fast-food chains, et cetera, but nothing that actually spelled quality in any real way, and no attractive third spaces that made people want to stick around, like a coffee shop with Wi-Fi.

Majora Carter: We actually were able to acquire the lease on two very inexpensive leases on the main street in our community. It was just a wonderful deal that we got, long term. So, we were just like, “This is great.” We looked, actually, for a coffee-shop operator for years-

Eve Picker: For years?

Majora Carter: Oh, yeah, literally. We had that lease for a while [cross talk] and basically, it was clear, because it looked like the market here wouldn’t appreciate anything like this, even though we knew that our data proved otherwise, because we knew people were leaving the community to experience things like that-

Eve Picker: I know what happened. You started it yourself, right?

Majora Carter: Exactly. I was never planning to be a barista [cross talk]

Eve Picker: Well, there’s not many developers who’ve done that in areas where no one sees the market potential, because our financial institutions – I sound a little bit like a broken record, because there’s lots of reasons to say this – financial institutions, really, they’re crushing the innovation of the cities-

Majora Carter: Exactly.

Eve Picker: They’re really just financing cookie-cutter projects, so the moment you do something different  … I mean, I get it. They have regulators, but shouldn’t someone step up?

Majora Carter: Yes! Yes! You know what? What was wonderful is that, in our example … We decided to open- we first started- it was a joint venture with a really amazing coffee shop and roaster downtown. They’d never had a Bronx presence, and was kind of interested in the idea, called Birch Coffee. So, we partnered with them for almost a year. First, it took six months just to understand the business. Then, we actually opened in the latter half of the year. We learned everything from them about how to actually operate a coffee shop, and bringing people in, all that stuff. It was amazing. It really was their guidance [inaudible] I am so grateful.

Majora Carter: But it was sort of clear that the market up here was a little different than this very high-end big coffee shop downtown, where there’d be no flavors, or whipped cream, and syrups, and people … That’s what, frankly, people wanted up here. We also wanted to provide healthy options, as well, but we had- in order to stay in business, we actually had to respond to the market. So, we actually [cross talk]

Eve Picker: They wanted over-the-top luxury, right?

Majora Carter: Yes, and it’s just like no. I know expertly steamed milk is beautiful, on its own, but, look, if somebody wants whipped cream on top of it, I’m going to give it to them.

Eve Picker: Yes!

Majora Carter: Oh, it was just [cross talk]

Eve Picker: That’s a Viennese, right? [cross talk]

Majora Carter: -we should start calling it that now. You’re totally right.

Eve Picker: Yeah, and they’re all over the … Call it a Viennese.

Majora Carter: What was so interesting is that it … It also gave us an opportunity to stick our own swagger on it, quite frankly-

Eve Picker: Right.

Majora Carter: -because, after all, this is the South Bronx. It is the birthplace of hip hop. We are all about innovation. We were like, we need this cafe to pay homage to that. We literally ended up moving it to a larger space, and then we actually hired a two hip hop historians to actually help us curate the actual wallpaper, which is literally the early days of hip hop, mostly [broad] space. We just built this … It’s like an homage to graffiti, and it’s just beautiful.

Majora Carter: We use it as this tremendous third space for open mikes, and art shows. It’s just really this beautiful community gathering spot. It did take us a while to get to that point at a place where we won’t be losing money soon, which is awesome. But what was fascinating about it was the fact that, early on, we literally ran out of money to do it, because we were not anticipating … First-time coffee shop owners not knowing anything [cross talk] One of the members of the advisory board that we had that was literally giving us intel about how to do our projects better, actually, they volunteered to invest- her family volunteered to invest in our project-

Eve Picker: Isn’t that great?

Majora Carter: It was just like … What was amazing was that we didn’t talk about it. We socialize a lot of things, and it’s a small community, but what was interesting is that the way people found out that another family in the community had invested in this business was just like, “Wait, we can do that?” I’ll never forget some of the conversations we’ve had about it. It was just so beautiful that it was … Because people just did not realize that this was like within their grasp.

Eve Picker: Yeah.

Majora Carter: For our next project, we acquired [cross talk]

Eve Picker: I think you should- I think you should be the spokesperson for Small Change [cross talk] that’s really what my hope is for it, that people can invest in the way big investors can invest and they can get the same return. Because, you know, hey, it’s money, right? Why should they get less than someone else? Anyway, I’m sorry to interrupt you-

Majora Carter: -powerful place.

Eve Picker: Very powerful.

Majora Carter: -just to even know that you can add value. Literally, you are adding the value to make this project grow. It is really amazing. Our next project, we acquired a rail station, a former rail station, that was designed by the same architect that did the Woolworth Building, and the U.S. Supreme Court building – his name’s Cass Gilbert. Of course, I’m sure you know who that is. I owned a little piece of Cass Gilbert, like Woo-Hoo!, Which just makes me very happy. It really does! It’s only about 4,000 square feet. Our goal is to transform that into a restaurant incubator, or a food hub for local chefs, because we’ve … Interestingly enough, the Bronx has some tremendous culinary talent that comes out [cross talk]

Eve Picker: I’m sure it does, yeah.

Majora Carter: There’s this one group called Ghetto Gastros. It is four young men from the Bronx; [cross talk] one of them I mentored 20 years ago, which I’m so proud of. Now, they’re like these ridiculous caterers that are flown all over the world to do their version … Haute couture is- I think that’s a fashion term. That’s not a food term. It’s like nouvelle cuisine, except they put their spin on it, because they’re these wonderful boys from the hood, but they’re all trained chefs. It’s unbelievable what they do, and it’s just extraordinary. Ghetto Gastro – you look it up [cross talk] There are folks like that literally come from our communities, but then kind of parachute out, because there aren’t many opportunities for them to open up businesses here. I’m like, how cool would it be if we had this restaurant [cross talk]

Eve Picker: Yeah, that’d be awesome. You know, we have an incubator like that in Pittsburgh that’s done very well. I think they’ve got three stations, and they have like rotating startups in there.

Majora Carter: Because the restaurant incubatees, all they do, they cook … In our version, we would manage the bar and the dining area, and each one of the restaurateurs, either three or four, depending on what we can fit, is literally what … They would, instead of rent, we would get a gross percentage of sales [cross talk]

Eve Picker: Right, right, right, right.

Majora Carter: -they get a chance to really hone their craft-

Eve Picker: Right.

Majora Carter: -and at least focus on building their market, but the-

Eve Picker: What’s the holdup? Why can’t you get that off the ground?

Majora Carter: We’re in a neighborhood that’s not … You can read lots of real estate development articles about the South Bronx, and how it’s like the next … It’s like the next extension of Manhattan, and it’s booming, and there’s a lot of market rate development going on, and a lot of commercial things happening in it. But that’s the part of the South Bronx where that’s happening. There are other parts of the South Bronx, which is where I’m in, and born, and raised, and still live, that’s the part that’s sort of being reserved for poverty level economic maintenance [cross talk] Yep.

Majora Carter: There is one big project that’s coming up here that’s about … Basically, it’s another low-income-housing project. It’s so crystal clear that all that’s happening is they’re trying to concentrate more and more poverty here. I think that’s one of the reasons why it’s kind of like, “Well, that’s what happens here, so we can’t really think about investing in it.” Also, it seems like it might be considered a smaller- like almost too small a project for some folks, as well, because-

Eve Picker: How many square feet is that?

Majora Carter: It’s only 4,000 square feet.

Eve Picker: Oh, that’s big enough.

Majora Carter: That’s about- with all the added … We actually, interestingly enough, discovered a basement [cross talk] found the other room up top. It was- we discovered another basement [cross talk]

Eve Picker: That could be the speakeasy [cross talk]

Majora Carter: You know that to redevelop a 5,000-square-foot space, it’s almost as … The brain damage is about the same as a 50,000-square-foot space, but the returns are much higher for the 50,000-square-foot space. So, I think that’s also part of it, as well.

Eve Picker: Yes, but the return on this would be phenomenal for that neighborhood [cross talk]

Majora Carter: Oh, absolutely.

Eve Picker: -the triple-bottom-line return that really we’re talking about here. I don’t know. I think there would be people who would invest. I really do. It’s really an amazing story. I want to come see the building, and I want to eat with Ghetto Gastro, and-

Majora Carter: I know! Oh, my gosh, who knows where they are right now? [cross talk]

Eve Picker: -because the neighborhood sounds amazing, and I want to cry when I hear about more and more affordable housing being built.

Majora Carter: I know, I know, and it’s just like … I know whenever I say that, I have to preface it with, “Please don’t think that Majora Carter hates poor people,” because I think that’s the way that folks immediately go, like, “Oh, she doesn’t want any more affordable housing.” I want- Actually, I do want more affordable housing. I want affordable housing for a range of incomes, because we know that economic diversity needs economic stability and community stability. Whereas, the concentration of poverty is exactly opposite that.

Majora Carter: But again, if we’ve been led to believe that this is all that happens in low-status communities, we start to believe it, and then feel the only option is to leave, if we have an opportunity to do so. Who does that benefit? It benefits the predatory speculators and the government programs, who take advantage of the fact that there are really poor people in our communities that probably have lifestyle-related illnesses, low educational attainment, or who’ll probably be within the justice system. They make money for somebody; not for the people that are here. It just seems like such a tragically obvious thing that we see happening over, and over, and over again, and since we’re led to believe that there’s no real value in our communities, we internalize it.

Eve Picker: Yes. A lot of this is about educating community, right?

Majora Carter: Yeah.

Eve Picker: What community-engagement tools do you think work best?

Majora Carter: Honestly, opening our coffee shop [cross talk] having a presence, and being there has been so transformative. My husband and I both work there [inaudible] and work out of it a lot. We’ve met … I thought I knew a lot of people in my own neighborhood, but I have met so many more, as a result of having that space, opening it up in a way that is just- it’s not a community center that people feel like they’ve got to tip-toe in, or have a problem to be in. No, this is a place of joy, and access.

Majora Carter: I’ll give you an example of how I knew that we were really something that our community appreciated, because, again, the idea … I mentioned before that some folks within the social justice industrial complex totally demonized me and think that I’m bringing in developers to kick out poor people. Some of the stuff is just insane, and they won’t acknowledge that I’m actually a developer. It’s like, no, no, no, I’m the developer. I want to be called a developer … I have my own ideas. I don’t want to talk to these guys.

Majora Carter: We were hosting a workshop for small business owners in the community, as well as homeowners to get access to capital for zero-percent-interest loans and low-interest loans and also figure out other ways … There was going to be a presentation on how to make your building- add additional units on top of your building, to see if this is something even you could do. We were protested. We had 40 people inside the space waiting to hear more about these zero-percent-interest loans and how do you make your actual building work for you, and there were like 10-15 people outside yelling about how I was destroying the neighborhoods with bringing a coffee shop there.

Eve Picker: Really?

Majora Carter: Yeah, and I have to tell you, I was … The signs were huge. They were saying, “Majora Carter destroys the South Bronx one coffee at a time.” That I’m a community destroyer. It was just like, “Some of you people know me … You could’ve just literally knocked on my door and said, ‘Can we talk?'” But they wouldn’t do that. But I have to say, after that, I’m like, “Oh, my God, my whole neighborhood is seeing people yelling, with my name on a sign, talking about how evil I am.

Eve Picker: Yeah.

Majora Carter: I was just like, “We might have to close this stupid coffee shop. I mean, who’s going to want to come?” The next day, we had the best day ever-

Eve Picker: Oh, that’s really great.

Majora Carter: The best day ever. We had people coming in, one after another. It was like, “You know what? I’ve actually never even been here before, but I saw that, and I thought that was stupid. I’m going to buy a cup of coffee just to support you.” I was just like [cross talk]

Eve Picker: That’s really lovely. That’s really lovely. Yes, yes, it is. Many people just fear change, right?

Majora Carter: Yes, and I get it, and I understand … That’s like to your point, it is we fear what we don’t know, but if we don’t actually look at … Because real estate developers … You know that Bishop Desmond Tutu quote? A knife’s a knife. You could either use it to cut a hole in somebody or to cut a slice of bread and feed it to your child … It’s a tool. We can use it for horrible things, or we could use it for great stuff, but it is what it is. But how we use it, and unless we are empowering ourselves and other folks who are actually looking at places that actually have that triple bottom line and going, “That’s valuable. Maybe I won’t make the kind of returns …” because I’m sure … My rail station, one of the reasons why it’s also empty is because I’ve been very choosy. I am not going to open it up to another health clinic, or a tax-prep place that’s [cross talk]

Eve Picker: Yeah, yeah, yeah …

Majora Carter: We’ve said no to folks like that.

Eve Picker: Yeah.

Majora Carter: No. So, yeah-

Eve Picker: So have I, so you’re making me feel stronger.

Majora Carter: Good, good. No, I don’t mind at all; at all.

Eve Picker: I said no to a tax-prep space. I couldn’t bring myself to sign the lease. I just couldn’t do it.

Majora Carter: They have so much money, and they don’t even have to be open. It’s really crazy.

Eve Picker: No, they don’t have to be open. That’s the really bad thing. What a horrible thing to do in a neighborhood, just have a place that’s open for three months and then a shuttered storefront [cross talk] Anyway, now we’ve said what we think … Just like there’s been a wave of green-washing in this country, but I feel like there’s a wave of good-washing. People are talking about impact investing.

Majora Carter: I hope so.

Eve Picker: But when I hear you, I really wonder if they’re really impact investing.

Majora Carter: Nope.

Eve Picker: What do you think the future holds for impact investing? What do we have to do to change that?

Majora Carter: I am actually hopeful about some of the smaller-scale investment platforms that are out there, and just crowdfunding, in general, for real estate. I’m still learning about it. I do feel like our communities and our country, as a whole, is really only going to be changed when we start seeing each other in ways that we want to support. Look, I’m a woman of faith, so I think I actually really do believe that we can create a kind of heaven on earth, if we were really good at it, but I also think that- I am hopeful that … People are really tired of the expecting the status quo, because, by all accounts … I’ve got great vision. I have no balance sheet, so I don’t look good to anybody, and I get that, but I have a track record of getting things done, and-

Eve Picker: No, you don’t look good to very traditional financial [cross talk]

Majora Carter: No, I look miserable.

Eve Picker: You look great to other people, so that’s-

Majora Carter: Yes, and those are the people that I’m hoping will go, “Oh, wait …” But in order to continue to do that great work, she needs something that’s a little bit different than what she was getting before.” That’s what I’m hoping. Because I do- I also love the idea of people really taking ownership. I think that’s been one of the reasons why our low-status communities in America feel so disjointed and so destabilized is because we don’t have a way to really keep and retain roots in those areas where there’s access to capital, or predatory speculation. It’s all up in there, just [cross talk]

Eve Picker: But it’s really hard to get a neighborhood to focus, when has more than its fair share of single parents and people with two or three jobs.

Majora Carter: Those are the people that want more, and you know what? Believe me, and not to pooh-pooh it at all, yes, there are those who are not going to get out of their heads at all, but then there’s those are just like, “You know what? Why can’t I have it?” There’s always a critical mass of folks who are just literally waiting for something to do, like, frankly, the folks who saw me being bullied with this protest and who were just like, “No, wait … I see that. I know what I can do.” You may think that just buying a cup of coffee, a specialty cup of coffee, might not be an act of rebellion or resistance, but I absolutely looked at it like it was.

Eve Picker: Yeah, I think you’re right.

Majora Carter: I think there’s more of that that’s just waiting for a reason to be there, to actually stand up and be counted, and maybe even count a little bit of their own dollars to say, “You know what? Yeah, I believe in it. I believe in it so much that I’m going to invest in it.”

Eve Picker: So that’s what we’ve got to make happen at the train station, right?

Majora Carter: Yes [cross talk]

Eve Picker: I’m going to ask three sign-off questions that I ask of everyone, because I think I’ve taken up enough of your time. I could keep talking to you all day long.

Majora Carter: I know. I love it [cross talk]

Eve Picker: I think I know the answer to this, but we may as well reiterate – what’s the key factor that makes a real estate project impactful to you?

Majora Carter: Mixed-income housing, mixed-use … Well, the actual specifics – mixed income housing and mixed-use economic developments. But I think the real vision is talent retention in low-status communities.

Eve Picker: Then, do you think that crowdfunding might … I mean, you touched on crowdfunding. Do you think it might benefit impact real estate developers in more ways than just raising money?

Majora Carter: Would it impact real estate developers?

Eve Picker: Well, or neighborhoods or any [cross talk]

Majora Carter: -no, I think that you couple the idea of putting your cash into something that you believe in that is actually going to support your community creates a level of ownership that, you can’t buy that; you just can’t. It sets up a foundation and roots in ways that I think a lot of folks wouldn’t know what else to deal with.

Eve Picker: I think that’s right. Then, this is a really hard one – if you were going to change one thing to make real estate development better in the U.S., what would it be?

Majora Carter: Just one?

Eve Picker: Blow up all the Walmarts … I’m just joking …

Majora Carter: You know what? Honestly, I really would go back to  … It’s very practical. Creating a fund and education platform specifically for people in low-status communities to either retain their properties or purchase them.

Eve Picker: Like a land bank.

Majora Carter: Mm-hmm. It’s not necessarily a community land trust, although that could certainly be a byproduct or a result of it, absolutely. But I think, ultimately, right now, we just have to stop the bleeding. I just think about my own neighborhood, whereas, I think within the past 10 years, our local homeownership rate has gone down from like 20 percent down to less than seven.

Eve Picker: Oh, why? Why did that happen?

Majora Carter: Because predatory speculators [cross talk]

Eve Picker: -foreclosures …

Majora Carter: Yeah.

Eve Picker: That’s really bad.

Majora Carter: Yep, exactly.

Eve Picker: Well, on that sad note, I’m going to say [cross talk] I’m going to say thank you very much for talking to me. I thoroughly enjoyed it-

Majora Carter: Thank you. Right back at you.

Eve Picker: -and I really hope we’ll continue talking.

Majora Carter: Cool. I hope so. Yes.

Eve Picker: That was Majora Carter. I’m in awe. Majora is uncompromising about her mission. She lives and works in Hunts Point in the South Bronx, one of America’s lowest-status communities, just two blocks from the house she grew up in. Majora is undaunted by taking new and necessary steps. When it became clear that no coffee shop operator wanted to operate out of her space in the neighborhood, she created a own business to achieve her goal. She’s committed to further developing the neighborhood where she lives and has now set her sights on the conversion of a former railway station into a food hub. She lives in a brownstone, two blocks from the one she grew up in. Now that is putting your money where your mouth is.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Majora, for sharing your thoughts. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Majora Carter Group

7.4 million short.

Matt Hoffman’s primary interest these days is the intersection of housing and technology. He is an active early-stage investor in companies with tech-enabled solutions that can transform the housing sector in a way that increases affordability and sustainability. And he’s also  a founding partner in HEALTH+, a suite of telehealth services bringing healthcare and lower cost prescription medications to lower income residents of multifamily housing. 

With over 25 years experience in the private, public, and non-profit sectors as a social and business entrepreneur, Matt has served as Vice President of Innovation for Enterprise Community Partners a national organization working to deliver capital, policy, and solutions to the affordable housing sector. In that role, he built an investment portfolio of HousingTech companies and led the launch of an online brokerage for social impact investing called ImpactUs. His previous experiences include serving as a policy advisor to the U.S. Secretary of Commerce and running a federal interagency task force on e-commerce; providing business strategy and policy consulting to high-tech and startup companies as Vice President of E-commerce at Infotech Strategies; and co-founding and running a real estate development company in Baltimore, Maryland.

Matt has served on numerous non-profit boards and currently chairs the board of Integrated Living Opportunities, which builds community for young adults with autism seeking to live independently. He is a graduate of Harvard’s Kennedy School of Government (MPP) and Brown University (BA).

There is no doubt that Matt is squarely focussed on how technology can disrupt our failing housing industry. With a shortage of 7.4 million affordable housing units today, Matt is thinking big.

Insights and Inspirations

  • Housing Tech Ventures, where Matt is managing partner, is focused on backing companies with tech-enabled platform solutions that have the prospect of changing the housing market in a way that increases affordability. He likes companies that are tackling very challenging problems.
  • We’re 7.4 million affordable housing units short of our housing needs in the US today. Over the next 10 years we’ll need to build another 4 million rental units just to keep up along with 8 million homes for sale. Ouch.
  • Even if we had the funds, we won’t have the labor. Other technological solutions have to step up.
  • Matt is thinking big sourcing companies like CityBldr which uses machine learning to aggregate land, or credit companies like Till – trying to solve credit issues for low income tenants. 

Information and Links

  • Matt chairs the board of Independent Living Opportunities, a startup that works to enable adults with intellectual disabilities to live independently.
  • When Matt is not thinking about housing and tech, he’s practicing on his congas, djembe and darbuka, trying to become a better drummer! Tom Teasley, Matt’s percussion instructor, is one of those special people bringing good to the world. 
  • Matt hopes that his startup, Housing Tech Ventures, will bring market-driven solutions to the housing market in order to increase housing availability and affordability.
Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you’re going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Matt Hoffman, whose primary interest these days is the intersection of housing and technology. He’s an active early-stage investor in companies with tech-enabled solutions that can transform the housing sector in a way that increases affordability and sustainability.

Eve Picker: He’s also a founding partner in HEALTH+, a suite of telehealth services bringing healthcare and lower-cost prescription medications to lower-income residents of multifamily housing. This is built on his background of over 25 years’ experience in the private, public, and non-profit sectors, as a social and business entrepreneur and serving as a policy advisor to the U.S. Secretary of Commerce.

Eve Picker: Be sure to go to Eve Picker.com to find out more about Matt on the show notes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Hi, Matt. Welcome. Thank you for joining me.

Matt Hoffman: Pleasure to be here, Eve.

Eve Picker: I know that your interests have shifted over the years, and you worked as a developer in a large mission-driven organization for a while, but you’re now pretty squarely focused on technology and innovation. I’m just wondering how that shift happened.

Matt Hoffman: While working in residential development for 15 years, in one capacity or another, it became very clear that the housing market was getting away from most Americans, whether they were renting or seeking home ownership. By that, I just mean it just wasn’t accessible or affordable. People obviously are housed, but not in an optimal way. Looking at the market, a question that I asked myself, coming from a policy background, was how could we transform the way that we build, that we preserve housing in the country?

Matt Hoffman: Although there certainly are some key policy levers that we could pull, I felt that the biggest shift could come from the market side, itself, and through the application of technology, which really has not penetrated the housing sector like it has most other sectors of our economy. That really was the draw – trying to solve for the housing affordability challenge that the US faces right now and looking for entrepreneurs who were looking to apply technology and business model innovation enabled through technology to the housing market.

Eve Picker: You created HousingTech Ventures?

Matt Hoffman: I did. HousingTech Ventures is a technology-focused venture fund seeking early-stage companies – seed stage and Series A – that have solutions that are tech-enabled solving a problem in the housing market in a way that, at scale, could increase housing affordability. The way I think about it is where are the entrepreneurs in the housing sector that could provide that kind of transformation or disruption, even, to the marketplace that Uber did to the taxi market or Airbnb to the hotel market? It’s not so much that they eliminated the incumbents, but they really forced those incumbents and the regulators who oversee those markets to change their business practices.

Matt Hoffman: We need to see that in the housing market, and the evidence is clear. We have 7.4 million units-  a shortage of 7.4 million units that are affordable to lower-income Americans. We need to add 400,000 new units per year – that’s a net number – to serve the number of renter households that are coming into the market over the next decade; that’s 4 million units right there. We need to add 8 million units of home ownership over the next decade for the new household formation. We clearly are not going to get there using the same practices that we’ve been using over the past several decades. In fact, it’s getting harder as we try and address existential issues, like climate change, which, rightfully so, are forcing us to change our policies, which unfortunately make it harder to produce housing.

Eve Picker: Yes.

Matt Hoffman: We need that kind of disruption and transformation in the housing sector.

Eve Picker: I usually think about this in terms of building, construction, disruption, but I’m sure you’re thinking about it in in other ways. Can you tell us about any disruptors that you are seeing that are very different?

Matt Hoffman: Sure. I’m very excited, first, about what we’re seeing in the construction-tech sector; entrepreneurs who are applying technology to how we build. Fortunately, there’s a lot of capital flowing to those companies; whether that’s 3-D printing, or construction-site management, or the use of drones, or robotics, especially related to bricklaying and drywall hanging; lots of opportunity in construction tech, and that’s all good. That’s automation, which produces greater efficiency, which will lower the cost of inputs to produce housing.

Matt Hoffman: I have been focused more on business-model innovation that’s enabled through technology. What excites me about that, first and foremost, is it’s less obvious, and there’s not as much capital flowing, so I tend to be attracted to harder problems to solve. Automation, in general, is happening throughout the economy. It’s finally penetrating construction and the building trades, and that’s going to happen over time. The real challenge is how can we accelerate change? I think that’s through business-model innovation.

Matt Hoffman: Let me give you a couple of examples of the type of companies that I’m interested in. There’s a company, for example, in Seattle called CityBldr, an early-stage company that is using machine learning in identifying opportunities to build housing, by-right, according to the zoning code, by aggregating potential development parcels, which is a very difficult [cross talk]

Eve Picker: -it’s very difficult. Yeah.

Matt Hoffman: What I like about the CityBldr’s approach is there are sophisticated software tools for developers to use to do that type of modeling, but the approach that CityBldr is taking is both on the supply and demand side. So, the supply side are the landowners, the current landowners, who essentially have a lock on the property. The demand side, in this case, is the developers or even cities that are seeking economic development and revitalization for an area. This tool is egalitarian in that it enables both parties to come to the table and look what could be built and does a pro forma that demonstrates to both sides what the economics are of the deal and what the land value the deal can tolerate.

Matt Hoffman: I’m hopeful that through this type of analytics being applied in the marketplace, we’ll be able to unstick deals that don’t get done for a variety of reasons and put tools in the hands of both buyers and sellers to enable development to happen and to enable it to happen by-right, so we can get the highest and best use for land that’s appropriately placed, that’s in demand, and that can help alleviate the housing challenge. That’s a machine-learning example.

Matt Hoffman: We also have companies that are unlocking credit opportunities for people who’ve been shut out of the credit markets. There’s a company based here in Washington, D.C., where I am, called TILL (T-I-L-L) that’s working with renters who are either no-file, or thin-file, to use the credit vernacular. In other words, they have no credit or poor credit. These renters, like anyone, sometimes experience unforeseen challenges that restrict their cash flow.

Matt Hoffman: Example: someone is doing all the right things. They’re housing themselves and their family. They’re working, and the car breaks down; they need to pay $1,000 to get the car repaired, and they need the car in order to get to work. But now they’ve spent $1,000 on the car that they were going to spend on rent. They don’t have savings. What do they do? Really, their only … They have two options. One is to not pay the rent. They don’t pay the rent, not only do they face late fees, but they could get evicted. The other option is to go to a payday lender, which will likely charge upwards of 400-percent APR and put them into an endless cycle of late fees and loan renewals. These are loans that are designed for the customer to fail.

Matt Hoffman: TILL saw the opportunity with these borrowers to provide them with a loan structure that’s designed for them to succeed. In other words, it’s not a predatory situation. TILL can provide the service and make money without preying on these very vulnerable borrowers. What does that do? That’s essentially de-risks the credit from the landlord because TILL pays the landlord directly, and it also enables the tenant to bridge whatever minor financial crisis that they’re currently facing, get back on track, and, most importantly, stay housed. They don’t have to move themselves or their family and potentially end up on the street. Those are just two examples. One is, obviously, zoning. One is credit. There are many others I could give, as well.

Eve Picker: Be sure to go to EvePicker.com and sign up for my free educational newsletter about impact real estate investing. You’ll be among the first to hear about new projects you can invest in. That’s EvePicker.com. Thanks so much.

Eve Picker: Yeah, I think I saw one … I think it was New York Times, just this week, where these two guys started a company where they help people with rental security deposits, which I suppose might be another barrier of entry for a lot of people.

Matt Hoffman: Exactly. Again, that’s a credit-based model, or financial-services- based model. There’s so much opportunity for business-model innovation around financial services and credit. In the US, if you want to house yourself, most people have only two options. You either sign a 12 -month lease, which does require an additional security deposit, or you sign a 30-year mortgage.

Matt Hoffman: We are much more sophisticated than that. We can offer people a host of options for both home ownership and for renting that can better suit their economic situation, and even their temporal needs. Maybe someone only is prepared to obligate themselves for three or six months instead of the standard 12 months. Unfortunately, the business models have not only been locked in by the market side, but also by regulation, much of it very well-intentioned for tenant protection, but, to a large extent, I think that’s inhibited owners and landlords from innovating and offering other solutions. I think that’s largely, in part, because we’ve had too many bad actors in the real estate market who’ve preyed on tenants who, especially at the lower end of the income spectrum, are very vulnerable. We’ve had some pretty heavy handed regulations which, when that occurs, tend to inhibit innovation.

Eve Picker: Well, I can see why you’re fascinated by all of this. Still, that’s like how on earth do we bridge the 7.4 million short? That’s crazy. That’s a very big number.

Matt Hoffman: One way to do that is not only through production. There’s no way we’re going to build our way out of this in the near term. The shortage for affordable units is actually 7.4 million. That’s according to the Harvard Joint Center for Housing Studies, which is the annual report, which is the Bible of the industry. If you put a number on that of $200,000 per unit, that’s $1.5 trillion of capital, we would need to build our way out of it. Not to mention, how would we address the labor issues, the labor supply issues? We clearly don’t have enough construction workers in the country, right now; as well as where would we build it, permitting, et cetera? We could not build our way out of this.

Matt Hoffman: We also need to look … That’s the supply side, but there is the demand side. We are seeing co-housing and other models emerge where, again, we’re moving away from the traditional model of one tenant or two tenants per unit and looking at unrelated parties sharing spaces in ways that are not locked into that 12-month lease. There are companies, like Nesterly, out of New York, which is opening up a service in Boston that matches millennials with seniors who have extra rooms in their apartment that they’d like to rent. The millennials that they’re targeting are typically seniors- I’m sorry, students, of which Boston has only 250,000 full time students. Plenty of market share there for them to penetrate.

Matt Hoffman: Then, other companies, like Common, and Starcity that are bringing co-housing to the multifamily market. PadSplit, which is bringing co-housing to the single-family-rental market. On the demand side, we’re filling in with different models that can not necessarily produce new units but can house more people. That’s going to be essential because the two biggest demographic cohorts in our country are millennials, which is a bigger cohort than the baby boomers, and seniors. Those two cohorts – millennials, and seniors – will continue to be the largest for the next couple of decades. Their housing needs are significantly different than what has become the typical housing scenario – which I referred to earlier – of 12-month lease or 30-year mortgage that has dominated the marketplace for the last multiple decades.

Eve Picker: Yeah, okay. I think that’s right. Family structure is also changing. The house for mom, dad and 2.3 kids isn’t really quite the way we live anymore is it? Or many of us-

Matt Hoffman: It’s not. You actually have a pretty interesting innovator in Pittsburgh who’s addressing that. Brian, at Module, has a company that’s thinking of the home as essentially an expanding unit. Constructing a new home, starter home, that’s two bedroom/one bath, but it’s built in a way such that you can add on additional components as a family’s needs change. Add a bedroom and a bath as children are introduced into the equation; add an accessory dwelling unit, if parents come home to live, or even students who’ve graduated and return to live at the family home while they start their careers.

Matt Hoffman: This notion of being able to stay in place … When we talk about aging in place, we often think of people in their 60s, 70s, and 80s not wanting to go to a nursing home and holding onto the family home or an apartment. What I think the new definition of aging in place, that Module and others, who are introducing the concept of a transforming home, bring to the market is that the home can be more than just a single- serve a single purpose or a single point in time without major renovation.

Eve Picker: Yes. Still, my frustration with a modular market like that is it’s so expensive. It really- it just hasn’t reached the point yet where it makes a lot of sense for most people. It’s, I think, a good idea, but it’s still extremely expensive, but maybe that will change really soon.

Matt Hoffman: One of the things we need to change, I think, with regard to that – and I’m not a modular expert per se – but oftentimes the cost of development or construction only looks at the structure until the point it’s delivered to the marketplace and not at the ongoing operating costs. I think that factory-built housing, whether it’s modular, or panelized, or manufactured, most people would agree it produces a better product. It’s better built.

Matt Hoffman: It’s not built in the environment where it’s exposed to rain, weather, and other issues, so the operating costs can be reduced – there’s fewer repairs, the seals are tighter, et cetera. I think, over the next few years, my prediction would be that we’ll find that people who are developing and financing housing will do a better job of calculating forward costs and not just the project-related costs, when they’re factoring in the viability of factory-produced housing.

Eve Picker: Really, what it requires is for financial institutions to factor in those forward-looking costs so that someone building a modular home gets a credit for it, because the operating expenses are going to be lower, and therefore, they can maybe borrow more. I think that’s part of the problem. People are trying to hit a budget at the beginning of a project. They only have this much money, and they need that much space.

Matt Hoffman: That’s exactly right. I think that this all goes back to a very valuable lesson I learned called the Golden Rule. I didn’t learn it in Sunday school. I actually learned it early on in my career as a developer. It’s not the Golden Rule that you think. This Golden Rule is he or she who has the gold, makes the rules. I learned that as a developer, getting very frustrated, going to banks, trying to borrow money for projects that I thought were extremely compelling and would be financially rewarding. But as a new, young developer, I was consistently getting rejected for my loan applications. A more seasoned developer said that my problem was I didn’t understand the Golden Rule when I was trying to argue the logic of investing in my project.

Eve Picker: That’s right. Anyway, I do think that innovation has to occur at the bank level, at the mortgage level, along with all of this. It’s pretty hard to borrow money, as you know, not only because it’s the first project you’re doing, but also because it’s different. It doesn’t fit the cookie-cutter project that banks want to invest in. I hope bankers are listening here … Anyway, you also have another company that you’re a partner in, HEALTH+. I’m wondering how that fits into all of this.

Matt Hoffman: I decided that one of the best ways to be a venture capitalist was to understand the other side of the table. It was actually a little bit more serendipitous than I’m presenting in that expression. As I started to structure HousingTech Ventures, I was approached by someone in the insurance business I’d known for a long time. He explained that one of the products that he sells to employers is a telehealth product that rides alongside the standard health insurance that people get offered from their employers.

Matt Hoffman: It’s a 24/7 service called Teladoc that any employer that offers it to their employees, the employee can call, speak with a licensed medical doctor, 24/7, either over the phone or video-chat platform that’s offered through their app. What he explained was that employees love this, because most of the time … In fact, the industry reports about 70 percent of the time, visits to the doctor could be handled over the phone. This is cold and flu, upper respiratory, sore throat, earaches, stomach ache, things of that nature.

Matt Hoffman: Oftentimes, I’m sure you’ve had the experience where you know that you need an antibiotic or some other medication, but you need to go see the doctor in order to get the prescription written. You go, and it turns out to be the exact scenario you predicted. With the tele-health, you obviate the need for transportation, for the unexpected hours that you can end up waiting in the doctor’s waiting room, even though you have an appointment, or worse, for some people who go to emergency rooms for non-emergency care, that can be a significant amount of time – four to five hours – not to mention that it’s a use of resources that are needed elsewhere.

Matt Hoffman: His epiphany was what if we replace the employer with the landlord and offered this product to especially lower-income renters who struggle to access health care? Having spent 15 years in affordable housing and interacted with many lower-income renters and understanding the difficult situation that they’re often in having to make difficult choices, I recognized that this would be an invaluable tool. The question really was, could we get landlords to see that by having healthier tenants, it would be worthwhile them paying for the healthcare.

Matt Hoffman: It’s at a price point where it really does make sense, because a healthier tenant is someone who goes to work, and lower-income people mostly or hourly workers, which means shift work. So, if they are awakened at 3:00 in the morning by a child who is not feeling well, and they have to be at work at 6:00 or 7:00 in the morning, they’re put in a very difficult situation. Do I take my child to the doctor, and if I do, do I potentially miss work, and if I miss work, do I get fired? Since, most shift work, that is the penalty for not showing up. Or, do I go to work, and my child remains untreated? In this country, with the resources we have – the doctors, not to mention the capital – people shouldn’t be in that situation.

Matt Hoffman: This really isn’t a social program because, for the landlord, if that tenant misses work and it disrupts their income, they’re likely to have to move out, either of their own choice or through eviction. If that happens, it can cost the landlord $2,500 to $4,000 in turning that unit. So, it really does make sense to prophylactically provide a tenant with access to this type of healthcare. We started this company about five months ago, and we’ve already started rolling out with several landlords, and we’re getting very positive feedback.

Eve Picker: That’s fabulous. So, you’re a startup?

Matt Hoffman: I’m a startup, so that’s why I’m kind of eating my own lunch … That’s not the right expression, but eating my own cooking, because I am out in the marketplace with large- and medium-sized landlords, primarily, trying to sell them something, just like startups are coming to me, trying to sell me on an investment in their company. I understand the challenges of presenting your case, knowing that you’re right, and believing in what you’re doing, and having people on the other side of the table say no, or even worse than no is maybe [cross talk] maybe puts you in no man’s land.

Eve Picker: I’m going to connect you to a landlord who I think might be interested, in D.C., okay, when we’re finished. I think it’s a fabulous idea.

Matt Hoffman: Wonderful.

Eve Picker: What do you like best about the world of real estate impact investing? We’re clearly in the middle of it.

Matt Hoffman: What excites me about impact investing in real estate is that traditional real estate investing is all about yield. I think whether it’s commercial or residential, we’ve really gotten away from the power of architecture, and design, and the effect that the built environment has on the human condition. The impact side of real estate investing brings that back to the table.

Matt Hoffman: I’m in Washington, D.C.. If you come visit us downtown, now, every new building, because of the height restriction we have here, is a glass box that’s built out the lot line. I can put you on almost any street, and there’s very little distinction between any of the buildings, and you’d have no visual reference for where you were, especially if we took away the street signs. I think that’s really a missed opportunity, not just for the aesthetics of the city, but it really diminishes the livability of the city, because it becomes just a purely functional place. I think that architecture, both on the commercial and residential side, and how we build communities is so critical to our existence, to our positivity, to our engagement with each other.

Matt Hoffman: Impact investing, in my opinion, is bringing that element back in. Maybe less so on the design side, because you still have the economics of the deal, which are largely driven by land costs and the cost of capital, which we were talking earlier, but how people live in structures, whether they’re single-family, or multifamily, or even commercial properties. The impact investing side is bringing that element to the table again. For people who are passionate about society, whether it’s connected to real estate or not – if that passion is connected to real estate or not – I think can participate now in real estate investing and the power of real estate to determine what our society- how it evolves.

Eve Picker: Maybe equity crowdfunding has a little role in that, because communities can actually also participate in what’s going to happen in their community. That’s what I would hope for it anyway.

Matt Hoffman: Oh, absolutely, because impact investing is all about alignment of values with the investment. You have capital; you have values; you deploy the capital in a way that aligns with those values. I think that’s what I’m driving at with how we can connect something more than just the economics of a real estate deal to that deal, whether that’s about affordable housing, education, health care, job training, employment, whatever that might be. Certainly, climate change, that’s the most obvious one. We’re seeing a decent amount of capital, I think, flow into real estate that is more sensitive to climate change. We have a long way to go, though.

Eve Picker: Where do you think the future of real estate impact investing lies? You say we have a long way to go; what’s kind of the [cross talk]

Matt Hoffman: When it comes to money, I think that people have good intentions, but, at the end of the day, most people want the highest deal that they can get in any investment. We need to build awareness globally, not just in the US, about the long-term effects of any investment and make more transparent that the investments that you make that yield the highest returns often fly in the face of your personal values. We, as an impact … Someone who’s been involved in impact investing for the last decade or so, I don’t think we’ve made that message very clear to people. I think it’s the most powerful element of impact investing.

Matt Hoffman: I think that most capital that’s deployed in impact investing in the future will be done at the local level, because that’s where people will be able to touch and feel their money making a difference. When we abstract investing, like we have, the sophistication of the financial markets now is such that if you have some means and are invested, you have exposure globally, and you don’t have to have millions of dollars to do that. You can do that through unsophisticated retail accounts and financial advisors, as most for 401ks, or those types of vehicles have access to. When you abstract it, you remove that personal connection. Impact investing enables us to reinstitute that connection, and I think that’s going to be the most compelling thing that unlocks more capital that goes into charter schools, affordable housing, healthcare clinics, et cetera, that we deem to be true impact.

Eve Picker: I hope that’s right, because I think you’re right; I think people still thinking, first and foremost, about the financial return and not the triple bottom line. It feels to me like, in the impact investing world, people want both. They’re not willing to compromise yet. I hope that changes a little bit.

Matt Hoffman: Well, I think if you continue to promote these types of conversations and raise awareness, it’ll be a big step forward to doing that.

Eve Picker: Good, good. I have three sign-off questions for you that we talked about before, and I’d love to know your answer. The first is what do you think is the key factor that makes a real estate project impactful to you?

Matt Hoffman: For me, the key factor is does it have an element that can be modeled by others to change how we house people? Impact is about transforming what we’re doing right now. I love projects where I can look at something and say, “I haven’t seen that before, and that can be applied over there, and over there, and over there, and replicated time and time again, at scale.” I think that that’s the key factor for me.

Eve Picker: That’s pretty interesting. Then, crowdfunding can benefit an impactful real estate investor in just raising money, but I wonder if you think it can benefit in other ways, as well.

Matt Hoffman: I do. I think that crowdfunding has the ability to bring new partners together at the local level. As I was referencing a few minutes ago, these local projects, whether they’re economic development, trying to drive new jobs, or retain jobs in a community, or build senior housing, which we need a lot more of, or transform a downtown, all of these elements, I believe, get people excited. It’s the crowdfunding element, where everyone can participate in achieving that vision that I think can make the big difference. Obviously, bringing the capital to the table is essential and the primary purpose of crowdfunding, but there’s a strong social element to it that can bind a community together that I think is equally as valuable.

Eve Picker: I do agree with you. Finally, this is a really hard one – if you could change one thing that would make real estate development better in the US, what would that be?

Matt Hoffman: Without a doubt, it would be eliminating or, at best, modifying single-family zoning. We’ve seen two examples of it in this past year, in Minneapolis, and the state of Oregon. Those regulations have been passed. I’m a firm believer that we need to densify many- not all, but many neighborhoods and at least put the power of that densification back in the hands of property owners and local urban planners.

Matt Hoffman: Without that, and our inability to continue to sprawl – we shouldn’t do anyway, but especially in light of climate change – and our lack of ability to invest in new infrastructure, we’re going to continue to languish in this current period of having an immense shortage of affordable housing. Without a doubt, for me, it’s eliminating single-family zoning and allowing much denser development to happen in neighborhoods that are well-located, connected to transit, near good schools, and in economically thriving areas.

Eve Picker: Well, that was really fabulous. Thank you, Matt. I really enjoyed talking to you, and I’m sure we’ll talk again.

Matt Hoffman: Thank you, Eve.

Eve Picker: That was Matt Hoffman. There is no doubt that finding affordable housing solutions through technology is foremost in Matt’s mind. He’s thinking big, sourcing companies like CityBldr, which uses machine learning to aggregate land, or credit companies, like TILL, trying to solve credit issues for low-income tenants, and Matt has thrown his hat into the ring by launching his own startup, HEALTH+. With a shortage of 7.4 million affordable housing units today, we need Matt to keep thinking big.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today’s episode at my website site, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, and thank you, Matt, for sharing your thoughts. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Matt Hoffman

A perfect union. Technology and housing.

Much has been written about the ability of technology to change our lives. But decades into the digital revolution, the results of technological advancement have a mixed track record at best. Every productivity gain or positive connection brought by new tech, is countered by harms such as hacking, service and product outages, and the unprecedented aggregation of wealth among large tech firms.

These same issues transfer to the real estate industry. Digital platforms like Zillow, Airbnb and Redfin, to name a few, have changed the way we buy, use, and even upgrade or maintain properties. They have introduced efficiencies into the market, like instant property or market research and online transactions, that were unthinkable just two decades ago.

In the best of all worlds, the next iteration of tech-enabled solutions will transform the housing sector in a manner that benefits affordability, economic stability and environmental sustainability.

Out of their reach

Homeownership is just a pipe dream for many Americans, particularly in high cost-of-living areas where many of the best employment opportunities are concentrated. This is not an issue of lack of new construction or population growth (many luxury projects are being built as we speak). This is an issue of insufficient affordable developments being built. Most new construction is simply out of the reach of the vast majority of home seekers.

Technology might offer a possible roadmap to transforming the development and construction of housing for investors or developers interested in building affordable housing solutions.

Alternatives to public policy solutions

Often affordable housing solutions are found through public policy such as subsidies provided to make these projects viable. Rapid technological adoption has not traditionally been the strong suit of governments. While there are some key policy levers our society could pull to use technology to improve housing, it is more likely that the biggest shift will come from the market side through applying technologies. Mostly these technologies have not yet penetrated the housing sector compared to other industry sectors. Entrepreneurs who are willing and able to apply business and technology innovation to the housing market will be a major contributor to the eventual solution to this crisis.

Technology-focused funds

It makes sense that venture capital funds and other large financial institutions are at the forefront of tech-enabled problem solving in the housing market. While these solutions can be expensive, they are often built to scale in a way that could fundamentally alter how we envision, develop, build, and offer housing to consumers. These technologies can help shift focus to expanding homeownership and increasing affordability.

The question is, where are the entrepreneurs who are ready to embrace and implement these solutions? Transportation had UBER’s Travis Kalanick. Hotel disruption came in the form of Airbnb by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk. Many other industries have technology-focused entrepreneurs with the vision and ability to force market incumbents and regulators to adapt to changing realities in the way we distribute and consume services and goods.

Limitless potential

Potential solutions offered by new technology are limitless. Equity crowdfunding platforms have only existed since 2013, and now they connect many investors across the country with socially driven developers. Technology can also help to drive costs down- and the less it costs to build a development, the more savings can be passed on to the end consumer.

When projects become more affordable, they have a better chance of finding the funding needed to come out of the ground. These are just some obvious solutions. There are many other opportunities for entrepreneurs to use digital technology to reach their affordable housing goals.

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With a shortage of 7.4 million affordable units across the country we need housing solutions today, not tomorrow. To satiate the demand, we’ll need to add 400k net units per year over the next decade, assuming population trends and housing demand growth remain stable. We are collectively already suffering from a lack of housing availability. Technology has helped lower the cost of services and goods across a broad variety of sectors – it is time for the real estate industry to catch up to the rest of the pack.

Image of Housing Tech Ventures home page.