Rethink Real Estate. For Good.

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Ready. Set. Homes.

Necessity is the mother of invention.

In 2019, Dafna Kaplan embarked upon an investigative journey to uncover the obstacles preventing true construction innovation from widespread adoption. Extensive research and development led to the launch of Cassette, an integrated product and service model with an innovative delivery approach.

In 2022, Cassette introduced a beautifully designed one-bedroom apartment pod that can stack up to six stories high into a multifamily development.  And their first order for 200 pods came in.

The company’s commitment is simple and straightforward: Deliver one manufactured product exceptionally well, improve that product’s performance and features over time, and with that discipline and repetition – reverse the cost escalation in housing construction.

Dafna is a recognized futurist and design influencer, with a vast and varied career spanning two industries: consumer product tech and construction. Her past roles have included VP Marketing at MATT Construction where her leadership helped the company achieve over 300% revenue growth and senior roles in several rapid-growth organizations, from Inc. 500 startups to mid-size ($500M) companies. In 2017, she co-founded a live entertainment company, HATCH Escapes, before exiting the role with 30% return on investment in 12 months. Between 2009-11, she launched successful products for high-net-worth clients and influencers, including Marley Coffee and the Johnny Carson Digital Archives. And there is more!

Dafna has been a board member and advisor to several organizations, including American Institute of Architects Los Angeles, Western Museums Association, HATCH Escapes, Consumer Electronics Association, Urban Land Institute Los Angeles, the Consumer Electronics Association accessories division, and A+D Museum, among others. She  completed an MBA at UCLA Anderson School, where she graduated top of the class with honors, and completed her BA at the University of Oregon.

In 2020, Dafna received the Presidential Award from the Los Angeles Chapter of the American Institute of Architects (AIA) for her work at Cassette, addressing the housing crisis.

Read the podcast transcript here

Eve Picker: [00:00:09] Hi there. Thanks for joining me on Rethink Real Estate for Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. And speaking of building better, I’m very excited to share that my company, Small Change, is now raising capital through a community round that is open to the public. Small Change is a leading equity crowdfunding platform for impact investment in real estate. For as little as $250, anyone 18 and over can invest in Small Change, helping to fuel our growth as we disrupt the old boys club of capital that routinely ignores so many qualified people and projects. Please visit wefunder.com/smallchange to review the full details of our raise and to make an investment if you can. And remember, investing is risky. Don’t invest more than you can afford to lose.

Eve: [00:01:43] Necessity is the mother of invention. In 2019, Dafna Kaplan embarked upon a journey to uncover the obstacles preventing true construction innovation from widespread adoption. Extensive research and development led her to launch Cassette. In 2022, Cassette introduced a beautifully designed one-bedroom apartment pod that can stack up to six stories high into a multifamily development. Dafna’s commitment is simple and straightforward. Deliver one manufactured product exceptionally well, improve that product’s performance and features over time, and with that discipline and repetition, reverse the cost escalation in housing construction. In 2020, Dafna received the Presidential award from the Los Angeles chapter of the American Institute of Architects for her work at Cassette, addressing the housing crisis. Listen in to be inspired. If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:03:12] Hi, Dafna. I’m really excited to talk with you today. Thanks so much for joining me.

Dafna Kaplan: [00:03:17] Thank you. I’m excited to be here, Eve.

Eve: [00:03:20] The tagline on your website says, Accelerating construction, 1000 homes at a time. Tell me about that.

Dafna: [00:03:30] Sure. Actually, I appreciate you reminding me what it says. It’s been a long time since I’ve been on my own website.

Eve: [00:03:37] That’s a great tagline.

Dafna: [00:03:39] It’s really connected to, in some ways, how we started the business which was this observation that there was a lot of interest in construction, especially in housing, toward utilizing what we know works in manufacturing. So, there’s a lot of adoption of prefabrication and manufacturing construction in the form of things like what we do, modular. But there’s also this, what seemed to be a lack of understanding in the real estate and construction world, that part of what really makes manufacturing efficient is this ability to run at scale. And so, while your project might be 15 units of housing or even 100 units of housing, when you’re thinking about efficiencies that come from manufacturing, it’s really in the thousands or it needs to be thought about in the thousands to really capture the efficiency and more important, the process improvement that you get from doing the same thing over and over and over again.

Eve: [00:04:42] That makes sense. Although, you know, it’s the same problem with the missing middle housing, right? That’s almost too small to build efficiently, which is why there’s so little of it. You know, tell me about the company. When did you found it? How young is it?

Dafna: [00:04:58] Yeah, sure. And as long as you get back to that missing middle, because that’s a big part of, I think, why we’re doing that.

Eve: [00:05:03] Oh, we can get back to it right now. Go ahead.

Dafna: [00:05:06] Okay. Yes, I agree. Most of those projects are too small to gain any kind of efficiency. But that is part of the purpose of how we’re looking at the business of creating the housing as a product and at least a componentized part of that project that we could repeat over, say, 100 different projects, so that your project of maybe ten units, at least half of the cost of your project might be able to be encapsulated in this manufactured item that is getting cheaper over time, like your television set, as opposed to getting more expensive every year. And so, if we can capture a big chunk of your project and then aggregate that savings for a bunch of developers like you, then we have the potential at scale to really reduce the cost of housing.

Eve: [00:05:55] That makes a lot of sense. So, how long have you been in business?

Dafna: [00:06:01] So, in business, we actually formed and raised a little bit of friend and family capital to launch in early 2020, concurrent with the pandemic launching.

Eve: [00:06:10] Perfect timing.

Dafna: [00:06:13] And that set in motion a beautiful series of pivots that that I’d say every founder launches at the wrong time for some reason or another and at the right time for some reason or another. So, we formed the business. And as soon as the pandemic hit, we saw it as an opportunity to do two things. One, to start just consulting and taking everything, we had learned and understood about modular housing and modular construction and start doing feasibility studies for developers. While we were doubling down on our actual product design and engineering. So, we spent the last couple of years really focused on designing a best-in-class structural system that could go together very quickly on site and could be very easy to understand for the trades that have to interface with that object when it comes to the site to get the design finished. So, we launched that product, which is not only a structural system, it’s an entire finished one-bedroom apartment. This one designed by Hodgetts and Fung, an incredible design duo in California, and we launched that in late October last year.

Eve: [00:07:22] So, it took a while. Yeah, I saw the first Cassette Home you rolled out, the pod, and it’s absolutely gorgeous. I want to move right in.

Dafna: [00:07:32] Thank you. Same here.

Eve: [00:07:33] I’m wondering where you’re shipping it to at this point. Let’s start with how big it is and what it looks like finishes and windows and.

Dafna: [00:07:41] Yeah. So, as I mentioned, it was designed by a duo in California named Hodgetts and Fung, Craig Hodgetts and Ming Fung. They’re pretty well-known architects, but they have a lesser known history in industrial design. They actually had two modular patents, so unbeknownst to us before we met up and started chatting with them about a year ago, they’d been passionate about this idea of industrializing great design and we sort of landed on this idea and an alignment that just like, Target in the nineties, hired Michael Graves, a famous architect, to design your teapot for 20 bucks. Right? If you can really leverage manufacturing to do this at scale, there’s no reason you can’t have great design. And so, they took this roughly 600 square foot structure that we had, and they really made it sing from a livability standpoint. If you had 600 feet, that was about fourteen and a half feet wide and 43 feet long to live in, what would be the best version of that to live in?

Eve: [00:08:48] And so, what is the best version of that? Just how would you describe it?

Dafna: [00:08:52] Well, because of the structure, one of the real benefits of this unit is that we have a wall-to-wall window system on the front of the unit. So, about a 14 foot wide floor to ceiling window system. And on most applications that will be a window system with a couple of operable windows. A developer does have the option to get a sliding door system and to hang a balcony off of that unit.

Eve: [00:09:16] Right.

Dafna: [00:09:16] That’s sort of the… you see it the moment you walk in the door, you see that the end of the unit is just this giant, beautiful opening.

Eve: [00:09:24] It always makes space feel so much bigger when there’s light.

Dafna: [00:09:28] Yeah, and then a gorgeous sort of compact but luxurious cooking kitchen because both Ming and I love to cook, and I think a kitchen makes a great home. And then between the bathroom, which is immediately off the door and the living room is a bedroom that completely opens up with a three panel Hafele slider door. And the thinking behind that was that 80% of renters are one and two person households. We imagine that most of the time that bedroom would be open. And so, why make it a small door? Why not just open that entire wall so that your hallway doesn’t feel like a hallway?

Eve: [00:10:08] Nice. And again, anyone who’s listening, you should go check it out because it really is gorgeous. So, it’s a pod and how can it be used? You talked about, you know, someone who might use ten of them. I mean, how can it be put together?

Dafna: [00:10:24] Yeah, the design of the unit was really made for the business-to-business market. It was made for a real estate developer of any size who wants to deliver housing really quickly, to be able to stack it up to six stories high in multiple kinds of configurations. The constraints are really how it connects, which is at the corners. So, it is a bit rigorous in terms of a grid, but you could do a building with a single loaded corridor on the outside or you could do, if you have enough space, they’re long units, you could do a double loaded. And the unit comes with the structural support brackets to hold up that corridor or to hold up a balcony on the other side.

Eve: [00:11:06] So if someone purchases like ten of these units and they’re going to make a five-story building with two units on each floor, do they build the common areas and then these pods slot in? Or do you provide, or are you hoping to provide staircase pods as well?

Dafna: [00:11:27] Someday we would provide the staircase pods. At this point, I think what our interest is, how can you make a product that is the same every time so that as we discussed, what is the minimum chunk of a building you could replicate and not have it changed between buildings. And so, often the common areas and the stairs and the, say the amenity spaces, are the things you really want to customize. But there’s only so many ways to design a 600 square foot apartment. And most architects will accept that because we hired a great architect to design the inside of that, they don’t need to revisit that. And so, we are only going to prescribe the apartment part and then give you multiple options for how you can configure that as an architect on the site.

Eve: [00:12:15] That makes a lot more sense.

Dafna: [00:12:17] Yes, you will have to add the corridors. Yes, you’ll have to add a staircase. There are many miscellaneous metals companies that will prefab a stair pod. That’s not something that you need a special thing to do.

Eve: [00:12:28] Right, fascinating.

Dafna: [00:12:31] To help visualize the way they connect together. They don’t slide in; they actually stack like Lego bricks. So, the beauty of our particular system and the way we designed it and the benefit of those two years in a pandemic, is that we got ourselves to a system where you don’t even need to weld it or bolt it together. It literally just stacks on top of each other until you’re at the top of the building. And then we tension a cable down the columns. It’s a vertically post tension connection.

Eve: [00:13:00] I’m going to ask questions I hadn’t planned now because I’m wondering what that’s like to get through building, permitting, and if that’s going to vary from state to state. Where are you targeting as your, for your rollout?

Dafna: [00:13:13] Yeah, we are based in California, and while it may have been easier to design a system for Texas or for any other place in the country, housing is not only deeply needed in California, it’s the entire West Coast. And what makes the West Coast difficult for modular structurally is the seismic, just the seismicity of the West Coast. And so, we felt like the greatest need was here and steel construction and specifically post tension construction, the way we’ve done it, it’s beneficial in a seismic zone if you can get it right. It’s tricky. But we have designed this particular product to be able to stack up to six stories with no external bracing, which is very unusual, especially for a modular project and one of that height. And so, it can go together very rapidly in a seismic zone. You could use the same product in a different state. We likely just wouldn’t need all of the columns, if that makes sense.

Eve: [00:14:16] Right, yeah, yeah, yeah.

Dafna: [00:14:17] Right now there’s eight columns per unit. You probably will only need to connect the corner columns in a state that doesn’t have the same seismicity.

Eve: [00:14:26] That makes a lot of sense. But are you focused on California is your market for now.

Dafna: [00:14:32] It’s our launch market. We’re focused anywhere on the West Coast. And you are right in that modular is permitted differently in every state, but most states permit modular at the state level rather than for a small municipality. And so, the benefit is the same product we’re using in Los Angeles we can use anywhere in California. And it’s permitted through private agencies in our case, which is also the case, and I think more than 40 states, where the state farms it out to private agencies to really specialize in this manufactured housing division.

Eve: [00:15:09] Interesting. I have to ask, why 600 square feet?

Dafna: [00:15:14] Oh, it’s a great question. It’s really driven by the dimensions that would make the cost and constructability and shipping logistics most efficient in our minds. That is something that changes from state to state and from highway to highway because different roads have different regulations, even within the same state. Different highways allow different widths on the trailer for different costs. So, ours was driven around this, for us, it’s like, how do we get the 80% or 90%? And what we decided was to keep it under 15 feet wide, even with all of the wrapping and the tarp on a truck, and to keep it at a length that was kind of just in that sweet spot where there’s the greatest number of trucks available. They certainly can drive a 75-foot module on a truck. And there are a lot of wood modular companies that are doing 75 feet long so that they can get two apartments in one with the corridor. That restricts the type of building you can design, but it also does make the logistics quite challenging.

Eve: [00:16:25] Oh yeah, I imagine, yeah. 75 is long.

Dafna: [00:16:27] And while there are trucks that can do that, there’s only so many and you run out of them. And so, you don’t want your project being a slave to what the shipping industry has available. We wanted it to be something that could ship on the most widely available fleets. And so, that’s how we landed. And we wanted a livable space. We didn’t want an eight-foot-wide container home. In our minds, that’s not a livable space for most people.

Eve: [00:16:54] Right. So, you just launched. Do you have customers yet?

Dafna: [00:16:59] We do. We’re very fortunate. So, we launched the product, but we had already been working with a few developers and we’ve, both Nick and I, have been in the industry quite a while, so we’re fortunate to have a lot of goodwill. We have a signed letter of intent from a woman owned developer.

Eve: [00:17:18] Yay!

Dafna: [00:17:18] To do 200 plus units of workforce housing in the, not north of Los Angeles, but in LA County, in a city called Lancaster. And so, we’re just in the early stages of conceptualizing. It’s a ten-acre site, so we’re in the early stages of conceptualizing how that lays out.

Eve: [00:17:38] It’s a great first LOI to have. Congratulations.

Dafna: [00:17:42] Thank you.

Eve: [00:17:43] So, what’s your goal for 2023 and two years from now and five years from now? How do you get to the 1000 homes at a time? I suppose with five of those projects, right, and you’re done.

Dafna: [00:17:55] I would love to be serving projects of all size. I would love for more infill developers with ten units to understand that they can get the benefit of this, whereas they may not be able to get the benefit of most modular because you need a bigger scale or a bigger order. But by ordering a product that a company like Cassette has already prototyped has already put the R&D into, you don’t need to add that to your pro forma. And so, maybe now it pencils for you and maybe now we can scale that and make an impact across the industry with that as a product, as opposed to being a custom fab shop that kind of starts from zero every time.

Eve: [00:18:36] Interesting. So, I did talk to you once before and I was sort of really interested by the statement that you made that your hope is that eventually they will, costs will go down for each Cassette, not up.

Dafna: [00:18:50] Absolutely.

Eve: [00:18:50] So, let’s talk a little bit about that.

Dafna: [00:18:52] Yeah, I mean, why else would we do this, right?

Eve: [00:18:56] To make a lot of money. Not to bring costs down.

Dafna: [00:19:01] Yeah. I mean, making money is important, but there’s certainly easier ways to make money than starting a really complicated business. So, I could have stayed in an executive job. I could have done that. You know, life is precious. And I think a lot of us get to a certain point in life where we try to align the things that we know how to do and make money with the things that really matter. And that moment sort of came from me and my ability to think through that sort of came a few years ago, and that’s how that came about. All of a sudden, I forgot your question.

Eve: [00:19:34] You know, I suppose it’s how do you differentiate yourself in the marketplace? But also, I remember you saying that your ultimate goal was to drive the cost of each pod down.

Dafna: [00:19:44] Yeah.

Eve: [00:19:45] Purely because you’re not offering customized options.

Dafna: [00:19:49] Yeah, it gets down to a few years ago when I was leaning into industrialized construction. It wasn’t just because it was the hot new thing. It was because I had spent ten years in the manufacturing sector before I was in architecture and construction. And what I saw happening in prefab was not really manufacturing. And now there’s such an interest both from cities and the investment community in what prefabrication can do, because there’s this thought that, wow, manufacturing gets cheaper every year, right? We get better and better. We are so far advanced in manufacturing in terms of productivity improvement, that it is basically at the top of all other industries when it comes to productivity gains per year. And construction is pretty much dead last on that list. And in fact, we’ve probably lost productivity in the last 20 years for a lot of reasons, some of them good reasons for safety reasons, but some of them not so good reasons.

Dafna: [00:20:53] So, there’s this sort of understanding that there’s an inevitability around industrializing this construction industry yet, I think. You know, manufacturing is a really complex business, especially complex manufacturing, which would be more like automotive or aerospace. It’s not like manufacturing, say, a widget that has one plastic tooling form and then you amortize that form like we’re making plastic cups. It’s like, you have 50 different subassemblies inside of this product that are sub assembled by different. Call it mechanical, electrical, plumbing, subassemblies, etc…

Dafna: [00:21:33] So, it’s complex manufacturing. Yet if you look since the thirties, complex manufacturing, it’s been measured that for every time you double the number of units you make, there is a constant savings and there is a curve of efficiency and savings associated. But that is when you’re doubling the same unit over and over. That is something that the way that most developers are buying modular construction, it’s still not happening. Even if you have 100 units in your building, that’s barely enough for a factory to start understanding how to build that product. And those savings, don’t, they do come a little bit from material aggregate, but Katara proved that just having big volume doesn’t get the cost down the way that process improvement actually gets the cost down. Which is the primary driver of cost savings, and manufacturing is this process improvement. So, we thought, okay, how do we create a process that really could be the same every time, all the way through installing the product? And so, that’s sort of the target. And the answer to your goal is I want to get this one product to 1000 and start to measure that curve. And what is that constant savings for every doubling? Because then we have a way of predicting how the cost will come down and then we have a reason to launch a second product and a third product.

Eve: [00:22:57] So, you also will have to probably, I’m assuming, scale your manufacturing operations. I don’t know where you’re manufacturing right now, but how do you expect that to change over the next few years as these numbers go up?

Dafna: [00:23:10] That’s exactly true. And so, the business was designed around scaling manufacturing from the start. And so, we actually have two agreements right now. We have two manufacturing hubs, and we’re bringing a third one online. And they’re in all in different places to have some diversification, to have scalability, but also have geographic diversification. Sort of, what’s best for this project? Where should these come from? And then building the back end, one of our goals in 2023 is starting to build what they call an ERP system in product where you start to really have control and data on every single material that goes into that product. And to be able to move that material and supply database across your different hubs of where you’re manufacturing it.

Eve: [00:24:03] Interesting. So where did the inspiration for this come from?

Dafna: [00:24:08] Oh, boy, I don’t think it was sort of a sudden inspiration. It was really more of a leaning in. It started with the hypothesis that manufacturing should work in construction, specifically around multifamily, because you have the ability to do the same thing over and over. It’s a lot harder in this country to do that with single family. That’s a whole other conversation, but I thought it should work. I’m going to lean into this, and for about a year I traveled around the world. I talked to different manufacturers, and not just of modular, but different forms of prefabrication, from CLT to panelized housing to volumetric. And in Asia, there’s a lot of volumetric that’s been going on for decades, actually. And I asked a lot of people in the US who’ve been doing these projects. And so, it was really a leaning in that led to just a lot of observations and questions. And one day I wrote a business plan. I thought, there’s something I see that I don’t think other people see. And as I started speaking about it, there were large companies and partners that were very interested right away in working with me.

Eve: [00:25:24] Another question I have is we know that buildings are responsible for probably about 40% of tainting our environment, our world. How does this process help, or does it help?

Dafna: [00:25:36] Yeah. I mean, that’s one of the most exciting parts about this, is that construction is also one of the most wasteful industries.

Eve: [00:25:44] Very wasteful.

Dafna: [00:25:45] When you think about things that are thrown in a landfill and a dumpster.

Eve: [00:25:48] That’s beyond the 40% emission number, right?

Dafna: [00:25:51] Yeah. No, no, absolutely. So, from a sustainability perspective, there’s been some measurement. Obviously, I’m not big enough and don’t have the track record yet to start measuring our specific business around it. But the early studies, at least in the UK and I think now in Canada have shown something like 70% less carbon emissions just from less trucks to the site.

Eve: [00:26:15] That’s what I was going to say. You’ve got one truck run instead of like probably hundreds, right?

Dafna: [00:26:20] I believe you have to be really honest and say, okay, well then you also have to measure trucks to your manufacturing hub. And so, people get very concerned about having a manufacturing site maybe where they think it should be. But what I would say from a sustainability perspective is the biggest thing you want to make sure is that all the suppliers are in close proximity to that manufacturing hub. So, and we have a manufacturing hub in Korea. We have a partner in Singapore. We’re working on a couple in North America right now. But the bigger important piece of that is designing the product and supply chain that goes into that manufacturing and making sure that that doesn’t have a big distance to travel and that that’s a sustainable material. If you’re doing it to really be sustainable rather than to just get points on a board, it makes you think about a lot of different things. And it’s one of the things I think we’re most excited to start measuring from day one is, how do we benchmark our carbon emissions and then over time, how do we improve that?

Eve: [00:27:24] Yes, fascinating. So, what’s standing in the way of producing housing like this? What’s making it harder for you? Or harder than it should be?

Dafna: [00:27:36] Yeah, harder for us versus harder for the industry may be two different things. I mean, we are, like a lot of women owned businesses.

Eve: [00:27:44] Oh, well, that’s hard right there.

Dafna: [00:27:46] Yeah. That started in a pandemic. I’m not complaining, but we’ve bootstrapped and that’s just a slow process. You know, maybe it’s my optimism. I don’t think things are standing in our way. I think there’s a lot of capital markets that don’t understand how to calculate a risk of something that’s very new. And so that’s not just me, that’s the modular industry facing industries like banking and insurance that are not incentivized to take risks, right. So, changing things in that industry usually takes a crazy amount of capital to be able to guarantee loans and those things. So, that’s one of the obstacles to the industry. But it’s softening. And then what I would say is the bigger obstacle, and this is the less talked about obstacle, is this culture of custom start from scratch. And even a lot of architects are looking at prefabrication and saying, Oh, I want mass customization. And what I would say is, well, you haven’t even figured out how to make the industrialization work. Great, let’s get to mass customization. I love that.

Dafna: [00:28:49] I was, the contractor I worked for, built the Broad Museum and the Academy Museum of Motion Pictures, and every kind of iconic, like one off unique thing and using 3D technology, and it’s all great. But that’s not where construction started and that’s not where prefab or modular needs to start. We need to start by understanding that when I build a project as a developer and a general contractor, my typical process involves 80 different stakeholders down the chain, from the lender to the plumber on site to the neighborhood to the permitting agency. There’s a lot of people involved in this process. And the crazy part about what we do, is that every time you develop a new project, you change all 80 of those entities, or maybe like 75 of them are different every time. And so, if you’re going to say like I do, that cost savings over time comes from process improvement, how in the heck is that going to happen when you have a different 80 companies doing that process every time?

Eve: [00:29:54] Right.

Dafna: [00:29:55] And so, I’m trying to sort of cordon off this 50 to 70% of what you’re doing to make sure we can have a repeatable process for you. But what that means for everybody else is that I need to make sure that my product is actually created in a way that’s simple enough that I can teach it to a very fragmented industry, and they can quickly get it every time. So, I think one of the obstacles is this sort of desire to customize everything and not really respect and understand the investment that goes into creating a product in a manufacturing environment. But I do believe that just by showing the industry that a beautiful product can be created and it has a fixed price, and you could actually know exactly what you’re getting for the price you’re getting it, which is unheard of in construction, that developers will buy that. If you build it, they will come. And that’s what we’re starting to experience and it’s, hopefully that will be transformative in the industry when that starts to happen.

Eve: [00:31:00] Well, I feel like I’ve missed some question somewhere. Is there anything else you want to tell us? It’s a fascinating business.

Dafna: [00:31:07] I feel like I’ve been talking too much, and I’d like to know more about you, actually.

Eve: [00:31:12] Well, that’s not what this is about, but we can talk about that later. It’s really fascinating. What’s next for you? I mean, what do you have to do over the next three months to keep this going and keep building it?

Dafna: [00:31:25] Yeah, well, we’re set on executing perfectly, right? I mean, there’s a lot of people that want to get a lot of projects. I want to get our first project in the ground and have the project work the way we’ve promised and to keep our word and to measure it. And we’re fortunate enough to have at least one customer that wants to move forward and work with this system. And I think our job is to just execute well. So, that’s my goal. I believe everything else falls into place from that.

Eve: [00:31:54] Well, I can’t wait to see it. Thank you very much for joining me. It sounds fantastic.

Dafna: [00:31:59] Thank you, Eve.

Eve: [00:32:18] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. You can support this podcast by sharing it with others, posting about it on social media or leaving a rating and review. To catch all the latest from me you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing yourself head on over to wefunder.com/smallchange where you can invest directly in Small Change and our mission to democratize capital formation to create impact in commercial real estate development. A special thanks to David Allardice for his excellent editing of this podcast and original music, and a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Dafna Kaplan

Disability Forward Housing.

Micaela Connery is co-founder and CEO of The Kelsey, a San Francisco–based nonprofit that co-develops accessible, affordable, inclusive multifamily housing, advocates for policy changes that promote inclusive practices, and provides tools and templates for others who want to build housing based on its model.

Since founding The Kelsey in 2017, Connery has secured more than $120 million in funding to pilot programming in existing units in Oakland and to finance new buildings in two of the nation’s most challenging housing markets—San Jose and San Francisco. She also oversees strategic planning across program areas, including housing development, field building, and community and political advocacy.

Connery’s lifelong advocacy for people with disabilities stems from her relationship with her late cousin and close friend, Kelsey Flynn O’Connor. The Kelsey co-founder and chief inspiration for the organization, O’Connor lived with multiple disabilities. As the two grew up together, Connery saw firsthand the obstacles many disabled people face in accessing the same resources as their nondisabled peers. Determined to work on solutions, Connery realized there was no cohesive model for housing that would allow people like her cousin to live independently in a mixed community, so she set out to build one.

The Kelsey’s model for accessible, affordable, inclusive communities allows disabled and nondisabled people with a wide range of incomes, needs, and life experiences to live side by side in equally high-quality homes. Locations are chosen for their proximity to jobs, community, culture, services, and transit, while architecture and engineering go beyond building code requirements to implement universal design. In addition, thoughtful but optional community outreach programs foster interaction, understanding, and connectedness, leading to mutual support and a sense of belonging.

Connery is proudest of the role The Kelsey plays in shifting the narrative of what disability-forward housing looks like. The Kelsey is spearheading a movement for equity co-led by people with disabilities—voices that should have been at the forefront a long time ago. Connery envisions a world where inclusive housing is the norm and people with disabilities have true options for community-based living. She believes The Kelsey’s work will show that everyone is better served by design choices that include disabled people. Prior to founding The Kelsey, Connery published leading research as a fellow at the Joint Center for Housing Studies at Harvard University. Her findings identified what became the core elements of The Kelsey’s design and programming principles. Before that, she served for 12 years as CEO of United Theater, a nonprofit organization she founded at age 15 to foster inclusion and leadership among disabled and nondisabled students through the arts.

Read the podcast transcript here

Eve Picker: [00:00:10] Hi there. Thanks for joining me on Rethink Real Estate for Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. And speaking of building better, I’m very excited to share that my company, Small Change, is now raising capital through a community round that is open to the public. Small Change is a leading equity crowdfunding platform for impact investment in real estate. For as little as $250, anyone 18 and over can invest in Small Change, helping to fuel our growth as we disrupt the old boys club of capital that routinely ignores so many qualified people and projects. Please visit Wefunder.com/smallchange to review the full details of our raise and to make an investment if you can. And remember, investing is risky. Don’t invest more than you can afford to lose.

Eve: [00:01:51] Michaela Connery is co-founder and CEO of the Kelsey, a non-profit focused on inclusive housing for people with disabilities. Michaela’s lifelong advocacy grew out of her relationship with a late cousin and close friend, Kelsey Flynn O’Connor, who lived with multiple disabilities. As the two grew up together, Connery saw firsthand the obstacles many disabled people face in accessing the same resources as their non-disabled peers. Determined to work on solutions, Connery realized that there was no cohesive model for housing that would allow people like her cousin to live independently in a mixed community. So, she set out to build one. Since founding the Kelsey in 2017, Connery has secured more than 120 million in funding to pilot programming in existing units and to finance new buildings in two of the nation’s most challenging housing markets, San Jose and San Francisco. You’ll want to hear more.

Eve: [00:03:08] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:03:32] Hello Michaela. I’m really excited to talk with you today.

Micaela Connery: [00:03:35] Thanks for having me. Excited to chat with you too and share more.

Eve: [00:03:40] So, let’s start with this. What is The Kelsey?

Micaela: [00:03:44] Yeah. So, The Kelsey is an organization that both advocates for and develops disability forward housing that’s affordable, accessible and inclusive. We are a not-for-profit based in San Francisco, working both in the Bay Area but also nationally. Our work began with Kelsey, our co-founder, who was a disabled advocate and my cousin, and can share more on that. And yeah, our mission is really to address what we see as both a really critical but too often overlooked housing need of people with disabilities. 1 in 4 Americans who live with a disability, addressing their housing need, and also recognizing that building housing that meets that need, that’s affordable, accessible and inclusive actually just makes better housing and communities for all people.

Eve: [00:04:35] It does. So, let’s go back and tell me why you started it. Like, take me on the journey.

Micaela: [00:04:40] Yeah. So, as I mentioned, my co-founder and my cousin and dear friend Kelsey, she and I really grew up together and, you know, went through every life milestone together and through all of those, you know, experienced, you know, access and inclusion or in some cases, lack of access and inclusion through really all life stages. And, you know, whether that was at our schools or in summer camps or church or recreational stuff or travel. And so, that was just a part of our lives and how we saw the world. And when we were both in our 20s, similarly, life milestones going through at the same time. We were both, you know, in that phase of life where we were looking to move out of our parents’ home, and Kelsey didn’t use verbal language to communicate, she used modified signs. But she made it very clear that she was ready to move out on her own. And the options were just incredibly lacking and limited for her and particularly lacking the option for integrated, community based, inclusive housing where she could live not only with other people with disabilities, but in real community, with people of all backgrounds and disability.

Micaela: [00:05:52] And, you know, recognized really quickly that what I thought might have been a unique issue to Kelsey based on her level of support need and where she lived was not unique to her at all. And in fact, Kelsey was an example of a much larger systemic issue of a lack of housing for people with disabilities. We had affirmed in this country through a lot of policies and rights-based work, the right of people with disabilities to live in the community of their choice and can talk more about what those policies are. But that that right was 100% not made a reality and that it was particularly acute for people in lower income communities and communities of color. And so, that led me to go on this journey to first understand like, what was this problem, who was solving it, what was the system around it that I could plug into and be a part of solutions and ultimately realize that solution didn’t exist and created that within the Kelsey.

Eve: [00:06:49] Wow. So, can you talk about some of the biggest issues you saw her struggle with? I mean, what were the reasons why it was so difficult to find housing?

Micaela: [00:06:58] Yeah, this is something that I really looked to investigate right off the bat, both as it related to Kelsey, but also as it related to like disability housing more broadly. Because one of the things that was really clear once I started to both, you know, with Kelsey and her family, but also talking to other people with disabilities, is that nobody kind of disagreed that there is a need for housing for people with disabilities. But, you know, it was hard to create some clear language around what that actually means. What is housing mean for people with disabilities? And that gets to your question around like what were the barriers and what I categorize and saw as the barriers, and this still informs our lens of our work today. I said earlier, affordable, accessible and inclusive. Those are our focus areas at the KELSEY, because those are the three barriers that we’re actually seeking to overcome in our model of both housing development and housing advocacy. And so, really what gets in the way of people with disabilities ability to live in community of their choice is one, a lack of affordability where folks with disabilities are disproportionately likely to be low and extremely low income. Our SSI system forces people to live in extreme poverty. So, those individuals, 4 million plus Americans who rely on SSI are at the lowest of incomes in our country. And other disabled people, you know, have other affordability considerations, not to mention just broadly in this country, we have an affordable housing need. So, the first barrier is really people couldn’t afford to live where they wanted to live. The second barrier then came that even in some cases if you solve for affordability, which was not being solved for, that then there was the gap in accessibility.

Micaela: [00:08:37] And accessibility we really define as anything to do with the built environment, so that even once people found housing, it wasn’t located in an accessible space, their unit wasn’t accessible to them, the amenities weren’t accessible, it didn’t meet their specific access needs and wasn’t designed for them. And then really the third barrier that came in had to do with inclusivity, which was really about the operations and the services that, you know, if you solve for one and two, that then still, and this was particularly true for Kelsey. Kelsey was somebody who used 24-hour support and care and that communities, you know, weren’t designed to be connected to the kind of services that, you know, Kelsey needed in her home, in the community. And that still, and we can have a long conversation about this, that still there’s a really, what I would say, unfortunate, if not dangerous sort of, you know, divide in saying, oh, people with disabilities use supportive services, those ones go to facilities and group homes. Like if you have less needs, then you can live in community-based housing. And we reject that concept. And really then it’s about how do you design communities where people with disabilities, regardless of the level of their support need, have access to integrated, diverse community with diverse neighbors and diverse experiences and within that community have access to the services they need to not just survive, but thrive there.

Eve: [00:10:03] Yeah, because disabilities come in all shapes and sizes, don’t they? Which makes it. And yeah, we have, I mean it’s already very difficult to build affordable housing, but to then be able to address all of the issues that need to be overcome, that must be an enormous project.

Micaela: [00:10:19] Yeah, well, you know, I think I would say yes to people with disabilities, you know, have diverse access needs and are a heterogeneous population. One size does not fit all. I would challenge a little bit that building disability forward housing has, you know, additional complexities by nature of the fact that disabled people have different needs because, you know, what we found is that actually if you just anchor on these access needs from the start, they’re just better design choices that for, you know, in 90% of times don’t actually bring additional costs to a project or make it any more difficult. It’s just shifting to have that consciousness, that access and disability is a natural part of the human experience, and we should be designing spaces that reflect that, you know, just like we would, you know, now it’s, you know, there are so many things that are standard around how we think about and develop housing and include within that, you know, access can be one of those things. It’s it’s a choice not to include that. And we would say it’s an opportunity to include that to create better spaces.

Eve: [00:11:23] Yeah, no, that makes a lot of sense. I think at least where I live, the zoning codes have required inclusion of accessible units in all sorts of projects and sometimes it doesn’t make sense. They can be really high-end projects and you’re required to set aside a certain number of accessible units which, you know, they might be available, they might not be available, they may not be affordable. It makes a lot more sense to address the entire building in some way.

Micaela: [00:11:53] Yeah. And we think that that’s the interesting thing about disability too, is that like, while I mentioned the affordability consideration, like and it is the case that, you know, many people with disabilities live on low and extremely low income. There are people with disabilities at all levels of income, including high income, workforce housing, you know, teachers, you know, direct service workers. There are disabled people at all levels. And so, we should be really thinking about how do we define and design housing of all types to include accessibility. The design principle that we’ve used at the Kelsey Air Station, which is our first community that’s under construction right now, is that 100% of our units are visitable and adaptable, meaning that if you are a person with disabilities, you can one visit any unit. So, because we would see communities where, you know, you couldn’t have a friend over if they used a wheelchair because they couldn’t get into your apartment. That’s a terrible way to build community.

Micaela: [00:12:48] So, that 100% of our units are visitable and adaptable, meaning a guest with disabilities could come in, enjoy dinner, use the restroom, you know, be in the unit, and then 100% of units are adaptable without, you know, skills or training that somebody could come in and adapt their unit to make it fully accessible for their needs. And then 25% of the units are specifically already adapted and designed with, you know, enhanced accessibility features. But like, all countertops are the same height. And I’m a very tall person, and I would tell you that that works. All the countertops are the same. All the widths and spaces and additional design features for access are included everywhere. Backing for grab bars are included everywhere. And that’s just.

Eve: [00:13:33] That’s basic, yeah.

Micaela: [00:13:34] It’s smart to do also from an efficiency and a turnover because you’re not saying, oh, like you have to go into that one unit or what if you have less or more or whatever it is. It’s just a, it’s a better, it’s better for disabled people, it’s better for owners and operators, and it’s better for future residents who could become disabled or have a disabled child or have a disabled guest. It’s just all across the board better.

Eve: [00:13:55] I’m sure you’ve made comparisons between these buildings that you’ve built following these procedures versus a regular building and what is the cost increase when you provide 100% adaptable units?

Micaela: [00:14:08] Yeah, so our community, I mean, we’re in the Bay Area, so cost is expensive to start with. But we have found if you compare our buildings to comparable projects, it is not like significantly more expensive. I don’t have a specific dollar amount to give you and that’s something that we once we’re finished with construction, we can probably give those numbers more directly. But that from our initial budgeting and estimating that we’ve done with all of our contractors and partners, it is not measurably more expensive to do these accessible projects than it would to do other kinds of projects. The cost comes in on accessibility when most people grumble about accessibility being more expensive, it’s because they didn’t do it from the beginning, and it’s incredibly expensive to retrofit.

Eve: [00:14:52] To retrofit yeah. Because you’ve got to have wide enough doors and you’ve got to have, you know, think about your hallways and everything from the beginning, right?

Micaela: [00:15:00] Yeah. But if you build that in, then it’s just in your cost. And our units are tighter. Our studios are at 490 our twos are around 700ft², about. So, there are like also people are like, Oh, that’s going to be this huge building. It’s going to have a massive footprint. We’re doing like dense infill development with these kinds of accessibility. So, it’s really feasible to do it. But again, it’s the intentionality of doing it from the start.

Eve: [00:15:26] I can see a primer in the works here.

Micaela: [00:15:29] Yeah, yeah.

Eve: [00:15:30] For contractors.

Micaela: [00:15:32] Yeah, we do actually have something called our Housing Design Standards for Accessibility and Inclusion. Those are at thekelsey.org/design and these are a set of design guidelines and design strategies for people doing cross disability accessibility and not just around some of the stuff that we’ve talked about, but it starts with community engagement and outreach from the project conception, obviously through all the units and the built environments, but up into resident services and operations. And it’s, you know, 300 elements that people can use in their own projects or, you know, as a funder or as a developer to define what accessibility looks like. And we’ve got folks using them all across the country and they’re just a really, we like went from our first community to our second and we felt like we had to retrain our whole design and development team on all of our accessibility goals and what it meant and what cross disability accessibility meant and all of that. We were like, why isn’t there a standard that we can just share with our team? And there wasn’t. So, we created one and it’s up for folks to use exactly in that way as a primer.

Eve: [00:16:34] That’s great. So, when did you launch the organization?

Micaela: [00:16:37] So, we are just coming up on five years. Our first round of funding came in March of 2018 and that launched us into a community organizing work we did across the Bay Area called, Together We Can Do More, as well as securing our first two sites in that time. So, we’ve been around for just about five years.

Eve: [00:16:57] And how many projects have you built? They’re all in the Bay Area so far.

Micaela: [00:17:00] Yeah. So, we have a project under construction in San Jose of 115 mixed income homes for people with or without disabilities. We’ll be breaking ground soon on a similar 112 home community in San Francisco right across from City Hall. We also have a small pilot that we operate providing residents services within an existing project in Oakland, so all in the Bay Area. But then we also do technical assistance where we might not be the developer, but we help support other people working on housing projects or housing adjacent projects where they’re working on being disability forward and needing capacity building or project scoping or feasibility studies or community engagement support. And so, we’ve done technical assistance both across the Bay, across California and nationally, too.

Eve: [00:17:51] So, it sounds like you’re not always the developer. How do these projects get developed?

Micaela: [00:17:56] Yeah. So, we are not always the developer in these examples of the projects that are under construction or about to be, we are the co developers, so we work in partnership with local, you know, both for profit and not for profit housing developers, building, you know, these communities and they come on and we share development responsibilities. Us obviously really leaning into the disability forward elements of the project and our development partners, you know, sharing their, you know, track record with just developing standard affordable or mixed income housing and our technical assistance work that really ranges from, you know, as we talked about at the beginning, disability. You know, disabled people are, you know, parts of communities everywhere. And so, our technical assistance clients range from affordable housing organizations who, you know, know that they are serving or desire to serve disabled people, but it’s not explicitly their mission and want to do that better and understand, you know, community engagement or dealing with regulation around disability services and compliance there or involving more disabled people in their design and development process. And so, we do that.

Micaela: [00:19:03] We’ve also worked with disability service organizations who deliver services, and as part of those services, aim to provide housing or support somebody in the provision of housing for the people that they serve but aren’t a housing developer or housing expert. And so, we’ll lend development capacity to them. And then we’ve also worked with some finance organizations who are thinking about how to think about accessibility or disability inclusion within the projects that they fund. And so, helping them think about, you know, design and development guidelines like our design standards as it relates to ecosystems of multiple projects, not just a single one. And so, you know, it really ranges in terms of all the different players, and we do a lot of stakeholder mapping of, there’s a lot of players who impact how housing gets built and who housing gets built for. And so, we really are open to lending capacity for any of the people who are moving the needle on getting housing out there to make sure that needle is moving towards more disability forward models.

Eve: [00:20:04] So, how is leasing managed and how long is the waiting list?

Micaela: [00:20:09] The community that’s under construction in San Jose will open in the first part of 2024. And so, we’ve actually just hired our resident services director who’s just starting that leasing, the marketing and leasing process and partnership with our property management and other compliance partners. Um, we don’t know how long the ultimate wait list will be, but I can tell you that even just on having like a, we have like a general form that people without any active outreach just sort of having it up there, we’ve got several hundred people who have like put their names to be notified when the lottery comes on. We imagine when we actually market it, that number will grow just from based on what we’ve seen both in affordable housing generally and particularly for people with disabilities. Our process works in that 25% of our homes are explicitly reserved for people with disabilities who utilize supportive services. And we have tenant referral organizations and partners who help us verify, you know, residents, you know, having eligibility under that criteria of being disabled and using services. And then within that, people qualify. And based on that criteria and income and there’s a lottery, then out of the qualification. And then the other 75% of the homes are available and marketed based on income, whether or not you have a disability. And it may also be the case that there are people, it will likely be the case, that there are people in those 75% of homes who might not qualify as a person with disabilities who use supportive services, but they’re a teacher who uses a wheelchair in San Jose, who likes the middle-income home, who still is disabled and comes through those 75%.

Micaela: [00:21:47] So, you know, people with disabilities will exist in both categories. And I’ll just note that we do specifically do a lottery. I saw a lot of communities that operate, especially in disability founded models or disability focused models that do waitlists. But we feel really strongly that, you know, we shouldn’t preference people who had involvement in the process or who are in the know and able to get in line first that we, you know, have a very specific affirmative marketing goal to make sure this community is known and particularly underserved and underrepresented, low and extremely low income communities, as well as communities of color in the cities we build and making sure that all people have an equal chance of getting a home in the building so people will qualify, get in and then be ultimately selected through a lottery, to try to give the most open process.

Eve: [00:22:43] I do want to get back to some of the policy questions you alluded to. And I’m just wondering what the biggest hurdles have been for you and what challenges you still have.

Micaela: [00:22:52] Yeah, I think we look at our policy focus as not far off from the framing of affordable, accessible and inclusive either. The biggest hurdles around building disability forward housing as we created at the Kelsey as one like, you know first of all, full stop, we don’t have a universal right to housing in this country and we are under subsidizing a system that needs more subsidy overall. And so, we exist within that as a housing development organization, regardless of whether we’re focused on disability. But I will say that the existing financing sources for affordable housing, very few target disabled people as they’re kind of, you know, when you apply for funding, there’s different sort of target populations and disability is not included typically in like preferences or scoring for programs. And often if it is included, it only applies if you are a disabled person experiencing homelessness. And we 100% believe that disabled people experiencing homelessness should be provided housing. But we also believe that you shouldn’t have to become homeless.

Eve: [00:23:59] In order to get it, yeah.

Micaela: [00:24:01] In order to get it. And so, it’s a both, and situation there that we need to have subsidy that provides housing for disabled people who are living in a household with parents or guardians who are aging. We need to provide funding to disabled people who are in an institution or a hospital and are ready to move out but have nowhere to move into the community. And so, just one like increasing public subsidy into, you know, housing and particularly making sure that that subsidy includes, you know, either incentives or requirements to include homes for disabled people. The main federal program that exists around that is the HUD 811 program. And we do a lot of advocacy to increase that. But that can’t be the only, and I’d also say that like we’ve also seen that a lot of our funding sources, even including like, you know, recent Nofas put out by the city of San Francisco, while well intended, a lot of these funding sources actually like don’t adhere to some of the goals of community integration and building mixed communities of people with and without disabilities of all incomes. You know it’s this sort of like let’s solve all together and concentrate extremely low-income housing. And I understand the need because we need to build more of that housing. But we also do need to think about Olmstead, which is the the Supreme Court ruling that mandates, you know, the right to community living for people with disabilities as well as, you know, the integration mandate of the Americans with Disabilities Act, that we need to make sure our housing policies live up to that integrated community model and that our funding sources not only incentivize it, but don’t actually disincentivize it, which sometimes they do.

Eve: [00:25:42] Right, right.

Micaela: [00:25:43] And then I’d say the two other policy focuses are around that accessibility. As you pointed out, there’s a lot of confusing and sometimes compliance heavy accessibility focuses where, when people think about accessibility of the built environment, it’s like one just like, oh, endless regulations, you know, opaque guidance. You know, I never know what I’m going to get. This funding source requires this, and this funding source requires that. And so, doing some work to streamline and clarify baseline accessibility so that all communities meet increased baseline accessibility, which they should, as well as that would be considered a stick. That’s a requirement and we think that’s important. But also layering that with incentives, carrots of how do you, in addition to just requiring a baseline accessibility, how do you provide incentives or systems that support enhanced accessibility or provide technical assistance or capacity building for people to do really robust accessibility? And so, we’re working on some federal legislation that’s going to be introduced in the Senate soon, specifically around that.

Micaela: [00:26:49] And then the third area is really about housing related services and that, you know, we have underfunded Medicaid in this country significantly. And California, where we’re based, relatively speaking, has robust supportive services. But that’s even that relatively is still not enough. We don’t pay direct care workers enough. We don’t, some states haven’t opted into waitlists or into waiver programs and still run waitlists where people can’t have access to services and are waiting to receive the services that they need. And so, even though we are not a service provider at the Kelsey, we recognize that people’s access to Medicaid and other supportive service programs directly impacts their ability to live in the community of their choice. And so, we we don’t necessarily lead advocacy in the service funding area, but we definitely participate in support and lift that up as that. Those two things have to go hand in hand. And perhaps there’s also opportunities which we do work on, is how to better coordinate between housing systems and service delivery systems to serve people better. When we de-institutionalized in this country, we sort of said, okay, here all you disabled people, you can take your money for services and go live wherever you want, and quote unquote, and we never actually built the live wherever you want things. And therefore, our housing system sometimes don’t even think about disabled people who use supportive service as like their responsibility or on their docket. They think, oh, those people are like served in group homes or some other things. They’re not like who the state of California is developing affordable housing for or who the city is responsible for. That’s like another system, and that’s absolutely wrong. The housing infrastructure has a responsibility to serve these people but has an opportunity to leverage service dollars coming out of the service systems once that housing is built. And so, how do we get those systems in our post institution world, getting those systems to work better to to meet the true goal of community living?

Eve: [00:28:47] How many people with disabilities are there in the US?

Micaela: [00:28:52] 61 million, I believe, is the most recent number. That’s 1 in 4 people.

Eve: [00:28:58] 1 in 4 people. And if you add into that, seniors who are having trouble getting around and could probably benefit from housing that thinks about that, you know that’s a lot of people yeah.

Micaela: [00:29:10] Think the 1 in 4 does include older adults with disabilities but yes. You’re exactly right.

Eve: [00:29:15] I mean, it’s not even necessarily a disability. You know, your knees are creaky. You don’t want to take steps anymore like, you know, sort of basically, you know, lifestyle hurdles that you start having.

Micaela: [00:29:26] Yeah, it’s a huge population. It’s also a diverse population, as we talked about before. We spend a lot of time too, like, I think it can be a both, and of thinking about the big tent disability of we are a stronger political movement when disabled people and allies like think about and advocate for disability holistically and don’t separate based on you know, do you have this type of disability or that type of disability or are you this age or that age or, you know. Just really take a big tent approach. And then you can within that big tent also be very intentional around specific interventions of supporting specific access needs or specific service needs. I feel like, you know, sometimes we’ve diluted our power as a disability rights movement of, you know, I go to conferences where it’s like, well, this is for high support need people not low support. And it’s like, okay, let’s just like talk about that all people need support and let’s like build for that.

Eve: [00:30:21] I love that approach, yeah. It makes a lot of sense. Who else is working in this space? Should there be more of you?

Micaela: [00:30:27] Yeah. Fortunately, I think there have been more and more developments coming up focused on disability access and inclusion. We actually, with that in mind, you know, part of the Kelsey’s mission has from day one always been like, we seek not to be the only. We seek to be a part of a robust field of a lot of people doing these kinds of developments. Like it would be crazy if there was one senior housing developer in the country. There’s not. There’s, you know, thousands of developers who do that. And there should be, you know, all developers should be doing disability forward development as part of what they do. We convene a group called the Inclusive Houser Network that includes housing developers that have, you know, individual projects. You know, one in Maryland, another one that’s getting developed in Maine, some work out of Chicago, something happening in Denver, in the DMV, Washington, DC area, to name a, Pacific Northwest.

Micaela: [00:31:24] So, there are some, you know, single projects. And one of the things that we do at the Kelsey is really try to bring those disparate organizations together to share best practices, start to build like an industry group, and then also have that group be working on shared policy priorities. Again, building power for this issue together. And we also hope again with things like the design standards and our technical assistance, like one of our goals is also like, hey, you developer, take what we have, run with it, it’s free, it’s Available. We want to make it so that every developer can say that they are a disability forward housing developer and sharing the tools and strategies that make that possible.

Eve: [00:32:04] So, I have to ask, what’s your background? You’ve got a lot of knowledge wrapped up in this.

Micaela: [00:32:09] Yeah. So, you know, I often say as it relates to this work, my initial background is as Kelsey’s cousin and just really from a young age, and I think about this a lot as a currently non-disabled person leading a disability organization, but that my whole life has been really wrapped up in, you know, disabled allyship and what that means in a, you know, a powerful way to share power and build opportunities in that way. And Kelsey really taught that to me. And that, you know, was from a very, whether when we were like 13 years old and our mothers had the brilliant idea that like we would be each other’s support staff at a summer camp, just the two of us or many other things that throughout our lives. I think I actually was younger than 13. But anyway, so my background really started with Kelsey. I also, prior to this, because of Kelsey, I had started a school-based inclusion program. I was a theater kid growing up and was perturbed by the lack of disabled representation in our arts programming in our school, and so redeveloped arts programming for people with and without disabilities that was student led and led by students with and without disabilities to do theater. And, you know, just as it leads to this, that was like this aha moment as Kelsey was going through her own housing challenges. And I was seeing this on a family level. I was running this education program and seeing our young people who were graduating our school programs was in middle and high schools. And we had talked in the education programs, all our entire kind of theory of change was like, inclusive education and recreational programs like prepare students for more meaningful inclusive adulthoods.

Micaela: [00:33:47] And it was like those inclusive adulthoods did not exist. And that was really a part of the inclusive concept of the Kelsey really building integrated communities was to realize that promise of inclusion that our education system is making to students with and without disabilities. But our housing and community development infrastructure is not meeting. And so, that was that. And then I kind of did, more formally before launching the Kelsey in 2018, was a graduate student at the Harvard Kennedy School and eventually as a Mitchell Scholar at the University College Dublin too. But at Harvard I was a Research Fellow on housing and disability publishing my initial research on this that really formed the Kelsey and did the Social Innovation Fellowship there also to initially design the Kelsey’s business model so that that helped launch into this work.

Eve: [00:34:40] So, one final question I have for you, and that is what keeps you up at night?

Micaela: [00:34:46] You know, I think what keeps me up at night is, it depends on the day is either out of concern or out of hope of just, how do we as a society create and in some cases return to true community and like, true like interdependence and recognizing that an interdependence is a principle of disability justice, that, you know, I’ve really been moved by and that really try to both internalize in my personal but also in obviously the work we do at the Kelsey and like their interdependence exists, we can point to really great communities. And I think we even saw it in many of our communities in this country during COVID, that we really recognize that like we are only as strong as our neighbors biggest trouble. And so, we really have to look out for one another and care for one another and that, you know, we need to create communities where that’s not just possible, but it’s encouraged and supported. You know, some of the systems we build go right in the face of that. And so how do we both, on an individual level, lean into that, you know, and I feel when I see moments of interdependence and moments of true community, I feel so inspired and like, oh, we can do this, it is possible. And then I feel worried when I see, you know, how isolated people are and how much our sort of capitalist systems, you know, create this false narrative that we are only, you know, little cog machines that are going to get forward by ourselves and nothing else. We just need to go, go, go. And so, yeah, that keeps me up at night, of just thinking about what it really means to have community, what it means to have communities that take care of one another. And with inclusion of diversity and both seeing when people do that really well and seeing where we have a lot of work ahead to make that happen in a real way for everyone.

Eve: [00:36:46] Well, it sounds like you’ve only just started, and I can’t imagine you’re not going to be wildly successful. So, I’ll be really interested to see where this goes, and I’ll be looking for that download too. I’m really interested in what you’re saying. It’s fascinating.

Micaela: [00:36:59] Awesome.

Eve: [00:36:59] Very sensible.

Speaker3: [00:37:01] Thank you so much, Eve. Well, it was great to chat with you on this and appreciate you lifting up, you know, disability forward housing in your storytelling.

Eve: [00:37:10] Okay. Thank you.

Micaela: [00:37:11] Thanks, take care.

Eve: [00:37:21] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. You can support this podcast by sharing it with others, posting about it on social media or leaving a rating and review. To catch all the latest from me you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing yourself head on over to wefunder.com/smallchange where you can invest directly in Small Change and our mission to democratize capital formation to create impact in commercial real estate development. A special thanks to David Allardice for his excellent editing of this podcast and original music, and a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Micaela Connery

We Own This.

Lyneir Richardson is working to empower entrepreneurs and strengthen economic conditions in urban and underserved areas across the United States. He wears multiple hats, investing in commercial real estate, educating and advising entrepreneurs and MBA students, consulting corporations, foundations and government agencies, and structuring deals to get capital to Black entrepreneurs and real estate developers.

Lyneir is CEO of The Chicago TREND Corporation, a social enterprise funded by prestigious impact investors to catalyze urban retail development. TREND has deployed over $25M of impact capital, owns four shopping centers, and assisted numerous Black retail operators and commercial real estate developers in cities across the country. Lyneir recently raised $330,000 in equity from 130 Black, small and/or impact investors for a shopping center in Baltimore, MD.

This project is at the core of  his strategy – to build Black wealth through community-owned shopping centers. He’s planning to buy 16 community shopping centers and invite 1,000 small investors to co-own them with his company, Chicago TREND. To accomplish this, Lyneir and his team have developed a rigorous set of criteria for finding and buying shopping centers in majority Black Demographics that are on the cusp of change, and offer added value over a time. His plan is to empower Black entrepreneurs and community residents to have a meaningful ownership stake in the revitalization and continued vibrancy of commercial corridors and Black shopping districts.

Lyneir wants every neighbor to be able to say “We Own This”

Lyneir is an Assistant Professor of Professional Practice in the Department of Management and Global Business at Rutgers Business School in Newark, NJ and serves as the Executive Director of the Center for Urban Entrepreneurship and Economic Development. He leads capacity-building programs that have assisted 600+ racially diverse entrepreneurs and launched the Black and Latino Investment Fund of New Jersey.

Lyneir served as the Chief Executive Officer of the primary economic development corporation in Newark, NJ, for Mayor Cory Booker and Mayor Ras Baraka. As Vice President of Urban Development at General Growth Properties, Inc., he led the national initiative to improve shopping centers in ethnic neighborhoods in U.S. cities. Early in his career, Lyneir was named a U.S. Small Business Administration “Young Entrepreneur of the Year”. Lyneir started his career as a corporate attorney at the First National Bank of Chicago. Lyneir graduated from Bradley University and the University of Chicago Law School. He is a member of the Urban Land Institute and the International Council of Shopping Centers. He has served on the Board of Directors of the International Economic Development Council, New Growth Innovation Network, Equal Measure, Southland Development Authority, Investor Advocates for Social Justice, Cook County Land Bank, and many other nonprofit organizations. He has served as Vice Chairman of the Illinois Housing Development Authority Trust Fund Board and as a Commissioner on the City of Chicago Planning Commission. He is a Nonresident Senior Fellow at Brookings Metro, the Brookings Institution. He is a proud (but slow) finisher of the Chicago Marathon.

Read the podcast transcript here

Eve Picker: [00:00:09] Hi there. Thanks for joining me on Rethink Real Estate for Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. And speaking of building better, I’m very excited to share that my company, Small Change, is now raising capital through a community round that is open to the public. Small Change is a leading equity crowdfunding platform for impact investment in real estate. For as little as $250, anyone 18 and over can invest in Small Change, helping to fuel our growth as we disrupt the old boys club of capital that routinely ignores so many qualified people and projects. Please visit Wefunder.com/smallchange to review the full details of our raise and to make an investment if you can. And remember, investing is risky. Don’t invest more than you can afford to lose.

Eve: [00:01:59] Lyneir Richardson is building Black wealth through community owned shopping centers. He’s planning to buy 16 community shopping centers and invite 1000 small investors to co-own them with his company, Chicago Trend. To accomplish this, Lyneir and his team have developed a rigorous set of criteria for finding and buying shopping centers in majority Black demographics that are on the cusp of change and that offer added value over time. His plan is to empower Black entrepreneurs and community residents to have a meaningful ownership stake in the revitalization and continued vibrancy of commercial corridors and Black shopping districts. Lyneir wants every neighbor to be able to say, we own this. If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:03:23] Hi, Lyneir. Thanks so much for joining me today.

Lyneir Richardson: [00:03:26] Eve, it’s a pleasure to be with you.

Eve: [00:03:28] So, I’m looking forward to this conversation. But let’s start by talking about Chicago Trend. What does Chicago Trend do?

Lyneir: [00:03:37] Chicago Trend was formed in 2016 to strengthen commercial corridors and retail in neighborhoods that are on the cusp of change. Most of our work has been in majority Black neighborhoods. As you know, the first impression of a neighborhood is the commercial corridor. So, if you drive into a neighborhood and you see a shopping center that’s underdeveloped or a boarded up storefront or a liquor store and check cashing, even if the homes are in good shape, your first impression of that neighborhood is that something could be better here. And we see disinvestment all around, and our goal is to come up with strategies to arrange capital, to make the case for retailers to strengthen commercial neighborhoods, which ultimately will strengthen and strengthen the commercial corridor, which ultimately will strengthen the neighborhood.

Eve: [00:04:35] So, to turn the first impression into an opportunity instead of a ‘let’s not go here’. Right?

Lyneir: [00:04:40] Instead of the retail being a liability, it should be an asset for the community.

Eve: [00:04:45] Yes. How does Trend work? How many people work for you?

Lyneir: [00:04:48] We’re still a small team. We have six people total. We have a whole lot of advisers and consultants and part time experts, subject matter experts, best legal team architects and contractors. What’s been fun is, you know, we own four shopping centers now. And there’s one part of the work that’s about the shopping center specifically, but there’s another part of the work that we’ve been able to engage. Black property managers, Black leasing agents, people of color as architects and engineers. Even the landscaper on one of our shopping centers is Black. And the way I talk about that is that being intentionally inclusive doesn’t mean exclusive. We have other people as well, right, that work on our properties that are not Black. But the thought of being able and being in a position to give opportunities to retailers and entrepreneurs who connect with these communities, who have not only a professional expertise but also a deep sort of history, their family still, they grew up there. Ideally, it means that we’ll get better services and more intense quality of work.

Eve: [00:06:08] It’s pretty powerful. So, now you have a plan to build Black wealth through increased ownership opportunities of real estate assets. So, tell me about the plan and your strategy and how it emerged.

Lyneir: [00:06:20] Yes. So, when we acquired our first shopping center in Chicago, it was initially the strategy of if we owned it and we could control it and we can hire experts. And then right after George Floyd was murdered, I remember seeing a guy holding a sign up. There was civil unrest in the neighborhoods we were working in. And the sign said, ‘Please don’t destroy, my business is Black-owned’. And what I remember thinking is, wow, who owns the shopping center? And that became the inspiration for our work. The way I talk about it is, wealth is created by owning assets, assets that generate revenue and appreciate over time. And that if we really are going to close racial wealth gap, if we really are going to strengthen neighborhoods, we got to create a way to do more inclusive ownership of real estate assets and other assets that can close the racial wealth gap. So, one of my proudest moments in the history of this business is we raised $330,000 from 130 Black local small investors on Small Change. We did work together, and it was, it was the plan.

Lyneir: [00:07:48] And initially Eve, the thing that also was fun about that project and that time is there was an article in the Wall Street Journal. Penny Pritzker, the former commerce secretary, was quoted in the Wall Street Journal. She sits on the board of the Harvard Land Company, and the quote was, Harvard had issued some RFP, and I believe Tishman Speyer won the RFP. As a part of the requirements of the RFP, they require that 5% of the equity in the project, big high profile, hundreds of million-dollar project, 5% of the equity had to be available to Black and Brown investors. And the quote in The Wall Street Journal was, Penny Pritzker says one of the reasons there’s a racial wealth gap in America is people of color don’t get invited into good real estate deals. And The Wall Street Journal was highlighting that the investors were Jay-Z and LeBron James and Wall Street executives. And I remember thinking, I called her, I like, sent a note immediately and said, hey, we’re doing the same thing. But our investors are millennials and grandmothers and charter school parents and the teachers, they’re investing 1000 or $2,000. So, it’s one thing to say, well, I want to have more people of color and I’m not knocking, we’d welcome Jay-Z or LeBron.

Eve: [00:09:12] Wouldn’t that be great? Yeah.

Lyneir: [00:09:14] But what’s equally important is that we have individuals that we can touch and feel. And I’m branding this. I haven’t created merchandise yet, but I have this idea to brand what I’m calling #WOT, we own this. And the ‘we’ doesn’t even mean the 130 investors that invest with us. The ‘we’ is, that’s my uncle, that’s my aunt, Eve.

Eve: [00:09:41] Yeah.

Lyneir: [00:09:41] That’s my, I went to school. That’s my fraternity brother. That pride of ownership. I saw it firsthand. We were doing a Little League parade with my brother in Harlem and my nephew had $1,000 in a local bank. And as we walk down the streets in Harlem, he said, I own that bank because he had $1,000 deposit.

Eve: [00:10:07] Yeah, yeah.

Lyneir: [00:10:07] He owned that bank. So, imagine if he had said, I own that shopping center.

Eve: [00:10:11] Yeah, well, this is why Small Change exists, because I feel very much the same way as you do. I mean, it’s great when people with a lot of money invest in disinvested neighborhoods. That’s a great thing. But it’s even better if the people in the neighborhood, you know, get get a chance to go along for the ride. And especially as home ownership is quickly becoming more and more out of the reach of many people, there has to be a way I mean, real estate assets are solid. It’s sort of a tried and true way to build wealth. Everyone knows that owning a home is the number one way to do it. So, there has to be a way to let people in. I think it’s really important. I love what you’re doing.

Lyneir: [00:10:55] Thank you.

Eve: [00:10:56] And then there are lots of statistics, right? The percentage of Blacks who own commercial real estate is much lower than the percentage of Whites, and the value of the real estate is also much lower.

Lyneir: [00:11:08] Yeah. You know, I have the good fortune of late last year becoming a nonresident Senior Fellow of the Brookings Institution.

Eve: [00:11:18] Congratulations.

Lyneir: [00:11:19] Thank you. And working with very esteemed researchers Andre Perry and Tracy Hadden Loh.

Eve: [00:11:31] They’re amazing.

Lyneir: [00:11:32] You know, they’ve done some incredible work. Andre’s work around the devaluation of assets, his research and Tracy’s research that only 3% of commercial property is owned by Black people, as opposed to six times that for people that are not Black just shows that there’s opportunity there. And so, we’re digging into that work. I’m looking forward to doing some more research and exploration and coming up with some new knowledge and tools that will help close the gap.

Eve: [00:12:02] And then I’m going to look forward to interviewing you about it. So, I’ve interviewed both Tracy and Andre. They’re both amazing. So, tell me the big plan. What’s the big plan?

Lyneir: [00:12:12] We have a project now. So, we own four assets. We raised a fund to allow us to buy 12 more shopping centers, and the goal is in each instance to make as little as 5% and as much as 49% of the equity available to entrepreneurs to and to local entrepreneurs, community residents, socially minded small investors. So whether it’s Black investors just in the neighborhood or as people who believe that there are thousand or $5000 investment, even if they live across the country, across the world, that they want a return but they also want to see that their dollars mean something in the neighborhood. So, it’s not just for residents. right. But I do a lot of work, Zoom calls, community meetings, setting up little coffees in the library, to talk to community. But I always tell people we need everyone. I last raised our Small Change raise, 50% of the investors. There about, 53% were Black people. But that means 47% were not, right, that we had 33% of our investors were right from the state of Maryland or in the zip code where the shopping center was. But that means the other two thirds were not. So, we need impact investors who want to see this strategy of making neighborhoods better, getting amenities and services and investment, reducing crime, you know, and attractive places. You know, that’s what our small offerings is aiming to do. So, we want to own 16 shopping centers. We think that’s going to be about $100 million of investment. We want to have 1000 small impact investors in our projects, and we want to do that in the next three years or so.

Lyneir: [00:14:06] Wow. So, you own four. And where are they all located?

Lyneir: [00:14:10] We own three in Chicago. We own the one in Baltimore. We’re about to buy our second in Baltimore, our fourth asset in Chicago. And we’re just getting, we have a property under contract in Columbus, Ohio. So, same way, in a vibrant retail corridor. We’ve been cultivating really good community leaders, local entrepreneurs, residents who want to see better retail and want to have an ownership interest in better retail. So our strategy of asking people to co-own with us right, is something that again I, you know, I get a lot of energy from.

Eve: [00:14:52] So, full disclosure you have a project that’s listing on Small Change right now and this is part of your strategy. It’s a big project. Where is that one? Tell us about it.

Lyneir: [00:15:04] So, this is in West Baltimore, three miles away from where we bought our first project. So, anyone that expressed an interest in our first project, we hope they will take a look at this one. This is a $41 Million acquisition and redevelopment, so it’s a big deal. However, this shopping center, Eve, when it was built in the 1940s, it was built with such great ambition. It had a movie theater and a pet shop and a department store across the street, a lunch counter that people loved that had holiday lights. Well, over the years it’s experienced disinvestment. Now it’s had, its recent history is two fires. There was a tragic shooting in the parking lot. Even though there is strong home ownership around it, a whole lot of traffic passes the shopping center. It needs redevelopment.

Lyneir: [00:15:59] So, our whole strategy is that we call it reimagine, revitalize, redevelop, reposition the shopping center, attracting a grocery store and sit-down restaurants and other services and amenities. Most of our projects, Eve, I call them service-oriented shopping centers. So, this is not Best Buy in West Elm and the Cheesecake Factory. This is the drugstore, the carry out pizza, Health Services, grocery, a place to have a sit down. For us to meet right now in West Baltimore for coffee, we’d actually have to leave the city, right? There’s no place. A TGI Fridays, you know, an Applebee’s, and you pick whatever. Nothing glamorous, it’s just a place that would serve and be a place where you can go and have a birthday party.

Eve: [00:16:53] And I love the way that you talk about these. These are not businesses that Amazon will compete with. They’re really service businesses in the neighborhood, which is just a really interesting way to think about it.

Lyneir: [00:17:06] Amazon doesn’t do fingernails yet, although I did see a machine somewhere where it was like a robot doing manicures. But so, it’s, it really is services.

Eve: [00:17:19] Interesting. So, what are some of the challenges you’re being confronted with in terms of financing or even perception or the tenant pool?

Lyneir: [00:17:28] Yep. So, we’ve had, you know, once a shopping center loses its franchise as a property, right, the retailers say, oh, you know, I’ve been there. I’ve seen a decline. Right? So, the first thing is painting a very big new vision and convincing people that you have the resources to bring that new vision to fruition. So, even as we got this property on the contract, the first thing we did was we went to the municipality, and we got an 8,000,000 million. This is not a promise. It’s now past the the City Council approval process, an $8 million commitment for capital improvements. We’re having those same level of discussions with the State of Maryland and hope to have those approvals lined up. So, imagine having $15-16 million of public money that’s focused on making a first-class renovation here, A. B, one of the challenges to the redevelopment here was, there was a, back in the Forties when the shopping center was developed, there was the set of quote unquote restrictive covenants that there were 120 parcel owners around the shopping center and it really precluded, you can’t do new signage. You can imagine back in the forties, you can’t do out parcels, you know, as we think about where a restaurant might sit or where a bank branch might sit. And so, we’ve had to go through this process of hosting community meetings and introducing ourselves and our plan and, you know, almost on a one-by-one basis, getting 59 people to parse the owners.

Eve: [00:19:13] It’s like a political campaign.

Lyneir: [00:19:14] Right. And again, but part of the reason that the shopping center is in this condition is nobody has had the energy and the strategy and the urgency but patience to work with the local parcel owners to get this approval process done. So, if you would have seen me out there. One hot August day, Eve, I was sitting in front of the shopping center with like a car table, and I wish I would have brought a Pitcher of lemonade. It would look like Lyneir’s lemonade stand know. But I was saying, you know, I have a contract to purchase the shopping center. Here’s our plan. And one by one, getting the support that we need to move forward.

Eve: [00:19:57] Wow, and you have that support now?

Lyneir: [00:19:58] We have. We’re almost done with it. We still have some process.

Eve: [00:20:02] Congratulations.

Lyneir: [00:20:03] Part of my thought of, we’ve lined up our first mortgage financing. We have our equity. We made this offering on Small Change to create opportunity for local investors. And it’s funny because it’s not as if we absolutely need the money. We really believe that if local people and small investors have a sense of ownership, they’ll patronize, protect, respect, support the project in a way like owners. And that’s what we really. So, I’d like to have, we need a few, I’d like to have many. Right. Because you want other people to care and protect them and respect and patronize the shopping center. And so, over the next two months, we’ll continue to work to get our Covenant amendments in place. We’ve got to get our permits to build the building. We’ve got to work with it. So, this is a multi-year multi-phase project, but we really do believe it’s going to be financially rewarding and rewarding to see this project come to life as a revitalization for this part of Baltimore.

Eve: [00:21:08] And are the current tenants excited?

Lyneir: [00:21:11] They are. So, you know, there’s an opportunity to do, to bring new tenants as well. So, there are tenants that have been there and have whether but there’s an opportunity here to bring, as I said, from financial services, to restaurants, to health services, to new grocery stores, all of which were in active discussions with right now.

Eve: [00:21:34] So, one thing you didn’t mention, Walbrook Junction, where you did raise funds on Small Change. What percentage ownership did those investors get?

Lyneir: [00:21:41] So they’re 49%.

Eve: [00:21:43] Isn’t that amazing?

Lyneir: [00:21:44] So, what’s interesting is our motto is we can make as little as 5% and as much as 49%. So, we raised our capital from big philanthropy to be able to buy these assets. And if we just get 5% of local investment, we’ll put the rest of the money in. But really, in some respects, that’s almost what we want because we like to keep 95% of the act. But our deal both with the city and getting public financing and with philanthropy is, we’re going to make this equity available. So, last time around there was a positive news article and within a few weeks after that, we had achieved our goal or our maximum goal of raising 49%, I raised enough equity so that local small dollar impact investors, residents own 49% of the of the property.

Eve: [00:22:35] Yeah, I remember one of our investors actually reaching out to you. He’s a white man and he’s been a very loyal investor on Small Change, invested in many things. And he asked your permission if he if he could invest, which I thought was really charming.

Lyneir: [00:22:51] That came out a couple of times. People like, I’m a white guy, Can I invest? Yeah. Again, intentionally inclusive doesn’t mean exclusive. You know, in this instance, we have over, a lot of opportunity, I should say. All the details on the Small Change website. I’ll be compliant, Eve. But again, we want to have a diverse set of investors who want to earn a return, but also want to see that their dollars are impactful. So, we need not just the local investors.

Eve: [00:23:25] This is in a place that’s never really had that opportunity before.

Lyneir: [00:23:30] Right. But but let me just add, you know, we have experience, resources, industry, relationships, track record, all of that. So, we believe people will earn a financial return. Right? So, they’re investing not just in a hope and a dream, and not just in a mission of revitalizing neighborhoods, but they’re investing in a team that has expertise to deliver the project.

Eve: [00:23:59] So, I have to ask, how did you get from your initial career choice of law to this?

Lyneir: [00:24:07] I started my career as a bank lawyer, and every day the bank would have us working on loan documents for $100 million or $200 million loan to some big publicly traded company. And every day, about 2:00 in the afternoon, I’d fall asleep at my desk. The work was so boring. It wasn’t until there was a pro bono assignment where the bank was going to make $100,000 loan or thereabouts to a barber who was buying his building on a commercial corridor maybe two miles from where I grew up, west side of Chicago. The work came to life. It had meaning. It was the same promissory note and mortgage. But there was something about connecting this entrepreneur to this big bank. Connecting resources to financing. And I can now articulate it this way. I couldn’t do it when I was 27 as a bank lawyer, getting resources to people and places that other people overlook or undervalue, that’s my passion. Making the case, connecting the dots. There’s narrative. You do some writing. The numbers have to make sense. That work is what energizes me.

Eve: [00:25:25] So, I have one last question for you, and that is what keeps you up at night?

Lyneir: [00:25:30] Yeah. So, it’s what keeps me up at night is a great question. So, you know, you want to be right. Right? And these projects, it’s going to take five or seven or ten years before you really would know you were right. But more than anything, I want people to be able to say at some point is, you know what? He had a plan, and he was right. So, I stay up at night going, am I missing a table? Do I have the right people on the team? Should I be doing something a little different way? How can I connect the dots? Right. So, part of my challenge is I’m solving problems at night while you’re trying to sleep and, like, all right, go to sleep.

Eve: [00:26:15] I’m exactly the same.

Lyneir: [00:26:17] Yeah. Yeah. Wakes you up more than it keeps you up. Wakes you up and I’m like, oh, so I can fall asleep pretty quickly. But I wake up early, you know, quite often.

Eve: [00:26:26] Okay, well, I hope, I really, I expect it’s going to work out very well. I certainly hope it does. And I hope you get lots of sleep between now and then. And thank you very much for joining me.

Lyneir: [00:26:38] Thank you for having me today.

Eve: [00:27:03] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. You can support this podcast by sharing it with others, posting about it on social media or leaving a rating and review. To catch all the latest from me you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing yourself head on over to wefunder.com/smallchange where you can invest directly in Small Change and our mission to democratize capital formation to create impact in commercial real estate development. A special thanks to David Allardice for his excellent editing of this podcast and original music, and a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Lyneir Richardson

Starter Home. Where are you?

“The economics of the housing market, and the local rules that shape it, have squeezed out entry-level homes.” writes Emily Badger for The New York Times. “The disappearance of such affordable homes is central to the American housing crisis. The nation has a deepening shortage of housing. But, more specifically, there isn’t enough of this housing: small, no-frills homes that would give a family new to the country or a young couple with student debt a foothold to build equity.”

Starter homes were once ubiquitous in the US. They included shotgun homes, bungalows, mill worker’s cottages, split-levels, two-bedroom tract homes, ramblers, brick rowhouses, duplexes and triple-deckers. Today those houses have all but vanished from new construction. According to CoreLogic, almost 70 percent of houses were 1,400 square feet or less in the 1940s. Now they number only about 8 percent.

Some of those smaller homes were still being built as recently as the 1990s but since then the rising costs of land, construction materials and government fees, along with single-family zoning, have led to larger homes being built. This despite the dwindling size of the typical American household over the last few decades. And those entry-level homes of the past are now selling for half a million dollars or more.

Builders and communities may need to rethink what a Starter Home might be. The easiest way to produce more entry-level housing on increasingly expensive land is to build more of it on less land. Maybe duplexes, rowhouses or condos? This makes sense for everyone. Builders will reap the same profit margins for entry-level housing – that they are smaller is offset by the fact that demand is high. For homeowners a small starter home provides an opportunity to gain a foothold in the housing market and a path to building wealth. 

Daniel Parolek, author of the book Missing Middle Housing says: “We need to shift our culture away from this dependency on single-family detached housing and thinking it’s the only solution.” Listen to my interview with Daniel here. … and read the original article here.

Mid Century Starter homes Hammond Indiana by Eric Allix Rogers, CC BY-NC-ND 2.0

Our client is the planet.

Jeremy, the founding Director of Breathe, has built a team of dedicated architects with a reputation for delivering high quality, sustainable design for all scale projects. In particular, Breathe has been focused on sustainable urbanization and exploring ways to deliver more affordable urban housing to Melburnians.

As the instigator of The Commons housing project in Brunswick, Jeremy was the driving force behind the prototype for what is now Nightingale Housing, a not-for-profit organization dedicated to providing sustainable and affordable housing. Jeremy believes that through collaboration, architects can make a real and positive impact in their community.

This belief is exemplified by Breathe’s work with other Melbourne architects to deliver the Nightingale Model, which is intended to be an open source housing model led by architects. According to Jeremy, “if you want to build something that is affordable and sustainable simultaneously, every project manager in Melbourne will tell you you can’t do that.” Instead, Breathe has defined sustainability through reductionism, identifying that what people really want in housing is good, meaningful spaces with light, outlook, and plants, rather than luxurious but unnecessary features.

As Melbourne experiences rapid growth and housing becomes an increasingly expensive commodity, Jeremy’s movement towards affordable and sustainable urban housing through stunning, thoughtfully executed projects is vital for the city’s future.

Read the podcast transcript here

Eve Picker: [00:00:08] Hi there. Thanks for joining me on Rethink Real Estate for Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. And speaking of building better, I’m very excited to share that my company, Small Change, is now raising capital through a community round that is open to the public. Small Change is a leading equity crowdfunding platform for impact investment in real estate. For as little as $250, anyone 18 and over can invest in Small Change, helping to fuel our growth as we disrupt the old boys club of capital that routinely ignores so many qualified people and projects. Please visit Wefunder.com/smallchange to review the full details of our raise and to make an investment if you can. And remember, investing is risky. Don’t invest more than you can afford to lose.

Eve: [00:01:44] Three years ago, I interviewed the delightful Jeremy McCleod of Breathe Architecture, and today I’m lucky enough to interview him again. Jeremy founded Breathe, an architecture studio in Melbourne, Australia. There he delivers gorgeous and sustainable buildings to his clients. But Jeremy was unhappy with the ever-widening gap between those who have wealth and those who do not. So, he embarked on a second journey to deliver sustainable and affordable housing to everyone. Many told him that this was an impossible goal. But he completed his first project, The Commons, with accolades, three years ago. With a waiting list of over 8000 buyers, Jeremy and his team set about building lots more. This is what a great architect does. Listen in to learn more.

Eve: [00:02:43] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:03:14] Hi, Jeremy. Thanks for joining me. And I just want to say, whoa, what a difference three years in a pandemic made for your business.

Jeremy McLeod: [00:03:23] Yeah, it’s been pretty wild times. Thanks for having me back on, Eve. It’s good to see you on the other side.

Eve: [00:03:31] It is. It’s the other side. So, since we last talked, your architecture studio Breathe and your brainchild Nightingale seem to have both exploded. And I wanted to give a little background to listeners who hadn’t heard the first podcast, or maybe tell them to go listen to it. But let’s talk about Nightingale first. So, for those listeners who missed our first chat, tell us about Nightingale. What is it and where did it all begin?

Jeremy: [00:04:03] Okay, so. Yeah, Melbourne, where our practice is, is a lot like any capitalist society. Unlike the beautiful Scandinavian countries where they decide to house their people through high taxes and good kind of support networks in a good neo liberal society, our government has been underspending in housing for decades. And so, as an architect, you know, we work, historically, our choice is to do private homes for wealthy Australians or do apartments for property developers where, you know, they’re really following a profit in a complex kind of environment. So, both of those things aren’t very rewarding. And Breathe architecture, our architecture firm, you know, we believe strongly in this idea that our first client is the planet, you know, our second client is the broader community that live on that planet. And then lastly, we have the client that pays us, and we felt like doing property development apartments wasn’t achieving the first two of those three criteria. So, we built a prototype project. We finished that in 2013 and it was called The Commons, and it was an idea to kind of prove to developers that you can make a profit by building sustainable homes and building community. And so, we built this building called the Commons. And the idea was that it would be car free, carbon free, that it would be affordable and that it would be incredible. And a lot of those things came true. I mean, we shot for the stars. We kind of landed on the moon.

Eve: [00:05:50] It is incredible. It’s a beautiful building.

Jeremy: [00:05:52] Yes, Eve you’ve been here. Right. So, you’ve been to it. You’ve been to Australia, you’ve been to Melbourne, you’ve seen it. We couldn’t get the carbon free piece right. So, there was still, we couldn’t afford the non-gas infrastructure back then. But apart from that it’s a very good building. And what was interesting about that was that we then opened it up for tours, brought every developer in the city through and said, look, this is what you can do. And they all saw it as a kind of an aberration rather than a trend and said, oh, well, that’s a nice idea, but thanks very much, we won’t worry about it. But, interestingly for us at Breathe is that people just, you know, every regular day Melburnians that are writing to us saying, if you’re going to do that again, can you please let us know? Because we would like to live in a building like that.

Eve: [00:06:36] But the really important thing is that these units were also affordable, right? They were affordable to civil servants who were really being pushed out into the far nether land.

Jeremy: [00:06:51] Yeah. I mean, the whole premise of building something that was sustainable and affordable simultaneously and still profitable for a developer was really about this idea of, you know, analyzing everything. And it was about a sustainability of reductionism. So, developers view historically has been that sustainability is expensive and it’s hard to get a return on your investment. And so, we just questioned everything. So, the big thing about taking out the cars was that we saved 10% of the build cost by taking out the basement. We reduced every apartment by $40,000. We took out every second bathroom. So, every two-bedroom apartment only has one bathroom. So, we saved $9,000 per apartment. We even took out all of the individual laundries, reduce the price of every apartment by about $6,000. And when you take a second bathroom and a laundry out of an apartment, the living room suddenly gets, you know, nine square meters bigger. You know, in your space, 90 square feet, about 90 square feet bigger, right. So, the living rooms start to be these really great, you know, spaces to be in. The cost comes down in all these apartments and then we start to build really great shared spaces, like a really incredible bike park, a really great rooftop laundry, you know. And rooftop laundry sounds weird, but it’s beautiful, right?

Eve: [00:08:12] It’s absolutely beautiful, yeah.

Jeremy: [00:08:13] Opens up onto the big garden and views to the city. And these become these, kind of, social hubs where people in the building meet each other doing something really ordinary, but it actually works in a kind of safe, nice space where people actually get to break down those barriers to talk to each other. So, anyway, when we finished the Commons, we won the national award for housing with this thing, and it was quite a small building. You know, it was 24 apartments, and we won the National Award for Sustainability, which was incredible because it wasn’t a $100 million university building that was funded by some philanthropic fund. It was, you know, it was actually. Yeah, it was just a market rate apartment. So, then we wanted to get other developers to employ us as architects to do that after two years of bringing them through the building. We couldn’t find anyone that would want us to do that. They wanted to do the same as business as usual. So, we decided that I took four days off work, and I wrote a manifesto and called it the Nightingale model, and we established Nightingale housing. So, the idea was that we would share all of our IP. That we would bring architects together, that architects would lead a housing revolution, that we would democratize capital.

Jeremy: [00:09:31] It’s interesting, Eve, that you and I met and, you know, when I saw Small Change, I was like, oh, this is what I really needed back in 2015. But basically, it was peer to peer funding. Small mom and dad investors putting in like about $100,000 each to kind of crowdfund these projects, equity fund these projects. And we built the first project, Nightingale One, which finished in 2017. And then, you know, by that stage our waiting list, people who had been writing to us had grown from 11 to 57. And so, we balloted those apartments. So, we didn’t sell them through a real estate agent. We took all of the agents out, all of the marketing, all of the display suites, which all reduced the cost of the building. We took out all the gas to make sure it was 100% electric. We shared a lot of the infrastructure inside the building, like the hot water for the hydroponic heating, like the hot water for the showers. So, we got one set of plant that does all of that. It makes it really cheap for everyone living in there. These are all built to sell like market owned apartments. And 57 people entered a ballot and we balloted. We sold all the apartments in one day. And people hadn’t seen that in Melbourne, you know.

Jeremy: [00:10:46] So anyway, you know. So, that was kind of the start of Nightingale. And what’s happened since then is that a couple of projects kind of took that Nightingale model and delivered it. So, we shared that IP with other architects. You know, I actively worked with those other architects to help them deliver those projects. So, Nightingale 2 is a great example of that. And then it kind of faltered, Eve. And the challenge, I think, was that to go and source equity, to go and buy a piece of land, you know, someone needs to sign the directors guarantee on the purchase of the land. To go and secure a debt, someone has to put a director’s guarantee down, you know, to secure whatever it is, $10 Million from the bank. And the bank wants to know that the person delivering the building has done it before and that they’re good at it and that they have a big balance sheet behind them. So, this revolutionary idea for Nightingale housing, like it kind of went bananas, right? So, after Nightingale 1, we balloted Nightingale 2. And you know, we started doing all of these projects, but, you know, our demand grew so that there’s 15,000 people, over 15,000 people on a database now to buy housing.

Eve: [00:12:02] Wow, my heavens.

Jeremy: [00:12:03] But we couldn’t keep up with supply because, you know, there’s fundamental issues around, in a good neoliberal society, around risk, who’s prepared to take the risk and put their home on the line. And, you know, again, I guess risk from a debt point of view and an equity point of view, who’s going to put money into these projects because you know, who’s going to take risk on that? And so, look, the good news is that, you know, we’ve just completed like our 500th apartment and we’ve got another 500 in the pipeline. Last year we balloted $80 million worth of housing where we’ve rolled in a social housing portion so that, you know, trying to really kind of nail the affordable housing piece now means we have 20%, that the first 20% gets balloted to an affordable housing provider. So, that’ll be a charitable organization like Women’s Property Initiatives. The next 20% goes in a priority ballot. So, to you know, key service workers, nurses, teachers or to First Nations Australians or to people with a disability or carers for people with a disability. And the last 60% is balloted to, you know, to the broader waiting list. Everything sold. Now we’ve got a, you know, the new model is kind of evolved into, you know, it’s a Nightingale not for profit, so, there’s no profit in there anymore.

Jeremy: [00:13:33] And we’re now getting institutional funding from what are our superannuation funds, which might be called pension funds in the US. And we’re getting senior debt now from our major banks really through their kind of social impact arm rather than just their commercial finance arm. So, we’re getting good rates and really good engagement like we’ve had the CEO of one of Australia’s biggest banks, you know, come and meet with us, walk through the buildings, ask us what he can do to help personally and like task you know team of six of his heavy hitters to help, you know, build a specific loan product for people who want to buy into Nightingale. So, I think the interesting thing about Nightingale is this idea that it’s got a very clear narrative around it, which is that it’s a triple bottom line housing model. So, it’s about being carbon neutral. It’s about building community, not only in the community within the building, but kind of engaging with the broader community through that whole process. And then lastly, it’s about affordability and how do we get a broader cross-section of the community living there. So, it sounds it sounds pretty easy, but, you know,

Eve: [00:14:43] Well, it’s not easy.

Jeremy: [00:14:46] As you know, Eve. So, you know, and when I started there, it was, you know. Yeah, it was just an idea, right? You know, in a manifesto. And I recently handed over the reins, so I was the founder for a while. I put together a not-for-profit board. Or actually, I got some help to put together a not-for-profit board, which was really great. We put someone on to kind of run the show for a couple of years and then it just didn’t take off. And then I step back in as managing director to try and say, If we’re going to go, let’s do it. I stayed in that acting managing director for over five years, you know, and we saw massive growth and I’ve just stepped down in that role as managing director. So, you know, I’m back on the board now. So, you know, I attend six weekly board meetings. But, you know, as I stepped away, there’s now 17 staff, you know, and 500 apartments in the pipeline. And yeah, so.

Eve: [00:15:44] Is it satisfying to have built that?

Jeremy: [00:15:46] Yeah it is and you know, I was sad to step away. But, you know, I’m also the design director at Breathe Architecture and you know, it’s time that I actually give some love back to Breathe. You know, the organization that founded Nightingale. Now, you know, I feel like I need to spend some time there to go and, you know, see what’s next on the horizon, right?

Eve: [00:16:07] Yes, yeah.

Jeremy: [00:16:08] Building up to do the next thing.

Eve: [00:16:10] So, are other architects involved now? You said you have built 500 units.

Jeremy: [00:16:16] Yes. So, I mean initially it was meant to be this architect led kind of revolution and we got lots of engagement from architects to do that. Lots of challenges around funding and equity raising. And just not.

Eve: [00:16:32] It’s all about money, isn’t it?

Jeremy: [00:16:34] It’s all about money. It’s all about money. Unfortunately. This idealist has become, I’ve become much less, I’m much more pragmatic over time, which is really interesting. I was also quite scathing at the development industry when I started Nightingale, thinking that they were all evil. And now I’m. Yeah, and now, you know, I’m really embarrassed about the things that I said early on, the disparaging things I said about developers, because I just realized how hard it is and how much risk is involved. And you know that the profit margins that developers put in, while they might seem horrifically high from the outside, you know, it only takes one project to go.

Eve: [00:17:17] It’s a huge amount of work.

Jeremy: [00:17:17] Well also, they need a balance sheet to be able to fund the projects and in the event that one project fails, they need to, they need a balance sheet behind them to be able to.

Eve: [00:17:26] Especially in Australia where I really don’t understand how the financing works at all, we’ll have to talk about that. But it seems even harder than here.

Jeremy: [00:17:35] It is.

Eve: [00:17:36] It’s very difficult.

Jeremy: [00:17:37] Yeah, it is very complex. And the banks here, you know, I guess like anywhere are not interested in taking, you know, risk so.

Eve: [00:17:44] Very conservative, yeah.

Jeremy: [00:17:46] Yeah, yeah, yeah. So, you need lots and lots and lots of debt coverage, but it’s really great to be able to get to the point now where I can step away from that. I do worry for the sanity of my replacement, given, you know, it’s probably the same thing that’s happened in the States. You know, we’ve got high inflation here. We’ve got, we have had supply chain issues through COVID. So, we’ve seen massive increases in construction costs in the last two years. In one of the states here, we’ve seen like a 23% increase in construction. So, in the last year, that’s put a lot of projects under pressure. And then we’ve seen, to try and control inflation. The banks have put the interest rates up, so lending is tightening. So, first tome buyers who are our cohort are struggling to get loans. So, you know, it’ll be interesting to see, you know, out of those 15,000 people, how many can actually secure a loan to buy a property. We will see how much demand there still is out of that 15,000 for the next project, when we take the ballot.

Eve: [00:18:48] So then, yeah, I think you’ve answered this question. My question was going to be what did you have to give up on? Like your idealism was thinking, this is going to be like this, but what did you have to give up on to really make this work? Was there anything or have you.

Jeremy: [00:19:02] Yeah, well, I mean, that’s a that’s a really good question. Look, I did think that, you know, that when we first established Nightingale that it was going to be this really light touch thing, right? That there would be a couple of people with a repository of all of the information and they would share it with a Nightingale license to another architect. And that other architect would read through everything diligently. They would understand the risks involved. They would establish a company, go and raise equity, go and secure a debt, and go and buy the site and build the projects. And that it would grow, and it would just go viral. I think that was the that was the dream, right? That the whole thing would kind of happen because it was such light and demand for it. So, the thing that I’ve had to give up on is actually, you know, from being a revolutionary organization, you know, to actually have the impact that we need, we’ve become, yeah, much more mainstream. So, you know, now Nightingale, you know, has a fund it raises, you know, seed fund and equity and debt. Nightingale goes and buys the sites; it engages the architects. So, you know, we still employ.

Eve: [00:20:05] So, you’re really, that nightingale is really making it all happen.

Jeremy: [00:20:11] Yeah. So, Nightingale does everything now takes all the risks. So, as a director on the board, I still take the risk. So, we’re basically taking the risk out of the hands of the architects and centralized it at Nightingale. But we’ve also centralized the expertise. So, you know, we’ve got a finance director at Nightingale, we’ve got, you know, delivery team of development managers and project managers and that obviously gives the banks and the superannuation funds lots of confidence that this team has done it before, and they can do it again and all that expertise is in-house.

Eve: [00:20:45] That’s a lot, that’s huge.

Jeremy: [00:20:49] Yeah. But you know, yeah. So, it’s much less grassroots and it’s much more boring. Yeah. Hey, I mean, still doing incredible things, right? It’s still setting the agenda like, you know, we build.

Eve: [00:21:05] You’re a starter. You don’t like the maintenance, the maintenance stages.

Jeremy: [00:21:08] 100%. I’m a starter, not a finisher. There are other people that are better at finishing than me. That’s absolutely right. Well, it’s got an incredible inertia.

Eve: [00:21:20] I think we have that in common. I like things, but maintenance can be really boring.

Jeremy: [00:21:25] Yeah, And look, it’s got its own inertia behind it now, so it doesn’t need me, you know, anymore.

Eve: [00:21:31] Pretty fabulous. So, what else about the model has shifted over time? This just.

Jeremy: [00:21:35] Well, look, under the interesting thing for us was that we were delivering housing that was carbon neutral and that was meant to be affordable. But I was actually frustrated by delivering not for profit housing that, you know, the first project was 19% under market. In one of the projects we balloted last year was only 13% under market and it’s not for profit. Right? And so, I think the challenge for us was that when we pushed the environmental credentials and the build quality and the design quality and all of those things, it still wasn’t as cost effective as what we were hoping. You know, we were hoping to kind of shave 25% out of the price of housing and we thought that we would get better at that over time and that as we built bigger projects, and we had an economy of scale that we could keep on reducing prices. Yeah, I guess for us it just, it didn’t get cheaper. Even with big projects like Nightingale Village where there’s six buildings all together and we’re sharing infrastructure, you know, the project got more complex and they got better, but they didn’t get cheaper.

Jeremy: [00:22:43] And so, for us, we had to kind of start to think about how do we have impact on affordability, which is when we kind of wrote our own affordable housing policy, you know, a little bit like, you know, the UK where we just allocate 20% of housing kind of salt and pepper through each of the developments now and then those 20% are held by the community housing provider and cross subsidized by everything else in the project, which actually makes everything else in the project slightly more expensive, right. So, we’ve actually made the other 80% slightly more expensive, but we now have 20% that is truly affordable, you know. And so, and it’s complex and it shouldn’t be up to a small not for profit to be delivering affordable housing. But in a city where there has been so much underspending on housing, then I think that everyone’s got to take some responsibility to try and solve for that.

Eve: [00:23:39] So, has any of this rubbed off on the Australian Government?

Jeremy: [00:23:43] Yeah, I mean it’s been incredible. The impact that Nightingale has had is unbelievable. So, you know, so Nightingale now has, there are a number of other companies doing things that look and smell like Nightingale, but they kind of got their own, you know, their own approach to it. You know, there’s a company here called Assemble, and if you talk to Assemble, you know, they say that they developed all of their all of their things, all of their ideas, all their policies at the same time as us, which may well be the case. And maybe everyone was kind of we just all arrived here at the same time. They kind of came a couple of years after us. But the great thing about assemble is their scale. So, they are funded, you know, they’re 25% owned by a superannuation company, all of their sustainability credentials, they match all of our sustainability credentials. So, we’ve got seven and a half stars, not five stars.

Jeremy: [00:24:44] That’s one of our, you know, energy rating requirements. They’re also 100% electric. They also buy 100% certified green power, so no black power. They also have a car share system in that they also have an embedded network that shares the benefit for the residents. And they also have a 20% affordable housing criteria. You know, the difference is that while we’ve got 500 apartments under development, they’ve got 3000. So, I mean, and also, yeah, it’s incredible. And also, they’ve got some really smart people working with them around tax structuring and finance. And they’ve been able to work really well with government on getting government backed finance, you know. So, yeah, I think that they’ve approached it in a kind of more intelligent and strategic way. But it’s really great, right? So, it’s not just Nightingale now. It’s also a company that has to generate returns for a pension fund which is doing this and showing that this model can be replicated at scale and profitably and still everyone wins on it and most of their model is build-to-rent, but they’re building buildings that are largely…

Eve: [00:25:55] Which is unusual in Australia.

Jeremy: [00:25:58] Yeah, I mean Australia is weird, right? So, most of the apartments here are kind of built to sell. Most of the rental apartments are owned by mum and dad investors, you know. And so, the build to rent market here, you know, the rental market is only just recently turning to kind of, you know, whole buildings being owned by a property companies. So, we’re seeing like Heinz coming out here, Greystar coming out here, so, internationals coming here to build, you know, buildings that will be rented out. So, it’s good to have Assemble here as an Australian, you know, version of that.

Jeremy: [00:26:35] But we’re also seeing boutique developers, Milieu here, who sell beautifully designed. Their whole schtick is beautifully designed buildings, relatively small buildings. There may be only 50 apartments in each building. But what we’ve seen from them is that they engage Breathe architecture to work on a project with them. And basically, they said we want to build all of the sustainability outcomes of Nightingale. We want to add some optionality. So, if our purchasers want to buy a car park or buy an individual laundry, they can. And so, we’ll just offer those as optional extras and then we’ll sell it at a different price point. And we’ll make sure that it’s designed really well and that it’s, you know, that the specification is slightly better. And so, we’ve seen Milieu now become a B Corp certified company delivering buildings that are carbon neutral in operations, meeting all of the Nightingale kind of design standards and then selling to the kind of the next tier up of second or third home buyers, you know, and it’s been really good to see them delivering great quality with those same sustainability and community outcomes.

Jeremy: [00:27:51] And in fact, around here, Eve, you’ve been to this suburb that we’re in, Brunswick, in the north of Melbourne here, it’s kind of a, you know, I guess, let’s call it a Williamsburg of, you know, of Melbourne, right? It can be gritty, and it can be great. And it’s pretty diverse. But what we’ve seen around here now is that no developer builds here now, who is serious. No one here plumbs gas into their building, no one here builds something that’s kind of under seven stars. You know, everyone who’s building here now knows that the purchasers in and around this area expect that their building is going to be energy efficient and there’s going to be 100% electrified. So, it’s been really interesting to watch the market shift. And I think that, you know, the epicenter is here around where we’ve built 14 nightingale buildings in this suburb. And I think that it’s kind of rippling out through the rest of Melbourne and then it’ll kind of ripple up the East coast here and get to Sydney and Brisbane.

Eve: [00:28:54] What about other countries?

Jeremy: [00:28:58] No, no, no, that’s a really good question. I mean, yeah, it’s interesting that lots of people around the world know about Nightingale, and we’ve spoken to people in London, you know, Sweden, Canada.

Eve: [00:29:12] And plenty of students who know about Nightingale and Breathe.

Jeremy: [00:29:16] Yeah, yeah. It’s really interesting. But New Zealand has paid a lot of attention. So, New Zealand is, you know, Australia only has 25 million people. New Zealand only has 5 million. It is the most beautiful place. It’s incredible.

Eve: [00:29:33] It is gorgeous, yeah.

Jeremy: [00:29:34] The New Zealand central government has a housing crisis on its hand that the cost of housing in New Zealand is like, you know, I think it’s like know third after, you know, Paris and Hong Kong or something like it’s crazy how expensive housing is in Auckland. The central government from New Zealand sent a delegation of about ten senior planners, planners, urban designers out to come through, and economists, to come and walk through the commons and look at Nightingale One. They’ve recently announced a new housing policy under their incredible Prime Minister, Jacinda Ardern.

Eve: [00:30:12] I know. She’s amazing.

Jeremy: [00:30:13] She’s amazing. Yeah, she’s like, Oh, there’s a problem with housing. Let’s write a housing policy and let’s actually change planning policy to solve that. And basically, when that delegation met with me, they said, what is the biggest barrier to building affordable housing? And I said, it is, in Melbourne, it’s actually third-party objection. Right? So, it’s.

Eve: [00:30:36] Yeah, I was going to say the same thing. Zoning. Well, it’s, yeah, objection rights are really strong there, but definitely zoning impacts what you can do.

Jeremy: [00:30:44] Yeah. So, one person living, you know, 500 meters away, you know, or half a mile away can put in an objection and delay the entire project and cost the project hundreds of thousands of dollars. Absolutely, and it’s alive and well here. And the thing that they complain about is lack of car parking, despite the fact that our road network is absolutely at capacity and that the City of Melbourne has 30,000 available car spaces in existing buildings. And all we need is an app called Parkhound or Spacer to link people up to those things. So, we don’t have a car parking problem, we’ve just got a management issue about where those people being able to find those car spaces, so car parking and height and so basically anything over two stories, everyone in Melbourne is up in arms. And so, basically what they did in New Zealand is that they heard that, and they’ve got a new policy which says that anything up to five story, there’s no third-party objection rights, even if it’s got zero car parking. So, they’re happy to waive the car parking to zero because construction of basement is, like labour costs are very high, really high in Australia and New Zealand. We’re literally saving like 15, sometimes 20% of the housing cost out by taking out basement car parking.

Jeremy: [00:32:08] So, so New Zealand has changed their planning rules and Breathe have been working with the with the kind of community-based developer, believe it or not, with an incredible constitution out of Hamilton and New Zealand and a local architect called Edwards White in New Zealand. And we’ve been working with them to build their version of Nightingale. You know, that’s specific to New Zealand. And so, we’re working on a project with them. But the first project isn’t like Nightingale One, like 20 apartments. It’s like Nightingale Village. So, it’s, you know, it’s eight buildings by eight different architects, all carbon neutral in a village. And we’re working really closely to make sure that we knocked that out of the park and we’re building the infrastructure around that. It’s called Project Korimako. Korimako is a New Zealand bird, you know, as opposed to, you know, the Nightingale. Anyway, I’m really looking forward to. So, the Breathe team kind are working with them and we’ve taken all the learnings from our time at Nightingale over there to kind of try and, you know, just leapfrog kind of five years of R&D. So yeah, it’s, it’s definitely it’s definitely spreading.

Eve: [00:33:16] Interesting. So, in the meantime, what’s happening with Breathe? I know a little bit because, full disclosure, Jeremy is my architect on a project in Australia which has suffered through the pandemic and objection rights. Right?

Jeremy: [00:33:33] Well, I mean you saw that there was one objector on your project, which was a really aspirational project, not an overdevelopment. And we had to spend a lot of time with that one objector, you know, to kind of work through that was painful. And now our big challenge is funding, right? Funding and finance.

Eve: [00:33:53] Well, also the contractor, it’s a very, very dense urban site. The contractor is really concerned about how he’s going to build there. And so, you’re not going to like this but he says, you know, they need the whole road. That objector went away because we gave them an accessible parking spot, which the contractor says he now needs. It is really, I mean, I’ve never seen, I mean, I’m in a small town. I know that entitlements and zoning moves very slowly in places like San Francisco, but I’ve really never been through anything quite like it. Especially with the pandemic. And everyone disappeared and there were no phones, and no one responded to email.

Jeremy: [00:34:40] Yeah, it was challenging, wasn’t it? Anyway, we’ll get there, Eve. So, what was the question again?

Eve: [00:34:47] So, like, what’s happening in your architecture studio?

Jeremy: [00:34:53] Yeah, okay. Okay. Right. So, you know, we’ve kind of specialized in sustainability for a long time. And when I say specialized, it’s just been something that we’ve always done. I think the big change for us in the last couple of years is that one of our great architects, Bonnie Herring, was the director of architecture here, we’ve now made her a director of sustainability. We’re now doing lifecycle assessment on all of our buildings. So, we’re one of three firms in the country that are kind of measuring carbon and trying to deal with whole of life carbon or embodied carbon, which has been interesting. And, you know, everyone says to us, you know, it’s funny that you guys tend to focus on narrow your focus down and doesn’t that cost you work? But interestingly, by narrowing our focus, we’ve got clients like ANZ Bank. So, you know, we’re a relatively small practice. You know, I think there’s 27 staff here and ANZ Bank are again one of the big four banks here, and they’ve been working with us in the last couple of years about changing their branch rollouts to being, you know, instead of constructing branches, basically working on a system where we build, you know, a carbon neutral, like kit of parts or furniture installation basically that can be installed and then removed at the end of each lease and taken to other branches and, and all the parts can be used. There’s a barcode on all of the parts so you know.

Eve: [00:36:23] It’s like knock down furniture for ANZ Bank.

Jeremy: [00:36:25] Exactly, exactly. So basically, kind of, and the incredible thing about that is, you know, just in the 21st century, being able to design everything in 3D, you know, prototype everything, build a prototype branch, test everything, and then start to roll out, you know, branches. And so, we basically built this kit of parts, a 3D model, a handbook, basically like an IKEA catalogue showing how it all goes together. A little YouTube tutorial to future architects working on these branches.

Eve: [00:37:02] A phone number.

Jeremy: [00:37:04] No phone number, but, you know, so we designed that. We rolled out the first three branches together with ANZ and then we worked with their three other architects to then take them through it and then we worked with another three. And so, we’ve kind of been spreading how to do that, you know? Yeah, like a tutorial, but you know, they’ve just finished their 60th branch and they’re rolling out across the country, so they’ll roll out hundreds of these things. So, these carbon neutral branches in operation with a massive reduction in embodied carbon, that’ll be totally circular. So, there’s no glue in these things, Everything’s screwed together or bolted together. So, at the end of a component’s life, it can all be, you know, broken down to its kit of parts and reused. I mean, that’s been pretty interesting.

Eve: [00:37:48] For people listening, they’re wondering, is this really what an architect does? So, you know, is this the role of an architect?

Jeremy: [00:37:58] Well, that’s a really good question, right? Because what is an architect in the 21st century? You know, I’m on the National Council of the Institute of Architects in Australia. And, you know, a lot of architects think their job is to draw buildings. You know, and I would say to any architects listening that that is absolutely not our job, that, you know, 39% of all carbon emissions on this planet come from the built environment. And that, you know, we’re in a time of massive climate crisis and that we as a profession need to be asking ourselves big questions like, eh, should we be drawing a building at all? Or should or should we be finding a different solution? So as architects, we’re trained as systems thinkers, you know, Eve, you’re trained as an architect, and you know.

Eve: [00:38:46] It’s a great training, it’s creative, and it’s systematic and it’s, you train to be a problem solver and make something from nothing. Yeah.

Jeremy: [00:38:55] Yeah. Correct. And so what I would say to architects is to use that thinking to say, what is the answer to this solution? Is it building more basement car parks or is it actually just introducing the council to apps that already exist, or is it building an app? You know, like what is the answer to the problem? And it’s not always drawing a building, you know? So, yeah, I think that where, you know, yeah, we probably approach architecture a little bit differently to traditional firms. I’m not a big fan of single, you know, residential family houses, you know, or the inequity in that that so many architects focus on this fetish-ization of you know I want to do this big luxurious house, you know, and I want to get it photographed and put in a magazine.

Jeremy: [00:39:48] But if you think about the impact that you can have, you know, spending all that time with a pedantic, wealthy client to build their one dream house as opposed to you could be working with Aboriginal Housing Victoria, you know, and building housing for First Nations Australians who have been, you know, pushed off their own land in this country, you know, or you could be working with ANZ to say, well you’re about to roll out 400 branches, how do we pull out thousands and thousands of tonnes of carbon out of that and how do you improve the working experience for all of your staff through that, by, you know, introducing Biophilic design and flooding the place with plants and pink UV grow lights so that at night time when the branch closes, it glows pink, you know. So, yeah, I think that we have to ask ourselves. You know, this is post, we are we exist post peak oil. We exist post, you know, the debate on climate change. There is no debate now. And we have to choose who we want to be in the profession and what we want to be doing, but it shouldn’t be adding to that 39% of carbon emissions. It shouldn’t be adding to social injustice. You know, we get to be change makers and we should, you know, focus our time and our energy on that.

Eve: [00:41:14] Yes, I totally agree. For me, it’s also that buildings make better cities for everyone. And I get.

Jeremy: [00:41:25] Absolutely.

Eve: [00:41:26] Really upset when all the focus is on that special Italian marble finish inside, when really, it’s the external walls of the building that are going to make a street or a place or a square, really a wonderful, really place to be, you know.

Jeremy: [00:41:43] I had an architect at Breathe the other day, quote, a famous quote to me, and he said, Jeremy, God is in the detail. And I banged my fist on the table and I said, absolutely not. Not in this place. You know, it’s in the big idea and it’s in the ethic of what you’re doing, you know?

Eve: [00:42:02] But on the other hand, your details are gorgeous. So…

Jeremy: [00:42:05] Yeah, absolutely. I mean, but those two things have to coexist, right? You know, you can’t just obsess about a detail without actually if you think about Bonnie in the way that she worked and designed the commons, you know, every detail is about a reduction. How do I take things out? And so, it’s so reductive that it’s really, really beautiful. But there was a reason for that, right? A sustainability reason, a cost reason. So yeah, but also Eve, interesting that you studied architecture, but you saw that what actually needed to happen in the built environment was funding for the right type of projects. So, Small Change is an example of I teach at Melbourne University, I teach Nightingale night school to thesis students, you know, every second semester at Melbourne University. And I become incredibly proud when I hear about one of my graduates going out and they might work for Lend Lease in and become the head of their sustainability, you know, or they might go and work for a property developer and become a development manager there, or they might go and work for the public housing team in Singapore, you know. But I get really inspired when I hear that architects understand that sometimes the most impact they can have is not drawing buildings but using their systems thinking to actually make massive change. So, I think the key is getting up upstream, right? Architects are always downstream. You’ve got to get up to the source to be able to kind of change be outcomes.

Eve: [00:43:45] I think that’s right. And I don’t know if it’s changing, but I taught in architecture school for a while and I found it incredibly myopic that students were taught to design just buildings and very little time was spent on everything else they could do with their education.

Jeremy: [00:44:05] I think it depends a lot on what university, you know, like I was at the Royal College of the Arts a couple of years ago, you know, with a woman, Tash, there seeing what she was doing. And she was there really trying to get, you know, these architects in London thinking really about systems, big things, you know, how do we, you know, how do we as a profession have, massive impact which leads to massive change.

Eve: [00:44:32] Yes. So, I’m going to ask you one more question. When are we going to build a Nightingale project together in the US? That’s what I really want to do.

Jeremy: [00:44:43] Well I mean, if you think of if you think about what the barriers are. So, can we get a great architect in the US? Absolutely. You know. Can we find a site with lots of opportunity in the US? Like, absolutely. You know, I mean, often, you know, we’ll try and align strategic planning support with community support. You know, and you can imagine that there would be states or cities within the US. I mean, it’s obviously quite divided at the moment, but we but we would need to go to the right place to do it. And then the biggest piece of the puzzle is funding, you know. So, and I think that…

Eve: [00:45:22] It always is. Yeah.

Jeremy: [00:45:23] And I think that, you know, that you could solve that. So, and well, actually the last piece of the puzzle is that the Nightingale Housing Board has said absolutely no to any, the reason that Breathe are working with the New Zealand crew is that the Nightingale Housing Board have said Jeremy No we’re, we’ve got a sole, let’s just solve Melbourne, you know, and I’ve kind of pushed them to, you know, Adelaide to the next state to the west of us and I’ll push them north into, into New South Wales. So, we’re kind of in a few states here. But yeah, I think that, you know, we could call it the Eagle.

Eve: [00:46:07] I love this idea of sustainability through reductionism. Like I worked in this Pittsburgh market, which is a really soft market when I was doing real estate development. And I had to reduce everything down to the bare minimum for different reasons, just because the market couldn’t support anything else. But there are now places here where it can support, it can support more. But I mean, you know, my own apartment has polished concrete floors because we really couldn’t afford to cover it. And I’ve got, you know, concrete, raw concrete block walls because painting it just wasn’t part of the budget. I think that’s beautiful. You know, I think that it’s exposing that, you know.

Jeremy: [00:46:50] But if you detail it well, I mean, the fascinating thing is if you think about the Commons, you know, Bonnie being so reductive that even the surfaces. So, all of the tap ware that we used to specify in Melbourne was cast in brass and it made it made in Melbourne, cast in brass sent off to the chrome platers so to be electro plated with chrome. And then it would come back to the manufacturers that would brush the chrome, that would repackage it, they would send it out. And chrome plating is a very toxic process, anyway. It’s very, very energy intensive and it requires all of this transport between the brass caster and the chrome platter and back again. So, Bonnie pulls all of the chrome plating off, you know, talks to the manufacturer, gets them to agree to give us basically the rough cast brass, you know, just buff off.

Eve: [00:47:40] Which are beautiful, right.

Jeremy: [00:47:42] Absolutely beautiful. And now in Melbourne, you know, find me a building you know, whatever, ten years on that doesn’t have bar store furniture and brass tap you know. So, it’s actually, it’s become an aesthetic and I’m not saying that again, maybe it was just the time, but you know, it’s become an aesthetic in its own right in this city. But it’s really come out of, you know, Bonnie Herring pushing this, just really pushing the reductionist agenda. So, yeah, I mean, it’s interesting. And then if you think that all of the apartments around here, we pull all the ceilings out to give us, you know, taller ceiling heights and to not put all of the, you know, embodied carbon in those ceilings and to expose all the thermal mass to give us really stable temperatures. You know, we’ve been pulling the ceilings out since 2014 and now no apartments around here, you know, like they’ve all got exposed concrete ceilings, you know.

Eve: [00:48:52] So, there was this language in construction and building homes that wasn’t really there for good purpose, right. And you’ve stripped it away and it’s really quite a beautiful aesthetic and people are adopting it, it’s a great thing.

Jeremy: [00:49:07] It’s interesting. Eve, I better run because I’ve got to go and talk to someone. So good to speak with you.

Eve: [00:49:15] And I want to, I’ll want to know in two or three years where you are then, because this was enormous progress, especially given that there was a pandemic during all of this.

Jeremy: [00:49:25] Yeah, but I think that I’m sure it was the same in the States. We were expecting the sky to fall, and everything was upside down. So, you know, housing prices went up, construction prices went up, yet demand went up like nothing made any sense. So, yeah, you know, I am still expecting the sky to fall, Eve.

Eve: [00:49:49] I’m hoping to come to Melbourne sooner and we’re going to catch up again then. Thank you very much.

Jeremy: [00:49:56] Thanks, Eve. Thank you.

Eve: [00:49:58] You too. Bye.

Eve: [00:50:16] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. You can support this podcast by sharing it with others, posting about it on social media or leaving a rating and review. To catch all the latest from me you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing yourself head on over to wefunder.com/smallchange, where you can invest directly in Small Change and our mission to democratize capital formation to create impact in commercial real estate development. A special thanks to David Allardice for his excellent editing of this podcast and original music, and a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jeremy McLeod