Design

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. Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve Picker: My guest today is Lorenzo Perez, the co-founder of Venue Developments, a redevelopment practice based in Phoenix, Arizona. Lorenzo describes Venue’s work as crafting one-of-a-kind environments that are sensitive to experiences, neighborhoods, and people. That’s an understatement.

Eve Picker: Lorenzo’s approach is that of an entrepreneur. He takes opportunities and risks that most developers would not, in order to create projects that are carefully crafted, artistic, community-centric masterpieces. I wish Lorenzo worked in Pittsburgh.

Eve Picker: Listen in to hear more and be sure to go to EvePicker.com to find out more about Lorenzo on the show notes page for this episode. Don’t forget to sign up for my newsletter, so you can stay tuned into the latest news about real-estate impact investing, and the latest projects on my crowdfunding platform, smallchange.co.

Eve Picker: So, Lorenzo, I know a little bit about your work, but I would love to tell our listeners, or have you tell our listeners a little bit about what you do.

Lorenzo Perez: Sure. I am a real-estate entrepreneur based in Phoenix Arizona. I say entrepreneur more than a developer, because we are focused on creative real-estate development with a focus on urban infill, adaptive reuse, and creative redevelopment projects.

Lorenzo Perez: Everyone is a prototype, and a one-off, so they’re very entrepreneurial in terms of what do we do with a particular building, or how do we find a home for a particular tenant, or what kind of use can we implement, or a variety of uses? Then we’ve got to figure out how to put it all together, how to finance it, operate it, execute, and deliver it [cross talk]

Eve Picker: You’re a little bit of an artist, right? 

Lorenzo Perez: You know, it’s funny, I’ve had several people tell me that. They say, “Your projects are so creative that you’re really an artist, and real estate, and the various users, and forces that go into a real-estate project are your medium.” I always tell people now that I sort of play in habitable, and income-producing sculpture.

Eve Picker: That’s really great.

Lorenzo Perez: Because we are significantly manipulating old, beat-up buildings into pretty, fun, and inspired places.

Eve Picker: Yeah, I think you’ve told me that you go for some pretty ugly ducklings.

Lorenzo Perez: Yes, the uglier, the more broken, the better. Usually that translates to a better buying opportunity, or also just motivation, and enthusiasm from government, and neighborhood stakeholders.

Eve Picker: Maybe the uglier, the better the transformation, as well, right? 

Lorenzo Perez: Exactly. I love to bring people through our projects for a variety of reasons, but from start to finish, I love the insight we get from their observations. Quite often, I’m actually surprised at things they pick up on that we don’t, because we’re so in the weeds with them. I always tell people that I love to bring them through the different stages because it really does make it more impactful at the end [cross talk]

Eve Picker: The ugly buildings are blank palette, right? 

Lorenzo Perez: They really are, and I always tell people, “We’ve got to take you through the pain, so you can enjoy the gain.” 

Eve Picker: That’s right. Yeah, real estate is very messy, and it seems to get worse before it gets better.

Lorenzo Perez: Yes, yes. 

Eve Picker: What are you working on at the moment? 

Lorenzo Perez: At the moment, I’m working on the largest project that we’ve ever undertaken. We’ve been working on it now for- we’re going probably in to three years from when we started acquiring the buildings, and then formulating a joint venture with a larger developer.

Lorenzo Perez: We’re working on a two-acre site right next to a property that we redeveloped about five years ago on a light-rail line. It’s two 1950s office buildings that we are converting into a boutique hotel campus – a 79-room boutique hotel.

Lorenzo Perez: We are navigating a variety of things. We have transit-oriented development standards that we’re navigating. It’s a joint venture between three parties – ourselves, another developer, and vintage partners with much larger, stronger balance sheet, way more experience. They came to us and wanted to partner with us on it. Our hotel operator’s based out of Los Angeles, and Palm Springs, so they are a co-investor, as well as our operating partner.

Lorenzo Perez: The two buildings were tired, and mid-century desert modern architecture. While we’re going through it, we’re-

Eve Picker: Which sounds really sexy, but really isn’t? 

Lorenzo Perez: It is, yeah. In Phoenix, that’s all we got. We’re like early-’20s, and then we will eliminated a bunch of stuff. Phoenix is a mid-century city. We appreciate that they’re out of Palm Springs, because they really do value that kind of architecture, that sort of funky, streamlined, linear … 

Lorenzo Perez: One of our buildings is pretty unique to the area. It follows the Googie-style architecture, which was usually reserved for like roadside architecture for restaurants or banks. It’s got some playful forms. It’s not too rough. It’s got a fourth-floor penthouse, and a roof deck that we’re going to convert to a cocktail lounge – an outdoor-view experience.

Lorenzo Perez: It’s got a lot of challenges. The building’s retired. We’re navigating serious code upgrades, because of the change in use from office, to hospitality, and assembly.

Eve Picker: Oh, yeah, that would be big.

Eve Picker: Yes, it’s big, and we’re also dealing with economic forces here that are beyond our control. One, the market is extremely elevated, busy; a lot of investment to Phoenix. Phoenix is sort of late to the recovery from the Great Recession, because we went so deep into the recession.

Lorenzo Perez: There’s just a lot going on here, a lot of people moving here. A lot of things are under construction; a lot of things in development. We are dealing with limited labor, and that translates to unpredictability on schedule, but also just significant cost escalation.

Lorenzo Perez: We’re navigating a tough environment in terms of … We’ve also – which is weird for Arizona – we’re also coming out of, I think, one of the wettest winters that we’ve ever had. That didn’t help us, because it caught us right as we were doing all our [cross talk] 

Eve Picker: One of our offerings was a little modular house in Pittsburgh, and they were really seriously delayed because of the rain. They could not … They could not beat the ground. It was just a mud pool [cross talk] 

Lorenzo Perez: -it’s really rare for us to have to deal with that, because we have over 300 sunny days a year. This, we were in the ground, with underground retention, and utilities, and starting foundations. We would get wet, and it would take us two to three weeks to dry out enough just to get on the site. Then we could work a little bit, and then the rain would come back. It definitely set us back probably three months, I would say, for weather that-

Eve Picker: That’s a long time, when you’re holding land, have construction interests, et cetera. Yeah. 

Lorenzo Perez: Yes. 

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: I know you think a lot about your audience, because you are building art, right? Relation art. 

Lorenzo Perez: Yes. 

Eve Picker: Who’s the audience for this project? It isn’t just a hotel, right?

Lorenzo Perez: No. Our projects are really rooted in community and that’s always been our intention – since we founded our company 11 years ago – was to create community gathering places in artistic settings and really create these distinct destinations that provide an experience. 

Lorenzo Perez: Our audience, surprisingly, has been fairly consistent across, I would say, our hospitality projects. Most of our projects were restaurant-, or retail-anchored, but they tend to attract … We’re seeing a pattern that they tend to attract young to old.

Lorenzo Perez: Really, it’s less about age demographic; it’s more about really people who just enjoy getting together in a communal setting. They like an indoor/outdoor experience. We have the benefit of being able to do that here nine out of 12 months a year.

Lorenzo Perez: I would even say, if you’re from the Southwest, you can even handle the summers. As intense as they are, the dry heat does allow us to be outside, even in 110-, 115-degree weather, if we’re in the shade, or we’re in pools. If we design for weather, it can really be a special year-round place.

Lorenzo Perez: I would say our audience really is young to old. When I say young, some of our places, we have a lot of candy and ice cream shops, so they can get pretty young; they can also get pretty old. 

Lorenzo Perez: The hotel is probably a little more defined. They are targeting a 21 and older crowd, so I would say that one’s probably 21 into probably you 80s would be our target audience for a hotel project.

Eve Picker: What about the neighborhood it’s in? How do you think about what you’re doing for that neighborhood? 

Lorenzo Perez: What I love about this neighborhood is that it was in a location that suffered, when the light rail went through it. If you’re from Arizona, or Phoenix, there’s … Locals know there’s always been a built-in bias, west of Central Avenue. Central Avenue runs north-south and bisects the city of Phoenix.

Lorenzo Perez: History will show that people kind of look down on the avenues versus the streets. It’s sort of [inaudible] line. If you go west of it you’re in the avenues; if you go east of it, you’re in the streets.

Lorenzo Perez: So, the neighborhood we’re in was pretty disinvested, when we purchased our property next door, back in 2012. They were having a lot of issues with vacancy, transience … Even though the residential neighborhoods around them were fairly stable, there was just a lot of attractive nuisances, and people weren’t investing there.

Lorenzo Perez: We saw the opportunity, with its proximity to the central corridor, as an opportunity to go in there and start accumulating some of these buildings. They really do have kind of an interesting collection of mid-century, early ’50s building stock that are pretty unique, even to Phoenix’s standards. They were tired. They were disrepaired. There were some vacant lots. We started with the one property a few years ago, and then were successful in acquiring three or four others on each side of our property … Our focus was to sort of do a district-scale development through a series of small incremental projects.

Eve Picker: Nice. 

Lorenzo Perez: The neighborhood, really, we couldn’t be more grateful. They’re supportive. They love us. They support what we’re doing. This project in particular really reflects kind of our approach to development. I always tell people we really do take an entrepreneurial and opportunistic approach. We aren’t limited by product. We go into a neighborhood, and we’re really basing our decisions on context. We look at things like scale, impact to the surrounding neighborhood.

Lorenzo Perez: In this particular neighborhood, when we introduced our retail dining experience next door, it was really received with great success. The community loves it. We have plenty of multi-family housing around us. We have transit right in our front door. We have single-family historic neighborhoods around us. What we were missing in that area, really, was maybe some creative office, and we were really missing hospitality – a place to stay in the neighborhood – because the area is abundant with all kinds of shopping, from really edgy, shabby-chic type stuff to upscale shopping [cross talk]

Eve Picker: When do you think it’s going to be finished, because I’m going to book a room?

Lorenzo Perez: Yes, we would love your support. We’d love to have you out here. We are targeting a November opening [cross talk] in early November.

Eve Picker: That’s pretty soon. 

Lorenzo Perez: Yes. We’re starting to see the light at the end of the tunnel. It’s been a haul.

Eve Picker: That’s about it. Okay, so you really approach real-estate development from a community perspective. I’d like to know, everyone has a … This show is about real-estate impact investing, and everyone has a very different opinion about what impact real estate should look like. I’m just wondering what it looks like from your perspective.

Lorenzo Perez: Well, impact investing, from our perspective, is … I’ll use a term[ I’ll share a term with you that we use internally in our company. I think you heard me speak about this when we met a few years ago. We strive- our mission is to obtain holistic return on our investment of time, creativity, capital, whatever.

Lorenzo Perez: What I mean by that is we’re seeking more than economic return on investment. We always have to clarify – we are a for-profit business. We are seeking a return on our capital for the risk and time that we have invested, but it’s just one-fifth of what we’re looking for. Our number-one priority is we seek an emotional return on our investment. We’re really motivated by doing inspired work – work that’s meaningful that makes a difference in people’s lives, our lives. We look for, first, an emotional return.

Lorenzo Perez: Our second one is social return on investment. We’re looking for a social return. We named our company Venue Projects for a reason. We just thought it was a perfect name to represent things like gathering spaces, or people places, or destinations, or distinct artistic settings. Not only did we want to have a social impact, we wanted to bring people together and really contribute towards building community – so, emotional-social.

Lorenzo Perez: Our third return on investment we’re seeking is cultural. We’re trying to create places that make an architectural statement or a cultural statement in our community that … We do a lot of preservation through reuse, so what we’re also trying to do is unveil maybe unknown stories about these properties or Phoenix’s past. 

Lorenzo Perez: We’re a young city. Growing up here – I’m a native of Arizona – all I heard is that Phoenix has no soul and no history. We’ve just always been the baby out in the Southwest. I always tell people, today, even though we’re the fifth largest city in the US, we’re like a gangling teenager who’s figuring out his big body. We’re trying to figure ourselves out. We didn’t have really a lot of stories to share or we didn’t celebrate them, so we’re starting to celebrate them to try to create some connections to a sense of place.

Lorenzo Perez: Our fourth return is environmental return. We wanted, when we started our company, to set a new example for emerging developers that we can take existing building resources, even as uninspired as a lot of the buildings are in Phoenix, Arizona, because most of them have more of a very practical, utilitarian mission behind their design. We have plenty of great architecture, but I would say the greater majority are pretty utilitarian buildings. We wanted to show, well, these are already here. It’s what we got, but what can we do with them without tearing them down? We wanted to show a counter-approach to Phoenix’s demolition culture [cross talk]

Eve Picker: Oh, interesting.

Lorenzo Perez: -legacy. What we do have a lot of are boxes – either wood-frame boxes, but we have a lot of masonry boxes. If you’ve been in design or you’ve been in construction like I have for over 24 years, one of the most efficient buildings to remodel or to construct cost-efficiently are boxes. We’re starting with, in many cases, good bones. I love the design challenge of manipulating boxes into something that was pretty uninspired and basic to something that’s pretty magical and interesting.

Lorenzo Perez: So, the environmental return is can we keep these out of landfills? Can we make them more energy-efficient? Can we create an indoor/outdoor experience that adds trees? We really value landscape, especially in our urban projects. We break all the rules with that in our retail projects. People will be like, “Well, you can’t see the signs.” We give people the benefit of the doubt. We’re like, “You know what? We’re serving humans, first and foremost, not the vehicle.” 

Lorenzo Perez: Humans like to be in nature, and we’re learning, 11 years in, that people really do value our projects because of the atmosphere and the environments that a lot of them have, with mature trees, and desert flora, and indoor/outdoor transitional spaces that open to the outdoors during the great times of year.

Lorenzo Perez: Then, obviously, our fifth return is economic. We always say … Listen, we put economic as our fifth return because it is the foundation for our sustainability and our success, but really what we’re seeking are those other four levels of return.

Eve Picker: Yeah, okay. That’s pretty fabulous. So, obviously, you think socially responsible real estate is necessary in today’s development landscape, and it comes in all forms. I’m wondering how you think that might be improved, because I think, probably, we’re … You, and developers like you, are still a rarity and not a commonality, so how can we shift that pendulum? 

Lorenzo Perez: Our company was founded on a three-pronged mission – create, inspire, serve – really to create beauty, but to create value, and to create opportunity. The inspire part of that is a big part, and the service element of it is a big part. We try to stay focused on … That’s kind of our why – why we are even operating and why we do what we do. We try to model, for other emerging developers or even other existing developers, new ways of doing things just through our work; testing convention and trying to prove that you can make great returns and create wonderful experiences by going against convention.

Lorenzo Perez: We actually spend a lot of time with- and in mentoring roles, or at Arizona State University, in their Masters in Real Estate Development program, or through the Urban Land Institute. We try to inspire just different thinking and different approaches. I’ll tell you, when we got started in Phoenix in ’08, it was the start of the recession. We intentionally started our company then, because we knew that disruptive nature was going to, one, open doors to opportunity, but it was also going to allow us to buy properties at basis that would allow us to experiment and show new ways of doing things.

Lorenzo Perez: I look at where we’re at today across the city, and there’s a whole slew of developers. Really, the bar has been raised, and they’re approaching things with more sensitivity. I think it’s part of what’s happening here, but I think it’s part of what’s happening everywhere, where people want a more meaningful experience. They want to feel good about the places they patronize. I think it’s [cross talk] yeah, social conscience is definitely changing.

Eve Picker: One of the things that has changed, of course, is that many more people are coming back to cities. That has also kind of moved that type of development along. When I started doing real-estate development work in Pittsburgh, most people thought I was crazy, but it’s worked out pretty well. The really interesting, not dissimilar story to yours, going to abandoned neighborhoods can be so fruitful in so many different ways-

Lorenzo Perez: We found that that very liberating because they’re just- they’re so hungry, and motivated, enthusiastic for positive change. Quite often, we go into these communities, and they’ve been dealing with blight, and issue. I think what we’ve learned in reflecting back on the work and analyzing the impact some of our projects have had on the communities they’ve been developed in is that I think you give people hope and confidence. 

Lorenzo Perez: I think we realized that more in the deep recession – that sort of 2010 through ’13, when we were really kind of feeling the pain in Phoenix here. People were uplifted by these places that were positive. They were different. They offered a place where people could come together and have a positive experience, even down to the economic community and the economic-development piece of it.

Lorenzo Perez: People were so grateful for the jobs; to be involved in such [cross talk] To be involved in such meaningful projects that were valued. People were excited about it, so they felt … I love the sense of pride that you would see at our friends and family openings, when we would invite our trades peoples to this. You could see the pride of the laborer, or the carpenter, or the tradesman, when they brought their families; like, “Yeah, we did this.” 

Lorenzo Perez: The impact of investing can go well beyond the economics of the return to the developer, or the tenants, or what have you. It really can be pretty fruitful for the neighborhood [cross talk] I mean, we’ve seen tremendous stimulation in terms of attracting additional reinvestment in redevelopment.

Eve Picker: Yeah, no, I think that’s right. Are there any current trends in real estate that are sort of interesting to you at the moment?

Lorenzo Perez: Yeah. I find real estate very creative and innovative right now. I love the spirit behind especially infill, and redevelopment, and reuse. We’re seeing some really fun projects out there. I’m intrigued and enthused by places like food courts. I’m an ’80s kid. I grew up in malls. I just find it interesting … I’ve traveled across the US, and I’ve seen all kinds of food courts, but man, they sure are resonating with people as food hubs in this foodie culture. People are coming and gathering around a meal. There’s just so much some symbolic pieces to that. I just love … They’ve become sort of these living rooms.

Lorenzo Perez: I’m really intrigued with mobility and the built environment responding to the rapid innovation and evolution we’re seeing in technology. I’m fascinated with mobility, and in Arizona, we’re at the heart of autonomous-vehicle development. We’re involved in some creative consulting projects, where we’re partnering with groups out of the Bay Area. 

Lorenzo Perez: We’re working on a project right now, where they’re developing a carless residential mixed-use community. Just the whole- when you really think about that – what would it be like to support carless living in a city like Phoenix? It’s really pretty disruptive, and stretches the brain, but it’s so liberating in so many ways not to be locked down with a car. 

Lorenzo Perez: It’s fun to look at things like autonomous vehicle, and how do we do Instacart food delivery. If we’re going to have an onsite grocery, maybe it’s more of a hacked version, where it’s really more of a processing and storage place, where people gather and have a social experience, because they can get food delivery from [cross talk] Now, the grocery doesn’t have to be there; it can be delivered to you. 

Eve Picker: Even in Pittsburgh, which is a hilly city, over the last 10 years, we’ve seen an explosion bike riders and also an explosion of people who really don’t want to own a car. It’s been interesting watching the code changes, because I’m working on a little project at the moment, where, in a neighborhood that used to demand one vehicle per unit, and now you get a 50-percent discount. It’s gone beyond just pioneering now. It’s starting to infiltrate government. 

Lorenzo Perez: It really is. We’re seeing scooters, bikes, trails, pedestrian-oriented trails systems [cross talk].

Eve Picker: Right. So, Lorenzo, I have to ask you, with all the super-malls that are vacant, what would you do with those? 

Lorenzo Perez: Yes! Oh, my God, that’s [cross talk] 

Eve Picker: -that is for sale.

Lorenzo Perez: It’s so funny. When we started our company, people were like, “That’s an interesting focus, redevelopment,” but I was just like … To me, it made a lot of sense, because I just knew we were going into an area of serious change, and re-imagination, and having to really respond to the evolution of technology. Malls, to me, are fascinating [cross talk] 

Eve Picker: They really are, aren’t they? 

Lorenzo Perez: -expanses of land, the sizes of buildings, the linear nature of them. They’re really unique design challenges. Yeah, I would love an opportunity. I’m sure we’ll fall into them. We’ve seen some interesting redevelopments in Phoenix, because we’re like Strip-center Mall Epicenter of the Southwest. It’s really funny to see some of the creative ideas coming out around … A lot of them are turning into mixed-use hubs, where they’re integrating housing, and lodging, and creative office. Even things like the big boxes becoming inner city fulfillment for e-commerce, which is a pretty fascinating mix [cross talk]

Eve Picker: Yeah, I mean it’s a really completely different landscape. Retail isn’t what it used to be. It’s fascinating. We have a lot of them around here. There’s one in particular that is just completely vacant. It’s enormous, and I think about what it might become. It could be interesting-.

Lorenzo Perez: I’ll tell you, the other trends that are exciting to me are, like you said, e-commerce is really- I think retail is really interesting. It’s really becoming more experience-based. I think micro hospitality, what Airbnb has done to really just totally turn logic in housing inside out is pretty fascinating, Even the Tiny Home Movement, I thought maybe was probably more of a trend, but it seems like people are really valuing scarcity and preciousness. They’re willing to do more with less, if they get the space they need. It’s just- it’s a really fascinating time [cross talk] 

Eve Picker: It is fascinating. It is really fascinating. I suppose the big question is what do we need to think about to make our cities and neighborhoods better places for everyone? Clearly, you are; you are really thinking about that a lot. I’m also wondering what community-engagement tools you have seen that have worked for you? It sounds very much like you do engage your community a lot, and I’m wondering how you go about doing that? 

Lorenzo Perez: We do it on a variety of levels. First and foremost, every one of our projects has required some sort of entitlement and community outreach. We learned early on that if you’re going to do this kind of work, you’ve … It’s kind of like dating. You got to make yourself vulnerable and available.

Lorenzo Perez: We do all our speaking. We started really with the mission to own and operate our buildings. Really, we feel we have a responsibility as stewards to those properties to be a good neighbor, and to be a good listener. It has not been always a pleasant experience. We [cross talk].

Eve Picker: No, that’s for sure. 

Lorenzo Perez: -people continue – moreso in the beginning – continue to question our agenda, or our authenticity. I’ll tell you, 11 years in, and having a nice track record and a nice body of work behind us that shows consistency helps us way more today. We’re being invited in, and people are excited when we’re coming into neighborhoods.

Lorenzo Perez: The speaking for ourselves, one of the things we also do is willing to meet with people, especially the pessimist, one on one. We make the job site open to people. I’m a big fan of giving tours, because I get as much out of it as they do. I find that that one-on-one is such a human piece of it. We’re not always successful. We’ve had people that have opposed us, start to finish; maybe it’s a little less contentious at the end, because you’ve kind of built a relationship.

Lorenzo Perez: I just learned that you’re not going to always turn everybody. I can control what I can control, and I can control our behavior, our actions, by just doing what we say we’re going to do. I can’t emphasize that enough – if you’re going to be in this business, and you’re going to be in it long term, you’ve got to do what you say you’re going to do. If you stub your toe in any shape, way, or form, you’ve got to be willing to be accountable, and say, “Hey, we didn’t anticipate that,” or, “Yeah, we should have done that better, but we’re not running away from it. We’ll be here to help fix it.”

Eve Picker: Yeah, somehow, the name ‘developer’ has become a dirty word in our society.

Lorenzo Perez: Yeah, demonized.

Eve Picker: But you’re not all the same. You notice that there are quite a few developers out there- I see them through Small Change every day, who are extremely thoughtful about what they do and really care about the communities. There’s just so much mistrust, it’s really a shame.

Lorenzo Perez: Yeah, it’s unfortunate. I think any industry probably has that, but you know … It’s funny, Kimber will sort of cringe when I tell people I’m a real-estate developer, because she knows how demonized [cross talk] She looks at me, and just goes, “You’re so much more than … You’re so not a developer,” and I just sort of chuckle. That’s why I tell people I’m really more of a real-estate entrepreneur. People ask me, “What do you mean by that?” I just say, “Well, I mean, we touch every aspect of it. We design the concept. We design the building. We design the operating system. We finance it. We lease it. We own it. We build it. We operate it. We maintain it. We manage it. We do everything around it.”

Eve Picker: Yeah. 

Lorenzo Perez: So, I don’t know … They’re all so unique.

Eve Picker: There are lots like you though, and-.

Lorenzo Perez: There are.

Eve Picker: That’s what makes it sad that we can’t say what we do and be proud of it, yeah? 

Lorenzo Perez: I don’t know, maybe there needs to be a shift in semantics or something. But you know the Small Scale Forum, through ULI, is not only social, and networking, it’s also part therapy.

Eve Picker: Yes.

Lorenzo Perez: To commiserate with each other, because … I’m always amazed that, no matter where we’re at in the US, or sometimes even out of the country, how consistent that is, because of the actions of others that are just purely transactional [cross talk]

Eve Picker: Yeah, that’s right. I think that’s right. Do you think that equity crowdfunding could play a role in building communities like [cross talk].

Lorenzo Perez: Oh, absolutely. I just [cross talk] 

Eve Picker: That’s a loaded question, Lorenzo.

Lorenzo Perez: Yeah, I know, I know, I know! The quick answer is absolutely, yes. I’ve always had an interest in it, and we’re going to do something together, Eve, I know it!

Eve Picker: I know we are, yeah. 

Lorenzo Perez: You know, what I love about it is the democratization of finance. I’m such a critic on our broken system that’s really set up to do big, soulless projects. What I love about the crowdfunding is that this provides access for, and the platform, and opportunity for people to vote with their dollar, and support things that are close to them that are on their Main Street, not Wall Street kind of a deal. 

Lorenzo Perez: I think it’s great for the developer. I think it’s great for the communities. I think it’s great for the individual, who maybe doesn’t want to take the level of capital risk, but wants to maybe invest in real estate, indirectly, or they just flat out want to support an initiative [cross talk]

Eve Picker: Right. They want to invest in their city, which is really why we’re doing it. I suppose my wrap-up question for you is where do you think the future of real-estate impact investing lies?

Lorenzo Perez: I think we’re going to see a lot more of it. I think with just such a social mission being part of business today, from very micro business to the mega business, I think there’s a expectation that- an obligation that businesses have to do good on some level. With real estate, I don’t think we’re going to be any different. I think it’s only going to grow.

Eve Picker: Now I have three sign-off questions, which I have to you.

Lorenzo Perez: Sure. 

Eve Picker: I’m asking everyone these, because it’s very interesting to see the variety of answers I get. The first is what’s the key factor that makes a real-estate project impactful to you? 

Lorenzo Perez: For us, it’s one that has the opportunity to hit on all those five levels of return that we identified for holistic ROI. We get presented a ton of opportunities that … A good chunk of them, return on one or two. I mean, there’s one that’s kind of like, eh, that one could be a home run, but it really … Sure it provides great impact for me and maybe puts a use in an underused building, but outside of that, I don’t know if it’s adding the value that we’re seeking. We’re looking for a building or a real-estate project that has the ability to generate those five levels of return.

Eve Picker: Okay. Other than just raising money, do you think there are other benefits for involving a crowd of investors in real estate?

Lorenzo Perez: Yeah. I think it provides potentially a disruptive force and influence to shake up the system that’s geared towards bigger projects and maybe commodity stuff. I think it’s going to, like every industry is seeing, I think it’s going to continue to grow and force the big banks and lending institutions to innovate and be more flexible. If they don’t, they’re going to become quickly irrelevant, because people aren’t necessarily going to need to … Like we’re seeing in other industries, before the players were two or three key people, but then once it gets fragmented, there’s abundant choices on how you could finance a real-estate project, as we’re seeing.

Eve Picker: Yeah. I always think that the traditional banks … First of all, we had, I think, 15,000, over 15,000 banks 20 years ago, and we’re down to less than 5,000 now. Innovation is being squashed out of these sort of real-estate deals by financial institutions that have to follow very, very rigorous rules about what they invest in. What they want to invest in is what they’ve seen before and not something new. It’s very, very difficult.

Lorenzo Perez: I’m actually fascinated that- I’m going to be fascinated to see, because of what we’re seeing – so much disruption in so many industries. We’ve got these weird forces. You’ve got this demand for one-of-a-kind, unproven, disruptive-type projects that don’t fit the mold of lending. You also have a situation where you have just a ton of money in capital out in the marketplace.

Lorenzo Perez: I think people are just learning now that, “Hey, maybe I don’t have to put it through the big bank. Maybe we can just do private lending and not be so restrictive.” I think when we start … We’re starting to see things loosen up. We’re starting to see more creative projects. It’s only going to get exacerbated when we start seeing disruption in construction, like 3-D printing, or panelization, or modulation, that don’t fit the black-and-white criteria that maybe a bank wants, or appraisers want to see – abundant parking. We’re seeing so much fragmentation; I think you’re going to see capital follow.

Eve Picker: Yes, I think that will be great. I’m hoping that’s what Small Change can do [cross talk] play a little part in, but it’s very difficult to do a new, and necessary project at the moment. Then here’s the really big question: how do you think real-estate development in the US can be improved? 

Lorenzo Perez: First, I’d go back to finance. We’ve got to find more flexible and creative financing vehicles that facilitate innovation and creativity, in both uses, and in product type. On the same note, building upon that, I think we need a major policy overhaul in cities across the US. I think we’re seeing examples, but we need to really … 

Lorenzo Perez: As we are looking at more urbanization, I could just speak to Phoenix. We were really built around suburban, greenfield development models. Like my hotel project, I think we have something like 20 variances and 10 use permits to get what we want done. It’s just kind of like why? It costs a lot of time and money. It limits creativity and adaptability. I think for cities to be [cross talk].

Eve Picker: -you’re paving the way.

Lorenzo Perez: Yeah, so policy changes on zoning and land use is going to be my number two. My number three, too, is just more acceptance of alternative delivery for construction and manufacturing. On the flip side, the complimentary piece of that is we’ve got to re -dignify the trades and not push everyone into college, and get more craftsman out there because [cross talk] 

Lorenzo Perez: At the end of the day, we’re building the built environment for human beings, and human beings are emotional, soulful creatures. While I do believe that automation, and robotics, and all that stuff are definitely going to help mitigate the lack of labor, at the end of the day, you still need that human sensitivity I think to deliver environments that humans want to live in and the artful piece of it the craft know from the hand from the human being with the emotional sensitivity is key. I’d like to see shop programs, and the arts revalued in the education system. Weaving business into the arts from a young age, I think, will really help the future of real estate and just business in general.

Eve Picker: Well, that’s a really lovely way to wrap up, and I’m certain that you’ve convinced a lot of people that all developers are not bad. If they haven’t gone to your website yet, I’m sure they will any moment now. I know I’m itching to go back and take a look at what you’re working on.

Lorenzo Perez: Thanks.

Eve Picker: Thank you very much, Lorenzo, and we’ll be talking soon.

Lorenzo Perez: Yes, Eve. It was a pleasure. It was great catching up with you. Thanks for the opportunity to share.

Eve Picker: Okay, bye.

Lorenzo Perez: Bye-bye.

Eve Picker: That was Lorenzo Perez. I’ve come away thoroughly inspired by his entrepreneurial approach to real estate, and I’m itching to stay in his new hotel in Phoenix, as soon as it opens.

Eve Picker: Here are some things I learned from Lorenzo. First that ugly-duckling buildings can make fantastic projects. Approach them like an artist does, as a blank canvas, and so much can emerge. Second that developers can take an entrepreneurial and opportunistic approach injecting creativity instead of formula into their projects. Third, that disruption in both real-estate, and financing models will lead to better cities and neighborhoods for everyone. Financial institutions are squeezing the ability of creative developers like Lorenzo to experiment. This has to change.

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. We’ll talk again soon, but for now this is Eve Picker signing off to go make some change.