Rethink Real Estate. For Good.

Finance

Investing for good.

More and more, investors want to do more than make money. They want to invest in triple bottom line projects that are socially responsible as well. Environment, Social and Governance (“ESG”) investing is a rapidly expanding investment category and already offers a wide array of opportunities, many of which produce competitive returns. Unfortunately, many investors still fear that investing in an impactful project means sacrificing returns.

It’s time to get over that. There are lots of opportunities for investment in projects that do good as well as provide a competitive or even above-market return. Just like any other investment, there are some basics to keep in mind when looking for and making socially conscious real estate investments.

How can I make sure a project offers impact?

What exactly is Socially Responsible Investing (SRI)? It means investing in companies or projects that have ethical practices and positive social impacts. Simply put, this means investing in ventures and companies that work to have a positive impact in their community.

Just because a company or a project claims to have a positive social impact doesn’t necessarily mean that it does. You’ll need to evaluate that impact for yourself. You can do that in any number of ways that make sense to you. In real estate you might be interested in affordable housing, energy efficiency, elimination of blight or supporting a neighborhood project. Everyone has their passion project and you will have yours too.

At Small Change we’ve developed our own set of measures called the Small Change Index. These measures are built around three impact pillars – mobility, economic vitality and community. Any project that lists an offering on the Small Change platform must score at lease 60% on our proprietary Change Index survey. This provides some flexibility and quite a variety of impactful projects to choose from.

How should I evaluate return?

When you consider investing in an SRI, you’ll be thinking about two things – the social impact that the project makes and the potential for a return on your investment. These two goals are not always compatible. It’s a balancing act. One may be more important than the other to you. It’s important to consider them independently, weigh each carefully and make your investment decision accordingly. Sometimes the scale may tip towards doing good, and sometimes the scale may tip towards doing well. If you’re lucky, you’ll find projects with perfect balance.

What are some examples?

For example, you may want to invest in a project in your neighborhood. Perhaps it’s a building that fills a lot that has been vacant for many years and has been a neighborhood eyesore. The return on this investment is most likely to be much greater than just a financial return to you. This building promises to improve your neighborhood, and along with that perhaps improve the value of your house. Or maybe you want to invest in an affordable housing project, because you care about housing security for everyone. Affordable housing is an especially difficult socially responsible investment class. The greater the return on equity invested, the higher the end rent the tenant will pay. High returns and supporting housing security may not go hand in hand. You’ll need to decide which matters more to you with an affordable housing investment opportunity.

At Small Change we’ve had first-hand experience with high impact projects that have provided competitive financial returns to investors as well. To date the balance has been pretty well perfect, with not one project that has returned less than 10% per annum to date, and the most successful returning an extraordinary 21%+ IRR. These are competitive returns even for projects that don’t provide any social returns. And take a look as well at the creative ways that Jorge Newberry and his team at American Homeowner Preservation are working to help thousands of Americans stay in their homes, all the while providing handsome returns to their investors.

All that to say, there are plenty of investment options that are socially conscious and that offer investors a good return on investment as well.

Why should I care?

There are plenty of social issues that plague our planet. Climate change and the affordable housing crisis, to name just two, are on everyone’s mind today. When you invest in an affordable housing project, you are taking action to help solve the problem. When you invest in a net zero or a transit-oriented building project, you are taking action to help solve climate change. Similarly, when you invest in your community, you’ll reap the benefits and so will your neighbors. And so on.

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Socially responsible investment is not rocket science. It’s common sense. Go ahead. Invest in something you care about.

Image of building in San Anonio, Texas, by Eve Picker

The impact of Reg A+.

Historically, investing in startups and real estate has only been available to accredited investors. Accredited investors are those that, due to income, net worth, assets, or professional experience, have special privileges when it comes to financial regulations. Recent legislation, however, has aimed to make investing more accessible to all potential investors.

The 2012 Jumpstart Our Business Startups Act, the JOBS Act, aimed to make it easier for startups and small businesses to raise capital while also providing opportunities for both investors and entrepreneurs. Included in this legislation were Regulation Crowdfunding (Reg CF) and Regulation A (Reg A+), both of which finally made it possible for non-accredited investors to participate in investment activity. While only $1.07 million can be raised by entrepreneurs under Reg CF, Reg A permits these entrepreneurs to raise up to $50 million in a year from accredited and non-accredited investors alike. Obviously, this changes the landscape for both investors and entrepreneurs.

What is Reg A+?

Signed into life on May of 2015, Reg A+ allows both accredited and non-accredited investors to invest in businesses or real estate. Under this legislation, up to $50 million dollars of equity can be raised per year. Each Reg A+ offering must be qualified by the SEC, but this process is substantially less complicated than that of an initial public offering (IPO). As a result, some refer to it as a “mini-IPO.”

There are two tiers of Reg A+: Tier I, which permits raising up to $20 million in capital in a year, and Tier 2, which permits raising up to $50 million in capital in a year. While Tier 2 limits the amount that can be contributed by non-accredited investors, it is generally preferred to Tier 1. In large part this is due to the fact that it preempts blue sky laws, meaning that the offering doesn’t have to qualify and be registered in every state. As you can imagine, having to comply with blue sky laws can be time consuming, complicated, expensive and very frustrating.

What are the benefits of Reg A+?

While Reg A+ clearly has some benefits for investors, especially those that don’t meet the wealth criteria to qualify as an accredited investor, it also has benefits for entrepreneurs, startups, and small businesses. First, it provides an efficient and effective way to raise money. It is often much faster to raise capital through Reg A+ than to deal with venture capitalists or angel investors. Additionally, it’s much simpler and less expensive than an IPO. Second, it gives businesses an immediate base of customers, advocates, clients, and supporters that have a vested interest in the success of the business. Third, because ownership shares are spread across so many people, it enables entrepreneurs to maintain control.

Reg A+ has proven to open up opportunities for small businesses, entrepreneurs, real estate developers and investors alike. It gives investors of all levels an opportunity to participate in a wide range of projects while still having plenty of protections. For many smaller investors, it’s changed the landscape of investing and enables unprecedented opportunities. Similarly, it’s given entrepreneurs new ways to structure, fund, and complete projects. 

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One company that has used Reg A+ very successfully to raise funds for real estate is American Homeowner Preservation (AHP), an innovative and impactful business. To learn more, listen to Jorge Newbery talk about the fascinating, lucrative and socially conscious work he is spearheading across the country.

Image from pxfuel, royalty free

10,000 homes saved and counting.

Jorge Newbery is founder and CEO of American Homeowner Preservation (AHP) and AHP Servicing and he’s also CEO of the Debt Cleanse Group Legal Services. AHP crowdfunds the purchase of non-performing mortgages from banks at big discounts, then share the discounts with struggling homeowners. The Debt Cleanse Group empowers a cross-country network of attorneys with a step-by-step system to help consumers and small businesses resolve unaffordable debts.

Jorge is on a mission to help Americans crushed by unaffordable debts.

A 2004 natural disaster triggered the financial collapse of Jorge’s former business, leaving him with $26 million in debts he could not pay. Jorge rebuilt himself through AHP, sharing what he learned from his own challenges to help families at risk of foreclosure stay in their homes.

Jorge has also found the time to write a few books which include Burn Zones: Playing Life’s Bad Hands; Debt Cleanse, How To Settle Your Unaffordable Debts For Pennies On The Dollar (And Not Pay Some At All); and Stories of the Indebted.

To date, 10,000 homeowners have benefited from his life lessons and his good heart and that’s just the beginning for Jorge. 

Listen in to this extraordinary man with a mission.

Insights and Inspirations

  • Take your financial catastrophe and turn it into something powerful and good.
  • Buy what other people don’t want.
  • To date, AHP has purchased over 10,000 mortgages and kept thousands of families in their homes.
  • Housing is unaffordable. This has to be remedied.
  • No-one wants to fall behind.
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.

Eve Picker: My guest today is Jorge Newbery, founder and CEO of American Home Owner Preservation and AHP Servicing. Jorge is also CEO of Debt Cleanse Group Legal Services. AHP crowdfunds the purchase of non-performing mortgages from banks at big discounts, then shares the discounts with struggling homeowners. Jorge is on a mission to help Americans crushed by unaffordable debts.

Eve Picker: A 2004 natural disaster triggered the financial collapse of Jorge’s former business, leaving him with $26 million in debts he could not pay. Jorge rebuilt himself through AHP, sharing what he learned from his own challenges to help families at risk of foreclosure stay in their homes. Jorge has also found the time to write a few books, Burn Zones, Playing Life’s Bad Hands, Debt Cleanse, How to Settle Your Unaffordable Debts for Pennies on the Dollar, and Stories of the Indebted.

Eve Picker: Be sure to go to EvePicker.com to find out more about Jorge on the Shownotes 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: Welcome, Jorge. Thanks very much for joining me. It’s really nice to reconnect.

Jorge Newbery: Likewise, Eve. Always a pleasure.

Eve Picker: Yeah, we haven’t talked for a while, but still, I know that you’re a man with a mission, and the mission that I know about is to help keep Americans in their homes. I think a more recent one is to help Americans crushed by unaffordable debt. I’d love to talk to you about how you’re tackling these two missions.

Jorge Newbery: Sure. They’re very interrelated. I’ll go back a little bit in history, about 15 years ago; 15 years ago, next month, was a day that kind of changed my life. At the time, I owned about 4,000 apartments across the country, had a very significant net worth. A ice storm hit my largest holding on Christmas Eve 2004. That holding was 1,100 units in Columbus, Ohio. It was just devastated by this natural disaster, and it triggered this extraordinary sequence of events in which I lost everything and ended up $26 million in debt.

Eve Picker: Whoa! That’s a really big number.

Jorge Newbery: Yeah. It created some extraordinary challenges, as you can imagine. As I regained- came back to life, I realized that I’d become good at one thing through that experience. I never filed bankruptcy, but instead, I was able to work with my creditors, or somehow, sometimes, go on the offensive against my creditors, in order to settle those debts at significant discounts and, in some cases, not pay them at all.

Jorge Newbery: By 2008, I realized millions of families across our country are suffering the same experience. They’re at risk of losing everything. They’re ending up losing their homes, losing whatever property they had, and in significant debt, and maybe my experience could be put to good use to help them. So, I started American Homeowner Preservation in 2008, and the goal was- the mission was, and still is, to keep families at risk of foreclosure in their homes.

Jorge Newbery: Originally, we were a nonprofit. We were able to get our 501(c)(3) designation from the IRS. But over time, we realized that we could be a lot more effective as a for-profit, and we started buying defaulted mortgages from banks at big discounts. Then, once we owned the mortgage, we could do whatever we wanted with it, which could include cutting principal, forgiving delinquency, and reducing payments in order to keep these families in their homes.

Eve Picker: So, the second mission … I think you started a second company recently, right?

Jorge Newbery: I did. What would happen is, over the years, we would help a family, and they would say, “Wow, this is …” Oftentimes, people say this is too good to be true. They owe $100,000, and the home is only worth $50,000. They hadn’t paid in three years. They owed $20,000 to the bank. Here we come along, and buy the mortgage, and say, “Hey, give us $2,000. We’ll forgive the delinquency, so you’re up to date. Your payment was $800; now it’s $500.” They say, “Great!” They’d tell their friends and family, and the friends and family will call us and say, “Hey, you helped my cousin with his mortgage, my co-workers on their mortgage. Can you buy my mortgage?”

Jorge Newbery: The reality is, I can’t go to Chase, or Wells, or any of the big banks, or other lenders, and say, “Hey, sell me this one mortgage.” They basically decide what loans they want to sell, and I can’t make special requests. Neither can anybody. So, what do we tell these people? We started giving them some tips as to what they could do to maximize the likelihood that they could stay in their home an extended period, and somebody would buy their loan at a discount and give them a more favorable deal. That eventually became a book, which is called Debt Cleanse – How to Settle Your Unaffordable Debts for Pennies on the Dollar.

Jorge Newbery: Through life, you find that, as you solve one problem, you create another. So, now, people would read the book, and they’d say, “Hey, I’m following the steps in the book …” They’d reach out on social media, and by email, and they’d say, “I’m following the steps in the book, but I need an attorney. Do you know any attorneys who can help me?” I knew from my experience when I was in a lot of debt that a lot of attorneys … Some attorneys can be very helpful, but a lot of attorneys aren’t that helpful; don’t have that much experience in being … Outside of law school, there’s a lot of things you can do if you can’t afford your debts that can be used to your advantage. Most attorneys aren’t familiar with the tactics. So, what do I do? What do I tell these people to do? I can’t tell them just to google ‘attorneys in my area.’.

Jorge Newbery: Over time, we realized that what could work here is a legal plan, where consumers struggling with their debts paid a $99 enrollment fee and $29 a month, and we’d give them access to attorneys in their area. Those attorneys, as part of the plan, agree that, “For that $29 dollars a month, I’m going to give this member half an hour of my time at no extra cost.” They’re going to get half an hour with their attorney every month.

Jorge Newbery: Not only that, when they first enroll, these attorneys will send letters to their creditors saying that, “This member is represented by our law firm. Please cease communication with a member and direct all future correspondence to us.” That has been very effective for members at stopping the phone calls, stopping the letters, which oftentimes create a lot of anxiety, so it’s a big relief when that happens.

Jorge Newbery: That’s what we’ve done, and these attorneys … The goal is they look for violations. It happens all the time, millions and millions of times a year, where there’d be live violations of the Fair Debt Collections Practices Act, the Fair Credit Reporting Act, TCPA, RESPA. When they can find these violations, they use those as leverage to get the debts settled at big discounts, not get paid at all and sometimes, in some cases, they’ll sometimes even get the creditor to pay the member a statutory penalty, plus pay the attorney’s legal fees. Most of the attorneys work on contingency, so they’re not looking to get paid by the member; they’re looking to get paid by the creditors.

Eve Picker: I want to go back to AHP Servicing and what you’ve done there. I haven’t talked to you in a few years, but I know you were buying large blocks of foreclosed homes and trying to keep people in them. That was really your first goal. I’m wondering how many people you’ve impacted by now. How big has this become? Where does everything stand?

Jorge Newbery: I think we’ve bought, over the years, about 10,000 mortgages, so it’s … We bought a lot of mortgages. We’ve helped thousands of families stay in their homes with long-term sustainable modifications. Others, they don’t want their homes. We’ve been able to give them cash; in exchange for the deed to the property, we forgive the debt and then, we sell the property. So, we get these vacant homes, which are oftentimes pock-marking low-, and moderate-income neighborhoods, and we get those back into service and occupied. Someone’s taking care of them, paying taxes on them, and whatnot. So, between the two, one is keep the family in the home if they want to stay. Number one, that’s the goal; but if not, the second thing is to help those communities by getting these vacant homes back into service.

Eve Picker: Let’s talk also about how you fund this, because that’s how you and I [crosstalk] together, right? That’s probably the most interesting part of the story, or very interesting.

Jorge Newbery: Yeah, that’s how our paths intersected. So, in 2013, September, we were one of the first crowdfunding offerings under 506(c). Before that, we raised money initially from friends and family; then from private investors who we knew; then accredited investors only, into a hedge fund. But then we heard about crowdfunding. So, September 2013, we offered, under 506(c) … It was still accredited investors only, but we made it more accessible. It was a $10,000 minimum, which, at the time, was pretty low. I think our first offering raised about $4.5 million or so, and we bought a considerable number of loans. I forget how many, but it was quite a few; probably close to 1,000.

Jorge Newbery: It worked. It made it more accessible. It was still accredited investors only, but it made it more accessible to a wider audience. I remember being really shocked, early on, when people would go online, go through the process, make an investment, and we had never talked to them. I was really astounded by that, because previously, as a hedge fund, we had to talk to people, and explain things, and send out these private placement memorandums that were numbered. So, it really was- seemed to be a lot … It was just a lot more streamlined.

Jorge Newbery: What was exciting is we did two more 506(c) offerings. All went well, but then, when we heard about Regulation A+, because now it was crowdfunding, but we could accept investments from both accredited investors and non-accredited investors. For me, that was exciting because it really … We had homeowners, at times, who we helped them out of their predicament, and they’d say, “Hey, I have some extra money I’d like to invest, or my friend, or family member would.” I can’t tell you how many times we had to tell people, “We’d love to have you participate, but you can’t. You’re not worth enough, or you don’t earn enough, so we can’t accept your investment.” It seemed [crosstalk]

Eve Picker: -you’re part of the 97 percent of the population that’s not permitted to invest, right?

Jorge Newbery: Exactly! It didn’t feel right. So, when I heard about Regulation A+ [inaudible] accredited investors- I mean, non-accredited investors can invest, that was exciting. We were one of the first Regulation A+ offerings in 2016, and to make it as accessible as possible to anyone, we made our minimum investment $100, which I think is still amongst the lowest, if not the lowest of the major ones.

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 think it’s probably the lowest, although there’s some pretty low ones in Reg CF, but it’s pretty low.

Jorge Newbery: Yeah, it’s pretty low. People will say, “Why are you doing that? You don’t need to be that low!” The reality is, we don’t need to be that low, but it did make it … People would- it caught people … It was almost a marketing strategy, but we’ve kept it because many people have started out with $100, just saying, “Well, what is this? It looks curious. Oh, it’s only $100. I’ll try it.”

Eve Picker: Yes.

Jorge Newbery: Now, though, now they’re an investor with us; they get our emails; they see that they get the returns; and they keep up with our news. Then, over time, they increase- the vast majority increase their investments and then, they tell their friends and family. So, definitely, the $100, I think, is a winner. I think we’ll do it forever. It’s a great way to start a relationship, and that’s grown.

Jorge Newbery: Now, our first Reg A fund, we raised $40 million and now, we’re working on our second. Our goal probably would be to get to around $65 million. Then, our third fund, which’ll come out sometime in 2020, we expect- our goal is to do the full $100 million. Regulation A+, we actually now realize that vision of having homeowners who we helped out of their predicament and now, they’ve turned around and been investors, and I think that’s just- it just feels right-

Eve Picker: That’s pretty fabulous.

Jorge Newbery: It is. Socially, it seems right, and it feels good. That’s along with a lot of other … We have a lot of accredited investors that participate, but alongside the non-accredited. We’ve had people invest very substantial sums, several hundred thousand dollars at a time, and they’ve asked, “Hey, can I get a better deal, or can I get a little bit extra, or something like that?” We always say no. Again, it plays to kind of the-

Eve Picker: Because everyone’s money is the same, right?

Jorge Newbery: It is. Exactly-

Eve Picker: It’s a great democratization of investment.

Jorge Newbery: It truly is. The person who puts in $100 and the person who puts in $600, they’re getting the exact same terms, and I’m talking $600,000 … It’s fair, it’s transparent, and that’s the way things should be. I know, in Wall Street, it often isn’t the case, so it feels good.

Eve Picker: Yeah. While you’ve been helping people save their homes and taking people’s money to make that happen, how much have you been returning to investors?

Jorge Newbery: I’ll tell you what we did in our first fund, because it’s kind of a … You’ll see the progression. In our very first 506(c) offering, we said, “Hey, if you invest your money for five years, you earn 12 percent. If you invest your money for two years, you earn roughly 10 percent. If you invest your money for one year, you earn nine percent.” That was our first offering, and that’s what we did. Then, in our first Regulation A+ offering, we said, “Let’s make this simpler. Let’s just pay everybody 12 percent, but if they need the money early on, they can ask us for it, and we’ll undertake our best efforts to return the money. If they need it back …” I think we did … Currently, if they needed it back early, then they’d get a slightly reduced return.

Jorge Newbery: That’s evolved into today’s fund, where we pay- the first 10 percent of what we earn, that’s what we pay to investors. Anything over that is what we keep, and-.

Eve Picker: So, that’s pretty motivating for you.

Jorge Newbery: Yeah, it’s very motivating to hit big targets. Again, there’s a tension between you want to make money, but you also want to deliver a very favorable resolution to the homeowners. We make everything formulaic, so I think our returns don’t come from … They come from creating efficiencies in resolving these, and speed/urgency in resolving these, and trying to minimize legal fees, and other expenses in getting these resolved. When we do that, that’s when we generate the big returns.

Eve Picker: Wow! That’s quite a story. So, by the time you’ve raised all three funds, how many mortgages will you have purchased?

Jorge Newbery: That’s a good question. Right now, I think we’re right around 10,000. I think we will certainly … If we do all three funds, it should hit 30,000-plus. Of the current funds- I mean, in future funds, and our current fund, our AHP Servicing Fund, we can buy mortgage-servicing rights. We haven’t done that yet, partially because we’re still waiting on getting our government approval for our service. We did get, recently, approval from the Veteran’s Administration to service VA loans. We’re working on getting our FHA, Fannie Mae, and Freddie Mac approvals.

Jorge Newbery: Once we have those, we can buy mortgage-servicing rights, which actually, we’d spend a lot less money per loan, for the ability to service that loan. But then, we can service it with our homeowner-friendly strategies, which will, I think, touch a lot more homeowners, so we will … Actually, the amount of loans that we will own, or service will expand- it could be much, much more than that. I don’t have a number yet, but I think, as we start seeing- buying those rights, and then, also, we’re servicing now for third parties, so other people that own mortgages that-

Eve Picker: Oh, really?

Jorge Newbery: Yeah. We see that as another way we can impact a lot of homeowners and do what we’ve been doing, but for other people who own mortgages and are also kind of … See, it’s funny, and I think you may have experienced this in your undertakings, as well. Oftentimes, people interpret socially responsible, or social impact as meaning, “Okay, I get the benefit of doing something good for society, but I have to take a lower financial return.” I think, at least in our business, we’ve demonstrated that you can actually achieve both a solid, oftentimes above-market financial return, and you’re also doing the right thing. They’re not mutually exclusive. I think other investors now see that, that own these loans, and we can help them in their interactions with the homeowners if they service with us.

Eve Picker: So, then, do you believe that most of your investors are investing because they’re making an impact or because of your solid returns?

Jorge Newbery: That’s a really good question. I think it’s a mix. There’s definitely people who are attracted by the financial returns, but there’s others who are investing … The draw is the social impact. Since we’ve been able to marry the two, I think it’s been a … They don’t have to compromise their … I think, so many times, social impact investors feel the need, upon occasion, to compromise their financial returns because it has a good result. That’s certainly understandable, but when you can deliver both, I think that makes it very compelling.

Eve Picker: That’s pretty fabulous. Going back to the beginning of this story, I’m just wondering if you could have built this business with bank loans instead of crowdfunding investment?

Jorge Newbery: I don’t think so. We’re still doing it. I think we qualified for some … We financed. We’ve done some financing here and there. Usually it’s only for a short term, like we committed to a deal that’s bigger than we have- that we’re raising capital, and we need to close it by year end, or month end, or something like that-

Eve Picker: A bridge loan, right?

Jorge Newbery: Yeah. We’ll borrow, but it hasn’t been for long periods yet. Over time … We’ve talked to Wall Street investors, or I should say not … Wall Street institutional potential partners and, for this space, for non-performing loans, they’re most interested when the scale is bigger, and we’re talking $100 million. We’re just not there yet. Over time, I think we will have more institutional capital in here, and we blend that with the equity that we’ve-

Eve Picker: But Jorge, by then, maybe you’ll have such a big crowd of investors, you still won’t need them.

Jorge Newbery: Ha. Maybe. We’ll see. I guess the attraction is we can get institutional money. Sometimes, you can get it at even lower returns than what we’re paying our investors. So, maybe … It’ll make us more competitive on some of the larger transactions, but you’re right.

Eve Picker: Yeah, yeah. That’s what I hope for. Going back even further, you had this portfolio that was hit by an ice storm, but what’s your background? What got you into all of this?

Jorge Newbery: I started as a loan officer almost … In 1990, so, a long time ago, my first job was answering phones for a loan originator, and I had- that was my first exposure to real estate. Before that, I raced bicycles, and I had a GED, so my options were limited … I was 25, and my main source of revenue was bike racing, so I needed to get a real job. One of my teammate’s girlfriends helped me get the job at the loan company, and that was kind of the start.

Jorge Newbery: A couple years later, I started my own mortgage company, and then I started buying properties. It kind of evolved into buying and doing … I’ll share a strategy, though, that’s been a consistent, as I’ve learned, and it’s still what we do today. I always buy what other people don’t want. When I first started in real estate, we would do loans that other people wouldn’t make. Then, I started buying properties that others didn’t want. These would be mostly because they were in less desirable areas, neighborhoods; maybe challenged properties that were maybe the target of- had been vandalized or were a blight on the community.

Jorge Newbery: I found that you could achieve a good social impact, when you remedied whatever the problems were, and you could also make money doing it, and that was rewarding to me. I always like a challenge … The bigger the challenge, some people say, “Oh, this can’t be done,” and it’s kind of like, “Okay, well, I’ve got to prove them wrong.” Even today, Wall Street does not like to buy the loans that we like to buy, which is those secure- in low-, to moderate-income neighborhoods. Our average home value that we buy is $40-some-000, and that’s just Wall Street … They’ll say, “Hey, congratulations, Jorge, you just made $6,000 on that deal.” It doesn’t mean anything to them, but for us, we make $6,000 on 100 loans or 1,000 loans, and it’s like, wait, now we have a business. We buy what others don’t want, and that’s, I think, where there’s some success.

Jorge Newbery: Today, we’re working on a deal right now to buy the debt on three churches. These are three churches in kind of low- serving low-, to moderate-income neighborhoods. It’s another opportunity for us to buy the debt. No one wants to foreclose on a church, including us, so our goal will be to make those loans affordable for the churches so they can continue operating. 90-percent-plus of what we buy is loans secured by homes, but when we see these opportunities … No one wants to buy that stuff, so we’ll buy it. We’ll buy it at a substantial discount, and we can add value by working directly with the church to get the loans back on track.

Eve Picker: I think, as I’m listening to you, I’m realizing this is like … I’ve been talking to a lot of different people about different ploys around how to fix the affordable housing crisis. This is such an effective one because it’s keeping affordable housing; actually making it more affordable for people who really need it without actually building anything. Pretty dramatic impact, I would say.

Jorge Newbery: Yeah, the housing is there; it’s just making it affordable and keeping people in it. So many people in the last housing boom, you know, in the early 2000s, took out big loans. Then, when the values crashed … Unfortunately, these neighborhoods have not recovered. To a large extent, whereas the rest of the country has recovered, the only segment of the market where values have continued to deteriorate is those secured- those mortgages, or those homes whose values are $50,000 and less.

Jorge Newbery: There’s a number of reasons for it. A primary one is Dodd-Frank. Dodd-Frank was a well-intentioned bill, but it really strangled new-mortgage capital from going into these neighborhoods, which basically, they made they made some very tight constraints on what could be charged to originate a loan in these neighborhoods, or everywhere. But, when you get a loan of $50,000 and you can only charge five percent, and that includes a lot of the fixed costs, it’s just no loan agent, no mortgage company [crosstalk] No one wants to do it. You’re working for very little, so why not spend your time on a higher-value mortgage?

Jorge Newbery: That’s made it so that most of the properties that are sold in these lower-value neighborhoods get sold for cash. Most owner-occupants don’t have cash, so then, you end up being sold to investors who rent them out and then, it’s majority rentals. Then, the banks … A lot of mortgage holders say, “Hey, it’s not even worth it to foreclose,” and then you have all these homes that are sitting there with $100,000 mortgages that are vacant, getting vandalized, and deteriorated, and are now only worth $10,000 or $20,000, which eventually, they get foreclosed on; they get sold to investors. It’s really left behind a whole segment of our population, at least real estate-wise, and, I think, a driver in the widening wealth and income gaps in our country.

Eve Picker: So, in the work that you do, you’re working in neighborhoods where people must be pretty angry. I’m wondering what sort of community engagement tools work for you?

Jorge Newbery: You know, we have a very simple one, which we started in  … Eight years ago. Especially at this point, so many of these … To your point, so many families who are struggling in these neighborhoods have already had overtures from Bank of America, Chase; whoever has owned their mortgage before us. They’ve said, “Oh, we could do a modification. We can do this. We can do that.” Then, when they go through the process, they’re oftentimes left disappointed. Bank of America will want the last year’s tax returns, bank statements, paycheck stubs [crosstalk] all this stuff. Sometimes, people are working, you know, doing babysitting, or helping … Their income is untraditional, in some cases. That goes for all segments of society, but for some of these families, where, “Hey, I run daycare,” but, “Oh, we need your daycare license.” “Well, I take care of friends’ and family’s kids …” There’s things- they just don’t qualify, and there’s no real …

Jorge Newbery: With these families, now they come to us, and they explain what the situation is. It makes sense to us, and we do it. It’s not like- we’re not bound by some criteria that a lot of the big banks are, and I think that’s given us a big advantage. But to reach them … Now, we own their mortgage, so, of course, they’re thinking we’re the bad guy. But we send a letter – one-page letter – that says, “We just bought your mortgage. Great news. Here are three options. If you want to stay in your home, we will accept $2,000 to satisfy your delinquency,” which oftentimes is $20,000 or $30,000. “You pay us $2,000, you’re completely up to date. Your existing mortgage payment is, for instance, $800. We will drop it to $500.” That’s option number one. That’s a modification.

Jorge Newbery: Number two, “If you don’t want to stay in your home, or you’ve already moved out, we will pay you $1,000, and you sign a deed in lieu to us, and we’ll forgive the rest of the mortgage.” The third option is, “If you want to settle your loan for a lump sum, then we will accept this amount,” and we give them the actual amount. So, let’s say they owe $100,000; the property’s worth $50,000, and we bought the loan for $20,000 or $25,000. We’ll probably say we’ll settle it for $45,000.

Jorge Newbery: Those are the three options. It’s very simple. If you call, and you say, “I want to do any of these options,” we’re bound to it. We’re going to take it. We have people … It’s so simple. We’re not asking for tax returns, bank statements, any of that kind of stuff. People literally call in and say, “Yeah, I got your letter. I want to do option number two.” They’ve already decided that this is [crosstalk]

Eve Picker: I would’ve thought you’d need someone answering the phone to questions, like, “Is this for real?”

Jorge Newbery: Yeah, well, that … After, we get over that … Sometimes, then, we do get those questions, definitely. “Is this for real? Is this a scam?” We get all those questions. [inaudible] we have to give them the assignment that we got from their lender, but oftentimes, we would direct them online. They can Google us and see that we’re really who we say we are. Yeah, it works … I mean, it’s so simple, and it’s funny, we’ve been doing this for years, and no one else is still … I thought, “Oh, this is our secret sauce. Someone else is going to steal it,” but no one’s stolen it … They’re all so rigid, the other lenders, and they’re set in their ways. It’s amazing that this is such a … You can simplify things. I imagine it’ll work for all stratas. We primarily do loans in low-, to moderate-income neighborhoods. That’s what we buy in those neighborhoods, but in higher-income neighborhoods, I imagine they would also appreciate the simplicity, but still, everybody else still does it … “We want tax returns, bank statements, all that stuff.” That’s just- it’s a hassle. It’s like a big block [crosstalk]

Eve Picker: It’s a lot of work-

Jorge Newbery: It is.

Eve Picker: I mean, if someone’s got two or three jobs to make ends meet, they’re just not going to get it together-.

Jorge Newbery: Exactly.

Eve Picker: Yeah. I can barely get it together.

Jorge Newbery: I know! Whenever somebody asks for my tax … It’s not that tough to get it, but it’s like, “Aww, okay, let me dig them out.” Then you send them, and then, “Oh, I want a paycheck stub,” and then you want this and that … It’s crazy. The banks will actually ask these families who’ve been struggling, they’ll say, “Oh, we need a hardship letter to say why you fell behind on your mortgage.” Then, it’s like you’re getting graded on this thing. Just, just … They’re behind. I mean, they lost their job; there was a divorce; a death in the family; an unexpected medical expense; any of these reasons. But does it really matter? They’re behind … People don’t fall behind. No one wants that. Everyone wants to pay their bills, and be on time, and not have- to go on and focus on other parts of their lives. They don’t want to fall behind, so you don’t have to shame them. I feel like some of the banks almost … The process they go through, it’s almost like they shame them for falling behind. It wasn’t something people wanted to do.

Eve Picker: Yeah. Wow! So, you found this little corner here; actually, a really big corner. What’s next? I’m sure you’re … I’ve gotta believe you’re thinking about other things.

Jorge Newbery: Two years ago, we started our AHP Servicing, and it actually went operational just over a year ago. Now, we service our own loans. That’s new. We always used to have to rely on a servicer. We’re doing a couple of things now that … That’s, I think, our big step forward. What we want to do is to get government approval to service government-backed loans. That’s a market that we haven’t had too much exposure to, but we think we could do a lot of good. A lot of people, the VA and FHA loans, for instance, are oftentimes in our target neighborhoods, and they’re struggling, so we think we can help a lot of these families once we have those designations.

Eve Picker: Is that hard to get that approval?

Jorge Newbery: It’s a little bit of work. It feels like applying for a modification at a bank. No offense to FHA and VA, but it does. They’re asking for all these documents; these explanations … We’re getting through it. We got VA done, and now, we’re working on FHA. But, yeah, it is a lot of work. I guess it’s, they want to know who you are. They want to make sure you have all your licenses, and all your credentials, and all your bonds, and everything like that – everything lined up. So, totally understandable, but it does … It’s not the funnest process.

Eve Picker: Okay, well, I’m going to go back to big picture a little bit and just to ask you, where do you think the future of real estate impact investing lies?

Jorge Newbery: Well, I know where the need is, so I guess the future will lie in solving the need. But, as you and I have talked before, housing is as unaffordable for a huge chunk of America, and that has to … We have to remedy that. I don’t know if … There’s all kinds of remedies for that, but that needs to be fixed, and we can’t … In these low-, to moderate-income neighborhoods, and I can think of locally- I’m in Chicago, so South Side Chicago, West Side Chicago, there’s definitely some of those communities in those areas need help; and East Cleveland needs help.

Jorge Newbery: There’s homes out there selling for $20,000, which seems … Well, that could be affordable. If someone had a mortgage on a $20,000 home, that payment’s going to be a couple hundred dollars or something like that; very, very affordable. But no one’s providing financing for those loans. Then, investors come in. They buy them, they do a little fix up, and they rent them out. That’s not rebuilding the community. It’s helpful that somebody is at least occupying the home, but it would be nice if you’d get more homeowners into, through financing, to stay, and move into, and own homes in these lower-income neighborhoods. That has to happen. It can’t stay as is. It’s just going to get worse.

Jorge Newbery: This is what happens right now is somebody who decides, “I want to buy a home,” and they go to a loan officer; “Hey, I want to buy this $40,000 home.” The loan officers say, “I just can’t finance it. Why don’t you buy a home that’s maybe $80,000 in this slightly more expensive neighborhood, and we can finance that?” Then, the people that can buy homes, now they’re buying homes in the slightly more expensive neighborhoods, and these really affordable neighborhoods are just getting more and more abandoned. That has to stop.

Jorge Newbery: We’re doing what we can because we’re buying a lot … A lot of our loans are secured by homes in those areas. But there needs to be a solution to that – the inability, or unwillingness, or really the legislation that created the inability for, or the undesirability for lenders to loan in low-, to moderate-income neighborhoods. It’s almost redlining, except, it isn’t redlining. It’s just, “Hey, we don’t make any money doing it, so we’re not going to do it.” I guess it’s hard to argue with that, but that has to change.

Eve Picker: Interesting. Yeah, it does have to change. That’s really interesting. I wonder if you could do a huge Reg A raise and simply provide mortgages-

Jorge Newbery: Believe me, it’s crossed my mind. I mean, the thing is, we have to … We’d  have to do a Reg A that would be … Then, you want to provide the rate; you want to provide really affordable rates, or at least market rates – five percent or something like that. So, you’d have to pay the investors-

Eve Picker: Less. I’ve thought about this-

Jorge Newbery: Yes, and that becomes less desirable.

Eve Picker: I’ve thought about this a lot too, because we see on Small Change, a lot of people coming to us with new, larger affordable housing projects. Of course, to keep them affordable means that they’re subsidized and that they really can’t provide much in the way of return. I’ve thought a lot about who’s out there who would invest in that? There would have to be people who invest in that. The interesting thing to me was the little project L.A. Bungalow Gardens that was on our site, which is only eight- actually eight units for formerly homeless people, raised money faster than anything else on our site did. I’m pretty sure it wasn’t because of the return. So, someone has to have the guts to test it.

Jorge Newbery: Yeah. Out of curiosity, what was the return?

Eve Picker: They actually offered nine percent, which was very nice [crosstalk]

Jorge Newbery: Yeah, that is-

Eve Picker: -because they’re keeping it … The asset value is not going to increase. It is going to be set as affordable housing for the next 15 years. So, it’s really- its preferred return is almost like an interest on debt. You and I should talk about this offline.

Jorge Newbery: Yeah, agreed. It’s a problem that needs to be solved … I guess that would test the willingness for …  You’re going to pull out the … The investors who are investing in some of these crowdfunding opportunities that both of us are involved in, purely for the financial returns, would probably fall to the wayside. So, it’s going to really test the ones that are really socially driven and are willing to take a reduced financial return. Can that be done on that scale? I don’t know.

Eve Picker: Yeah, and that’s going … Someone has to test that, and … Let’s talk.

Jorge Newbery: Yeah … Think about that. Just [inaudible] gives us an interesting challenge. If you did a Regulation A+, it’s going to $75,000 in legal fees, and accounting to get there. Then, you go to market, and oops … I go into market at three percent and it just wasn’t- the market wasn’t there. That would be challenging. So, I don’t know. It would be nice to do it on- test on a small scale and see [crosstalk]

Eve Picker: Isn’t there an attorney out there who’s listening who would do this pro bono for us? [crosstalk]

Jorge Newbery: Maybe. Let’s hope so.

Eve Picker: -there’s enough who would help us do this offering pro bono, and then we could all take a deferred payment later, when we’re successful.

Jorge Newbery: That may be the case, or maybe that’s necessary.

Eve Picker: I’ve got a platform.

Jorge Newbery: Yeah, exactly.

Eve Picker: Let’s talk about it.

Jorge Newbery: Yeah, absolutely. It’s an interesting … Certainly, any of your listenership if you have ideas, contact Eve!

Eve Picker: Yeah. So, now, I’m completely derailed … I do have a couple of wrap-up questions for you and then, and then we’ll all wrap up. What do you think is the key factor that makes a real estate project impactful just to you?

Jorge Newbery: Has to solve a real problem and a real need. I think that’s the key factor. In any business, in any undertaking, it needs to be a real problem that you’re solving, and there’s plenty of problems in this country to solve.

Eve Picker: Okay, and the second question, because I ask everyone these three questions, is how can involving investors through crowdfunding benefit a real estate developer beyond just raising money for them?

Jorge Newbery: You get a lot of people rooting for you that now have a financial interest. So, now, they want to see you perform. They want to see you succeed. It’s not just you, or you, and your bank, or you, and your one big investor. Now, there’s a whole crowd saying, “I want Small Change to win. I want this project to win. I want this project that I invested $500 hours in that’s helping the homeless in L.A. that you mentioned, I want that project to win.” You have a lot of community members and just people that are out there cheering for you … They’ve done it with their money, but they’re out there on the sidelines rooting for you. I think that’s helpful. Certainly, if you were to ask investors … Our investors will sometimes volunteer, “Hey, what about this? What about that? Have you thought about this?” They’re doing that … Some of them would probably do it just because they want to be helpful, but because they have a vested interest in your success, I think you get more of that.

Eve Picker: Yes. Finally, if there was one thing that you would improve about real estate in the U.S., what would that be?

Jorge Newbery: We touched on it – the affordability for the every man, and especially those that are of modest means. That has to change. I drive through … I was in Austin a few weeks ago; a massive number of homeless. I think it has the third largest homeless population in the country.

Eve Picker: Oh, really?

Jorge Newbery: Austin, L.A., San Francisco. Chicago, for that matter. It’s really cold right now, so, if I were homeless, I’d have probably migrated out of Chicago because it’s just so cold sometimes, but …. Some of those, Texas, California … I’m sure it’s everywhere, but that … To be as powerful and wealthy of a nation as we are and have so many people on the fringes who are not surviving, that’s not … I don’t look at it as their fault. I think that’s our fault. That’s society’s fault. We need to  build a better society so that doesn’t happen.

Eve Picker: Yes, I agree. So, on that note, we’re going to say goodbye and thank you very much for joining me.

Jorge Newbery: Thanks, Eve.

Eve Picker: That was Jorge Newbery. If anyone else is trying to recover from a $26 million loss, they’ll likely get a few pointers from Jorge. He did not file for bankruptcy when financial disaster struck. Instead, he painstakingly worked his way through resolving his debt. Then, he rebuilt his life on what he learned. To date, 10,000 homeowners have benefited from Jorge’s life lessons and his good heart.

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, Jorge, for sharing your thoughts with us. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jorge Newbery

Elected officials and place-making.

Most elected officials have no background in real estate development, architecture, design or place-making. Their knowledge extends no further than the home mortgage process. It should come as no surprise then that elected officials have little if no civic skills. Politicians are elected based on their charm and popularity – not on their ability to understand every issue affecting their constituents. And certainly not on their place-making skills.

This lack of knowledge has had some unfortunate consequences. But if we were to educate local leaders and focus on helping them to develop civic skill sets, perhaps we’d remedy many place-based issues. New development opportunities for investors and developers alike may even emerge.

The following are some mission-critical study items which would turn politicians into place-making ninjas.

Placemaking

Place-making is to study and deploy strategies that relate to designing, planning, and managing our shared public spaces. Place-making draws upon social, cultural and financial capital to better the health, life satisfaction and general well-being of a city’s residents. A basic understanding of place-making can help local authorities to plan long-term improvements for their citizens. Many wildly successful redevelopments have embraced this holistic approach, including edge cities like the Rosslyn–Ballston Corridor in Arlington or Walnut Creek, both of which transformed from sleepy suburbs to among the region’s premier shopping, retail, and residential areas.

Zoning

Zoning refers to rules and regulations enacted to ensure the general welfare of residents through control of the built environment. Zoning should also ensure the most efficient and equitable use of the land resources in a city or town. It can have tremendous impact on the quality, type and accessibility of housing, commercial and industrial businesses, and of course, the character of a place. For instance, a 2016 Presidential Report found that a major contributing factor to the urban affordability crisis is onerous and overzealous zoning laws. Zoning changes have the potential to dramatically reshape and improve an area, and vice versa.

Architecture

The physical structure of the built environment can have a profound effect on the physical and mental well-being of residents. Architectural design elements can alter air quality, physical activity, sunlight and even opportunities available to residents. An embrace of participatory design practices can help create more inclusive communities and bridge the substantial gaps between the quality of housing for lower-income and disadvantaged groups and those with better economic circumstances.

Financing

An in-depth understanding of public and private financial housing resources is an essential piece of the puzzle when it comes to solving housing affordability and sustainability. Alternative methods of generating revenue for new projects, or new ways to incentivize development using bonds, taxes, or federal funds can give municipalities and other governing entities a significant advantage when planning and promoting new development.

It isn’t easy to create fantastic places, inclusive communities and the next generation of comfortable and affordable housing. But there are plenty of educated professionals with the knowledge to make it happen. Let’s make sure we equip elected officials as well, giving them the very best resources and knowledge to tackle today’s challenging urban issues.

Image of Rome, by Eve Picker

Digital twins in real estate.

Sandy Selman is a roll-up-the-sleeves, highly strategic and hands-on kind of guy with “big picture” vision and an on-the-ground approach. He’s had plenty of operational experience as an investor, advisor and founder as well as CEO, CFO and Board oversight.

He’s not a star-struck young thing wading into the next best technology because it’s cool. His experience has led him to believe that blockchain has enormous value for real estate in the future.  And so Sandy co-founded CPROP in early 2017 to develop blockchain-enabled data solutions across the real estate value chain. CPROP has emerged as an industry thought leader on practical implementations of blockchain for mainstream businesses in brokerage, insurance, title, finance and investment management. CPROP is partnering with these businesses to develop proprietary and white-labeled solutions that reduce costs, capture new revenue and/or reduce risk.

Sandy previously co-founded an Internet of Things (IoT) and data science company, where his team designed and launched a powerful new business solution for a global property management business to help asset managers allocate capital with improved financial outcomes. And earlier in his career, Sandy managed an early-stage venture fund that deployed over $100 million to disruptive clean technology businesses in North America and Europe, helping its portfolio companies transition from pre-revenue experiments into global, profitable enterprises.

Sandy holds a BS in Mechanical Engineering (with Distinction) from Worcester Polytechnic Institute and a MBA in Finance and Investments from The George Washington University.

So if you want to learn a little about block chain, here’s your chance.

Insights and Inspirations

  • Blockchain is simply a distributed ledger technology.
  • Blockchain is not crypto currency. Crypto currency is just one application of the blockchain.
  • Every bank is quietly focused on digital securities.
  • Digitizing currency makes it easier to democratize investment.
  • Blockchain would make complicated transactions, accounting and auditing a breeze in the real estate world.
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 Sandy Selman, co-founder of CPROP. CPROP is a young blockchain real estate technology company. They are focused on creating blockchain-enabled data applications in the real estate and fintech sectors. I’m interested in how blockchain might impact real estate and, of course, my crowdfunding platform.

Eve Picker: Sandy is a roll-up-the-sleeves, highly strategic, and hands-on kind of guy with big-picture vision and an on-the-ground approach. He’s had plenty of operational experience as an investor, advisor, and founder, as well as CEO, CFO, and board oversight. He’s not a starstruck young thing wading into the next best technology because it’s cool. His experience has led him to believe that blockchain has enormous value for real estate in the future, so this is worth listening to.

Eve Picker: Be sure to go to EvePicker.com to find out more about Sandy 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: Hi, Sandy. How are you this morning?

Sandy Selman: Great. How are you?

Eve Picker: I’m very good. You have had an extensive career in a variety of industries, and you’ve founded three companies, so I think you could be called a serial entrepreneur. Am I counting right?

Sandy Selman: There was probably some additional ones in there that I just care not tell anyone about, but let’s go with three.

Eve Picker: So, really a serial entrepreneur, okay. I want to talk to you today about your latest venture, which is CPROP. It’s a company focused on blockchain and its application, in particular, to the real estate industry, which I find really interesting because I think that we’re all going to hear a lot more about that in the future. First, I want to ask you, what’s your background, and what led you to CPROP?

Sandy Selman: It’s been a long kind of twisty, windy road, but I started out my professional life as an engineer and quickly realized, within the first two weeks of getting on the job, that wasn’t what I wanted to do. I went into investment banking, specializing in the financing of infrastructure like power plants, and wastewater treatment plants, and the big infrastructure. I just became fascinated with the way the world worked from an infrastructure standpoint.

Sandy Selman: Around the mid-’90s, I was working for a big global company financing projects in the Pacific region, specifically China, and I became very disenchanted with that work, for its lack of social and environmental purpose. I jumped ship, and I founded an early-stage clean technology venture fund, which I thought would combine the best of my financial and technical skills, but also my desire to work on things that had more than just a financial return to them. That was a very, very interesting journey.

Sandy Selman: After my fund wound down, which, coincidentally, was at the start of the Great Recession – bad timing – that’s what sort of drove me to be an entrepreneur. The startup that actually led to the founding of CPROP was an IOT – Internet of Things – and data science company that I founded with a partner, focusing on … We initially started the business to bring smart building solutions to the commercial and government sector in the Middle East but eventually, we pivoted it back to the U.S., and we ended up getting this massive contract with a big, global property management firm.

Sandy Selman: We worked on a project there to develop a product that had to do with more effective capture and management of data to inform big capital decisions, particularly the capital-planning process in very, very large commercial properties. It was amazing to us that this big, global company, given their resources and sophistication, just how inefficiently the data was managed throughout the value chain inside the workflows of this enterprise and how that led to, potentially, misallocations of capital in the hundreds of millions of dollars. That was kind of a ringside seat.

Sandy Selman: It’s about the time we were wrapping up that project, we became interested in blockchain. My partners who were younger than me started trading crypto, and that led us to getting deeply involved in blockchain and realizing that blockchain could actually address many of the industry ills that we saw in that project, and that’s what led to the founding of it. It’s a long answer to your question but that’s how we got going.

Eve Picker: Wow. Are you suggesting that golden oldies aren’t interested in crypto?

Sandy Selman: No, I don’t want to suggest that, but let’s just say it wasn’t for me.

Eve Picker: Just wondering … No, it’s interesting. Blockchain, this is actually the thing that most people pretend that they understand, and I could be one of them. So, I think it would be really worth hearing a plain-English explanation of what blockchain is and what it does.

Sandy Selman: It’s a common question I answer probably 10 times a week. So, blockchain is nothing more than a data architecture. It’s not a lot of the things that you hear about it. It is not cryptocurrency. Cryptocurrency is just one application for blockchain. Blockchain, itself, is a platform technology, which is known as a distributed-ledger technology. All that means, in plain English, is that data is stored on multiple computers that are part of the network. It’s a network that is, once data is placed onto it, you cannot erase data that was put on; you can only append to it. It’s very, very difficult to get data on the network. There is a protocol as to how data gets written onto the network.

Sandy Selman: What it does is … The practical use case for it is, again, in plain English, it provides an external data architecture, external to, say, a company’s enterprise servers, for example, that allows you to validate content and timestamps of data. It allows you to determine with 100-percent accuracy whether specific data existed on or before a certain point in time. That’s its central utility. Now, the applications of that range from – in real estate – range from things like automating compliance to the creation of digital currencies that can be used in the financing of real estate, which I’m sure we’ll talk about in a few minutes. Does that help?

Eve Picker: Yeah, yeah … It’s still a little bit hard to understand because probably most people got … Well, not most, but probably some people got stuck on distributed ledger, if they’ve never really heard that term before. What’s a real-world example of someone using blockchain, right now, that is digestible, do you think?

Sandy Selman: I’d say the blockchain applications that are in commercial practice today are a little bit esoteric, and they have to do with the creation of digital currencies in the financial system. So, companies like J.P. Morgan have created an internal coin; it’s a digital currency that they call the JPM coin, which they use to more effectively execute wholesale market transactions between different parts of the world of their operation. As opposed to sending money through the Swiss system, they can do it much more efficiently and quickly with this digital currency.

Sandy Selman: But in the data world, there are applications that are quickly catching up. The accounting profession, the insurance profession, any kind of audit and compliance – there are applications galore in the works … Actually, I was just talking to a friend of mine this morning about this, about how broker-dealers and compliance departments are … Those functions are going to be fundamentally changed by this technology because, essentially, blockchains can be structured so that they are immutable – we’ll talk about the security aspects in a second, I’m sure – they provide this independent reference point that has heretofore been provided by auditors and broker-dealers. There are some pretty exciting developments on the horizon, across multiple industry sectors.

Eve Picker: So, you really are at the cutting edge. It’s really not- it’s not found a path yet in the everyday world, except as cryptocurrencies, which are kind of a little bit of a gold rush, I think, right?

Sandy Selman: Cryptocurrencies were a big gold rush and, unfortunately, a huge distraction for government and the public to understand what blockchain really is. Fortunately, that gold rush ended in what they call the Crypto Winter of 2017 and ’18, and things kind of came back down to earth. Projects like the JPM coin, although you could call the JPM coin a cryptocurrency, I prefer to call it a digital currency, because it doesn’t have that tarnish of the whole crypto thing that went on; the craziness in 2017. Actually, it bears mentioning – why do they call them cryptocurrencies to begin with? Because blockchain technology is underpinned by cryptography, the science of cryptography. So, that’s probably where crypto came into play here.

Eve Picker: Interesting, interesting.

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: You told us about insurance, and securities, and all sorts of ways that it might be applied to real estate. Can you tell us about a project that you’re tackling right now at CPROP that we can sort of walk through and see how it works?

Sandy Selman: Yeah, no question. So, I think the one, probably, that’s the most relevant to the impact-investing space is we are preparing to launch a platform that will be a specialized platform for the listing, and the posting, and eventually the trading of – and every word here is important – real estate-backed security tokens. Why are all those words important, I guess, is the question.

Sandy Selman: So, in general, blockchain has two kind of broad uses. One has to do with the validation and time-stamping of data to create audit trails, and the other broad application is in the creation of digital currencies, which are essentially like digital twins of what they initially called fiat. So, fiat currencies would be dollars, euros, what have you.

Sandy Selman: The world of real estate finance is on – I believe, personally – is on the precipice of a sea change in the way properties will be financed because the efficiencies and the cost drivers for transacting, and fundraising, and such, through the use of digital currencies, are so incredibly significant that it’s creating this sort of persistent pressure for companies and regulators to work out how to bring these business models into existence to unleash the power of the onset of this digital-financing world that we’re now stepping into.

Sandy Selman: The project that I wanted to talk about is really kind of at the forefront of that transformation. Hopefully, we’re on the leading edge and not the bleeding edge. The bleeding edge is not a good place to be … We’re not the very first company to try this, but we’re going to try and come to market with a practical implementation that falls well within existing securities regulations that has a user interface and a user experience that is going to be very comfortable for mainstream retail institutional investors. We’re going to try and have our cake and eat it, too, here, with this project.

Eve Picker: Wow, interesting. You know that I’m really interested in impact in the real estate world, and I’m wondering how you think blockchain, or even cryptocurrencies could be best deployed, I suppose, to make impact investing easier?

Sandy Selman: Well, to provide … I guess the sort of broader question is what can projects like this do to support impact investing, and intelligent real estate investing, which is, I know, near and dear to your heart, and near and dear to my heart, as well? Here’s the answer to that question. The answer is that once you make the transition into the digital world of finance, one of the immediate benefits is democratization; meaning that you can make that asset class – commercial-property investing, or whatever type of property investing – you can make it accessible to a much wider range of investors.

Sandy Selman: I’ll give you two specific examples. One is that when you work in the digital world, being able to interact with investors globally becomes greatly facilitated. Essentially, any investor with an internet connection that qualifies to invest in whatever it is that you’re doing can now participate; whereas, when you’re working in the fiat world, in the conventional world, it’s just a lot more cumbersome. There’s paperwork; there’s a lot of friction associated with getting an investor [cross talk]

Eve Picker: Yeah, there’s a lot of … It’s not even the paperwork; it’s actually the banking systems. It’s very difficult coming up with a solution for sending money back and forth to an investor who might be in Italy-

Sandy Selman: Correct.

Eve Picker: -which is very difficult.

Sandy Selman: Yeah, it’s clunky. When you’re operating in the digital world, if that Italian investor can get their euros- deposit their euros into a bank that is connected with a secondary trading platform, it’s very easy, at that point of deposit, to essentially create a digital twin of that euro deposit. That becomes, essentially, their currency with which they- or the medium by which they can then acquire security tokens that represent undivided interest in property, or within fund, or however they’re structured-

Eve Picker: Even better, the developer, or the issuer can then, when they make distributions … Let’s say it’s a quarterly distribution that they need to make, if they can very simply send the funds back to that investor by the same platform-

Sandy Selman: That’s exactly right.

Eve Picker: Yeah, and that’s really probably one of the most difficult things.

Sandy Selman: Yeah. So, these are the sorts of cost drivers that are creating the pressure to move this- to sort of push this digital phenomenon forward. The other aspect of democratization, in my view, is that- there was something like … According to this report I read this morning, there was over $900 billion in assets under management in U.S. private equity funds that were focused on the real estate at the end of last year; almost a trillion dollars. By and large, those funds are accessible only to investors that have the ability to put up pretty high minimum investments.

Sandy Selman: In the world of digital finance, because the costs are so much lower, these security token offerings … And I keep saying security tokens, because these undivided interests represented by digital currency that we’re calling a token, for the lack of a better term, are securities by any sort of assessment of U.S. securities law. They fall squarely under the Securities Act, that’s why we call them security tokens. If we have time, I want to talk about another topic related to that, about utility tokens. But sticking on security tokens for a second, because the costs of issuance are so much lower, and the cost of transacting is so much lower, an issuer of a security token can structure their offering so that it’s accessible to investors with much lower minimums; thereby sort of promoting democratization.

Sandy Selman: A good application of this, in the impact world, is supposing you’re involved in a development in Pittsburgh that’s an impact type of a project, and you want to attract capital from local investors in the community who really want to be supportive of that project, it’s therefore possible … You’re doing this, I know, with your Small Change platform. It then becomes efficient to be able to allow those investors in, provided they qualify with whatever part of the securities regulations the security tokens are issued under. It provides a very easy and low-cost way to allow those investors in, without requiring them to be subjected to a $250,000 minimum, for example, in a PE fund.

Eve Picker: Right. I have to be convinced, because we’ve got a pretty easy way for them to get in, using ACH, right now. I think, for me, I’m going to push you a little bit on this. I think the beauty of it is in foreign transactions, which are really difficult, and the ability to be able to tie information about each investor together, so that you don’t lose it, right? You might have W9 information, and you have to issue a K-1; you need to keep track of the percentage of the total investment pool that they have invested, so you can distribute the correct amount to them. Those things are really super-time-consuming and require someone with quite a lot of skill to keep track of them and make sure everything is correct. That’s what I’m hoping that blockchain can solve. Am I wrong?

Sandy Selman: Yeah, the distributed ledger … No, no, you’re not wrong at all. The distributed ledger does that, by definition. It captures every element of that workflow that you just mentioned – keeping track of people’s respective ownerships; keeping track of the way that dividends should be apportioned. I think, to your point on the ACH, yes, you can allow people in – send $1,000 by ACH – but now, you’ve got this $1,000 investor in, and there’s this carrying cost of making those distributions, importing, and so on. When you’re operating in the digital world-

Eve Picker: That’s the expensive part; it’s the carrying cost-

Sandy Selman: Right. Exactly.

Eve Picker: Our issuers are always thinking about the lowest minimum they can allow, because we can accept $10 by ACH, but then they have to manage that $10 investment, and that’s pretty excruciating, so-

Sandy Selman: So, in the digital world, if that administration of that $10 investor can be automated, then it doesn’t become so out of reach.

Eve Picker: That’s right. Okay, now you’ve convinced me.

Sandy Selman: Okay, good.

Eve Picker: So, that’s how it might be applied. Let’s look at Small Change. We are a funding portal, at least for one of our offerings; so regulation crowdfunding. We have to abide by many different rules, in order to let people invest small amounts; fractional investments. We sort of put the whole securities package together. Right now, we are accepting investments by ACH, and some bigger ones by check and wire. What would it look like to convert an offering on our platform to blockchain, or cryptocurrency, instead of accepting ACH?

Sandy Selman: In the ideal world … I’m going to talk about the ideal world, and then I want to dial it back to the practical. In the ideal world, Small Change would be a what’s known as an ATS -an alternative trading system – which is a form of exchange. It’s a term of art within the securities world. Investors would deposit their U.S. dollars into a bank that will be part of this ATS, or a settlement agent; again, fully regulated. The depositing of those dollars would result in the creation of sort of a digital equivalent on your digital platform which, again, would be the medium with which those investors could acquire security tokens representing undivided interest in the [subject] properties or portfolios.

Sandy Selman: Then, whenever there’s a dividend that’s to be distributed with any of those income-producing properties, the blockchain provides you with a perfect record of who owns what, so that the dividend can be readily distributed digitally to those accounts on a pro rata basis, according to each investor’s ownership in that particular security token. Then, when an investor wants to withdraw, they can simply- their holdings in their portfolio of security tokens are then correlated with the U.S. dollar account that resides with that custodian banker or settlement agent.

Eve Picker: Okay, that’s pretty easy.

Sandy Selman: So, at any time, they’d have a way to withdraw cash if they needed to or deposit more cash if they want to. There’s this dividing line between the fiat world and the digital world that remains very, very distinct. All the transacting occurs on the digital side, but the cash in and out still occurs the way it does today on the fiat side.

Eve Picker: Okay. Well, you, and I are going to have to talk about this outside the podcast, all right?

Sandy Selman: Yes. But I mentioned, that’s in the ideal world, so I just want to dial it back to the practical world … There are still a number of important operational details that need to be worked through with the SEC. The SEC- the state of regulation at the SEC is still at a fairly early stage regarding how the treatment of these digital platforms will exist. They’ve issued some guidance on it. It’s not super-specific, and there are series of no-action letters and things of the like that are being issued or will be issued in the future that will provide more, and more specificity as to how to structure these things so that, from a regulatory standpoint, everything is compliant.

Eve Picker: Yeah. I’ve been watching that. That’s why I’ve been staying away from it.

Sandy Selman: Yeah, but I think our goal is to try and sacrifice functionality, and operability for speed to market. What we’re trying to do, and working through it with the SEC, right now, is we’re trying to touch bottom on how do we bring to market a system that is compliant, even if we have to sacrifice … We’re not going to be an ATS, obviously, out of the gate – the bar for that is pretty high, in terms of cost and time to get that approval – but we’re looking to touch bottom with them, early on, as to how we can come to market with what would be known as a bulletin board for this sort of special-purpose platform that’s focused specifically on real estate.

Sandy Selman: Now, like I said, we don’t want to be on the bleeding edge; we want to be on the leading edge. There are companies that have gone before us and have gotten the approval to operate as an ATS from the SEC and have digital currencies on their platform. They’re not specific to real estate, but they have been approved, so there are go-bys that are out there, and that’s a very, very important thing to consider. It’s what gives us confidence that the path that we’re on is going to ultimately bear fruit.

Eve Picker: Interesting.

Sandy Selman: We’re not the first.

Eve Picker: What do you think all of this is going to look like in five to 10 years from now?

Sandy Selman: Wow, that’s a really good question. I can tell you that every money-centered bank that I’ve spoken to has an internal department that is focused on digital securities and blockchain applications. They don’t talk much about it. My personal view is, I think five years is probably a good number, but I don’t have a crystal ball, obviously. But I think that a greater proportion … You’re going to start to see platforms pop up all around the world that are these digital platforms that create this paradigm that I was just describing, where there’s a portal for getting fiat currencies into a system – whatever that fiat currency might be – and then, a digital equivalent which is where all the transacting and the reporting takes place.

Eve Picker: Do you think this is really going to impact the way our banks look? Are banks going to become a ATSs?

Sandy Selman: You could … Yes, you can rest assured that banks, and the investment banks, they’re not going to let this opportunity go by and have new entrants step in there, and not participate in it … I think you can be confident in assuming that the traditional financial system players are going to be front and center in all this [cross talk]

Eve Picker: I mean, that’s a good thing because they have a reputation and have been in business for a long time, so that means that the general public will become more, and more aware.

Sandy Selman: Yes. It’s sort of the next evolution in the way the financial markets operate. It’s good in the sense that it lends itself to greater efficiency, which is obviously more cost efficiency, and greater transparency, and greater security.

Eve Picker: Yeah. Interesting. You talked about the regulatory hurdles. What are the perception hurdles?

Sandy Selman: The perception hurdles, that’s another really good question. The perception hurdle is that people hear crypto, and they run from the room screaming, with their hair on fire, because of all the well-publicized hacking incidents. People hear bitcoin, and they just shudder and this kind of stuff. There’s kind of two issues here, I think, that are uppermost in most people’s minds.

Sandy Selman: On the hacking, the items that are hacked, and the famous hacking incidents tend to be the wallets rather than the blockchains, themselves. I’m not going to say that there’s never been a blockchain successfully attacked, because that’s not the case, but there are ways to structure blockchains to make them virtually impossible to hack. I would like to say impossible, but I’ve been told many times never say anything is impossible.

Sandy Selman: Wallets, where tokens are often held, are vectors for attack. Think of it like this – an electronic wallet is nothing more than sort of like a file folder, in a sense, on your computer, that you keep on your computer, or you keep on an exchange, or you keep on an external device. If you are sloppy with the private key, which is just a fancy password, then anybody can …

Sandy Selman: If someone is able to get your private key because you’re sloppy with the way you keep it … Let’s say that you store your private key in an Excel file that’s on your computer, and your computer gets attacked, and someone finds that file, and they’ll have your private key, you’re done for. Once that private key is compromised, people can get access to your wallet. They can take your tokens out of it and send them into the ether, and you’ll never find them again, because even though you can see where all the transactions are on the blockchain, the wallet ownership is anonymous; it’s anonymized, so you don’t know who owns the wallet.

Eve Picker: But that’s personal security. That’s like deciding whether to leave your front door unlocked or not. That’s not so much an issue of blockchain as it is of people’s behavior, right?

Sandy Selman: That’s correct, and I think that … Again, my personal view is that, in the future, institutional investors … By the way, this is anathema to institutional investors because they’re used to dealing with banks and other depository institutions where, if something … If the bank gets hacked, there’s insurance, and the money can be recovered, and so on, so forth. In the digital world if a wallet gets hacked, good luck. It’s the Wild Wild West.

Sandy Selman: My personal view is that the way this is going to get worked out is that there won’t be wallets, and there won’t be tokens to worry about that because of [attack]. The blockchain is really just being used as a method of accounting more than sending tokens from one place to another … This is a nuance that’s lost on, I think, on most people that I speak with. It’s a distributed-ledger technology, as I said before, that provides this accounting mechanism. So, you can make adjustments to the accounting based upon how transactions … The accounting is automatically adjusted as transactions occur. Depending upon how the platforms are structured, you don’t necessarily need to have wallets with tokens sitting in them. It can be just a method of accounting.

Eve Picker: Yeah, I mean, I can really see the value for … If you have 1,000 investors, that could be enormously useful.

Sandy Selman: Yes. That’s one big perception problem. The other big perception problem is people hear cryptocurrency, and they think of Bitcoin, and the wild price fluctuations of Bitcoin. The price of Bitcoin- ask 10 people what moves the price of Bitcoin, and you’ll get 10 different answers. It’s kind of nuts. It’s not correlated to anything. The same is true for all the other cryptocoins that are out there.

Sandy Selman: In this world, this world of digitized real estate finance, we’re not subject to those same … That whole paradigm just doesn’t even … It’s not even relevant because the digital currencies that are used to mirror an investor’s fiat deposit are not going to be … It’s not going to be Bitcoin, or Ethereum. They’re going to be special-purpose utility tokens that are just there as a marker to mark the accounting of what that investor’s entitlement to those fiat deposits with that custodian, or that settlement agent are. They don’t have a price attached to them. They’re just there as a marker, if that makes any sense-

Eve Picker: I think your description as digital twins of actual fiat money is really a great way to think about it. It’s just a little clone of the actual cash, right?

Sandy Selman: It’s a digital clone, exactly.

Eve Picker: Whatever the cash is worth, that little clone is worth the same amount.

Sandy Selman: Exactly.

Eve Picker: Yeah, I like that. There’s another coin out there, stablecoin. I don’t know if that follows the same principles?

Sandy Selman: No …. Yes, and no [cross talk]

Eve Picker: Maybe I shouldn’t have asked.

Sandy Selman: There’s a class of coins that are called stablecoins. Tether, for example, is one of the more well-known ones … There is a token out there called the USDT, which is a Tether coin which is pegged to the U.S. dollar.

Eve Picker: Right.

Sandy Selman: But … All right … And Facebook, with their Libra project; they want to come out with … Libra is going to be tied to … I’m not 100-percent familiar with the Libra project, but as I recall, it’s tied to a basket of currencies. The problem, or the potential fly in the ointment with those stablecoins is that the coin needs to be backed by something. If there’s a run on USDT, for whatever reason, then it needs to be backed by enough U.S. dollars so that the correlation stays intact.

Eve Picker: Right.

Sandy Selman: That’s sort of the chink in the armor there.

Eve Picker: Interesting.

Sandy Selman: When we started ideating on our platform, initially we thought maybe USDT’s something that we could use. Then, we quickly realized that that wasn’t going to work, because any stablecoin that isn’t backed by the full faith and credit of a government issuer, like the U.S. dollar, potentially has that flaw.

Eve Picker: Yeah, that’s interesting … This has been really fascinating, and I have three sign-off questions, but I think you said you wanted to talk about one other thing.

Sandy Selman: Yeah, I wanted to talk about one other thing and that is I wanted to touch very quickly on utility tokens and their use in this space of impact investing, and affordable housing. So, we’re working on a couple of projects now where, again, we take advantage of the accounting aspects of blockchain to create some value within this- let’s call it the affordable housing space.

Sandy Selman: One sort of obvious application is in the rent-to-own industry, which is an industry that is not known for … Well, let’s put it this way. There have been a lot of instances where the accounting is between landlords/property owners, and the tenants have kind of gone astray. Blockchain provides a superb solution to ensuring that the accounting on a tenant’s journey from renting to owning is well-documented and is cast in concrete. You can’t mess with it. You can do this with simply just using utility tokens, which are not a security and therefore, can be implemented without having to file a registration statement, or anything like that.

Sandy Selman: The other application for utility tokens, which I think is really interesting, in the affordable housing space is the ability to create reward systems that incentivize tenant behaviors that are favorable to ownership; for example, paying your rent on time; paying utility bills on time; for master-metered buildings, keeping your utility consumption below a certain level; things along these lines … The utility token, again … Do you need blockchain absolutely to implement those systems? Maybe not, but blockchain makes the implementation of those systems super-easy, super-transparent, and secure, and therefore, trustworthy because the data is held in an architecture that’s outside the control of the ownership of the property, and therefore, it’s more trusted. I just wanted to throw those out there real quick-

Eve Picker: In other words, pay your rent on time, and you get a token, which you can put towards something else or-

Sandy Selman: Yes, exactly.

Eve Picker: That’s really interesting. Are you working with anyone on a project like this?

Sandy Selman: Yes we are. We’re actually in discussions with two different large companies about this. They both have their own views as to how they want to utilize those … How they’re going to be … What the reward is for accumulating the tokens. You’ve got to be careful to steer around them and not make the reward systems such that it turns that utility token into a security, but I think that’s pretty easy to do, as long as you’re mindful of it, where the trip wires are.

Sandy Selman: It’s, again, something that I think you’ll start to see pop up. These two companies that we’re working with are pretty serious about implementing this, and I don’t see any technical reasons why it couldn’t be implemented. So, as long as we structure it so that we don’t hit those regulatory trip wires, I don’t see any reason why it won’t be implemented, so, I guess, stay tuned on that.

Eve Picker: Wow. So, it’s a brave new world when it comes to banking now.

Sandy Selman: Yeah, yeah. I feel like I’m 20 years old again. It’s great.

Eve Picker: Well, it sounds like fun, Sandy. So, I need to ask you three sign-off questions, which are probably not exactly what you think about all day, but I ask them of everyone, so I’m going to ask them of you. I want to know what you think is the key factor that makes a real estate project impactful to you.

Sandy Selman: I can answer that by relaying an experience that I had last year. The company that’s redeveloping the Tampa waterfront is a company called Strategic Property Partners – SPP. Their head of development, I had a conversation with her that really kind of struck me. In redeveloping this waterfront area, downtown Tampa, which should be a great … The natural attributes of that real estate are such that … It’s proximate to the downtown core; it’s got water around it; there’s an island; there’s all kinds of natural attributes … There’s a highway that goes straight to it.

Sandy Selman: What they’re trying to do is they’re trying to create a development, which, it’s a huge mixed-use property development, and they’re trying to design it with livability in mind, where people can feel connected to the spaces the open spaces that are created. The emphasis really is on the experience more than the … Or of the priority of functionality, which I think is a really interesting approach to development. These urban and semi-urban developments, which I think are lacking, there’s the high demand for because of commute times, which is an incessant problem.

Sandy Selman: I mean, I live in a New York suburb, and we deal with this every day. It’s just kind of absurd the extent to which it degrades the quality of life having to sit in traffic for hours on end each day. It’s very frustrating, and unproductive, and expensive. Creating these communities that are urban and semi-urban, where people can work, and they can live, and they can have a quality of life, and feel connected to the community and, therefore, to one another, I think is … To me, this is something really, really important.

Eve Picker: Yes.

Sandy Selman: By contrast, not to pick on it, but I used to work in a place in Stanford, Connecticut, which, to me, was sort of the antithesis of this. It’s not walkable; you’re constantly having to cross major boulevards. There just was no sense of community, at least at the time that I worked there. I thought, gosh, this place could really stand a makeover to make this a more comfortable place to be. It was a place I dreaded going.

Eve Picker: Yeah, yeah. I just actually read an article about the suburbs starting to become little transportation nodes around railway stations and reinventing those places for remote workers. They’re kind of new little towns that are popping up. It’s fascinating what’s going on at the moment.

Sandy Selman: Yeah.

Eve Picker: Other than raising money, in what ways do you think involving investors through crowdfunding can benefit impact real estate development?

Sandy Selman: It kind of goes back to my democratization comments. Finding a way to reach that target audience and reducing the friction as much as possible, and the costs in interacting with them, to me, is the pathway to liberating more capital. I’m constantly amazed, actually, at how successful a lot of these GoFundMe campaigns are for causes, like someone has a terrible health problem in a family, or an accidental death, or some family tragedy; how quickly I’ve seen families, through GoFundMe campaigns, raise copious amounts of capital to deal with medical expenses and the like. If it works for that, it should be able to work for impact investment.

Sandy Selman: I think that the more the local community to an impact- a development can be tapped for capital, it creates more stickiness and a higher likelihood of success for whatever that local development is going to be. I think in this strange point in U.S. history, where we’re more divided than we ever have been, as far as I know, I think these political divides are tearing at the threads of community cohesiveness. I think this is one small way that can sort of fight back against the tendency to become separated from one another, if we can remain connected to our communities because we’re both living there; we’re working there; we’re playing there, and we’re invested there. That’s a very interesting paradigm, at least from my standpoint.

Eve Picker: Yeah, that’s true. You got me all excited. Then, finally, what is the one thing about real estate development in the U.S. that you would like to see improved?

Sandy Selman: More mindful development. Again, the comments from this development professional in SPP really run true with me. I travel quite extensively, and I see things going up … Take my hometown of New York City – I see high rises going up there, left, right, and center, with total disregard, in my view – I’m not involved in them, so it’s easy for me to throw rocks at them, I guess – but, in my view, total disregard to the impact on the community, particularly around transportation.

Sandy Selman: I thought that this whole brouhaha over Amazon and them not going into Long Island City, for example … Long Island City is an area that is massively under construction and has been, now, for the last couple of years. Consequently, the traffic around getting through and around Long Island City has become absurd, and the public infrastructure, transportation infrastructure, has not been touched – the subways the trains, and such.

Sandy Selman: They’re still the same subways and trains that existed before- when this land was brownfields. That kind of development just- it just makes me crazy, and I just don’t understand how urban planners and city planners can engage with these developers developing these massive developments that are going to bring literally millions of people to live and to work in these very, very congested areas without, at the same time, addressing the ripple effects, particularly on public transportation.

Eve Picker: I think this may be your next calling.

Sandy Selman: Yeah, maybe. Like I said, I was an infrastructure junkie, earlier in my career, so this is something that particularly gets me going.

Eve Picker: Well, Sandy, thank you very much for joining me. I really enjoyed chatting with you. We’ll sign off, and I’ll talk to you soon.

Sandy Selman: Yeah. Thank you very much.

Eve Picker: That was Sandy Selman, founder of the startup, CPROP. I learned about the power of the blockchain and how it might be unleashed on real estate. Accounting and auditing trails would be handled fluidly, and blockchain would support fractional investment, which is dear to my heart. But I also learned that blockchain is a nascent industry, and it’s too early to point to some really purposeful applications.

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

Image courtesy of Sandy Selman