Rethink Real Estate. For Good.

Equity

Change accelerated.

Over the last few years something has become pretty clear. The internet has infiltrated our lives, with a steady shift towards online shopping, remote work and more. Now, a pandemic has cemented and accelerated these shifts in the way we live and work. They are no longer gradual but have been condensed and forced upon us.

According to IBM’s US Retail Index, the shift to e-commerce has been accelerated by a startling five years. And while remote work was also possible before the pandemic, many office spaces now stand empty and office work is no longer an option. Zoom meetings are the new normal. Even though we are certain there will be a return to the physical office for some, there may also be compelling reasons for others to continue to work from home. Consider the artefacts of the work commute – unproductive time spent travelling, the carbon footprint of cars, crowded transit endangering health and the cost of childcare.

The pandemic is motivating change. But how can we grab this opportunity to do better, for everyone?

With the change in work and shopping habits comes a need for change in the physical spaces we occupy. And architects like Katie Faulkner have been thinking about how this pandemic will impact architecture and design. Katie’s ambitions have always been to design impactful, sustainable and socially responsible architecture, but now there is even more to think about.

Now she’s thinking about different ways of delivering projects and the materials that are used to build them; ways in which the building industry can reduce its carbon footprint; ways in which  the carbon footprint of buildings can be reduced to zero and ways in which to make buildings more useful, more productive. Issues to be considered include storm surge, climate change and the need to make the world a more sustainable, fair and inclusive place. And as our space needs change, so will the need to revisit land-use restrictions, zoning requirements and building codes as the need for change becomes more pressing.

There’s a domino effect here. The first domino to fall was the pandemic. There are many more to come.

Listen to my interview with Katie Faulkner to learn more.

Image by Standsome from Pixabay

Spread the wealth.

Since 2004, Charmaine Curtis has headed her own development and consulting companies, emerging as a leader in the Bay Area developer arena. Her three decades of real estate experience include multi-family, mixed-use and urban infill projects, and she has overseen or worked on the development of over 7,000 units of housing, in both San Francisco and Seattle.

Passionate about developments that can crack the affordable in the land of unaffordable, Charmaine believes we are due for a paradigm shift in how we think about wealth and equity. She has written and spoken about the implicit challenges of being a developer who also happens to be a woman and Black, noting that even where she has lived and worked for decades, “in liberal San Francisco [there] is unconscious, pervasive bias against Black people and women. It would be hard to overstate how much more difficult it is to gain access to capital and be taken seriously as a real estate developer if you’re Black, and compounded if you’re a woman. In spite of this, my career is incontrovertible proof that a Black woman can succeed in the industry.”

Previously, Charmaine served as president of A. F. Evans Development, director of housing development at Mercy Housing California, and project manager at McKenzie, Rose & Holliday Development. One of her early jobs was as an associate planner for the city of Berkeley.

Insights and Inspirations

  • Charmaine didn’t realize what she was up against (Black + woman) until she was in her 30s.
  • She wonders what her net worth would be today if she were not a Black woman?
  • She’s interested in developing real estate around market principals that would pay her enough to be comfortable, but ensure that those she is building for are comfortable as well.
  • What would it take to spread the wealth? Charmaine wonders if you added up all the wealth in the world and distributed it equitably, what would everyone have? Would it be enough?

Information and Links

  • Charmaine likes a blog put out by Neha Sampat. Neha has a consulting practice called GenLead BelongLab, and her blog is mostly about empowering women by helping us identify what holds women back. 
  • And then art. Charmaine was part of a group of women who collaborated to bring this amazing 55′ sculpture, “Truth is Beauty,” to San Leandro, to educate about violence against women and to inspire survivors to speak up. The “visionary developer” who installed it was Gaye Quinn.
  • And Charmaine also wanted to point to a mural (on a project she co-developed in Oakland) called “Hands Across”. Designed by noted artist, Kota Ezawa, it has become even more resonant in 2020.
Read the podcast transcript here

Eve Picker: [00:00:10] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Charmaine Curtis, who’s had a significant career as a real estate developer on the West Coast. She owns her own company, Curtis Development and Company, and she’s focused on impactful housing projects trying to crack the affordable in the land of unaffordable. But we’re not video blogging, so you probably don’t know that Charmaine has two strikes against her. She’s a woman and she’s Black. And if you’ve ever wondered what that’s like, here’s a chance to learn. Charmaine says that she didn’t know what she was up against until she was in her 30s, when reality struck. “How much more personal wealth would I have, she wonders, if I were a white man?”

Eve: [00:01:12] Be sure to go to EvePicker.com to find out more about Charmaine on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform. Small Change.

Eve: [00:01:36] Hello, Charmaine, it’s just lovely to have you on my show.

Charmaine Curtis: [00:01:40] Well, it’s really nice to meet you.

Eve: [00:01:42] Yes, I hope we meet in person some day …

Charmaine: [00:01:45] Me too.

Eve: [00:01:45] … when this silly pandemic is over, right?

Charmaine: [00:01:49] Yes.

Eve: [00:01:50] So, I wanted to ask by, start by asking you what, what drew you into real estate?

Charmaine: [00:01:59] It was a very serendipitous and intentional way. I got a master’s degree in urban planning from UC Berkeley with every intention of being a planner and, you know, doing my part to save the world. And then I got jobs as, not counterplanner kind of jobs, which is, I think that most people think of planning, they think of people who are sitting at a desk in a municipal building and, you know, giving people information about what they are or not allowed to do on their properties. I worked for the redevelopment agency in Berkeley. But my first job, first of all, was working for Libby.

Eve: [00:02:35] Oh.

Charmaine: [00:02:35] Doing market studies. Yeah. You probably didn’t hear that part.

Eve: [00:02:39] No.

Charmaine: [00:02:39] Yeah. Yeah. So, yeah, Libby was the first person I worked for out of grad school.

Eve: [00:02:45] For our listeners, Libby, Libby Seifal heads up a growing women’s development collaborative that we’re both part of. So backgrounds. Go ahead.

Charmaine: [00:02:54] So. I went to work for the city of Berkeley, for the redevelopment agency, and I was just a young whippersnapper who threw out into the wilderness when they were trying to expand … into a couple parts of the city. And, so I got chewed up in that process with very little support and realized I was really not interested in being a public employee. But I didn’t know what I wanted to be at that point, because I had just spent these years getting a graduate degree. And then I serendipitously was introduced to a developer who was starting his own company and looking for a young whippersnapper to come and work for cheap and help him build this company. So, that’s what happened, that, you know I kind of fell into the business, not intentionally, but through that introduction, which, which was great because I got to work on some super exciting projects in San Francisco that were really pioneering. And I got to learn the business, at least that side of the business. It was, it was a for-profit company converting loft buildings or warehouse buildings into lofts, which was a new thing for San Francisco, a very old thing for New York, but a new thing for San Francisco. So, that’s how I got into the business. And I did that for a few years and really got, you know, sort of trial by fire, learning that, you know, all about entitlements and actually worked on one of the first low-income housing tax credit syndications in the country.

Eve: [00:04:32] Oh.

Charmaine: [00:04:32] We did all kinds of, it was just, it was a wacky thing. You know, some of it was consulting work that we did for others. But so, I got, I got a real broad range of experience in that, in that company.

Eve: [00:04:47] Kind of always the case when you’re in a small company, isn’t it? You get to do everything because there’s no one else to do it.

Charmaine: [00:04:54] Yeah, and small was me and him. That was it was just the two of us at the beginning. And it was really, it was a great experience. And then it was a challenging experience as the company was growing. And I kind of felt like I was not able to grow as much with it at some point because other people were brought in. And so I decided to move on. And that was in the early 90s. And I decided I really wanted to learn the affordable housing side of the business and build some affordable housing. I mean, I was sort of, back to, you know, my part and trying to save the world, and I got a job working with an organization, it was called Catholic Charities at the time in San Francisco, but was later acquired, shall we say, by the Sisters of Mercy, who were starting their own development, affordable housing development, company, which is now, as you probably know, a pretty large national company, a non-profit, and based in Denver. And so that was really an interesting transition from being part of the male dominated Catholic Church to moving into the female dominated part, which was a revelation. And so many amazing, I mean, the women who were, who started that organization, including Sister Lillian Murphy, who died last year, I think, were just extraordinary women in every way, just in terms of their true passion for providing affordable housing and alleviating poverty, you know, trying to make a dent in poverty, not just, you know, putting people in buildings. And just because they were brilliant, you know, any of these women could have run a successful for-profit development venture. But, you know, they were nuns, and so they put their talents into building an operation to build more and more affordable housing, which is, now it’s just, it’s, it is, as I said, one of the largest nonprofits in the country. And, you know, that was also super informative experience for me. Also a burnout, because, you know, if you’ve worked in affordable housing, you know that at least here in California what it takes to put an affordable housing development together is like 10 pieces of funding, small pieces of funding from, from multiple sources and then trying to marry those sources. And the brain damage and the transaction costs of affordable housing is excessive. I was also, you know, I was being a project manager, and then I was, I was managing people, and then also managing projects, which just totally a recipe for burnout. You just can’t do both.

Eve: [00:07:52] Right.

Charmaine: [00:07:53] I decided to take a break, and actually decided to go to film school, which I did …

Eve: [00:07:59] Oh wow.

Charmaine: [00:07:59] Which I did well. And I went to film school at San Francisco State, and for a semester, and during that time, I was also working and doing consulting work for Mercy and others, and to support myself. It was something that I was passionate about, but it was also something that, you know, I didn’t feel I had the financial bandwidth to pursue.

Charmaine: [00:08:28] I grew up in a working class family and I wasn’t really intending to be a working class person, myself. You know, the goal was to move beyond that. And to do my family proud, and to do myself proud in terms of being able to do what all generations want to do, which is just do better than the one before or the ones before, especially when you’re your Black person in in this country. And I had opportunities growing up because I was recruited into a program called A Better Chance. And I left my home in Cleveland to move to Minnesota where I went to high school for three years, and went back home on vacations. That program is a program that was founded on the East Coast back in the late 60s, early 70s, to identify promising young people, kids in inner city areas who were in crappy schools and to give them an opportunity to go to, initially boarding schools on the East Coast, but it expanded to the school like I went to in the Midwest, which was a public high school in a really wealthy suburb. So, I ended up getting into Dartmouth College after that. And so, you know, I was a smart kid and I had these opportunities and, you know, and I seized them. But, you know, getting those opportunities and taking advantage of them doesn’t mean that you kind of leave behind all of your, you know, the baggage of coming from a family that, where my mother, everybody worked two or three jobs. And my mother grew up picking cotton in the South. And, you know, it’s really not until, I would say probably in the last 10 years of my life or so, that I’ve really been able to sort of think about the impact, the sort of generational impact of, of poverty and, you know, slavery and racism in this country.

Eve: [00:10:29] Yeah, well, it sounds like in one generation you’ve come a long way.

Charmaine: [00:10:34] Indeed. I mean, I’m the one who from my immediate family that left Cleveland and, you know, kind of made my way in this insanely expensive world of San Francisco. So, after that, I kind of did some consulting on my own, and then when I went to work for a company, there was a for-profit developer. But they develop both market rate and affordable housing, which was kind of the best of all worlds for me. And I ran the multifamily part of that company and under a really great boss who is still somebody who I’m really close to. Art Evans, who was a, I think, a real visionary in the, in the field. And who came out of a redevelopment background and held that vision of both doing well and doing good. And I would say probably more doing good, ultimately. Art, he did a lot of really great work and ended up getting clobbered like a lot of people in the, in the Great Recession of 2008, 2009.

Eve: [00:11:36] Yeh.

Charmaine: [00:11:36] And then, I just did the addition the other day. I’ve been out on my own as long as I’ve worked for other people in the business. I’ve been on my own since 2004, and started out doing my own development, building condos in the East Bay and working on some stuff up in Seattle. And at the time I thought I had a financial partner who I thought was going to back my business, but that ended up not happening. And so I really ended up on a shoestring putting these deals together, between my own capital, and back in those days before the recession, you could do really high leverage …

Eve: [00:12:11] Right, right.

Charmaine: [00:12:13] … with participating debt and other kinds of financial participation by investors. And so, anyway, that was, that ended up being a, not a wise thing under the circumstances, which, of course, no one could have anticipated what was coming.

Eve: [00:12:28] No one. No one. That was a disaster.

Charmaine: [00:12:31] Yeah. And so, I built a couple of really nice projects that were in, what I would call transitional neighborhoods, which was the focus of my business plan, which was looking around the edges of, and looking at, you know, where people in San Francisco were fleeing to, frankly. Which was parts of Oakland and Berkeley, and seeing that those neighborhoods were ripe for …

Eve: [00:12:57] Yes.

Charmaine: [00:12:57] … change and also wanting to build an entry level product, not trying to …

Eve: [00:13:03] Not luxury.

Charmaine: [00:13:03] … not luxury, not, I would, I’ve never been interested in that, which I think was ultimately one of the reasons that my potential financial partner decided that he didn’t want to invest in me, because I wasn’t thinking that way. I wasn’t thinking huge and expensive. My interest really is much more in transformation of neighborhoods in a relatively organic manner.

Eve: [00:13:26] And isn’t that in the end, a little bit more recession proof, or a lot more recession-proof.

Charmaine: [00:13:31] Oh my God, if that was exactly my thinking at the time. Yeah.

Eve: [00:13:35] In 2008, 2009, I had a number of buildings in Pittsburgh that I had redeveloped, sort of against the grain. They were transformational. They were, I don’t want to say luxury products, but they weren’t affordable because I couldn’t, just couldn’t get the numbers right. But they were different. And honestly, I barely felt the recession. It was very odd because they were in underserved neighborhoods and places that most people weren’t looking at, just as you said, on the edges. Right?

Charmaine: [00:14:05] Yeah.

Eve: [00:14:05] It was an interesting learning experience for me.

Charmaine: [00:14:09] Yeah. You know, if I’d been at a different stage in those projects, I might have been able to pull it out. But one was not yet complete. It was about 75 percent done. And the other one was basically complete.

Eve: [00:14:21] Oh yeh, almost done, yeh.

Charmaine: [00:14:24] We were just starting sales. So, it was, you know, lenders were not feeling it.

Eve: [00:14:33] That’s really painful.

Charmaine: [00:14:33] Oh my God.

Eve: [00:14:34] Oh, that’s painful, you know.

Charmaine: [00:14:36] It was awful. And it really, I think took me a good 10 years to recover both financially and emotionally from it. Frankly, it was really, it was devastating. It was, you know, I talked to, I was talking to one of the local developers here who’s done well and I think comes from wealth. And  that, he said to me we were at a conference or something and he said, I personally lost six million dollars. And I’m like, oh, really? Well, I kind of lost everything except for my house. And so, you know, sorry, but our pain is not equal.

Eve: [00:15:09] Yeh.

Charmaine: [00:15:09] So, it, yeah, it’s, that’s the difference, you know for me in a way that crystallizes the difference between being a Black woman who comes from where I come from, with my sensibilities. Right? Not just, I didn’t get into development, too, I mean, I think maybe initially I did kind of get into development to become a rich person and, you know, prove that that’s possible for a Black woman to do that in the industry. But it’s the difference between being, you know, someone who doesn’t come from resources versus someone who does. And who is then able to build more races on top of those resources, that provide the cushion that you need when the shit hits the fan. So. It was a crystallizing experience for me that way, in terms of, the just the stark difference. Everyone was not impacted equally by that. What happened, for sure. Since then to, that my daughters were born in 2008. I was lucky to, you know actually marry later in life and have these two girls with my husband. And that was 2008. While the world was crashing down around me, I was also pregnant and with twins and …

Eve: [00:16:20] Oh!

Charmaine: [00:16:20] So, they were born in late 2008 and I spent the next few years just rebuilding, basically, and working on a really interesting project I worked on exclusively for a few years, which is a master plan and community work and both, internal community work with this public housing project in San Francisco and, and the surrounding community to re-envision what was a 600-unit project over 39 acres into what would be, what will be a 1600-unit mixed-income project and …you know, in addition to working all the physical planning, working with the community to get their buy in and support, and working with the folks who live in the public housing to help them envision a better future, and to bring a new way of working with very low-income people. That’s ongoing, and that is really, I didn’t do on my own, or at all. There were many other people involved in this community building effort and really, in recognizing the trauma that comes with generational poverty and all the, you know, the things that happen to people who live in poverty and that keep them down. And so, that has been, and continues to be, a reasonably successful effort to lift, not just rehouse people in better housing, but to sort of lift them up and provide, protect the developmental health of the littlest ones, in particular, by also helping their parents.

Eve: [00:18:06] yes.

Charmaine: [00:18:06] So, that was a really great opportunity for me to do this amazing work on what will be a transformative project in that part of San Francisco. And now I am doing development on my own or with others and co-development capacity. And I’m still doing, I’m doing development consulting work. That gig with the nonprofit, where I did the master planning work and all that other work, was a consulting gig. And so, you know, really just the last many years been about finding the balance between supporting my family in this insanely expensive town and reinvigorating my development career as a principal, which is where it’s at for me because I like to create things, you know.

Eve: [00:18:52] Yes, I know that.

Charmaine: [00:18:54] And in order to create, you need to have some measure of control …

Eve: [00:18:57] Yeh.

Charmaine: [00:18:57] … which is when I started my business, in 2004, that was a moment when I was just on fire with, with passion to make buildings and be a part of transforming neighborhoods.

Eve: [00:19:10] Yeah.

Charmaine: [00:19:11] And I feel like I’ve kind of rediscovered that, that passion in the last few years.

Eve: [00:19:16] It’s such a great thing to make, like something happen out of nothing.

Charmaine: [00:19:20] Exactly.

Eve: [00:19:20] It’s so great. There’s really nothing like it.

Charmaine: [00:19:22] Yeah. And it’s, I mean, that’s really, I’m just a very, you know, goal oriented, like I can see it and touch it and feel it at the end of it, I’m so happy. If I can’t touch it, see it and feel I’m like, what am I doing? What is, what is this?

Eve: [00:19:35]  Yes.

Charmaine: [00:19:37] So. I’m definitely a … touch feel person and love, love to see the results.

Eve: [00:19:43] Oh yeah, me too. So, you are a Black woman in an industry that is incredibly, heavily dominated by white men, and I know that’s impacted your work, but I’d love to hear from you … how.

Charmaine: [00:19:59] You know, I will start answering that question by talking about a TV show I watched last night, which is a new show on Hulu called “Woke.” And it’s really interesting. I suggest you check it out. It’s …

Eve: [00:20:16] I will check it out. I’m writing it down.

Charmaine: [00:20:18] I think it just dropped last night. And it’s based on the life of a cartoon artist, named, I think, Keith Knight, who invented these cartoon characters. And I don’t know if the true story is butter and toast, but those were the characters, the cartoon characters in his strip, that he was, that this show was talking about. And how this guy, this Black guy thought that he was kind of exempt from, you know, the impact from being impacted by Blackness in this country until he was taken down by some cops and, you know, thrown to the ground and guns at his head because they thought that he was a mugger who had just been reported, and how that experience transformed him, and his thinking, and his perception of himself in the world. It’s the first one, I just watched the first one, and I’m like, oh, my God, that’s kind of me in my 30s, you know. I thought, oh, my God, I’m, I’m smart, I’m driven, I work hard, and therefore I will succeed in this business. And, you know, while there’s always, you know, when you’re a Black person who comes from poverty in this country, I think there’s always another part of you that’s back there saying, hh, that’s not going to happen, Come on. But I, basically I would say I took for granted, for a very long time, what a disadvantage I was at being a Black woman in the business. I thought my smarts was enough. And it, you know, it’s just not.

Eve: [00:22:01] And, It should be enough, right?

Charmaine: [00:22:02] Well, yeah. In a in a in a perfect world.

Eve: [00:22:06] In a perfect world. Yeah. Yeah.

Charmaine: [00:22:08] But, you know, in a way I, I think it was liberating to not see that limitation, like, at least not ostensibly. I probably felt it more than I saw it. And you know, and I, I built a great reputation here in this city and this region, parts of the region, anyway. But what I would say honestly and truthfully, and this is, this comes from somebody who was really hard on herself a lot of the time. If I were a white dude in this business with my skills, ability, talent, vision, I would be, you know, five times richer than I am. And have more opportunity thrown at me than I do. You know, it really just took me a really long time to actually come to that conclusion because I’m so driven, and have, and took so much for granted, frankly, about what my smarts and what my drive would get me. That said, you know, if I look sort of relative to where I come from, what my background is, you know, my mother picking cotton, my stepfather working eight thousand jobs to support us, I’ve done well, especially in this region where it’s so hard to live. But would my career have taken a different path if I were a white dude? Absolutely. And I, I think there’s a level of just not being taken seriously as a Black person in this industry. It’s not even at that level. It’s almost just like it’s not not being taken seriously. It’s just not being seen. And, and …. you’re, it’s not like you’re invisible, but it’s almost like you’re invisible. Because there’s a presumption that especially as a Black woman, I mean, there are some Black men in this industry in the Bay Area who’ve done well. Not many. I’m going to say three.

Eve: [00:24:17] Yes.

Charmaine: [00:24:17] But as a Black woman, I think it is just, it is just a given on a very subconscious level, for most people that you are not, you don’t have what it takes to, you know, to do what white men can do in this business. And I think it’s on some level that is something that I internalized at some point in my career. And in addition to, just all the internal stuff that Black people experience in this country, you know, from living in generations of the degradation of racism, that you see and that you don’t see. Right? It’s almost the unseen stuff that is worse than … and you’ve heard, probably heard people say, I’d rather be Black in the south where the racism is just in your face than be Black in the north, where it’s, it’s implicit and unspoken, but very real nonetheless. It’s hard to know, you know, what we were talking about before we started, you started to start recording, it’s hard to know what you don’t know. It’s hard to know how your life and career trajectory would be different if you were who you were in a different body …

Eve: [00:25:33] Right.

Charmaine: [00:25:34] … in the body of a white man. So, it’s, You know, it’s complicated.

Eve: [00:25:40] It’s actually quite heartbreaking.

Charmaine: [00:25:42] Yeah.

Eve: [00:25:42] You know.

Charmaine: [00:25:43] Even before the events of this year, I’ve been, and when I started out in 2004, it wasn’t like I didn’t understand that I was a Black woman in the business. I did. And part of what I really wanted to prove, and want to prove is that a Black woman, you know, a smart Black woman who is hard-working and can accomplish anything, basically, like no limitation. There are no limitations, you know, and there are, obviously. But there’s still that drive in me to prove that a Black woman can be a serious success in this business. How I’m defining that, now, is probably different than it was then, because I am really about creating a different kind of world. I’m not, you know, when I was younger in the business, I was like, this is, I’m going to make a ton of money, I’m going to prove, because the measure of success in this industry is wealth. I’ve had this conversation with my husband many times. It’s like, what a success look like in the development business. If you are a white guy, it looks like, or if you’re anybody, it looks like how wealthy you are and how much money you’ve made. And the world is just the direction that we are moving in. I feel like it is really vital that people like me, and everybody, deploy their talents in the interest of the whole and not just themselves. That’s the world I want my kids to be able to grow up in, is a world that’s not a winner-take-all world, and so, that’s really kind of how I’m thinking more, lately, is how can I deploy my talents in a way that’s going to help to create that world where development can be a force for real transformation. And what needs to happen in the industry for that to happen? What conditions need to exist for that to happen? And there’s so many different parts of it, I know that you are familiar with because you’re a developer.

Eve: [00:27:48] you know what you’re saying really rings for me, too, I think when I was younger, I always thought I would figure out a way to fit in to the structure of the world the way it is. And quite a while ago, I heard the first female three-star general of the Army speak, and someone in the audience asked her like, well, how do you fit into that power structure? And she, she drew a circle on a chalkboard and she said, OK, here’s the power. And you keep the circle, and you keep trying to get in, and you keep trying to get in, and you keep trying to get in. And eventually you give up and you go over here, and she draws another circle, and you make your own circle of power. And I think that, you know, there are some people who are never going to change that first circle, but then there are the rest of us who want to do something different.

Charmaine: [00:28:35] Yeh, yeh, and it’s really about building a movement and, or being part of a movement, and helping to build a movement to a more equitable way of developing …

Eve: [00:28:44] Yes.

Charmaine: [00:28:44] … our world. And I’ve been thinking a lot in the last few years about just how there’s sort of two, especially here in the Bay Area, there’s really two kind of extreme ends of the spectrum. Where we have a really robust nonprofit community on one end, which is largely, mostly comprised of white people, just as an aside, and a very robust market-rate world of development, which is mostly, also, white people …

Eve: [00:29:15] Also white people …

Charmaine: [00:29:15] … more women on the nonprofit side, for sure.

Eve: [00:29:20] Yes, absolutely, because they paid less. Right?

Charmaine: [00:29:23] Yeah, exactly. And, and they are, you know, they’re just, I don’t know, I don’t know what the difference is. There’s so many differences between women and men.

Eve: [00:29:31] It’s the same profile in Pittsburgh. I have to tell you …

Charmaine: [00:29:34] Yeh.

Eve: [00:29:34]  … it’s exactly the same.

Charmaine: [00:29:36] Yeh.

Eve: [00:29:36] It’s really interesting.

Charmaine: [00:29:37] But there’s a sort of middle ground that’s not occupied. And I think that there is a middle ground. I think there should be a middle ground, and that it should be occupied by people like me who want to use their talents to develop in a more equitable way. Which means in a way that really is not profit driven, but in a way that is driven by market principles, in a way. Because I do believe, personally, and I, this may be a controversial statement, I think that the non-profit world is not driven by the same principles that the for-profit world is.

Eve: [00:30:14] Oh, no, I totally agree, I totally agree.

Charmaine: [00:30:16] I’ve been on both sides. I’ve seen it. I’ve seen how I treat my money, like actually my, you know, versus some …

Eve: [00:30:26] No, absolutely.

Charmaine: [00:30:26] … government entity that’s like three, you know, three things removed from me. So, I do believe there is a real difference. And I’ve been on both sides, and I developed for my own account, and I know how to drive a deal and move in to reduce the cost to the lowest possible amount while producing something that I don’t have to be ashamed of.

Eve: [00:30:49] Well, you’re driven, you’re driven by urgency, and much of the nonprofit world is not, because they don’t have to worry about the costs and staying alive in the same way.

Charmaine: [00:30:59] Right. The cost or the time.

Eve: [00:31:01] Yeah. Yeah.

Charmaine: [00:31:02] And I’m not blaming anybody or anything. This is just the system that we have created.

Eve: [00:31:08] Yeh.

Charmaine: [00:31:08] And I really believe, I believe very strongly, and I’ve been talking about this for, you know, a few years now, that I believe that there is a third way to do development. You know, where I am not interested in trying to, I don’t want to generate tons of profits for anybody else. And I don’t want to generate, I don’t need to generate tons of profit for myself. I would like to make money, a reasonable amount of money, that is commensurate with whatever the level of risk is that I’m taking. And the less risk I take, the less money I make. And the more, the less profit somebody else makes, the more we can use that for the benefit of the people we’re developing for. And I’ve been thinking about that …

Eve: [00:31:50] Yeh.

Charmaine: [00:31:50] … largely here in the context of missing middle housing, which is truly missing, like, gone, like doesn’t exist.

Eve: [00:31:58] Really.

Charmaine: [00:32:00] And I don’t know how you do missing middle housing. It’s really a fee-driven business. It has to be in, if your heart is in the right place and you’re coming at it from the right perspective and in the interest of long term affordability, and not just, you know, a five, 10, even a 15-year old and then flipping and realizing gains … I think you really you really are coming at it from that perspective of, this is a fee business, this is a fee driven business, which nonprofit development is too, but it’s a fee-driven business that brings market-driven principles to the production.

Eve: [00:32:38] Yeah, so you produce something and then it has a life of its own.

Charmaine: [00:32:41] Yeah. And there are many, many elements to this. A lot of people are talking about, you know, modular is one aspect or building innovation, since we build buildings like cave people did, basically, to a large extent. And innovations in financial markets, which means really bringing people into financial markets who are not looking at achieving the, a typical kind of market return that you would get if you were investing.

Eve: [00:33:09] Yeah, well, that’s that’s the key.

Charmaine: [00:33:11] That is the key.

Eve: [00:33:11] That capital is less greedy.

Charmaine: [00:33:13] Exactly.

Eve: [00:33:13] Yeh.

Charmaine: [00:33:14] Taking the greed out of the bit, of this part of the business. And I’m a pragmatist at bottom. And so I’m like, we live in a capitalist world, in society. I’m like, that’s, let’s just say that, that’s what we are. We’re going to, that’s always going to be a big part of who we are and how we live. And, you know, the nonprofits are doing God’s work. But I do believe there is room for a third way to approach how we get stuff done. And we just have to bring, bring all of the all the, you know, creativity and passion, and bring others along into … Being real about it. Because in the world of social impact investing, I, I hear about it a lot. I have not, I can ,I can’t tell you that I’ve seen one development that I think benefited from whatever that is, at least the kind of development I’m talking about. There’s like a new organization in San Francisco that is attracting, I think, real social impact capital. It’s still money coming from wealthy people who expect a return, which I actually find that, slightly appalling, because I, I do think that if, you know, the one or even the five percent deployed even a portion of their capital in a way that was like, eventually give me my money back, and I don’t expect you to give me any return on it, but I’d like it back someday.

Eve: [00:34:46] I don’t mind a return that keeps up with inflation, but I’m with you completely. I posted on Small Change, I’ve listed projects that are affordable housing and heard complaints about the return not being high enough. And I’m actually, how can I say, unhappy with where we are, because I think the return should be as low as three percent …

Charmaine: [00:35:08] Yeah.

Eve: [00:35:08] … to really build affordable housing. And yet, I have to admit, I’m scared of listing a project with a return that low. I had a conversation with an amazing developer of a project just like that that really, you know, should be on that platform. And I don’t know if anyone’s going to invest.

Charmaine: [00:35:26] Yeah.

Eve: [00:35:27] Because it’s not enough money for them. So, if they really want impact. I mean, don’t people understand that the higher the return on equity, the less affordable the housing? Because, I don’t …

Charmaine: [00:35:38] I think some people do and some people don’t. And I think there’s a significant education aspect to this that has to occur so that people do understand that there is a direct relationship.

Eve: [00:35:50] Yeah.

Charmaine: [00:35:50] I think that we will eventually, hopefully be in a world where there is a concept of ‘having enough.’

Eve: [00:35:57] Yeah, yeah, yeah.

Charmaine: [00:35:58] If you have a net worth of 100 million dollars, that’s enough. And you can then use the rest of whatever you have in a way that is to the benefit of the general good. And those who don’t have.

Eve: [00:36:11] Yeh.

Charmaine: [00:36:11] And that’s really what we need. We need a paradigm shift in how we think about our individual responsibility as citizens of the world.

Eve: [00:36:22] Yeh, and then, of course, there are the small investors who’ve never had a chance to invest before. You know, where that 500 dollars …

Charmaine: [00:36:29] Yeh.

Eve: [00:36:29] … really matters, maybe even more than the millions of the billionaire. Right? And I want them to get a return. It’s very difficult. It’s very inequitable.

Charmaine: [00:36:39] Yeah.

Eve: [00:36:39] So my next question would be, well, you know, what would you change to make the real estate industry a more equitable place for Blacks and women? Maybe just ignore the rest of them?

Charmaine: [00:36:52] Yeah, you know, I mean, that’s obviously, there’s no magic bullet. There’s no, I mean, we’re seeing now in 2020 how deeply ingrained white supremacy is in our culture. A couple hundred years after slavery ended. So, I am not naive about the, and I don’t like to be airy fairy and unrealistic about the possibilities. You know, I think that one thing I see in San Francisco happening is that, at least in the nonprofit world, is that nonprofits are making an active effort to hire more Black people on their staffs, which I applaud, especially if you are hiring people and then supporting them in the way that they need to be supported, and not just having people be window dressing. So, how do how do we change the hearts and minds of Americans who don’t even perceive themselves as being racist, but who have, you know, probably relatively deep implicit bias, which is a lot of what I was talking about earlier that I have experienced with, that I didn’t even know I was experiencing, right? Is the deep, implicit bias of people who think that Black people are not as smart and not as whatever, as others, as whites or Asians, if it is a true awakening or call to action or whatever that’s happening now that’s also, you know, both sides are kind of awakened. Right?

Eve: [00:38:13] Right.

Charmaine: [00:38:13] But if it’s happening and this leads to a reckoning that is not, hopefully, violent, and that doesn’t tear us apart, I think that this is a very good thing because I do see more white people that I know than ever before trying to examine their own racism and … people who never thought of themselves as racist, which is very important because if you think you’re not racist and you’re white, you are not woke, you are not awake. And so it’s very important for, and it’s not a blamey thing, it’s just like, this is the work. This is the work that must be done, if we’re going to change this world so that Black kids have an opportunity anywhere near what a white kid can have in this country. And, you know, begins at that level of zero, you know, like birth and what you are born into. What happens to you between the ages of zero and five, how your psychology is, develops and it’s impacted by that and other things, and your sense of agency and capability and power in the world. That’s got to start at zero. It is remediable to some extent along the way. Right? And I’m kind of proof of that.

Eve: [00:39:38] Right.

Charmaine: [00:39:39] But, you know, that’s like one level of what has to happen. And, and making opportunities or providing opportunities for more Black people and people of color consciously, and not just consciously in the hiring and then bringing in, but then once people are in, giving them what they need, helping them to succeed and not just taking for granted, we did the hire, now we’re done. So, there’s that level of building opportunity. And I think that we need more Black people in the industry and just getting more Black people in the industry and whatever ways that happens will be a good thing. I did not know until, maybe until I was in graduate school what a developer was.

Eve: [00:40:32] Yeh, I was a bit older, actually.

Charmaine: [00:40:34] Yeah, right. I mean, it’s like, it is amazing how many people who I told them, when I tell them I’m a developer, they’re like, what is that? Still. Right? So …

Eve: [00:40:43] Yeah.

Charmaine: [00:40:44] So, teaching these little, kids at a very young age, what the opportunities are in life in general outside of the what everybody thinks of as being a doctor, a lawyer, you know, or a business person, in general, that there is this whole world where how our physical world is created, that is dominated by this industry.

Eve: [00:41:09] Yeah. And, you know, real estate surely should play a really big role in, in shifting generational wealth as well. I’m not, I’ve been thinking about that, and I think there are ideas, all sorts of ways that that might happen. I’m not exactly sure how yet, but wealth has to do with property …

Charmaine: [00:41:30] Right.

Eve: [00:41:30] … not just cash.

Charmaine: [00:41:32] That’s right. That’s why the wealthiest people own, families in this country up until recently, were real estate families, by and large.

Eve: [00:41:40] Right.

Charmaine: [00:41:42] Now it’s tech. But …

Eve: [00:41:43] Yeah. How do you teach that? How do you make that shift, make that happen?

Charmaine: [00:41:50] You heard me say earlier that, you know, and I have this conversation. I’ve been having this conversation with a guy I met recently who’s a Black guy, who’s doing some investing, and he is about, you know, sort of the wealth building, as a Black person in the, in the industry. And I get that, and I understand that, and I don’t not support that, but I cannot really abide wealth building amongst a very few people, while other people are out in the cold.

Eve: [00:42:25] Yeh.

Charmaine: [00:42:25] That’s not sitting right with me anymore.

Eve: [00:42:29] Yes.

Charmaine: [00:42:29] So, I’m torn about it. I mean, you can hear it in my voice. I’m torn about it because I do want to see more Black people succeed, but I want to see a lot more Black people succeed. You know, not just a few.

Eve: [00:42:44] Yeah, yeah.

Charmaine: [00:42:45] So how do we do that? We spread the wealth. You know, we have to find ways to spread the wealth. And that goes back to my comment about needing a paradigm shift in how we think about our responsibilities as humans on the planet, to each other and to our children and to other people’s children. I’m interested in building wealth. I’m just not interested in building …

Eve: [00:43:12] Uber wealth.

Charmaine: [00:43:12]  … yes, I’m not interested in being, you know (laughter) how many people in the world can have a net worth of ten million dollars? Can everybody? You know, is that a possibility? Is that a..

Eve: [00:43:27] It’s an extra interesting calculation to do if you.

Charmaine: [00:43:30] Yeah. Is that a theoretical possibility even, you know? And …

Eve: [00:43:30] That’s really interesting. Or even a million, you know.

Charmaine: [00:43:38] Yeah. What are the, what are the trade offs there? And I don’t know what they are. I just know that everybody can’t be rich. So then, you know, then I back off, I keep backing away from that, what can everybody, what is enough? And I start with, I really start with, like housing. There’s some things people should just absolutely, simply be entitled to. And housing, stable housing, stable, sanitary, decent housing is one of those things. And access to an education and the resources that you need to learn, that are not just about teachers and schools, but if you need, you know, help with your mental health or whatever you need help with to be somebody who’s able to learn and be a real contributor. These are basic things. And then we, we do these basic things, we build a better world where there will be more of everybody, more opportunity for everybody.

Eve: [00:44:39] Yes. Well, you’re going to make me cry, so I’m going to try harder. I hope everyone who listens will try harder, too. But I’ve really, really enjoyed this conversation. I feel awful ending it. But I’m going to now.

Charmaine: [00:44:56] Well, I’m looking forward to talking more with you. Yeah.

Eve: [00:45:00] I would love to meet you in person. And maybe there’s some joint venture we can do. I love doing development and I love hearing about what, what you’re working on. So, thank you very much.

Charmaine: [00:45:10] Thank you, Eve. It’s really great talking and, we will be in touch.

Eve: [00:45:23] That was Charmaine Curtis, a real estate developer, a Black woman in a largely white, male industry. It’s hard enough to be a real estate developer and make a living at it without those additional two strikes against you. But that is exactly what she is doing.

Eve: [00:46:03] You can find out more about impact real estate investing and access the show notes for today’s episode at my website EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Charmaine, for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

Image courtesy of Charmaine Curtis, Curtis Development

Everything old is new again.

Daniel Dus lives and breathes solar. After college, he moved into real estate, got an MBA and then leapt head first into the energy industry. Today, Daniel heads the North American Renewables division for Adani, an Indian multinational group that has one of the largest solar portfolios, globally.

But his heart is equally someplace else –  in the Berkshires. That’s where he grew up and that is where he is planning his next act. The Berkshires, in western Massachusetts, a vacation and cultural destination, has an amazing inventory of luxury estates dating from the 1800s up to the early 1900s. But many of them now stand dramatically underutilized. Daniel and his team at Shared Estates want to develop these estates for the shared economy, bringing them within reach of the middle class. Plus, they will make all the projects carbon-neutral, through sustainable practices and carbon offsets.

Previously, Daniel worked for Dynamic Energy (with a focus on greenfield development, community solar and shared renewables), Safari Energy, and Martifer Solar (where he was responsible for over 1,200 solar clients under leases, power purchase agreements, community solar projects). He also helped found Solairo Energy, working on turnkey solar and wind generation projects. He is a certified solar designer, and holds over 50 certificates in energy hedging, grid infrastructure and emerging energy technologies.

Insights and Inspirations

  • Luxury estates like this can really only be fully utilized in the shared economy. And they are by no means only in New England. Hint. Hint.
  • These unique projects can only be done affordably in rural areas, and these are communities in growing need of economic support.
  • Banks do not want to lend in rural areas.
  • Every one of their properties contributes a percent of income to a local nonprofit, further benefiting the community.
  • Why not make it (or any project) carbon-neutral?

Information and Links

  • Daniel and his team are crowdfunding equity for their next shared estate, The Freeman Berkshires, at Small Change. And anyone over the age of 18 can invest. Check it out!
  • Vote Solar is a national advocacy group working on solar energy issues at the local level.
  • Daniel renovated The Playhouse, originally built by George Westinghouse, and the first place in the world powered by AC electricity. Now it’s the number one estate to stay in on VBRO.
Read the podcast transcript here

Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Daniel Dus. While Daniel has forged a career taking him to the top of the solar industry class, his heart is someplace else, in the Berkshires. That’s where he grew up and that’s where he’s planning his next act. The Berkshires, Massachusetts, is rich with travel destinations and has an amazing inventory of luxury estates dating back to the 1800s. As industry collapsed, so did the use of these estates. Many of them stand dramatically underutilized today. And that’s where Daniel and his team come in. You’ll want to hear how Daniel is planning to reposition these estates for the sharing economy. Be sure to go to EvePicker.com, to find out more about Daniel on the show notes page for this episode. And be sure to sign up for my newsletter, so you can access information about impact real estate investing, and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:42] Hello, Daniel. Thanks so much for joining me today.

Daniel Dus: [00:01:44] Thank you, Eve. Great to be here.

Eve: [00:01:46] So, your career has been in the solar industry, and I would love to start by just hearing what you’ve accomplished in your career.

Daniel: [00:01:56] Yes. 15 years in solar now. I’ve had the pleasure of helping create and build some of the largest solar companies and projects in the solar space, in the United States, over the last 15 years. Currently, with a company, when I joined, had just completed its first solar project, and it’s recently ranked the largest solar company in the world with 15.4 Gigawatts of operating and contracted projects.

Eve: [00:02:25] Oh, wow.

Daniel: [00:02:26] So, seeing growth like that in the space, which is really focused on carbon, SOx and NOx, emissions reductions, is really, really been exciting – to see the industry go from almost nothing 15 years ago, to now solar is number one in energy in terms of new, installed capacity year over year. So, just that transition, rapid transition, has been exciting to be a part of.

Eve: [00:02:52] Yeah, I’ll say. So, what’s your background? How did you get into the solar industry?

Daniel: [00:02:58] Actually came into solar out of a focus on real estate. I spent a few years developing real estate along the East Coast U.S., and that’s where I was exposed to the trades, financially structuring projects, and ended up selling those assets, but it, this was right in the middle of the financial crisis. Nothing really made sense. Went back to get an MBA and launched my first solar company out of the Drexel business incubator, so … and the rest, as they say, is history.

Eve: [00:03:30] Oh, very good. So, that brings us back to where you are today. Because I’ve gotten to know you for an entirely different reason. And that’s your new company that you’re starting up, called Shared Estates. So, why the name Shared Estates? Tell me a little bit about that.

Daniel: [00:03:45] We fell upon it as an exemplification of our primary objective, or one of our primary objectives, which is to bring these beautiful, historic, storied estates that in the past have primarily been in the hands of the wealthiest U.S. families, and bring those into the reach of the middle class. In many cases, our properties will cost less per person than a standard hotel room would, but with significantly different benefits and amenities. So, we really want the community to enjoy these spaces, use these spaces. One of the really fun things about the business is seeing families and friends create memories in these spaces. So, it’s a major driver for us.

Eve: [00:04:30] Basically, buying and repurposing enormous luxury estates, and sharing them in the shared economy.

Daniel: [00:04:39] Yeah, that’s exactly right. And our geographic focus offers quite a few of these properties. The Berkshires of western Massachusetts, also known as inland Newport, often, was developed in the 1800-1900s. Many of the wealthiest families built these estates there. They called them ‘country cottages,’ but these are often multi-100 acre, often over 10,000 square foot properties. And there’s not as much of a market for these properties as single family, second or third homes today as there was then. And they often end up being very underutilized. I mean, talk about an underutilized asset. Often, they may be used a couple of weeks a year, a few weeks a year, by these families. And so, we’re taking those estates and we’re putting them into the shared economy where they can be much, much more accessible both to the local community, as well as to the tourist economy there.

Eve: [00:05:35] That’s really interesting. How did you come up, upon this idea? Like, it’s an unusual take on a real estate company.

Daniel: [00:05:41] It’s a good question. I wish that I could say that I analyzed the market, that I did a bunch of market data research and saw that large group, short-term rentals was a rapidly growing subset of the short-term vacation rental market, and the broader tourism market. But that’s not the case. I fell into it entirely. I was living in Manhattan and purchased a property in the Berkshires, which is where I was born and raised, and originally was going to use it for weekends, myself, and went through a deep rehabilitation process, and ended up taking a job in Philadelphia, so moved a little too far away to really use it for myself. And I put it on HomeAway VRBO, originally at, I think, $350 per night. And I figured if it rented 20, 25 percent of the time that it would cover its own mortgage and that would be a win. Well, it booked so much in the first 72 hours that I had to raise the price multiple times, and it now books for well over a $1000 dollars a night, and books 65, 70 percent occupancy. So, it’s just such a phenomenal project that it really opened my eyes through the process of developing and listing the property to this underserved market, right? There are very few, if any, large-format, short-term rentals in urban areas, because if they existed they’d be exceedingly expensive. But, in rural America, there are a lot of these properties that are beautiful and really underutilized today. So, it, really fell into it.

Eve: [00:07:18] Was that first property the Playhouse?

Daniel: [00:07:20] Yeah, that’s right. So, the Playhouse is a great example. It was originally built by George Westinghouse in the late 1800s. It was the first place in the world ever powered by AC electricity. He built an AC microgrid there to test what was really the theory of Tesla and the products being developed by Westinghouse and Stanley. So, we know that President McKinley, Tesla, Stanley, Lord Kelvin all visited the property. Westinghouse in the late 1800s had an electric boat; he had an electric car he drove around the property. It was really a leading point of innovation at the time. And this particular structure was called the Playhouse because he built it as a gymnasium, basically, for his children. 7000 square feet. He had a bowling alley in the building …

Eve: [00:08:13] Wow.

Daniel: [00:08:13] … and he later converted it into a theater space, for when his kids were getting older, and entertained there. So, it’s a beautiful open floor plan building …

Eve: [00:08:25] Yeh, I’ve seen photos of it. It’s stunning. It’s beautiful.

Daniel: [00:08:27] Yeah. And it was, when we took it, our architect told us that it was structurally failed. It was literally ready to fall over, and required a lot of structural work to maintain the open floor plan and to make it structurally sound. But in the process, we created a space that has really resonated with folks, where they can bring groups of families, family and friends, and enjoy each other and celebrate each other – weddings, anniversaries, birthday parties and other small gatherings like that.

Eve: [00:08:56] I think you told me that it was ranked number one, or is ranked number one place to stay.

Daniel: [00:09:03] That’s right. Yep. It, on YVRBO, it quickly shot up to the most-booked, most-reviewed property out of over 500 properties listed in the county on VRBO.

Eve: [00:09:13] That’s amazing. That’s a great story.

Daniel: [00:09:16] It was. It was. You know, I love the space. I love the property. It means a lot to me and I love that folks get to make memories there.

Eve: [00:09:26] So, how does this fit in with your solar background?

Daniel: [00:09:32] Yeah, it’s a, it’s a good question and one I get often. Solar development, financing and construction is very similar to real estate development, financing and structuring. You’re talking about zoning approvals, you’re talking about geotechnical studies. If you’re doing any ground work, you’re talking about structuring projects for financing, financial modeling. You’re talking about construction and ownership and operation and optimization of assets. It’s all exactly the same in both industries. It just is that the asset itself is slightly different, but a lot of overlap there. I’m a Stanford-certified project manager, Villanova-certified Six Sigma, and that’s because developing processes for execution of these projects is really at the core of these businesses. So, I think there’s just a ton of overlap.

Eve: [00:10:24] Yeah, but I suppose I’m also wondering, what of your love for the energy industry are you going to bring to these properties, because they weren’t built that way?

Daniel: [00:10:34] Yup. That’s exactly right. And Shared Estates is also, to a large extent, a conduit for investment in a carbon neutral and sustainable asset. That’s, all of our properties will be carbon neutral, offset by either on-site or off-site renewable energy projects, which we’re very excited about. And so, we will bring that attribute to all of our properties.

Eve: [00:11:02] And I think probably some other features that I’ve heard about, but we’ll go into that later. So, In the Berkshires, which you seem to be focusing on, how many underutilized estates are there?

Daniel: [00:11:14] There are a surprising number of them. Again, it was over the span of over 100 years of this economy developing and building, but also had an industrial heyday, itself. General Electric had a major presence there, thousands of jobs. So, there are dozens and dozens and dozens of these estates, in varying states. Some of them are really in rough shape, frankly. These historic properties really need dramatic investment to help bring them up into today’s standards, with IT infrastructure, you know, sometimes structural upgrades, definitely bringing back their former glory and beauty. So, everything from landscaping to paint, new fixtures, etc, is all really critical for these properties. And we try to do that and maintain historic elements of them, as well. So, at the Playhouse, for example, we retained the original Westinghouse lighting fixtures from the 1890s.

Eve: [00:12:14] Oh, lovely.

Daniel: [00:12:14] And so, we do our best to keep the historic elements of the properties. But there are a remarkable number of these in the Berkshires. And frankly, nationally, there are a lot of large, rural farmhouses that are not in their heyday today that could use deep renovations, and other properties that really are, I think, historic to America and deserve to be rehabilitated and brought into the shared economy, which in my opinion, is one of the best possible uses for them.

Eve: [00:12:45] If I want to rent one of your estates how will it compare to holding a gathering in a traditional local venue like a hotel, just price-wise.

Daniel: [00:12:55] In my opinion, this is the core to our ultimate success. The macroeconomics of our properties versus the alternative. There’s kind of no comparison in my mind. Our properties will often be less per person than a standard hotel room would be, but our properties will have … in the next project we’re doing, we’ll have 40 acres of private space, it’ll have a dedicated pond, docks. It’ll have a five-acre vineyard, greenhouses, multiple living spaces, multiple dining rooms, multiple quiet spaces, an office, library. All for your own private use with yourself, your friends and your family. You just have to get a group of family and friends to travel with you. But, in terms of the amenities, there’s just no comparison. These are the most luxurious possible properties. And with the right group of friends and family, on a per person basis, they could be less than a holiday.

Eve: [00:13:52] That’s amazing.

Daniel: [00:13:54] Yes.

Eve: [00:13:54] So, this is really the shared economy in a very different way.

Daniel: [00:13:58] That’s right.

Eve: [00:13:59] So, you have the Playhouse under your belt. You said, you mentioned the next property. You want to tell us a little bit about that one?

Daniel: [00:14:06] Sure. Yeah. We are calling it the Freeman Berkshires. So the Freeman is currently an 11,300 square foot brick mansion on about 40 acres, with a private pond, tennis court. We are going to deeply renovate, rehabilitate this property, new fixtures, new paint, add some square footage, hopefully.  We’re going to install a 500 square foot English-style greenhouse and extensive gardens, five acres of vineyard, and in-ground pool, and really bring this into 2020. Modern IT infrastructure. Games rooms and a virtual gaming room, so that there’s something for all generations. The name, the Freeman Berkshires comes from a local woman, Elizabeth Freeman. She was the first African-American slave to sue and win her freedom under the Massachusetts constitution. And she was abused at the hands of her, quote unquote, Master’s wife. And so, the property will be a tribute to her. We’ll be installing a sculpture garden by local artists in tribute to Elizabeth and her story. And we’ll be donating a percent of profits to the Elizabeth Freeman Center, a local nonprofit that’s been operating since the 1970s, serving battered and abused victims of assault and sexual assault. And so, we’re very excited, and that local nonprofit engagement is part of every property that we’ve done and will do. The Playhouse contributed to St. Jude’s, Sierra Club and the local Humane Society on a recurring basis. So, we’re very excited about the Freeman Center contract and we’ll be closing imminently here in the next weeks. And so, we can’t wait to get started on it.

Eve: [00:15:54] So, tell me a little bit about financing. I mean, I have been hearing over the last few months the difficulty that people are having financing anything unusual in the real estate market. And this is definitely unusual.

Daniel: [00:16:08] Yeah. And in fact, our biggest challenge, Eve, is that these are rural projects. They’re all in rural America. And what I didn’t realize before going to the market the first time, a couple of years ago, for commercial financing in rural America is that many banks will simply not finance projects in rural United States. They’re very focused on urban areas, suburban areas. Commercial lenders like to invest in New York, Manhattan, Philadelphia. They basically red-line rural America, and in places like the Berkshires that really need economic development, that’s a real problem.

Eve: [00:16:47] Did they just come out and say we don’t lend in rural America.

Daniel: [00:16:52] Yeah. I have had dozen of lenders simply say, you know, we do not invest in rural properties. Which …

Eve: [00:17:00] Wow.

Daniel: [00:17:00] It’s kind of like red-lining. Right? I mean, I can’t think of any other …

Eve: [00:17:06] Yes.

Daniel: [00:17:06] … comparison. So, it was pretty shocking, frankly. The local banks are fantastic and supportive, but they often have relatively modest caps on the amount of capital that they can contribute. And so, the value of Small Change really shines here in its ability to help bring capital into places like this, and frankly, to offer the ability of the local community to invest. As you know, traditionally, only accredited investors can invest in GP/LP-type structures like ours, and that’s highly limiting, you know. The local community is not, on average, worth a million or more dollars, but they’re the ones that, they deal with the tourist economy every day, they often work in the tourist economy, and so, they should be able to benefit from that economic activity.

Eve: [00:17:53] So how are you financing this project if you don’t have the bank? How do you do it?

Daniel: [00:17:57] Yeah, this project is particularly unique. We’ve obtained seller financing for a large portion of the acquisition cost, actually 95 percent of the acquisition cost, allowing us to focus our equity on the rehabilitation and upgrade of the property and aesthetic improvements. And we will be conducting a Small Change raise. So, we’re excited.

Eve: [00:18:20] Yes, we’re excited, too. So, but how long did it take you to negotiate the seller financing? That’s not an easy thing to accomplish.

Daniel: [00:18:28] It was almost a year, Eve.

Eve: [00:18:29] Wow.

Daniel: [00:18:29] Of what it was about 11 months of back and forth, and educating the seller on us, what we’ve done, what we plan to do …

Eve: [00:18:38] Wow.

Daniel: [00:18:38] … and ultimately reached a deal that we’re really happy with and I think they’re happy with, too.

Eve: [00:18:43] So, tenacious must be your middle name.

Daniel: [00:18:47] You have to keep that deals, right …

Eve: [00:18:49] Yeh, yeh, yeh.

Daniel: [00:18:49] … that’s the nature of development.

Eve: [00:18:51] So, final question for you. What’s your big, hairy, audacious goal? Where are you going with all of this?

Daniel: [00:18:58] For Shared Estates, specifically, I’m born and raised in the Berkshires. I love the Berkshires. I drove by these properties when I was a kid and fell in love with them. And the Berkshires is a really special place. The Boston Symphony Orchestra summers there at Tanglewood, has the oldest and longest performing dance center in the country, Jacob’s Pillow. It has one of the largest standing Shakespearean companies in the world, frankly. And these beautiful bucolic views. It’s just a phenomenal and special place. And I really want Shared Estates to contribute to the local economy, through taxes, through the nonprofit contributions we’ll be making, hopefully through investments by the local community in the business. I want the business to be ‘by and for’ the local community. And I want it to contribute, honestly, millions and millions of dollars of benefit, both direct and indirect, to local businesses. Every one of our properties supports local businesses. We champion and celebrate local businesses. We have local gift baskets and literature, and we really try to get folks who sometimes travel … they used to travel from Europe, now generally in New York and Boston, as those families are traveling more domestically. And we’ve seen a dramatic uptick, frankly, in our activity in rentals.

Eve: [00:20:19] Oh, that’s interesting, yeh.

Daniel: [00:20:19] But we really want this to be a massive engine of growth for the local economy, and to be a benefit to the local organizations there. I mean, that’s, that’s really our goal.

Eve: [00:20:30] That’s a pretty fabulous goal. And I hope you’re incredibly successful. So, thank you very much for joining me today.

Daniel: [00:20:37] Thank you, Eve. It’s been a pleasure.

Eve: [00:20:38] I hope I get to visit sometime.

Daniel: [00:20:40] Absolutely. Us, too.

Eve: [00:20:41] Ok, bye.

Daniel: [00:20:55] Bye.

Eve: [00:20:55] That was Daniel Dus. He’s planning a comeback for the many underutilized luxury estates in the Berkshires. Daniel and his team plan to reposition them for the sharing economy. Not only will they be available for middle class families to enjoy, they’ll be carbon neutral renovations, making them the ultimate recycling projects. And he’s taking the democratization of these estates one step further by offering the opportunity to invest to anyone over the age of 18. These estates won’t just be owned by the wealthy any longer.Eve: [00:21:42] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate, while building better cities. Thank you so much for spending your time with me today. And thank you, Daniel, for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker, signing off to go make some change

Image courtesy of Daniel Dus

The power of cities.

The world is reeling from the effects of the coronavirus pandemic and the resulting economic downturns. Add to this levels of civil unrest not seen since the 1960s and governments which are more ideologically polarized than ever before. How then do we collaborate to solve the enormously complex problems of our times?

The federal government plays an important part as the safety net for people, healthcare and defense. But pragmatic and localized problem solving might occur best at county, city and local levels. Here, impacted stakeholders can come together to compete and/or collaborate. 21st Century problems are complex and can’t be solved by one bureaucracy. They require multi-sectoral horizontal solutions. As a result, problem solving has become increasingly bottom up rather than top down and delivered by networks of institutions and leaders rather than the public sector.

Bruce Katz calls this phenomenon ‘the new localism.’ He believes cities have the power and ability to harness and leverage all the incredible innovative power in our country to solve local problems and to improve peoples’ lives

“Cities are more than governments, they’re networks. That’s why they’re so resilient, that’s why they’re so adaptive, that’s why in many places they’re so prosperous: they’re ecosystems.“

That’s not to say that the federal government can’t still be a platform or a participant in creating solutions, but issues that require local interaction and local networks might be best solved at the local level. We need to stop believing that all of our problems will be solved by bureaucrats and start believing in ourselves. Solutions can be created by networks. If we want to solve congestion, housing affordability or the integration of Black- and brown people into our economy, we need to bring together different sectors of our society to promote different ways of thinking. We need to develop a system where universities, health care systems, corporations, entrepreneurs, public sector philanthropies and individual stakeholders all work together to find tangible solutions to local problems, and to plan together how our cities will thrive.

Listen to my interview with Bruce Katz to learn more.

Image courtesy of John D Norton

Yes! In my backyard!

Two years ago, after careers in financing, government and local economic development, Patrick Quinton co-founded a new startup, called Dweller, in Portland, Oregon. Like all metro areas, Portland faces an affordable housing shortage, and Patrick, from his previous role as head of Portland’s real estate and economic development agency, knew that the city had “the most ADU-friendly code of just about anywhere.” A 32×14 foot ADU (accessory dwelling unit) could be dropped into a typical 50-by-100-foot lot without hitting the setbacks and without requiring city design review.

Patrick, and his business partner Brian Lynott, knew that in order to scale, they needed to deal with two key friction points. The first is the complexity of building an ADU, which most mainstream homeowners cannot tackle.  And the second is the financing required to build one, which many homeowners simply lack, either in savings or equity. Enter the ground lease. By leasing space on a homeowners property, Dweller can install an ADU, hook it up to city services, and then take full responsibility for its management. The homeowner pays nothing upfront, and gets paid for use of their land from a portion of the rental income each month. Finally, the homeowner also gets to buy the ADU at a pre-set price at any time within the next ten years. Dweller’s ADUs are built off-site in a factory, further lowering costs, and they handle all permitting and installation. They currently offer six styles, and floorplans from 392-660 square feet.

Before Dweller, Patrick spent over eight years at the Portland Development Commission (now Prosper Portland), five of those as executive director. Early in his career, Patrick worked for eight years as a commercial lender at Shorebank, a widely-recognized finance leader in community revitalization, and then had eight years at Textron Financial Corporation providing financing to small and mid-sized companies in health care, energy and technology. He has degrees in government and public policy.

Insights and Inspirations

  • Patrick wants to scale Dweller to a point where mainstream lenders truly see the possibilities and want to invest (a lot) in the ADU market.
  • It isn’t magic. By removing the land cost and building ADUs in a factory, the cost of a newly installed ADU simply drops.
  • Ground leases allow moderate-income homeowners to incur no cost up front, and make money toward purchasing the ADU outright. Plus, it creates new, affordable rental space in desirable neighborhoods.
  • This is a way to (literally) drop in affordable housing supply without having to acquire new land, or even disturb the existing fabric of a neighborhood.
  • There is no comparable affordable housing solution at this price point. Or even close.

Information and Links

  • It’s almost impossible find bank financing to build the Dweller ADUs, so now Patrick is crowdfunding equity, on Small Change, for the next portfolio of ADUs he’s building.
  • Though he no longer works there, Patrick is very proud of the work of Prosper Portland. An urban renewal agency, Prosper has remained relevant by focusing on Portland’s most pressing needs, with a racial equity mission and a focus on community partnerships on all projects.
  • He is also on the board of Latino Network, one of the largest social service agencies focused on serving Oregon’s growing Latinx community. The organization’s executive director, Carmen Rubio, was just elected to Portland’s City Council and will be the first Latinx leader to serve on the council.
  • Patrick says that when you live in the Northwest, you are never far from nature and the conflicts over who controls our natural resources as well. He suggests a podcast series on the Timber Wars, by Oregon Public Broadcasting, that is worth a listen.
Read the podcast transcript here

Eve Picker: [00:00:13] Hi there, thanks for joining me on Rethink Real Estate. I’m on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I’m on a journey to find the most creative thinkers and doers out there. I’m not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, please join me at Patreon.com/rethinkrealestate where there are special opportunities for my friends and followers.

Eve: [00:01:22] Our episode, Yes! In my Backyard, made it to the top of the charts.  More of you downloaded this episode than any other one to date. And since my guest, Patrick Quinton, is currently offering an opportunity to invest in his ADU’s on SmallChange, we thought you might be interested in listening to Patrick’s vision  again. Dweller is Patrick’s startup company. He manufactures turnkey accessory dwelling units (ADUs) with a goal of addressing the very pressing housing needs of his hometown, Portland, Oregon. Patrick started Dweller because he knew that Portland has “the most ADU-friendly code of just about anywhere.” A 32×14 foot ADU can be set into a typical 50-by-100-foot lot without hitting the setback limits and without requiring city design review. If you haven’t heard his story, we think you’ll want to listen in.

Eve: [00:02:25] 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 or go to patreon.com forward slash rethink real estate to learn about special opportunities for my friends and followers, and subscribe if you can.

Eve: [00:02:52] Hello Patrick! Thanks so much for joining me today.

Patrick Quinton: [00:02:55] Thanks, Eve. It’s great to be here.

Eve: [00:02:57] Great. So, a couple of years ago, you co-founded a company called Dweller to address the pressing housing shortage in Portland, Oregon. And you’ve had a pretty substantial financial and economic development career. So, I’m wondering what prompted you to move to the uncertainty of a startup life?

Patrick: [00:03:18] Yeah, I sometimes ask myself that as well. My most recent job, prior to this, was I ran the city of Portland’s development entity. At the time it was called the Portland Development Commission. It’s now called Prosper Portland. But, obviously in that role I had my hands in a lot of different, large-scale projects, and had benefit of lots of public funding, and so had an opportunity to have an impact in a way that, across a lot of different things, but when my time came to leave there and I was thinking about, not just kind of what I wanted to do next, but what type of role I wanted to have, I really felt like I wanted, you know, to use the cliche, roll my sleeves up and really be closer to the work. And in particular, I had been thinking a lot about private models of solving any of a number of public issues. And certainly affordable housing was at the top of the list. So, you know, I didn’t leave with the idea of starting an ADU year company. I left to try and explore and think about, you know, what to do next. And my business partner, Brian, came to me with this idea, and at first I didn’t think it was the right idea. I didn’t think it had the opportunity to have as much of an impact as I had hoped. But the more I thought about it, the more I realized it really was the right opportunity to both build affordable housing, you know, to really have a direct impact, but also to prove a model that we both felt people had been toying with this, but really not making any progress. And so, it’s always kind of a leap, and it’s always, you got to drink a little bit of the Kool-Aid, but we really did feel like we were on to something new and kind of at the beginning. And so, you know it’s been a fun adventure.

Eve: [00:05:13] Dweller manufactures ADUs, right? And for those who don’t know who are listening, what’s an ADU?

Patrick: [00:05:21] Yeah, so ADU stands for Accessory Dwelling Unit, which is an unfortunate name for something that we’re trying to popularize. But it just means that it’s a secondary, permitted unit on a residential property. It’s typically referred to as a backyard cottage or a mother-in-law unit. But, in any form, it is a second living unit. And because it’s a separate permanent unit, it can be used as a rental. It can be used to house a family member. Obviously, it can be used for somebody to have, you know, their TV room, but its power is in, it creates another housing unit on land that nobody assumes can accommodate any more housing. And so you’re able to drop in additional housing supply without really having to acquire new land, or even disturb the kind of existing fabric of a neighborhood. So, it’s backyard housing. I mean,  that’s kind of the easiest way to talk about it.

Eve: [00:06:22] So, it’s a density play. It’s really kind of utilizing expensive land in a more efficient way. Right?

Patrick: [00:06:30] Exactly. There’s no way that anybody could develop housing on the land in these types of neighborhoods without this type of unit that didn’t have to acquire land and can be built on a small scale. It’s the ideal way to take advantage of this excess land.

Eve: [00:06:44] So, tell us about your model and how you arrived at it. Because I think there’s lots of different ways of building ADUs.

Patrick: [00:06:52] Once we dive into the ADU world and you learn more about it, you know, and we’re on the West Coast, so the West Coast has been doing this for a while, you look and you see lots of ADUs have been built. But, basically, what’s been going on is people who have money have been building a lot of kind of cool backyard houses. And so while they’ve been proving that you can do this, it really hasn’t been available to mainstream homeowners who aren’t sitting on a ton of money. So, we really wanted to create a model that would get a lot of ADUs built, but more importantly, really open the market up to more mainstream homeowners. So, we wanted to bring the cost down for ADUs and then help them finance it. And we brought the cost down by developing standardized ADUs that are built in a factory. So, high quality construction, but we’re just taking out a lot of the waste and inefficiency that happens with building a unit on site. And so, that’s really made our ADUs a lot more affordable than your average ADU. And then the second thing is, we’ve created a way for homeowners to finance an ADU without putting any money into it themselves. So, those are the two main things we wanted to address. And we feel like with those issues solved, we think, yeah, now your average homeowner and thousands of similar homeowners can now put ADU on their property when, you know a few years ago, that really was impossible.

Eve: [00:08:23] Can you share with us how much it costs to build one of these pre-manufacturing units?

Patrick: [00:08:28] So, our typical project is about 120,000 dollars, all in. So, that means that, you know, a homeowner can come to us …

Eve: [00:08:35] That’s very reasonable.

Patrick: [00:08:36] Yeah, when you consider the average price of an ADU here in Portland is around 200,000 dollars. And the average price in other West Coast markets in California, and Seattle, is around 300 or higher. So, yeah, 120 brings it into the range of affordable for many homeowners. It’s still a big financial decision, but it’s definitely a lot easier for homeowners to get over that hurdle.

Eve: [00:09:02] Yeh, I’ll say, that’s pretty reasonable. And then, so, how many units have you built and operate to date, as a start?

Patrick: [00:09:08] We built 15 units in total, and then, you know, I know we’re going to get into this, but we actually own nine of those. So, we operate nine of those as a small portfolio of affordable ADUs rentals and we rent those out to long-term rentals. So, local residents, and they’re sprinkled throughout the city of Portland. The other units we just sold. There’s homeowners who come to us and have the money and want to buy from us. And we’re happy to do that. And homeowners who buy from us who have money, you know, they like the efficiency, the no-hassle aspect of it as well. So, it’s not simply that, you know, homeowners can afford it. It’s that ADUs have traditionally been a big project for a homeowner. It’s, they become a mini-developer and most people just don’t have the time to do that. Because there’s a lot of pitfalls along the way. So, we also attract a number of buyers who just want to buy ADU like they buy a car, or some other big purchase. They don’t want to have to learn how the car is manufactured.

Eve: [00:10:10] Right. Where are these located, the ones that you built?

Patrick: [00:10:12] They’re located in residential neighborhoods throughout our city. You know, Portland is, like many cities is, has tons of great residential neighborhoods. And what people don’t realize is that in most cities, even in the city itself, you know, you walk down any residential block and there’s a nice big backyard in these properties.

Eve: [00:10:32] Yes, yeah.

Patrick: [00:10:33] And so when you look across the landscape in Portland, where most of the residential neighborhoods are, if you were to fly over them, you would see all this space that you really don’t see from the street side. And a lot of them are really modest neighborhoods with bungalow-style houses and homeowners who, you know, they want to have the extra income. That’s really the prime motivation.

Eve: [00:10:55] So, you are doing two things. You’re creating affordable homes and extra income for people who need it.

Patrick: [00:11:00] Yup, yup.

Eve: [00:11:02] And the third thing I’m realizing as you’re talking about this … ADUs are built in places where there’s already infrastructure. And so, they’re going to be close in, and provide housing for people perhaps without needing a car because the developed neighborhoods have transit, etc..

Patrick: [00:11:18] From an urban policy perspective, that’s one of the reasons why so many jurisdictions have been promoting ADUs, is because it’s an easy win on the housing side. You don’t have to fight over how you develop a big corner lot. You’re dropping it in. You don’t have to build new streets or sidewalks, like you’re saying, and you get to take advantage of existing parks. And even, you know, schools. Like people … this is an understated aspect of this. But when a household that typically rents gets the rent in a neighborhood that’s primarily single family, owner-occupied houses, they’re generally accessing better schools. And so, it opens up even that, for renters.

Eve: [00:11:58] Yeah, probably better shopping and proximity to grocery stores, etc..

Patrick: [00:12:02] Exactly.

Eve: [00:12:03] Yeah. So, what do they look like? Do you have a number of models?

Patrick: [00:12:07] We do now. You know, as like any company, we started off with one model. You know, we really were trying to work out the kinks, but also just kind of see where customers are. But we generally sell units that are between four and 500 square feet. It looks like a one bedroom apartment. There’s a lot of talk about tiny homes these days, which is another really great form of housing. But ours are bigger than that, and most ADUs are, and they look more like apartments than what people will see in a lot of these tiny home images. So, they have full bedroom, full bathroom, usually a shared kitchen, living space. ADUs can come in all sorts of architectural forms. But what’s interesting about it is a lot of them have, what they call a shed roof or mono slope roof, which is different than most houses which have the peaked roof, gable roof. So, ADUs tend to have a little bit of a different feel there …

Eve: [00:13:00] It’s a little bit more of a shed aesthetic, like the garden shed, yeh?

Patrick: [00:13:03] Exactly. When you look into the back yard, you don’t see a mini house. You see a structure that looks more like a larger shed.

Eve: [00:12:12] Yeh.

Patrick: [00:13:19] But inside it’s built out like, you know, any apartment that you would see in a big apartment building.

Eve: [00:13:19] Right. I’ve lived in a 450 square foot unit and loved it. It was the perfect size and there were two of us. So, if you don’t have too much stuff, it’s great. What makes them affordable? This is a loaded question, because I know you’re also striving for affordability, just through your mission. I suppose the question is not what makes them affordable is small and well-thought through manufacturing, but what’s your affordability mission beyond that is, I suppose, what I’m asking?

Patrick: [00:13:49] I do want to actually just talk about one thing that, about affordability, before we get into making them affordable rentals is, and there’s a lot written on this. You know, the average cost of a new housing unit is, you know, if you’re talking about an apartment building or something like that, here, it can be 300 to 400,000 dollars, a unit. In California, the Bay Area, right, they’re talking about 700 to 800,000. And …

Eve: [00:14:14] It’s crazy, yeh.

Patrick: [00:14:15] The mere act of building a new housing unit has become so expensive. And when governments and other organizations that care about affordable housing are rounding up dollars to build new affordable housing, they have to find a lot of money to build a number of housing units of any scale. So, to say I can build a housing unit for 120,000 dollars, regardless of what the purpose is, that’s a big deal. And there are other companies doing this. So, the ADU industry is positioned to add a lot of housing supply at a price per unit that almost no other aspect of the housing industry can achieve. And, you know, one of the main savings is we don’t have land cost. Right? So, it’s not magic. It’s not like, you know, somehow we’ve figured out the magical way of building that takes out of the cost. It’s that we’re leveraging existing land. So, basically, if it’s a homeowner, the homeowner is kind of contributing that land to this transaction. But it’s not money that we have to find. And then we generally, because we build small units, and if you are building the way we build in a standardized fashion, then you can take out all these inefficiencies, as I mentioned earlier. So, that’s like this whole powerful part of the ADU world is …

Eve: [00:15:31] Yeh.

Patrick: [00:15:32] … if we really can figure out how to get thousands of ADUs built, we’re going to be building those units at a lower cost per unit than pretty much any form of housing.

Eve: [00:15:44] I mean, when you look at a multi-unit building, you’re talking about fire sprinklers and stairs and elevators …

Patrick: [00:15:50] Exactly.

Eve: [00:15:51] … and, you know, accessibility, really expensive.

Patrick: [00:15:53] Yup.

Eve: [00:15:53] And all of that has to be subsidized to keep it affordable.

Patrick: [00:15:57] Yeah.

Eve: [00:15:57] So, tell me about the ground lease and, you know, who’s interested in it. And what sort of success you’re having finding people who want to do this.

Patrick: [00:16:06] And so, as I mentioned earlier, we really wanted to help address the financing challenge for homeowners, and just a bit on that. So, basically an ADU is typically a project. It’s taken on by a homeowner and the homeowner has to not only manage it, but pay for it.

Eve: [00:16:20] They have to hire an architect and probably an engineer.

Patrick: [00:16:23] Yeh. And so when homeowners go to pay for things like this, they typically are going and getting home equity financing. I mean, obviously, there’s people out there who might have that money just sitting at the bank. But that’s, that’s typically not most people. So, they go and get home equity loans, and I think the home equity loan has certainly become pretty widespread over the past 20 years. So, everybody gets that that’s out there. But when you really dig into the numbers, lots of people are sitting on small amounts of equity. Very few people are sitting on a lot of equity, certainly enough that’s going to allow them to pull, you know, 120,000 dollars out in our case, but for the average cost, you’re talking about a lot more.

Eve: [00:17:05] Right.

Patrick: [00:17:06] And even then, you’re asking people to take out what is basically the bulk of their life savings. It’s you know, the statistics all indicate that most people have their net worth tied up in their home. So, like, that’s the ADU financing challenge is, it’s all home equity based and most people don’t have it, and the ones who do have to make this massive decision and …

Eve: [00:17:27] Oh yeh. It actually turn them into mini developers. You’re asking homeowners to be real estate developers and work through all the issues around that. That’s a lot.

Patrick: [00:17:38] And so, that’s just a risk profile that you’re not going to find in your average homeowner. So, we wanted to figure out how do you finance this in a way that takes out all of those obstacles. And so we came up with, we didn’t invent it, but we’re one of the first ones to really try it, is to use what’s called the ground lease. Under a ground lease we lease a part of the homeowner’s property. So, we generally lease a defined part of their backyard. And then by doing that, we then have the right to develop on that part of the property, and then we develop the ADU ourselves using our own capital. So, we’re building the ADU on the homeowner’s property at no cost to them. And then we own the ADU then and we’re able to manage it and rent it out. And then we share a percentage of the rent that we collect each month, back to the homeowner. And that’s essentially our lease payment to them. So, once again, we’re tenant in their backyard because we’ve leased that part of their backyard, so we owe them monthly rent. And so we pay them that as a percentage of the rent. And then the homeowner has the right to buy us out of that lease at a prearranged price at some point during the lease. 

Patrick: [00:18:50] So, in essence, the homeowner is getting the ADU on their property at no cost to them, and then they can, when the time is right for them, choose to pay us back. Right? So, it operates like a loan, but it’s not a loan. It’s, you know, it’s us going in and building and owning the ADU. And we think this is a particularly well-suited type of financing vehicle for ADUs, because not only does it overcome these challenges that we’re seeing for homeowners who want an ADU but can’t finance it or can’t pull the trigger on taking all their equity out. But it also puts these ADUs immediately into the rental market, because we’re owning it and then we’re managing it like any other long-term rental. So, not only are we getting ADUs built, but we’re getting them immediately available to local renters, which is one of the big policy objectives for promoting ADUs, is to have more affordable rental units. And then when the homeowner buys it out, they can decide if they’re going to keep it as a rental. But for at least some period of time, five, 10 years, it operates as a rental unit in neighborhoods that really need it. So, it’s just this kind of unique way of looking at how to get over the financing hurdle that has all these ancillary benefits.

Eve: [00:20:09] So then, you’re launching a crowdfunding campaign to raise equity on my crowdfunding platform, Small Change. And why are you doing that?

Patrick: [00:20:21] The financing challenges don’t go away just because we’re building on aground lease. Somebody still has to fund this. And so, that financing challenge then gets pushed onto our shoulders. And so we’ve tried to figure out how to fund the development of new ADUs using a lot of traditional financing methods. And so, if you think about a real estate transaction, you know, you have some equity, you go out and you borrow money from a lender, and usually you can kind of piece together the right capital sources. But this structure is unique in that we don’t own the land and we don’t have rights to the land. So, you’re asking lenders and investors to really bet on this structure and the stream of income from it. And even though I would argue until I’m blue in the face, how secure this is and what a great investment this is because of the regular income coming in, it doesn’t look and feel like what lenders and investors are used to seeing. And so, it doesn’t fit in one of these boxes. And so, we’ve tried to look for traditional lenders, non-traditional lenders, all sorts of folks who fund even affordable housing projects. And we just haven’t found lenders who are willing to do this with an eye towards scale. And so, at the end of the day, we felt like there’s a lot of interest in this type of housing. There’s a lot of people that we talk to who love the idea of ADUs, who really want to see more ADUs built. These are average folks who want to help with the affordable housing crisis. And so, we actually have always thought in the back of our minds, you know, this would be a great crowdfunding opportunity, but we really thought, you know, we should be funding this in a traditional way. And we had to beat our heads against the wall for a long enough time before we decided, you know what, let’s actually look into crowdfunding because we feel like there’s a really strong interest out there for what we’re doing.

Eve: [00:22:16] Yeah. So, the challenges never end. Right? So, you’ve got a product that sounds like it’s scalable, that may really help the affordable housing crisis. And yet you’ve not been able to find a lender to, at least lend, yo know, 60 percent of the cost of building these, even if you have to go find equity, which I personally find really shocking … that we don’t have lenders in this country that can think a little bit out of the box. I mean, there are, as you said, non-traditional lenders, lenders that are focused on affordable housing, nonprofit lenders with a mission to help affordable housing. What has to change for this to work?

Patrick: [00:22:57] Yeah, this is multi-layered. So, the first thing is that I think that everybody can point fingers at each other. So, I think your actual lenders would point fingers at regulators and their auditors, and say, if I put this loan on my books I am going to get killed when audit comes around. Or they’re going to say, point to actual, you know, this is how we have to underwrite them. So, you have that. I do think you have, regulators and auditors might come back and say, we don’t say they can’t do this. They just have to kind of make the case and show us how it’s collateralized. So, I think some of it is this, like, you know, do I want to take this fight on as a lender when I can go look for another deal? So, I think there’s a lot of this, like, who’s self-interested enough to make it happen. And so, that gets to the second layer, which is getting scale on this proves it out, and then it will give, I think it’ll begin to open up the eyes of lenders. So, I do think we need to prove out that there’s a market for not just a lot of ADUs getting built, but also for folks with money that folks who deal in much bigger numbers with more zeros than we do right now, say, hey, I can put 10, 20, 50 million dollars to work right away, into this market. Now, I’m interested. So, I think we’re in the chicken/egg classic stage. We’ve got to prove it out, get some scale, and show people not just that it’s safe, because I think that’s actually the easier argument to make. It’s really can this thing be scale, can achieve scale, and can it really end up putting a lot of money to work? And so, whether it’s a regulated lender or a group of lenders that come in and do this, or whether it’s some more of a kind of investment banking type of approach, I think that scale is going to unlock, you know, one or both of those eventually to get more money into this market.

Eve: [00:24:49] Or maybe crowdfunding is, if enough investors …

Patrick: [00:24:52] Crowdfunding, right. You’re more the expert. I’m new to this. My natural inclination to think its smaller scale. But you’re right, that, you know, the beauty of crowdfunding is maybe it is.

Eve: [00:25:01] There are other platforms that have gone fairly large scale …

Patrick: [00:25:03] Right. Yeah, exactly.

Eve: [00:25:04] … but they have a very traditional real estate projects. Again, they’re kind of following the model. So, I think Small Change is a bit unusual in that it will help developers like you with unusual projects that are awkward to finance is the only other way to say it, like awkward to finance, because we think that in the long run it’s the right thing to do. So, I’m really excited you’re doing that on our platform.

Patrick: [00:25:29] I have one of our early investors, friends of family, this is a long time friend of mine. She does a lot of investing and she was one of the people who was really nudging us to explore crowdfunding. And she thinks just like you do, she thinks, like this is the way to scale, like she thinks this is just going to grow, and she has money to invest, so lots of options as an investor and she is sold on crowdfunding. So, she’s in a lot of different crowdfunding deals. She believes this is the way to go. So, you, I think you’re right.

Eve: [00:25:51] Yeah. I mean, its, instead of investing your money in a bank or mutual fund, you invest it directly into what you care about. And that’s a pretty beautiful thing.

Patrick: [00:25:52] Yup.

Eve: [00:26:12] Hopefully, there are enough affordable housing advocates out there who want to invest in affordable housing that will help you, and maybe we can find them. What does scale look like for you?

Patrick: [00:26:22] I think scale, obviously, it involves not just numbers, but I think multiple markets. We operate on the West Coast, so we see the housing crisis really clearly, you know, and it’s all relative. So, sitting in Portland, Oregon, we have a housing crisis. But then what we hear about in California, or up in Seattle, we know it’s even more challenging. And then we know that communities across the country are all experiencing this. So, I do think that we want to see us being able to offer this ground lease product in other markets. And, you know, the beauty of what we’re doing, and I think what’s happening in the ADU industry, is that we don’t have to be the builder. We can work with other builders and help them serve more customers in their markets by bringing this financing product to them. And we’re seeing a lot of growth in new ADU builders who are building more affordable units in other markets. So, the issue is not going to be capacity. It’s going to be how do we bring more financing options to homeowners? So, we think that’s where the scale comes from, is being able to partner with builders in other markets.

Eve: [00:27:31] And I agree. So, I have to ask, are there any other current trends or innovations that you think might help this crisis or might help construction costs come down, that you’ve been tracking?

Patrick: [00:27:46] I’d like to be more optimistic. I do believe in cycles, so I think we’re going to get out of this current moment. Where in the construction industry where costs are rising and we do have backlogs. The timber price goes up, there’s no way to, you know, the housing costs go up. So, we’re definitely in a challenging cycle there. I think that the more efficient that we build, the less waste that you have in the construction process, I think the less susceptible you are to those price changes. We’re just going to get more and more efficient and there may be alternative timber products that are able to also drive the cost down there. I think the other issue, which kind of gets in a little bit into the weeds, but building a prefab or factory built AU, however you want to call it, you know, there’s challenges in getting that unit into the backyard of an existing house. So, you can imagine a regular residential street in an urban neighborhood, or even suburban neighborhood. It’s not like you can just back the thing in the backyard. It’s usually not enough space. So, we’re using cranes and all sorts of things. We have power lines. We have …

Eve: [00:28:55] Wow.

Patrick: [00:28:56] … lots of obstacles. So, there’s a lot of properties that have space, the homeowners ready to go, the whole thing, and we can’t get there. So, we’re seeing a lot of innovation on how can you basically take the house and be able to, like, construct it on site. So, house-in-a-box. So, there’s prefab walls and things. But how can you make that process as efficient as building it in a factory, but eliminate a lot of the installation challenges that we have? If you can, if we could figure out how to get those types of units into pretty much any property, regardless of how much space you have to install, or what obstacles in front, I think that itself is going to open up …

Eve: [00:29:35] Right, right.

Patrick: [00:29:36] … the ADU market. I think that innovation will happen. I think it’ll happen more quickly than the financing innovation will happen. It’ll make the financing challenges even more acute because you have more homeowners who are ready to move forward and they’re looking at a, you know, 100,000 dollar … And the other thing I’ll just say which, every industry in the world can say this, but, you know, Amazon talks about selling these houses and you have an Airbnb, you have all these companies out there with massive scale that may or may not be able to carry through on this, but we should probably assume that some company of prominence is going to come forward with a solution as well. And I think it’s good for the market, assuming they do it responsibly. Amazon says I can sell you a 20,000 dollar house, that’s not, it’s not it’s an irresponsible thing. But it could really help with innovation, it could help with efficiency, those kind of things. So, I do think we’re going to be seeing that in the next few years. We’re going to be seeing some large companies that you wouldn’t expect to be in the middle of this, are doing it.

Eve: [00:30:42] I think it’s a great idea, and I wish you all the best of luck. I can’t wait to see how you grow and I hope you make your way over to the East Coast sometime, as well.

Patrick: [00:30:54] Thank you, Eve. We do, too. We love the West Coast, and there’s certainly a lot of work to be done out here. I get a lot of phone calls from folks in your neck of the woods. Atlanta, D.C.. We really do hear from people all over the country who want to see our model there.

Eve: [00:31:07] So, financing, we’ve got to figure it out. Thank you very much.

Patrick: [00:31:11] Thank you, Eve.

Eve: [00:31:35] That was Patrick Quinton. Patrick launched Dweller to help address what he thinks is the most pressing issue in Portland, Oregon, right now: a critical lack of affordable housing. He applied focus to the problem and decided that in order to scale, he needed to deal with some key friction points. The first is the complexity of building an ADU, which most homeowners can’t and won’t tackle. And the second is finding financing to build one, which most homeowners don’t have. By entering into a ground lease with the homeowner, and building and financing the ADU for them, Dweller has made the process as easy as can be. But now Patrick must struggle with an industry in its infancy and lenders who are not quite ready to go down the path of financing ADUs built on a ground lease. These are the growing pains of a company that is first in the marketplace.

Eve: [00:32:38] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed, or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. 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.

Images courtesy of Patrick Quinton, Dweller