Rethink Real Estate. For Good.

Community

Crushing urban innovation.

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Institutional lenders have their place when it comes to commercial real estate finance. They are the primary source of loans for real estate projects and they offer a wide array of business and development-oriented services as well, all of which are definitely needed. But traditional lenders are not particularly well-suited to solving development challenges in a rapidly changing world. Large financial institutions are not nimble. They will follow, rather than lead with, change. The mess we find ourselves in today is unfortunately in large part due to the dominance of large and traditional financial institutions in the funding of the housing market.

Cookie cutter projects

If you’ve spent any time at all in the urban cores of cities like New York, Los Angeles, Seattle or Chicago, you must have noticed that new construction seems to all look the same. The same residential projects. The same commercial projects. These days larger real estate projects tend to have a floor of businesses and shops with some parking added in, topped with lots of condos or apartments. Often these projects are marketed to high-middle or upper-income tenants, and often they are built with millennials in mind with lots of studio and one-bedroom units. And these developments are a primary reason that displacement is occurring. They are homogenous, catering to one type of tenant or buyer, in a particular income range, with a particular lifestyle. Often, they are funded by the same institutional lenders, like Wells Fargo, Key Bank, and Capital One Financial, amongst others.

Large financial institutions seem to prize predictability and stable returns over all else. The welfare of local residents and the improvement of the community don’t seem to be part of the underwriting equation. There is a desire for simplicity and scalability above all, hence the same projects are appearing in cities from Portland to St. Paul, despite massive differences in the needs of each respective city or community. Housing is not and cannot be a “one size fits all” product. The root cause of many of the ills in the housing market stem from this attitude of “build, and they will come” rather than using community needs and input to craft positive housing solutions.

Scalability is perhaps the biggest reason why lenders won’t support smaller, market-specific projects. Plans to build 20 or 30 units on a small, reclaimed industrial lot in the heart of the city are less attractive than monoculture mixed-use developments that can be replicated quickly and present little risk in terms of construction or the ability to lease to tenants or sell to homeowners. These smaller projects can often be built to maximize their social, environmental, and economic impact. By using non-traditional lots, developers can save on land costs and may also save on lengthy neighborhood review processes, which are common with larger-scale developments. Despite the obvious benefits offered by small-scale development, it can be hard to fund them.

Small investors. Big returns

As institutional investors cannot or will not adapt to unique or non-traditional models, developers and investors must leverage alternative sources of funding for progressive and innovative projects. When traditional lenders choose not to fund a project, look to your own community for development capital!

Raising capital through community-based means allows developers to offer similar returns on investment to smaller, local investors, who may have a personal stake in the success or failure of the project. Rather than the returns flowing out of the community to a large financial institution, that money stays within the area, giving residents and other stakeholders a direct financial interest in their community.

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A diverse investment portfolio is a healthy investment portfolio. The same can be said of housing and commercial space. Modern mixed-use, cookie-cutter developments detract from the charm, sustainability, and longevity of a neighborhood. Rather than becoming a fixture of a community, as a unique building or development might, these podium developments re-shape the communities they are built in and drive out long-term residents. We need developers who are willing to take chances on non-traditional projects and want to push urban innovation in our cities to make them better places for everyone. If we crush them, we’ll all be a little poorer, culturally, financially, and socially.

Image from pxhere, C00

Closing loopholes for better neighborhoods.

Unfortunately, loopholes are far too easy to find in the real estate development industry. They are hiding in plain sight in lots of places. Taxation, zoning, affordable housing programs or even government incentives jointly provide an abundance of loopholes and unscrupulous developers will find a way to take advantage of them. For many years, unethical, or at the very least short-sighted development has been the norm. Now, with the rise of sustainable and socially conscious development, a new generation of investors and developers are shedding the profit-driven dogma of the past to work towards a more ethical real estate industry. This includes creating more livable and equitable housing which can generate returns similar to traditional, profit-driven development projects.

The worst outcome

Perhaps the worst outcome of unethical real estate development is displacement. Projects initially pitched to provide a rebirth and revitalization for underserved neighborhoods can instead, sometimes unwittingly, lead towards gentrification, in turn driving long-term residents from their communities and homes.

Many areas slated for “urban renewal” in the past were primarily filled with single-family homes while the neighborhood itself was zoned for both single-family and multifamily properties. This provided a particularly attractive opportunity to profit-driven developers since the density of the neighborhood could be increased with apartments and condominiums many of which were out of the price range of current residents. This in turn led to a great deal of residential turnover in these communities and an acceleration of the harms associated with that turnover.

Community pushback

After years of such unchecked development, many communities- and aligned developers and investors- have started to push back. More appropriate zoning, sustainable and energy efficient housing, community cohesion, walkability, bike-ability and equality, amongst others, have moved to the forefront of the conversation. Often these conversations have been led by local organizations dedicated to preserving neighborhood character and ensuring positive growth in housing and commercial enterprises. Now, single-minded profit-driven real estate development is being supplanted by a collaborative approach- with local stakeholders and community-minded real estate professionals, developers and investors all talking to each other to plan for the best community outcomes.

Mix it up

Bigger or more of the same is not always better if your goal is to create diverse and livable communities. Studies have shown that mixed-income neighborhoods thrive compared to monoculture neighborhoods primarily comprised of a single social or economic class. Many of the worst examples of suburban sprawl or overzealous urban luxury development prioritize high-income, white-collar workers and families at the expense of others who may not be as socioeconomically well-off. 

These monoculture neighborhoods can be islands that residents commute to and from, only serving a small and elite sub-set of our country’s demographic. And let’s not forget what these isolated communities spawn – environmental and health issues related to commuting, lack of walkability and lack of long-term sustainability. These neighborhoods also degrade over time from A to B and C Class housing, and residents are left with vast tracts of homes, with little commercial or social activity within the bounds of their neighborhood. 

Smaller steps

A focus on developing smaller projects, such as micro/economical single-family homes, duplexes, or apartment buildings can avoid many of the headaches and harms that come with large-scale, homogenous development. Rather than knocking down existing affordable housing, or dominating an area with mega-structures, developers can work to maximize usable real estate and land (even non-traditional, unique and oddly shaped lots) while largely preserving the character and makeup of the neighborhood. These smaller projects can be much easier to finance for developers, as capital investment costs will be lower. And investors can benefit from the diversification value of multiple small projects as opposed to a single large project.

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We can’t change the mistakes of the past, but we can work to ensure they are not repeated. Housing affects every facet of our society, from employment opportunities to the environment, to social and economic justice within a neighborhood. While legislative and community-based solutions are absolutely necessary to weed out bad actors and unethical development, pro-social developers and investors can also make a contribution to a future with carefully planned communities and neighborhoods.

Image, Riverview Terrace, courtesy of Small Change.

Greenfields are boring.

Adrian G. Washington is the founder and CEO of Neighborhood Development Company (NDC). Their mission is to develop exciting residential and commercial properties that cultivate vibrant communities. What does that mean? And how does a developer do that?

Well, that’s what Adrian and I talk about so listen in.

Adrian has over 30 years of experience in urban real estate development, construction and management. He founded NDC in 1999 and has served as President since then — except for a two year leave of absence from 2005 – 2007 when he left to lead the Anacostia Waterfront Corporation (AWC), the entity charged with leading a $10 billion, 20-year initiative to revitalize Washington, DC’s Anacostia Waterfront and surrounding communities. NDC has developed over 1,000,000 square feet of real estate, focusing on emerging urban neighborhoods while respecting the rich diversity of their existing fabric.

Adrian grew up in the city’s Anacostia neighborhood and is a lifelong resident of DC. He received his B.S. in Economics and Political Science from Stanford University and his M.B.A. in Marketing and Finance from the Harvard Business School. And he has received numerous individual awards reflecting his leadership in the development industry.

Insights and Inspirations

  • Why develop a green field when you can redevelop an existing neighborhood and help it to thrive?
  • See the people who are living there. They embody the neighborhood.
  • Mix it up. Build affordable housing right next to luxury housing.
  • Work with small businesses out of the community. They can become valuable tenants, not just for the developer but they bring value to the community as well.
  • There’s lots of opportunity in Opportunity Zones.

Information and Links

  • Adrian is excited to see NDC’s Benning Market built. It’s a food hall in River Terrace North East, and many of it’s investors came through a Small Change offering.
  • NDC supports DC Greens, a local non-profit dedicated to food justice and health equity in Washington, DC.
  • The project that Adrian is most proud of is the Residences of Georgia Avenue. This block buster project increased affordable housing options and healthy food options in a neighborhood considered a food desert. 
Read the podcast transcript here

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

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Adrian Washington. Adrian is the founder and CEO of Neighborhood Development Company, a Washington, D.C. real estate company focused on rebuilding vibrant communities through their work. Adrian fell in love with this type of development work and decided to make a career out of it, much to the good fortune of the neighborhood he works in. For Adrian, greenfields are boring. Nothing gives him greater pleasure than digging into a forgotten and neglected site and turning it into a neighborhood asset. I’ve had the good fortune of working with Adrian at Small Change, helping to raise funds for some of these projects.

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

Eve Picker: Good morning, Adrian. Thank you very much for joining me.

Adrian Washington: Thank you, Eve. It’s a pleasure to be here.

Eve Picker: So you have a real estate company called Neighborhood Development Company, and we’ve been lucky enough at Small Change to help you raise funds for one of your projects. Your company is in Washington, D.C. I’m just wondering if you’d like to tell us how long you’ve had Neighborhood Development Company, or NDC, and have you lived in D.C. all of your life?

Adrian Washington: I’m a native Washingtonian. I’ve lived here most of my life. I went away and went to school down in California; lived out there for a while; lived in Boston, but, essentially, I’ve been in D.C. all of my professional … I grew up here, and I’ve lived here all my professional life. I’ve been involved in real estate, altogether now, going on over 30 years and formed Neighborhood Development Company a little over 20 years ago, back in 1999.

Eve Picker: That’s quite a stretch. NDC’s mission, in your words, is to develop exciting residential and commercial properties that cultivate vibrant communities. What does it mean to you to cultivate vibrant communities? How does a developer do that?

Adrian Washington: We’ve always operated in urban areas of primarily Washington, D.C. and really always neighborhoods that were emerging; that were maybe down and out at one time or were starting to turn around. What we found in these neighborhoods is that we don’t look at them just from a brick-and-mortar perspective. We see the people that are living there now. They want their neighborhoods improved, but they don’t want to be displaced. They want shops and things that serve them, but don’t serve just outsiders. They welcome newcomers, but they want to feel those newcomers respect the place that [inaudible]. We see our role as balancing those things of making a neighborhood better for people who are living there, attracting new residents who want to be part of those communities, attracting businesses that want to be part of those communities, but not to displace people and not to alter the fundamental character. As developers, I think it takes like a real balancing act that we work with on a day-to-day basis.

Eve Picker: I do think it is a real balancing act. How do you fend off displacement?

Adrian Washington: We do it in, I guess, a number of ways that I think are unique in some developers in that we do both very high-end market-rate developments, but we also do affordable housing. We do affordable housing in a number of ways. We do it in traditional ways that more traditional developers do it, using government subsidy and the many programs involved. We also do it in more creative ways. For instance, we’ve worked in the past with failing cooperatives, where a group of tenants own their building collectively, and it’s just not working out, either because of bad management, or whatever. We team with them to provide our services with them but do it in a way that allows them to stay in their homes. That’s one way we do it.

Adrian Washington: Another way we do it is we really, in our commercial work, really like to work with entrepreneurs. Your typical developer may want that credit tenant. They want that CVS, or that Walgreens, or someone national. We really- we don’t go that way. We go in the opposite direction. For instance, in one of our developments, we have a salsa teacher, and she was doing lessons- it was a nice young couple. They were doing lessons out of their basement in the neighborhood.

Adrian Washington: They were so successful, they wanted to have their first studio. They came to us, and we had a space in one of our buildings, so we worked with them on the design; we worked with them on getting government grants to help them build out. We helped them with the construction. We gave them a favorable lease that started out low, and it allowed them to develop the business.

Adrian Washington: It was just a great neighborhood success story, where they stayed in the neighborhood. They had a service that appealed to both the newcomers and people who were in the neighborhood. They successfully grew their business. They’re now opening a second location. I think it’s really about creativity; using the skills we have as developers and businesspeople and connecting with people who have hopes and dreams – maybe not the same skills – and working out win-win solutions.

Eve Picker: That’s a really lovely story. Other developers might say that’s taking a risk with a little startup business that you don’t necessarily need to take. You could go get a credit tenant. So, why do you take that risk?

Adrian Washington: Well, I think a couple of reasons. It is kind of, on paper, riskier. Although we see with all the changes in the retail economy, yeah, you could have some business like a Blockbuster – going back in time, when everyone thought it was really successful, and now it’s out of business [cross talk]

Eve Picker: Yeah, that’s true.

Adrian Washington: Or even something like a McDonald’s, where everyone thought McDonald’s used to be the gold standard. Even now, you see some of those stores shutting. There’s not ‘no risk’ in a credit tenant, but I agree that there’s more hand-holding; there’s more involvement. You’ve got to pick your entrepreneurs carefully. You’ve got to help nurture them. Typically, they’re people who are great enthusiasts about what they know – if it’s salsa dancing or handmade pottery – but they don’t know about marketing; they don’t know about financing. You’ve got to work with them more.

Adrian Washington: We just find that more rewarding. It’s just fun. It’s creative. We feel like we’re helping people. We feel that we’re seeing eye to eye, because even though we’ve been in business 20 years, we’re still thinking of ourselves as an entrepreneur. The neighborhoods love it, so I think it makes us more popular in the neighborhoods. We’ve found that the success rate that we’ve had with these businesses is really pretty high and that the occasional failure that comes along, we just kind of build that into our pro forma. We’ve found that we were able to replace people who don’t like it with other people. All in all, we just find it’s more socially rewarding, it’s financially fine, and it’s just a lot more fun.

Eve Picker: It adds to the economy of the neighborhood you’re in, which is really lovely. Developers do lots of different sorts of things, and I’m wondering how you ended up here. How did you …? There must have been a path that took you towards this type of development.

Adrian Washington: Eve, I think it’s like a lot of things in life. I don’t know, maybe there are people who have these- design these great plans at age 12 and follow them through. I really didn’t. I went to undergrad; I went and got an MBA. I worked for a national consulting firm, and I thought that was my path, but I really hated it. At the meantime, I had bought a house in an emerging neighborhood and fell in love with that culture. I think I was really ahead of my time. I saw the appeal of walkable, livable neighborhoods. I saw the appeal of eclectic neighborhoods that had different types of architecture, that had different types of people, different races, different income groups, that was close to urban centers. I just thought that was great. I loved being in that neighborhood. I loved the change that I saw was going on. I loved the physical aspect.

Adrian Washington: Back when I was younger, I did everything. I did carpentry; I did plumbing [inaudible]. I just loved that whole environment. I think I was always an entrepreneur at heart … I was going to a day job that I hated, and I had this hobby that I loved, so I said, “Well, why don’t I see if I can turn this hobby into a business?” That was 30 years ago. It hasn’t been a straight line. There were struggles; there were failures; there were just dumb-ass things that I did that didn’t work out, but I always came back the next day and tried to do it better, and I’m really glad I did.

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

Eve Picker: That’s a great reason why. It’s pretty wonderful to be able to be doing something that you really love and that adds to communities everywhere. So, I’m going to move on now to a project that I know you’re working on, called 1100 Eastern Avenue, which is one of your latest projects. We’re fortunate enough, at Small Change, that we’re going to be helping you to raise a little money for this project. I wanted to talk a little bit about it. Can you just tell us a little about what the project is, how big it is, the uses, where it is?

Adrian Washington: Well, sure, Eve. I’m really excited, and our whole team’s excited about 1100 Eastern. It’s really a project that embodies our beliefs, and uses all of our skill sets, and is just very exciting. It’s a mixed-use projects. Ground floor is a retail component; not that large, about 4,000 square feet. I think one of the great things about it is that there were … The site is sort of a rundown former- like a strip shopping center. A couple of the tenants there were folks that, frankly, the neighborhood was happy to see leave. It was a liquor store and an old carry-out. Not to knock those people, but they weren’t really what the community wanted.

Adrian Washington: There were a couple of tenants the community really did like. It was a barbershop that had been there for really a couple of generations. The current owner’s father had founded it back 35 years ago. She was still running it, and it was really a neighborhood institution. Then there was a daycare center. One of the things that we’re doing is allowing those people to come back to the new development in brand-new facilities. We’re even able to offer them, starting out, kind of with our philosophy, at the same rents they were paying, which were far below market. It’ll allow them to build up the market over a number of years, so we’re very excited about that.

Adrian Washington: Now, on the floors above it, there are five stories above it. These will contain 65 units of mixed-income housing. There’s housing for very low-income people, who were formerly homeless, who will be able to get wraparound services to allow them to transition to a more normal life. Then there are other units that will be for people of moderate incomes; people anywhere from – these are technical terms – but from 40 percent to 65 percent of the area median income. These range from what we would call pretty subsidized housing to more workforce housing, so we’ll have a range of people there.

Adrian Washington: We’re also very proud of what we’re doing is that we’re giving a really big mix of unit types. Typically, in any kind of new construction development, you’re seeing just people were just building one- and two-bedrooms, or studios. What we’re able to do in this building is to provide one-bedrooms, two-bedrooms, three-bedrooms, even a few four-bedroom apartments. It really will serve a number of different types of people in the neighborhood – seniors, people with families, people with kids. It’s just a great project that will really help everyone in the neighborhood, so we’re very proud and excited about it.

Eve Picker: That sounds really, really wonderful. The four-bedroom units are so unusual nowadays, and extended families are important, so that’s pretty great. I understand it’s also an Opportunity Zone, which is, as we all know, a very hot topic right now. How will that impact the development?

Adrian Washington: Opportunity Zones are exactly what you said, Eve; it’s a very hot topic. People are still figuring it out. I think that, unfortunately, early on, a lot of the Opportunity Zone benefits are going to people who are creating projects that would have been created anyway. We’re very proud that we feel this project will fit in what the Opportunity Zone true mission is, which is to bring capital to underserved neighborhoods – as I said, our commercial businesses, our neighborhood-serving businesses that were going to be displaced and that people in the community wanted to stay.

Adrian Washington: What we’re doing is we’re using Opportunity Zone benefits to attract capital to help keep these businesses in. So, I think that’s important. But, also, I think one of the key things I feel that Opportunity Zones is that the projects have to make sense, even if they weren’t in Opportunity Zones. We are a business that prides itself on not just being do-gooders, but being solid businesspeople, so we’ve underwritten the project carefully. We understand the costs, and the risks, and all of the factors. We think this is a project that works, even if it wasn’t in an Opportunity Zone. But we’re very happy to allow people who are investors who want to get a good return on their money, but also to have a meaningful social impact, to have all that, plus the tax benefits of the Opportunity Zone.

Eve Picker: For listeners who don’t really understand Opportunity Zone funds, because they are very complicated … Took me a long time to understand. The fund, in this case, is actually the project. It’s just the entity that the project is using as a legal entity, the LLC, that will become a fund, right? If people invest-

Adrian Washington: Yes, that’s right.

Eve Picker: It’s a 100-percent Opportunity Zone fund because it’s just a single-use fund, just one project. So, if people invest in it, they’re investing actually into the project itself, not into a fund that then serves a whole series of projects. They can take a really close look at the underwriting and see if they like it. I would agree with you, at the moment, the Opportunity Zone fund benefits are kind of gravy. I have yet to see a project that is moving forward simply because of those benefits. They don’t seem to be enough to make a project happen, right?

Adrian Washington: Exactly. We’ve used that approach, not just in Opportunity Zones, but with our other investor- projects. What we found over the years is that people- they want to know what they’re investing in, both from a business standpoint … They want to kick the tires, see if they believe in the construction costs, and the neighborhood statistics, and the tenants that are being there. They want to understand that. They also want to understand the story behind it. What’s going into the neighborhood? How will my investment benefit [inaudible] neighborhood? They really want to touch, and feel, and see that. We’ve had a lot of success over the years in doing that. This project really works in the same manner, where people can really learn about it, learn about us, learn about the neighborhood, learn about the businesses, and say, “Yeah, I want to put my money here. I believe in it as a financial investment. I also believe in it, in terms of its social [mesh].

Eve Picker: I think what I’m most excited about for Small Change is the fact that we’re helping you raise money for this Opportunity Zone fund. We may very well be the first Opportunity Zone fund offering investments- very small investments to everyone over the age of 18, not just accredited investors. I think many of the funds that we see around the country have really big minimum investment amounts of $100,000 or $200,000, or $500,000. This is going to be much smaller for everyday people, which personally I find very exciting. It’s yet another way to make it accessible to your investors in your neighborhood, right, Adrian?

Adrian Washington: Right, and we’re excited, too. Eve, as you know, and the audience may not know, is that you guys raised money for us on another project, our Benning Market project – a neighborhood called River Terrace. It was a nice way to raise money, but I think more importantly, it helped build support and build involvement in the project. I have people in that neighborhood who told me, “Yeah, I saw … I’m an investor in your project, and …” [cross talk]

Eve Picker: That’s great. That’s really great, yeah.

Adrian Washington: -“… and I saw it because I lived down the street and I wanted to be a part of it. I just thought it was cool that you allowed us to participate in that.” I think it really does build more of a sense of community; it builds more of a sense of involvement; it invokes transparency, because, frankly, I think that, in these days, developers are viewed with a lot of distrust. I think that by allowing community members to invest at investment levels that they can afford really helps to break down those walls, and do that, and helps to increase visibility. We were really happy with the results we had with you on our first investment, which is literally breaking ground in a couple weeks, and we are very excited to work with you again on the Eastern Avenue Project.

Eve Picker: That’s great. You’re going to have to send me updates on the first one, because we’ll post them for our other investors. People like to see [cross talk].

Adrian Washington: We’ll send you groundbreaking pictures. How about that?

Eve Picker: That’d be fantastic, yeah. Talking about this little piece of community engagement – crowdfunding – community engagement has to play a big role in your projects. I’m wondering how you handle that. That can be tricky sometimes.

Adrian Washington: It can be tricky. Like I said, there’s just a lot of distrust around development, and in our political climate, I think there’s just [riding] distrust in everything, so I don’t take it personally. I think the key is you’ve got to be out there early and often. We’re working a different project, in a different part of the city, and we’re a couple years away from groundbreaking; really a year away from an actual serious design and engagement, but we’re already out there in the community, asking people what they want, telling them about ourselves, letting them see some of our other projects.

Adrian Washington: You’re never going to please 100 percent of the people in any community. What I’ve found over years is that what you can do is the best you can do, which is to be accessible, be transparent, to listen, to be honest. Sometimes, people want something, you’re like, “Yeah, we can do that.” Other times, people want something, and I’ve seen a lot of developers be vague and sort of say, “Oh, well, maybe we’ll look at that.” I try to be honest; I try to say that, “Sir, ma’am, we just can’t do that, and here’s the reason why. I know you won’t be happy about that,” but I think it’s more important to be honest than it is to try to gloss over a problem.

Adrian Washington: It really takes a lot of work. It’s changed over the years. 20 years ago, we didn’t have to do nearly this level of community involvement. I think, particularly in underserved neighborhoods, that people were happy that you were just there and building something; pretty much, you didn’t have to do more than that. Nowadays, it’s different. People realize that their neighborhoods are an asset, and that people want to develop there, and they are demanding to be heard and respected. If you’re not there, you don’t hear them, you don’t respect them, you’re gonna suffer for it.

Eve Picker: Yeah, I think that’s right. Moving on to more global themes, here, I’m just wondering what you think we all need to do to make our cities and neighborhoods better places for everyone, so that no one gets left out.

Adrian Washington: That’s a big question-

Eve Picker: It is a big question.

Adrian Washington: -I don’t know if we can solve that all in one podcast. I’ll focus on our roles as developers. Clearly, there is a need for more housing in our cities. There’s a need for housing that serves all different income levels and all different family types. It’s not the ’50s anymore. It’s not just mom and dad, and 2.3 kids, and a picket fence. There are all types of households.

Adrian Washington: The development process has gotten tougher. Besides the community involvement piece, the environmental and sustainability requirements are much higher, the zoning is trickier. It’s hard work. I think our job is to use the skills that we’ve developed over the years to work in partnership with communities, to let them see how they can help us, and, in turn, using our skills to help them work on win-win solutions; involve government, because, obviously, they’re important, and have patience, but have perseverance. Development is tough.

Adrian Washington: I think that to be successful, you’ve got to have a long-term view. You can’t feel like you’ve got to make a killing on every project. You’ve got to look at your entire body of work, so at the end of the day, at the end of your career that you’ve made a fair return on your investment, your time, and your risk, but you’ve also contributed to society. I think it’s possible, if you have those things in mind. Honestly, it’s more rewarding and it’s more successful, if you do it that way.

Eve Picker: Clearly, you think socially responsible real estate is necessary in today’s development world, and that’s the way you manage your business, but I’m wondering, are there enough developers out there thinking about impact and thinking in the way that you’re thinking? If not, how might we improve that? I still see a lot of greenfield developments that, quite frankly, shock me in this day and age; that that sort of work continues. I still see banks wanting to finance those models over and over again, because it’s easy to think about them. I’m wondering how we shift to a [kinder] development world.

Adrian Washington: I think it certainly is growing. I agree with you completely. I drive around, particularly when I’m not in D.C., and I see so many greenfield developments. Just to me, personally, it’s just kind of boring. I didn’t get into this just to make a ton of money. Like I said, I want to be fairly compensated for what I do, but it’s more about that.

Adrian Washington: To answer your question, I think I see more and more of it. I think, particularly the younger generation … I’m older. I’m not a millennial. I guess I’m a young baby boomer. But, particularly in the generation behind me, I see people who want to do that, and not just in real estate development, but in other fields in life. They want to do more than just do a job and make money. They want to make a meaningful impact on the world. They want to have that reward, which helps them feel better.

Adrian Washington: Also, what I’ve found in my business, is it helps to attract and retain young employees. They don’t want to just build some cookie-cutter, 200-unit apartment building in a greenfield, just like everybody else. They want to do projects that are creative, that involve different financing sources, that touch people’s lives, that take challenges [cross talk] and from a business standpoint. I think it’s a movement that is slow in coming, but I clearly see it’s building, and I think it’ll be more and more.

Eve Picker: Yeah, I think you’re probably right that it’s gradually building. Do you see any current trends in real estate that you’re fascinated by or you think are going to make a difference moving forward?

Adrian Washington: Yeah, I see … Clearly, the trend for co-living and coworking is the big trend. WeWork is obviously the big kind of corporate behemoth example of that, but there are a lot of other smaller, more entrepreneurial types of interests. I’ve see coworking spaces designed around women, or women with kids that have daycare centers, or people with social causes, like a nonprofit type of thing. I see that as a big trend.

Adrian Washington: I see co-living. I think that where people, either because of monetary reasons, or because of social reasons, don’t want that house by themselves, but want an opportunity where they can either live with roommates or live in a more communal environment, where things like kitchens and things are shared, and where there’s a social network in place that typically people who are new to an area- it’s a way for them to connect. I see a real sort of striving for more connectedness, as our world, in a way, becomes less connected. I think there are great opportunities to expand on that model. I’ve seen some very successful ones here in Washington, D.C., so it’s something I’m keeping my eye on.

Eve Picker: Yeah, I think a lot of people are. I’m going to ask you three signoff questions that I ask everyone. The first one is what is the key factor that makes a real estate project impactful to you?

Adrian Washington: I’d say the key factor is that it meets the needs of the community that it’s in. The only way you get that is to get out, and talk to the people there, and understand what they want. Some communities, they want more affordable housing. Some people, they want less. Some people want retail that’s a particular type; other people might want a retail that’s missing, like, say, a Fresh Grocer, which is like an example of another project that we did. We put in a Fresh Grocer where it’d been a food desert. It really involves talking to the community, understanding what they want, and then using your skills to develop- to deliver it.

Eve Picker: When it comes to crowdfunding, do you think there are other things that can help you as a developer, not just involving investors, but how might crowdfunding benefit your project, as a whole?

Adrian Washington: I think crowdfunding benefits us in a number of ways. The couple that most come to mind – and I [inaudible] an example earlier for one of our projects – is many people in the neighborhood become investors in the projects. They’re invested not just financially, but they’re invested emotionally. They tell their friends; they frequent there more often. I think the crowdfunding helps allow, particularly, local residents to be involved.

Adrian Washington: I think the second way that that’s really helped us and helped the project is that it’s a real brand builder. Eve, when we did the project with you guys, we got so many press kits about the project. We were [cross talk].

Eve Picker: That’s fabulous. That’s really fabulous.

Adrian Washington: I was interviewed a couple of times at the local news station, I was interviewed by national publications. People that I would- said “Hey, I heard about your project. What’s crowdfunding like, and how do you like it? It just really enhanced our company’s visibility, our project’s visibility; it was a real brand enhancer, and it’s something that I did not expect and something I was very pleased with.

Eve Picker: I’m grateful to hear that. That’s wonderful. Then, this is a really big one – if there were one thing that you could change about real estate development in the U.S. to make it better, what would that be?

Adrian Washington: I think that the thing that I would really change is not so much government policies. I understand the need for regulation around safety, and sustainability, and community impact, but I would change more the attitude of the people in government who do those. I think there is too much of a – particularly in inspections – ‘gotcha’ mentality, where, instead of working with us, and understanding that we’re doing the best we can … Yes, maybe this one particular light switch was two inches too high or too low-

Eve Picker: Oh …

Adrian Washington: Not just a ‘gotcha’ mentality, not just, “Okay, you messed up on that. Fix it, and we’ll come back when we’re ready and tell you whether you missed anything else,” more a partnership for governments to understand that we’re good guys. We’re doing the best we can; that we want a safe project, a sustainable project, and to work more cooperatively with us, and help us succeed as partners, and not to be adversaries.

Eve Picker: That’s a great way to end this interview. So, Adrian, thank you very much for your time. I really enjoyed talking with you, and I’m sure we’re going to be talking again.

Adrian Washington: Great, Eve. Thanks for having me.

Eve Picker: That was Adrian Washington. Adrian is not afraid of a challenge. His company focuses on challenging sites in challenging neighborhoods, always making sure that neighborhood folks are involved and that their neighborhood is improved by the final project. I love that Adrian finds greenfields boring. I love that he sees the people in a neighborhood first, and I love that he nurtures local businesses, bringing even more value to the projects he develops.

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

Image courtesy of Neighborhood Development Company

Bite-sized investments.

Equity crowdfunding is changing the real estate development landscape. Importantly, beyond raising equity, crowdfunding can help build support within communities that may otherwise hold neutral or even hostile feelings towards the building of a new real estate project. Micro-investments via crowdfunding platforms give community residents and stakeholders the opportunity to participate in and take ownership of the development. And this means that everyone will have an interest in its success.

Developing in underserved neighborhoods is not easy

Since Franklin D. Roosevelt kicked off the New Deal Programs in 1933, federal, state and local governments have tried to find ways in which to deliver high-quality housing to all Americans, not just the privileged few. But while the numerous programs created that support housing have helped over the years, they have not solved the problem. Government-developed housing projects, low-income housing tax credits (LIHTC) and Opportunity Zones have not stemmed the tide of housing insecurity.

Many in the private sector only develop in these under-served communities due to the existence of such programs. This is due to the fact that risk-adjusted returns in many major metros are substantially lower than the return on investment an investor can anticipate from middle to high-end housing, like luxury condos or single-family homes. Making the numbers work is hard enough, and when slim margins are combined with vociferous opposition to a project, it can be hard to convince investors to get behind projects in the places that need them most.

Crowdfunding as a signal

Developers have a bad rap in communities. After years of dealing with bad-faith actors, and after suffering from the effects of gentrification and “revitalization” efforts, many in the communities that need housing the most are not inclined to work with them any longer. It is critical to send the right signals to community members in order to break through years of mistrust. One way is through crowdfunding. Instead of new projects only benefitting developers or investors, crowdfunding can allow those residents to have a direct financial interest in the success of the project.

Bite-size investments and the local community

The vast majority of real estate crowdfunding platforms require that users be accredited investors. In other words, they must be one of the 3% that have net worth of over one-million dollars or a salary of at least $200,000 per year. In 2016, in an effort to democratize investment, the Securities and Exchange Commission released Regulation Crowdfunding, a rule that permits anyone over the age of 18 to invest. Now there are some emerging crowdfunding platforms that employ this rule, like Small Change.

Most socially conscious real estate development projects take place in economically disadvantaged areas, as these are the neighborhoods that need the most help. If development projects are completed without concern for locals, they can end up hurting the people that the impact-investment was supposed to benefit.

Most residents in these areas probably can’t meet the $200k yearly income or one-million dollars net worth requirement for accredited investment. Small-dollar investment crowdfunding platforms allow developers to invite residents of the community they are building in to invest, and share returns with them, rather than faceless investors that live anywhere from San Francisco to Tokyo. Not to mention that crowdfunding provides developers more access to capital from sources other than traditional lenders.

Closing the gap

We all know that private developers cannot solve the housing crisis entirely on their own. There need to be significant structural and regulatory changes made in order to provide substantial decreases in housing insecurity, particularly in the very high cost of living areas on the coasts. However, private developers can make a dent in the housing affordability gap through projects that use local communities as a resource, rather than viewing them as an obstacle to be overcome.

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Small-dollar crowdfunding offers real estate developers a way to turn a group of potentially opposed stakeholders into firm allies with a direct financial interest in the project, in addition to their interest as residents of the local community. With so many obstacles to overcome when creating sustainable low and mixed-income housing, developers need all the help they can get. It’s a win win.

Image courtesy of Small Change

Connecting impact and creativity.

Laura Callanan is connecting impact investing to the creative economy. 
To accomplish this, she founded Upstart Co-Lab. Upstart Co-Lab’s goal is to show impact investors that the arts can be a powerful economic driver in communities. 

Laura brings a powerful background to Upstart Co-Lab. Before launching Upstart Co-Lab, Laura was senior deputy chair of the National Endowment for the Arts; consultant with McKinsey & Company’s Social Sector Office; and associate director of the Rockefeller Foundation where she managed the endowment and co-led impact investing, closing two investments in the creative economy.

She has also been a visiting fellow at the San Francisco Fed, a scholar in residence at UC-Berkeley/Haas School of Business and a Rockefeller Foundation Bellagio fellow. Laura chairs the GlobalGiving Foundation, advises Shift Capital, and is a member of the British Council Creative Industries International Council. 

Listen in to Eve and Laura to learn how creativity is connected to impact, and how together they can build better cities.

Insights and Inspirations

  • Incremental change is insufficient. Be open and bold!
  • Artists are by nature peculiarly suited to community development since art is built on tradition, whether it embraces it or not.
  • Creative endeavors can bring every bit as much to the economy as any other enterprise.
  • Strategy and focus are key to accomplishing Upstart Co-Lab’s big goals. Make the case. Build the coalition. Bring investible products to market.
  • Laura is intrigued by the hunger for immersive experiences. Is this a reflection of the isolated lives we live?

Information and Links

Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you’re going to learn how to make some change. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. 

Eve Picker: Hi there.  Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.  My guest today is Laura Callanan, The founding partner of Upstart Co-Labs. Upstart believes that creative people solve problems. It is disrupting how creativity is funded by connecting impact investing to the creative economy.  One way the creative economy drives impact is in communities.

Laura brings a powerful background to Upstart Co-Lab.  Just a few of her many past roles include serving as senior deputy chairman of the National Endowment of the Arts;  consultant with McKinsey & Company’s Social Sector Office and associate director at the Rockefeller Foundation 

Be sure to go to evepicker dot com to find out more about Laura on the shownotes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, SmallChange.

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

Eve Picker: Hi, Laura. It’s really a pleasure to have you here. Thank you for joining me. I’ve come to know you through your most recent enterprise, Upstart Co-Lab, where you’re a founding partner. I’m wondering if you could just tell us a little bit about Upstart’s mission and goals?

Laura Callanan: So Upstart Co-Lab is a field builder, a catalyst, a connector. We are connecting impact investing to the creative economy. We know that creative people solve problems. Like all entrepreneurs, they need capital to do it. Most creative entrepreneurs are very socially minded. Artists care about the human condition and that extends to the work they do through an enterprise model. So, the capital that fits them best is social capital, impact capital. Upstart Co-Lab is trying to unleash more of that impact investment capital for the creative economy.

Eve Picker: That’s great. How do you propose to accomplish that? I know you have a few different strategies you’ve been working on, but I’d love to hear more.

Laura Callanan: Well, from the beginning, we realized that what we were doing for the creative sector, in a lot of ways, followed on from what leaders had done around gender lens investing, so we went to the mothers of gender lens investing, and we said, “How did you do it? How did you take this idea, and, in a pretty short period of time, it really infused the notion of gender lens throughout the impact investing space?” They said it was a three-part recipe: make the case, build the coalition, and bring investable products to market. So, that’s what we’ve tried to do.

Laura Callanan: We have undertaken research to get facts, and case studies, and examples in hand to be able to really articulate the opportunity for investors and the demand for capital in the creative sector to really represent that case. We have shared what we’ve learned through the research published on our website, through opinion pieces in the Financial Times and other publications, in conference panels and keynote talks. We’ve been trying to get these ideas out into the world. That’s how we’ve done the first step.

Laura Callanan: Building the coalition, we have been working with strategic partners from the very beginning. We’ve taken an approach of being small, nimble, spunky; trying to take our ideas and work with much larger, older, better-established partners to get the idea of the potential for the creative economy to make change and do good, infused into the work of community development – finance institutions, impact platforms, like CapShift, and Small Change, your own platform, and work with partners who can help us make these changes happen quickly. 

Laura Callanan: We’ve also been building relationships on the investor side. Through a number of conversations in small and large meetings, we’ve really started to build this community of impact investors who recognize the power of art, and design, and culture, and heritage, and creativity to drive change. We have recently re-oriented our approach to what we’re calling Upstart 2.0, and we’re really going to focus on building a member community of the ambassadors, the evangelists who – as donor-advised funds, as private foundations, as endowed cultural institutions – want to take these ideas back to their peer group.

Laura Callanan: Then, the third step – bring investable products to market – our greatest example of that to date is work that we did with the Local Initiative Support Corporation (LISC) to launch a New York City Inclusive Creative Economy Fund. This is working with the oldest and largest national community development finance institutions, harnessing the power of their AA rating; harnessing their ability to underwrite and manage loans to real estate projects – in this case, affordable workspace for multi-tenant creative economy businesses.

Laura Callanan: We’ve found this to be really exciting, because we set out to raise $5 million of impact capital for the New York City Inclusive Creative Economy Fund. We closed the fund after about six months, having raised $6.2 million [cross talk] all Foundation that capital is fully deployed. We’re talking with LISC now about what a $100 million National Inclusive Creative Economy Fund could be [cross talk] That’s been our approach: make the case, build the coalition, and bring investable products to market to make it easier for investors to deploy their capital.

Eve Picker: I think you must be a very focused person not to get distracted, because that’s … You make it sound easy, but it’s pretty big. I’m very familiar with LISC; one of our would-be issuers on Small Change actually tried to use that program. She didn’t end up being able to buy the building, but it was that program that would have made it possible for her. That’s pretty great. How do you think that LISC might expand that? Are you talking to them about expansion?

Laura Callanan: As I said, the national fund is in the works, so let’s just wait and see when that’s ready to be announced.

Eve Picker: Okay, very good. I have to backtrack a little bit and say, why is all of this important to you, personally?

Laura Callanan: I majored in theater in college. I started my career working in the arts. My husband, my late husband, was a playwright and a novelist. So, in my personal life, I’ve always had a connection to creative people and the work that they do. I guess, now about eight or nine years ago, I had a lunch with a guy named Jim Howden, a founding artistic director of an off-Broadway theatre company in New York, Signature Theatre Company. And I at that point, I’d known Jim for about 20 years. I had known him from the very first days at the very beginning of his founding Signature Theatre Company.

Laura Callanan: We were having a lunch, and catching up, and he was talking to me about the $70 million Signature Theatre Company had raised in a public-private partnership to create a new three-theatre complex in West 42nd Street in the Times Square area. He was talking about how that new space would allow Signature Theatre to expand their programming. He reiterated the commitment to be sure that every ticket for every play was affordably priced at about $25. He was just describing all of the vision and what was going to happen next.

Laura Callanan: The architect on the project was Frank Gehry. They were designing a 7,500-square-foot open lobby space that would be a community center … A community green in the middle of Hell’s Kitchen was how Jim talked about it. He was just describing all of these plans. I knew where this company had started. The budget for their first year with $30,000. They were in a borrowed space way downtown. Things had not always been smooth and easy. They had made a commitment to equity and access from the early days. I knew that it had not been a smooth trajectory, but here was Jim talking about what was happening next.

Laura Callanan: It was at a moment that I was working at McKinsey & Company in the social sector office. I was in the middle of an engagement with the school foundation, so I was thinking a lot about social entrepreneurship. I heard these words coming out of my mouth. I said, “Jim, you’re what they call a social entrepreneur, but nobody calls you that because you’re working in the arts and you don’t call yourself that because you’re working in the arts. But take it from me. I am a highly paid McKinsey consultant. I know this stuff, and this is what you are.”

Laura Callanan: I left the lunch really scratching my head and thinking, if this guy were not a friend, would I put him in the same group as Muhammad Yunus, Wangari Maathai, Paul Farmer, Wendy Kopp, all of these card-carrying social entrepreneurs? If Jim is objectively a social entrepreneur of that caliber, is he the exception that proves the rule? Is there nobody else in the arts who could be called a social entrepreneur, or is there this whole overlooked cohort of talented, socially oriented, potentially hugely successful leaders who, for some reason, have not benefited from the grants, the networks, the incubators, the accelerators, the impact capital that other social entrepreneurs have access to?

Laura Callanan: I thought about this for a while. A few years later, in my role as the senior deputy chairman of the National Endowment for the Arts, I started to explore what it would take to close this gap for creative people who’ve decided to move beyond the studio, beyond the theatre, beyond the concert hall, and to work in their communities and to work as every bit of a social entrepreneur. That’s the background and how we got started with Upstart Co-Lab. 

Eve Picker: That’s pretty fabulous. So, I suppose the question is – what’s the end goal for Upstart Co-Lab? What does it look like when you’ve succeeded? 

Laura Callanan: When we’ve succeeded, every impact investment advisor on their website, next to talking about how they can help their clients invest in community development, and environmental sustainability, and by using a gender lens, they’ll also have a nice tab, a nice page, that talks about all of the ways that their clients can invest in the creative economy. We want to see this be as much of a theme, as much of a focus for impact investors as all of the other things that are already grabbing attention and investment dollars.

Laura Callanan: Our goal is to integrate this into the thinking of all impact investors and, frankly, to welcome a whole set of potential impact investors who’ve been sitting on the sidelines up to this point. By our calculation, more than $58 billion sits in the endowments of our museums, performing arts centers, libraries, or just endowed foundations, schools like Juilliard and RISD. 

Laura Callanan: These are institutions that are, at the moment, under some pressure for taking small donations from folks connected with opioids, tobacco, fossil fuels, and weapons. There’s been a lot in the headlines in recent months about cultural institutions declining contributions from these tainted sources. But the conversation stopped a bit short, and folks have not yet recognized that these are institutions controlling billions and billions of dollars and, unless they have taken active steps, are likely invested in, and earning returns from tobacco, and fossil fuels, and weapons, and private prisons, and some of these other things. 

Laura Callanan: The future that we hope we’re building through Upstart is one where all impact investors have more access to the great opportunities happening in sustainable food, ethical fashion, social-impact media, and other parts of the creative economy, and that artists, art lovers, arts institutions, who are investing, are able to learn about and are welcomed into a larger conversation about socially responsible investing through the door of the creative economy.

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

Eve Picker: It’s really a shift in thinking, isn’t it? You’re an early pioneer in thinking that the creative arts are social impact, and you really have to wait until that idea takes hold with the masses. That’s a pretty hard road- 

Laura Callanan: Introducing any new idea takes some time, and some patience, and some moral fortitude. We’re trying to bring all of that to our work.

Eve Picker: Yeah, that’s pretty wonderful. That brings us to real estate, which is really my interest and the interest on this show. You talked about investment in creative enterprises. What do those enterprises look like? 

Laura Callanan: Let me describe one where real estate is a really core component. It’s interesting because it’s actually in the social-impact media space. When you hear social-impact media and you think about film and TV, music, video games, things like that, you think about content. That seems to be the furthest thing- as far as away as possible from real estate. But actually, real estate can play a crucial role.

Laura Callanan: I’m speaking to you today from the Hudson Valley of New York. One of my neighbors is the actor-director Mary Stuart Masterson. She is an example of a creative person who is also very much a social entrepreneur. She is launching a film and TV studio here in the Hudson Valley called Upriver Studios. She is doing it, in part, because she would like to be able to work where she lives, when she acts, and directs, and produces. But she also understands that film and TV can be a significant economic driver for a region. 

Laura Callanan: There’s a tax credit in this region of New York state, as in the rest of the state, and other places around the country, that incents producers to bring their projects here. One of the obligations to qualify for the tax credit is that your project needs to spend two days shooting on a certified soundstage in the geography, or the tax credit doesn’t apply to you. 

Laura Callanan: Mary Stuart, and her business partner, Beth Davenport, are launching Upriver Studios, a women-led New York State benefit corporation that will be environmentally friendly. They’re looking at solar power, and a green roof, and some other features like that, as well as environmentally friendly on-set practices.

Laura Callanan: It’s a hoteling model. They will have the state-of-the-art facility, and producers, directors, projects will come in; rent the space. It’s very fit for purpose. It’s a specialized space. There is sound attenuation; there are loading docks. There are high ceilings. There’s shop space. There are all of these things that are very particular to what it takes to film a TV series.

Laura Callanan: The advantage of this, for the community, is a couple-fold. First of all, every TV series generates between 150 and 200 production-crew jobs. We all think about the actors, and the writers, and the directors who are behind some of our favorite programs, but in fact, they’re the minority of people working on the show. There are all of the electricians, and the grips, and the sound folks, and the hair and makeup folks. You look at all those names that run on the credits at the end of a movie or at the end of a TV show [cross talk] 

Eve Picker: -Yeah, pretty long list. 

Laura Callanan: -150 to 200 people. These are quality jobs. Most of them are union jobs. They pay between $75,000, and $250,000 dollars a year. They have excellent health benefits. To bring this sort of work to this region creates a real opportunity for folks to work in those jobs. There’s a sister nonprofit to Upriver Studios, called Stockade Works, that is training the 21st century production crew to be ready to take those jobs.

Laura Callanan: There’s also an economic multiplier benefit. There’s also a tourism benefit. People like to go to the place that they learn about on their favorite TV show. So, the real estate is crucial to all the rest of this working; to the training program paying off; for the graduates of the training program to have a place to work; to attract folks to come, in partnership with the tax credit; provide the access to the sound stages that will make people really want to come to this region. That’s an example of real estate, as I said, connected to a content-focused industry – TV and film.

Eve Picker: So, that’s a pretty sexy use. While you’re speaking, I’m thinking that also, I think, restaurants are creative.

Laura Callanan: Absolutely. We are working right now on a deep dive around sustainable food, as it pertains to the creative economy. Obviously, there’s a big focus, within impact investing, on food and agriculture. We’re not looking at the crop. We’re looking at what it is on your plate. As I was thinking about it earlier today, we’re not focused on the milk, but we are focused on the cheese, right?

Eve Picker: Yes, yeah … 

Laura Callanan: So, the cheese factory is an example. We’re not focused on the groceries as much as we are the recipes. Those recipes get turned into delicious dishes in kitchens … We see a lot of community kitchens and commercial kitchens that can support multiple small-scale entrepreneurs. So, absolutely. Then, the restaurant, as an experience – the setting, the location, the ambiance, the type of building that it’s in – it’s all part of thinking about food and eating as a form of culture and community, not just nutrition.

Eve Picker: So, I’m realizing we’re actually talking to someone who may be a neighbor of yours about a restaurant idea, which is really immersed in the community. They would like to open the door for investment at a very small amount – $250 per investor – because they really want to involve the community. That’s another interesting way to look at it. From what I understand, creative enterprises seep into a lot of different things. I have to remind myself from time to time what a creative enterprise is; probably, Small Change is a creative enterprise, because I’m trained as an architect. Do architects count, Laura? 

Laura Callanan: We see that a lot of creative people are creative in many ways. They get trained as architects, or painters, or actors, and they decide to start different enterprises. We don’t talk about creativity as a skill set or a mindset. We focus on creativity from an industry perspective. We think that’s the way that investors can understand best. We had to do a lot of thinking early on about how we were going to scope our focus, because you’re right, people can be creative in many fields. But in terms of the type of work we’re trying to support and that we’re trying to get impact investors to pay attention to – food, fashion, media, other types of creative businesses, and the sorts of real estate projects that we’re describing here that make it possible for those creative activities to take place.

Eve Picker: That makes a lot of sense. This is a general question I usually ask – do you think socially responsible real estate is necessary in today’s development landscape? I don’t know how much you know or are involved in just real estate development. Do you have thoughts about that?

Laura Callanan: Well, it’s something that people who think about arts and the creative sector can’t overlook, because, as I’m sure you think about often, creative people are pioneers in different ways, not just in terms of the work they do, but where they choose to live and do their work; often looking for affordable places to be to give themselves the flexibility and the capacity to experiment and take risks.

Laura Callanan: Increasingly, we see examples where creative people are in neighborhoods that are ripe for gentrification. There can be confused conversations about the role that the presence of creative people plays in stimulating or contributing to that gentrification. Obviously, I believe that gentrification is a problem that lands on the doorstep of the asset owners and the developers, not the residents and the renters in a neighborhood. The creatives are frequently, like other residents, in a renter capacity. 

Laura Callanan: We spend a lot of time looking at academic research and other reports about how the presence of artists and creatives in a neighborhood is not the precipitating factor for gentrification, but actually occurs after the gentrification has begun. We think a lot about what different paradigms could be that would enable residents in a neighborhood to benefit as the neighborhood strengthens; how they can be rewarded for being good neighbors, for sweeping their stoops, for keeping their sidewalks clean – all that stuff that makes the neighborhood inviting and habitable – and what the system could look like – where the folks who are responsible for growing the value of the real estate assets in a community can actually benefit, even if they’re not the owners, themselves.

Eve Picker: Yeah, I do think that there is also a piece of this that government is responsible for, because if there’s an open free market, then it’s very difficult to control, but there are ways to control gentrification that benefit everyone, if you think about it early enough. I’m wondering, are there any current trends in arts innovation that interest you?

Laura Callanan: We don’t think about arts innovation, specifically. We’re thinking about that larger creative economy; we’re thinking about the role that industry plays [cross talk] 

Eve Picker: -that’s Upstart Co-Lab, but I’m just wondering if there’s anything that fascinates you.

Laura Callanan: Anything that fascinates me … I’m intrigued by our hunger for experience, and this is something where creative people are playing a role. I’m sure that you’re familiar with Meow Wolf, the phenomenon that started in Santa Fe that’s spreading to Denver, and Las Vegas, and Phoenix, and Chicago, and Washington, and on, and on, and on.

Laura Callanan: This is something where artists have come together. They transformed – in the Santa Fe example – an abandoned bowling alley. They turned it into this funhouse; this art gallery; this community space. It’s a place that attracts folks of all ages. All economic, demographic, sociological backgrounds, come, and walk through, and participate in Meow Wolf and find it intriguing.

Laura Callanan: The appetite for these types of immersive experiences, I think, is a reflection of our very isolated, tech-enhanced daily life. I love it that creative people – whether it’s through a food experience, whether it’s through an art experience, a music experience – that they are at the heart of what people choose to do when they leave their laptop.

Eve Picker: Yes. I think probably Starbucks was one of the first companies that realized this and created an experience out of coffee, right?

Laura Callanan: Exactly.

Eve Picker: What should those of us who are not in the creative world be following? What of these trends do you think is most important for the future of our cities? 

Laura Callanan: There’s an important role in the creative future for diversity, equity, and inclusion. Put aside the moral and ethical imperative. There’s just an imperative in terms of what’s going to come out- what’s going to generate the most intriguing content, the most relevant experience, the most interesting food, or fashion.

Laura Callanan: As you know, heterogeneous groups of people have been shown to solve harder problems, better and faster. If you think of both challenges and opportunities as problems to be solved, the more engaged the broader set of actors can be in contributing to imagining what comes next, the better the results will be. From a serious point of view, it’s a more effective solution. From a more lighthearted point of view, it’s that beautiful, delicious, joyful, wonderment experience, right?

Eve Picker: Yes. 

Laura Callanan: That having a variety of perspectives, a variety of experiences, a variety of backgrounds, a variety of skills brought together to imagine what’s next will get us the best result.

Eve Picker: Yeah, I think you’re probably right about that. It’s just very hard getting there, isn’t it?

Laura Callanan: It depends. If you hang out with enough creative people, it can make you ridiculously optimistic, so … 

Eve Picker: That’s what I need to do, then … Because you have a very different point of view than many of the people I’ve talked to, who are developers, or work in the securities world, or are really focused on the built environment. You have sort of a more expanded view, I think. How do you think we need to think about our cities and neighborhoods so that we build better places for everyone? You may have just answered that.

Laura Callanan: Well, we think that the creative people and creative organizations, meaning arts- and design-type organizations, have some lessons that are useful to the rest of the economy. We’ve started to articulate values for an inclusive, creative economy. I can just share them with you because our hope is that we can transform; we can improve; we can strengthen the entire economy by sharing some of these lessons from the creative economy.

Eve Picker: Yeah, that would be great.

Laura Callanan: These are things that we’ve touched on already, but one is an orientation that’s open and experimental. So, openness and experimentation, I think, is crucial. It will help us to keep pace in our rapidly changing world. Continuous improvement, radical new approaches, that’s what we need. Incremental change is insufficient given the dynamism, the complexity of the world that we’re in. Sometimes, small improvements are just simply inadequate, and you need something that’s much more bold. 

Laura Callanan: You get that by being curious and having this learning orientation. Artists, designers, very much are built that way, and I think that’s a general approach that can benefit all types of businesses, all sorts of real estate projects, governments, philanthropy. I think everyone benefits from that approach. That’s the first value that we think the creatives can share with the rest of the economy.

Laura Callanan: The second one – diversity and inclusion – we’ve already talked about; the capacity to solve problems better and faster that comes when you’ve got diverse perspectives on the task. It’s not just that it’s the ethically right thing to do. It’s that there’s business value. There is a strategic advantage to approaching it in this way. Creativity simply can’t be optimized if you don’t have both diversity and inclusion at play.

Laura Callanan: The last idea is one around tradition and innovation and recognizing that communities have both – I’ll call it – knowledge and wisdom. With that, they’re able to learn from the past experience and apply that to what’s coming up next in the future. You know that creative people are always reacting to what came before. They might be building off of it. They might be rejecting it outright and trying to do something very different, but creative work is always in context, and it’s in context with what has preceded it.

Laura Callanan: The long-term thinking, the sense of stewardship that social-sector leaders and impact investors hold, I think, is very compatible with the way creatives do their work. I think creative take it even a step further; having a really deep respect and awareness of prior tradition, but not being restrained by that or being held back by that; using that actually as a launch pad to innovation.

Laura Callanan: Those are the three ideas that we think are crucial. Creatives just know this in their bones to be open and experimenting, to welcome in diverse perspectives and be very inclusive of various voices and to connect to tradition and innovation. We think that those are ideas and lessons that can strengthen the entire economy.

Eve Picker: I’m very honored that you asked to partner with Small Change and that we’re now highlighting creative economy projects on our site. I’m just wondering what you think equity crowdfunding- how you think it can play a role in building these special creative economy projects and communities?

Laura Callanan: I think it’s crucial as a way for projects like Upriver Studios that I mentioned a minute ago, or a Meow Wolf, that started in one community and is now expanding to the next six or so communities around the country. I think it’s important for these organizations, these enterprises, to engage the communities that they’re in, in an active way.

Laura Callanan: This is a way to signal that it’s not just building something for a small group of employees or a small group of investors. If you are a Mary Stuart Masterson and you’re launching something that you hope is going to really boost the economy of the Hudson River Valley, this is a way to say, “And you, my neighbor, can have a stake in this. You can benefit as we grow this thing together,” whether or not your $250 dollars, your $1,000 dollars, whatever the small bite size might be of investment that’s facilitated through Small Change … It’s a really clear communication to local folks that this is for them and that they’re welcome.

Laura Callanan: I think it’s a really strong indicator for larger-scale investors who want to test the morals and the intentions of a real estate developer. It gives them a really strong indication. If the developer is going to take the time and engage with the local community and allow them to participate through a crowdfunding structure, then they’re serious about boosting the local community. If they can’t be bothered, I think that is a real question mark about the intention of the developer.

Eve Picker: That also extends to planning departments and zoning hearings. If you can bring along a crowd of people who are supporting the project, that’s a very strong statement, I think, in many ways-

Laura Callanan: Absolutely.

Eve Picker: Where do you think the future of impact investing lies? I ask this because I’m afraid it’s still just a word that people use. I have yet to really believe that people will take a lesser return because a project is socially responsible. Perhaps that’s coming, but still hard to believe.

Laura Callanan: Well, I would disabuse you or anyone listening to this podcast that impact investing is asking people to take a lesser return. I know that 25 years ago, when I started to get into the impact investing space – when the space was very new and impact investing was not the term it went by – that there were a few early, less sophisticated, less professionally managed investment opportunities, and that might have been the story back in the 1990s.

Laura Callanan: I would say that we have Goldman Sachs, BlackRock, UBS, Morgan Stanley – all these large names, these premier financial institutions, participating in the socially responsible and impact investing sector, not because they and their clients are expecting to make less money. We can have a whole separate conversation about the whys and wherefores for this. We can talk about the risk management component of introducing social, responsible ESG factors into decision-making, but I would hate for anyone to hear this conversation and walk away thinking that they’re going to lose money by engaging in impact [cross talk] 

Eve Picker: I don’t think lose money but let me just pose the question a bit differently in what I see, and that is, in particular, affordable housing. As a real estate developer, when you work in an underserved neighborhood, it is very hard to get projects to pencil out; very, very difficult. That’s why there are so many subsidies around affordable housing projects, and that’s why it’s slow to build them fast enough.

Eve Picker: If you want to keep a project- an asset like that affordable for the next 15 or 30 years, it’s not an asset that will increase in value. It’s a difficult thing to invest in. Absolutely, investors in those types of projects will have to take a lesser return than if they invested in a more traditional real estate project. There’s a real differentiation there, and I would love to have this conversation with you- 

Laura Callanan: No, that suggests that each investment’s looked at in isolation, and an investor is looking at their total portfolio. There should be some things that are lower risk and commensurate return, and here are some things that are going to be higher risk and commensurate return.

Laura Callanan: When we were talking with investors about the New York City, the LISC New York City Inclusive Creative Economy Fund, we were talking to them about an eight-year note with full recourse to a AA-rated issuer that was paying 2.75 percent annual interest. As I talk to you today, in September of 2019, and we sit with an inverted yield curve, the 2.75 interest on a seven-, eight-year investment from a AA-rated issuer is looking awfully good. So, a lower-risk commensurate-return opportunity, which has a place in everybody’s portfolio.

Eve Picker: I see it- I’m not seeing it yet in my world, but I hope to see it. I think there’s still a lot of people who don’t think that way … Maybe we can convince them. There’s just some sign-off questions that I’d like to ask.

Laura Callanan: Sure. 

Eve Picker: What would be the key factor that makes a real estate project impactful to you?

Laura Callanan: Well, the community orientation, clearly, is something that we would probably both agree on. I see that- it’s not a surprise to me that a lot of the creative economy real estate projects that I’m aware of are deeply focused on their role in their community, whether it’s Meow Wolf, Upriver Studios … We haven’t yet talked about Greenbelt Hospitality, which is launching out of Phoenix. These are examples where the entrepreneurs behind the projects all are really thoughtful about their community, and real estate is core to what these businesses are all about. The businesses can’t succeed if the community is not engaged. I think that that’s fundamental.

Eve Picker: Yeah, I agree. If you’re looking at the real estate landscape in the U.S., which you see every day, if there were one thing that you could change to make it better, what would that be?

Laura Callanan: Well, I think there’s got to be a regulatory solution to the gentrification question. Obviously, improving communities is a good thing. The only reason that we have a term like gentrification that conjures up something that’s really, really bad is because when the community improves, there are winners and losers. I think there needs to be a regulatory fact or a solution that comes into play to close that gap, because the notion of keeping communities where they are already and not allowing them to strengthen is not an alternative. It’s not a solution to the issue.

Eve Picker: Yeah, I totally agree with you. Thank you very, very much. Thanks for spending the time with us. I really enjoyed the conversation, and I’m going to continue having conversations with you off the air, okay? 

Laura Callanan: My pleasure. Thanks, Eve.

Eve Picker: Thank you. Bye-bye. That was Laura Callanan of Upstart Co-Lab. She shared some powerful concepts with me. First, that strategy and focus are key to accomplish big goals, like the goals that Upstart Co-Lab has. Second, that creative endeavors can bring every bit as much to the economy as any other enterprise. Third, that artists, by nature, are suited to community development. Art is built on tradition, whether it embraces it or not. Expect to hear more about creative economy investment opportunities in the next few years, because that is what Laura is determined to do.


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

Photo of Laura Callanan by Helga Sigvaldadottir.