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

Eve Picker: Thanks so much for joining us on this podcast. I’m Eve Picker, and my life revolves around cities, real estate, and crowdfunding. In this podcast series, we’ll be digging deep to discover how we can build better cities by building better buildings.

Eve Picker: My guest today is friend, and colleague, Josh McManus. Josh describes himself as a problem solver, strategy implementer, and idea activator, and I know all three to be true. He works in post-industrial cities with entrepreneurs, corporations, and foundations to help people positively transform the places that they love. He’s obsessed with place-based change. We have that in common.

Eve Picker: Previously, Josh worked with Rock Ventures’ team in Detroit, helping to buy and renovate hundreds of millions of square feet of empty space in downtown Detroit. Rock Ventures serves and connects Quicken Loans founder, and Cleveland Cavaliers Chairman Dan Gilbert’s portfolio of more than 100 companies.

Eve Picker: Nationally, Josh is a Marshall Memorial Fellow and a Next American Vanguard. Locally, he has helped found multiple organizations and has served on a variety of institutional boards in his collection of adopted hometowns, including Chattanooga, Tennessee, Detroit, Bar Harbor, and New Orleans. His thoughts have been featured by Forbes, Fast Company, The Economist, Entrepreneur, GOOD, USA Today, and The Huffington Post.

Eve Picker: If you want to know more about Josh after you’ve listened to this podcast, please visit EvePicker.com, where you’ll find links and other goodies on the show notes page and where you can subscribe to my newsletter on all things real estate impact.

Eve Picker: Hi, Josh. How are you this morning?

Josh McManus: Doing great.

Eve Picker: Thank you so much for joining me. I know quite a lot about you, but our listeners don’t. I know that you’re always moving, and I’m wondering what and where you’re working right now.

Josh McManus: I am in Dearborn, Michigan this morning. I’m fortunate to have spent a lot of time in Detroit, and Dearborn over the last 10 years. My work right now is mostly to support Ford Motor Company, as they transform from a past that has been just about cars to a future that’s about movement and mobility, overall.

Eve Picker: That’s pretty innovative stuff. Your background has been- you’ve been involved in a lot of real estate recently in under-served cities. Do you want to tell us a little bit about that?

Josh McManus: Sure. I actually realized recently that it goes back to my childhood. I grew up in the shadows of a Goodyear plant in Georgia, and the life and death of that little town came and went with what was going on in that factory, so I’ve spent the entirety of my career working in post-industrial places. One of the best tools for changing the trajectory of a place is re-imagining real estate. I’ve worked in Chattanooga, Cincinnati, Akron, and then spent a lot of time in Detroit. With each passing set of interventions, have moved up and up in the scope of ambition of the projects that I’ve worked on.

Josh McManus: In the last 10 years, I’ve been very fortunate to work on some really large-scale projects. I got to serve with the team at Rock Ventures, which has amassed over 14 million square feet of real estate in downtown Detroit – over 100 buildings – and I’ve been party to taking most of those buildings from low, or no occupancy to full, or near-full occupancy.

Josh McManus: In the recent work with Ford, I was also very fortunate to be party to helping make the announcement of Ford’s return into their home city of Detroit, with the acquisition of Michigan Central Station, which is really turning into a living laboratory for the future mobility. It was this iconic abandoned structure that’s now getting new life and will be online and operational in 2021, I believe.

Eve Picker: That’s pretty big and exciting stuff. What’s your background, and what path led you to what you’re working on now, and this real estate reinvention?

Josh McManus: Actually, I also had the revelation recently that I come into real estate rightly so. My paternal great grandfather, and paternal grandfather were in the real estate business in Georgia and had some commercial and residential transactions and holdings. Then I spent this blended upbringing, where my dad was a CEO, my mom’s an artist, and I was torn between those two polarities of doing beautiful and good things for the world and doing business things.

Josh McManus: I went on to get business degrees, both undergraduate, and graduate, but most of my work focused on how to leave places better than you found them. I eventually came up with this reconciliation, I call it, for purpose – instead of for profit, for purpose – which is attempting to work at the intersections of moral imperative, and market imperative.

Josh McManus: All of my work in real estate is very much in that direction, which is how do you make places both humane, and maximization machines for human potential, but how do you also make them fiscally feasible, so that you can do the projects again, and again, and at scale. It’s a fine line to walk, but it’s really where my interests are is how do we build for-purpose places that serve people well, serve communities well, and serve capital interests, to the extent that they have to?

Eve Picker: I love the idea of leaving places better than you found them. It sounds easy, but it’s- probably the most difficult thing about it is that people have different ideas about what ‘better’ is, don’t they?

Josh McManus: Yes, absolutely. Real estate redevelopment is a very loaded subject right now [cross talk]

Eve Picker: It certainly is.

Josh McManus: -national conversations on things like gentrification, which are understandable; while, at the same time, there’s national and global conversations about economic stagnation. People are very clear on things they don’t like – when people get pushed out, or when people can’t stay in a place, or can’t thrive in a place …

Josh McManus: That in-between space of how do you make places work for everybody is oft talked about, but very little delivered. I think that’s why I’ve had such a consistent interest in it – how do we build places that maximize the potential for all that are able to retain talent that already exist there, but to attract new talent at the same time? I feel like it’s one of the few things that could be a lifelong pursuit, because it’s complex enough, it’s going to evolve. I know you feel the same way. It’s the problem that I’ll never solve, but I think I’ll always love working on it.

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

Eve Picker: Yeah, I think you’re right … The interesting thing about my interviewing, people I’ve interviewed so far, they’re all tackling the problem from a different angle. It’s absolutely fascinating. Their backgrounds have led them to a different place where they have different skills, and they may be able to help in a different way. I don’t know how you get them all together. It’s very difficult, and it is, as you said, very loaded. Developers are not very popular at the moment, although they may be the answer, in some ways, somehow.

Josh McManus: Actually, I think there’s a new- there’s an emergent field. This has been one of the hard things for me … Going back to when I think you and I met, probably a dozen years ago?

Eve Picker: Yeah, it was a long time ago.

Josh McManus: We met in sort of this ‘island of misfit toys’ faction – the old gatherings of CEOs for Cities. What was fascinating about that is that you had … I was an early social entrepreneur. You were doing both that place-based change, and development work. Then there was a mix of other people that really shouldn’t have intersected with each other.

Josh McManus: What I’ve felt since then is there is this emergent field. I guess my resume would say that I’ve been proxy to a lot of development. I, by no means, would consider myself a developer, and I don’t know that I ever will, but it feels like, to me, that there’s an emergent field that is something slightly different from developer that needs a name. It doesn’t have that name yet.

Eve Picker: Yeah, that’s interesting. Something to ponder. What is real estate impact investing, from your perspective?

Josh McManus: Overall, I think that we are on the precipice of democratization of finance in a way that’s really- that we’ve certainly not seen in our lifetimes. It may have happened in certain ways in the past, where you opened up finance to more people, but the impact falls in this overarching democratization of finance wave that is impending.

Josh McManus: What I mean by that is I’ve always … In some of the economic-theory stuff that I’ve read, there’s this notion of perfect capitalism. A lot people right now are talking about post-capitalism. I’m still talking about perfect capitalism. It would be where supply and demand met each other in real time and worked its way towards efficiencies.

Josh McManus: Impact real estate investing, to me, is just the opening of the capital markets for good projects to meet good capital at a cost that’s sustainable. This is being equipped and enabled by technology, by new modes of thinking, and by measurements that are no longer single bottom line, which I think is totally appropriate.

Josh McManus: The arms race we’ve had towards single bottom line returns, since Milton Friedman economics set in, is very problematic. This return to impact, to me, feels like a return to understanding our core biological instincts, which are self-preservation. Impact finance, to me, feels like a return to what’s right and the pursuit of more perfect capitalism.

Eve Picker: I agree with you on that, but I have to wonder whether it’s really working that way yet. At the moment, I feel that impact investors are seeking the good, as well as the return. We know what it looks like to put together an impactful project in a soft market. The returns are never going to be that great. If you offer bigger returns to investors, that works its way down to the occupant of the building, who might be an affordable-housing tenant. I don’t know. Do you agree that, somehow, this great divide between the haves and have-nots is not just about the money they have, but also the expectations for the money they have? I’m not sure I’m describing that-

Josh McManus: No, no, I follow. I think there’s a couple of forces in play. One is, just as we saw a wave of green-washing over the last 10-15 years – where now everything is organic, and you can’t tell whether organic is good or not – we’re in a great period of good-washing right now. It seems that every way I turn right now, everybody’s an impact investor, because that is fashionable.

Josh McManus: But, then, if you look at the core of some of these folks’ beliefs and return expectations, they truly are willing to receive returns that are multiple bottom lines. Then there are some people who have just good-washed and expect the same arbitrary financial returns that they saw under other boom times that have advantaged capital over everything else. I think that’s an issue.

Josh McManus: I also think that we are, like you say, on the precipice, but not there yet with truly unlocking all capital with all risk orientations. The work that you’ve been doing on Reg-CF, with Small Change, is absolutely fascinating to me, because bringing folks who are holding capital that they’ve only been able to see microscopic returns on, for any sort of lower-risk opportunities – people that have only been able to see a money market account or CDs, these things that have been low, low single-digit returns – allowing those folks to bring capital on that they will now, all of a sudden … Six-percent returns, to them, looks really good compared to what they’ve seen in the past.

Josh McManus: I just think we’ve still got a lot of capital that’s yet to be unlocked that has a different return prospectuses on it. I think we’ve got to be patient in getting all capital onto the playing field and then getting it liquid enough that it can move in the directions of projects where those folks are going to see a proper risk-adjusted return.

Josh McManus: I think, in you guys’ shoes, over in what you’re doing with Small Change, what’s got to be tough is it’s a little bit Wild West, right now, so you can’t tell … It’s hard to tell the difference between who’s good and who’s good-washing, and it may take a period of time before that sorts itself out.

Eve Picker: No, I think it is going to take some time, for sure. How much, I’m not sure [cross talk] but we’ll try to be patient. When you look at cities – you travel a lot; you go to a lot of cities – do you think socially responsible real estate is necessary in today’s development landscape?

Josh McManus: Yeah, I think socially responsible everything is necessary in every landscape [cross talk].

Eve Picker: That was a loaded question.

Josh McManus: -throughout time. I am an avid consumer of a lot of historical information. The times when we put our self in great peril is when we are socially irresponsible. My dad, the CEO, raised me as a capitalist with one caveat. Every time he would remind me that I was a capitalist, he would also remind me that unbridled greed is the Achilles heel of capitalism. Unbridled greed is not socially responsible. It’s also not sustainable. We have to have a system that can allow returns on capital, but can allow returns on … I call them the other ROIs – the returns on individuals. Can individuals maximize their potential? In addition to return on investment, return on individuals.

Josh McManus: Then, also, ROIs in return on ideas. Are we rewarding and testing new ideas? This is especially problematic in the real estate business, because things all too often get too formulaic, too templatized. You and I share a friend in Jonathan Tate, who’s looked at the structure and form of multi-family housing units. There is a big problem there, in that it becomes templatized. The capital gets comfortable with that template, but then that template stops serving people in the way that needs to be. I spend a lot of time [cross talk]

Eve Picker: -that, to me, I think is the crux of it all. We need innovation in cities and innovation in place-making, and our financial institutions are not built to be innovators. They [cross talk] looking at real estate development that perpetuates the same, just in the way you said. It’s a very difficult cycle to break out of. Yet, I see so many creative developers coming to me with the most amazing ideas. How can we unleash them all and finance them all? I think we would have better cities, right?

Josh McManus: Right. The marketplace has to be there, and then we’ve got get … In all of this post-industrial city work I’ve done, I’ve worked a lot with large and small foundations, some national, some place-based. Foundation capital is interesting to me, because I think it can and should be the most risk-oriented capital in the whole world.

Josh McManus: An evergreen foundation that throws off five percent of its corpus every year, and that annualized return rates are adjusted over time, that means that that corpus is evergreen. We allow that in the tax code, because we see a benefit; that there should be a benefit to humanity and the society. That most risk-oriented money should be going into a lot of these real estate projects, especially for model-testing purposes, and that’s not totally the case right now. We’ve started to see some of that happen with some foundations, but they …

Josh McManus: The weird thing that happened, where foundations would get hit up for a lot of capital campaigns; so, then they categorically said, “We’re not going to be in the real estate business anymore.” I completely understand not building another wing on to a museum or building another dorm room at a college or university, but we need to go back and revisit that amongst the philanthropy crowd to say we probably shouldn’t be in the rote real estate business, but we should be in the real estate innovation business. The foundation capital being the most risk-oriented should be the ones that are trying the highest likelihood of transformation efforts on affordable housing.

Josh McManus: It was interesting to me to see the announcement … I don’t know if you saw it or not, from Google, last week. They said they’re going to put a billion dollars into affordable housing in the Bay Area. There’s a crazy statistic out there; I think it’s in the last 10 years, for every 12 new jobs that have been created, only one unit of housing has been created at the same time. You have these incredible pressures … You see Google putting a billion into that, and that’s a survival metric for them. They’re not going to be able to retain and attract talent, if people can afford to live.

Eve Picker: Right.

Josh McManus: I think that philanthropic money should be thinking the same way. If you’ve got a broken real estate market in a community, you may be the intervention of last resort, and you’ve got to fix that positively or negatively. I’ll just give you one example of how we thought about that.

Josh McManus: The work that I did with Rock Ventures is now carried on by a team that’s led by a lady named Laura Grannemann. They have gone very, very deep in working to figure out how to stop the blight machine that exists in the Detroit city limits. That has required not just investments in blight reduction, but significant investment in education of homeowners, so that the foreclosure process is slowed and eventually stopped. It’s required investments in rehabbing some houses for stabilization purposes – full neighborhood-sized interventions.

Josh McManus: I think that’s a good example of the level that philanthropy will have to intervene at to get markets back to operational. Once that happens, maybe they can move on, or maybe they can move to commercial, but we need risk-oriented money in the mix, for sure.

Eve Picker: Yeah. Foundations can invest in lots of other ways that aren’t necessarily bricks and mortar but end up being place-making. There are many zoning codes that need to be looked at, for an example, and changed to permit density in a way that they’re not written.

Eve Picker: One example that I’ve watched with interest is in the city of Melbourne, in Australia, where, maybe it might be as long as 10 years ago now, but a few years back, they introduced density zoning overlay along all the major corridors in the city, because those are transit corridors. They were trying to really implement density without the need for adding more cars. It’s been really interesting watching that emerge. It’s an interesting thesis that’s a little tinker with the zoning code to really make development happen in a different way. I’m fascinated by that.

Josh McManus: Yeah.

Eve Picker: In Pittsburgh,  I had a little non-profit, and built a tiny house, which in itself, was plenty of work and interesting, but the most interesting outcome, to me, was that several years later, just last year, the City of Pittsburgh actually created an overlay district for that little under-served neighborhood, so that they could build an experiment with ADUs, and tiny houses, which are really not part of the zoning code. To me, that was an absolutely wonderful outcome of this little $200,000 project. There’s ways to experiment and innovate, I think, that go beyond just building something.

Josh McManus: You’re bringing attention to something … One of the things that I’ve wanted to see created or to help create that I haven’t had time is what I describe as this [inaudible] from municipal policy innovation.

Eve Picker: Oh, that’d be fabulous.

Josh McManus: It’s under the realization that … It’s funny, because I watched a little bit of the Democratic debate last night, just to see what’s going on in that world. I had the realization, studying American history, there was a time when federal policy was the be-all-end-all for impacting local life in America. When we were debating major social, major fiscal policies, then the federal policy was where it’s at. The debates that we have on federal policies right now do have local impact, but they don’t have the local impact that they did all the way through the 1800s.

Josh McManus: At some point, the game really moved to the states, and state policy started to have a large impact on whether you have state income tax or not, or how you fund education, how you think about crime. During that period, governors were where it was that for impacting day-to-day life at a neighborhood level.

Josh McManus: Today, it’s really down to a place where I think your mayor matters a lot more than your president. That throws a lot of people off, because of the drama that’s happening on our national policy stage right now. The truth is, I travel so much, and the quality of life at the neighborhood level is much more greatly impacted by the policy choices of a city’s mayor than by the president, nor Congress.

Josh McManus: Now, if you follow Twitter all the time and watch TV all the time, you might think otherwise, but the actuality of it, of what your access to transportation is, what your access to parks and public places are, what the quality of your local education offerings are … The folks that have their hands in that are local politicians, much, much, much moreso than national, or state politicians.

Josh McManus: I think this game of sitting around saying, “Well, when is the state or the feds going to help us fix this stuff?” is completely wrong-headed, and the game is really transforming at a local level, in a lot of cities. My time in Detroit … I think my biggest fear for Detroit, right now, is that they went unregulated during the bankruptcy period. There was very low regulation on a lot of development activities and other things.

Josh McManus: Now, they’re turning back on the development regime that’s really dated circa 1950. I think  there’s folks that are working hard to try to update some of that, but these communities that have these leftover enforcement regimes that are from times that are no longer here and didn’t really deliver results that were optimal for all people, this is highly problematic [cross talk]

Josh McManus: -we need to be scrubbing local zoning issues. The way that you’re zoned, from a density standpoint, has a very fast waterfall effect to what’s going to happen with education, and transportation. I think a lot of the citizens don’t realize that, and they fall into a default NIMBY setting, which is ill-advised, because it means that you make decisions that don’t impact your kids, your surrounding neighborhood, your surrounding businesses.

Eve Picker: Right. Well, if you start your school, count me in, because I think [cross talk] I’m always astonished at how much power politicians have and how little they know about urban design, planning, architecture, and the impact that it can have on place, so I think that’s really important. Do you think there are any current trends in real estate development that are really important for the future of our cities?

Josh McManus: Oh, yeah. My observation is that we’re seeing the radical transformation of the three primary forms of real estate right before our very eyes. These are things that have, at least in the US, have held true almost since our foundation. I’ll unpack that a little bit.

Josh McManus: On commercial real estate, we’ve existed off of a owner-broker model that was predicated on square feet, and years. If I wanted to lease office space for my commercial offices, then I went and met with a broker who represented a property owner, and we had a debate and discussion about how many years and how many square feet I needed for my offices.

Josh McManus: Due to the demands of the property owner and also to the inertia of the whole situation, we typically had a very long-term discussion. The property owner, and the broker really wanted to get me into five years, and they wanted to get me into as much square footage as possible, at as high a leasehold rate as they could get their hands on [cross talk]-

Eve Picker: Both for different reasons, right? One, because the broker is incentivized to do the biggest deal possible, because the way the broker gets paid is on a percentage-commission basis, right?

Josh McManus: Yes.

Eve Picker: Which is also a really broken piece of this all.

Josh McManus: Yeah. What I see happening right now – again, with technology democratization, and ability to understand real-time supply and demand – is almost this continuously variable financing of real estate. You see it manifest the best in things like WeWork, because whereas the CBREs of the world are still out there going, “Well, how many how many square feet and how many years do you want this for?” WeWork is saying, “How many desks do you want, and how many days do you want them for?”

Josh McManus: That’s the transformation of the pro forma, because at CB Richard Ellis, they wanted me to rent that space, and they wanted me to put one person per every 300 square feet, or 350 square feet – as much room as I would sign up for, that’s what they wanted to get me to. By changing the pro forma around and by aligning the interests of the broker-owner – now that’s kind of collapsing into the same thing, sometimes – WeWork says desk and days, and what they don’t talk about as much is square feet, because now, if you go into a WeWork office, there’s one desk per every 75 square feet.

Josh McManus: What’s fascinating about that is that it’s a healthier performing pro forma; it’s also more environmentally sustainable, because you’re conditioning less space. It has a higher energy level to it, so people who work in those spaces feel a different level of energy. You can also shift the pro forma to have more amenities, because you’re spending less money on just bare space and conditioning of that bare space [cross talk].

Eve Picker: -it really supports startup, and small businesses who can’t really find the time to put all the necessary utilities, and the managers together for themselves, so there’s an added bonus, right?

Josh McManus: Well, it also allows them … It’s continuously variable, if it’s priced based upon risk. I may price your desk rate higher, if you’re a more risky client, or if you want more flexibility. Essentially, what you’re paying for is optionality. It also allows you, if you’re a startup, to be like, “Well, this month, I have 12 employees, and next month, I have 17. Then we went through a down cycle, and I’m at 11.”

Josh McManus: It’s more pay-to-play than this encumbrance that so many companies have been so scared of, which is this five-year lease with these ridiculous guarantees, and [cross talk] I think it actually accelerates the economy, because it gives people more options to play the way they want to, when they want to [cross talk] for the landlord and the broker, because they’re pricing risk into it. Their margin is still there-

Eve Picker: Josh, early on in my real estate career, I was known as the only developer in Pittsburgh who would actually lease out space for a year at a time. I have some buildings that have smaller office spaces, and I would find these startup tenants, and I would take a risk. They’d stay for a year, and then, they’d stay for another. Some of them ended up staying for 20, maybe because I understood who they were, because I was like that myself. I couldn’t find anyone to help me find tenants, because it wasn’t worth their while. I love that the internet is producing new models and helping make that happen [cross talk]

Josh McManus: That’s commercial, and then what you’ve got happening on retail-

Eve Picker: Oh, that’s huge.

Josh McManus: -is similar. I mean retail, both in the displacement of some retail to online, but the retail that’s persisting is highly experiential. I think that you’re seeing a lot more revenue-share rents at the ground level. It’s aligning the interest of the landlord and the lessee.

Josh McManus: You’re also seeing a lot of things like food halls. The way those are working out is the landlord, the broker, and the lessee are sharing costs differently. If I’m in a food hall, the property owner, or the property manager may be the one who’s buying some of that back-of-house equipment and carrying the debt, or the cost of that equipment. What that does is create lower barrier to entry for more localized, more authentic offerings to going to place. Then, when that those offerings perform very well, both the landlord and the lessee are sharing in those outcomes [inaudible]

Eve Picker: -co-working for food, right?

Josh McManus: Yeah, totally. The final transformation that I’m watching in real estate is the residential side of it. If you look backwards, if I need to stay a night – I’m in a Marriott, right now. If I needed to stay a night, I would go to a hotel. If I needed to stay for a week, I’d stay for an extended stay. If I needed to stay for three months, then I would go to some corporate housing that had furniture in it. If I needed to stay for longer than that, I could stay for 12 months, or 24 months, but it had to be a fixed increment.

Josh McManus: Now, that’s all collapsing. I moved my family down to New Orleans over the winter, and we actually went on Airbnb, and did a long-term rental … Longer-term rental, so it was more like a 90-day. The algorithm there brokered some adjustments to say, “Hey, you’re staying for a longer time. That’s good for you; that’s good for the landlord. Let’s get the economics of this right.”.

Josh McManus: This foreshadows, for me, that you’re going to have this optionality in the future on a small number of platforms – whether I need to stay one night, one week, or six months – that I’ll be able to do that, and the data will help you understand what the right pricing is for both parties. It’s democratizing that, and de-risking it. I’m extremely excited, because I think what you’re seeing is this melt into something where supply and demand can meet each other in much greater fashion, faster fashion, with more transparency and more benefit in both directions.

Eve Picker: That plays into financing these things, which are all new, and innovative, and financial institutions often don’t understand. I have a building that is now a co-working building. I moved from traditional office spaces to getting rent, as the building owner, from desks. I have an operator who manages the building, much like a hotel operator.

Eve Picker: I’ve been paying my mortgage on time on that building at least 13 years, never missing a payment, and went to them for a credit line to make some improvements, and couldn’t get it financed, because they just didn’t understand where the income was coming from. We’re back to the first issue we talked about, which is the financial institutions really, for whatever reason … It may not be their fault. They have all their regulations to deal with … They’re squashing the innovation out of the cities. These innovations are happening regardless, and there’s going to have to be different financing tools [cross talk] banker is listening here.

Josh McManus: I couldn’t agree more, but I don’t- I think that wishing for bankers to figure it out … Bankers always follow the lowest common denominator [inaudible] path. I did have some insight in working for Rock Ventures. That’s the holding company that sits next to Quicken Loans. Quicken Loans, in some ways, is in that traditional banking category, but in most ways is not. What I learned in that world is that a lot of people look at that as fin-tech rather than finance-

Eve Picker: That’s true.

Josh McManus: I think that there is a major opportunity in the way that this is likely going to get handled at scale, as you’re going to see the development of a capital class that’s called REfin-tech, real estate fin-tech. I think that’s the exact money that is financing things like WeWork, right now. If you look at WeWork, it’s not your traditional- it’s more your soft banks. It’s your folks that understand that data has value; that technology has inherent value, but that you also need to finance large amounts of physical property. It’s a blended- it’s not just tech. It’s physical property and tech living together side by side.

Josh McManus: I think this is going to come off of a completely new capital class, and that, as you start to see exits, it’s going to be really interesting to see what happens with the IPO of WeWork. If that goes well, that probably forms the foundation of this REfin-tech capital class that will subvert the banks. Once, it subverts the banks, then the banks will try to figure out how to get in that game.

Eve Picker: Yeah, I think that’s right. I’m going to shift gears a little bit, because we’ve been talking a long time, but I want to know the answer to this. You started your- well, I don’t know if it was the beginning, but when I first met you, you were doing quite a lot of community engagement work. I’m wondering what community-engagement tools that you’ve seen or used that you really believe work?

Josh McManus: Around the time- well, probably around the time that we met was the time that I got involved in conceiving and driving what we thought, and what we still think is the world’s largest community visioning process. We got over 26,000 people to participate in Ideas for the Future of Chattanooga Tennessee.

Josh McManus: That was fascinating for me, because all the assumptions were totally wrong. We thought it would happen mostly online. It happened 80 percent on paper. We thought that folks would be single-issue voters, and they turned out to be very dynamic in what their interests were in the community. We thought that when you were faced with the issue of vision that people would have really, really wild ideas, and really, en masse, the community had incremental ideas. If you’re looking for breakthrough ideas, I learned that big survey processes were not the way to go for it [cross talk]

Josh McManus: After all this time of doing it … I did that, and then I’ve done a lot of other approaches. I believe in what I call humanity-centered design. I’ve got a process that I’ve developed for it. What it says is don’t build nor design things for what you believe is a community, build and design things for what you know is a community.

Josh McManus: Any intervention you build should be with the deep observation of the issues that you’re trying to understand and intervene on. What I mean by that is if you want to intervene on affordable housing and you don’t have a lot of people involved, who have lived in, are living in, and are currently pursuing affordable housing, then it’s going to be really hard to get it right..

Josh McManus: Just as human-centered design has put people in hospital beds, when you’re trying to innovate in hospitals, this humanity-centered design says I’ve got to take it more than just innovation on behalf of the patient. I’ve got to find innovation on behalf of the entire patient base. I believe in this humanity-centered design. I believe in feedback from the people. I believe in that in two different ways. I think if you need to understand what consensus is, then you mass survey, and representative sample. If you need to look for innovation, you actually have to do constrained dreaming.

Josh McManus: What I mean by that is we did the world’s largest community-visioning process, and people wanted a little cleaner, a little less traffic, a little better amenities. Then we did this other process that was called City R&D, where we said, “We’ve got downtown, we’ve got the mall area, and we’ve got the new giant auto factory – we need to connect these three together. What are your wildest ideas for connecting these things together?”.

Josh McManus: When you constrain the problem like that, the imagination became really much more bold. People had public art ribbons, and rubber-tired trolleys, and all these different ways that you could connect these assets together that they didn’t come up with, when they were just asked to imagine a better community and describe it. I think that community process has to be selective around are you trying to figure out what consensus is, or are you trying to figure out what innovation is?

Josh McManus: The last thing I want to mention is my friend, Mark Wallace, who runs the Detroit River Conservancy, I feel like he really stumbled into, or intentionally drove into new territory from a community-input standpoint with the new park that they just announced on the Detroit riverfront.

Josh McManus: What he did was actually go get a representative sampling. I think it was 21 folks, real people from neighborhoods – mom and her kid, a set of retirees – and these are people that were not your usual suspects in public participation. Then what he did is put them on a plane, and they went to the best parks in the country-

Eve Picker: Oh, that’s really cool.

Josh McManus: Yeah. They experienced those parks, and then they came back and worked with the designers to say what they wanted in their park. Instead of [cross talk]

Eve Picker: That’s really cool.

Josh McManus: -surveying, he found his representative sampling of the community; made sure that they were unbiased, because they weren’t the usual suspects and participants, like people that are in the know. Used their input to come up with a plan that I’m super-super-excited about. I think that may be a next practice, too.

Eve Picker: That’s pretty cool. I’m gonna have to interview Mark-

Josh McManus: Oh, yeah, he’s great.

Eve Picker: One last question – where do you think the future of real estate impact investing lies, in summary?

Josh McManus: In summary, I think that all of us that care about real estate impact investing have to continue to drive for policies, tools, and patrons, for that matter, who are committed to the democratization of finance. When the controls are in the hands of the commons, instead of in the hands of a small few who may make choices that were based on that unbridled greed that is this Achilles heel of capitalism, that is problematic. Anything that we can build, that we can do, that we can advocate for, that allows finance to further democratize to allow all people to participate in it, and to participate in ways that are fair and just, I think that’s what the future looks like.

Eve Picker: Okay, that’s great. I do have three sign-off questions that I’m asking everyone because I’d like to tabulate the answers in the end. The first question is what’s the key factor that makes a real estate project impactful to you?

Josh McManus: I’ll tell you a quick story. There was a time when everybody was talking about Denver. They’re like, “Denver’s changing. Denver’s changing. You gotta go see Denver! Denver is changing!” Then you went to Denver, and it was three blocks-.

Eve Picker: Yes, I remember that.

Josh McManus: Yeah, yeah [cross talk]

Eve Picker: -you could say the same about Corktown. You know that, right?

Josh McManus: Yeah, yeah, totally, totally. Absolutely.

Eve Picker: Where is Corktown? Oh, it’s this block …

Josh McManus: Yeah, that’s … my friends, the Cooleys, and they started with the BBQ shop. That does get to how I measure these things. A project that is so impactful that people start to talk about a place, because that one project … It’s happened with a place called The Flying Squirrel in Chattanooga; incredibly designed; really smart bar that really accelerated the south side of the city. That’s what I’m looking for in transforming real estate.

Josh McManus: Does the project have the ability to play above its fighting weight, because it becomes contagious? Does it cause adjacent development? Does it get written up because it has particular aspects of it, like Jonathan Tate’s odd-lot work that he’s done down in New Orleans? Does it set precedent? Does it challenge people? Does it change the status quo? Do you come back to it in 10, 15, 20 years and all sorts of other stuff has happened around it, because it was that compelling unto itself?

Eve Picker: Yes, okay. Then, other than by raising money, how do you think involving investors through crowdfunding could benefit the impact real estate developer?

Josh McManus: When I speak of the democratization of finance, the disassociation of capital and community that happened since the 1950s is very problematic. What has the potential to happen now … Before we got on the line, I was working through a small investment in a place-based development out of my IRA- a self-directed IRA investment that’s in my neighborhood in New Orleans. What that does is reconnect me, my capital, and my community together. I think that’s what’s to come for the investor is to no longer be a spreadsheet jockey who is just sitting there looking for returns, but to actually participate in the true active community, by the utilization of your capital, to deliver things that include returns for you, but include a lot more.

Eve Picker: Right. Okay, if you could think of one thing that would improve real estate development in the US, what would it be?

Josh McManus: One thing that would improve real estate development in the US would be a rapid evolution of understanding of zoning, because I feel like this is … The municipal boundaries of most communities were formed at a time of horse and carriage. Most of our zoning requirements still date back to times when heavy industry and light industry were really different from each other. Heavy industry had machines that could suck people into them, and cause major problems, and had major health concerns.

Josh McManus: I look at additive manufacturing, experiential retail, multi-family affordable residential, and I know, in the future, we’re going to have to have all of those on the same block with each other. Accelerating to standards that allow for that to happen seems really important to me.

Eve Picker: Yeah? Okay. Josh, it’s been really lovely talking to you. I thoroughly enjoyed it. I can’t wait to hear about what you’re next working on. Thank you so much for your time.

Josh McManus: Thank you. I enjoyed the conversation, Eve.

Eve Picker: That was Josh McManus. I hope you enjoyed listening to him as much as I enjoyed talking to him. Josh gave me three great takeaways. First, he believes we are on the precipice of the democratization of finance. Second, all segments of the real estate market are innovating and transforming rapidly right before our eyes. Third, just as we lived through a wave of green-washing, we are now in a wave of good-washing. We need to be patient for investors to catch up. What did you learn?

Eve Picker: You can read more about Josh on the show notes page for this podcast at EvePicker.com. While you’re there, please consider signing up for my newsletter to find out more about how to make money in real estate while making some change. Thank you so much for spending your time with Josh, and I, today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.