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Affordable housing

Dorchester rocks.

January 19, 2022

Travis Lee is founder and owner of TLee Development LLC, the developer of 1463 Dorchester Avenue. Travis is passionate about creating cross-cultural community building and economic development opportunities for low- and moderate-income Dorchester residents.

A Dorchester resident himself, Travis has over 15 years of experience developing mixed-income housing and small businesses in his community. Travis founded TLee Development (TLD) in 2014 with a core mission to help communities articulate and bring their visions to life. TLD works closely with community groups and civic associations to conceive, plan, permit and construct various mixed-income and mixed-use properties in Dorchester. To date, TLD has over 80 residential units and 50,000 square feet of neighborhood commercial space in the planning, permitting or operational phases of development. 100% of the residential units developed and owned by TLD are affordable to families making between 60%-90% of the area median income. In addition, TLD projects are designed and built to meet Passive House standards which reduces energy consumption and operating costs—ultimately creating a healthier environment for building occupants.

Prior to forming TLD, Travis served as a project manager in one of Boston’s most historic and impactful community development corporations, Madison Park CDC. While there, he oversaw the development of over 200 units of rental and homeownership housing as well as roughly 40,000 square feet of commercial space in the Roxbury neighborhood. As an entrepreneur and small business owner in Dorchester, Travis’s commitment to economic development in his neighborhood is personal. As co-founder of the Fields Corner Business Lab (2014), Travis has fostered collaboration among entrepreneurs, small businesses, and community development organizations to advance one of Dorchester’s most promising business districts. Travis also co-founded the Dorchester Brewing Company (2016), an AIA-award-winning partner-brewing facility and public Tap Room that has become a neighborhood staple and citywide favorite.

Read the podcast transcript here

Eve Picker: [00:00:11] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad. Rich or poor. Beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website Re-Think Real Estate for Good, Darko, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:01:05] Travis Lee is the developer who believes in the local economy. After launching a career building big, Travis came home to Dorchester in 2014 to found TLDevelopment. Dorchester is a vibrant and diverse community in Boston. Since then, his work has not strayed beyond the boundaries of the Dorchester community, and that’s the way he likes it. Travis takes his role in the community very seriously. He works closely with community groups and civic associations to conceive, plan, permit and construct his various properties. To date, he has built, or is planning, 80 residential units and 50,000 square feet of neighborhood commercial space. One hundred per cent of his residential units are affordable to families making between 60 to 90 percent of the area median income. And his projects are designed and built to meet Passive House standards as well. He’s also co-founded a unique brewery and a co-working space, all in Dorchester. You’ll want to hear more.

Eve: [00:02:18] If you’d like to join me in my quest to rethink real estate. There are two simple things you can do. Share this podcast and go to RethinkRealEstateForGood.co, where you can subscribe to be the first to hear about my podcasts, my blog posts, and other goodies.

Eve: [00:02:46] Hi, Travis, thanks so much for joining me today.

Travis Lee: [00:02:49] My pleasure, Eve. Thanks for inviting me

Eve: [00:02:52] So, you’re a real estate developer with a mission grounded in community, and I wanted to understand why that’s important to you.

Travis: [00:03:00] Well, it’s a great question. I graduated college and moved up to Boston from South Carolina to work at a homeless shelter in downtown Boston. And my first year of living in Boston was sharing a bunk with a man recovering from substance abuse. Along with thirty-one other men in recovery at a homeless shelter, and my job was to be an informal in-house caseworker who helped folks find jobs and go to court and help them with their court cases and just be a friend, so to speak. And that was probably the most influential year of my life in terms of getting a up-close view of community development and/or broken communities and hearing all of my new friends tell me about their stories and the communities they came from. And it gave me quite the passion to be deeply involved, deeply engaged in a community as I grew older, and to play a small role in facilitating a healthy community for folks.

Eve: [00:04:22] So how did you wind your way to developer in Dorchester today?

Travis: [00:04:27] Well, after that year of living and working at the Boston Rescue Mission, I took on a role via AmeriCorps at a micro-lending organization called Accione USA, where I spent a year making five-thousand-loans to Spanish speaking entrepreneurs.

Eve: [00:04:48] Oh, that’s interesting.

Travis: [00:04:49] In the city of Boston. And I think I had more fun that year than I have in many, many years. And after that year, I got an internship at the Jamaica Plain Neighborhood Development Corporation, a community development group in Boston. And I had the great privilege of working on a redevelopment of a 1880’s brewery, the Haffenreffer Brewery.

Eve: [00:05:16] Oh, that’s fun.

Travis: [00:05:17] And we converted one hundred thousand square foot abandoned brewery into 32 small business spaces. And to be involved with the financing and the construction and the tenant fit-out of that project got all of my blood flowing for community development. From there, I got married and moved to New York City and got a job working at a public private bank called the Upper Manhattan Empowerment Zone, where I was charged with making loans and equity investments into small businesses and real estate projects that otherwise would not occur in Harlem or Upper Manhattan, and got a chance to be on the lending side for small businesses and fell in love with small business, and helping those small businesses grow and start up shops when they were having a hard time finding the capital. So, we got to play that gap financing role. And a couple of years later, moved back to Boston and moved into a neighborhood called Dorchester, where my kids would go to school and my wife would teach and I looked for a job in the community development world.

Travis: [00:06:38] This time, I wanted to be on the development side, and I found an old friend who was running a real estate department at a community development group called Madison Park CDC in Roxbury and took a job as a project manager and spent the next seven years developing two hundred or so apartments and/or homeownership opportunities in the Roxbury neighborhood called Nubian Square. And those seven years were extremely influential, mostly because for seven years I worked in the same location with the same people, the same community groups getting to know the heart and the soul of a neighborhood and getting to understand the vision that a community had for itself and thereby getting to play a role in executing their vision. And that’s when I said, I want to spend the rest of my life working in a single community, helping to advance the vision that that community has for itself. And that means getting to know a place, getting to know the people there, getting to know what they care about and putting the skills and the experience and the resources that I, as a developer, have at my disposal. Putting those to work for the sake of moving forward a community’s vision for itself and finding the balance where I can both make money and accomplish a vision that a community has, and that’s a very tight rope to walk.

Eve: [00:08:20] Yes, it is.

Travis: [00:08:21] It’s been extraordinarily enjoyable, and the relationships have been very sweet over the years.

Eve: [00:08:29] That’s wonderful. That’s a very powerful vision and a pretty unusual goal. Not many people think that smaller can be bigger, I suppose. Right? You’re just focused on one community.

Travis: [00:08:42] Yeah, it’s tough to limit the opportunism. For a long time, I got phone calls from friends or colleagues in other neighborhoods or other cities saying, hey, I’ve got a great opportunity, let’s, can you come and participate here or there? And for several years, it was really, really hard to say no. And after a few years of committing to a place and committing to a people and building those relationships with people, where they started to trust that what I said, I hear you and we can’t do exactly what you’re asking for, but we can do this and that, and moving forward and working alongside the community. After experiencing some of that, it became much easier to say, You know what, we’re going to turn down some, what might look like great opportunities way over there, to focus right here. And to be honest with you, the neighborhood that we work in, Dorchester, is the neighborhood where I live. And the neighborhood where I’ve lived for 15 years, and my five children go to school and my whole family lives and operates. And so, it all feels very close to home, and there is much satisfaction getting to see my own neighborhood grow up in a more equitable, inclusive manner and being a small, small part of practicing equity and practicing work that builds wealth in communities that have had wealth extracted from them over the years. And so, it’s…

Eve: [00:10:16] So, you know, what is Dorchester like? I mean, that brings me to think about what is that demographic like in your neighborhood?

Travis: [00:10:24] Well, Dorchester is a large neighborhood. I think there’s close to a hundred-thousand people altogether. And it is a very diverse neighborhood. Some people liken it to Queens in some ways, Queens New York. There are African American people, there are Africans, there are a strong Latino population, a white population, a strong Cape Verdean population, which of course is West African and a strong Vietnamese.

Eve: [00:10:53] I have to say Yum.

Travis: [00:10:54] It is a very diverse group of people that live here. And my humble opinion is that most of us live in our own silos. The cross-cultural gathering and community building is fairly weak, and we have mostly white people doing life with white people, and we have Vietnamese people doing life with Vietnamese people. And I think there’s a younger generation that is really working hard to bridge some of the cultural barriers there. And that’s one thing that our organization is trying to do, is trying to facilitate community building across cultures where language barriers are real, cultural differences are real, and finding commonalities. Finding things that will bring people to the same table, often over food. And that’s why most of our projects have a retail component, a small business component on the ground floor where we can help work with a local entrepreneur to open. We’ve opened four restaurants at this time.

[00:12:08] Oh, that’s great.

[00:12:08] That is the owner and that is the operator, but as the developer/landlord who wants to facilitate a community gathering space for people in the neighborhood to come and eat and be together and that’s something we believe in.

Eve: [00:12:21] So a very diverse neighborhood. And what does your team look like?

Travis: [00:12:25] Well, at the moment, we have three people on the team. Myself, I’m a white man of Western European descent. We have a woman named Dariella, who is a woman whose family comes from the Dominican Republic. She identifies as a person of color. She often identifies herself as being black. And Milton, our third teammate, is a black male who grew up in the neighborhood, although both Dariella and Milton both grew up within five to seven minutes of all of the work that we do. I am the newest comer to the neighborhood, having been here for just 15 years or so.

Eve: [00:13:11] Okay, so okay, let’s talk about the project. So you’ve done quite a lot of work. What are the projects like that you focus on in Dorchester?

Travis: [00:13:19] Well, about four years ago, we actually, our work started seven or eight years ago in buying one of the largest office buildings in Dorchester. It was sixty-five percent vacant, and it was a struggle to buy it. The financing of it was quite difficult, but we managed to purchase this mostly vacant building and over the next six to nine months, fitted out with a non-profit tenant. And then we started a shared workspace on the fourth floor because we were unable to find another tenant. So, we started a business to be our own tenant, and we call that space the Field’s Corner Business Lab. We have 120 or so members that all share the space as members of the Field’s Corner Business Lab. We, from that building, once it was occupied, we built a six-family, and our first new construction residential building in Dorchester. It was aimed at households earning 70 percent of the area median income. At that time, it was like fifty-five thousand to seventy thousand dollars a year in annual income as what we were honing in on. The vision for an income target came from some of the experience I got as a non-profit developer working for CDCs, whereby we built affordable housing strictly for households making at or below 60 percent of Boston’s area of median income. And what I started to read about, and think about, was the hollowing out of the working class. Those folks that made too much money to qualify for the quote low-income-housing and yet could not afford the market-rate housing. And so, we started with a focus on what some call middle income, others call workforce housing, and that trend has stuck.

Travis: [00:15:21] So our first six-family building was quickly occupied entirely by neighborhood residents who were working and making around 60 to 70 percent of the area median income. We then went on to build a 14-unit workforce housing project with rents between 70 and 90 percent of the area’s median income. And in that project, we had some ground floor retail space that was occupied shortly after construction by a local catering company and restaurant called Fresh New Generation, which we are extremely excited about. Not too long ago, in December of 2020, we purchased a thirty-one-unit existing building. It’s about 60 years old and was failing in many regards. The physical condition was failing, the tenants were not well cared for, and we have spent the last year systematically re-renovating the building, both physically and reaching out to each tenant, trying to figure out how we can provide folks with the resources they need to thrive. And that has been a challenging project, one that helps you realize that you don’t change the culture of a building overnight, especially one that’s been operating in a particular way for many, many years. So as a team, we have been investing in the building, both with people and investing dollar resources to help slowly turn the nature of that ship into a place that people are happy to call home. And just a month ago, we began construction on a twenty-nine-unit five-storey building in a neighborhood of Dorchester called Fields Corner. This project is the first of our projects to include a community investment offering.

Eve: [00:17:22] Yeah, on Small Change.

Travis: [00:17:24] We worked with Small Change for many numbers of months to just recently launch an offering for members of the community to invest in this building. It will have studio and one-bedroom units available to folks making between 70 and 90 percent of the area’s median income and will also have a ground floor retail component. We are currently talking with two different restaurants, restaurant owners, to possibly move into that space. So, we have a few other things in the pipeline that we’re working on in the future. But those are the things that are currently either complete or in construction.

Eve: [00:18:03] Are underway. So, let’s talk a little bit more about 1463 Dot Avenue, the crowdfunding project, which, you know, I have to say you’re the first developer who came along who really had a really serious community engagement plan in place. Often crowdfunding is more casual, a little more organic than that, you know, but I’d love to hear about that strategy.

Travis: [00:18:28] Well, I think the first part is that we weren’t primarily trying to raise money. And it all starts with what the objective is, and our objective of this community investment initiative was to do development different. And we have recognized that many of us, including our own team and our own operations, we’ve done development the same way for so long and we step back, and we wonder why we’re not creating a more equitable environment, why we’re not making a bigger change, a bigger impact. Why we’re not creating better access for people who have been historically marginalized. And so, we said to ourselves, we’ve got to do something different. We’ve got to push the envelope a little bit. We’ve got to move the needle a little bit and test the waters. And so, while we weren’t looking primarily to raise money, we were looking primarily to engage residents of Dorchester in a process. And I think we were quick to say, this is also not primarily a wealth building exercise, right? When you invest two thousand dollars into something, and you make 10 percent on that money every year. Two hundred bucks isn’t going to change your life.

Eve: [00:19:49] Oh yeah, but compare it to a bank account, which makes you -0.5 Percent a year. It might change your life a little bit, you know.

Travis: [00:19:59] But in terms of what the primary objective was, it wasn’t even wealth building. It was place-making and community building. It was this this hope for a psychological change in, say, two or three hundred people who live in the community who might otherwise have walked by this new building and said, look what somebody is doing in my neighborhood. Maybe they walk by and say, Look what I’m a part of. Look what we are doing in my neighborhood. So that was the biggest objective or that is the biggest objective. Can we steer the narrative a little bit to be one of greater inclusion and one of less look what he or she is doing but look what we are doing? And so that’s our hope, and that’s what we’re off to do. And so, you ask, why did you engage in such a robust community engagement process? It’s because of that reason. This is not about raising money. This is about raising community participation, raising engagement, connecting people to their place, to their home and to each other. And we hope that that is accomplished.

Eve: [00:21:07] So Travis, I’ll tell you, I mean, that’s why I built Small Change. I mean, it really was for that very reason because I feel that people love the cities they live in, and they really want and need a palpable connection to them. And so, I think what you’re doing is exactly right, but it’s extremely difficult. I’d love to know your playbook for community engagement because not everyone really understands that. It’s very, very difficult. But it’s working. It looks like it’s working, right? People are starting to invest. So that must feel pretty gratifying to you.

Travis: [00:21:46] Yeah. You know, we’re a week or two into this.

Eve: [00:21:49] Yes.

Travis: [00:21:50] And the investments are certainly gratifying. I am going to be more satisfied when we have a group of investors that feel more connected to their community and to their neighbors because of this, right? The ultimate achievement here won’t be that we raise fifty, one-hundred or two-hundred-thousand dollars. It will be that people care more about the place they live in, and they feel more part of its growth than they would have otherwise, and that’s going to be hard to measure. I will say, you know, as you mentioned, this is a really hard thing to pull off, technically, legally, you know, jumping through all the hoops to pull off this community investment. It was really hard and without the help of our teammates, CoEverything, Miriam and Declan, we certainly would not have been able to do this. But we won’t know that we are successful until after the fact, and we talk to people who are invested in this and get a sense of how their psychology has changed because of this project.

Eve: [00:23:01] You know, I think you’re going to find that they will come to you. One of our developers in Washington worked on a project in a food desert, and he told me that the highlight for him was every now and then he’d be walking down the street, and someone stops him and said, I invested in that building with you. And you know, it was probably 500 dollars, but it’s extremely meaningful to both of them. And I have a feeling that if you, you know, this is a marketing exercise as well, right? So, wouldn’t it be great if those people come back to you with more project ideas? Because it’s now, you know, community that they feel more connected to and they have a stake in it, that would be really wonderful.

Travis: [00:23:43] You know, having done real estate development work exclusively in this particular neighborhood for the last eight years, we’re not calling on strangers to come and participate in this investment opportunity, right? But that’s the benefit of forgoing some of the opportunism that might be out there in other cities or other parts of our state. But we get a benefit from focusing on a group of people in a certain place. We get to know them, and they get to know us. And as you said, we now call on these relationships and say, look at this opportunity, can you share it with your friends? And we have ambassadors. We have people that want to be a part of what we’re doing and that bring opportunities to us and say, Listen, our neighbor is going to sell some real estate soon. Would you all come take a look at it?

Eve: [00:24:36] Yeah, it’s pretty great.

Travis: [00:24:38] It’s super. It’s a super wonderful place for us to be. And it reminds us that if we can do what we say we’re going to do and be honest and transparent and put others before ourselves, people will start to believe that this is real and that we’re trying to be, trying to move the needle a little bit and they’ll get on board. And that’s…

Eve: [00:25:03] Yeah. So, beyond all that brain damage, you do a lot of other things Passive House standards, transit-oriented development, something called the city of Boston’s Compact Living Pilot requirements and really complicated financing from what I’ve seen. Do you want to talk about the challenges of making a project like this really, sort of, fit that affordable worker housing model?

Travis: [00:25:34] Yes, I think the financing of these projects is the most difficult part, and it’s not because money is not available. It’s because our objective to offer housing that is affordable to the median income household in a neighborhood, or in this neighborhood, I should say, that is getting harder and harder to do. And we traditionally have not sat in line for big state subsidies. We traditionally have worked with creative private lenders who are mission-aligned and have more patience and often lower returns requirements, but they still need their money back. And so we borrow real money that has to be repaid, and the costs of these projects is increasing big time each year, and material pricing. You know Covid has had a large part of this. And so it’s getting more and more difficult. Part of this Compact Living Program that the city has opened up allows developers to build much smaller apartments than otherwise, or historically, we could. And as you know, Eve, there’s not a lot of ways to reduce the price of something, right? You either get government subsidy, you build a piece of junk, or you build something smaller and more dense. You build smaller units in a more dense building and you get more in the bag. And part of our thesis here has been in order for us to be competitively affordable, and if we’re not going to rely on big government grants, which so far, we have not really done, then we’ve got to build smarter and we’ve got to get more in the bag. So, that’s been what we’ve been trying to do. We’ve built smaller unit sizes than most. Our studios are often in the three-hundred-fifty square foot range and our one bedrooms are as low as four-hundred or four-hundred-and-fifty square feet, five-hundred square feet. And on one hand, this isn’t a home run, right, because people want and need space to live in. On the other hand, if we want to bring the price down, we’ve got to take advantage of all the opportunities we’ve got.

Eve: [00:27:53] Yeah, I mean, I think those sizes are OK. I actually have a little cottage that’s a two bedroom that’s 600 square feet and it’s extremely comfortable. And I think that really comes down to the architecture and how you lay it out. Are you going to lose spaces and common areas or you’re going have some sensible layout that really efficiently captures every square foot? You know, there’s a big difference, right?

Travis: [00:28:18] Yeah. The layout’s super important, as you say, and we’ve gotten, I think, better and better at this over time. The other really important thing to ask yourself is who’s going to live here, right? Are we trying to attract the young professional who is working downtown and making a single salary, but a pretty good salary? Or are we trying to, and maybe that person lives in a more expensive part of Boston who wants a cheaper rent. Or are we trying to create opportunities for people that already live in Dorchester, have a decent job, but might have, might be a part of a household, might have a child or two? And I think knowing your audience is really important and the audience that, you know, that we are really trying to target are people that currently live here. And not just trying to attract people from outside of Dorchester but trying to create a space that people that live here and are getting priced out of here can stay. We have constraints that we’re trying to live within, and hopefully this next project with twenty-nine apartments, hopefully with our marketing efforts, we will be able to fill it with Dorchester residents. That’s the goal.

Eve: [00:29:33] That would be fabulous. So when will that be? When are they going to live there?

Travis: [00:29:39] Well, we started construction in December, so we expect to complete in about March of 2023 and we will begin our marketing efforts in the late fall or winter of 2022.

Eve: [00:29:53] I bet you must already be keeping a waiting list, right?

Travis: [00:29:56] We’re currently working on our branding and our various web pages and marketing materials, so we haven’t specifically launched a campaign for applicants yet, so we’ll start that in a couple of months.

Eve: [00:30:13] It sounds like it will go really well, but I wanted to also talk about the other stuff you do because it sounds like you haven’t stopped at buildings. You mentioned the Fields Corner Business Lab, and I also read about the Dorchester Brewing Company, which you co-founded. What about those?

Travis: [00:30:30] Yeah, I think those have largely been attempts to bring people together. Fields Corner, one of the neighborhoods of Dorchester, won an award, a handful of years ago, for being, I shouldn’t say an award. It was ranked like number eight in the country for its true diversity. And there wasn’t, you know, a few years ago, me and a friend were lamenting that while it is so diverse on paper, there was so little interaction in general, from culture to culture or community to community. And so, part of the objective was could we create a shared workspace where Vietnamese entrepreneurs and Cape Verdean entrepreneurs and Latino entrepreneurs and white entrepreneurs could come together and work not just side-by-side but get to know each other and do their work better because of relationships they’re building with other like-minded folks, maybe with different perspectives. And that was the objective there. And to date, it is an extraordinarily diverse work environment. Of the hundred and twenty members, it’s very well representing the community at large. The Dorchester Brewing Company was an idea envisioned after the Field’s Corner Business Lab took effect where we double-booked and sometimes triple-booked the number of seats in the shared workspace so that we could reduce the price of one seat by renting it to say three people, hoping that they’re not all there at the same time, right? This is sort of the airline effect.

Eve: [00:32:07] The hoteling thing, right?

Travis: [00:32:09] Yes. And so, we did something similar with this beer industry. We figured out that in Massachusetts, some 20 or 30 percent of beer companies did not have their own brick and mortar but were borrowing someone else’s brick and mortar to brew their beer. And that’s called the contract brewing industry. And we realized that there wasn’t a specific manufacturing center for beer that focused on making beer for others, as opposed to one big beer company making beer for themselves in their own building, and then pawning off a little bit of excess space to other people and often treating them like stepchildren. And so, we envisioned this concept where we would be the first state-of-the-art beer manufacturing center that existed for other beer companies. And in 2016, we finally launched in a 24,000 square foot building with the full array of packaging options and a very flexible beer production system. And we had 15 or 20 different customers that we brewed beer for all under the same roof. And they would come pick up their beer. And the beauty of the beer industry is that ninety-five percent of beers are made in a super similar manner, with mostly the same ingredients. And so, we could order ingredients in very large quantities and instead of paying 89 cents a pound for some material, we could pay 22 cents a pound.

Eve: [00:33:45] Wow.

Travis: [00:33:45] And we pass that savings on to these small brewers that are otherwise paying 89 cents a pound for that product. And it’s been a real win-win and the funnest part of the whole project has been taking a piece of all the product we’re making for these 15 or 20 different beer companies and selling them in a single tap room on premise, where the general public, the Boston population, can come and sit and drink any one of these beers.

Eve: [00:34:16] That’s fabulous.

[00:34:17] That are all on premise, but they were all authored by different companies, but made by us on premise. So, it’s fun thing.

Eve: [00:34:24] That’s really fun. So, you’re a pretty busy, guy. What’s your big, hairy, audacious goal? This is my final question, I promise.

Travis: [00:34:37] What is my big, hairy, audacious goal? You know, when I die, I would love to look back on years and say that I stewarded my opportunities as well, and that I stewarded my resources well, and when I think about what that means, I think about, was my time and energy and resource put to use in a manner. that created a more just and equitable community? And instead of thinking a mile wide and an inch deep, by focusing on literally a quarter-mile radius, could the efforts that our team, the efforts that we’re putting towards our development and towards our community, could we go a mile deep in an inch wide and create lasting impact that might build generational wealth in families who have been pushed to the side for many, many years? Could we actually bring opportunities within arm’s reach of families that haven’t been able to grab a hold of them? That’s our hope, and that would be an extraordinarily satisfying life if I could have a very small role in accomplishing that.

Eve: [00:35:55] Well, it’s been a complete pleasure talking to you, and I hope the crowdfunding raise is wildly successful. I hope you do more, too. It’s been a great pleasure. Thank you, Travis.

Travis: [00:36:06] Eve, thanks for your time. Have a lovely day.

Eve: [00:36:25] That was Travis Lee. As an entrepreneur and small business owner in Dorchester, Travis commitment to economic development in his neighborhood is personal. He works hard at fostering collaboration amongst entrepreneurs, small businesses and community development organizations to advance one of Dorchester’s most promising business districts and to improve the place that he calls home.

Eve: [00:37:04] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Travis Lee, TLee Development

Beyond the Vagabond.

January 12, 2022

With a career path that has taken her from bond trading on Wall Street to developing properties along some of Miami’s trendiest streets, Avra Jain has earned a reputation for identifying the next it neighborhood. The recipient of three Sundance Film Awards for the documentary Dark Days, this industrial engineering graduate from Purdue University develops projects based around two of her favorite pursuits: art and architecture.

While living in New York City, real estate became a “hobby,” starting with her apartment, which turned into two, and then more. In the 1990’s she was pursuing real estate full time, taking on a 100,000 square foot warehouse in North Tribeca for luxury condo development. By 1999, she had moved full-time to Miami and was buying, selling and renovating properties along the Biscayne Boulevard corridor near Downtown Miami.

The Vagabond Hotel (2013) is considered Avra’s keystone restoration project in MiMo (Miami Modern historic district) and the namesake of the development company Vagabond Consulting Group, she co-founded with her partner, Dalia Lagoa. The Vagabond’s historic designation was set in 2003, and the 45-room conversion from dilapidated motel to designer hotel set the tone for the whole neighborhood.

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

Some of Avra’s most recent recognitions include: Urban Environment Leaders “2014 Orchid Award for Historic Revitalization”, Greater Miami Chamber of Commerce R.E.A.L. “2015 Winner of Developer Commercial Category”, the Women’s Chamber of Commerce “15th Thelma Gibson Award of Excellence”, the AIA Miami “Developer of the Year 2016”, and the “2017 Community Catalyst Award”, amongst others.  Avra serves on the Miami Foundation Board, Dade Heritage Trust, Locust Projects, and University of Miami’s Master of Real Estate Development + Urbanism Advisory Boards. 

Insights and Inspirations

  • “In the end, our society will be defined not only by what we create, but by what we refuse to destroy.” John Sawhill.
  • You’ve got to get past the working girl on the corner, says Avra.
  • All real estate development work should start from the story.

Information and Links

  • Vagabond owner Avra Jain takes Miami back to the future.
  • About rebuilding Biscayne Boulevard.
  • Back in 2012 the Vagabond restoration was still an idea.
Read the podcast transcript here

Eve Picker: [00:00:08] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateforGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve Picker: [00:00:57] I’m bringing back one of my favorite interviews with Avra Jain, a wildly creative (and successful) Miami developer. Avra and her Vagabond Group have built projects that range from converting a 100,000-square foot warehouse to luxury loft condominiums in New York’s Tribeca neighborhood. But the one that put her on the map, and the one I love the most is the remake of The Vagabond, a down and out mid-century motel on Biscayne Boulevard into a hip and desirable Hotel. Today, Avra’s passion lies squarely with the personal project portfolio she is building – the conversion of abandoned and historic motels into re-imagined affordable housing communities. I love her approach and so will you!

Eve: [00:01:58] If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast. And go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:23] Hi Avra. Thank you so much for being on my show.

Avra Jain: [00:02:27] Thanks so much.

Eve: [00:02:28] Very nice to be here, yeah. I love this quote from your website, which says, “We operate from the perspective as storytellers, allowing history to take center stage and create a genuine sense of place”. And I would really love you to tell us a little about what that means.

Avra: [00:02:46] Well, that really has come from the work that we’ve done. We, kind of, we got there. We, I’d like to think there were people that actually, sort of, do it and then rather than talk about it. So, I can say that that actually, actually came from the work that we’re doing. My team is three architects, one of which was, has a master’s in historic preservation. And so, when we start a project, or we do a project, the first thing that we do is that we study the history of the community, of the buildings themselves, architecturally, culturally. And so, we always sort of start from the story. And if there isn’t a story, we don’t do the project.

Eve: [00:03:36] Oh, interesting.

Avra: [00:03:37] Yeah, so we actually, so that quote really came from how we really operate. So that’s a real reflection of the work.

Eve: [00:03:48] So what sort of stories do you look for?

Avra: [00:03:52] You know, it varies. So, in Miami there’s a section of, there’s a historic strip from the 1950s and 60s called MiMo which stands for Miami mid-century modern. So, there’s a boulevard, Biscayne Boulevard, which used to be US1. So, if you were driving down post-World War Two in your 57 Chevy and you were going to Miami, the Magic City, you would have driven on US1 or Biscayne Boulevard. And there is a section that had these old 50s and 60s motels and, you know, with a big neon signs, and so, we came up here, one of the projects, larger projects that we did, that we’re known for is the preservation work. When we renovated the Vagabond Motel to Vagabond Boutique Hotel. And that was the tipping point for the historic boulevard. So, we bought about 10. The neighborhood at the time was all drugs and prostitution. And, you know, it had been a neighborhood that you would’ve just driven right through with, you know, the shades down next to the baby seat, you know, but there were some spectacular, you know, vintage mid-century architecture, which I know you’re an architect so you can appreciate.

Eve: [00:05:17] Yeah, I know. I took a look on your website. They are stunning.

Avra: [00:05:21] Yeah. So well, these were buildings that were up for demolition. And they were in disrepair, you know, SWAT teams were coming in once a month to empty them out because of, you know, drugs and things that would go on. And so, we knew that in order to, and this was a neighborhood that used to be Main Street, Biscayne Boulevard used to be Main Street. If you couldn’t afford to stay at the Eden Roc or the Fountain Blue, you would’ve stayed at the Vagabond. Same architect that did the very famous Delanoe Hotel on Miami Beach. So, we knew what it once was. So, it was about, you know, bringing it back. There are other times when we actually, you know, neighborhoods, right, where we go into warehouse districts and create neighborhoods. This was a neighborhood that was so all we do was bring it back. And there was actually some really affluent neighborhoods nearby and surrounding neighborhoods that were also original from the 1930s and 40s. So, it was really a beautiful project to do both architecturally and for what it did for the community. The thesis was, if we bought enough of these motels that were 20 dollars an hour, you know, sixty dollars a night. The hotel that we bought next to Vagabond, in the lobby the sign said: “no refunds after five minutes”. And it originally said ten minutes and they whited it out. That was the neighborhood and so we bought six of these old motels. A couple of them were abandoned and the rest of them we shut down. What happened was we thought is, if you shut down where people were actually doing these bad things, could the neighborhood find itself again? And it did.

Eve: [00:07:20] What gave you the courage to do that? And what sort of resistance did you feel for these projects?

Avra: [00:07:28] Oh, no resistance. Oh, my gosh. The city was like, the mayor, you know, we when we opened the Vagabond, we had nine hundred people. Everybody, all the arts, everybody. It was like a really big deal. This was, you know…

Eve: [00:07:40] I suppose I meant from the point of view of, because opening is easy. But what about the financing? I mean, how easy….

Avra: [00:07:47] Oh yeah, yeah, yeah. I was going to say, we had no community resistance. In fact, people continually thank us all the time. But the resistance, yeah, sure financing, couldn’t get any.

Eve: [00:07:58] Yeah, I’m sure.

Avra: [00:08:00] Yeah, no, I mean you know, you’ve done this enough times, Eve. So in fact even my traditional real estate investors, I had done a lot of adapted use in New York City and other places and a lot of my investors which go all the way back, you know, twenty five years to New York City, even some of them were like, ah, you’ve done a lot of crazy things, but they just could not get past the working girl on the corner. They couldn’t get past it. They could not see the architecture. They could not see, they couldn’t see the history, they just couldn’t see it. They couldn’t believe that it would come back. And so, a lot of, in this particular case, a lot of the money for that particular project was myself and my partners, you know, my spouse. I mean, we put up, I’d say 40, 50 percent of the money. So, it was really a cash project. But we found some very clever financing opportunities, financial opportunities. So, we did, I did my homework. I always tell people, you know, part of real estate is doing your homework. Understanding zoning, understanding the community and doing the outreach. Understanding building codes, a lot of homework. Well, I’d done my homework and I knew that there had been an ordinance set up in 2010, where you could sell development rights for historic properties. So, you know, in New York City, we knew that we could do this. We call them transferable development rights.

Eve: [00:09:32] Right. I’m very familiar with them. Yeah.

Avra: [00:09:34] So in Miami, for this particular strip, because it was historic, they down zoned it, meaning they limited, they did a height restriction of 35 feet. They took away buildable rights for the property owners. In exchange for doing that, they offered the property owners the ability to sell those development rights. So, floor area ratio, you know how much you could build. And then later they adopted a policy that also allowed you to sell the density. Like how many apartments you could build. The number of doors we call it, right? So, I was able to arbitrage that and the value of the transferable development rights for the Vagabond was three million dollars.

Eve: [00:10:24] Wow.

[00:10:25] And the purpose of those development rights and the ability to sell them is also to incentivize property owners to preserve and invest in the historic preservation of the property. So, you can sell those rights, but you have to reinvest them into the property and meet historic guidelines.

Eve: [00:10:43] Interesting.

[00:10:44] Yeah, it’s not a little project. Actually, I think that, you know, in order to get historic preservation to work, you really have to give people incentives because it’s very expensive. For those of us who build, doing historic preservation it’s more expensive. It would’ve been cheaper for me to knock the building down and build it again than it was to actually preserve the existing Vagabond. So, they have to give you incentives otherwise… there’s a reason why developers let those buildings go into disrepair and

Eve: [00:11:16] because they’re expensive, yeah. Historic tax credits help as well. I don’t have Florida has a state credit as well, but I’ve used those in the past and they certainly help to fill the gap, that’s for sure.

Avra: [00:11:29] Yes. We qualified. We nationally designated the Vagabond Hotel. We met those standards and got the federal tax credit. So, we got 20 percent of our investment into the property. Yeah, every state’s different. Every state’s different. Every municipality is different.

Eve: [00:11:47] This really took creative financing and the, since then, you said you bought six of them and how did the financing change one you opened the Vagabond Hotel?

Avra: [00:11:57] Well, once we opened the Vagabond, sold the development rights, we were able to, get banks to give us some financing. But most of the projects we did, we did cash. We did cash and we financed after. It was just still, even now it’s easy, you know, but I took rents, rents on the Biscayne Boulevard for twenty, twenty-five dollars. The Starbucks leases from me for 70 dollars, triple net. So, now it’s very easy to get financing. And the Boulevard has a lot of cachet, but it’s very difficult, yeah. I mean, this is actually why I started Small Change because, you know, banks almost squash the creativity out of what needs to happen, the creativity and innovation out of what needs to happen in cities, because you can’t, they want to only finance what’s been done before. So, how do you tackle a place like this if you can’t get financing and you don’t have the cash?

Avra: [00:13:00] Yes, it’s almost, I would say, it’s almost impossible. So, you know, you rely on friends and family. A lot of it’s your check book. But that’s also the opportunity. Those are the properties that are also undervalued, right? The property that trade that are most expensive, are really a function of financing. You know, Multifamily trades at a tight cap rate because that is the darling with the lenders. Banks really, and part of it is the regulations, banks have to fund based on cashflow, income from properties. The regulations almost mandate it.

Eve: [00:13:36] Yes.

[00:13:37] So, lending on land or lending on an abandoned building and for adaptive reuse, which is unfortunate because in a lot of the underserved communities you need.

Eve: [00:13:48] That’s exactly what you need, yeah.

Avra: [00:13:49] And what you lose because these are buildings that need a lot of work. Of course, they’re not income producing, nobody should be living in them. And some people do live in properties like that and shouldn’t be there. So, you know, the banking industry does not set up to be helpful. You know, what has happened, short of being able to fund yourself or have enough track record to to attract funding, is that there’s a, sort of a hybrid lending space now. Used to be you could only get bank financing or a bridge loan or, you know, hard money loan you call it, right? 13, 14 percent which makes projects also unfeasible. You just, you give away all your profits in interest costs. But there’s hybrid money out there now, that is more flexible, and you can get, you know, between six and nine percent depending on the project and you’re, and the sponsorship. We’ve been able to get hybrid money for projects like this. And it’s really because of our track record. And it’s all personal guarantees, right? I have to sign personally on everything.

Eve: [00:14:58] Oh yeah, yeah, yeah, yeah. I sign my whole life away.

Avra: [00:15:02] Until the projects completed. You know, it’s very hard for people to get into this business from the developer’s side. You know, I have three architects that work for me and they didn’t want to be in a firm, just, as you guys would call being a cad monkey. I think, you know where you’re just drawing all day, right? And so, they wanted to be developers. And so, they came and worked with me. And they’re learning development really is about money. So, when you think about what does it take to be a developer? We’re not licensed. Architects are licensed, builders are licensed, right? Your electrician’s licensed. Even the real estate agents are licensed. Developers are not licensed. You can call yourself a developer as long as you have a check book.

Eve: [00:15:52] Yes. So, what would you tell other women who want to be real estate developers?

Avra: [00:15:57] You have to love it. Well, first of all I’d ask, what does developer mean to you? So, if I asked you Eve, define developer, what, how would you define it?

Eve: [00:16:07] Well, for me, it’s all about the buildings. I’m very passionate about buildings and places and using architecture to make better places. So being a developer for me is the opportunity to really make some significant change through the money that I invest, or I put together to make buildings better.

Avra: [00:16:34] And then there’s a lot of people that would like to do that, right? So how do they do that? Right? And there’s, I think there’s a lot of people with vision and, so, you need the money, right? And then you have to be able to execute. And so, a lot of what goes right or wrong is in the execution. So, you know, you have the vision, but it’s the, now is the execution. You know, how well do you budget, the quality of the work, the team that you can assemble. And you know the surprises, right. You know, we say we’re in the problem-solving business, really, especially with more adaptive reuse or historic preservation. You have no idea where you’re buying. You know, we’ve gotten pretty good at it now and I can tell you every time it’s different.

Eve: [00:17:24] Oh, yeah, it’s a challenge. But that’s the fun of it. But listen, why? You know, you’re a female developer, I’m a female developer. There are very few of us. Why is that? Because, you know, women are very good at team building.

Avra: [00:17:40] Well, I think a lot of women are doing it. They just don’t have the title, right? So, in my particular case, I’m the founder and, you know, I know I run the company, but a lot of women are doing it. They’re just not, I think the front person. Interesting. You do your work, you’re the front person. You’re doing it but the women that work for me, they all work, you know, I give, I empower them, they all have their own projects within, within the Vagabond Group. They all run their own jobs, they do the architecture, they do the expediting, you know, of course, all under. And they’ve been with me long enough. They know at first, you know, tightly under my watch and now, you know, call me if you need me.

Eve: [00:18:25] But still, that’s a little bit different because they don’t have access to their own money. And that’s, I think, you know, as you said, the deciding factor. So, where I live there’s very few women who kind of can plan their own destiny as real estate developers. I actually don’t know of anyone else at the moment. So,

Avra: [00:18:45] It’s money, so that’s it. You’ve really defined it. But I will say there’s a couple of other things. So, you know, because people have asked me Avra, why, you know, why aren’t there more? Well, one is money. And a lot of that money comes with track record. You know, I wouldn’t give a first-time person, developer money. I mean, you know, you really have to have experience in order to gain that. So, when I first did my first projects, it was mostly my money.

Eve: [00:19:11] Yes.

[00:19:11] You don’t want to lose somebody else’s money while you’re learning, right? So, there’s a learning curve here and so, as you learn and you’d have track record, you can get sponsorship, but you really have to have that, you know, especially in what we do, right? So, what you and I do, we find these. It’s easy buying a multi-family, lipsticking it up, creating value. OK that’s one thing. But to actually go in and create place, that’s different. And that requires mostly cash investments. The returns usually reflect the risk, they always do. I mean, I don’t, you, know people, you know, people go “I get two times two times my money”. And people are happy getting two times their money in four to five years.

[00:19:59] I can tell you that isn’t, that would never be a deal on my desk. If I don’t think I’m making four to five times equity, in five years, I don’t do the deal, which is why I’m able to get sponsorship. So, part of it is discipline. You know, there’s a lot of projects I’d like to do, but I look at them and go, you know, I just can’t I can’t pencil it. And then, those projects that I can’t pencil, which is like affordable housing, I just do myself and I’m OK. But those don’t make money. I’m OK that they may or may not make money because I’m doing those for different reasons. Those are for social reasons. But when I’m doing deals where I’m taking in investment money, you know, the returns for the type of deals that we do, at least the perceived returns need to be much higher. But I do that for myself. I mean, a lot of this is my own money and I treat everybody’s money if it’s my own money. I also don’t take fees. I’m not a fee developer, so I get paid based on success. So, I don’t, I don’t take fees.

Eve: [00:21:03] Ok. So, you right alongside equity investors who risk their money, then.

Avra: [00:21:09] Right alongside. So, I don’t make a penny until you make money. And I think that’s part of what, the other way that I’ve been able to raise money. Now, not everybody can do that. That’s not realistic for a lot of people. But I’ve been able to do that because I set myself up for that. I saved enough money. I don’t want to get paid, which is why I’ve been able to get, you know, the investment I get. Because people want to know that your interests are aligned and there are a lot of developers out there, they’re really in the fee business. They’re just, they’re in the fee business period. And I don’t think that that makes us aligned.

Eve: [00:21:52] So, tell me a little bit more about the 50s motels that you’re converting to affordable housing?

Avra: [00:21:58] Yes, we I did one, we did one in Little Haiti, not too far from the Vagabond. So, if you couldn’t afford to stay at the Eden or at the Vagabond, if you couldn’t afford to stay the at the Vagabond, you would have stayed at Superior, Superior Motel and Apartments, which is west, further west and 1950s. It’s a more modest property. You know, in some of the more modest neighborhoods then historic properties are more modest, but it doesn’t mean they’re less important. And I bought the building to do affordable housing. The person that runs affordable housing for the county, Mr. Lu, he would say, he actually stalked me into doing this. He wanted to put a new face to affordable housing in the projects that were being done. So, I started by giving him suggestions on what I would do and how I would go about it and then he said, then he just asked me to do something and I did. I can tell you that it was a horrible experience. Working under the administrative aspects of affordable housing. You know, they wanted to give me a small sur-tax loan. That was a half a million dollars sur-tax loan. And then by the time they were ready to give me the loan, I said, I don’t even want it. It’ll be the most expensive money I’ve ever gotten because I’ve spent fifty thousand dollars in administrative costs to get a 500,000-dollar loan, right. There was like a 10 percent cost. You know, every draw request was like the size of a Bible. I said, you know…

[00:23:28] No, that’s right.

[00:23:29] I said, Mr Lu, I can do the work, but I can’t handle the administrative aspect of this. I wouldn’t get a draw for, you know, a draw request. I don’t know how sophisticated everybody is on the podcast so I’ll try to be a little more descriptive, but, every time you build a building and it’s time to, and you have a loan, you do the work, you turn in your invoices, so to speak, and you’re supposed to get reimbursed. Well,

Eve: [00:23:57] Quickly, right? Quickly is the idea because you’d need the money to keep going.

Avra: [00:24:00] Well, six to 10 weeks.

Eve: [00:24:03] Yes, I’ve been there.

Avra: [00:24:05] Which means that in you know, that if a guy doesn’t get paid for six weeks or would anyway, if you weren’t getting paid six weeks after you’ve done a job, you’d leave the job site.

[00:24:16] Yeah. So, it costs a lot of money in time because you’re,

[00:24:19] So I ended up floating the entire job, meaning I paid everybody myself and then getting reimbursed, you know, six, twelve weeks later. And again, that’s not feasible for most people. And that’s why affordable housing doesn’t work. And that’s why, when you drive around and you see these, sort of half-completed buildings, is because you have to have the means in order to get through those projects. And I ended up, I probably have a half a million dollars of my own money in the project making zero return. So, because the cost to do it right versus the rents that you should charge. It doesn’t mean, I can charge higher rents but truly affordable rents, you cannot build affordable housing in Miami. If you gave me a piece of dirt and said Avra, build affordable housing at 80 percent of the averaged income, I would tell you I couldn’t do it.

Eve: [00:25:15] You can’t do it anywhere, actually. You can’t do it anywhere in the world, I don’t think. So, oh, maybe some places, but it’s a standard problem, yeah.

Avra: [00:25:22] Right, so it has to be subsidized, so you have to get grants. So, the reason why we were able to do historic preservation was because of the, you know, the entitlement programs to sell entitlements. That allowed us to grant ourselves some moneys to do these, what I called public benefit projects, historic preservation of the benefit. And you’re saving time, you’re saving moments in time, right. And then, same thing with affordable housing. You cannot do affordable housing without subsidies and grants. It’s impossible. So, those are instances. And people think, oh, well you can get financing for it or people will do impact investing on these things.

Eve: [00:26:02] No, you can’t.

Avra: [00:26:03] A bank doesn’t lend to the same criteria where there’s a public benefit or not. It’s not to say they don’t want to, but they can’t.

Eve: [00:26:12] Yeah, so non-profits become very important in this equation. It’s very difficult. How successful has that motel been and have you built other ones that are affordable? Do you have a waiting list?

Eve: [00:26:22] Oh yeah. Well that project, it’s called, it was a motel and efficiency apartments. So, there’s all apartments, most of them efficiency apartments. Very successful, 100 percent occupied. When you can charge a…And we were able to lease to more high risk candidates, you know, maybe people who’ve a felony in their past, you know, not a violent crime or something, but we’re able to lease to people and not take security deposits. And a lot of, you know, our employees, one of the reasons why we started, we did, we started to do some affordable housing. When we opened the motel, or the hotel, Vagabond Hotel, because we realized our staff were taking two or three buses to get to work, and they were single Mums. So, we actually started subsidizing housing for our employees, early on. We bought an apartment building close by and then we realized that obviously this was not just a Vagabond issue. This is a national, well certainly a local and certainly a national issue. So that started our efforts in affordable housing, was sort of subsidizing for existing employees. And then, when we did the other ones, we’re very conscious about trying to fill the void. We can do that because it’s a personal investment. We’re not a large institution doing affordable housing we’ve seen. This is not a money maker. I think there’s a way to do it where you could get, you know, you can you know, people go, well can you do impact investing and get a five or six percent return? We can, because I don’t take developer fees.

Eve: [00:28:04] Right.

Avra: [00:28:05] And we self-perform a lot of the work. So, I’m able to do that. So, on the project I did after this, I took in two small investors who wanted to participate in impact investing. So, we did one in Little Haiti and then we did their next projects in Overtown. Forty-four units in Overtown. And we’re in the process of renovating that. Also, a 1950s, late 50s, so it’s a combination of preservation and affordable housing, which we think is important. You know affordable housing is not bricks and mortar, it’s about people and the qualities of their life and how they feel about themselves. We say we’re really in the self-esteem business. You know, how does a single mother feel in their house? The stress level, you know, knowing if her kids are in a healthy environment or not in a healthy environment. The projects we’re just in the process of doing, we finished two of five buildings so far, we keep everybody on-site and we rotate them. So, nobody leaves the property, they’re not relocated. So, people are not, their lives are not disrupted. They stay where the kids go to school, where they went to school. Their friends are still their friends. They go to the same church, you know. So, we think it’s important when you do affordable housing to keep communities intact. That’s one of our prerequisites. Even when we did the property in Little Haiti, we did two units at a time and rotated people. So, they did not have to move. So, in the building we just finished one of the, in one of the buildings was a single mom and her child was having a lot of health issues and DCF was going to take the child away because they didn’t think that the mother was giving the child the asthma medication and everything, because the child was suffering. And the minute we moved her from the apartment that she was in to one of the new apartments, the child was fine.

Eve: [00:28:59] Wow.

Avra: [00:30:00] She almost lost her child because of the housing, the quality of the housing she was living in.

Eve: [00:30:06] That’s pretty shocking.

Avra: [00:30:09] It’s shocking. It’s unacceptable. I mean, so, most of the buildings that we, so all these buildings that we bought in Overtown, I mean, they should be condemned buildings. I mean, I’m surprised people didn’t, well apparently, they had. Some people had fallen from the second floor into the first floor. I mean, the people live in those conditions because they can’t afford higher rent and they don’t want to move. You know, these tend to be closer to core locations, right? They’re older buildings, closer to where they work, it’s where their communities are and they don’t want the landlords to fix up the apartments because if they do, they know they have to raise the rent and then they might get kicked out. So, people choose to live in these really, you know, sub-human conditions because they can’t afford the rent if it was renovated. So, in that particular project, we teamed up with the CRH, the Community Redevelopment Agency in the area, and because they had seen our work in Little Haiti, they had asked us to do a similar project in Overtown.

Avra: [00:31:16] And my, my response was, no. I said, it doesn’t work. I go, it doesn’t work. I can’t afford to subsidize all these projects. So, I said, you know, I told them what they needed to do. One, they had to remove all the administrative. No good developer would operate under those administrative restrictions. And two, I said you’re going to have to pay for it. And if you want the rents truly affordable, you’re going to have to pay for all of it. Because if you want a seven-hundred-dollar rent, I need to be in that unit for seventy thousand dollars. And by the way, it costs eighty-two-thousand dollars to buy the apartment. And it’s going to cost you another fifty-thousand-dollars a unit.

Eve: [00:32:03] To renovate it.

Avra: [00:32:05] So if you want me to do it, and I’m not going to wait, I’m not going to take draws, you’re going to have to give me five hundred thousand dollars every time I start a building. Because I’m not going to, I’m not going to chase you down. I’ll do open book. Open book, come anytime you want, knock yourself out. But I can’t do the work and meet all the typical requirements. And so, they, they said Avra, yes. Do it.

Eve: [00:32:35] Wow.

[00:32:36] It went all the way to Commission. Commissioners voted on it and I did the project. So, they basically bought down the rents and people are living in two- and three-bedroom apartments, beautiful two- and three-bedroom apartments. When I say beautiful, you’re an architect. You know, I floated the walls. I did resilient channels for the wall boards for sound.  Wool between. Everything’s copper piping. We don’t, you know, rebuilt from the inside out. If you’d walked in, you would have fallen through to the studs, to the studs on the floor and you would have seen the roof two ceilings up. So totally rebuilt, you know, with all the right quality materials. No, everything mold-resistant, every, you know, impact glass safety, all those things. So, people are living in really beautiful apartments. And, so think about what that’s like. For them. For them, they’re people, right? The pride, how their kids feel to come home, to work, the family gatherings. Remember it’s, we don’t build buildings. You build buildings, but it’s really the quality of the experience in the building. It’s how people feel. Otherwise, buildings can be nice to look at, right? Right? What are they really? I mean, building to me, they’re made of organic materials, I mean, buildings live. And as builders and developers, we have to, you know, we feel that, we think about that. You know, so lots of times I get a building and it just doesn’t feel right. It doesn’t have the life. And our job is, that when we do these projects, these adaptive reuse and historic preservation projects, whether it’s for, you know, an adaptive reuse or for affordable housing, you have to think of it as how do people live? How are people going to feel when they’re there, when they’re inside? And that’s, you know, sort of, that’s sort of how we operate.

Eve: [00:34:48] That’s how it drives you. So, these products, I know we’ve talked about them a lot, and they’re clearly your passion projects. You also work on very, very big projects.

Avra: [00:34:58] Yes, so that I can afford to do the passion projects.

Eve: [00:35:02] Yes, that’s the bread and butter work, right?

Avra: [00:35:05] So and those, you know, are more traditional, you know, I do. By the way, they’re very good local community banks here that I work with in… we’re very fortunate during Covid and everything that, you know, my friends that had the large banks, you know, had a lot of trouble getting, having to work with them and work with their tenants. But the community banks in Miami really stepped up and were the first to say, you know, what can we do? How can we help? So, I’ve good local banking relations, banks that have lent to me for 20, 25 years that support, you know, that support my projects. Even if they’re slightly out of the box they, again track record, they support the project. So, I’m able to do, I’m getting ready to do a large adaptive reuse project towards 50,000 square feet of adaptive reuse in a warehouse district. There might have been a day where I wouldn’t get financing, but I will get financing for that, 50 percent loan to cost, and then I’ll have the capital stack of my own investors. Then, you know, on some bigger projects, I’m getting ready to do a project on the Miami River. That’s a big project to earn, it’s a new build. Two hundred fifty-nine apartments,200,000 square feet of office and retail. It’ll be almost 180-million-dollar project with 120-million-dollar loan. I’M partnering with a very large developer, Property Market Group, PMG, they build really well. I’m really excited to have a chance to work with them, there are developers that you respect and then there’s the other developers that you would really like to work with, and this is one of them. And they’re both. And so, they build beautifully. So, they, we’re teaming up. They’re going to do the residential portion and I’m going to keep the office and retail. You know, without them, they’re providing that completion guarantee. I mean, I wouldn’t have, I wouldn’t have the balance sheet. We’re talking financing here, right? I wouldn’t have the balance sheet to guarantee a 120-million-dollar construction loan. So, you know, so that’s very limiting to do big projects. Problem. You know, I don’t do, one reason why I don’t do a lot of big projects is because of the financing. It’s just by the time we bring in the capital stack and everything, you know, and then when you do that, you lose, you give up a lot of control over the integrity of the project. People start value engineering everything out of the project. And so, you know, the vision gets lost and all-of-a-sudden it’s work and it’s not fun. You know, it’s one reason why I don’t do a lot of large projects. So, whereas on the smaller projects, we can keep control. So, you know, so, yes, I am doing a large project because it’s a spectacular site with a spectacular vision. But I don’t do that as often. The risks are high and the loss, I think more than anything, is the loss of, you know, the vision. I mean when you do big, big projects. You know, what I always say you have to have two things when you, when you partner with people. You have to have the same vision, but you also have the same have the same values. Some people can have the same vision but then if they don’t the same values, it is not the same. So, lots of times that happens when you do these, sort of, bigger projects.

Eve: [00:38:36] Yeah. You know, I’ve always stuck with smaller projects for much the same reason. Because I can finish them the way I think they should be finished and no one’s egging me on to do something different.

Avra: [00:38:47] Everyone wants you to cut corners. Hey, it’s already sold. Hey, it’s already leased. You know, then, who cares, you know, it’s a, if it’s a 10-year paint or a fifteen-year paint? Well I care.

Eve: [00:38:58] Yes, I’m with you.

Avra: [00:38:59] Those decisions that get made, you know, again, the more people that are involved. For developers that have cut those corners, it’s short-sighted because then, why do they come and lease my building instead of their building? Because people can feel the difference. They can feel the difference in quality. So, you know, it’s interesting right now in this market and during Covid, and people are consolidating and deciding which offices to keep or which ones not to keep or which neighborhoods to be in or not be in. And I can tell you I have two very large tenants that had offices across the city, and they chose to consolidate. And both of them chose to be in my buildings and give up other spaces. And it really is because of the quality of our buildings, the uniqueness of our buildings. It speaks to their brand. And this was a time when spending the money and having your building be special, having there be a story to the building and the neighborhood that is in mattered. Because lots of times you can’t spreadsheet this stuff. Anybody in finance and in the financing world wants, you know, a spreadsheet, right? Well, let’s do a spreadsheet, right? You can’t spreadsheet the quality of a space. You can’t spreadsheet cool and placemaking. There’s no spreadsheeting that. But when there’s stress in the market and you see how people move and what they choose to keep and where they live or work, how, where rents are more stable or whatever, you see the performance. But when I’m doing a spreadsheet and presenting it to a bank, there’s no way to quantify that.

Eve: [00:40:45] Yeah. Just shifting gears a little bit, are there any current trends in real estate development, especially around the pandemic, that you think are most important for the future of our cities?

Avra: [00:40:58] Well, we’re staying the course. I mean, our mindfulness, our thoughtfulness, it hasn’t changed. If it’s before the pandemics, during the pandemic, or the after-pandemic. So, we’ve always practiced sustainability. Even in our new building, everybody’s talking about these new air filtration systems and water systems. We had already designed that into our building before Covid. So, you know, it was like we were already there. We already felt like the wellness trend was, we already got on that bus a while ago. Now the tenants are going to be asking about it and insisting on it. We were already on that bandwagon by. My team is architects and so we are always looking at what’s new, what’s cutting edge and hopefully somewhat cost affordable so we’ve already, we’re adopting a lot of those. So, I think those things will become more mainstream now. Good. And maybe that will even make them more cost effective. So, we haven’t changed. Again, our mindset has always been, you know, we need to adapt to reusing. You use existing buildings. I mean that’s the ultimate in sustainability, right?

Eve: [00:42:07] Yes, I agree.

Avra: [00:42:09] It’s like fruit shopping, right? The most, the best thing, people don’t realize how many CO2s go into building a building. And you knock it down, you spend more CO2s and then you rebuild it and spend more CO2s. There is a really great study out there, and I don’t know if you’ve read it, on green building. And it was put out actually by the historic preservation community but if you were to take a building and knock it down, build it back, using green, let’s say green technology, all the new Green Technologies, Sustainability, LEED certified, whatever, it would take you 80 years to make up for the damage done. 80 years to make up for the fact that you knocked down a building. So, we think, you know, so we are all about keeping existing building,

Eve: [00:42:56] Keeping, yeah, yeah.

Avra: [00:42:57] Absolutely. And it’s interesting. We, and we do it, you know, we don’t stop and think, oh, my God, we’re saving the environment, right? But we know that it’s important to the sustainability story. But we also know that it’s important to the cultural story, to the story of community and social resiliency. When people talk about resiliency, but they talk about it like, you know, well, how high is your sea wall, or whatever. Resiliency, by definition, is your ability to bounce back. It does not say how high is your seawall, it’s your ability to bounce back. And that is a social, that is a social response, not a building response, not a civilian engineering response. So, we think that focus, that part of social resiliency is part of keeping community. And part of keeping community is to try to save and do adaptive reuse with existing buildings. Again, we’re back to why we build our business around this story. We think without the story we, it doesn’t, it isn’t going to get us where, we won’t be interested. And it’s got to be a story that, when you do projects that have a story, people want to be a part of it. People want to be a part of it. People want to work on it. People want to help build it. And then people want to live in it and people want to do their business in it. You know, I think builders, developers underestimate the market.

Eve: [00:44:37] Yeah, I think you’re right.

Avra: [00:44:38] I think they underestimated them. They know the difference. And they know how it feels. And if they have a choice to spend a dollar here or a dollar there, they’re going to spend it where it also feels good.

Eve: [00:44:51] Yeah. So, one last question for you. And that is, what’s your big hairy goal?

Avra: [00:44:59] Gosh, you know, I guess just, you know, I’m living it every day. You know,

Eve: [00:45:06] That’s a great answer.

Avra: [00:44:07] Yeah, I just, you know, we just keep doing what we’re doing, and I think, you know, we talk about, you know, always wanting to learn, right? And knowledge is empowering, but it doesn’t give you power unless you use it. So we are, you know, we’re always learning, always curious. We’re always helpful to other developers. Very transparent. We open source. So, if you go on, I think you’ve been on, our website. If you go onto VagabondGroupConsulting.com and you hit open source, we open sourced our affordable housing project. You get all the money we spent, all the inspections, all the time, all the materials, everything. The things that went well, the things that didn’t go well. I think that one of the goals would be to hopefully encourage more developers and especially people in the public benefits space. Anybody’d be taking public dollars for sure, to open source their projects so more people can learn and so that more, more thoughtful developers can hopefully…

Eve: [00:46:16] That’s a great idea. I’m definitely taking a look. And I’m super jealous of all of fabulous 50s motels that you’re renovating. It’s a fabulous…

Avra: [00:46:26] Here’s a question for you. So how, in your platform, can you help developers like me?

Eve: [00:46:33] Well, if you want to start raising money from a broader group of people, from the community, that’s really what investment crowdfunding is about. And I see there’s a, how can I say this? I landed in Pittsburgh unexpectedly and one of the really big things I learned here is that people really want to be involved with their community and making it better with their city. It doesn’t really matter where you go, people are very connected to the place they live in. And I was working with dollars that dried up in the late 2000s and started thinking about crowdfunding to replace them. You know, also working with banks that became more and more skittish and wanted to do less and less innovative project lending. And so, all of that kind of led me to investment crowdfunding, which really lets the crowd decide. So, you could, very soon you’ll be able to raise, there’s actually upgrades to the rule under way, but very soon an issuer, a developer, would be able to raise up to five million dollars a year from anyone over the age of 18.

Avra: [00:47:47] Wow. No, no subscription agreement.

[00:47:50] No, no, there’s subscription agreements, but we handle all of that electronically online. So, if you go to a funding portal like Small Change, we are registered with the SEC and members of FINRA and it’s a very heavily regulated rule. We kind of manage all that. And you basically create a disclosure package which we help you create, register it with the SEC and then everything else is handled electronically as people invest. So, I think the most meaningful thing for me is that if you want to bring along people in your community, you normally don’t have a chance to invest and create wealth based on what’s happening in their own community. This is a way to do that.

Avra: [00:48:38] So, I think it’s a great idea. I actually went on your webpage and I thought about it. So, in in the affordable housing project that we did in Overtown, we actually, one of the partners, because we were getting large grants, they asked, they basically assigned us a local CDC, a community.

Eve: [00:49:00] Right, a development corporation, yeah.

Avra: [00:49:02] Yeah, to be part of the ownership. And it was Mount Zion, which was actually the oldest church in Miami, I think. They’re a part-owner, you know, less than 10 percent so the lender has no issues. And I was neglecting again, it was more control thing, it wasn’t a money thing because we’re not making money. Right, so.

Eve: [00:49:24] Right, but they can bring grants to the table that you can’t as a for-profit developer, right?

Avra: [00:49:31] But the reason why I don’t put myself in a non-for-profit space is because I know, I see a lot of the people, in non-for-profit space and it’s not non-for-profit, OK? It’s actually, I call it, so, I’m in the no-profit space. So, I’m like, so I won’t put on a non-for-profit space because everybody pays themselves salaries and things. We don’t pay. We don’t pay ourselves.

Eve: [00:49:53] Well, that’s right.

Avra: [00:49:54] So the CDC came in and they’ve been great because they helped, you know, that was the thing. I said, well, as long as everybody understands nobody’s getting paid, I’m happy to have a community organization. And I said, so they have ownership, so certainly down the line this, you know, we have a 30-year covenant and down the line there will be some value there. But I thought that it would have been great if, even instead of the CDC or in addition to the CDC, what if everybody in the community, so I get a grant from this CRA. What if every family that lived in that community all got a piece of the project? Instead of this CDC?

Eve: [00:50:37] Yeah, I’ve thought about this a lot. I’ve actually thought that, you know, in a poor community, wouldn’t it be fantastic if there were even a foundation that matched investments made, or to increase the value to people who invest, you know, maybe even 100 dollars?

Avra: [00:50:54] Yes. So anyway, we got a three-million-dollar grant, just so you know. But I mean the three-million-dollar grant, and you’ll see and, you’ll like to see the math in our open source, the three-million-dollar grant will save the residents eight million dollars in rental cost over the 30 years. So, that’s a huge benefit to the tenants with subsidized rents but if everybody in the community was given, let’s say, a thousand-dollar ownership, assigned a thousand-dollar ownership, right? I mean, as long as I don’t have to deal with, you know, a thousand investors, you know, I’m happy to have them own a piece of the project. You know, as long as me as a developer I can do what I do, you know? So, any time there’s a grant made into a project, why isn’t that grant, which is community dollars, community dollars, taxpayer dollars, why not have that grant be a crowdfund investment?

Eve: [00:51:57] Well, it can be. I just think people aren’t quite there yet.

Avra: [00:52:00] Well, let’s do it.

Eve: [00:52:01] Yeah. I’d love to do it. I’ve thought about raising a pot of funds for a community, for example, where someone, maybe you partner with a community development financial institution or a community bank, and someone manages the money, but it’s programmatically distributed in the community as well. So now you have, maybe not just your project improving the community, but you’re benefiting other people directly. Let’s just say you’re below a certain income and you need your roof replaced, you can get a loan for zero percent.

Avra: [00:52:38] Miami does a lot of that. I have to say, there is a lot of things we do. America Build does that. We have these twenty-thousand-dollar grants. If people know where to look that is made available.

Eve: [00:52:51] I know. But I’m thinking really community specific, you know. You pick a community that you’re working and you, kind of, really try to build it up and make sure that people who are not wealthy in that community come along for the ride when developers do make investments and the community is improved. So, I mean, it could happen in any number of ways but, you know, we all think about what happens to people who are left behind, right? So, there’s something there. I’m not exactly sure what it looks like precisely, but I have tools in my toolkit, these SEC regulations that I understand very well that could be deployed in that manner. Absolutely.

Avra: [00:53:34] Yeah. I think there’s something there and I think, so, you know, we should talk about that Eve because I’d like to explore that. I think that, I think there’s the political will to do it in Miami. I think there’s enough. Again, you know, the thing is, is if we do one, right, we do one project and it works, it becomes the model.

Eve: [00:53:57] Yes, absolutely.

Avra: [00:53:59] So our study, the one that we did for Vagabond Group Consulting, that open source, has become sort of a case study. You know, I get calls from all over the country. People.

Eve: [00:54:10] Yeah. That’s very important.

[00:54:12] You know, and that’s what we need to solve some of these problems we need the transparency. We need to have conversations like you and I are having. And we all need to share and figure out best practices. We need to find a solution and it’s in the developer’s best interest that we find these solutions. I try to challenge some of my big developer friends and say, listen, guys, we need to be part of the solution here. This is really our, becomes our problem. You don’t think it becomes your problem, but it does, because if the restaurant in your building, even if you don’t want to do it for all the right reasons, you know, you should understand how it affects you, because if the restaurant in your building can’t find employees because there’s no place for them to live, you know, they’re having that problem on Miami Beach and they’re having trouble hiring people because nobody can afford to live on Miami Beach. So that affects your ability to rent your space. I mean, you know, so I tried to encourage that, show them even financially why this is in their best interest. That we all, we all don’t do well unless we all do well, right? So, how do we incentivize developers to do that? There needs to be policies in place for that as well.

Avra: [00:55:26] In Miami, we have something where we, where developers can write a check. Like you’re building a building and you write a check towards public benefits. Well, you know, make the developer build the affordable, do the public benefit. You know, sometimes writing a check is easier than doing the work.

Eve: [00:55:44] Yeah, no, I agree. Well, this has been absolutely fascinating and I’m going to be in touch soon. But we should wrap up and I really enjoyed talking to you, Avra.

Avra: [00:55:56] Yeah, this has been fun. I look forward to seeing your work. So, you have to send me some of your some of your work.

Eve: [00:56:04] I will.

Avra: [00:56:04] Share some stories.

Eve: [00:56:05] Thank you. Absolutely.

Eve: [00:56:10] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Avra Jain

The modern village.

January 10, 2022

“Co-housing communities are not communes. Residents do not give up financial privacy any more than they give up domestic privacy. They have their own bank accounts and commute to ordinary jobs. If you were lucky enough to grow up on a friendly cul-de-sac, you’re in range of the idea, except that you don’t have to worry about your child being hit by a car as she plays in the street. A core principle of co-housing is that cars should be parked on a community’s periphery” writes Judith Shulevitz for the New York Times.

Modern co-housing came about as a work/life solution. One of its pioneers was Hildur Jackson, an activist whose passion to solve the 1970s women’s dilemma between full-time work and being isolated and dependent as housewives, inspired her to cofound one of the first Danish co-housings in 1972.  

This first attempt was a six-family “living community” on an old farm in Copenhagen. Six houses were built around large open spaces with the old barn converted into a common house. The families shared a large vegetable garden as well as maintenance tasks. Hildur recalled never feeling isolated in the 20 years she lived there and mused that her children grew up with 12 parents.

Co-housing soon spread throughout Scandinavia and the world. Today there are over 165 co-housing communities in the United States. Most have common areas for social interaction which might include a shared kitchen, a pool, a workshop, community garden, or rooms for meetings or celebrations.

Beyond the shared workload, there are clear advantages to co-housing:

  • Affordability. With a shortage of affordable housing options, co-housing can be an attractive alternative with some shared resources and costs.
  • Shared parenting and the shared cost of childcare.
  • Community. Loneliness is a growing societal problem which has been highlighted for many by the pandemic. Co-housing provides a large, extended family to interact with. This is never a requirement but might include cooking and eating together.
  • Environmental impact. Many co-living communities share greener living values, and some communities are designed and built specifically for lower energy use. Even if they’re not, sharing resources reduces your environmental footprint.

In the 1980s, partners and architects Charles Durrett and Kathryn McCamant went to Denmark to study co-housing. They were intrigued with this Danish concept and set about bringing it to the United States. Together they were instrumental in building many of the co-housing communities that exist today in the US. Charles now leads The Cohousing Company, which designs co-housing projects for a variety of clients. A typical design includes densely packed cottages of 30 or so homes that form a ‘village’, with a liberal sprinkling of communal areas and amenities, occupied by people who want to live co-operatively. 

Want to learn more? Read more about how co-housing might provide a path to happiness for modern parents or listen to Charles Durrett and Eve Picker in this Rethink Real Estate (for good) podcast.

Image courtesy of The Cohousing Company

Mission (Almost) Impossible.

January 5, 2022

Saki Bailey, the Executive Director of San Francisco Community Land Trust (SFCLT), has a decade of experience in nonprofit management and program development roles; a decade of experience in facilitation, teaching and training roles both in the academic and non-profit sectors with a focus on the legal regulation around Community Land Trusts, Co-op formation, and incorporation. Saki is a published author on property law, community land trusts, and the commons with three books and multiple articles published by both academic and non-academics publishers and journals translated into multiple languages. Saki is an educator and trainer on community land trusts, coops, and other shared equity ownership models based on her six plus years of research on the topic and serves currently on the board of the California Community Land Trust Network and its policy committee in advancing legislation for Community Land Trusts and Limited Equity Housing Cooperatives.

Read the podcast transcript here

Eve Picker: [00:00:07] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateforGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:00:58] Today, I’m talking with Saki Bailey. Saki is the executive director of the San Francisco Community Land Trust and an expert in community land trusts, co-ops, and limited equity housing cooperatives. To back that up, she has authored books on property law, community land trusts and the Commons in multiple languages. In this podcast, she breaks down how community land trusts emerged, how they have morphed from land to buildings, and how they are gaining rapidly in popularity. More importantly, she explains how a community land trust might be usefully applied to ownership models. And she tells us about the Community Land Trust’s latest project on 285 Turk Street in San Francisco’s Tenderloin district. She’s hoping the community will fill in the equity gap through a crowdfunding campaign to convert 34 units into a permanently affordable co-op. It’s a fascinating conversation you’ll want to listen in.

Eve: [00:02:06] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to Rethink Real Estate for Good Doc Co., where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:31] Hello, Saki, I’m really delighted to have you with me today.

Saki Bailey: [00:02:35] Hi, Eve. Thank you so much for having me. It’s really an honor to be here.

Eve: [00:02:39] So, I’ve come to know you through an offering that your non-profit organization has listed on Small Change. And it’s a really challenging project and pretty unique. But I wanted to first talk about your non-profit organization, which is called the San Francisco Community Land Trust. So, what is a community land trust?

Saki: [00:03:00] Yeah, that’s a great question, and it isn’t an easy answer, but I’ll try to keep it as simple as possible. Community Land Trust holds land in perpetuity to keep it permanently affordable for the residents and the tenants, who either live on the properties of the Land Trust as renters but permanently affordable renters, meaning that their rents are kept very low or where they own actually an equity share and actually are homeowners of the structure. It’s a delinking between the structure, the home itself and the land beneath, with the Land Trust owning the land with a 99-year ground lease and the resident owning the structure through shares.

Eve: [00:03:47] When did land trusts, community land trusts emerge first?

Saki: [00:03:51] Yes, there’s a long history of community land trusts. So, while it’s sort of a model that I think really has taken off in the last, I would say, decade and especially the last few years as the affordable housing crisis really heats up around the country. This model has actually been in existence since the late 60s. Yeah! So, the first Community Land Trust was created in Albany, Georgia, and actually really has an interesting history and rootedness in the civil rights movement and really was a mechanism by which black plantation workers were actually able to take back land ownership and really was an effort to create agricultural land wealth holdings for the black community. And since then, has evolved over time. And really, the focus of the Land Trust is now on housing and less about agricultural land, but really with the same mission of returning land and wealth that’s been appropriated from people of color back to people of color. And that’s really the focus of San Francisco Community Land Trust. So, we have this complex model, but really the aim of it is to provide black and people of color homeownership in a city where that’s really become impossible.

Eve: [00:05:21] Very difficult, yeah.

Saki: [00:05:23] Yeah, absolutely.

Eve: [00:05:24] So how long has the San Francisco Community Land Trust been in existence?

Saki: [00:05:29] So, San Francisco Community Land Trust has been around since 2003, and we really developed as a community grassroots political activist organization, organizing around, at that time, different types of legislation that were coming up on, sort of, the map of the San Francisco political landscape and namely the Small Sites program and even precursors to the Small Sites program. So, this is a city program that really focused on displacement that was happening in units between five to 25 units. So those smaller units, the units that actually are, that make up the majority of the housing stock in San Francisco. And around that time, we got involved in a really huge tenant struggle that was going on in Chinatown with first generation Chinese immigrants and second-generation Chinese Americans really being the community that was organizing around a building that was being threatened to first be demolished and then purchased by a predatory real estate company. So San Francisco Community Land Trust came in and assisted those tenants to purchase that twenty-one-unit building in Chinatown, and that was the first project that we had. That project got incorporated into a limited equity housing cooperative, so that model where the tenants own shares and own their building while the Land Trust owns the land. And we turned it into the first project called Columbus United Cooperative.

Eve: [00:07:06] Wow. So, you’ve been at the Land Trust for a short time? And what brought you there? What’s your background?

Saki: [00:07:13] Yeah. So, my background, while I’ve been here for a short time, so it’s been eight months, eight crazy months of drinking….

Eve: [00:07:20] Sounds like it.

Saki: [00:07:21] Yeah, absolutely, absolutely. But in a way, I feel like this is very much home for me. And the reason why is because prior to this, I was already on another Land Trust – Bay Area Community Land Trust, which is across the bay in Berkeley – and then prior to that, for 15 years, I actually have been a researcher and policy advocate and attorney around the Community Land Trust model, and I’ve written several books and articles, both in academic and policy journals, around this model of how do you create access to land which de-commodifies the land, takes the land off of the speculative market and creates more equitable access for people of low and moderate income?

Eve: [00:08:09] Yeah, that’s a lot to absorb. It’s a pretty unique model. There are also co-operatives mixed in in the work that you do, and there’s limited equity cooperatives. So on top of the land trust model, there’s also, you seem to, at least the San Francisco Community Land Trust, also works with co0operatives. So, tell us a little bit about how that works, because I learned a little bit with a project that you’re currently raising money for. But it, and I’m a pretty experienced developer, but it was brain damage for me to understand how that process works.

Saki: [00:08:46] Yeah, absolutely. So, I mean, what might be helpful in trying to kind of think about, why are we trying to do this? Why are we trying to make it so complicated for you, Eve, and everybody else with these models that that requires so much explanation and almost like a law degree to, sort of, understand because of the way that there’s this delinked ownership, the ownership of the land, the ownership of the structure. And really what it comes down to is, you know, I think we need to put it in the social context of the problem of affordability in cities like San Francisco and cities like Manhattan, which have actually long histories of cooperatives of this type, these types of affordable cooperatives. So, I just want to kind of take us to the setting in which we are for your listeners, people who might be living all over the U.S. and not so familiar with what has happened in San Francisco over the last 15 years. You know, San Francisco has gone through such a dramatic change with the sort of increase of tech billionaires, the growth of Silicon Valley. We have tens of thousands of jobs which have sort of exploded into this area and people coming from all over the world, all over the U.S., to work in the tech industry. You know, we have some absurd number like one out of eleven thousand six hundred people in San Francisco is a billionaire. I mean, you know there’s….

Eve: [00:10:19] Ooh, that’s crazy.

Saki: [00:10:20] Yes, that’s right. I mean, so we’re living in a city which, where we’re walking amongst billionaires, and yet there’s 8000 people out on the streets living homeless, unhoused. You know, this is a place where Leilani Farha, who is the U.N. special rapporteur on housing, came after a tour where she had visited cities like Mexico City and Delhi and said that San Francisco had the worst conditions that she has ever seen in housing, even compared to those cities. And she said, you know, that, sadly, her heart was broken in San Francisco because of how tragic the kinds of conditions that she saw here. So, we’re really living in a kind of, you know, actual Gotham City, you know, a city where there’s these complete huge inequalities of wealth and…

Eve: [00:11:20] And yeah, and really just and just for everyday people who may not even be homeless. I remember about five years ago or four years ago, I was there, and I caught an Uber and I was talking to the driver. The driver was a schoolteacher who said that the only way he could put food on the table was to drive every night of the week when he finished his… I mean, that’s very broken, you know.

[00:11:44] That’s extremely broken, that’s right. When you have your children’s schoolteachers needing to take a second job and driving Uber at night and then going back to teach school in the morning. Yeah, we’re living in a broken society. And that’s why I say Gotham City, because it really feels like that you have people living in such undignified conditions and then you have such incredible wealth at the same time. And it’s really about, how are we going to redistribute that wealth? How are we going to make sure that some of that wealth trickles down to the communities of color that have been displaced by the thousands in these last 15 years? For example, you know, in the height of the 60s, we saw the height of the black population. So, 14 percent of San Francisco was black. Today, San Francisco is less than five percent black. Yes, and it’s not an accident. It’s really not an accident. It’s not just the product of an extreme inequality in wealth, but it’s actually also the product of intentional racism and redlining and discrimination against this black community. For example, in 1945, there was a master plan in San Francisco that was put into place really for the aim of keeping certain neighborhoods elite and keeping certain neighborhoods from being re-zoned to create more dense housing for the immigrants that were coming into the city. And from then during that plan, they bought out something like 5000 households from the Fillmore in Western addition districts which have always been historically black districts. And so that kind of practice of forcing black communities out of certain neighborhoods that were gentrifying has been going on forever in San Francisco.

Eve: [00:13:45] Yeah, it’s also been going on everywhere else as well.

Saki: [00:13:48] Absolutely, everywhere else that we really see it like, for example, I raise it because that particular government action, of buying out those five thousand families, is the topic of the film, for example, which came out several years ago now, which is, you know, The Last Black Man in San Francisco. And it’s really the story of a person whose grandfather’s house got bought out when he was five years old. And the whole premise of the film is of this man who then grows up in San Francisco is one of the last black men in San Francisco wanting to then buy back his ancestral home many, many years later. And you know, this is the reality for San Franciscans today.

Eve: [00:14:32] So, so you work against that backdrop, right?

Saki: [00:14:35] Exactly, exactly. So let me get to where the limited equity housing cooperative fits in here. So, working in this extreme backdrop of racism, of inequality in wealth of, you know, astronomical real estate prices, what is a way forward by which we can create ownership for people of color? Well, it’s not going to come through the market, OK? An average median price of a house in San Francisco is $1.6 million. That is. Yes. That is, and that’s cheap. That’s probably not totally reflective of some of the neighborhoods, right? So, the more wealthier neighborhoods, it’s easily three point five million dollars. So, you know, but as an area median price of a house, I mean, most people have no way of ever saving that much. We know that, for example, for every dollar of white wealth, one cent of that is owned by people of color. So, we know that the gap is so huge that there’s just no way to own a house of this value.

Saki: [00:15:48] So how do we do it? We do it through limited equity. So, by the Land Trust going in and becoming a partner with the community and becoming partner with these residents we’re able to use the Land Trust and the non-profit to secure the loans that are necessary to buy the land. So the land is already very expensive, but we are able to have access to state subsidies, city subsidies and also the equity that we raise through our very generous foundations and individuals who contribute to our projects like, for example, in this latest project, I know that we will start talking about next, which is advertised on Small Change, 1.4 million dollars in equity was raised by San Francisco Community Land Trust through these generous foundations and individuals who contributed to make this project permanently affordable. So by being able to sort of draw upon these resources, because we have relationships with lenders, we’re able to buy the land, and then what we’re able to do then is to turn around and go to the residents and say, now let’s give you a piece of this. So, this remains yours forever. Now it’s not going to be outright homeownership in the sense that one day you’ll be able to sell at windfall prices that float on the market. Rather, we cap the equity so that it remains affordable for the next generation of buyers. So, we sell shares, the prices are not so high that people aren’t able to buy in. So, we capped the price of the shares to something like $10,000 each or even less. And so, people buy these shares and then they appreciate over time something between one and four percent capped to an index like the consumer price index or area median income. And so over time, people get equity back from their property in the form of kind of a modest savings. But what they really get is a right to live in their home as a homeowner in the sense that they can actually pass this property on, their unit, on to their successors. In sort of the bundle of rights when you own a property. And so, this is the way in which we’re trying to make San Francisco more affordable and to give people a home ownership stake, particularly for people of color.

Eve: [00:18:08] So it’s not easy. Like, in order to keep a property affordable, you have to give up the potential for equity, which means that many investors who don’t understand what the triple bottom line really means are not going to be waiting to invest in a project like this. They have to really want to be giving something back to accept what’s probably going to be a much lower return. And I imagine it’s just as difficult to find lenders who don’t understand these models because lenders tend to be sort of used to seeing the same thing over and over again. This is a very different model. So you know, who are you lenders and partners in projects like this besides the equity partners?

Saki: [00:18:54] Yes. Yes, I think you raise a number of really important things. It is not easy creating this type of housing, and the complexity is also a barrier for many lenders. So we don’t have partners like banks. Like Wells Fargo or Bank of America or more mainstream lenders, right? Because mainstream lenders are concerned about, you know, for example, their ability to foreclose on the property with this kind of model where the tenants own a piece of it and the Land Trust owns another part, right? So, we work with credit unions, we work with CDFI’s. We work with lenders like Self-help Credit Union for this project, this latest project, with LISC or LIIF. These are a couple of CDFIs. We work also with impact investors, right? So, you mentioned the type of investors that are going to be interested in our types of projects are really those who understand the impact of what they do. So, they aren’t looking for a really high rate of return. They’re looking for a modest rate of return and really about the kind of impact that they’re creating through the project. So that’s really the target of our focus here is, are folks like that. And we thought, you know what? We might actually have a network of people who are willing, and there’s an appetite for that kind of project, and the reason for that is because of this $1.4 million equity raising.

Eve: [00:20:26] I think that’s probably true. We had a project in Los Angeles that was an eight-unit project for four formerly homeless people, and it filled up faster than, and it wasn’t a huge raise, but it filled up faster than any other. I think because many people have a conscience, and they really want to help somehow. Somehow, even if they only have a little way to do that, so, but getting back to banks, we talked about mainstream banks not wanting to have projects like this on their books. But how are we going to address the huge housing gap if they don’t start having projects like this on their books? I mean, LISC cannot fund everything in the country that needs to happen. So, you know, what needs to happen in the banking world to make it possible to accomplish much more?

Saki: [00:21:23] Yeah, that’s a really great question. Well, I think that it has to start with the lenders in the secondary mortgage market like Freddie Mac and Fannie Mae. And actually, some of that has started to happen. So, for example, Freddie Mac, a couple of years ago, went in to the CLT market and set, told the mainstream lenders, actually we are now in this market. So, if, should you choose to lend, we’re going to mitigate your risk. That’s essentially what happens when these lenders in the secondary market go in is that they’re saying, look, we’re willing to buy up your debt. And so, as a result, your risk is being mitigated and what happened is that it’s still taking sort of years. Now it’s, I guess, a couple of years, maybe two or three years, to sort of have that trickle down and get actually made into policy on the ground level. So, we haven’t seen those shifts yet that we expected to see when we heard that announcement. So that’s one, is that I think that we need to kind of get the banks on board with this new information and kind of push them to figure out how they’re going to do their underwriting for these types of projects. Another part of it is that the underwriting is a bit complicated, right? So, another innovation is that Freddie Mac, also as part of that move to create this kind of secondary market and CLT mortgages is to streamline the underwriting process to make it easier. So that’s another big step.

Saki: [00:23:01] But one of the other things is that that legislation, or that policy shift that took place within Freddie Mac, it was not for multi-unit buildings. And so it really didn’t have an impact on cities. Yeah, so I think that’s another part of it, is that that policy needs to be applied to CLT-owned multi-unit buildings. And I know that there’s some lobbying work, advocacy work around that. But I think that’s really what we need to do is to really fund this model. And I just want to say, Eve, you know, what’s really unique about this model as opposed to, you know, you were saying, if we’re going to address the affordable housing crisis that’s taking place throughout this country, we really need the banks to kind of shift in understanding models like ours. And I just want to say, why models like ours are so important in that context. It’s really important, of course, to keep building and new housing production, creating new affordable housing. But what our model does is preservation, right? So, it’s really about creating affordability in the existing buildings, now as opposed to 10 years from now. Like, for example, in an affordable housing production, we know that just by producing housing for the market, it takes something like 10 years before that sort of trickles down to people of low and moderate income. Why….

Eve: [00:24:27] And it’s very expensive to produce new housing compared to saving it?

Saki: [00:24:32] Absolutely. Absolutely. That’s exactly it. It takes so much more, so many more dollars to create new housing than to actually keep the affordable housing stock that we have or to create affordability in the existing housing stock. So that’s really why our work is so critical because we’re keeping people in place today, you know, before they have to leave the city, as opposed to a plan of, well in 10 years, well, you know, please, whenever, you move back.

Eve: [00:25:01] You come back, I know.

Saki: [00:25:03] It should be called a right of return, or something like that, because that’s essentially what it is. It’s not really keeping people housed right now.

Eve: [00:25:11] Right. So, tell us a little about the current project. It’s 285 Turk Street.  Well, it’s located on Turk Street, but where is that in San Francisco?

Saki: [00:25:23] Yeah. So, 285 Turk is in the Tenderloin. So, this is a really, kind of interesting area of the city. Interesting may be a euphemism in some ways, because it’s also.

[00:25:35] I was going to say that

[00:25:36] It’s a very colorful part of the city.

Eve: [00:25:37] Very colorful, yes.

Saki: [00:25:39] Yes, yes. And it kind of perfectly captures that inequality that I was talking about because we’re, you have on one hand, the theater district, right? You have the Opera, you have City Hall, one of the most, sort of, monumental buildings in all of San Francisco where everything is happening. All the deals are being made. You have, you see Hastings School of Law, you know, you have courts, you have lawyers running back and forth on the street. And yet at the same time, we have the highest percentage of our un-housed population there, right there in the Tenderloin. We have, you know, a number of non-profits as a result that serve those communities that are really leaders in our community, the Tenderloin Housing District, for example, or Glide Memorial Church, these are, kind of, really iconic sort of non-profits that are really, really doing amazing community work, really organizing people at the sort of grassroots level. And then you have the transgender cultural district. So and part of that is that you do have a lot of sex work that is happening in the city. There’s also rampant drugs and crime, and we have, you know, now what’s emerging is that the highest new percentage of unhoused folks are actually people between the age of 18 to 25, which is a real tragedy. That really shows there’s another, right, sign of a broken society when you have kids that are actually the unhoused. So, another part of it is that it also borders on the Vietnamese cultural district, so you have a number of Vietnamese shops and restaurants. And so it’s a really very unique part of the city in some ways creates what we put in quotes natural, affordable or naturally kind of developed affordable housing in the sense of that, you know, the economy there is block to block and some of the blocks are just really affordable because of the features of that neighborhood.

Eve: [00:27:55] But the neighborhood is feeling pressure, right? It has to be because of what’s happening in the whole of San Francisco. Is it, is there fear of gentrification? What’s happening there?

Saki: [00:28:08] Yeah, I wouldn’t say that there’s kind of an impending gentrification that’s going on. But as you say, it’s sort of an inevitable part of San Francisco. Yes, eventually in 10 years, I don’t think this neighborhood will look the way that it does right now. On the other hand, it sort of resists gentrification because of all these features that I just mentioned. But yeah, I mean, I think it’s probably inevitable that if we don’t start to save these buildings now, we are on what they call the edge of a real estate apocalypse, right, where soon land is going to be so expensive that we’re just not going to be able to buy it as non-profits or the city publicly using public tax dollars to keep it affordable going forward. So it’s really now, right. If we’re going to save these neighborhoods, we have to invest now.

Eve: [00:28:58] And 285 Turk Street, how big is it? I’ve seen photos of it. It’s actually a very pretty building. Tell us a little bit about the building.

Saki: [00:29:09] Yeah. So, this was a building owned by Mosser, a very large real estate investment company. It still is, we’re still in the midst of the closing. And the closing is around, should be closing around January 15th. So still, lots of time for folks to invest. But yes, I mean, you know, this building, you know, it is very beautiful. The Mosser did do a number of renovations, so it’s 40 units, something like 29 of them being studio apartments, the rest being one- and two-bedroom units. Most of the units have been fully renovated and the remaining ones we intend to renovate once we obtain the post-acquisition funding that we’re trying to raise the money for right now through the our crowd raise. It is a very beautiful building, the community that is in the building currently, so there’s 30 households, and the 30 households are primarily of Filipino and Latino descent. So Filipino, Black and Latino descent and actually the Latino population, it’s very interesting, but a majority of them are actually indigenous from the Yucatan Peninsula. Kind of a very interesting San Francisco population, which is growing. Yeah.

Eve: [00:30:32] So, and do these people know of your plans and how do they how do they feel about it?

Saki: [00:30:38] Yeah. So, we have been working from the beginning with a organizer, Lorenzo Listana, who is with the Filipino Development Corporation. So, he’s been an organizer at this unit now for, I think it’s almost three years, that he’s been organizing the tenants, talking to them about their rights, initially assisting them with the predatory rent hikes that were being imposed on them, to fight that. Also, uninhabitable conditions, et cetera. So, Lorenzo’s really been working very closely with the residents and also informing them about the plans. He was actually interviewed just recently on PBS NewsHour. We just had a piece done about 285. If anybody’s interested in seeing that, you can pop in PBS Weekend Edition and you can learn a little bit more about the CLT and the purchase there. So, we really rely heavily on Lorenzo in providing this sort of education about the Community Land Trust. But going forward, we have also hired a resident education coordinator, and this is a kind of critical part of how we turn this building from a permanently affordable rental into a limited equity housing cooperative. So, our one part of the model in terms of how we finance it, is that we build a kind of half-time employee who works half-time for the building and half-time for the Land Trust into the project budget. And that’s really, as folks will see when they go into the details of this project, they’ll see that some portion of the raise is going towards that person’s salary. So, we’ve been able to already anticipate that we’ll be able to raise this money and we’ve hired that resident coordinator who is half, who is a bilingual, fully bilingual in Spanish and English. And she also has a co-op education background. So, she’s going to be providing this kind of important, what we call a five step or five part co-op curriculum, to the residents over the next many months. But that work will begin after we close on January 15th.

Eve: [00:32:56] So really, this is way more than buying a building and flipping it. It’s really about educating all of the tenants and bringing them along with your plans, and it’s hugely challenging.

Saki: [00:33:09] It is. It’s almost like a mission impossible. I mean, in a way, that’s really how I kind of view our work, is that we’re trying to create affordability in one of the most unaffordable cities in the city, and we’re trying to do it through a model that really provides low- and moderate-income people with an equity stake in a building and creating home ownership. So yes, it takes education. It takes time. Part of why it takes time, as well, is because we’re helping these residents to save for their equity share. You know, not all of these residents already have the savings to contribute towards an equity share. So, it’s really also about financial empowerment and creating access to financial empowerment tools and assisting them to save. And that’s why we put a kind of five-year timeline around this conversion to a limited equity housing cooperative.

Eve: [00:34:04] It’s pretty fabulous. Requires a lot of patience. So, what success rate do you expect in converting these residents to owners?

Saki: [00:34:16] Yeah, I mean, it depends on a lot of different circumstances. I can’t say that we have, like, so many buildings that we’ve converted to this model that we know exactly what it’s going to take. Our first project, the one that I mentioned, Columbus United Cooperative in Chinatown, that was converted to a limited equity housing cooperative within three years. So, it’s really hard to tell with this very diverse population. And I think maybe potentially those who are of lower income, how long it will take for them to save and organize. You know, a huge part of it, though, is the success of that resident and education coordinator. You know, part of the success of the Columbus United Cooperative really comes from the fact that from the beginning we baked in, or built in, that coordinator who actually is still with us today. She’s our longest-running employee, Julie Dye(??), who’s half, who’s Chinese and speaks full bilingual Mandarin. And I think that’s a really critical part of this as well, is that the coordinator is someone who’s really rooted in that community, really is able to overcome the language access barriers, so that’s really why we focused on this new resident coordinator being fully bilingual in Spanish.

Eve: [00:35:40] She must really love her job. It must give her great satisfaction.

Saki: [00:35:45] Yeah, I think it’s hard work, but absolutely, it’s one of those jobs that on a good day, it’s like the best day you’ve ever had, yeah,

Eve: [00:35:52] I have to ask, is there anyone else in the US using this model, doing what you’re doing?

Saki: [00:35:58] Absolutely. You know, we’re a really fast emerging model. So, there are something like three hundred community land trusts across the United States, and that number is going up every day. I mean, I think in the last five years, there were more CLTs created than in the entire, you know, history from the 60s. Yeah, exactly. So there are CLTs popping up everywhere. And I think especially in urban areas, right? Where that affordability is really, really… So, in the past, it really was, as I mentioned, a model that was focused on agricultural land. But obviously in the last 30 years, it’s all been in cities.

Eve: [00:36:40] That’s really interesting. So, what’s next for you? More the same? Lots more.

Saki: [00:36:46] Yeah, I guess that’s it. I mean, that’s yes, absolutely. That’s sort of how we measure our success is how many buildings can we make permanently affordable this year and the next year and before this real estate apocalypse, like I mentioned, is sort of upon us. Or perhaps it’s already upon us. But, you know, I think it’s really about figuring out how do we make these projects deeply affordable going forward? Some of it has to be done through public dollars through city subsidies. So, we continue to work with the Small Sites program and actually we’re in the midst of another acquisition, right now.

Eve: [00:37:24] Oh great! That’s great.

Saki: [00:37:26] Yeah, through the City of San Francisco. So we have had a long, ongoing partnership with the City of San Francisco ever since the Small Sites program was created. Actually, San Francisco’s Neil Antress (??), as I mentioned, was one of the authors of the Small Sites program. So, we work with the city to make units permanently affordable, and it’s really about, I think, also shifting the city’s politics around cooperatives because that’s one of the difficulties for us is that we’d love to make every project a Small Sites project. But not every Small Sites project can be converted into a limited equity housing cooperative because of various legislative barriers. So we’re working, you know, I guess that’s kind of next on my agenda, aside from creating more affordable buildings, is really working on that reform or policy change, which needs to take place around cooperatives in San Francisco.

Eve: [00:38:21] Well, San Francisco is such a beautiful city. Really, everyone should enjoy it. It’s been really miserable watching this happen from the outside. So, I hope you have enormous success. It’s a pretty fabulous program.

Saki: [00:38:37] Thank you so much, Eve. Yeah, it is a beautiful city, and yes, I think we can make it available for more people to live in and work in as opposed to just visit as tourists, the more beautiful it will be also for everyone else, including those tourists. So, thank you.

Eve: [00:38:55] Thank you. That was Saki Bailey. She’s spent a career becoming an expert on community land trusts, and now she’s putting that knowledge to work as the executive director of the San Francisco Community Land Trust. There, she leads a team working on the conversion of existing rental properties into permanently affordable housing co-ops for the tenants who live there. She’s helping to put assets into the hands of those who’ve never had that opportunity before. It’s challenging, but so very important.

[00:39:44] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Saki Bailey, San Francisco Community Land Trust

Sustainable, affordable and beautiful.

December 15, 2021

“If you want to build something that is both affordable and sustainable,” says Jeremy McLeod, “every project manager in Melbourne will tell you you can’t do it.”

Jeremy is the founding Director of Breathe Architecture, a world class architecture firm in Melbourne, Australia, delivering fabulous projects to its clients. They have built a reputation for delivering high quality design and sustainable Architecture for all scale projects in Melbourne, Australia. But Jeremy isn’t resting on his laurels. He really cares about the ever widening gap between those who have wealth and those who do not. 

And so 13 years ago he embarked on a journey to deliver sustainability and affordability in one housing model. His first project, the Commons, was met with huge success. Now with a waiting list of over 8,000 buyers (no marketing, no realtors) he intends his Nightingale project to be an open source housing model led by Architects.  

Breathe approached this challenge through reductionism. They discovered that what people actually want is really good and meaningful housing with space, light, outlook and plants — not marble countertops, 3 bathrooms and shag carpet. They have achieved affordability and sustainability through reductionism.  If you don’t need it, take it out.

Melbourne is growing at a rapid rate, and housing is an expensive commodity there. The city has Jeremy to thank for starting a movement that will yield affordable and sustainable urban housing with his stunning and thoughtfully executed projects.

Insights and Inspirations

  • Just a few years ago Jeremy started with an idea to build high quality affordable housing in Melbourne, an expensive city where this was unheard of. Now he can’t build fast enough. Nightingale has a waiting list of over 8,000 people.
  • Jeremy has combined sustainability with affordability through a process of reduction. If you don’t need it, take it out.
  • I was lucky enough to tour Nightingale l, an exquisite building located adjacent to a railway station and bikeway that both lead into Melbourne’s central business district. The garage is full of bikes. No cars here.
  • Preference is given in the balloting process (the process established for the equitable purchase of units) to essential service workers, such as nurses or fire-fighters, key community contributors, individuals with disabilities, Aboriginals or Torres Strait Islanders.

Information and Links

  • Watch Jeremy’s TedX talk here.
  • Nightingale Village will soon be under construction. The Village is a collection of six neighboring buildings, each designed by a different award-winning architect using the social, environmental and financial sustainability principles of the Nightingale model.
  • Read about Nightingale Housing.
  • Take a look at The Commons.
Read the podcast transcript here

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

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

Eve: [00:01:18] If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast.  And go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

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

Jeremy McLeod: [00:01:48] Yeah, I did think we were doing this interview over Zoom so I was surprised to see you in my office in Australia. Thanks for coming.

Eve: [00:01:54] Oh, you thought it was by Zoom. I told you it was local. It’s really fun to be recording in your beautiful building and actually see it because I’ve really wanted to do that for a long time. So you’re an architect and you’ve taken your fabulous education and you’re working on a new housing model for Melbourne, Australia, where we’re recording today. And I wanted to talk about what’s kind of driven you to think about that, to develop a better housing model and what even that means.

Jeremy: [00:02:24] It’s not hard to build a better housing model in Australia. It’s because our housing system is broken. I mean, the interesting thing about Australia is that we’re the richest country per capita in the world, yet we have one of the highest greenhouse gas emissions per capita in the world. But importantly, we have over, at the last census, we have over one hundred and sixteen thousand homeless people here. So for an incredibly wealthy country with lots of opportunity, there’s incredible inequity here. And that inequity is growing. In countries, you know, Scandinavian countries or Austria or Germany or anywhere in Europe, basically, there’s an affordable housing requirement. In London there’s inclusionary zoning which requires you to put in 20 percent affordable housing. In New York there’s inclusionary zoning, but in Australia there is no inclusionary zoning, which means that the private housing developers can build whatever they want without including any affordable housing.

Eve: [00:03:26] So, not held accountable for the economy at all.

Jeremy: [00:03:28] No, absolutely not. And so in that instance, then you would assume it’s the responsibility of the state to provide housing for its people. But in the 1980s, state governments around the country started divesting their responsibility for housing and people through a public housing system and started giving it to smaller, not-for-profit organizations, church-based or faith-based organizations or community housing providers to provide housing. And they started selling down their assets and importantly, stopped building housing. And so what we’ve seen is a steady growth of homelessness at the same time as a steady growth in wealth in this country. As an architect. I mean, before I was an architect, I studied environmental design. So I understand, you know, inherently the issues around climate change. I’ve looked at the issues around the last IPCC report which says that, you know, if we’re not careful, we’re going to find 2 billion refugees globally, a billion coming out of Africa and a billion coming out of Asia. Where do you think those people are going to be? And we also understand that people at the edges are the people that suffer the most in times of climate change. So, I mean, I think that climate change and homelessness and housing are all intrinsically linked and that we need to resolve both those issues simultaneously. And we need to resolve those issues very rapidly. The state doesn’t… has divested their responsibility. and the private sector obviously is interested in returning profit to their shareholders, not in delivering kind of, you know, on corporate responsibility goals that, you know, may or may not exist within their boardrooms. So the idea for us was that we would build a model, a prototype basically to encourage private developers to change the way that they worked. And our contention was that you can build housing that simultaneously builds community that is sustainable and that is affordable and it returns some fair and reasonable return back to investors.

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

Jeremy: [00:05:52] Yeah. Look, I mean, of course, my first love is architecture. I would love to just design great buildings all day, every day. I would love to build great housing. But as an architect yourself, you would understand that to make a great project, you need three things. You need a great architect, you need a great builder, you need a great client. And so if we’re trying to build great housing projects in Melbourne, it was, you know, let’s assume for a moment that Breathe Architecture was a great architect. I can find a great builder, but I couldn’t find a great client. So for us to be able to deliver on the projects that we needed to, I felt that the only way was to become our own client.

Eve: [00:06:34] That makes sense.

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

Eve: [00:06:43] Right. I watched your TedX talk, which I thought was really interesting. And you said that there’s a population explosion going on here, which I know, but I think I didn’t realize it was quite so rapid. But how many people in Melbourne today?

Jeremy: [00:06:56] So there’s five million at the moment. We’re going towards 8 million by 2050. It’s essentially a hundred thousand Melbournians every year for the next 30.

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

Jeremy: [00:07:08] Yeah. So interestingly, we’ve always been smaller than Sydney. We’ve always been the little sister to Sydney and we’re now about to outstrip Sydney in terms of population.

Eve: [00:07:16] Yeah, I can feel it every time I come and visit. You talked in that TedX talk about urban compression versus urban sprawl, which I thought was a really great way of describing what’s available and what’s probably true in most of the United States as well. The idea being that urban compression is like warehousing people in really dense, maybe warehousing isn’t a way to say it, but building very dense, high-rise housing products in inner cities versus urban sprawl, which is building, you know, the American/Australian dream of a house on a lot. Right? And not much in between yet. So what’s in between look like?

Jeremy: [00:07:58] Well, I mean, the interesting thing here is it’s all about politics, right. So, in the centre of our city, it’s all old commercial land. It was a commercial centre. So it’s easy to build one hundred and eight story towers there to warehouse people, so to say, because no one objects to that, because everyone sees that if someone builds a 108 stories there, then I can then build my old shop to 108 stories and I’ll get that value uplift. So it’s a great capital gain. And the city, in the middle ring suburbs, so in all the places really close to infrastructure, schools, hospitals, work, public transport, those areas there are all held by the city’s wealthiest population. They’re well-moneyed, they’re well resourced  and they’ve got a very, very loud political voice. And they say very clearly to the state planning minister and to the state politicians that they don’t want any increase in density around them. But like San Francisco, instead, they’ve got no issue with density per se, just not in my backyard.

Eve: [00:09:12] Yes. NIMBY, right?

Jeremy: [00:09:14] So that’s right. So they’re the NIMBYs. So, instead what happens is that if you’re a first time buyer in Australia, if you could possibly afford to be a first time buyer here, you can’t afford to buy a house in the middle ring suburbs close to work, close to hospitals, close to schools.

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

Jeremy: [00:09:32] You end up very far away. So in Sydney, I saw a graph recently where if you’re a nurse and you work in a hospital and you’re a first home buyer, you’re an hour and a half away from the nearest hospital that you are working in.

Eve: [00:09:44] Wow.

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

Eve: [00:09:40] So in effect, those people are really the ones that need to be closer to the city and need to be, have access to public transit.

Jeremy: [00:09:48] Absolutely.

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

Jeremy: [00:09:52] Well, to make the city work for all the well-moneyed people as well, you know. Yeah. So the city works because of those people. And so, and the other issue that we’ve got in Melbourne is this incredible sprawl issue where currently we have built over 40 percent of our farming land. So we’ve got 60 percent of our farming land left, but our population is growing at unprecedented rates. At the same time, we’ve got pressure where China is coming in and buying our farming resources. So they’re buying, you know, beef, dairy, big farmland, so I worry about food security for, you know, for Australians in the future when there’s 1.5 billion Chinese and 600 million middle class Chinese, you know, in a time when food security becomes a big issue all of our food will be being exported.

Eve: [00:10:49] Wow.

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

Eve: [00:10:56] And then the other piece of it is, I think you and I agree on this, that many new buildings are built as a financial commodity. And really, they’re really about making money not about making place better, which is really disturbing to me because I think you can take the same money and build, you know, add to a city in a really meaningful way or not, right? So…

Jeremy: [00:11:20] Yeah, looking at examples, like there’s a suburb in Sydney called Ultimo and over 90 % of Ultimo has been bought by investors. So essentially a lot of our apartments, and in Melbourne, in

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

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

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

Jeremy: [00:11:44] Well, a lot of it is rental. You know, until very recently, there were no foreign ownership maximums on how much of an apartment or, or how much of a building you could sell to foreign owners. So we were. we had Australian developers selling 100 percent of their buildings to offshore waiting lists in Kuala Lumpur or Shanghai. We would find that, you know, whole buildings are owned by offshore investors that have never been to the city or have never seen the actual apartments. They bought it off a spreadsheet through, through an investment vehicle. And of course, when you get a city built on a spreadsheet, it becomes a pretty, pretty sad outcome.

Eve: [00:12:24] Right. So your journey started in 2007 when you bought the piece of land where you’re sitting on right now, right?

Jeremy: [00:12:35] Yeah.

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

Jeremy: [00:12:38] Well, so maybe  I’ll go back to 1972 when I was born. So, so my parents were a couple of hippies. When I was about eleven, my dad took me to old Parliament House to lobby the government then about public housing in a suburb called Footscray in Melbourne. So then I go on study sustainability, environmental design, and then I go on to be an architect where my focus is on studying housing. I then work for a big firm, and when I’m working in that big firm, I end up working on, you know, 88 story towers, which just, you know,.

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

Jeremy: [00:13:19] Yeah. Yeah, lots of toilet details, lots of stairs, correct. But it was the last building that I worked on in that big practice, I was working on the carpark for six weeks.

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

Jeremy: [00:13:30] And I thought that that was crushing and I didn’t think it was a good use of my time or, it wasn’t that I was interested in, you know, housing cars. What a meaningless act. So I start Breathe Architecture in 2001. When I started Breathe Architecture, the simple idea was that every room would have a window so the occupants could breathe.

Jeremy: [00:13:53] So in 2007, as an architect working in the city, we’d been working for a bunch of property developers. It was, it was disappointing. We resigned a couple of commissions, we got fired from a couple of commissions because we wouldn’t back down on certain things like, you know, we wouldn’t take the solar panels off the roof. We wouldn’t take the,.. yeah, yeah, we wouldn’t take the solar hot water out of the  building. We wanted to make sure that we got winter sun into the building, you know, like. really simple things that we wouldn’t back down on.

Jeremy: [00:14:29] So after that, we decided that we would partner with some other architects and we would try and embark on building a prototype building. So there were six of us. Six architects. We all came together, we bought this site. It was originally called Nightingale back in 2007, and it took us until 2013 to finish it. So it took us six years. In the middle of it, thanks to sub-prime issues in the United States, the financial crisis washed across the shores to Australia. By the time I needed finance to build this…the idea was that it would be a zero carbon building. A building that focused on sustainability and community and affordability. By the time I needed to get money for that, it was after the financial crisis had actually, bit into Australia as well, and we lost our funding to build it. And so then…

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

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

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

Jeremy: [00:15:33] Yeah, and look, I actually don’t blame the bank. I think that leading up to the global financial crisis, you know, it was too easy to get money. So as a group of six architects, you know, we were about to borrow seven point one million dollars, you know, on a kind of prototype project that hadn’t been built before. So I can understand why the bank was nervous by the time, you know, we got into, you know, 2010, 2011.

Jeremy: [00:16:01] We went and met with a whole different raft of impact investors. We met a group called Small Giants and Small Giants bought the project off us. They renamed the project from Nightingale to the Commons because their marketing team thought that was a good idea. I can, I can live with it, but you know, what’s in, what’s in a name. But anyway, the Commons then ended up being delivered and in 2014, it won the National Award for Sustainability, the National Award for Housing. And it became, you know, kind of a destination for people to come and look at. And so in the following year, we opened the building up for tours. We took every property developer in the city through. We took Melbourne residents through. And we talked a lot about, you know, the importance of change in our housing model. And then the idea was, off the back of that, that we would influence change in the marketplace.

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

Jeremy: [00:17:06] Well, the interesting thing was that when we, when we completed the Commons and it won all those awards, and it got lots of media and lots of people were interested, the answer to that is no. It was seen as an exception to the rule. And so, the idea was that the pilot project or the prototype project would influence change, but it was seen as an outlier.

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

Jeremy: [00:17:32] So the Commons, I think that if you want to build something that’s affordable and sustainable simultaneously, every project manager says that you can’t do that. Every project manager will tell you that sustainability is more expensive and so to build sustainability means that you can’t build it affordably. And so instead, Bonnie Herring, who was the project architect of Breathe who led this project, her whole approach was one of sustainability through reductionism. So she constantly interrogated the idea is, if we don’t need it, take it out. Ask people, what are the things they actually need not what they want from some real estate glossy brochure.

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

Jeremy: [00:18:17] Yeah, but when we when we started talking to people, the interesting thing was that what people actually wanted was space, light, outlook, plants, you know, natural materials. No one wanted marble bench tops, you know, a thousand down lights, white shag-pile carpet, a swimming pool, three bathrooms, you know, what people actually wanted, we were finding, was just kind of really good meaningful housing. So our approach on The Commons was, yes, sustainability through reductionism. If I step you through that, you’ll see that it makes total sense. So the first thing is, we took the basement car parking out. And why is that important? So, for a seven million dollar building, the basement car park was gonna cost seven hundred and fifty thousand dollars. So by taking that out, we reduced the build cost by over 10 per cent. But importantly, we just, we didn’t just reduce the price of all the apartments by $30000 each. We also took some of that money and put it into making the rooftop garden, you know, really incredible. Where you would have ordinarily had a driveway coming in off the street and a ramp up and then a ramp down to get into that driveway and a roller door to close that driveway off to get down to the basement carpark, instead, Instead of having that there, we put in a wine shop where the driveway and the ramp would have been.

Jeremy: [00:19:42] And then we sold the wine shop for four hundred and twenty five thousand dollars. We then took the revenue from the wine shop and we used it to increase all of our glazing to get the best possible double glazing that money could buy in the country at the time. We pumped up all of the insulation on our walls. So we made all of our walls fatter. we got better insulation in them. So we used that money to improve the thermal envelope of the building. Then, that then made the apartments perform…so we’ve got the star rating system here, so you need kind of, you need a minimum of five stars or an average of six stars to be able to get a building permit here. And instead, we set the minimum at seven and a half stars here. The panacea is 10 stars means you don’t require any energy for heating or cooling, which would be incredible. But we’ll make it to seven and a half stars out there. More modelling told us that the building could operate within a thermal comfort range of between 19 and 27 degrees. And the interesting thing is that that’s kind of the European thermal comfort range of the Germans deemed that to be.

Eve: [00:20:47] So that’s all Celsius right now. Got it. That’s about …oh I can’t do that in my head right now. We’ll figure it out later.our Yeah, I’ll let you do the calculations. You’ll figure it out later.

Jeremy: [00:20:57] But but basically, the Australian thermal comfort range, you know, is generally been seen to be in between 19 and 22 degrees.

Jeremy: [00:21:08] So by stretching it out from nineteen to twenty seven, the German comfort range, all of a sudden we found that we didn’t need to put air conditioning in. When we take air conditioning out, we save another 5 percent out of the building costs throughout the building and obviously drastically reduce the operational costs and operational energy required in the building. Normally every two bedroom apartment in Melbourne at that time was being designed with two bathrooms. So a primary bathroom and then an en suite to the master bedroom. Instead we took out all of the en suites, so we had one bathroom in each apartment. We kept them at the same size. So the apartments, by taking out the really energy intensive detail-heavy bathrooms, we saved about $10,000 out of the cost of each of the apartments and all the living rooms got seven square meters bigger, which is 70 square feet. We took out all of all of the individual laundries out of each of the apartments and instead put one beautiful laundry on the rooftop, which overlooks an incredible rooftop garden.

Eve: [00:22:14] And I assume you could save money on all the stacks. Correct. And the space in the unit. Correct. So everyone’s. Exactly right. And the cost of all these appliances. Exactly. Seventy costs.

Jeremy: [00:22:28] Exactly. You get it. You get it. So you do that over and over again. We have one shared Internet connection. So we bring fibre into the building and we share that Internet throughout the building. So we pay for it at one point and then we use bulk buying to share that. It gets really, really cheap, really, really fast internet in a city where the Internet here is expensive.

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

Jeremy: [00:22:50] It’s expensive and it’s poor quality here. And we do the same thing with the power through an embedded network.

Eve: [00:22:57] So it’s this constant that you’re a very pragmatic approach. It’s really pragmatic, pragmatic to chisel away what’s really necessary in a building and and really make it work. Yeah. And think about it.

Jeremy: [00:23:10] You know, what can you share? It’s all about sharing and using, you know, bulk buying and trying to get maximum utilization. So you know what? Our laundry, for example, is six washing machines, which could use a lot more than having, you know, 24 washing machines that get used in a very infrequently.

Eve: [00:23:28] I think a lot of people might find that concept difficult, but I suppose you don’t need to find a lot for one building do you.

Jeremy: [00:23:38] Well, I mean, initially when we started when we finished this project and we started work on Nightingale 1 and I’ll tell you why we started Nightingale 1, there were eleven people that had written to us to say, if you’re going to build another building, like The Commons, can you please let us know. And so we put those eleven people on a waiting list. That waiting list through Nightingale housing is eight and a half thousand people.

Jeremy: [00:24:03] So apparently there is eight and a half thousand people in Melbourne that would be happy to have a cheaper apartment with a bigger living room, with a beautiful shared rooftop laundry ,with one bathroom, with no individual or private car parking, but with a free car-share membership to, you know, 20 cars parked within a 400 meter radius.

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

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

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

Jeremy: [00:24:38] I think the great thing about, you know, being your own client is that you can definitely make sure that the architecture is what it should be.

Jeremy: [00:24:49] So I actually for people listening in, the thing that’s also very incredible here is The Commons. This building sits right on a railway line. You can see there you can see the station. Out of the windows. So it’s really it’s really a transit oriented development as well, which really makes it much easier not to have a car.

Jeremy: [00:25:08] Yeah, absolutely. So there’s that train station right next door or the bike path right next door or the 503 bus and then the tramline.

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

Jeremy: [00:25:18] Yeah. So we do have the highest ratio of bikes to apartments in the country. Yeah, but the interesting thing about that is that we just looked at what were the bike ratios used in the Netherlands and then we used those and brought that over here. So it’s not none of this is rocket science, at least, you know. How’s it been done?

Jeremy: [00:25:36] So you have investors in this project and how did they do?

[00:25:42] So in the Commons there were six architects and all of us and we all invested. So Tamara and I, my partner and I, yeah, we literally bet the house on it. And so, yeah, out of the Commons, we did at the end of the project when Small Giants, we bought the site, we redesigned the site, we got the D.A. approval, we got the price in place. Then we had to sell the project at Small Giants. They sold they bought the project back off us. And at that point we had bought the site for five hundred and forty five thousand and we sold it back to them for two million dollars.

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

Jeremy: [00:26:27] Eventually, they never actually disclosed to me how they did, but they built and entire brand off the back of The Commons.

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

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

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

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

Eve: [00:26:48] Yeah, that’s probably keeping in a project like this, because having a couple of vacant units if your profit and a building like this.

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

Eve: [00:26:57] That’s fantastic. So then, you know, the triple bottom line here actually made a financial return as well. That’s a pretty strong argument for doing the right thing. Yeah. How hard is it to find investors who really care about the triple bottom line?

Jeremy: [00:27:16] Well, so maybe let me let me just come back to the move from The Commons to Nightingale 1. Or why we started Nightingale Housing. Do you want to hear?

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

Jeremy: [00:27:26] So this idea that that the Commons would drive change by being a prototype building. And I said before that it kind of failed because it was seen as the exception, not the rule. What we decided to do after that first, you know, with that wait list of eleven people was to, if if the market wouldn’t change, then we would drive change in the market and we would continue to build buildings until such a time as the market actually came to us, you know, until we didn’t need to exist any longer. So we established Nightingale Housing. We got some corporate sponsorship. We got a government grant. We got a grant from the National Australia Bank. So we built a really small team of about three of us and we embarked on Nightingale One.

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

Jeremy: [00:28:18] Yes. So Nightingale One was still delivered. And the way that we wrote that feasibility study was that we capped the return at 15 per cent per annum and then we capped that return at a three year project timeline. So essentially it was a gross return of forty-five per cent over three years. So there was a lot of pressure on us to deliver that for our investors to deliver it within the three year time window.

Jeremy: [00:28:42] So – to get to get – we tried to do that at 10 per cent per annum. And when we tried to raise impact investment to build a carbon neutral building. So when we tried to raise equity,  I spoke to probably 60 architects in the city because I wanted architects to invest in it. I wanted architects to own it. I want to share the IP with architects that would take it and scale the idea. I met with architect after architect for about, you know, six weeks and we ended up getting 27 investors all putting in $100,000 each. A lot of people with not a lot of money borrowed against their homes to invest money in. And when we first said we want to return 10 per cent per annum, ur first investor said that wasn’t enough. It wasn’t it didn’t match the risk versus return matrix for them. And so they wanted fifteen percent return. So we ended up taking all the equity. In Nightingale One it was about a 10 million dollar project and we raised $2.7 billion in equity with a capped return of 15 percent per annum. Going forward from that …

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

Jeremy: [00:29:52] Yeah, absolutely. We returned. And so the way that we that our model worked was that we have a construction contingency in the project, and so after we returned all the money to the shareholder, exactly as we said in our prospectus at the end of the project, the money left over from that contingency, instead of taking that as developer, which a developer would normally keep that as [crane?]. We then gave that back to the residents. So the residents that had balloted into the building, because by that time there was more demand than there was supply after the success of the comments. So we had to run a public ballot where the mayor drew the names for the apartments out of a hard hat. And those residents, those lucky residents at the end of the project, their apartments were about $90,000 under market. And when we finished the project, we gave the building a check for $109,000 dollars back.

Eve: [00:30:43] Wow. And just to be clear, because in the US apartments are usually, well, this is this is all for sale. At this point. Right. Yes. Which is really what the market is in Melbourne.

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

Eve: [00:31:00] Which is in itself an interesting discussion. That’s really amazing. So now now that was the first project. What’s happening next?

Jeremy: [00:31:08] Well, so after the completion of Nightingale One, and then we did Nightingale Two which is just completed and Nightingale Brunswick East, which is just completed.

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

Jeremy: [00:31:19] So Nightingale One. So the Commons is 24 apartments, Nightingale One is 20 apartments, Nightingale Two is 20 apartments, Nightingale Brunswick East is a hybrid with a property developer. So that’s 38 Nightingale apartments and about 25 straight to market apartments.

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

Jeremy: [00:31:39] Yeah. Yeah. And that’s interesting. It’s interesting. The developer was so good. They funded the whole project. They agreed to run everything transparently with us. So it’s you know, so Nightingale’s principles are that it has to be minimum seven and a half stars, has to be carbon neutral and operations can’t have natural gas pumped into it, has to have, you know, all those Nightingale principles. And we’ve got to lock up. We also have a restrictive caveat which says that if we’re selling and owning an apartment to you and we’re capping the maximum sale price that we’re selling to you based on a maximum return to investors, then you can’t sell it tomorrow and make a massive profit.

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

Jeremy: [00:32:21] Yeah, absolutely. And so this developer, Lucent, agreed to do all of those things. They handled all the delivery side. And the benefit the upside for them was that they were trying to sell apartments in a street where someone else was about to sell 700 apartments. Someone else was selling 60 apartments. There was about a thousand apartments on the market. They broke their building in half, did half Nightingale half straight to market. We said that we would do that only if the entire project, including their straight to market apartments, were carbon neutral in operations and met the minimum seven and a half star requirement. They agreed to do that. The Nightingale apartments went to ballot. They balloted in one day. So they sold all of 38 apartments in one day.

Eve: [00:33:04] That’s astounding.

Jeremy: [00:33:05] Which then got them the sales target that they needed to get financial closure from the bank to cover the debt, which meant that they could then demolish the building, start their basement construction, which gave them a massive program jump on all the other buildings. They then opened their straight to market sales. And some of the people that it missed out on the Nightingale ballot went and bought there because they could afford to. But also, they were interested in the sustainability idea of carbon neutrality and the idea of community. And then it gave them a kind of a massive differentiator in the market. And so when no one else was selling anything in that street, they sold their 25 apartments in three weeks, which was unheard of.

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

Jeremy: [00:33:53] Sure. So ordinarily, the way that a straight to market developer would sell their properties by employing a real estate agent. The real estate agent generally charges a fee of about 2.25% percent. So there’s two different ways you can sell in Australia. But if you if you employ a real estate agent here, they’ll charge you 2 per cent of the gross revenue of the project, so if  the project is a 10 million dollar project, they’ll charge you $200,000 for the 20 million dollar project, they’ll charge you $400,000.

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

Jeremy: [00:34:25] That’s right. They are going to sell all the units for that. If you historically had trouble selling, you would go to financial advisors in inverted commas, who are meant to be independent and they could sell your apartments to people looking for investment advice and they might charge six or seven percent. Okay. I think they’re trying to outlaw that at the moment. Because they’re their commission obviously makes it difficult, the rate of their commission is so high, it makes difficult for them to make independent advice about what to buy into or what not to. But Nightingale’s says no real estate agents, no sales, no marketing. Instead, it has a series of information nights, it talks to all the purchasers and it provides information, fearless information, warts and all, about the great things about the project and the not so great things about it.

Jeremy: [00:35:17] So for The Commons, for Nightingale One, we talk about all the great things, but we also say that it’s right next to the train line. So the great thing about that is that it’s really close. But it also means that train runs 24 hours on a Friday and Saturday night. And if you got your window open, you know you can. You’re going to hear it. You know, that’s a very, very it’s a place of urban flux, and that where you see all the single story warehouses now, you’ll be a construction site for the next five years. So we talk about all those things openly.

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

Jeremy: [00:35:46] I don’t know. So so, look, we don’t have you know, we don’t have a marketing team. We had some political trouble on Nightingale One where we got a planning permit. The developer next door took us to the appeals court here based on the fact that they didn’t want us to sell apartments that were 20 percent bigger, 20 percent cheaper and 120 percent better than theirs, because I think that they thought that it might provide a market problem for them. They took us to the appeals court and they were well funded by the developer. And we weren’t particularly well-funded. And they had a good legal team. And then they had our permits stripped from us. So they got our permit taken off us.

Jeremy: [00:36:33] Well, it’s a very, very strange planning system here where  individuals can veto a local government decision. It’s very interesting. So we then had to lodge a new  planning application from scratch for Nightingale One.

Jeremy: [00:36:53] But the interesting thing was that when Nightingale One lost the local planning permit at that at the appeals tribunal, the local media, particularly the liberal media, got very, very bent out of shape about a project that was trying to deliver carbon neutral housing affordably, particularly trying to house millennials and first time buyers that had just been totally priced out of the market. And they got really bent out of shape that that the one thing that that project was defeated on at the appeals court was on car parking. So basically the whole fight was that we didn’t provide any car parking. How our whole contention was that it sat on top of a train station next to a place where people were unlikely to have cars. Well, over 30 percent of them didn’t have a license. Thirty percent of them didn’t have cars. And the last 40 percent had filled out statics saying that they would either get rid of their cars when they moved into the building or that they would garage them in surrounding buildings that have masses of basement carbon that is under utilized. Well, the biggest thing that happened for us was that it totally changed the landscape for us in terms of everyone suddenly had heard of Nightingale, heard about this.

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

Jeremy: [00:38:05] Yeah. The bad thing that nearly broke me emotionally, like Breathe architecture was nearly broken the day after that. We couldn’t believe what had happened in the 21st century in this city, given its incredible problems with climate change and kind of housing justice. And anyway, what we found was that beyond that, after that, our waiting list, like the week after that, our waiting list had jumped from 125 people to over 400 people.

Jeremy: [00:38:34] So people had read it in the mainstream. Wow. So you’re wonderful. You’re absolutely right. I think that was the start at which people actually started to hear about us.

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

Jeremy: [00:38:47] Mm hmm. Good question. So off the back of all of the Nightingales we’ve done, what we found was that Nightingale One opposite the Commons, they’re both really great strong communities. But what we’ve found is that there’s that they’ve actually started to work together as an organism. So the residents of The Commons and the residents of Nightingale One have worked together to lobby the council, to close the street at the front. So in two years time, the street will be closed and they’re going to pull up the asphalt and replace it with grass and turf.

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

Jeremy: [00:39:22] Yes. And they and importantly, what else we’ve seen is with those two buildings in close proximity to each other, they’ve started to engage with other residents around. So it’s not just individual communities, but everyone within that street now and across the railway lines and around the corner are all now kind of engaging in street parties, garage sale days, you know, Christmas parties or just talking to each other as they go past. There’s no more anonymity. And so the big thing for us was how do we kind of learn from that? And so we bought seven sites to Street south of the Commons. And that’s what’s called Nightingale Village. So that’s there was gonna be seven buildings by seven architects, all carbon neutral communities, no individually owned cars, a car share hub for 15 share cars, a consolidated bike park with 450 bikes. But importantly, no cars allowed on the streets. So on the streets above, again, pulling up the asphalt, replacing it with grass, trees, street furniture and making it a place for pedestrians and cyclists. That’s fabulous. Yeah. And so then, you know, at that scale, it jumped from a 10 million dollar project to one hundred million dollar project. We had a superannuation company, HESTA work with an organization called Social Ventures Australia, an impact investor, and they put in 20 million dollars worth of equity into that project. And then we’ve had a big bank here, National Australia Bank essentially build a two billion dollar housing innovation fund to step into the gap that our federal government and state governments have left to. Yeah. And so the debt will be funded out of that National Australia Bank housing fund. So it’s been incredible getting institutional finance coming in to make that happen. And then within that, obviously, we understand and that we’re part of the gentrification problem. And so we’ve been looking at this idea of inclusionary zoning and why can it work in London and why doesn’t it work here or why isn’t it called for here? And basically, the property council here, lobbies our planning minister, not to put inclusionary zoning. They say that we won’t be able to afford it, that it will make..

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

Jeremy: [00:41:36] Property developers. And so. And so we’ve decided at Nightingale Housing to now make sure that every project we do has 20 percent affordable housing in it, whether there’s inclusionary zoning or not. And so what we’re intending at Nightingale Village, we’re now putting in 20 percent affordable housing. And so within that, we want to prove to the planning minister and to the government that you can put in affordable housing, that you can salt and pepper it through your developments, that it can be done well and it can be done elegantly and it can be done equitably. And if we can do it, there’s no reason why a well-managed, publicly listed housing company or development company can’t do it. So, yeah, look, the big push for us is now to actually make sure that we don’t just we just try and get better with every project. We try and think through what are the other issues that need to be done and then we’ll deal with it.

Eve: [00:42:35] OK. So I have a couple of really quick questions for you. What trends in real estate development architecture do you see emerging that you think are important for the future?

Jeremy: [00:42:47] Yeah. Yeah. So, look, I mean, we’re not plumbing natural gas and all of our buildings are carbon neutral in operation. So it has to be powered by 100 per cent certified green power, 100 percent renewables. So that’s the measure that we use in Australia before we started Nightingale, every property developer told me that was impossible because people liked gas to cook on their woks, you know, to have a wok burner in their apartments and that they would never go without gas. Since Nightingale One has been complete, there are now five zero gas buildings within a one kilometre radius of Nightingale One. Quite interesting. So we’ve shifted the bar on this idea of can I operate without gas? Are my purchasers interested in carbon neutrality and around here? Absolutely.

Eve: [00:43:37] And of course, if you don’t have gas you don’t need to run gas lines and that is another savings.

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

Eve: [00:43:46] Wrap up question here. So where do you think the future real estate impact investing lies? Because you’ve been dealing with those impact investors from day one?

Jeremy: [00:43:56] Yeah. It’s a really good question. I think that and I’m very, very interested in your model, because I think that peer to peer lending is going to be really interesting about people being able to invest in projects with meaning. We see that the people of Melbourne who funded the early equity projects in Nightingale, they did it not so much for the return, but because they cared about what was happening to our city, what was happening.

Eve: [00:44:25] That’s why I built small change, because I think the people in the cities they’re in and they just want to be part of making it better.

Jeremy: [00:44:33] Yeah, I agree. Totally. And so it’s incredible to see Melbournians investing in projects and people with not a lot of money, but literally, you know, borrowing against their own home to help make this happen, because they’re not just interested in making the city more livable place, but they’re also interested in and they care about the future generations and what’s happening to Millennials being locked out of the housing market and wondering what’s going to happen for them in housing security in the future, so I don’t think that’s going to put a lot of pressure on institutional funds. We’ve got a lot of superannuation money in Australia.

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

Jeremy: [00:45:15] Well, the interesting thing is, since the village. That’s the last time we paid those rates. Oh, very good. So since then, we’ve got two new projects on line and the offers are becoming back in. And now, you know, 13 per cent and 11 per cent because, you know, by the time we finished the village that’s 14 projects. And with a wait list of eight and a half thousand people, the single biggest risk in a project is sales and settlement. Right.

Eve: [00:45:39] There’s not much risk. Right. Right. So I’ve really enjoyed the conversation. Thank you very, very much. Yeah, there’s lots more and want to know, but it’s pretty fabulous what you’re doing. Thank you.

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

Eve: [00:46:16] You can find out more about this episode or others you might have missed on the show notes page at our website, rethinkrealestateforgood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jeremy McLeod

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