Rethink Real Estate. For Good.

Equity

Is revitalization a dirty word?

Revitalization, gentrification, and displacement are now a mainstay in the heated national conversation about housing. For many years urban renewal and revival were sold as cure-alls for improving economically vulnerable neighborhoods in big cities from New York to Oakland. Unfortunately, the effort to bring new life to these areas was more successful than anyone predicted. In fact, it was so successful that it began to drive low and middle-income residents out of their homes as property values and the desirability of each neighborhood grew. And in the process revitalization went from a hopeful phrase to a coded word for displacement of minority and low-income residents.

This process started in the early 1990s in some high cost of living areas like San Francisco and Seattle and has substantially ramped up during the current real estate boom. Much of the issues arise from the Gen-X and millennial preference for smaller homes and their desire to have immediate access to urban life rather than schlepping in from the suburbs. As these young people flock to urban areas, existing residents are unable to keep up with rising rents, property taxes, and the general increase in expenses as their neighborhoods gentrify.

A silver lining

It is clear that gentrification is negatively affecting many Americans, with those most affected coming from low-income and minority groups. Some critics make no distinction between unmanaged market-driven gentrification, and the revitalization efforts happening in cities across the country. These revitalization efforts are having real, positive effects in some rust-belt states which are seeing incredible turnarounds, at least partially as a result of real estate revitalization.

Detroit as a model?

Detroit was, and continues to be, the poster-child for urban decay in America. The hollowing out of the American manufacturing base led to a situation where middle and upper-middle class residents fled to the suburbs, taking their tax dollars with them. Left behind were the poorest, many of whom came from minority communities. The city lurched from year to year in a state of disrepair until a few years after the 2008 financial crisis.

Over the past decade, real estate investors have helped develop millions of square feet of prime real estate in downtown Detroit. Areas that were once in significant decline, bordering on a demilitarized zone, became livable once again- and property values and the city’s economic picture rose with the real estate sector.

The housing market in Detroit is incredibly large and complex, and there are success stories as well as the emergence of some of the more common issues with gentrification and displacement. Many of the people on the ground working to protect residents from the deleterious effects work in partnerships with local governments, nonprofits- and developers.

Riding the wave

Spider-Man once said, “With great power, comes great responsibility.” This truism can be applied to how we approach housing issues such as sustainability and affordability. When local stakeholders are not heeded, projects can have disastrous consequences- both from an investor and resident perspective. Many grassroots movements have sprung up across the country as a response to development growth, and what some locals see as the destruction of their communities.

As developers and investors, we have a surefire way to avoid conflict with locals- and that is to  build to benefit the community, rather than just to make a buck. Everyone has to eat, and there is nothing wrong with an honest buck- but finding the intersection between community-minded morals and market forces will help each party benefit- the developer, investors, and residents.

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Revitalization does not have to be a dirty word. In fact, it can be a net positive for all parties when implemented correctly.  Many cities and states throughout the country are taking steps to mitigate some of the worst problems arising from gentrification- and insightful investors have the chance to be on the ground floor of an entirely new development model- one where community and business interests are aligned, rather than at odds.

Image by Eve Picker

Embedded in community.

Brian Murray is the CEO and Founder of Shift Capital, a Certified B-­Corp impact real estate group headquartered in the Kensington neighborhood of Philadelphia, and focused on aligning capital and philanthropy with underserved communities.

Brian didn’t start his career in real estate. He started his career at Pricewaterhouse-Coopers as an auditor and quickly moved into the technology space where he helped found two start­ups. A stint in the Peace Corps, building community in Bulgaria, and an MBA from the Yale School of Management, followed.

While in graduate school Brian observed the growing interest in impact investing. At the same time he made his first real estate investment and discovered the importance of socially ­minded development. And with this his journey into real estate was complete. He fell in love with the process of developing real estate where it matters. All of these things come together in Brian, a man focused on doing well by doing good.

Together, on this podcast, Eve and Brian explore the challenge of developing real estate for purpose.

Insights and Inspirations

  • Brian proves that it’s possible to have a robust real estate business focussed on under-served neighborhoods.
  • Community engagement really means embedding yourself and becoming part of that community.
  • Finance is at the core of making change.  We need financial institutions and the philanthropic world to step up and make it possible to build much more real estate in neighborhoods that need the investment.

Information and Links

  • Shift’s latest inclusive project is Jumpstart Kensington a real estate accelerator for the Kensington community.
  • RevErie, staged by Shift, an event at the nexus of art, citizenry and community designed to uplift and inspire. 
  • The Reimagine Storefront Challenge is an inclusive development strategy to reactivate storefronts on Kensington Ave.
  • Urban Action: Kensington Gateway, a collaboration with UPenn, Penn Praxis, Olin, New Kensington CDC and Hinge Collective seeks to activate a severely challenged intersection with thoughtful, community-informed designs for public open space.
Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker. If you listen to this podcast series, you’re going to learn how to make some change. Thanks so much for joining us on this podcast. I’m Eve Picker, and my life revolves around cities, real estate, crowdfunding, and change. In this podcast series, we’ll be digging deep to discover how we can build better cities by building better buildings.

Eve Picker: I’m excited to have Brian Murray as my guest today. Brian is the co-founder of Shift Capital, an urban real-estate group focused on mission-oriented projects in under-served Philadelphia communities.

Eve Picker: Brian didn’t start his career in real estate. He started traditionally at PricewaterhouseCoopers as an auditor, and then helped found two startups. The itch to do good was with him, so he joined the Peace Corps, and found himself in Bulgaria on the ground doing community development work.

Eve Picker: The journey into real estate was completed when, once back stateside, he invested in a real-estate project in Philly, and fell in love with the development process. All of these things come together in Brian, a man focused on doing well by doing good.

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

Eve Picker: Welcome, Brian and thank you very much for joining me. I wanted to start by just diving into your background a little. I know you have a company called Shift, and I’m really wondering what led you to this point in your life?

Brian Murray: Sure. First off, thanks for having me, and Shift on. We’re really excited to connect with you, and share more so. I guess, background, I started off as an accountant. I graduated college and went to work for PricewaterhouseCoopers. I left that very, very quickly, knowing that that’s definitely not what I wanted to do with my life, and went into the tech world.

Brian Murray: It was 1999, and 23 was a well-seasoned age to be in the tech world at that time. I had a venture that- my first venture went belly up, and I decided that I wanted more out of life, and didn’t want to be chasing- just to be chasing dollars. I joined the Peace Corps. I spent a few years in the Peace Corps in Eastern Europe, in Bulgaria, and got introduced to a few core concepts that have really underpinned where I am today.

Brian Murray: One is that the Peace Corps is one of the most incredible organizations at putting people on the ground in communities, embedded in communities, listening to communities. Really got a understanding of how trust needs to happen on the ground level.

Brian Murray: I also learned what does economic-development planning look like when it actually gets to the ground? That was a little eye-opening to see the disconnect between a lot of dollars flowing through the non-profit, and international-development space, and then what happens actually on the ground.

Brian Murray: The third piece, I was introduced to social enterprise. I was volunteering with an organization that launched the first social-enterprise program in Eastern Europe. I really fell in love with the idea of doing well, and doing good.

Brian Murray: Came back to the States; went back into the tech world for a few years before heading off to business school to try to marry my love for entrepreneurship, and my love for social change, and positive social change.

Brian Murray: I thought I was going to go into the impact-investing space, so I went to work for an organization called Acumen Fund, which is a non-profit venture-capital group that invests in businesses serving populations in India, Pakistan, East Africa. We invested in entrepreneurs that were providing solar-powered lights, clean water, healthcare.

Eve Picker: Was introduced to this growing world of impact investing, which is the dollars that want to make a return, but also to do good with that return. Exactly at that time – I’m originally from the Philadelphia area – when I was in business school, I was approached to invest in a small real-estate deal in Philadelphia, which I did as a side project.

Brian Murray: We invested in a neighborhood,  A lower-middle-class neighborhood in Philadelphia. We bought a note from a bank; a 30-unit building that was completely run into the ground by what I’ll call a classic slumlord … I apologize. You want me to restart there?

Eve Picker: No, no. I was going to interject, and say that was the beginning of the end, right?

Brian Murray: I fell in love with-.

Eve Picker: Yes! I knew that was coming.

Brian Murray: I fell in love with, and really understood the power of real estate in people’s lives. On one hand, I realized what kind of  capital usually flows through these neighborhoods, and realized that if I could wake up every day, and be a good landlord, I would be doing the world a good service. I jumped in with two feet, at that point.

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

Eve Picker: I’m not surprised. That’s a great story. That’s a pretty interesting road that got you there. I suppose the next really big question I have is do you think socially responsible real estate is necessary in today’s development landscape? What have you observed, overall, now that you are a developer, and a landlord?

Brian Murray: I would say that 95 percent of the capital that moves through the under-served communities that we work in is exploitative capital, and exploitative in a economic model that is slightly upside down, that does not incentivize even folks who probably want to do some good in the right ways.

Eve Picker: The importance of capital that is thinking about community, working with community, thinking about different ways in which capital can be layered to make it more effective, I think, is critical, in an age right now, where it feels a little bit like feast or famine; gentrification or poverty. There’s not a lot of discussion of anything in between. This is a role that I think this type of capital, and this type of impact developer needs to really …

Brian Murray: Not only do we need to bring it to the table, but we also need to raise/grow/nurture/support the next generation of real-estate developers, with a particular emphasis on, I think, developers of color, women developers, developers that are coming out of lower-income communities, because they are the ones that know their communities best, and are best suited to tackle needs, and challenges, and be aligned with communities.

Eve Picker: I’d love to drill down into that. Do you have an example of a good use of capital flowing through those communities, and maybe another example of a bad use? I’m sure you’ve thought about this, Brian.

Brian Murray: Yeah. Well, let’s talk about the bad first. In the neighborhood we work in, in Kensington, there was a portfolio of properties that blew up. These are housing – probably about 300 to 400 units – that were owned by someone who was literally called the slumlord millionaire.

Brian Murray: He was taking appraisals- creating fraudulent appraisals, and borrowing money, and then not putting it into the housing, and renting them out in their condition.

Eve Picker: Wow.

Brian Murray: This is a larger example, but there’s a lot of small examples of this on a daily basis. In neighborhoods, in Philadelphia, where we have the highest poverty- we’re the highest-poverty big city in the country, and we have housing where the comparable sales on a three-bedroom/one-bath is about $50,000. When you’re that low, it’s very difficult to renovate, and do the right thing, or to incentivize the capital markets to do the right thing in those neighborhoods.

Eve Picker: Yeah.

Brian Murray: On the good- on the right side, those who are investing the right way, and are renovating the right way are starting to see – again, in the neighborhoods we’re working in – that people are willing to pay more for a better house.

Brian Murray: Even though we’re talking about lower-income neighborhoods, and even though we’re talking about maybe 60 percent of adjusted median income, a hundred dollars more for home, in terms of rental, allows that landlord to get a lot more done; to add air conditioning, for example; add newer bathrooms, and kitchens.

Brian Murray: People in these communities do still recognize value, and higher quality. Although it’s still significantly below 80 percent of AMI, for example, when you deliver a better product out into even lower-income communities, people really respond to that. We’ve seen that firsthand on a small level, and we’ve seen that firsthand in even the commercial world, as well. I think that’s a market opportunity.

Eve Picker: Yeah, I agree with you. 300 units that are being abused in a neighborhood is quite a large block of units, and can have a really terrible impact. I thought maybe you could tell us about a current project you’re working on that you’re excited about that moved the needle in the right direction? I gather you work solely in this one neighborhood in Philadelphia, is that true?

Brian Murray: We have a fund that we’ve invested in two neighborhoods in Philadelphia, both along public transportation. Everything we have acquired, and are developing are within a five-minute walk to one of five subway stops.

Brian Murray: We just closed on financing for the one project that I’m super-excited about. This was a building in the Kensington section of Philadelphia, near the Tioga Station, for those of your listeners who might be familiar.

Brian Murray: It’s a project called J Central. It’s a 140,000-square-foot building. It sits right on the main commercial quarter, called Kensington Avenue, which has had its challenges with the opioid crisis, in particular. We are creating the first multi-family in the neighborhood. It will end up being 130 units with a full first floor of retail on the bottom floor, and maker spaces.

Brian Murray: What’s exciting about this project is that our ambition is for this to be the most civically engaged building in the country. What that means is we are going to be providing any person who rents from us in this building with a rent rebate, for every four hours a month that they volunteer in the local community.

Brian Murray: We’re setting up a whole series of programming, and volunteer opportunities within probably about five or six organizations that are not only locally located, but also driven by local issues, and local challenges.

Brian Murray: On the front end, we’re definitely filtering folks who are going to come in this neighborhood who want to be a part of such a program. Then, this building, on a monthly basis, should be delivering hundreds of hours of volunteer hours into the neighborhood.

Brian Murray: Our goal with this, and this is on the residential; the commercial’s another piece … The residential, what’s exciting about this is one of the challenges of investing in lower-income communities is trying to responsibly create mixed-income communities.

Brian Murray: We do need people who have discretionary income to spend dollars with local businesses, so that we can support that type of work. At the same time, many neighborhoods have had the trouble of having a complete communication disconnect between what’s called the new, and the existing community.

Brian Murray: This is a fantastic way, we think, to break down those barriers on both sides, where people coming in now get to know their community better, and the community gets to know them better; hopefully building a level of trust on the residential side. On the commercial [cross talk] go ahead.

Eve Picker: I was going to say that on the residential side, we did an offering on Small Change in Chicago, with a group that- they created something called Innovation Houses – I think I need to introduce you to Jay – where they give neighborhood volunteers reduced rent in exchange for services in the neighborhood, but they’re also really trying to create sort of the next generation of leaders in that neighborhood, which is a pretty remarkable ideas. Thinking along the same lines, slightly differently.

Brian Murray: I love it. I would be happy to connect with them. The commercial side of this building will also house a Vietnamese coffee group that we’ve home grown in our other building, but also the IF Lab. It sounds like this is very similar to Chicago.

Brian Murray: This is an incubator, and a business-services space on the ground floor that is targeted on under-served businesses, and specifically trying to put that kind of incubator mentality … Instead of having it in Center City, have it in the neighborhood, as well.

Brian Murray: The group behind that has had- it’s an incredible multimedia agency here in Philadelphia that has, in the past, launched something called the Institute of Hip Hop Entrepreneurship, which was also a incubation-style programming. We’re going to try to bring that all into the community, as well.

Eve Picker: It sounds fabulous. I hope I get to see it when you’re finished. It sounds really great. Of course, this only is the tip of the iceberg, right? What would you hope that we trend towards in the next 10 to 20 years?

Eve Picker: We’ve seen gentrification take hold of neighborhoods really rapidly in many cities. San Francisco is having especially difficult issues right now with many people being priced out of housing. It seems almost too big to solve. I wonder if you have any thoughts about that?

Brian Murray: Yeah, we think about it every day. I’m not sure that we have full answers, but I think we do have a number of ideas behind that. I believe that the work that you’ve done, and what’s going on nationally with Opportunity Zones has made these discussions even more important.

Brian Murray: One, going back to what I said before, I think we really need to focus on developing bridges, and doors for developers of color, and women developers. I think that that’s absolutely critical to the future.

Brian Murray: I believe that we need to bring more powerful tools into communities, and financial tools, specifically. We are working here in Philadelphia on creating a Neighborhood Trust to go alongside our work, where we’ll start to also buy up properties that will allow some of this capital to not only stay in the neighborhood, but then be used to help the neighborhood.

Brian Murray: I believe we need to be more aggressive in cities that are not San Francisco, or D.C., or New York in providing cities and public/private partnerships with more tools to aggressively buy up housing while we can. Those tools-

Brian Murray: The foundation world has been sitting on the sidelines. They have endowments, and they have lots of capital to bring to the table, so we’re very much pushing for trying to move the needle on trying to bring more financial tools, concessionary capital, other types of capital that can perform differently, and act differently than the marketplace.

Eve Picker: Personally, I also think that there’s some governmental work that has to happen. Often, gentrification is sort of the last step in numerous things that have happened over decades. Most cities are really not thinking about that, 20 years prior.

Eve Picker: Just one of the examples I think about often is the way that properties are taxed. Certainly, if you’re in a neighborhood – if you’re aging in a neighborhood – and that neighborhood suddenly has much more value, and the property values are being reassessed every year, or every two years, and all of a sudden you have a really hefty bill, that’s a problem for someone who wants to stay in place, or age in place, who’ve lived there for a long time.

Eve Picker: I think there are ways to think about that differently so those people can stay. It’s just one little tool, but I think there are other ways beyond finance that we could think about these problems before they happen. You’re right, maybe more aggressively in cities where it hasn’t happened yet.

Brian Murray: This is where the opportunity is, and you’re right, the public-policy side of it around protecting homeowners, providing homeowners with more micro-tools to renovate in place, I think, are all part of a more comprehensive strategy that … At this point [inaudible] the federal government here, it really needs to happen on local levels. H

How we go about- where that leadership comes from, it could come from the private sector. It could come from the community development sector, but it really should … A lot of this needs to be really spearheaded by the government sector; really, they’re the ones that should take that 10,000-foot view, and be looking at all pieces of it.

Eve Picker: Yeah, I think it’s very easy, at the end of the day, to say gentrification is the developers’ fault, but developers come in all shapes and sizes, like you, me, and other ones. Developers also have to take opportunities.

Eve Picker: I’ve seen this happen often. By the time developers step in unthinkingly into a neighborhood that is already transitioning up, it’s too late. They’re there because it’s already worth more. I just think we’ve got to step back decades to really understand what’s going on. Anyway, that’s my personal thought.

Brian Murray: Just to build on that, one of the things that we’re working on, and hoping to push out to the world is this idea of, okay, let’s talk about the adjacent neighborhood. We’re talking a lot about Opportunity Zones, and the opportunities to try to stem the gentrification in those neighborhoods, but, to your point, we need to start looking out 10-20 years in advance.

Brian Murray: Some of the tools that we need are for those neighborhoods that the typical developer is not looking at. I think the other thing that is really important to us is measuring impact, because we all … We’re guilty of it, and the community development community is guilty of this, and even the hardcore real-estate community is guilty of mislabeling what is gentrification.

Brian Murray: As a result, we have some communities that there’s a strong NIMBYism going on, and it’s a opportunity to educate, and think deeply about what change means, and who gets to participate. I think that measuring impact of change in neighborhoods, it’s critical to us to understand what’s going right when- on the economic-development front, on the wealth-building front, on the inclusion front. Then being honest about what is not going right. We paint a very broad brush when we just, “Oh, that neighborhood gentrified.”

Eve Picker: That’s right. I’m thinking of a couple of examples in a neighborhood I know well, where after a developer had- before a developer had built a new house in that neighborhood, the neighboring property was probably worth $20,000. The woman who’d lived there for decades, and had very little value in that asset, she really couldn’t- it really wasn’t worth putting a new roof on it.

Eve Picker: After the house was built on the vacant lot next door, it was worth- her asset was worth a lot more money, so that added value in the neighborhood; did something good for the person who’d been sort of struggling in this neighborhood that was basically disenfranchised. That’s the good side of- I wouldn’t even call that neighborhood gentrified, but the good side of increasing values in a neighborhood that we don’t talk about.

Brian Murray: That’s right. We did a study of thinking about the type of equity wealth-building that would happen in the neighborhoods we’re working in. There’s a home-ownership rate of – depending on the block – anywhere between 40 and 50 percent in these neighborhoods.

Brian Murray: To your point, the house that, on paper, is worth $20,000, well, if we do this work, and the neighborhood becomes safer; even if we see an increase of value in a typical row home, from $20-$30,000 to $100,000, homeowners in this neighborhood will be building $400 million of equity.

Brian Murray: Now, I think you pointed this out before, there needs to be real policy interventions when it comes to what does that mean for increase in property taxes, and other components that could be problematic?

Brian Murray: If we look at what happened, in particular, in the African-American community, it’s been pretty well-documented that the wealth-building opportunities that white America had, as it fled to the suburbs … I’m a family that benefited in this way. That was what got me to college, for example.

Brian Murray: Thinking about how we educate urban communities about building wealth, and what it means, and how does it work … Providing the opportunity for them to make the choices that make sense for them, I think, is just so critical to this conversation about gentrification.

Eve Picker: It’s a very complicated conversation, and I think, too often, it’s just painted with one immediate response, which isn’t always accurate. Very, very difficult. You also talked about community engagement tools that you learned early on, when you were in the Peace Corps. Community engagement’s really tough, and I’m wondering how you go about it for your projects, and what you think works?

Brian Murray: I guess what we’ve done, and tried to do is to build engagement up and down our entire ecosystem. We do our own property management. We do our own development. We do some of our own construction. We have hired local. We talk about engagement with everyone from the guy we send out to fix the toilet to the guy, or woman running our construction team.

Brian Murray: The opportunities for engagement are as simple as being in the street, listening; learning and understanding what are some of the daily problems of the community, inasmuch as it is, in a more traditional real-estate way, when we engage the community on a variance we need when it comes to a project, and what that might mean, and the input that we need …

Brian Murray: Those are just some of the basic underpinning philosophies of Shift, but beyond that, then we really try to put it all to the test, in reality. In the last probably 24 months, I can share with you probably four or five different projects; I’ll just name one or two.

Brian Murray: One most recent is that we engaged the local charter school to actually … As part of their curriculum, they are doing art projects on plywood that we’re using to board up vacant housing in the neighborhood. They’ve used it to tell their own stories about the trauma that vacancy has brought into their neighborhood. It’s just been absolutely eye-opening.

Brian Murray: We also launched a program called Jumpstart Kensington. Jumpstart Kensington is a real-estate accelerator for people in the community. The argument, or the challenge that I keep going back to is who gets a chance to participate in the upside of a neighborhood? When a community understands that their neighborhood is changing, do they have the tools, the access to capital, the knowledge to go out, and start perhaps buying, renovating, renting, building equity in their own way?

Brian Murray: We created a program; it’s a real-estate accelerator, where we provide a series of workshops, mentorship, and now, with the help of our nonprofit partner, and J.P. Morgan, we have funding available. We’ve brought 65 people through our program to date, of which probably about 90 percent are a person of color, and a woman.

Eve Picker: That’s a pretty fabulous. That’s a really great outcome. Have any of them had success with real-estate projects in the neighborhood, or are they coming from other neighborhoods, or are they solely from the ones you’re working in?

Brian Murray: Just like life, it’s a [inaudible] everything. It’s a little bit more complicated to paint a broad stroke, but what I can say is that yes, yes, and yes-

Eve Picker: Okay, very good.

Brian Murray: There’s some who come from other neighborhoods. There’s some that are just getting some properties up and going now. We’re trying to figure out the right cadence to help support them.

Eve Picker: That’s great. The other thing you talked about was wealth-building in the neighborhoods. I’m wondering if you think that equity crowdfunding can play any sort of role in building communities for everyone?

Brian Murray: Absolutely. I think there are real opportunities within almost any neighborhood project, and it could be small; it could be large, and meaningful, but I think that the-

Eve Picker: Hold on a second, small can be meaningful, Brian!

Brian Murray: Oh, absolutely … I meant … Sorry, thank you for correcting me there.

Eve Picker: Don’t apologize.

Brian Murray: I would say financially meaningful for the project.

Eve Picker: Yes, that’s correct.

Brian Murray: Both of them have roles. I was going to argue that especially the small amounts are educational opportunities. They might not necessarily always be wealth-building opportunities for the community, but they’re certainly an exciting way in which to bring people into the process; understand the process; understand what happens behind the scenes in a real-estate project. Then, of course, have some pride, and ownership over their own community.

Brian Murray: Whether it’s really truly, again, financially rewarding work with the psychological side of it, I think both of them have an unbelievable power when it comes to the type of work that you’re doing, obviously, and we’re doing, too.

Eve Picker: Then, the next question is where do you think the future of real-estate impacting … Impacted … Sorry, I’ve got to say that again.

Brian Murray: Sure.

Eve Picker: Where do you think the future of real-estate impact investing lies? I’m asking this because I hear- my personal experience is that I hear a lot of people … Perhaps pretty startling statistics, like 85 percent of people who have managed portfolios are now looking for some sort of impact, or social responsibility in their portfolio. That’s a really big number, but I am still to be convinced that impact investors will actually accept a lower return.

Eve Picker: That really complicates things, in my mind, for neighborhoods like the ones you’re working in, and, actually, most Opportunity Zones, where it is really difficult to find – if it’s really, truly an under-served neighborhood, which was the intent of that legislation. It’s very difficult to find a project that can really return to a bigger-pocket investor the sorts of returns they typically expect.

Brian Murray: I deeply- I don’t want to say troubled, but I think you’re right. My experience has been that even among the “impact-investing group” there is not yet a strong desire to increase risk at potentially decreasing returns slightly.

Eve Picker: Yes.

Brian Murray: I believe that- I think that there are a few reasons for that, and part of that’s my own experience here. People who traditionally had- people who are real-estate investors – I’m painting a really broad stroke here, but it’s not that far off – have typically been real-estate investors in the past. Either their family has been; they were in the business; they know the business very well.

Brian Murray: Impact investors don’t know real estate well. They are just starting to dip their toes in on platforms like your own, and it’s hard to discern what is risk in real estate, and what is risk …

Brian Murray: There’s lots of levels of risk in real estate, as we all know but now we are adding an additional risk here, which, I’ll be frank, having now been doing what we’re doing, I think that there’s more risk, as a real-estate investor, investing in Center City, downtown high-end rental markets than there is in working in lower-income communities, where demand drivers are just absolutely enormous-

Eve Picker: I agree with you. I agree with you.

Brian Murray: It’ll just take some time, I think, for us, and I mean that in this very collective ‘us’ of, as you know, lots of really great, fantastic groups doing this work on the ground to continue to educate, to do what you’re doing, by providing this access to these incredible projects, and really continuing to push that education process.

Brian Murray: Also, growing these type of value-driven developers, and making sure that we’re continuing to prop them up, give them- make sure that the light is getting shined on their work – good and bad. Sometimes, it might not always work out, but I think we all have that duty to do that. That’s where I think we all need to go as a group.

Eve Picker: I agree with you. I’m going to end this conversation with three sign-off questions that sort of, I suppose, summarize what we’ve been talking about. The first one is what do you believe is the key factor that makes a real-estate project impactful?

Brian Murray: A project that the community has a real say in; that the community has access to the process, and, in the best-case scenario, where the community has a benefit from that project, as well.

Eve Picker: The second question is, other than just raising money, how do you think involving investors in crowdfunding might benefit impact real-estate developers? Can the crowd do more than just raised money for projects?

Brian Murray: Wow, that’s a fantastic question, and I would turn that back to you. I think you’re … I don’t have an immediate reaction on that, except for, yes, I believe that there are probably ways that investors can play a … Investors connecting to projects through crowdfunded sourcing can probably crowdsource other resources that could help developers, and specifically their projects. I think it’s a great idea.

Eve Picker: One think I think about, just as an engagement tool for someone like you, if you crowdfunded a small portion of a project in your neighborhood to the people in the neighborhood, now you have a pool of people who are really standing behind you, and what you’re doing.

Brian Murray: That’s right.

Eve Picker: Maybe that helps at a zoning hearing, or maybe it helps in some other way that we haven’t thought about. I think that was my idealistic goal in Small Change is that … You and I have seen, in cities like Pittsburgh, and Philadelphia, how much people want to be involved in the place they live in, so this was a way to give them access beyond just talking about it. I don’t know. I’m sure there’s more that I hadn’t thought about but-

Brian Murray: No, I think that’s great.

Eve Picker: Yeah, and then, finally, and this is the really big question, which you probably have thought about, is how do you think real-estate development in the United States should be improved?

Brian Murray: We need to work with the banks to mandate, and improve ways in which real-estate financing happens, so that it’s not just the usual incumbents that have access to the type of capital that these projects need.

Brian Murray: Singlehandedly. I think there’s a systematic problem with access to financial markets, to the networks that create opportunities to raise equity. That circle is very small, and it’s very difficult for new developers, new entrepreneurs, to access- to break in. It’s just too high of a barrier of entry.

Eve Picker: I totally agree with you, and that, again, is why I’m doing what I’m doing. I hope there’s a friendly Philadelphia banker out there listening to this, who might start some process that helps the developers your training. In any case. I really enjoyed this conversation, and thank you so much. I’m sure we’re going to talk again soon.

Brian Murray: Thank you, Eve. It was great. I love what you’re doing. I love what it represents for the industry, and I just want you to keep doing what you’re doing.

Eve Picker: Okay, thank you, bye. That was Brian Murray. I hope you enjoyed listening to him as much as I enjoyed talking to him. Brian gave me three great takeaways. First, it’s possible to have a robust real-estate business focused on under-served neighborhoods. Second, community engagement really means embedding yourself, and becoming part of that community. Third, finance is at the core of making change. We need financial institutions, and the philanthropic world to step up, and make it possible to build much more real estate in neighborhoods that need the investment. What did you learn?

Eve Picker: You can read more about Brian on the show notes page for this podcast at EvePicker.com. While you’re there, please consider signing up for my newsletter to find out more about how to make money in real estate, while making some change.

Eve Picker: Thank you so much for spending your time with Brian, and I, today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Brian Murray, Shift Capital

On the periphery.

Finding value-driven real estate investments on the periphery

In real estate, there is no risk without reward. The traditional view is that developing in high-end commercial and residential markets, like Manhattan in New York City or the Financial District in San Francisco, is less risky than developing in a community with less financial resources. However, this may not be entirely accurate. In many parts of the country we now have an oversupply of high-end, luxury housing, particularly in districts that are very similar to Manhattan or other urban cores.

Lower-income communities are currently underserved, and there are strong demand drivers at play in those areas. Land and property acquisition costs are also much more manageable in neighborhoods on the periphery- those that are in the process of growing economically. While the big-name firms get all of the media attention with gleaming towers in city centers, investors across the country are making money by serving the needs of the 99%, not the 1%.

The need for community building in low-income areas

The housing affordability crisis is in full effect. Hundreds of thousands or even millions of people across the United States are having to choose to relocate due to encroaching gentrification. When investors and developers view projects in those communities as risky, rightly or wrongly, it prevents much-needed capital from filtering into the area and more importantly prevents capital from reaching the people that need it the most.

While there are a multitude of federal, state, and local programs dedicated to solving this issue, the public sector alone will not be able to solve it. Socially-minded investors and entrepreneurs already have the tools to alleviate this crisis- and they can generate stable, long-term returns while doing so.

Bringing locals along

The first step to helping someone is to ask what they need. Community collaboration is essential when it comes to creating a viable, self-sustaining community. Developers can foster these relationships through meetings with locals, educational programs for residents, and other forms of outreach that take their concerns into account.

Remember that a dialogue goes two ways, and you can learn a thing or two while working with community members. There is nothing more valuable for a business than understanding customer needs, and an honest conversation with your prospective neighbors, buyers, or stakeholders can go a long way towards that.

And bring investors along

Educating the community is an important first step, but you have to educate investors too. There is no development without investors, and part of the reason we are in this mess is that investors have not been incentivized to help build sustainable communities in low-income areas. Contrary to popular belief, not all investors are heartless monsters who only care about the bottom line. There are millions of investors that want to invest in socially responsible developments- and there will be millions more if developers can adequately educate them on the financial opportunities that lie in low-income community development.

Raise capital differently

Education is excellent, but at the end of the day, you need to be able to finance your projects. Big lenders and banks may not share your passion for socially responsible investing, but luckily, the world of real estate finance has expanded quite a bit in the past decade. You can now source capital from individual investors through crowdfunding, work with community trusts, or partner with local governments to create neighborhoods that are built for people, not just for profit.

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The most important thing to remember is that successful developments take into account the needs of a community first. By treating local stakeholders as partners, you might avoid many of the problems that plague real estate projects- and this saves you time and money. The fact that you can make the lives of all stakeholders a little brighter is just icing on the cake.

Image by Eve Picker

Capital is just a tool.

In this podcast Molly McCabe and I explore housing the homeless, real estate projects that make community, and the future of impact investing. Her Lotus Campaign is yielding astonishing results quite early on, having placed 150 homeless people in its first year of existence, so listen in to learn more.

Molly is a veteran of the Real Estate Industry, Molly describes herself as a Scout, MapMaker and BridgeBuilder. She founded HaydenTanner after spending many years in commercial real estate finance, capital markets and development. She has spent her career cultivating practical solutions and strategies to accelerate the emergence of resilient buildings and vibrant, sustainable cities. Now she works with clients to channel investment capital to optimize asset and portfolio level returns, enhance resiliency, community vibrancy and livability while meeting economic objectives.

Molly is the immediate past Chair of the Urban Land Institute’s (ULI) Responsible Property Investment Council and sits on the Board of The Freshwater Trust. She is also the author of the book: Practical Greening: The Bottom Line On Sustainable Property Development, Investment and Financing and “Driving value: Responsible and Resilient Property Investing in the New Millennium” for Institutional Real Estate Investor. She has taught at the Boston Architectural College and has lectured at Pinchot University. Previously she founded VC funded, commercial mortgage backed securities firm, Bridger Commercial Funding, ran Bank of America’s Real Estate Capital Markets group and was a commercial construction lender with Wells Fargo Bank. She is a trained mediator, professional business coach and LEED AP.

Insights and Inspirations

  • We need to think of capital as just a tool. That’s all it is. It can be used beneficially, or not.
  • Molly’s Lotus Campaign has housed over 150 homeless people in it’s first year at the extraordinarily low cost of $1,000 per person.
  • ESG (Environmental, Social and Governance) plays a factor in investors decisions every day now.
  • Equity crowdfunding is the pebble that creates the ripples.
  • Molly is exploring building techniques that might help to lower the cost of housing for those who really need it.

Information and Links

  • Molly’s inspired by women who make her giddy, make her laugh and call her forth to do more, do better and to stand tall in my own strength and authenticity. Like Brene’ Brown and her most recent book Dare to Lead,  Emma McIlroy and her team at WildFang, Georgia Lee Hussey of Modernist Financial and so many more.
  • This year Molly is most proud of all she’s accomplished with The Lotus Campaign to help get people into housing.  
  • Who knows what will her inspire next week! 
Read the podcast transcript here

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

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Molly McCabe. I met Molly in her role as chair of the Urban Land Institute’s Responsible Property Investment Council.

Eve Picker: After many years spent in commercial real estate, Molly founded in HaydenTanner. There she works on cultivating practical solutions and strategies to accelerate the emergence of resilient buildings and vibrant sustainable cities. Molly has shown her true colors with her latest astounding project, The Lotus Campaign.

Eve Picker: Be sure to go to EvePicker.com to find out more about Molly 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 Picker: Molly, it’s really nice to have you here today. Would you just tell us a little bit about yourself, and what you do?

Molly McCabe: Oh, sure. Thanks, Eve. Appreciate it. I run a firm called HaydenTanner, which is a strategic real-estate-advisory firm focused on increasing or bringing social equity and sustainability into the built environment. I work with developers and investors on their projects to create healthy, vibrant communities. I also have recently co-founded a non-profit with some colleagues called The Lotus Campaign, which is focused on increasing the availability of housing for people experiencing homelessness.

Eve Picker: That last one is a really big lift. Can you tell us a little bit more about that, The Lotus Campaign? I know a little bit about it, but I’d love to know more.

Molly McCabe: I’m delighted to do that. We started The Lotus Campaign- we’re coming up on our one-year birthday mid-July. What we realized maybe about 18 months ago in looking at a number of things is that the private sector really has not been engaged directly in to how do you solve some of these challenges around homelessness. Really got to thinking about how can we bring the private sector, the private real-estate development, and landlords, and investors into the mix and really start to solve the problem?

Molly McCabe: The Lotus Campaign looks at it from a continuum. We have a program called the Landlord Participation Program, which is really focused on increasing housing availability today for people experiencing homelessness by taking away all the impediments that a current landlord might have in bringing someone into housing, such as credit history, rental history, things like that; making sure that they have some immediate support. Then we also incentivize those landlords to open up the units.

Molly McCabe: Then, on the continuum, we also recognize that just increasing housing today with existing units is not enough, because we just don’t have enough housing units available period. The second piece is we are buying and rehabbing existing naturally occurring affordable housing. Doing major rehabs and putting aside about 20 percent of those units for people experiencing homelessness. The balance, about 80 percent, is primarily workforce housing.

Molly McCabe: The third piece on the continuum is actually increasing the total number of housing. We are piloting- or we’ll be piloting this year, hopefully, some new construction technologies which will reduce the total cost per unit of housing. Through that, we’ll be partnering with cities and other communities to increase the actual total housing stock. It’s a continuum, and it’s, again, been pretty successful. So far, we’ve helped facilitate in the first year about 155 people into housing at an average cost of about $1,000 per person.

Eve Picker: Wow, that’s a lot that you have on your plate. That’s a really lot to manage. I want to go back to something you said about removing impediments for formerly homeless people to be able to rent a space. What exactly do you mean by that? How do you help remove those impediments?

Molly McCabe: Well The Lotus Campaign, if you take a quick step back, and we look at the clients that we- our people that we’re currently looking at serving, we’re looking at serving sort of highly functioning, chronically homeless all the way up to people who are on the verge of experiencing homelessness.

Molly McCabe: Because what you find today is that, in comparison to what we thought were the people who are experiencing homelessness – typically people who were drug users and things like that –  really, it’s so many people who are falling into poverty . Right now, housing prices across the country are just dramatically rising, and there’s …  People who are wealthy can certainly go into housing, but then there’s that point where you lose a job, you have a health problem, something happens, and you can’t make the rent the next month. We sort of serve that whole sector, that whole segment of the population.

Molly McCabe: What we’re finding is that landlords have consistently been concerned about things like, as I said, rental history, credit history. Then there’s a whole stigma attached to being homeless. The reality is, as I said, many of it’s economic in nature. When we talk to the landlords, what we’re doing is we’re providing … We, Lotus, come in and we provide a rent guarantee.

Molly McCabe: We provide tenant insurance. We work with social-services organizations who have an ongoing responsibility to 1) identify a resident who is able to go into scattered-site housing and then provide ongoing services to them during the entire period of time that they are in that housing; including, for example … They come in once a month, and they walk the unit; check in with the tenant, but they make sure it’s- from the landlord’s perspective, it gets somebody in the unit to make sure that things are still going okay, and if there’s any problems, it gets you ahead of that.

Molly McCabe: We will provide …. We’ve asked the landlord to postpone eviction processing for a month – 30 days – and we ask them to partner with us to see if we can work out whatever the problem is. If, at the end of that month, we are unable to do that, we will go with the landlord to court. We will pay their court costs, their attorney’s fees to help process that eviction, if necessary. Hopefully- that hasn’t happened so far with any of the tenants that we’ve had, but we have offered that.

Molly McCabe: The last piece is we provide the landlord with an incentive payment to open up units. What we’re finding is that it’s about, again, $1,000 per person.

Eve Picker: That’s not a lot of money.

Molly McCabe: No, it’s a great way to … If you think about leveraging your capital, it’s not a lot of money. We’ve been really, really successful with that. So far, as I said, we have 155 people in housing.

Molly McCabe: We’ve had one person leave; lose their housing. That wasn’t because they were doing anything wrong at the building, at the apartments. It was because they weren’t actually following through on what the social-services organization had expected them to do. They weren’t making meetings. The social- services organization actually came in, and said, “You need to leave.”

Molly McCabe: That person’s gotten back on the waiting list because they’ve shown back up, but it’s really a matter of bridging that gap between what the landlords are- their expectations [inaudible] making them feel comfortable that they have support, and that they have a reason to open up those units and feel confident.

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

Eve Picker: What locations are you in, so far?

Molly McCabe: We’re currently piloting in Charlotte, North Carolina. In Charlotte, again, we have four landlords; four different landlord organizations that we’re working with, and we have four different social-services organizations that we’re working with who have identified people.

Molly McCabe: We hadn’t expected to do this, but the opportunity came along in November to actually purchase- acquire a building. We acquired the building in November. It’s 144 units; 30 of which have been set aside for Lotus clients, and the balance are workforce housing – tenants, residents.

Molly McCabe: In that case, we brought in an impact investor as a partner. Our returns are very strong as compared to anything else in the market.

Eve Picker: What are the returns? Can you share?

Molly McCabe: Sure, I’d be happy to share on that. On that particular project- again, we’re targeting market-rate returns, so we’re looking at a current of about six percent on that deal, and we’re looking at, over a seven-year period, a 12-percent IRR.

Eve Picker: That’s pretty good.

Molly McCabe: Yep, and [cross talk] It’s a very traditional … Of course, any real-estate deal is different-  all real-estate deals are different. You go into any one; you figure out what works. But it’s a very traditional model. There’s no tax credits. It’s a 65-percent loan to value. We’re doing some rehab on it.

Eve Picker: You have guaranteed clients-

Molly McCabe: Exactly, guaranteed clients.

Eve Picker: It’s a pretty low-risk project by the sounds of it.

Molly McCabe: Yes, exactly.  What we think- our goal over the course of the next three years is to be in 10 different cities and-

Eve Picker: That was going to be my next question. What’s your goal?

Molly McCabe: Perfect segue-

Eve Picker: 10 cities. That’s a pretty- that’s pretty fast.

Molly McCabe: Yeah, so 10 cities in 36 months, that’s our objective. Again, it really- people ask us, “Where are you going to be? Have you identified the cities?” We do certainly have criteria. Number one, I think we’re going to  …

Molly McCabe: The two most important criteria are who do we know in that city from a landlord-development perspective? Who controls the real-estate side? Then, are there solid social-services organizations who can 1) identify clients who can go into scattered-site housing, and 2) have the capacity to provide that ongoing support to those tenants?

Eve Picker: Interesting.

Molly McCabe: I suspect it’ll probably be secondary cities. We’re probably not going to go into major-major cities, just because the cost of housing is so expensive in places like New York, or Los Angeles, San Francisco.

Eve Picker: Well, let me know if you need any help in Pittsburgh, because, as you know, I’m connected here.

Molly McCabe: You are, very connected. I would love to get into Pittsburgh. There’s some really interesting cities. I think we can have some good impact.

Eve Picker: We need to talk more about that. It sounds like this project takes up a fair amount of your time, but you were also talking about another more local one. Do you want to tell us a little bit more about your involvement in that?

Molly McCabe: One of the things that, as I said, I’ve been really involved with in the last 18 months is this roll-out of Opportunity Zones. Originally, I got involved in it from more of a national perspective in looking at how the real-estate sector might … It’s funny looking at it now, of course, because real estate is the easiest piece to apply Opportunity Zones, but, when it first started, we really didn’t know how it would play out.

Molly McCabe: I got involved more on a national basis and looking at how real estate might utilize it for distressed communities. It turns out I have … There’s an Opportunity Zone in my local small community, where I’ve not done any development or investment at all.

Molly McCabe: The project that I’m particularly looking at now is one where the library is looking at moving into a particular location on a new trail that’s being built. Rail lines are coming out, and the trail is going through the center of town. It’s a great place to create a community hub. There’s such a need for creating that vibrant place where people come together – that third place.

Molly McCabe: We’re looking at the library; some mixed-income housing. It’s akin to what we were talking about earlier for The Lotus Campaign. We’ll have some sort of workforce housing, some higher-end housing, as well as some lower-income housing. Maker space, retail, coffee shops, all added in this one location.

Eve Picker: It sounds like fun. That sounds like a really fun project. You’re working on some really great things. I’ve been personally a little bit disappointed at what has emerged around real-estate opportunities in Opportunity Zones. I’m just wondering, because I know you’ve been a bit- on the speaker circuit, you’ve been pretty heavily immersed in this. I’m just wondering what you think about what’s going on. I’d love to hear your thoughts.

Molly McCabe: I think it’s a great point, Eve. The reality is the projects that are coming first out of the gate are the ones that were already shovel-ready, and, in many cases, already penciled. I had a question on a webinar I did not that long ago from somebody who said, “Well, how is that hotel project really supporting that community, and did they go about involving the community in discussions about what the community actually wanted?”

Molly McCabe: It’s not my project, so I can’t say whether or not they did in order to get it approved, but I think we have to recognize that the early projects that are coming out of the gate are ones that were already vetted; already ready to go.  Water under the bridge. That’s already done.

Molly McCabe: Let’s figure out how do we move forward today, and identify how do we bring the communities in? What kind of impact do we want to have? How do we make sure that gentrification does not displace people? How do we make sure that what we’re doing in these communities actually benefits the people who are currently living there, and what kind of impacts do we want to have?

Molly McCabe: I think many, many cities are finally getting their hands around, and their head around what that actually means. What do we want to have here? What does that look like? I think community members are starting to recognize that.

Molly McCabe: One of the things I think you’re doing, which is so awesome, is this concept of using crowdfunding as part of an Opportunity Zone. How do you take the people who live there, who maybe have small investments and only can do small investments into it, but if they invest in their own community, they have … They are able to help design and create what they really want.

Eve Picker: Yeah.

Molly McCabe: There’s potential, I recognize, because I know you’re doing this, and I haven’t even attempted crowdfunding. Huge complexity to it, so, I don’t say that it’s easy.

Eve Picker: Well, I actually think that’s not the most difficult part. I think, for me, the most difficult part is – when you layer impact on to Opportunity Zones – finding a project that can stand on its own two feet [cross talk] that is investor-ready, that has some experienced developer behind it.

Eve Picker: It’s very rare, because now you have a project that the developer is going to have to track carefully for 10 years to ensure that the investors get their tax benefit, so they can’t just be trying this for the first time. It’s a really difficult formula. I think it’s a really difficult formula to find a project that sort of checks all the boxes. Very difficult.

Molly McCabe: Yep. I think the good news is that … The recent regs that came out in April, one of the things that it did allow is it allows you to sell an asset in the middle of that 10 years and reinvest it, as long as you keep the money in the Opportunity Fund.

Molly McCabe: Theoretically, we will see new capital coming in over time, so I think you’ll see some recycling of capital and see the ability, too, so maybe it doesn’t have to be a 10-year project. I also like the potential to take real estate and layer it with businesses in the Opportunity Fund-

Eve Picker: I agree. I think it has great potential.

Molly McCabe: I think it remains to be seen and-

Eve Picker: It’s really not a long enough ramp-up time, is it?

Molly McCabe: No, no.

Eve Picker: The 10 years is ticking away fast, and people are really only getting themselves organized in thinking about it. Yeah, there are a few projects that were ready to go that just happened to be in Opportunity Zones, or, perhaps they were there because they petitioned for them politically. I don’t know, but it’s really only just coming together now, I think. How far into it are we?

Molly McCabe: Yeah, what are we at? Well, we’re more than a year … We’re basically 18 months into it, and I think that has been … I have a client that bought a project in April of last year. Huge project. Opportunity Zone. They are definitely putting in enough money to make it work, but they bought it, and they had no idea that it was in an Opportunity Zone. It was just too new. That backward looking, going, “Oh, well, we should have done it this way …” [cross talk]

Eve Picker: -that’s tough, too.

Molly McCabe: Right. We’ll see. I think it has great potential. There is no doubt it also has potential for abuse. I think we just have to, for those of us who are really focused on impact and really looking at how can we develop communities in ways that make a difference for the people that live there, both on a social perspective, as well as an environmental perspective.

Molly McCabe: I think we just have to keep pushing for those impact measurements and making sure that we are tracking those in a way that are meaningful, whether that’s on an Opportunity Zone project, or really any project. Really, that’s, to me, how do we create thriving, healthy communities that are- we reduce our carbon footprint. We are focusing on going as close to net zero as we can, but also providing jobs and equity and all of those things [cross talk]

Eve Picker: Molly, I love talking to you because you answered my next question before I asked it. My next question was going to be do you think socially responsible real estate is necessary in today’s development landscape? I think I know the answer to that.

Molly McCabe: Oh, yes. Oh, my gosh, absolutely. I’m so fascinated by people … When I look back and I think about developments that I did, oh, my goodness, 25 years ago, I go, “What was I thinking? That was so bad!” We’re in a place where the planet- we have so many people on the planet. You look at … It’s just increasing. Climate change is an issue; water resources are an issue;  energy is an issue; social equity … We have this increasing economic divide of the haves and have-nots.

Molly McCabe: If you don’t think that responsible property investing or responsible investing, in general, is crucial, I don’t know [cross talk]

Eve Picker: Where have you been?

Molly McCabe: Right. The other piece that I think is so important is recognizing … Some people think that capital money is bad. If you recognize that capital is just a tool – it’s just a tool … Money is just a tool; it’s just something that we’ve created to trade energy, and goods, and services. If you recognize that it’s a tool, then you can use it in any way that is beneficial.

Molly McCabe: You have a choice. You can say, “Well, I’m going to make an investment, and it’s going to make money and do something good and positive for the community,” which makes it a more sustainable community, which means it’s thriving, which means it’s healthy, which gives it a long-term value, as opposed to, “I’m just gonna do something and get out in two years,” why wouldn’t you do something that actually benefits the community that you live in; benefits the people that are around you, because you can … I do believe in the goodness of people, so I always have hope for that.

Eve Picker: Yeah, I’m not sure about the goodness of all of them yet.

Molly McCabe: Well, you and my husband would be in the same category. He feels the same way. He always says that I’m disappointed because I expect people to do the right thing, and they’re going to be good, and they’re going to do their best work. When it doesn’t happen, I’m disappointed. He says he doesn’t believe that, so he’s never disappointed.

Eve Picker: I want to believe it, but I’m not sure. I think there’s still a lot of greed, and that may be the primary reason, or the thoughtless reason for not picking one project that does something good, over another that does nothing good – an extra-percent return or whatever it … I’m not yet completely convinced. I wish I were.

Molly McCabe: Right, right. Well, I’m not saying everybody’s there, and we certainly have plenty of examples of people who are not and who are very much out just for their own benefit, but-

Eve Picker: I feel like investing for impact is this tidal wave heading towards us, and we’re early adopters. Eventually … Eventually,  if you think about a graph with Walmart at the top, eventually that crowd will follow, because it’s the thing to do, right? I don’t think we’re there yet. We’re all battling against a crowd that doesn’t know it’s the right thing to do. That’s the way I think about it.

Molly McCabe: It’s always hard to be an early adopter, right?

Eve Picker: It’s also fun.

Molly McCabe: You’re always on the edge … Now, I think about this, and I go, “I said that 10 years ago, and it’s finally coming to fruition.”

Eve Picker: I know, and then … Yeah, if we did it now, we’d be making money. But look, I didn’t know what an early adopter was until a few years ago. Apparently, that’s what I am, but [cross talk]

Molly McCabe: All these years, you’ve been an-

Eve Picker: Yes.

Molly McCabe: I know.

Eve Picker: This is the way we’re wired. We can’t think differently, right, Molly?

Molly McCabe: Exactly. Really, if you think about what does it take to be not just an early adopter, but really somebody who is a leader … I mean, people who are leaders are those that kind of are always … You don’t always- you don’t have the answers. You don’t pretend you have the answers, but you’re always curious, and you’re always looking at what’s next, and how can you solve that problem, and, “Wow, that’s interesting!”

Molly McCabe: I think what I appreciate about spending time with you, Eve, is that you’re always asking questions, and you’re always going, “Huh, well, how might that work? What about this? If we try it this way …” and sometimes it doesn’t work, right?

Eve Picker: Yes, usually it doesn’t work.

Molly McCabe: But then, one time in 10, or one time in a hundred, it does work, and you go, “Wow, that is  cool!”

Eve Picker: Yeah, actually, that’s a really interesting point, because in the tech world, failure is a little bit glorified, right?

Molly McCabe: Mm-hmm. Yeah.

Eve Picker: You’ve tried three companies, and they’ve failed, and finally, you have a winner. In the rest of the world, not so much. Failure is pointed at, and derided, and yet, I think failure is kind of an indication that you were willing to try something. Anyway, that’s my little speech for today.

Molly McCabe: Well, I agree, and I think anytime we’re … I think we are in a culture that’s wired around avoiding any sort of looking foolish, or any sort of uncertainty. We always want to have some sort of certainty around things and some guarantee that it’s going to work out.

Molly McCabe: Tech is a really interesting anomaly to that, and I think being able to take that same mindset and apply it elsewhere in our lives and stepping into that fear, and uncertainty and stepping into the risk is an important component to moving things forward. Going back to our conversation just around impact, sometimes you just have to try stuff and go, “Wow, how might this work?” and “Wow, this is better!”

Eve Picker: I agree. We strayed a little bit there, but I’m also wondering if there are any current trends in real estate that you’ve noticed that are of particular interest to you or that might be important for the future of cities?

Molly McCabe: One thing I do want to- well, two things I’ll comment on. 1) Absolutely, I think this concept of responsible property investing, environmental/social-governance factors … What we are absolutely seeing is a rise of that. It shows up, and admittedly, it might be self-determining, based on what I follow, but it shows up every single day in my inbox. There’s always something on ESG, and how investors are looking at that, and how investors are looking at that risk profile.

Molly McCabe: I think there is a clear recognition on the horizon … Understanding the risk and the opportunities that go along with climate change, social equity, transparency, and things like that. Whether or not you have stranded assets because you didn’t notice that this tidal wave was coming, or that whatever … I think that’s a huge issue.

Molly McCabe: I think we’re seeing … On the sustainability side, we’re seeing some really interesting regulation coming down. You look at what just happened in New York City, what’s happening in California, Washington D.C.; what’s happening in the UK and elsewhere in Europe around net-zero and carbon emissions. I think that’s going to [add to] the built environment, something we need to get ahead of. We need to be looking at what does that mean for our portfolios; what does it mean for our investments, and how do you reduce the risk? Because, if you don’t figure it out until the regulations hit, you’re screwed.

Molly McCabe: The last piece that I think is really interesting, particularly in our cities, is some of the new building techniques. We’ve had some, particularly through our Lotus work, in trying to figure out how do we reduce the total cost of building. Looking at componentized-building projects, which are different than necessarily modular, but just componentized.

Molly McCabe: How do you do a plug-and-play system? What does that look like? How can you make it simple and easy so that it’s kind of off-the-shelf, fully designed, and you can pop it in anywhere? I think that’s interesting. I think zoning issues – what happened in Minneapolis around getting rid of single-family zoning, very interesting; around density and how that’s going to impact cities. There’s a lot out there right now.

Eve Picker: There’s a lot , that’s right. What community engagement tools have you seen that you think have worked?

Molly McCabe: That’s a great question. I think communities are different, so that’s one thing that I am really getting to understand more skillfully, I guess, now that I’m working on this local project, and, because I live in a rural area. That’s different than in a city.

Molly McCabe: Then you, of course, have all your social-media platforms. Obviously, social media is one platform, but I think, in many ways, on the ground- your typical canvassing and going out and meeting people where they’re at still continues to be, in many ways, the best way for people to understand what’s going on [cross talk] engagement.

Eve Picker: I think some of the communities I’ve worked in, they really don’t have access to the internet, and they’re working two jobs, and it’s unlikely that they’re going to show up at a meeting. You have to find a way to [cross talk]

Molly McCabe: Yeah, you have to go- you go to the coffee shop, or you go to the soccer game, or you go to the … One thing, going back to the comment I made earlier about a third place, and creating a place where people can meet, I think creating those sort of hands-on experiences, so people can show up, whether it’s just at a social event; an ice cream social or something where people come together. Again, it’s kind of old-fashioned, but in many ways, in many communities, that’s really the best way to get people out and get them engaged in what the vision for the community looks like.

Eve Picker: Yeah, I think that’s right. Then there’s equity crowdfunding, which I think can play a role in building communities, but what do you think of that?

Molly McCabe: Well, I love equity … I do. I love the concept of equity crowdfunding. I love being able to look at the neighborhood and say, “Well, who are the people here who really care?” I look at-  if you look at your own investment dollars, and you make a choice … I can put them with some large investment firm, and they would go put them in a mutual fund somewhere and invest in some thing that I have no connection to; or I can invest in my community; spend my dollars in my community to support those local businesses. That, to me, feels good, and it feels very connected and engaged.

Eve Picker: Yes. Where do you think the future of real-estate impact investing lies globally? Locally? Anywhere?

Molly McCabe: Oh, wow … I think it lies in both, certainly. I think impact- Local is exciting to me, and probably that’s because I’m working on this project locally, because I see the opportunities there, and the opportunity to engage the community in a positive way.

Molly McCabe: But I think larger things on impact will happen at the institutional-global level. If you look at- institutional investors are definitely going to push different building techniques, technologies, energy efficiency, carbon reduction, net-zero water resources. I think that will probably push from the more global side.

Eve Picker: I think you’re probably right. Okay, I have three sign-off questions I’m going to ask, Molly. The first is what’s the key factor that makes a real-estate project impactful to you?

Molly McCabe: To me, if it creates a place where people can engage and connect. If I look at my core values, connection and relationship is one of my core values. Creating that space in a way that is healthy and vibrant … It’s that connection in a way that is not looking down at your screen; it’s a connection of people, bringing people together where they actually … One and one doesn’t make two, one and one makes something n one doesn’t make to one and one makes something multiple.

Eve Picker: It’s a community, yeah [cross talk] then, other than by raising money, in what ways do you think involving investors through crowdfunding could benefit and impact real-estate development?

Molly McCabe: To your point on engagement, I think that once you bring them in on a crowdfunding platform, they get … You’re continually communicating with them. “Here’s what’s going on; here’s where we’re at. Here’s what we see down in the future; here are the challenges that we have.” I think what it does, in that sort of crowdfunding way, it gives them the ability to say, “I’m part of this, and it’s meaningful to me, and I’m going to engage further.”

Molly McCabe: Yes, the crowdfunding is important to bring in money, but I also think it actually engages people in a proactive way. It actually pulls them in, in a way that they want to be engaged, and they want to participate. They want to, whether it’s showing up at the city council meeting, or writing a letter to the editor, or-.

Eve Picker: It becomes their project, as well as the developer, right?

Molly McCabe: Exactly. I also think it helps them think about how they can impact their communities in different ways. If you think of that, if you just look at it like you drop a pebble in the pond, and you see the ripples go out. If that crowdfunding is just the pebble that’s dropped, it’s all the ripples that go out. Not just that project, but in other projects, and in other … Whether it’s working in a nonprofit, or it’s working in so many different ways in a community. I think it makes [cross talk]

Eve Picker: I like that analogy. This last question is completely unfair, but I’m going to ask it.

Molly McCabe: Okay.

Eve Picker: How do you think real-estate development in the US can be improved?

Molly McCabe: You mean how can real estate in the US be improved? Our industry has, for so long, done the same thing over, and over, and over again, the same way. We really are not an industry that is too focused on innovation, so I think … How can it be improved on the development side?

Eve Picker: Maybe that’s unfair. I’ve traveled a lot, and I see what other countries do. I know it’s wrapped up in zoning laws, and legal issues, and property rights issues. Then I see a McDonald’s on the edge of a historic market district, where they-

Molly McCabe: That makes you want to cry?

Eve Picker: -they’re not being permitted to put the M, the arches up, that are any bigger than 12-inches tall, and they’ve gone with it,  because they really want to be there. That’s just a little thought, but I …

Molly McCabe: It’s an interesting question, because I do think … I was just reading this morning, one of my colleagues … Sydney, Australia had put out an international competition to increase- to get proposals to increase housing, and affordability, and such. They had over 200 submissions, and they’ve narrowed the shortlist down to seven.

Molly McCabe: Some of the ideas are really interesting, whether it’s micro homes, or some of it is micro homes and some of it is community land trusts, and different types of ownership models. It’s not really development, but I’m curious to this- to your point about how do we bring in different concepts from different parts of the world into what’s happening here?

Molly McCabe: I think I would expand that to not merely development, but how do we learn from technology, for example? How do we learn from different industries? One of the things I’ve always done, when I was chairman of the Responsible Property Investment Council for the Urban Land Institute is every meeting, we’d bring in …

Molly McCabe: We’d have a session called Conversations with Great Minds, and my goal was to always bring in somebody from another industry,  whether that’s the banking industry, who is looking at how they – for their human resources – how they really make people who are LGBTQ feel comfortable, and how they go out of their way to make an expansive and culturally supportive environment, to the chief storyteller from Patagonia coming in and talking about how Patagonia has created a whole culture and brand around sustainability, and connection, and the environment. Understanding how can we use what retail is doing, what tech is doing that we aren’t currently doing.

Eve Picker: Yeah, or actually, Sydney Australia is a really good example. That’s where I grew up. I’ve been watching Australia for years become one of the most expensive housing markets in the world, by far, and wondering how anyone can possibly buy a starter home there. It’s so expensive.

Eve Picker: Now, they’re all of a sudden hit with the problem of affordable housing. I don’t think there is government assistance at all. We’ve done that actually much better here. While they’ve done some things well, we’ve done other things better, and I think there’s a lot to learn from everyone.

Molly McCabe: Yeah.

Eve Picker: That was a little bit unfair, so, I’m sorry.

Molly McCabe: Well, I think your plan zoning is really crucial, and what you’re finding is, even in many of these progressive cities, if you look at how … Right now, I’m  focused on housing with Lotus, but you look at housing, and, to your point, Vancouver, for example, is also hugely expensive.

Molly McCabe: We need to look at zoning laws. In these progressive cities, we’re finding, even in those locations, that we don’t want people to move into our backyard. If we are doing that, we are naturally just causing a shift in population, and we’re not providing the kind of housing we need to provide. We have NIMBYism.

Molly McCabe: We have to- people who are progressive have to look themselves in the eye, and go, “Am I really, really marching … Am I actually espousing one thing and doing something else?” Because I think, in many ways, we are. We say one thing, but we’re doing something else.

Eve Picker:  I think that’s right. I think that’s right. Well, I think that was a really wonderful chat, and I thank you very much for joining me. I’m going to be talking to you soon about Pittsburgh and other ideas for sure.

Molly McCabe: I’m excited about that. Thank you so much, Eve, [cross talk] it was really, as always, a delight.

Eve Picker: Okay, thank you. That was Molly McCabe of HaydenTanner, and The Lotus Campaign. Here are some of the takeaways that Molly shared with us today. First that we need to think of capital as just a tool; it can be used beneficially or not. Second that her Lotus Campaign has housed over 150 homeless people in its first year at the extraordinarily low cost of just $1,000 per person. Third that, along with everything else she does, Molly is exploring building techniques in order to lower the cost of housing for those who really need it.

Eve Picker: You can find out more about impact real-estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve Picker: Thank you so much for spending your time with me today and thank you Molly for sharing your thoughts. We’ll talk again soon, but for now, this Eve Picker signing off to go make some change.

Image courtesy of Molly McCabe, The Lotus Campaign

Confronting NIMBY-ism.

Confronting NIMBY-ism with community-oriented development strategies

If you’ve been paying even the slightest attention to the housing market, you know that we are in the midst of a housing crisis. Cities across the country are experiencing heightened levels of homelessness and housing insecurity, with the problem being most severe in West Coast cities like Los Angeles, Seattle, Portland, and San Francisco. There is no single reason for the housing crisis, but a major contributing factor is the rampant NIMBY-ism that affects our communities, from the soaring heights of Billionaire’s Row in San Francisco to suburban bedroom communities outside of Tampa.

How can developers avoid the roadblocks created by “Not in My Backyard” local stakeholders?

Share your vision

It is critical that you show local stakeholders how your vision can improve their neighborhood and their lives. For example, in many housing crisis-afflicted cities, there is a push to rezone neighborhoods to permit ADUs or accessory dwelling units. ADUs allow for the construction of additional residences on lots zoned for single-family residences. Think a small home on a lot that already has an existing structure.

For many years these developments were opposed by neighborhood groups and other interested parties. Concerns about traffic, quality of new residents and overcrowding prevented any serious headway from being made. However, housing pressures, alongside coordinated education and outreach efforts with local communities, allowed developers, many of them socially-conscious, to begin constructing ADUs. This has led to an increase in ADU construction in LA County from about 150 a year, to 5,000 a year in 2018, with expectations to hit 10,000 or more in 2019.

Embrace alternative transportation

Even ten years ago, building a new urban development without a designated parking area, or resident-available on-street parking, would have been unthinkable in most of the country. Many projects were and still are built for the car economy. Many of the concerns local groups have with new development are in some way related to cars, traffic and not enough parking. By building in ways that minimize the impact of cars on local neighborhoods, developers can alleviate residents’ concerns about the project in question.

Work with local businesses whenever possible

A study by the private thinktank Civic Economics found that for every 100 dollars spent at local businesses, 48% of that money stayed within the community, compared to 14% for chain stores. This study, and countless other pieces of research, show what most of us have known for a while- keeping capital within a community leads to more sustainable, healthier, economic growth in that region. You can help the local community and build goodwill with existing stakeholders by patronizing or pledging to patronize local businesses. Fewer people will oppose your project if they see a direct financial incentive to them and their community.

Involve locals in the process

People need to be seen and heard. Much of the opposition to development projects comes from a place of fear. People are afraid they are being left behind or that their lives will change for the worse. If you clearly outline your plans, involve the current residents in decisions, and keep your word, people will feel included and be much less likely to oppose your project. You can set up community outreach meetings, maintain an information email letter about the project, or work with nonprofits and other groups to connect with the local community.

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You won’t be able to alleviate every NIMBY neighbor concern- particularly if those concerns are driven by concrete financial factors, like property values. However, if you use your head and consider how your project will impact others, you will be able to reduce their numbers or the vociferousness of their demands.

Image from pxhere / CC0