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Equity

Dorchester rocks.

January 19, 2022

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

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

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

Read the podcast transcript here

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

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

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

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

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

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

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

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

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

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

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

Eve: [00:05:16] Oh, that’s fun.

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

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

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

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

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

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

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

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

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

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

[00:12:08] Oh, that’s great.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Eve: [00:21:49] Yes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Eve: [00:33:45] Wow.

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

Eve: [00:34:16] That’s fabulous.

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

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

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

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

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

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

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

Image courtesy of Travis Lee, TLee Development

Mission (Almost) Impossible.

January 5, 2022

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

Read the podcast transcript here

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Eve: [00:10:19] Ooh, that’s crazy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Saki Bailey, San Francisco Community Land Trust

It’s the data, stupid.

December 8, 2021

Joseph Minicozzi is an urban designer who wants to help communities understand the economic impact of development. Like demystifying tax codes, government jargon and municipal finance data.

In 2012, Joe created a data-focused consulting company called Urban3. Based in Western North Carolina, Urban3 was spun out of Public Interest Projects, a non-profit focused on reinvigorating downtown Asheville. For over a decade Joe had worked there as New Projects Director, including a two-year stint as executive director of the Asheville Downtown Association.

Urban3 embraces data and GIS mapping to highlight land value economics, property and retail tax analysis while wedding that to community design. While they have a vested interest in Asheville, Urban3 has consulted for cities both in the U.S. and abroad.

Previous to U3 and Public Interest Projects, Joe was a founding member of the Asheville Design Center, a non-profit community design center. He also worked as independent consultant on urban design and planning issues for many years, before which he was the primary administrator of the Form-Based Code for downtown West Palm Beach.

Joe holds a Bachelor of Architecture from the University of Miami and a Master of Architecture and Urban Design from Harvard University. In 2017, Joe was recognized as one of the 100 Most Influential Urbanists of all time.

Read the podcast transcript here

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

Eve: [00:00:58] Joe Minicozzi has been recognized as one of the 100 most influential urbanists of all time. Although he trained as an architect and urban designer, that honour was not bestowed for designing buildings or places. Joe’s influence comes through data. Joe helps communities understand the economic impact of development. He does this by tracking data in the built environment. Demystifying tax codes, government jargon and municipal finance. Stuff that most developers and governmental entities don’t think about when planning their next development project. Joe’s deep dives have uncovered some astounding and important truths about the cities we live in. I’m fascinated by his work and findings, and I’m sure you will be too.

Eve: [00:01:50] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to Rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:12] Good morning, Joe. I’m really delighted to have you on my show today.

Joe Minicozzi: [00:02:15] Thank you for having me. I’m glad to be here.

Eve: [00:02:18] So,I trolled your website a little and I found a really, which is actually a really interesting name. Your business Urban3. I found a really interesting quote that I want to understand. Don’t fly blind. Visualize and reshape your economic reality with Urban3. What does that mean?

Joe: [00:02:39] Well, the visualizations and visualizing your reality is, basically we use Esri software. GIS software to make maps of cities to reflect their economic position. What’s going on from a cash flow standpoint and what you find in that, is different building types actually produce more wealth than other building types. Or once you see the picture, it helps people realize that there’s policies that are actually affecting cash flow. And the name Urban3 is kind of a funny thing that we did that originally was supposed to be Urban Cubed because the three-dimensional environment is cubic. It’s the 3D world. You and I are both urban designers. So, I wanted to kind of play on urban design in the name. But the IRS wouldn’t accept the cube is a part of our name, and they dropped it to the 3 after the name, So,they were stuck with it. So,that’s where we’re at.

Eve: [00:03:40] They don’t accept the at the beginning too, you know? Yeah. Very strict rules.

Joe: [00:03:45] Very big rules. Yeah.

Eve: [00:03:47] Yeah. So, OK, So,you’re visualizing the three-dimensional shape of cities to determine the economic reality of the cities?

Joe: [00:04:01] Sure. Or to think of it is, you know, for the real estate developer folks on this podcast, you’re playing with the cash flow, right? Things cost money and you have to pay for them. You have to make money on rent to pay for the building. And it’s really simple cash flow and you need to make more money than it costs or else you’d be out of business. You wouldn’t be a real estate developer or even in business as a person, you know, I can’t sell donuts at a loss, you know? So,cities are the same thing. Cities are really big real estate development projects and counties more so. Counties are are fixed. You can’t annex the next county over. So,when you have a city, it’s got a cost of roads, the cost of pipes, the cost of infrastructure, infrastructure that real estate wouldn’t be worth anything until somebody ran a pipe and a road to it. So, the question I ask is, are you paying enough taxes to cover the cost of that expense? And what we demonstrate with these models is we show it. We show how financially subsidized certain development patterns are.

Eve: [00:05:03] And So,and how do you create these models?

Joe: [00:05:07] That’s math and fancy software. It’s a geographic software, So,it’s got networks within it. You know and cities already have the data. That’s the thing that’s kind of crazy. They alSo,have the software. We’re just we’re just innovating the use of the software.

Eve: [00:05:25] So,for people listening, I’m sure they’ve seen spiky charts which show huge spikes of activity in urban areas. And so, it’s kind of like 3D charting of data.

Joe: [00:05:38] Exactly.

Eve: [00:05:39] Okay.

Joe: [00:05:40] Or do you think, there’s for more people who are into, I guess you call it BIM in the architecture world, or they are doing feedback systems of HVAC and all this stuff, and you’re starting to see way more sophistication on running your thermostat differently and particularly in green technologies. This is taking that same type of technology but applying it at a macro level across the city.

Eve: [00:06:03] So,we’re living in a data driven world and you’re applying data to helping cities become healthier economically.

Joe: [00:06:13] That and getting people to realize the consequences and costs of sprawl. So, we’re not going to change sprawl habits until people are aware of the true destruction that it causes and the defense of people that live in that, who wouldn’t take the deal when a house is a single family detached house in Eugene, Oregon, is subsidized to the tune of 1,400 dollars an acre. You know, it’s like…

Eve: [00:06:35] Right.

Joe: [00:06:35] You’d be stupid not to take that deal. So, if we want to see it, if we want to see…

Eve: [00:06:39] Call me stupid.

Joe: [00:06:42] Well, me too. I live, I bicycle to work.

Eve: [00:06:48] I walk down two steps. I’m in downtown.

Joe: [00:06:50] Ok, that’s even better. So,anyway, it’s and this isn’t to say that we shouldn’t have suburbia. It’s just, allow people to see the real consequences and people will make different choices. I know that if I, I’m Italian, my family has a history of heart disease. I like to eat pizza. I know because of my family history I can’t eat pizza every day. I would love to eat pizza every day. But because of the saturated fat content, I know that eating one slice is my caloric intake for like a week, So,I’ll still eat pizza, but I’ll exercise the whole rest of the week, you know, it’s just keeping things in balance.

Eve: [00:07:26] So,who? Who comes to you for help?

Joe: [00:07:29] Initially, it was activists that were doing conservation and community planning at large. The Sonoran Institute in Rockies. And over in California, the local governments commission. Now it’s we get finance officers, city managers, planning directors, mayors, politicians. Our clients are all over the place. And it’s because our work is more well known.

Eve: [00:07:55] And when did that shift, do you think?

Joe: [00:07:58] Well, initially, here’s what’s funny, I used to work in a real estate development for a company called Public Interest Projects and we were a for-profit real estate development company in downtown Asheville. It’s like basically think of it as a $15 million revolving fund. 75 percent of the money went into sticks and bricks, the buildings, and we reserved 25 percent of that fund to seed businesses and get businesses going on the ground floor. Our time is the direct opposite. We spent more time with the entrepreneurs than the buildings because businesses need help. And then this thing called the recession happened. I don’t know if you remember that, but and what happens in real estate development? We were dead in the water, So,I was actually going to conferences and explaining to people how to articulate the benefits of urban development in downtown stuff and actually started a presentation in Seattle Smart Growth Conference with a quote from Mark Twain that says a person who won’t read has no advantage over one who can’t read. Right? So,that’s a quote about literacy. If you choose not to read, you’re just as illiterate as somebody that can’t read. And I had my hand in the air and I said, OK, who in this room understands the tax assessment system and how property valuation happens in the United States? And I’m standing in front of a bunch of my peers, urban designers, landscape architects, planners. Not a single person raised their hand, and I was dumbfounded. I’m like, look, I’m trained as an architect. I like to look at pictures, but I read the tax system. It’s not hard and it basically is an incentive to crappy buildings. That’s simple. And people came to me like, we just hire you to do that, and that’s how Urban3 got started.

Eve: [00:09:35] That’s really interesting.

Joe: [00:09:36] Probably five years in. It changed.

Eve: [00:09:40] To what?

Joe: [00:09:41] Then it was seen as like, this is some sort of gimmick that this is just, you know, Joe being cute to, OK, we need to do this stuff. When I when I started doing the value per acre analysis…

Eve: [00:09:52] It took five years.

Joe: [00:09:53] People are slow. Good.

Eve: [00:09:55] Good things take a long time. People are slow.

Joe: [00:09:58] Well, it’s all right. It’s good to be skeptical. The irony about all of our work, this is really simple. When you do a per acre analysis, it normalizes all real estate into a metric unit. Like think of miles per gallon. We don’t see miles per tank. So,we all know the gasoline is what drives the car. So, all tanks are different sizes. Well, the same is true with real estate. The irony is like what we’re seen as like just a cute little trick of doing value per acre analysis. And seriously, economists would tell me that they’re like, Oh, that’s a gimmick. I’m like, Are you high? Like, Is there more land on this planet? And so, if you look at literature from the 1930s and 1920s, the development, I’ve got books, historic books from the 1920s about building small neighborhoods. The whole thing revolves around value per acre analysis. That was commonplace back then. Somehow, in the intervening like thirty interesting year gap, we somehow lost this idea.

Eve: [00:10:54] Interesting.

Joe: [00:10:54] Australia, they do it on a per hectare basis. Like they understand the value of land in Australia, but not here.

Eve: [00:11:00] Interesting.  Thats’ because most of Australia is desert. Probably. Seriously.

Joe: [00:11:05] You’re alSo,reasonable people. Interestingly, we’re cousins, right? Like, we both came from the same parents. Like we like poke mom in the eye. We were the first ones and then the United States were, like, we don’t need to be British anymore. We left with the same damn tax policies. You in Australia, us in the United States and Canadians. In the intervening two hundred and something years, the Canadians, the Australians and New Zealanders all adapted their tax policies. In the United States we didn’t. Ours is the most crude, blunt instrument.

Eve: [00:11:38] Yes.

Joe: [00:11:38] If you tax on value, there’s a perverse incentive to build crappy buildings, period. That’s it.

Eve: [00:11:44] Right, right. Ok, So,I’m going to break this down a little because maybe I’m one of those stupid people. But I mean, I do understand this, but still. I live in downtown Pittsburgh, and the value of residential is pretty high in downtown Pittsburgh. And I take up a very small portion of land because I live in a unit that is in a building that is four stories tall. Many people live in units that are much taller than that, So,they take up an even smaller portion of land. But the city gets substantial taxes from my unit. If I took my unit and I bought something equivalent in an outlying suburb of Pittsburgh, they had the same value, let’s say, to $500,000 value, OK, $500,000 in a building which has a whole bunch of other things going on it that are alSo,taxed.

Joe: [00:12:37] In taxes.

Eve: [00:12:38] Versus $500,000 on a one-acre piece of land in an outlying suburb. The city gets the same return, right?

Joe: [00:12:49] No, they’re getting well. Let’s just say you’ve got, we’ll go with a coffee shop on the ground floor and three stories of condos, right, for your building?

Eve: [00:12:58] Oh, no, no, that’s what I meant. Yeah, no. They get way more return for the little sliver of land downtown than the one acre on the outlying in the outlying neighborhood.

Joe: [00:13:09] And on top of that, keep going.

Eve: [00:13:09] Yes, let’s see if I get this right. It’s a test. On top of that, you know, the infrastructure is already there downtown. The pipes that bring water into the building and Comcast cable and whatever else you need are there. Whereas if it’s an outlying piece of land that’s never been developed before, someone’s got to pay to get that stuff there, right?

Joe: [00:13:32] And…

Eve: [00:13:34] You can finish.

Joe: [00:13:35] Think of the frontage on that one-acre parcel versus the frontage on your parcel. So, the consumption of cost is 12 times for the frontage versus your frontage, So,in addition to the fact that yours is already amortized its way out and paid for itself, probably in two cycles already, their stuff is like you’ve got to run it out there, you’ve got all the infrastructure that gets you to that point that’s not being paid for because of the existing. There’s a lot of suburbs that you’ve got to go through to get to that end of the line, and all of those suburbs still don’t pay for themselves. So, it’s essentially, we do a lot of work with strong towns. There’s a guy Chuck Marohn, who’s a civil engineer, and Chuck calls it the Ponzi growth scheme, and he’s totally right. The only way that we look, we look solid on paper, the more we grow in suburbia because we’re getting new cash flow. And everybody should have caught this when the recession hit. When the recession hit, all of a sudden, cities were broke. It’s like, well yeah, you should be able to cover your cost if nobody comes in the door and buys a commodity, right? I should still be able to pay rent if nobody hires me. I have a reserve account and we should be able to get through, in our case, our business, we can handle about six months of working without new clients coming in the door. With cities, if they don’t have new permits, all of a sudden, they’re broke. Like that should tell you something. We should tax our system to be able to cover the costs of what we’ve got. In the case of Pittsburgh. When you lost your population, you’re essentially carrying all of this extra infrastructure for a city much larger than you, So,you should not be adding more to it. You’ve got to like, find ways to compact a little bit.

Eve: [00:15:19] Yeah. Now in the Urban Redevelopment Authority’s favor in the city of Pittsburgh, they’ve always really stressed trying to fill out the existing neighborhoods in the support they provide. So, and way back, we had a mayor, Tom Murphy, who, you know, probably familiar with, who really went out on a limb and took operating funds and created a development fund, the Pittsburgh Development Fund, to support projects right in the city because I think he got this, right?

Joe: [00:15:51] Yeah, he did. Like in the case of South Bend, Indiana. Now, the Rust Belt, the big expense of an infrastructure, the big, expensive stuff is lift stations and force means. Everything else gravity feed, you just put a pipe in water goes downhill, but the force means we have to push it uphill or something like that and then lift it. That’s the expensive stuff. So,in 1960, they had 130,000 people, and today they have 103,000 people, So,they lost 22 percent of their population.

Eve: [00:16:22] Which is quite a lot.

Joe: [00:16:22] Yeah, So,but in 1960, they had three lift stations and a third of a mile of force main. Today they have 43 lift stations and 19 miles. So, a 1,000 percent growth in lift stations and a 6,000 percent growth in force mains even though their population was going minus 22. That is a recipe for disaster. When you’re, and cities do this, they’re just like, well, people want new houses out at the edge. So, we’re going to build pipes out there for the builder to build housing. It’s like you were basically building yourself off a cliff. Somebody’s got to pay for this stuff and the developers pay for it. But then they fold it into the mortgage and then the city shows up and like, whoa, new infrastructure. Thanks. Thanks. Thanks, developer. They’ve just taken on this huge liability in maintenance and stuff that doesn’t fix itself.

Eve: [00:17:12] Right. Interesting. So, what’s been the best turnaround story for you? Like, you know, can you describe a client you’ve worked with that perhaps was unbelieving and really kind of transformed their city or at least the processes to?

Joe: [00:17:30] It’s yeah, that’s not an easy question to answer because it’s all been different. And you know, one of the things that you’ll see in our work, and this is something you and I probably have a lot in common in this, that we’re both visual people. I’m a visual learner and a visual thinker. And that’s a lot of people that go into design education get that way. And then we then we get indoctrinated full bore into the design world. So, for me, it’s all about pictures and visuals, and in our work, we make it extremely visual, but some highly nerdy stuff like lift stations and tax flow and stuff like that. But if I can make a picture of it, it communicates to regular people. And what I find with politicians, I mean, think about politicians. I don’t mean this in a demeaning way,

Eve: [00:18:19] But they’re not trained in any civic design.

Joe: [00:18:23] No.

Eve: [00:18:24] Or any of this. They’re politicians, you know, this is a career.

Joe: [00:18:28] You win a popularity contest and you’re like, I’m going to help fix the city and then you show up and you’re like, oh my God, this is a disaster. Where do I start? And then you meet, you meet the technicians that run the city and they’re like planners talking about form-based code or whatever. And you meet the engineer and they’re talking about these, you know, whatever TDM models. You have no idea what they’re talking about, they’re talking in this kind of gibberish. And so, it’s actually a professional problem, not a political problem that the politicians really have no idea what’s going on. So, they just basically just go with the flow, and we take the tack in argument that is the professional that needs to visually communicate, so that people understand it. So, what we’ll do is, we’ll take in South Bend case, Mayor Pete was the mayor when they hired us. We put all the pipes on a map and showed them that they had enough pipe that would go from South Bend, Indiana, to Asheville, North Carolina. And I said, like that, you get to fix that every 40 years. Good luck with that. And once you do that, people are just like, oh my God, we don’t need to add more to this. You know, it should. But like, my mom could understand that.

Eve: [00:19:31] I should not be laughing, but it’s just it’s ludicrous. I’m sorry.

Joe: [00:19:36] Well, it’s systems.

Eve: [00:19:37] Right.

Joe: [00:19:37] You know, it’s you know, you and I talked before the recording. For me, like a very influential author for me is Michael Lewis, and the book Moneyball is brilliant. And so, you know, I worked in real estate development. We’re actually still in the developer’s office. But our company was $15 million. Our city is worth, at that time, $12 billion. Ok, that’s Asheville. 90,000 people taxable value of $12 billion. I know our politicians, some of them are friends of mine. I can’t imagine them running a $12 billion company. And then it’s just like, what do people want? Let’s have more trees. It’s like, I got that. But can we think a little bit more sophisticated than this? And in the beginning of Moneyball, Michael Lewis is talking about the Oakland Athletics being in the playoffs all the time, and they’re the cheapest team in baseball. And and then he meets Billy Beane and they talk about Bill James statistics and the data that Bill James was talking about that was an anathema to baseball. So, the Oakland Athletics were basically following this guy who was asking these really crazy questions like why is an error and error? You know, I fail to close my hand on the ball, but at least I stopped the ball. Shouldn’t we be measuring where the ball lands and where the person is that isn’t catching the ball. So, that distance is really what the problem is because somebody could just never be where the ball lands and they’re never going to commit an error like that makes perfect sense. But in baseball, they’re like, you can’t question the error. We’ve had the error forever. And so, the quote that nailed me in that book, baseball is a is a 7-billion-dollar industry operating without mathematics.

Eve: [00:21:21] Oh, wow.

Joe: [00:21:22] Let that wash over you for a second. I just told you my city is twice the value of all baseball.

Eve: [00:21:28] Wow.

Joe: [00:21:28] And it’s just like Pittsburgh is worth maybe 45 billion.

Eve: [00:21:34] Is anyone using math in Pittsburgh?

Joe: [00:21:39] Some people. I’ve done a couple of presentations there. We actually did a valuation of, took all municipal park property and said, OK, what’s how could you cash flow this? So, there’s the HH Richardson jail that’s at the backside of the county building.

Eve: [00:21:55] That’s a beautiful building. Gorgeous building.

Joe: [00:21:57] Incredible. Modeled after the Bullfinch Jail in Boston, a similar kind of like star shaped plan, although the Richardsons one’s kind of like a half star.

Eve: [00:22:07] Beautiful building.

Joe: [00:22:07] Phenomenal. It’s two-foot-thick walls. But anyway, in Boston, they converted that jail into a lobby for a hotel and stuck a hotel on the back side of it. So,it went from a non-taxable building and it’s actually a really cool lobby. And now it’s kicking out about $3 million a year in taxes. So, went from zero value to $3 million of cash flow to the community. You didn’t lose the building. You know, it’s not a jail anymore, it’s a lobby, but people can go into it. So, we just said, Well  let’s just do the same thing with the Richardson jail. The Richardson jail right now, it’s been renovated, but it’s being used for like county offices. It’s like those could be…

Eve: [00:22:49] Family courts, I think. Yeah.

Joe: [00:22:51] Does it need to be in that building?

Eve: [00:22:54] Such a shame.

Joe: [00:22:56] Yeah.

Eve: [00:22:56] So, I just interviewed Jonathan Cohen, who’s the founder of the Society Hotels in Portland, Oregon. And you know, I’ve always thought the riches in jail, like if you had if you had travelers who wanted to stay cheap, you know, what he’s done is he’s created these bunk beds in this old historic maritime building. So, people can stay there for as little as 35 to 50 dollars, pre-pandemic, obviously, and share a bathroom. You know, people who really don’t want to spend $200 on a hotel room. And wouldn’t it be great to stay in a cell like it would be really fun? Maybe not So fun for some people who originally stayed there. But yeah, I’m totally with you. It’s a very weird re-use.

Joe: [00:23:43] And there’s also, there’s a little corner. There’s like a little tiny, little triangular, oddball lot behind it. That’s just this abandoned, weird site where there’s like a memorial out there for something.

Eve: [00:23:57] Interesting.

Joe: [00:23:59] Seriously, you live in Pittsburgh. Go walk behind this, there’s like this…

Eve: [00:24:01] I will. I will.

Joe: [00:24:02] This weird little triangular piece of dirt that’s there. It’s like, really, this thing is abandoned. There’s like a street that is unnecessary. So, what if we just threw the street in in that little triangular lot? And maybe that’s where you put the hotel and you just build a little hotel tower back there and tap it into the jail? Call it a day. The real simple is the quarter acre, which is a huge piece of land in the downtown. We estimated the taxable value of that would be about seventy-five million dollars and that was 2017. So, it’s like, OK, So, you currently have zero on this thing. You can pump that thing up to 75 million. And let’s say you hold it as a ground lease, you say, look, we’re not going to give this to the developer. We’re going to let them lease it for 75 to 100 years. And then we’re going to as the city of Pittsburgh pull that revenue and fund things like Eve. Eve’s doing cool things. We’re going to create a cash flow to fund Eve in equity projects, and she’s going to go off in neighborhoods and help build wealth. We now have a cash flow off this thing. Anyway, we did that citywide. We’re like, we’re not saying get rid of the University of Pittsburgh, but seriously, there’s land all over the city. The current Pittsburgh GDP is $17 billion. We estimated off public assets doing projects like what I just said, or there’s a four-acre police impound lot on the damn river. It’s like seriously.

Eve: [00:25:28] I know I know it. I know it. It’s such a waste of the space.

Joe: [00:25:31] So, yeah, I mean, you could hit it out of the park on a site like that. And it’s like, seriously, this is the best place to put stored cars in Pittsburgh. Anyway, So, your GDP is 17 billion. We estimated you could get about 15.6 billion off existing assets in a way that’s mutually beneficial. Like, that’s a hell of a value game for Pittsburgh. And cities all across the country have that. Yeah, 15 billion is a pretty big deal. I wouldn’t, you know, I would take half that. If you want to give me half that, I’ll be happy

Eve: [00:25:59] And no one would, no one would listen to you.

Joe: [00:26:02] Well, I think they were a little stunned, you know, because it’s just a different way of thinking. And the thing that’s crazy is this is commonplace in Europe. This is commonplace in Boston. This is what you know, Boston. They’re just like, Yeah, we got to use that jail for something.

Eve: [00:26:14] You could basically double the income for the city.

Joe: [00:26:17] It’s double the GDP, the gross domestic product, which is that’s your cash flow of your place. So, yeah.

Eve: [00:26:26] Pretty, pretty significant. And is that what you find in most cities? That you do studies for. Is it a similar? Does it vary greatly depending on the the land available or the history of the city?

Joe: [00:26:40] Yeah. In that and that aspect, yes. Pittsburgh, obviously, you have tremendous riches of these buildings that you can’t reproduce at cost the way that they exist today. So, it’s like you’re in a better position. Places like Phoenix, Arizona, you know, you don’t have buildings like that, but you still have massive tracts of land and surface parking lots and downtown that the city owns. It’s a complete waste of real estate, and they’ll be like, well, Joe, people need parking. It’s like, all right, we’ll build a parking deck and wrap it with a different building that’s producing taxes. You don’t need to. You know, there’s plenty of developers that would kill for that location if you gave it access and you’re actually predictable with the developer. Developer doesn’t want to go through a process of a community design thing where it’s like they have no idea what’s going to happen by the end of it. You know, things cost money, architects, attorneys, all of that. If you drag somebody through a three-year process, they need to make that money back. You know, it’s that simple. And it’s just people just aren’t even thinking that simply about it.

Eve: [00:27:42] Interesting. So, how long have you been in business now with Urban3?

Joe: [00:27:48] 10 years.

Eve: [00:27:50] And how many clients have you had?

Joe: [00:27:53] We’ve worked in four different countries, 40 different states. I don’t, like 150 different cities. We’re slowly becoming like the international tax experts, So, as a by-product of all of this. And there’s really weird things out there like finance departments in government. So, we were sitting down. We were working with Chuck Marohn from Strong Towns in Louisiana. And Chuck and I were interviewing all of the department directors and we sat down with the finance officer. And finance departments keep a depreciation schedule of their roads and pipes and all this stuff. They know what it costs. Yet it’s in a third set of books called the called the Asset Ledger. And Chuck was like, how is a pipe an asset? And they’re like, well, it’s got money, you know, it’s worth money, and so, it’s an asset. And I said, Laurie, can you pick your roads and pipes up? Can you pick them up out of Lafayette, Louisiana, and sell them to Baton Rouge? And she goes, well, no, and I said, that doesn’t sound like an asset to me. I said my computer is an asset to my business, I can sell it, it depreciates. If I had delivery vehicles in my business, those are assets. How is a road an asset? And she’s like, well, that’s just our finance standards and the gap documents that we have to follow. I’m like, who the hell made those? And she’s like, well, I don’t know. So, now you’re the mayor of Pittsburgh and you’re given the books. And your books have costs, expenses and revenues. And then there’s this third set of books called The Assets. You don’t look at the assets, you’re just like, OK, we’ve got a lot of money over, sitting over here. These gifts of gold called roads. It’s like they’re not assets. It’s like this big anchor you’re dragging.

Eve: [00:29:39] A huge liability. Yeah, they’re a liability.

Joe: [00:29:43] So, cities can’t see this because of something as simple as we follow these gap standards. Well, who created the gap standards? The gap standards are created by bond companies. So, bond companies want to know  how much stuff cities have so that they know how to turn you into a piggy bank. Because they want to give you more money. It’s like payday loan scandal or something like that. It’s like, oh, here’s another bond. And so, cities are like, we’ve got a AAA rating. It’s like, are you crazy?

Eve: [00:30:13] Are you telling me the bond ratings are based on roads and pipes?

Joe: [00:30:17] Yeah.

Eve: [00:30:18] Oh. That’s a shocker.

Joe: [00:30:21] Mm hmm. No one ever told you that, did they?

Eve: [00:30:25] No. No.

Joe: [00:30:25] That’s the thing is like, you and I go through urban design school, we maybe learn a little bit about a real estate development pro forma. Taxation, maybe like a half day class or half a class on that and one session about municipal finance.

Eve: [00:30:39] I don’t think I had any when I went through school.

Joe: [00:30:42] Yeah.

Eve: [00:30:42] And what’s more, I don’t think architects get any.

Joe: [00:30:45] Oh God.

Eve: [00:30:46] I mean, architects are woefully undereducated when it comes to both real estate development and finance.

Joe: [00:30:53] I would say wilfully ignorant. I wouldn’t say woefully undereducated because we, and I’m saying putting myself into that bucket, it’s like, Oh, that’s finance. I am a designer. I am above that. It’s like, Oh, really, OK?

Eve: [00:31:08] As a developer, we sit at the table with an architect thinking, please don’t draw that line. It’s going to cost me too much money.

Joe: [00:31:14] Yeah. And it’s and it’s sad because I love architecture and I love the profession. I think the best education you could have is an architectural education because you’re basically given a blank piece of paper and they’re like, OK, now be creative.

Eve: [00:31:27] Oh, I so completely agree with you. I think architects are trained to be problem solvers, to turn nothing into something. It’s an amazing education.

Joe: [00:31:36] And be critical thinkers. And so, it’s like, All right, take that same critical thinking skill and just be a little curious over about finance. And in defense of architects, the language that people use in finance is deliberately opaque. And I think that’s the best thing about that movie, The Big Short, where they make fun of the opacity of financial language. Well, the same is true inside real estate development. We’re going to get some mezzanine financing. I used to sit in meetings with people. I’m like, What’s the mezzanine? And I would just do that just to be an idiot. But I was mostly making fun of the fact that this has created fictitious language, and I’m explain it to me, I’m just a dummy. I only went to Harvard. What do I know?

Eve: [00:32:16] You know? Yes. And what’s a sponsor? There is a lot of secret language in the real estate world.

Joe: [00:32:24] Yeah.

Eve: [00:32:24] And I have to say this about the SEC in the regulation crowdfunding rule, they created one of the regulations, one of the things that you have to do is explain things in plain English. So everyone can understand. And I kind of love that because what is the sponsor? What’s a capital stack? What’s the mezzanine? What’s like, you know, all of this stuff is like for very special people, but everyone should have access. Yeah.

Joe: [00:32:49] And it’s funny when people, you watch people and you’ve been hanging out with people like this, there’s like, oh, I got my capital stack and it’s like, I just picture people with like a big pile of money that they’re walking around with and they’re like, look at me with my pile of money. Like, you’re just like, come off as the biggest fool when people talk that way. But it’s like, I don’t know, I’m suspicious of that because it’s like, what do you really, did you really work at this or do you just know somebody that’s a banker? They gave you access to money, and you’re proud that you succeeded because you have access and availability that John and Jane Doe off the street don’t have that access. Or somebody that, God forbid, is a different color skin doesn’t have access to the same power and wealth that you’ve got. So, let’s talk about that and there’s matters of inequity baked into the system through the whole thing.

Eve: [00:33:36] Yes, I think the real estate industry is probably one of the most inequitable industries.

Joe: [00:33:42] We’ve done analysis of redlining in Kansas City, and we showed them that even today, when you drop the Red Line map onto the model, you see this staircase step down from green to red, So, you know the gradients of redlining.

Eve: [00:33:59] No, I don’t know the gradients.

Joe: [00:34:01] Oh, OK. So, in 1934, the Federal Housing Administration changed mortgages from seven years in the United States to 30 years. Think of that. That’s a huge change to the mortgage industry. And they said, you know, basically the dirty little secret here is these are Democrats doing this and they were doing it because we were afraid of socialism. So, our country was looking at Europe in the depression going, OK, this is a little freaky. They’re becoming socialists. We need to do something to make people homeowners so that when they own something, they’ll be less apt to want to be socialist. So, let’s find a way to make more homeowners in the country. And this is in the middle of the depression. And so, they created this system of we don’t know what Pittsburgh is like. We don’t understand Pittsburgh, but you have to come up with a map in Pittsburgh to map what’s good real estate, what’s desirable real estate, what’s declining real estate and what is hazardous. So, those are the four grades, the hazardous areas were the red areas. And so, arbitrarily you mapped your hazardous real estate, by like if it was next to a train yard or if it had an infiltration of immigrants. Or if it had Negroes.

Eve: [00:35:16] So, who did that mapping?

Joe: [00:35:19] Our local people. So, it was Pittsburgh did it to themselves. Asheville did it to themselves, cities 50,000 and higher did it to themselves. They did it in Kansas City. Incidentally, my favorite one is in Denver, where they took an Italian neighborhood,  because coincidentally Italians were the driving immigrant class of the 1930s and coming in at number two, where Germans. Well, what kind of Germans were coming in in the nineteen 1930s? That would be Jewish people. So, you find Italian neighborhoods and Jewish neighborhoods were redlined as much as is black neighborhoods.

Eve: [00:35:56] That’s interesting.

Joe: [00:35:56] Now what’s interesting about Italians is I can change my name to Smith, you know, or there were Italian neighborhoods in Denver. There was this one neighborhood that wasn’t redlined that was Italian, 50 percent Italians. And they wrote, right in the document, these Italians peddled liquor during the prohibition era. It’s like those are the mafia Italians. We’re not going to redline them. So, but as a black person, you can’t change your skin.

Eve: [00:36:20] No.

Joe: [00:36:22] So, your family wakes up that day that the map is adopted, and they can’t sell the house, right? Because no one can get a mortgage in that neighborhood. That went on for 30 years from 1934 to 1968. And so, for three generations, you don’t get, you can’t get a home rehab loan. You’re basically just disconnected from the financial system of our country.

Eve: [00:36:45] I realized that I just didn’t know how the initial mapping happened, I suppose.

Joe: [00:36:52] Well, we ran the number in one neighborhood in Kansas City, Kansas. Is like a half square mile where there’s just all vacant houses in it. Well, not all, but 700 vacant lots. And we just real simply went back in time, pulled the old values from 1930, glued the houses back on the map and ran a cash flow of if those houses just stayed low value but paid their taxes over time, how much taxes would they matriculate over 30 years? And it’s insane. It’s $30 million. So, when I was presenting to the community, I said, Look you need to realize your great grandparents were racist, period. There’s no way around it. They adopted racist policies. This neighborhood was redlined because it was black, and you basically wrote a check for 30 million dollars and flushed it down the toilet. That’s the cost and consequences of being racist. Now that was just one neighborhood. What did you what did you blow in the entire city?

Eve: [00:37:43] Wow.

Joe: [00:37:43] And that’s the thing that we need to. I think I would argue that that’s part of being anti-racist, is you have to point out the racism that happened and make it a way that people can understand it. It wasn’t at all comfortable to say that on stage in Kansas City, but that’s the truth.

Eve: [00:38:00] Interesting. So, I have to ask you, also, what does your team look like? How do you hire people in your office? Do you hire architects?

Joe: [00:38:12] God, it’s funny. We have one urban designer other than me, several planners. Most folks are GIS based. It actually, really, we don’t fully get into design the way that an architect or designer would. We’re information curious and a technically proficient with GIS software. The design side we can train internally, but we’re mostly looking for creative thinkers that understand this technology but are also ridiculously curious about systems in cities and have a sense of humor. We do a lot of joking in our presentations, in our data, is a method of delivering information because it’s pretty depressing to just drop a bunch of redlining stuff on people.

Eve: [00:39:05] Anyway, someone who has a sense of humor has probably a higher IQ, right?

Joe: [00:39:12] Well, it’s also, I don’t know, if you’ve read Daniel Kahneman’s Thinking, Fast and Slow.

Eve: [00:39:16] No.

Joe: [00:39:19] The guy is a psychologist at one. He won a Nobel Prize on behavioral economics or in economics. He and Amos are the godfathers of behavioral economics. And there’s a third one. His name is Richard Thaler, who also won a Nobel Prize in economics. And the three of them did all of these studies about how do people make the wrong decisions economically? And it’s there’s human flaws in the way that our brains operate. But there’s also ways that you could take advantage of those. One is where we’re as a species, we’re oral communicators. We tell stories. So, people need a narrative of understanding the economic data. We just don’t drop like a spreadsheet on somebody. We actually tell stories with the data. The other thing is like simple things like they would put pencils in people’s mouths. And you can see my camera and nobody else can, but. And they put one cohort of students through these tests with pencils in their mouths. In another cohort of students through the same test without pencils. And the students with the pencils in their mouths learn more than the students without. And what they figured out is that So, you watch my face? I’m smiling. You know, if you put a pencil in your mouth, you’re forced to smile, and when you smile, the back of your neck opens up. Your brain operates differently than if I’m sitting in the class with my arms folded and I’m like, looking at you like this, you know, it’s just there’s ways of learning that we have survived with and that we just basically use that. So, I highly recommend actually one of my favorite books is Misbehaving by Richard Thaler. And he’s one of the three Nobel Prize winners. Daniel Kahneman is awesome. His book, Thinking, Fast and Slow is incredible. I find it really hard to read. I much prefer Daniel Ariely’s, Predictably Irrational.

Eve: [00:41:12] These are all great titles, you know?

Joe: [00:41:15] Yeah. Well it’s, look, we deal with humans, you know. And we don’t, we go to design school. Even planners. Planners of all people should have degrees like some subset of psychology, you know, because they have to deal with groups of people. But it’s funny that we go into these professions, and we don’t learn how humans operate.

Eve: [00:41:34] So, I’m fascinated and I’ve lost my train of thought here completely.

Joe: [00:41:39] I’ve taken you off course. We’re supposed to be talking about real estate, aren’t we?

Eve: [00:41:42] No, but this is good. So, if cities adopted, you know, sort of this data exploration, what would cities, what would cities look like in the best of best of all worlds if they really paid attention and adopted, you know, this information that you’ve uncovered to their advantage? And what would we have to stop doing now that we’re doing?

Joe: [00:42:15] Well, it is. That’s a hard question. You know, there’s ultimately, I think we need to change our tax system. And right now, the majority of cities in the United States counties to operate off property tax. And So, think of it this way your building is probably worth what a square foot? Like maybe like 500 bucks a square foot?

Eve: [00:42:42] Oh, I’d be so lucky. Maybe 300.

Joe: [00:42:46] Ok, even 300. Like, what would it, you’d pay $300 a square foot to reproduce your building?

Eve: [00:42:52] No, but I couldn’t probably sell it for more than that.

Joe: [00:42:57] Ok, let’s call it 300. What’s a Walmart worth per square foot?

Eve: [00:43:01] Boy, I don’t know.

Joe: [00:43:02] Fifty. So, per square foot, you’re paying six times the production of a Walmart.

Eve: [00:43:11] Yes.

Joe: [00:43:13] That’s simple math, right?

Eve: [00:43:14] Right.

Joe: [00:43:15] That’s our tax system.

Eve: [00:43:17] Interesting.

Joe: [00:43:19] And it’s just like, what, so architects, of all people, we should be at the front line saying get rid of property tax as a valuation of property value is the indicator of taxation because there’s a perverse incentive to build crap. Wal-mart doesn’t make any bones about it. I actually went to, I presented at the International Association of Tax Assessing Officers Conference. I don’t know if you hang out…

Eve: [00:43:41] That must have been a blast.

Joe: [00:43:43] Oh, it makes it makes an AIA convention feel like Burning Man. It was the squarest thing ever. And but, you know, they’re cool people. I like, I love assessors. And the thing is like, there’s no other designers there. And I’m like wandering around with all of these nerds. I’m like, How the hell does this system work? Trying to learn from them? And the more I learn from them, I’m like, wow, that’s amazing, the way that they think. They like, go into a forest and they’re just like, is, is this a Norwegian spruce or is this a Douglas fir? I don’t quite understand what tree this is. It’s like, do you see the forest that’s around you? And they don’t. And so, they have their biases just like any other profession, and they are completely obsessed with figuring out what kind of tree this one tree is. And they will have an entire week’s long conference about that and not see the forest. And the head of Walmart’s real estate got up there and was the keynote speaker one morning. And I remember this, 3,000 assessors in the room. This guy did this amazing presentation on how cheap Walmarts are. He showed spreadsheet after spreadsheet on how crappy is buildings are. And I’m like in the audience drinking my coffee and I’m like, oh my god, this is brilliant. This guy is the bomb. This is the smartest thing I’ve ever seen anybody do. You’ve got 3,000 assessors in one meeting. You can get all of your property taxes lowered in one meeting, right? And then I’m like having a coronary because as a designer, I’m like, Holy cow, how is he getting away with this? Now, assessors in their defense, they’re agnostic. If it’s crap, it’s crap.

Eve: [00:45:15] It’s not about design. It’s not about, yeah.

Joe: [00:45:18] They’re like, thanks for making our jobs easier. So, I go up to the microphone and I was trembling. I was so, pissed off and I was like, Mr. Tyrrell, what’s the useful life of one of your buildings? And he goes, 15, maybe 20 years. We designed the building to depreciate it as fast as possible. We don’t care about the buildings. They’re throwaway. We’ll design another building, build another building, move into it and start the depreciation cycle down again. We don’t care about the buildings; we care about the transportation system. And once we set up a transportation system of goods and services, the buildings are thrown away for us. And I was like, damn. Like, that’s the life cycle of a cat. 15 years, you know, and so, when I present to people, I actually make fun of that experience and I actually show a big picture of a cat and I tell the mayor I’m like, is that what you want in your corporation? Is the CEO of a corporation that’s worth whatever, $15-billion, do you want a cat? And as long as you’re making that choice, that this is what you need. Awesome. The average Walmart consumes more in police services than it pays in property taxes. So, I tell people…

Eve: [00:46:17] Wow.

Joe: [00:46:18] Don’t hate the player. This isn’t about Walmart. Hate the game. Understand the game is in your control. And until you control it, you’re at the mercy of the game. So, cities that don’t look at their cash flow situation, they have these biases that roads and pipes are assets and not even look at them as liabilities. That’s their own stupid fault.

Eve: [00:46:37] Right.

Joe: [00:46:38] I’d like I wish we could all live in a version of Paris or something or Milan or, you know, I think you go to Europe, and you see these incredible cities and you’re like, what kind of what kind of Martians left these places for these people to live and happily? And then you come to American cities, and we live in such rubbish.

Eve: [00:46:58] Well, it’s partly the culture of the country. Like, you know, I lived in Australia, and I’ve lived in the states. And so, there’s a real cultural divide when it comes to ownership rights. You know, and property rights, and you should have complete control here over whether you can park your car in your front yard. Whether you can cut a tree down because it’s going to make your car dirty. It’s really not about the neighborhood as a whole or even the environment as a whole. You get to cut your tree down. It doesn’t matter if it looks bad like, or it doesn’t matter if it devalues the neighborhood. You can’t do that in Australia. In Australia, if you want to cut a limb off your tree, you have to go to City Council and get approval. Like it is, and people accept that. You know, they kind of accept that as the status quo. So, I think, you know, I don’t know what it’s like in New Zealand or in Canada, but that’s definitely, I think the dividing point I see. Does that make sense?

Joe: [00:48:04] You know, back to the point I made earlier that the interesting thing is culturally, we’re really not that far from you. We’re both basically British descent as countries go. Both about the same size. You had as much land as we did or more. Australia is a big country, but most of it’s desert. In our country, we kind of how do I put this? We have these narratives, and this is where the psychology comes in. So, we talk about freedom and all this stuff. But think about our country. Our country was formed on a tax revolt, right? We were taxed differently about our tea. We weren’t in control of it. So, we got pissed off at mom and dad and started a little fight and separated our country from their country. So, there’s a great old colonial barb in our country that people used to say as colonists, Don’t tax me, don’t tax thee, tax the fellow behind the tree. I love that saying. We’re a country of tax evaders. That’s it. And it’s like, and we’re fiercely independent, which is cool. And you know, there’s I live in Appalachia. You’re part of Appalachia. I was like in a meeting one time I got into this argument with this guy and you know, we went to breakfast the next day and he gave me his political philosophy and he’s like, Look, Joe, I run out in the woods with my gun. I go out with my gun and get out in the woods, and I run around, and he was doing this kind of like sitting in his chair, like he’s Chubby Checker doing the twist or something. He’s like, I run with my gun and I’m so happy. And like, you know, Steve, I don’t care. Do whatever you want with your gun. I don’t care if you sit in your yard and get naked and rub yourself on the belly with a chipmunk if that makes you happy. Knock yourself out. Would I have a problem with is that road to your house? You get to drive on that road every single day and you’re not paying for it? I think there needs to be a toll gate at the end of your driveway and you pay to use that road. And then when I go to drive past your house to go out mountain biking, I’ll pay to use that road too. And everybody should pay their own fair share. And he just looked at me and he goes. You know, that makes a hell of a lot of sense.

Eve: [00:50:16] Interesting.

Joe: [00:50:17] You know, So, rather than, what I find with people is we’re really good at this in our country. More so, now, is we will take our own little tribe and stay in our bucket and blame the other tribe without going across to understand their mindset. So, I understand Steve’s mindset. I understand the freedom because he’s been led down the primrose path that that’s some sort of American mythology until he’s confronted with the cost of that road. He doesn’t know that the road cost money. You know, he doesn’t pay for it. So, what I’d like to do is I’d like to see Steve get a tax bill that shows him his subsidy So, he doesn’t run around thinking he’s thinks he’s paying for himself. So, when we show that model, the reason why we do it county wide is in, particularly in my county, I’ve got two voters out in the county for every one voter in the city. Those folks out there control the place politically. They’re subsidized, So, they hate my city. In fact, they got my state legislator to call us a cesspool of sin.

Eve: [00:51:17] Oh.

Joe: [00:51:17] And that was on the downtown. Seriously and we’re out on the downtown association. And we’re just like, really? How about a thank you card for all the money we’re shelling out? We showed the model showing how much more taxes is coming out of downtown. Remember everybody in the county pays the same millage rate. So, we’re paying. I pay six mills in county taxes. People out there pay six mills. Their value, you can see it in the model is like one 20th what my value is. So, on a per square foot basis, I’m kicking out 20 times the taxes that they are. When you show it to them on the map, you’re just like, OK, so, what you’re saying about that subsidy that you guys have? You know, then they can see it. So, it’s really, it’s all of our responsibilities to try to find a way to communicate. And make a common ground, and that’s kind of why that’s our practice.

Eve: [00:52:06] Well, it sounds like you’re doing an amazing job and I have thoroughly enjoyed this conversation. I could go on forever. I’m such a nerd. I love this stuff. You showed me a pretty fabulous PowerPoint, which I would love to at least point to on our blog post for our listeners. Maybe you can give me a link, or I can post it there.

Joe: [00:52:28] Yeah. We’ll send you a link. We have a YouTube channel with a bunch of videos.

Eve: [00:52:32] Oh, that’s perfect.

Joe: [00:52:33] Some of them are super long. So, just for the audience, just be aware. But, but really, it’s their narratives. They’re all three act plays as far as I’m concerned, So, we do work real hard to make them fun to watch because it’s highly nerdy stuff, but you’ll see the visuals and the presentations.

Eve: [00:52:52] Well, thank you so much. I’ve really enjoyed the conversation and I hope we can continue it.

Joe: [00:52:57] Definitely. Thanks for having me. And anytime you want me back, just let me know.

Eve: [00:53:16] Joe brings energy, passion and a brand-new perspective to the built environment. If you look at the data, good stuff will follow. You can find out more about this episode or others you might have missed on the show notes page at our website, Rethinkrealestateforgood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Joseph Minicozzi, Urban3

Bisnow reports.

December 8, 2021

Bisnow is one of the the world’s leading B2B platforms serving the commercial real estate industry. From events and news to branded content and recruiting solutions. Bisnow reaches millions of readers and hosts hundreds of real estate events each year in over 50 local markets.

Eve Picker is interviewed by Bisnow host, Miriam Hall in Episode 5 of Bisnow Reports, a podcast examining every facet of the international commercial real estate industry – from the murky future of retail and office to real estate’s reckoning with diversity to the effects of climate change on the built world, and so much more.

Learn about the emerging investment crowdfunding industry, democratizing real estate investment, and Small Change, the real estate crowdfunding platform Eve founded, and the shift towards a more equitable real estate industry.

Image courtesy of Bisnow Reports

Shift real estate.

December 1, 2021

Jonathan Cohen, based in the Pacific Northwest, is an engineer turned developer/hotelier/social entrepreneur.  Always interested in sustainability, Jonathan also has a strong DIY streak in him. When he was younger, he volunteered on an environmental farm and did an internship working on wind turbines at the National Renewable Energy Lab in Colorado. He also built a house and worked at a charter school. When he eventually tried working at a high-tech firm, he just didn’t like it.

So, in 2003, embracing the proliferation of new sustainable energy technologies, Jonathan launched Imagine Energy, as an online resource to connect people to creative solutions to fulfill their energy needs. Later he added solar installation to the business, as well as heating, ventilation and air-conditioning solutions he went on to devise for a range of unusual projects.

The Society Hotels came a decade later. Jonathan (along with three partners) purchased a vacant, historic building in downtown Portland, OR, built in 1881, but vacant since 1975. A challenging adaptive reuse project, the vision for The Society Hotel was part hostel, part hotel, with a 24-bed bunk room, 38 private rooms and suites, a café and a rooftop deck. Acting as their own general contractors, they completed the project in 2015 to a wave of positive press. And that first project soon led to a second, larger one in Bingen, WA, in the Columbia River Gorge, which opened up in 2019.

While the Society Hotels certainly have a sustainable and social component, Jonathan’s next act goes even further. He has cofounded Equity Development Lab, an innovative development company created to shift business and real estate development industries towards social equity. While it’s still in stealth mode while he builds trust with his largely minority clients, his goal is big.  He hopes to shift ownership of some Portland neighborhoods into the hands of those who have never had ownership before.

Read the podcast transcript here

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

Eve: [00:01:00] Jonathan Cohen has made his mark. While he started his professional life as an environmental engineer, his true persona as a restless entrepreneur emerged when he tackled the remake of an historic building in Portland’s Chinatown district. This project might have frightened most people, but Jonathan and his partners turned the building into something shiny and new for the 21st century. They rebuilt it from the foundations up and converted it into a hotel for everyone. The Society Hotel offers bunk beds for weary travelers for as little as $35 and private suites for those of us who like a little privacy. All of this neatly offered in a very hip package. Jonathan and his partners were ahead of their time, and he’s doing it again. Listen in to hear more.

Eve: [00:02:01] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:20] Oh, hello, Jonathan, I’m really delighted to have you on my show today.

Jonathan Cohen: [00:02:26] Thanks for having me here.

Eve: [00:02:28] So your best known as the developer behind the Society Hotel Brand, which launched in Portland, Oregon. But you started your professional career in a very different space. As an aerospace engineer, I read. And you also own an energy company?

Jonathan: [00:02:45] That’s right. Yes, I’ve definitely had a non-traditional career and it’s kind of wandered all over the place, but I promise there is a thread of theme in all of those different career choices.

Eve: [00:02:58] Yeah, that’s what I want to hear about. How do they all fit together?

Jonathan: [00:03:01] Sure. So, as you stated, I started my educational career in aerospace engineering and I studied that for my undergraduate and graduate programs, and I was really interested in aerodynamics and how that could be applied to make the world better specifically in green energy. So that naturally led me to study wind turbines because you take aerodynamics and green energy, and that’s what you get. And so I studied that for a while, but I could never quite find my toe hold in the field at that time, which in the early 2000s era was really just beginning the wind turbine industry in the United States. And I just couldn’t get my foot in the door as a young engineer. So, I ended up trying a bunch of different things. I worked in high tech for a while in Silicon Valley. I came back to Pennsylvania, and I worked in agriculture, small agriculture. I worked in construction, briefly building timber frame homes, also in Pennsylvania. And then when I moved to the West Coast, I wanted to kind of combine these interests in education. And I also forgot to mention it was a fifth-grade teacher there for a little while. So, I loved education. I love green energy, I love green building, and I wanted to kind of combine all of those interests. And when I moved to the west coast of Portland, Oregon, in 2003, and it was kind of in this little mini recession of the post bubble bursting and I couldn’t find a job. So, I decided to start my own job of having an energy company. And our goal was to fundamentally change the way people think about and use energy. And that company was called Imagine Energy. And I started that in 2003 and ran it all the way until last summer when I handed off the reins to a co-worker. I ended up doing that. I ended up being kind of where the rubber meets the road with energy technology. And I was really it was a really good time to be in that field where we brought a lot of technologies to the forefront, including solar for homes and businesses, high efficiency approaches to insulation and air sealing of buildings. And I worked on retrofitting a lot of buildings and really transforming the way that they were. So, you could have this really old building that really had all the modern comforts and efficiencies of brand new buildings. So that’s what really got me hooked. And that idea of transformation was something I became really obsessed with. Of how can we take something that’s old and give it a once over? How can we transform what people think is possible with certain things? And so, a friend approached me some years later in 2013 and said he was interested in developing kind of a boutique hotel/hostel, kind of hip hostel concept in Portland. And I thought it was a great idea, and I made the mistake of telling my wife who told me that we immediately had to do it. And so, I knew that once she got her teeth kind of sunk into it, there would be no going back and that’s what happened. And literally, within a couple of days, we were in contract on a building, which ultimately is the one that houses our hotel currently in the Old Town neighborhood of Portland, Oregon. It’s a beautiful old building built in 1880. Has a cast iron facade like many buildings do in Portland, as well as New York City. Lower Manhattan has a lot of buildings like this as well. And it needed a little bit of everything, so it really fit into my idea of transformation. How could we transform this once sailors’ lodging house into something modern, something new, something exciting? And we gave it the full treatment, including all of the energy goodies that I care about. So, we gave it LEED certification through all of the energy work that we did, and it actually performs about 40 percent better than a modern code built building.

Eve: [00:07:17] Interesting.

Jonathan: [00:07:17] Even though it has no wall insulation. It’s an old brick building, has no wall insulation.

Eve: [00:07:23] And also the neighborhood needed a little help as well. I’ve had the pleasure of staying in your hotel. So, I remember the neighborhood, this was a few years back, still was teetering. It’s a gentle way of putting it.

Jonathan: [00:07:36] Yeah, I think that’s a fair way to say it. Yeah, the Old Town neighborhood is kind of, it’s always been a little rough and ready, a little on the fringes. Since its beginnings when people disembarked from ships there and brought all kinds. It was really our Ellis Island for this port city. And it’s always been a rough and tumble place and continues that legacy. Although it had an iteration as Chinatown and Japantown and many other immigrant groups came through. Jews, Roma people, Greek immigrants, all kinds of different people, African Americans called this district home at different periods of time over the last 150 years. And so, it’s been kind of taken ownership by everyone, but by no one at the same time. And it’s been in a long period of decay over the last 40, 50 years as its searched for an identity. And it’s become a home for a lot of social service agencies. Which is not in itself a bad thing, but we’ve become a little bit out of balance. We have only 54 units of market rate housing in the whole district. Which is many city blocks.

Eve: [00:08:51] Oh wow. That’s not a lot. Yeah. Yeah, yeah.

Jonathan: [00:08:52] Not a lot. So we’ve really seen the need for transformation and that’s where my wife comes in. She’s really Jessie Burke. She’s really passionate and has degrees in urban renewal, and she’s done that to our, where we live in North Portland. She’s really revived our neighborhood here through commercial activity and activation. And she’s been the large driving force on reinvigorating our district now. And I’m also helping out with that effort through a new entity that we formed called Equity Development Lab.

Eve: [00:09:32] Let me stay with the hotel for a moment, though, because it’s an unusual hotel, and I’m wondering if the history of the place sort of spoke to what you decided to do with it. Can you explain? It’s not a whole bunch of suites, right?

Jonathan: [00:09:45] Yeah, you’re right. Thank you. And I forget that people may not know that know this is a very unusual hotel, especially in America. It has more analogs in other countries, like in Europe and in Asia, for sure. But we call it kind of a boutique hostel and hotel, if that makes any sense. But we kind of think of it as being between those spaces. So between the hostel and between a higher end boutique hotel. So, we’ve kind of got affordable style kind of place to stay. So, it has three types of rooms. It has a bunk room, which is very unusual. You have to imagine this. Has 18-foot-tall ceilings and we filled those with triple tall bunk beds, and they have steel frames and are clad in beautiful northwest Douglas fir cladding. But so, they’re very, very sturdy. They’re adult bunk beds. They’re not meant for kids. In fact, you can’t be. You have to be over 18 to stay there, but they’re triple tall, so you have to climb a very large, tall ladder to get to that upper bunk. And they’re very unique and they stay. You can stay there for anywhere from 35 to 55 dollars a night, depending on the season. And they’re a fun, affordable way to explore the city because we’re right downtown, right on all of the transit lines in the city so you can get anywhere, including the airport, for about two dollars. So, it’s a really affordable way to explore the city.

Eve: [00:11:07] And how popular has that been? The bunk beds?

Jonathan: [00:11:09] It’s been incredible. I mean, through our history until COVID, those were occupied on an annual basis about 85 percent.

Eve: [00:11:16] Wow.

Jonathan: [00:11:17] So even including the winter, so very, very popular. We have had some new hostel type properties come online, but it really hasn’t diminished our success with those types of rooms. So that’s been a really fun place to stay. And then you can kind of step up from there and go to our what we call European standards, which are a private room. They range from about 10 by 10 to about 10 by 12. They’re pretty small. Their largest dimension is usually the height, actually. The ceilings range from 14 to 16 feet, and they have really large windows that let in tons of light. But the rooms themselves are very compact, so we’ve been very efficient with the space layout. The beds are custom made so you can fit your storage underneath. We have lots of hooks and little storage cubbies on the walls, and then you have a sink in every room so you can brush your teeth, wash your face, and then there’s a private bath across the hall that you share with up to two or three other rooms. And those rooms are again affordable. They go for anywhere from 75 to about 109 dollars a night, depending on season. So again, substantially less expensive than other hotels downtown. Even comparable hotels, we try and be about 30 percent less than them. So again, our goal is like affordable boutique style. And then finally, we have some suites that recently got treatment from some local artists. So, we have some really unique suites that are again, kind of a more traditional size for a hotel room with an ensuite bath and all the things you would expect of a normal hotel room. So, yeah, it’s a unique property.

Eve: [00:12:52] So as a developer, I’m thinking, how do you make that cash flow? You had a what sounds like a fairly big renovation with a lot of care to green environmental sustainable issues, which are expensive up front. And you know, and now you have a variety of rooms that are really at the lower end of the market. How does that? How does that pencil out?

Jonathan: [00:13:17] That is an amazing question. I love that question, and I love talking to people with the development mindset because that’s exactly where you’re going. You’re like, well, wait a minute, how does that work? And the funny thing is, this model was actually the most effective model because you’re right, in our district, we get lower rents than other areas. And if we wanted to develop this building for office or apartments, we just would not be able to make it work because the building needed everything. It sat vacant for over 75 years. Needed every type of upgrade you can imagine, including dramatic seismic upgrades to protect ourselves against future earthquakes here. So, the way we amortized out those costs was by two means. One we did general contract the construction ourselves, both myself and my partners at the time all had construction backgrounds, so that wasn’t as a big deal for us, as it would be for other people. But that is a big way that we saved money. We probably saved about a million dollars there. The total budget for the whole project, including project, including hard soft costs and acquisition, was about 4.2 million dollars. So we saved a significant chunk by general contracting it. Though I think the project could have survived if we hadn’t done that because the other way we saved money was by operating the hotel ourselves. A lot of people would bring in an operator, but for a hotel this size, relatively small, it has the equivalent of about 50 keys, 50 doors. It’s hard to find an operator to run a building that small. So, it’s kind of in between a mom-and-pop operation and a more traditional hotel that would have an operator. So, we operated it ourselves and we had some experience in both retail, food service. My wife had run a café for several years at this point, and we have done Airbnb in our houses. So, I guess that was something, but we learned the industry and it wasn’t as hard, honestly, as the food service business. Things are a lot steadier; your margins are thicker and there’s just a lot it’s a lot easier to work with. The rooms are less perishable than food, let’s just put it that way. So, it’s a lot easier to manage that. So that made it palatable to run the operation ourselves, and it’s quite successful, with over 25 percent net profit margin sometimes higher. So that was the way we made that work. When we developed our hotel again, we have a lot of shared bath type rooms where there are private baths, but they’re used by several different rooms. So, we’re not building one bathroom for every room. That means that we have more space for more rooms, so our density is very high. So, in 12,000 square feet, we sleep one hundred people, which is quite a lot for that size footprint. Even our café is only about 100 square feet and we do almost a half a million dollars a year of business there.

Eve: [00:16:11] Wow.

Jonathan: [00:16:12] So it’s all about efficiency. So, if you take each of our standard rooms at 100 square feet, four them is 400 square feet and we didn’t have, we only had to build one bathroom for those in addition to that. So, a typical room, let’s say a 400 square foot suite in a regular hotel might go for 250 to 350 dollars a night for that size suite. Well, in that same 400 square feet, which we at a lower build cost for, dollars per square foot of build cost, we actually get more like 400 to 450 dollars of revenue.

Eve: [00:16:49] So the economics are pretty good.

Jonathan: [00:16:50] So we get more revenue per square foot, and we have less build cost per square foot. So actually, our business does quite well through this efficiency model. And our theory was when we built it that we could do well even with suppressed rates, which has come to pass and we’re able to survive or break even with much lower rates than other hotels.

Eve: [00:17:15] That makes sense.

Jonathan: [00:17:15] The downside of our business is that we have relatively low keys, so we still have a same number of desk agents and café agents and all this stuff, despite the fact that we have a lower number of rooms to amortize those out. So, it’d be more ideal to have more rooms for the staffing level we have. But in general, our business model can work because of that efficiency of our space and build.

Eve: [00:17:41] But that’s the story of all smaller projects and that that’s something I think about a lot because, you know, cities are great. Not because you rip down an entire block and fill it with one mega structure. They’re great because there’s all these little interstitial projects just doing different things. And yet they’re very inefficient to build, and they cost a lot more. And I wish someone would solve that.

Jonathan: [00:18:07] Yeah. Well, I mean, it’s it’s what we do a lot in our neighborhood is trying come up with creative ways of finding different types of occupancies that can have that sort of efficiency model. And certainly, co-working is one of those things. It’s just been kind of overdone at this point. So, it’s hard to find niches. But I still think a few unexplored areas that I’m very curious to explore in our city that haven’t been done but have been done in other parts of the world are really the micro loft type model.

Eve: [00:18:38] Oh yes.

Jonathan: [00:18:38] Even with our shared kitchens. This is not a new idea, right? I mean, boarding houses of some depression-era or other immigration areas. Lower Manhattan. In the turn of the century, this has been done many, many times over. It’s essentially a boarding house model. It’s now becoming kind of called like a co-housing model, but these are other things that we have not tried with our housing. And but they’re also good for real estate development because they create that same sort of high efficiency space utilization with lower build out costs.

Eve: [00:19:15] Well, you know, there’s the whole kitchen thing, which I don’t get. American kitchens are huge. And what do most people do in them? They get out their frozen dinner and they stick it in the microwave. I don’t get it.

Jonathan: [00:19:28] We don’t need a bed to be sitting there all day long. Right? Beds can be stored away.

Eve: [00:19:32] Yes. Yes, exactly.

Jonathan: [00:19:35] We’ve had Murphy beds for over a hundred years.

Eve: [00:19:37] I know I have a couple myself. Yeah. And then, I have to ask, financing. When you started this, this didn’t look like a normal hotel. Who’s interested in helping you with financing something like that?

Jonathan: [00:19:50] Yeah, it’s a great question. Luckily, our urban redevelopment agency, Prosper Portland, is right in our neighborhood. Now, I have a lot of choice words to say about them and how they don’t really achieve their mission of improving equity, and that’s part of why I started my own organization. But one of the tools that they have is a subordinate loan and subordinate loan means just they’ll take…

Eve: [00:20:15] I’ve used them often.

Jonathan: [00:20:15] Yeah, they’ll take a security position behind. Sometimes people call it mezzanine financing. So, it’s usually higher interest, but they’ll take a position behind senior debt or a conventional loan from a bank. And so, what we did was we raised money from friends and family, and we raised about $900,000 from friends and family through individual personal loans. And we used that money to buy the building, and we bought the building with cash and the banks like seeing that. They like seeing that we owned this asset outright or it was outright to them because they didn’t have to deal with our personal notes. And then we were able to leverage that equity we had in the building to secure this, this mezzanine financing from the local redevelopment agency. And that was $750,000, including a $50,000 grant that they offer. So now we had roughly 1.6, 1.7 million dollars and of what of what a bank saw as not equity. But they didn’t see it as dead either because it was all behind them. So, we were actually able to secure a commercial loan, although it took calling about 20 banks to find the right bank.

Eve: [00:21:26] Wow.

Jonathan: [00:21:27] But we did find a bank that was willing to lend us the other roughly 2.5 million dollars that we needed. And we had a commercial loan. And we refinanced that several years later with a little bit better one when we built our second hotel. But we were able to do it in a reasonably traditional way. So, a little bit of grant, a little bit of friends and family financing and some mezzanine financing and a commercial loan.

Eve: [00:21:53] Yes, that sounds, the friends and family sounds like crowdfunding before it started.

Jonathan: [00:21:59] I think that’s accurate. I would say that’s accurate. Yeah.

Eve: [00:22:02] Yes. Yes. Interesting. And you’ve got a second hotel. Where is that located?

Jonathan: [00:22:07] So our second hotel is in a scenic area called the Columbia River Gorge. It’s a really beautiful area just east of Portland. The Columbia River runs just north of Portland and cuts through the Cascade Mountains, and when it does, it creates this dramatic river gorge with 4,000-foot cliffs on either side. It’s really a beautiful area for hiking, biking, skiing. Every outdoor activity you can possibly imagine. And it’s truly the kind of backyard for Portlanders, so everybody from Portland goes to the gorge at some point or other to look at waterfalls or do whatever do it any million number of different activities there are through the seasons. So nestled in that, so that whole region is a protected area, and it stretches for about 60 miles or about an hour’s drive. But at the kind of end of that is a small town called Hood River, which is also known as the windsurfing capital of the world because the wind whipped through that gorge. And so, it’s where wind surfers and kite boarders and everybody interested in wind sport goes. There’s also amazing river kayaking there, just anything you could want to do. And so in that little area, there’s a few small towns, Hood River one of them. That’s about 7,000 people. And then a couple of other small towns Bingen, Washington and White Salmon. Bingen has 700 people, and that is where we found our little Old Bingen Schoolhouse, which had been used as a hostel up until we bought it, but needed a lot of love, and we re-imagine that as a sort of adult summer camp getaway for Portlanders. And that’s what it’s become. We turned the schoolhouse into lodging and a cafe. We have a gym for events and parties, and then we built on the old ball field a ring of cabins in a very sort of Asian inspired design motif with a beautiful spa and bath house in the middle of it that has soaking pools warm, hot, and cold soaking pools, a sauna and massage services. So, it’s a nice getaway from Portland, or to make a ski weekend of it or just get out of town and enjoy the outdoors.

Eve: [00:24:20] So is this the last one?

Jonathan: [00:24:22] Oh, I don’t know. You never say never, you know, but you know, it’s been a challenging pandemic for us in the hospitality industry.

Eve: [00:24:29] I was going to say, I was going to ask you how you made it through the pandemic. Well, it’s not over, but it’s. at least we know what we have to do now. Yes.

Jonathan: [00:24:38] We’re past the worst of it, we believe. Yeah, I think that you said it exactly right. We know what we have to do. I think that’s the right way to think about it. It’s been challenging for sure. Our Gorge Hotel, which has been a getaway for locals, has fared a little bit better. But as you know, most travel within the United States and international travel, which is just opening today, has been shut off.

Eve: [00:25:04] That’s right.

Jonathan: [00:25:05] So we haven’t seen anybody from even from Canada in 20 months. And so that’s really hurt the Portland hotel, which is more of a destination for people from outside of the area. And Portland’s undergone a lot of challenges, with its downtown being largely abandoned during this time. So, the Portland hotel has had a harder time and been closed for in total about six months during the last almost two years, a year and a half to two years. But we’re recovering, and the Gorge Hotel has done better and recovered faster but has never closed. So, it’s been challenging like it has for many hospitality properties and restaurants across America. But we’re surviving,

Eve: [00:25:48] So I’m going to move on to your next business because we reconnected. I met you a few years back at your hotel. And we reconnected recently through a new business that you’ve started. I wanted to talk about that. Remind me what it’s called. It’s called the…

Jonathan: [00:26:05] Equity Development Lab.

Eve: [00:26:06] Equity Development Lab, and it’s a very mysterious website. It does not have a lot on it.

Jonathan: [00:26:11] That’s true.

Eve: [00:26:13] I really wanted to figure out what you’re doing and there’s nothing there. So tell me what that’s about.

Jonathan: [00:26:20] Yeah, thank you. In March 2020, you know, we really, the world was in flux and we didn’t know what was going to happen with our hotel businesses. And of course, that summer, many protests were sparked across the country and in Portland as well after the death of George Floyd. And it really brought light once again to the gross injustices that are experienced by many people of color in the United States and other parts of the world, too, but in particular in the United States. And with these two things happening of our business being in flux and seeing this happening, we really were thinking a lot about the experience of minorities in America, in particular Black Americans. And it reminded us of, we went to an MLK Day breakfast some years ago, which is led by the Black community here in Portland. And this was years ago, and they talked about business ownership in the Black community and that even though there’s a high rate of business ownership and entrepreneurship in that community, the average number of employees is like less than two. So, the point is there are really a lot of sole proprietors and they’re not able to grow those businesses successfully for many different reasons. But access to capital is a big one. And, also, real estate ownership is almost the lowest among all groups in America, and it really reminded me of that last year and how the path to generational wealth has been cut off for most of these communities. And it was something that we’ve learned a lot about through real estate development and we wanted to share our knowledge. So, we started this organization, which is it’s just easier to pop up an LLC, but we’re going to apply to become a non-profit here very soon. And our goal is to really teach other communities about real estate development and assist entrepreneurs, particularly people of color in starting businesses, building their businesses, leasing retail space, or buying buildings and developing those buildings. And so, the way that that happens, we offer many different services. Currently, all of these services are free. We don’t charge for any of them. Eventually, we’ll support them internally with grant funding, but we help with negotiating leases. My wife is a commercial broker, so she helps negotiate commercial leases. We help negotiate purchase of commercial property and residential property. And I help a lot with business plan development, business plan financials, finding, financing, and presenting that information to financing organizations like yours and working through that process really in tandem with you and helping through construction. With my 17 years in the construction industry and developing my own properties. I also built the Second Gorge Hotel by myself, as well as a general contractor. So, applying all of those lessons to help people navigate the process. Because entrepreneurs a lot of times have a lot of knowledge and passion and expertise in their particular area, whatever that may be. But there’s all these other things you have to do to open a brick-and-mortar shop, right? Or even an online presence.

Eve: [00:29:52] That’s right.

Jonathan: [00:29:53] And the reason our website is fairly naked…

Eve: [00:29:59] Mysterious?

Jonathan: [00:30:00] Mysterious. It’s intentional for now because we’re really just trying to build support through because we’re one still trying to recover our own businesses. So, we have a limited amount of time and we really don’t want word to get out too fast. And we want to be able to help people kind of one at a time. So that’s what we’re doing is we’re kind of building a portfolio and we’ve helped about seven different clients so far and they’re in different stages. So, we have one guy that’s just about to start construction on his retail tenant improvement for a high-end menswear shop in our neighborhood in Old Town. And that’s going to open this winter. He’s almost there. We have another set of gentlemen who were helping. We’re working with you to to acquire a commercial property, 16,000 square feet in our neighborhood and redevelop it. And they’re in contract right now to do that, to close at the end of the year. Just had our first kind of fundraiser for that on Friday night. And so, we’re working with a variety of people in different stages of their businesses, and we’re going to put up some case studies to explain more of what we do. Probably this winter, once those property projects are all further along.

Eve: [00:31:13] It’s a very big idea. It’s something I’ve heard other people talk about. How do you take the vast knowledge? Let’s just talk about the real estate industry, in the very white real estate industry and start sharing, sharing that knowledge. I mean, most of us who are developers have a lot of fun thinking those sorts of projects through. You can count on me being a volunteer for you.

Jonathan: [00:31:38] Thank you.

Eve: [00:31:38] I mean, it’s, I think you would find a room full of people in no time at all who would say, Yeah, I can spend a little time helping someone else find capital, build a business, figure out how to renovate a building. It’s almost like, you know, in the legal world, aren’t lawyers supposed to do some pro-bono work? I feel like we should be. We should be required to as well.

Jonathan: [00:32:04] Yeah.

Eve: [00:32:04] It’s a fabulous idea. So, I have to ask the obvious question. Two things you talked about the redevelopment authority letting you down, and that’s in part why you started this business. And the second is, well, how is this going to pencil out for you eventually?

Jonathan: [00:32:19] Yeah, thanks. Yeah. Well, so one area, I’ll answer the revenue question first. So, one area that we have revenue is real estate commissions. So, our clients aren’t paying the commissions, but the sellers are or the property owners who are leasing the space. So that’s one way we can support ourselves. But eventually we believe we’ll be able to get substantial grant funding once we’re a non-profit, the 51c3. So, I don’t think that’s really going to be a problem. And for now, it’s really just kind of done in our spare time and once our properties are more stabilized, I’ll have even more, more free time because I am not looking for more development opportunities right now. This is kind of where I’m funnelling my development energy into our own neighborhood, our own community, by helping other people do it. And honestly, I don’t really have more to learn. I’m not interested in learning too much more about developing another property myself. I’m more interested in learning what I learn by helping somebody else develop a property. So that’s for my personal growth. My personal…

Eve: [00:33:26] Teacher’s bubbling up now, right?

Jonathan: [00:33:27] Yeah, that’s a good, good point. So, when I was when I was teaching fifth grade, Eve, you’re really good at this, I’ll tell you. When I was teaching fifth grade, I was just exhausted. It was so much energy to give to teach children all day long. I loved it. I mean, I love working with kids. I have three children of my own now and I love working with children. I love teaching. But it was exhausting, and I felt like I wanted to learn so much on my own. I wanted to do. I wanted to achieve. At that point when I was 22 years old or whatever. So, I wasn’t ready to give. And that’s what teaching is, is really giving. But now, so now I’m bringing that energy back, as you rightly said, and I’m just I just love it. I love it and I’m learning so much. I’m learning so much through the process. It’s fascinating. And I think back to myself in earlier years of what I knew and what I didn’t know. It’s like I had all these bits of knowledge that helped me in doing development, about finance or about just about construction or just all these little bits, you know? But like, you need it all filled in with different mentors. And I would see those different mentors, or I learned it myself because, you know, I became a self-starter and I learned how to I learned how to learn really well. But I got a lot of help from other mentors, too that filled in those gaps of knowledge. So, I’m just doing the same thing for these entrepreneurs.

Eve: [00:34:53] But that’s what’s interesting. You’re a white man. Your mentors were probably white men.

Jonathan: [00:34:58] Yeah.

Eve: [00:34:59] Yep. And so the Black community doesn’t really have that wealth of knowledge and therefore no mentors, right? So, I know capital is the thing that’s talked about most, but it’s also the whole educational experience is somehow missing.

Jonathan: [00:35:16] Yeah, the institutional knowledge has not been passed down because I mentioned there are not very many large Black owned businesses. There’s not a lot of commercial real estate owned by Black individuals.

Eve: [00:35:29] Right.

Jonathan: [00:35:30] So there’s not a lot of that experience to pass down through the community. And rightly so, the community is very slow to trust people from the outside for very, very good reasons.

Eve: [00:35:44] Yes.

Jonathan: [00:35:45] That’s another reason our website is sort of incognito because we want to build trust slowly. And that’s why word of mouth is the best referral because it means that people felt like they had a good experience from with us and they could trust us. And so, we are trying to kind of take that slowly as we go.

Eve: [00:36:02] Yes. This is really fabulous, so what’s your big, hairy, audacious goal?

Jonathan: [00:36:08] Hmm. Well, our goal, right now… So, with different stakeholders in our neighborhood in Old Town, we have a lively kind of nightlife district. We have a large social service agency with a lot of affordable housing, and we have a smattering of independent businesses and restaurants and other, kind of, and we have some education and cultural institutions. We have this fabulous Lan Su Chinese Gardens, this world class Chinese gardens, a block away from us. It’s just incredible. And many other cultural institutions, educational institutions. So, we have this really, really diverse group of stakeholders in our neighborhood. But some of those stakeholders pulled out during the pandemic. And what that meant was that there was opportunities for new stakeholders to come in. So, our goal is really to get as much commercial real estate in the hands of people of color as possible in the next five years in our neighborhood and to activate those spaces and that wealth building process to go 100 percent to those communities. That’s what we want. We don’t want. I’ve seen other models where people do what we’re doing and they often take a stake in these properties that they’re working on, and we don’t want to do that at all. We don’t want, if we’re taking a stake, it’s only ever going to be, and this has never happened yet, this is just an idea, but we would potentially partner only to help people secure financing that they need, but with the express goal of exiting as soon as possible so that the equity is 100 percent belonging to the communities that are developing these properties. So, we really want to transfer this knowledge and this wealth building potential to these communities and so that they can have generational wealth and generational knowledge to pass on to their community and their family and friends.

Eve: [00:38:05] That’s a pretty great goal. So, what would you change in the real estate industry? Aside from what you’re doing to make it a more equitable place. I know that’s a very big question.

Jonathan: [00:38:17] Yeah.

Eve: [00:38:18] It’s one of the toughest industries, I think. You know, I was the only female developer in Pittsburgh for a long time.

Jonathan: [00:38:25] Yeah.

Eve: [00:38:25] Which is like, are you kidding me?

Jonathan: [00:38:28] Yeah, no. I’m sure you faced a big uphill challenge of that.

Eve: [00:38:31] Well, not as big as Black people.

Jonathan: [00:38:34] Yeah.

Eve: [00:38:34] But still, you know, anyone’s really been excluded except white men. So that is a seismic shift that you have to…

Jonathan: [00:38:47] It’s, there’s a story I want to tell you, but I feel like I’ll to save it for a repeat visit once this transaction is complete.

Eve: [00:38:54] Okay.

Jonathan: [00:38:54] That’s really germane to this question, but I’ll certainly share it with you privately. And then maybe on another time we can talk about on air once the time has passed that it would matter. But, you know, I think the answer is just standing alongside people, fighting alongside people, calling out when you see it. My wife is extremely good at this. I’m learning and becoming better at it. But once you get tuned in to the experience, and that’s honestly the biggest gift for me doing this work, I’m Jewish and which is not a handicap in the development world at all. In fact, it might be a benefit because our community is pretty well embedded in real estate development and banking and other places. So, I actually find more friendly faces than not. But I also have had the experience of discrimination outwardly and more covertly in my lifetime and obviously in every generation before. So, there’s a lens from which I can understand the experience that particularly Black Americans feel. And now that I’m kind of alongside a lot of my clients whom most are Black, not all. But I see what they experience, and it is shocking and fascinating and horrifying. And you just watch the ease with which people dole out discrimination and they maybe they have no idea they’re doing it, but you just, when you’re standing alongside, you’re like, there it is. Boy, wow. There it is. You know, in small ways and big ways. And so, my job is to call it out. To call it out for what it is because I’m sort of like a translator. Like I can understand, I can see it happening. But because the way I look, people don’t expect me to call it out, but I call it out.

Eve: [00:40:53] Can you give us an example?

Jonathan: [00:40:56] Yeah. So, we’ll go to a lender or a seller and they’ll say, Well, we’re really interested in leasing this to anybody. We’re really desperate. We don’t have any tenants. We’re really interested in leasing this to anybody. And they said, oh yeah, this woman was here, and she had an idea, and we were just really willing to do anything. And so we said OK, well, we’ll put together a proposal with our clients. And our clients, put together a really beautiful business plan. And I’m saying this because I vetted it and I know I’ve written and I’m not patting myself on the back here.

Eve: [00:41:33] It was a good business plan.

Jonathan: [00:41:34] I’ve written many business plans and I know what a good business plan needs to look like, and it doesn’t have to be a white paper. Doesn’t have to be complicated. It can be…

Eve: [00:41:42] Just thorough, right?

Jonathan: [00:41:43] Thorough. It covers all the bases, looks great. The financials look great. We’ve done analysis. Best case, worst. We’ve kind of pressure tested the financials. We know that they can survive even if it doesn’t go as well as we think. We present conservative estimates, and it still looks great. And then we put these guys pictures in there. And all of a sudden, there’s extra questions, all of a sudden there’s oh, well, we just don’t know if their business can attract that type of customer. We just don’t know if that type of customer exists.

Eve: [00:42:20] That’s just heartbreaking.

Jonathan: [00:42:21] It’s like, oh well, because that’s not the kind of customer you would be. Then you don’t believe that they can attract that type of customer. And it’s subtle things like that. It’s little things like that. It’s like, oh well, these aren’t high net individuals. Oh well, neither was I.

Eve: [00:42:40] Right.

Jonathan: [00:42:40] Any time I’ve been under bank scrutiny, I’m still not particularly a high net worth individual without my hotels. And those are very subjective to their performance right now. So, it’s just funny the questions I’ve gotten versus the questions that they get.

Eve: [00:42:57] Yes.

Jonathan: [00:42:57] And it’s like you think about things like redlining, right? And we think now with this lens of like, oh, redlining was this, you know, horrible, pernicious, intentional action where evil real estate agents and mortgage brokers and banks carved up these cities and said, here’s where Black people have to live, and here’s where you can’t. Well, you look to the actual maps from those days, which you literally had red lines on them. And it wasn’t quite as evil as you might think. It was kind of like, well, here’s where Black people live. So, we’re considering these higher risk loans, right? But I’m not saying it wasn’t overtly racist. I’m sure it was. I mean, this is the era of Jim Crow. This is definitely overtly racist. But the things that are happening now that I watch and experience, I think in 20 years we’re going to look back at those with the same lens and be like, this was overtly racist. And yet today, when I do say it to people, they’re like, Oh, no, no, I wasn’t saying that. And it’s like, well, what are you saying then, right? Why are you saying that when you wouldn’t say that to someone who looks like me? And so, I think we might be surprised at how our viewpoints on how people act now will change over time. And we’ll see some of the actions that people take right now as being much more overtly racist than they’re perceived as currently.

Eve: [00:44:25] I hope in 20 years. I’ve been waiting all my life for people to treat women differently, so it’s been a lot longer than 20 years.

Jonathan: [00:44:34] Yeah.

Eve: [00:44:35] So, no, I don’t know what my next question is, because that’s so fascinating. Ok, so let me just ask you, look, are there any. this is just a real estate question after these much more difficult questions, but are there any current trends in real estate that you find really interesting that are worth watching? I mean, especially now, you know, this pandemic has really shifted things the way we do things. I don’t want to put on the same clothes anymore. I don’t know about you, but in real estate, you know everyone debating what’s going to happen to Main Street, what’s going to happen to this? Have you seen anything emerging that might provide an answer?

Jonathan: [00:45:19] It’s a good question. I mean, you know, it’s sort of the question I ask myself every single day, right?

Eve: [00:45:24] So we can ask it together.

Jonathan: [00:45:25] Yeah, because I’m in my job specifically within our own company is forecasting people’s behavior. And it’s been that way throughout the whole pandemic as we’ve tried to stay open and make our staff feel comfortable and make our guests feel comfortable with the varying regulations and health concerns around the pandemic. So it is a challenging question and I do scan, you know, I’m watching for trends all the time, both in our city and across the country. Gosh, a lot of things are happening, right?

Eve: [00:46:01] People have moved online so rapidly. It’s kind of head spinning. I was pulling some numbers together for a deck to explain our business and this statistic really floored me. It took about 12 years for 70 percent of Americans to use social media in their everyday lives. Mm hmm. It took one year from last year to this for the adoption of fintech to go from 60 percent to 90 percent.

Jonathan: [00:46:29] Wow.

Eve: [00:46:30] So, you know, now depositing a check. You do everything online. Everything to do with finance is just moving online rapidly.

Jonathan: [00:46:41] I just got a request from my insurance company to do an inspection of our property, which the insurance company normally does, by myself. They want me to send them the pictures. I’m like, oh, for commercial insurance it just seems bizarre. Yeah, I think so many things have been found to be cheaper and more efficient by doing online or outsourcing so that people don’t have to travel places to do it. I think that will stick in a lot of different ways. You know, even before the pandemic, using social media so much, people were feeling isolated from each other. You know, you’ve maybe read the book Bowling Alone, which was written 20 years ago, and talking about how people become more and more lonely and depressed from lack of community. So, I feel like the pandemic has only accelerated those feelings. So, on one hand, we are definitely going to do more business by ourselves and separated and through this medium where we’re remote. On the other hand, I think the need has never been higher for people to feel connected to each other.

Eve: [00:47:54] Um hmm.

Jonathan: [00:47:54] And I’m curious of how that’s going to sort itself. Our hotel model is all about creating communal spaces and we’re like, Oh God, this is not a good pandemic for us, right?

Eve: [00:48:06] No, no.

Jonathan: [00:48:06] Like, it’s not good, you know, between our bunk rooms and our bunk rooms have been slowest to recover of all of our room types, for sure, because of those health concerns. Rightly so. But on the same hand, people meet each other, people need. There’s a difference between seeing someone virtually and embracing someone, shaking their hand.

Eve: [00:48:28] That’s right.

Jonathan: [00:48:28] You know, there’s, you’re not going to change that biochemistry need for people to be physically near each other. It’s exhausting being on Zoom meetings all day where your eyes are darting around the screen because you rely on your peripheral vision to get a lot of data input, and it’s exhausting to have to look everywhere. So I don’t know what’ll happen, but I do know that people need each other. And I think that there are certainly people who are going to be last to come back to that world of greeting each other. And there will be people like our clientele. It seems that boutique hotels are recovering fastest, not chain hotels. And I’m a little bit surprised by that on one hand. But on the other hand, I’m not because our travelers are, who want our kind of unique type of hospitality, are more adventurous travelers. That’s why our tagline is serving adventurous travelers since 1881. That’s when our building was built. And so we feel that those are the type of people who want to come out in the world first. So that’s who’s out there right now. But as things recover and more people are willing to travel, they have those needs and those needs are going to be pent up of connecting with people having real experiences together. So, I don’t know. I think a lot of things will change permanently, and this is something that you can’t change. But where is the trend? Man, I haven’t seen anything that’s even like a trend lit yet.

Eve: [00:49:55] No. Well…

Jonathan: [00:49:56] I haven’t seen anything.

Eve: [00:49:58] I do know that the restaurant industry is just decimated, and it’s not just people coming to eat, but I have a friend who has four bars and he said he can’t hire people. He’s paying extraordinary prices for line cooks. He says that a complete restaurant crisis, so that whole industry. Oh, it’s pretty heartbreaking.

Jonathan: [00:50:24] It is. It’s really hard. It’s already one of the hardest industries.

Eve: [00:50:28] Yes.

Jonathan: [00:50:29] And to add the staffing crisis that we have right now is even harder. So, we’re struggling with it too. It’s just been hard through the pandemic of people’s emotional level. And hospitality requires a positivity, and that positivity has been hard to find at times during this time.

Eve: [00:50:48] So that’s been the hard stuff. But look what’s come out of it, your Equity Development Lab, and that’s the upside of it all, right? That’s a pretty amazing thing to give birth to in the middle of a pandemic.

Jonathan: [00:51:03] I would guess I would say I’m bullish on humanity, you know?

Eve: [00:51:07] Yes.

Jonathan: [00:51:07] You know, I’ve always been I’m a scientist first, you know, and I’m just a true believer in humanity’s ability to solve problems. And so, I’m always positive even about climate change and big, big, big issues. I believe in our ability to solve problems. If you want another fabulous podcast is The Secret History of the Future. Have you ever listened to that one?

Eve: [00:51:33] No, no.

Jonathan: [00:51:34] And it’s all about problems that we’re facing now. I think they only have one or two seasons. Supposedly, they’re coming out with another one. But they talk about, here’s a problem we’re dealing with now. Here’s how we already dealt with that problem 100 or 200 years ago. It’s similar but different, and I like it because it gives me hope about how we always find a way. We have gone from a billion people on Earth in 1900 to eight billion people in 2000, give or take. And that’s dramatic, and that doesn’t happen without solving a lot of problems. So, I’m not saying that growth rate is sustainable, but I also believe that we will solve those problems of sustainability in the next hundred years. So, I believe in our society to solve these problems, and I think the pandemic showed our resilience, even if it was not easy for everyone, myself included.

Eve: [00:52:32] Well, Jonathan, this has been a fascinating conversation. I can’t wait to see what happens with your Equity Development Lab and I’m expecting to be included.

Jonathan: [00:52:40] You are.

Eve: [00:52:42] Thank you very much for joining me.

Jonathan: [00:52:45] Thank you so much for having me. It was a pleasure.

Eve: [00:53:03] That was Jonathan Cohen. In everything he does, Jonathan is focused on the underdog. He’s out to level the playing field and we’ll be eagerly watching him. You can find out more about this episode or others you might have missed on the show notes page at our website. Rethinkrealestateforgood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jonathan Cohen

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