Finance

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. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Joshua Lavrinc, a colleague of mine in Pittsburgh. Josh is the CEO of Grove Community Development, a real estate development and consulting company. He’s also the CEO of Callay Capital, a fund advisory and management company.

Eve Picker: While Josh started his professional life as an attorney, he pretty quickly moved into the capital-raising world and has stayed there ever since, but he shifted his role to developer, development consultant, and fund manager, squarely in the impact arena. What sets Josh apart is the type of funds and projects he’s involved in. He’s carved out a little niche for himself in Pittsburgh, helping to raise and manage funds like the Strategic Investment Fund and the Power of 32 Site Development Funds.

Eve Picker: In this podcast, we explore the inherent challenges in impact investing. Be sure to go to EvePicker.com to find out more about Josh 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, Josh, how are you?

Josh Lavrinc: Good morning, Eve. I’m very well, thank you.

Eve Picker: Josh, I know a lot about you, but our listeners do not. I would love you to just tell us a little bit about yourself.

Josh Lavrinc: Fantastic. Well, thanks for the opportunity to speak. I’m in Pittsburgh, as you are these days, working on real estate investment, in particular, for socially responsible mission-based investments, which we’ll talk about as we proceed in the conversation.

Josh Lavrinc: My background … I’ve lived in several places in the Northeast and went to college, undergrad, at Penn State, where I learned accounting, among other things; started my career as an accountant very briefly, before deciding to continue on to law school. After studying accounting and being in an accounting firm for a short while, I decided to proceed to law school, and went to the University of Pennsylvania in Philadelphia with my now wife.

Josh Lavrinc: We stayed there for about five years, through law school and practicing law, really in the areas- two areas – one, real estate finance and development and the other area, structured finance, working, in particular, on commercial mortgage securitization for large rating agency clients and large investor clients. Then combining that with a more traditional dirt practice, as they call it, on real estate development, and then representing banks, insurance companies on lending and investment, as well.

Josh Lavrinc: When it was time to have children – my wife is from Pittsburgh – we came back to Pittsburgh and here we’ve been since about 2005. I continued practicing law for a few years until the market crashed in 2008. I had left the law firm to start a development career and started, actually, a distressed debt strategy that was difficult to pull off, raising capital and sourcing distressed debt transactions as a way to try and acquire property at the right basis during that cycle.

Josh Lavrinc: With little resources to pursue that strategy, my partner and I at the time – he was also young with new children in the house, like I – we decided to look at residential real estate as an overlooked asset class; something that had been hit pretty hard by the financial crisis. We started a real estate development and construction company in Pittsburgh, which went on. After starting that up. about 24 months into it, I sold my interests and moved on to the mission-based investment fund management platform that I’ve grown and am part of now. I sold those interests, and he went on to become the largest owner of houses in Allegheny County, where Pittsburgh is located, in 2014..

Josh Lavrinc: I have a residential development and an investment background thanks to those couple of years, but I’ve moved back into commercial, which was much more of my professional training. I’m excitedly applying my skills for a particular mission rather than an array of clients, an array of projects, where I had responsibilities previously, just to execute on a transaction somewhat disconnected from the underlying projects. Now, I’m on the front side of the transaction, helping, assisting clients in figuring out how to finance those projects or actually providing the capital for those projects, and with a particular mission, as I was saying [cross talk] I can talk a little bit about that.

Eve Picker: Yeah. Can you tell us a little bit about the mission? That’d be really great.

Josh Lavrinc: My current partner, Jim Noland, had a mortgage banking firm back in Pittsburgh that he had started in the late ’70s-early ’80s. At some point, towards the end of that decade, some of the local union building trades came to him and said, “We’ve been investing in these national strategies with our local pension fund money. They will create financial returns, but they’re invested in projects at major metros that are very large, and they don’t really have any impact on us, here locally, so we would like to see if we can invest our money in local projects, create jobs, and create financial return.”

Josh Lavrinc: So, before it became popular to talk about responsible investments or mission-based investment, here was a fund that formed. Fast forward, that fund is called the Employees Real Estate Construction Trust. It’s a regional fund from Cleveland, Ohio, through West Virginia that has a collection of union, municipal and private pension fund investors, the majority of whom originally were local union building trades. There is a 100-percent union building-trade labor requirement attached to those funds for every investment they do, in order to create high-quality jobs through the union building trades and invest that money for financial return, locally.

Eve Picker: How much has been invested locally through that fund over the years?

Josh Lavrinc: It’s been, I believe, over a billion dollars at this point, although the corpus of the funds is in the $200 million range, a little over that [cross talk]

Eve Picker: -that’s pretty high impact, Josh.

Josh Lavrinc: Pretty high impact, and that’s not a track record I can claim responsibility for. There’s a great team. There’s a trustee of those funds, AmeriServ Bank. My partner, Jim Noland, and his company, Penn Trust Real Estate Advisory Services, Incorporated, of which I was part, has served as the real estate advisor, essentially in charge of origination, and execution, and servicing of all those assets. There are strategies within those funds – a debt strategy and an equity strategy. They’ve been very flexible in the market; able to do things a little more aggressively than conventional lenders and have built up a great reputation in the development community in this region, as a result of that, and their great, diligent, and friendly relationships.

Eve Picker: That’s how you dipped your toe in the water of impact and socially responsible developments. If you fast forward today, what other projects have you worked on or what other funds have you managed that fit that criteria?

Josh Lavrinc: Great. When I met Jim Noland on a nonprofit board he and I were serving on, he was pursuing a program with the State of Pennsylvania – the Commonwealth of Pennsylvania, I should say – called the Building Pennsylvania Mezzanine Loan Program, trying to do support; provide gap financing to support commercial projects in promoting an economic development mission in the state. That program successfully was pursued, and we’ve used that a number of times, including to finance the Ace Hotel here in Pittsburgh. That’s one additional mission-based fund that we continue to manage from time to time.

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: We should tell people, the Ace Hotel in Pittsburgh is a pretty high-impact project, because it’s a hotel that was … The hotel actually re-utilized, renovated a beautiful old building that had been long vacant in a very underserved neighborhood that was quite poor at the time. It really did a number of amazing things. It’s not just an Ace Hotel. It’s an Ace Hotel that really made an impact, I think.

Josh Lavrinc: Yeah, it came at a time, just before this … Really at the cusp for … This neighborhood in Pittsburgh, East Liberty, had been, prior to that, fairly distressed. Certainly, the Bakery Square project and the folks at Walnut Capital helped to transform that neighborhood, among others, but our friends, Nate Cunningham and Matthew Ciccone – Matthew sort of envisioning that project …

Josh Lavrinc: A former YMCA associated with a church across the street; had been sort of mid-block. Not a hard corner. Not an easy site to see, and certainly, at that time, not a neighborhood where you thought about hospitality assets, nor a brand, in Ace, that lenders still to this day think about wanting to see a major franchise and the loyalty customer base of that franchise brought to bear. Difficult to do boutique hotel financing in this neighborhood, mid-block, in the conversion of a former YMCA, but it turned out beautifully. It has been a social magnet for that neighborhood and certainly part of the recovery, I think [cross talk] 

Eve Picker: So that’s what-

Josh Lavrinc: Interestingly enough, another- Oh, go ahead, Eve.

Eve Picker: No, you go ahead.

Josh Lavrinc: Interestingly enough, at that time, we also arranged senior financing, or I should say bridge financing, with a fund called the Strategic Investment Fund, which I now manage through our company, Callay Capital – a third fund in our portfolio of funds that we manage. At that time, we were doing servicing for this fund and had helped with origination. We weren’t formerly the fund manager, we were just a particular service provider, but it was a good fit for that mission.

Josh Lavrinc: That fund now has recently changed its mission a bit but was originally formed in the ’90s to revitalize downtown Pittsburgh in the wake of the collapse of the steel industry. I should say not just downtown Pittsburgh, but also industrial reparation of the river valleys, where so much steel job loss actually was experienced. The Strategic Investment Fund’s intent was to create economic development – primarily its focus – in those river valleys, but also to revitalize housing and make a vibrant downtown community in the Pittsburgh CBD, in particular. It was very active in financing residential, retail, some hospitality, and a lot of commercial in the region, but focused on those two strategies.

Josh Lavrinc: Again, subordinate financing, taking aggressive pieces of the capital stack that were unable to be financed by conventional lenders – second, third mortgages, bridge loans, those kind of financing. We now manage that. The strategy is shifting a bit. We’re looking at- now that downtown Pittsburgh has essentially become revitalized, although, perhaps not at 100 percent, it’s drastically different than it was even 20 years ago. The mission now is to try and spread that growth into other neighborhoods that have more challenges for resources and try and help those more challenged communities. There’s also a sub-mission to assist with the affordable housing crisis that we have nationally and trying to create affordable housing. We’re looking at affordable housing in well-resourced communities, as well as lesser-resource communities [cross talk] In the last-

Eve Picker: No, you go ahead. Go ahead.

Josh Lavrinc: I was just going to say the last fund that we’re managing currently, as an active fund, is the Power of 32 Site Development Fund. This was a fund in 2014 that we raised to assist in creating shovel-ready sites for our region to promote a land development and attract companies from across the globe to locate here in our region and create jobs.

Josh Lavrinc: It’s called the Power of 32, because there was a larger think-tank initiative trying to promote the greater Pittsburgh region, identifying with four states: Ohio, Maryland, West Virginia, Pennsylvania – 32 counties in those states – and really community development, broadly – rails to trails, and venture capital, and site development. A bunch of initiatives were discussed, and we were one of those initiatives was to do the site development and we were chosen as the fund manager and helped to raise and implement that fund. It’s been successful to date. We’ve raised about $50 million and have … We’ve done about $25 million of projects right now, and we’re continuing that investment.

Eve Picker: That, in itself, is a huge body of work, but I know you’re squarely involved in socially responsible real estate and finance in Pittsburgh, but I also know that you are working on your own real estate development projects. You and I have partnered to try and raise money for Opportunity Zone real estate, which I’d love us to talk about and the difficulties around that entire tax law and how it’s playing out. Do you want to talk about that?

Josh Lavrinc: Yes, absolutely. That’s the fund that has not been named yet-

Eve Picker: That’s right.

Josh Lavrinc: and we are … Eve and I have been actively involved since the tax cuts and JOBS Act of 2017 came out. In the wake of the announcement of the designated Opportunity Zones in April of 2018, or March of 2018, we’ve been actively monitoring this potential huge impact game-changer for socially responsible investment and impact investment. Maybe I’ll unpack that a little bit and just-

Eve Picker: I think that’s a great idea.

Josh Lavrinc: -how it’s set up.

Eve Picker: I was going to suggest that, yep.

Josh Lavrinc: When we talk about impact investment or social responsibility and investment, these all sort of have a categorical place, I think, in my mind, around certain missions. I think any time we’re talking about investment funds, there’s obviously a financial mission, but when we talk about socially responsible or impact investments, we’re coupling financial investment, without trying to compromise it, with some social mission and likely environmental; which might be part of social, but I would break out as a third category. So, financial, social and environmental missions; social sometimes is referred to as community.

Josh Lavrinc: I think that community development should and does occur in all communities. Most of the time, when we talk about community development, we’re talking about low-income communities and trying to help the communities with less resources, but really, there can be good community, positive community development. For instance, we’re pursuing right now an affordable housing project in Pittsburgh’s Strip District, which is a neighborhood that’s on fire for job growth, and retail development, and hospitality resources, adjacent to the CBD, and multi-family apartment, market-rate apartments, condominiums, office. All of the commercial real estate products are well represented there, but not affordable housing.

Eve Picker: In other words, it’s gentrifying very, very quickly.

Josh Lavrinc: Yes, and I think it was a fairly low population community to begin with, because it’s primarily industrial in nature, right? [cross talk]

Eve Picker: It was. That’s correct. That’s correct.

Josh Lavrinc: -there are concerns about displacement and gentrification throughout all of these conversations about responsible community development, but here’s a community that maybe did not have a large, low-income population, and we need to try and develop it in a balanced manner and help-

Eve Picker: That’s correct.

Josh Lavrinc: I think a key to creating affordable housing and creating a region, a strong region for all, is in those hot neighborhoods to try and remember the responsible uses, as well. We’re working on a project that I hope we’ll be closing on later this summer to create a significant amount of affordable units in that neighborhood. A slight digression there from our categorical discussion of impact investment.

Josh Lavrinc: Just one example of community development, though, is affordable housing, and most of the time, that market, whenever we have a use that doesn’t bring in rents that are sufficient to motivate investors on their own – hence the crisis we’re in, where we don’t have enough supply because there’s not enough financial investment incentive to attract investors and developers to create that product – there’s some subsidy or incentives. And in this case of affordable housing, obviously, there’s the Low Income Housing Tax Credit, and those-

Eve Picker: Well, I’ve got to interject here. You have said a couple of things now that I think are absolutely key. That is that there’s not enough financial incentive; that we’re trying to do socially responsible projects, while at the same time keeping the financial returns the same. That, I think, is the crux of the issue. I think that perhaps we’ve all gotten a little bit too greedy, but it isn’t- it isn’t always possible to keep the financial return in the 20-to 25-percent internal rate of return arena for a project that is socially responsible. Yet you and I have not … I think we both don’t believe that we have investors really ready to invest for less. They really want both. Am I right? They want the financial returns, and they want [cross talk]

Josh Lavrinc: Yeah, they do. They do [cross talk] and it’s tough to deliver both. It’s tough to deliver both, especially when you get into … When you get into a structured product like the Low Income Housing Tax Credit, you’ve got rent restrictions – for good reasons – that go on for sometimes upwards of 20 years. That’s difficult to project a financial return on sort of … All real estate is perhaps a depreciating asset, other than their land value, that require repair and reinvestment over time. If you have a challenged underlying land value because it’s in a less-resourced community, you have a restriction on the income potential of that property, it really becomes a very specialized, niche investment opportunity [cross talk] like most other investments.

Eve Picker: -yeah, because the asset value can’t increase over time because it’s restricted. Typically, investors- or often investors are looking for some return over the years and then some share the upside at the end, when the project is sold. But the upside on an asset, on a building that has been restricted, is just not going to be there.

Josh Lavrinc: That’s right. Sometimes, it is. Obviously, on the margins, there are exceptions. When you have something in a rent-restricted unit to a project in a rapidly, or even not rapidly, but a neighborhood that changes over the course of 20 years and becomes very valuable at the end and you lift the restrictions. That’s no longer developed for the same mission. That then, perhaps … The value becomes in converting that to another use. I think the silver lining to all of this, interestingly … How do we reconcile financial return and investment? You hit the nail on the head. There requires some compromise, in the absence of other incentives. I think the Opportunity Zone program or incentive is potentially one of the solutions that can really spur new impact investment in communities. The reason I say that- oh, go ahead.

Eve Picker: No, I was going to say for our listeners who don’t know what Opportunity Zones are, they were introduced as part of the 2017 JOBS and Tax Act. I think there are over 8,000 of them. Am I right, Josh? 8,000 [cross talk]

Josh Lavrinc: -25 percent of all eligible low-income census tracts in the United States were delegated to the state level to be selected by the chief executives in each of those states, and then they designated 25 percent of those. It is a large number, as you said, Eve, across the country. There has been a lot of focus on this program, about whether it’s really a program. I’ve used that word a couple of times. It’s an incentive, for sure, but it is different than a tax-credit program or other incentive program that we’ve seen in the past in that only those with capital gains can directly benefit by investing into an Opportunity Zone – one of these designated low-income census tracts.

Josh Lavrinc: The benefit is in a short-term deferral of a prior capital gain. If, meeting the qualifications, you can maintain that capital gains investment in an Opportunity Zone for a whole period exceeding 10 years – a long-term investment -then you would receive a step up in basis for that capital gains that was reinvested into a new investment to the fair market value of that investment at the end of that hold period [cross talk] has the potential for tax exemption, essentially.

Eve Picker: That’s correct. I think it’s actually a great program. It could be a great program. It has a couple of really, I think, serious flaws, and it’s inequitable in the fact that only someone with capital gains can really take advantage of it. That already skews it towards wealthy investors. Secondly, in the selection of these census tracts, one can only imagine how much politics was involved, because you and I know that the tracks that were selected in Pittsburgh, particularly difficult, and they were selected for the right reasons, because those really need the most investment. But other states didn’t really think about it that way, or other cities. They selected tracts that already had investment and they thought they could attract more dollars to. Even the selection of the census tracts has been inequitable. I don’t know what you think about that, Josh, but …?

Josh Lavrinc: Yeah, I think it may have been equitable in that everyone every state was participating, and every leadership group had discretion to choose the census tracts that made sense for their for their states. But when you do things equitably, it doesn’t necessarily always result in an equitable distribution of resources after that. I think, unfortunately, there will be … With our real estate lens, thinking about it in a real estate investment perspective, over the past 18 months, as we have … When I say ‘we,’ I mean all of us; all of the thought leaders on the investment, accountants, lawyers, investment professionals coming together, talking about Opportunity Zones.

Josh Lavrinc: There has been concern about how will this come about? What is the financial impact of this incentive? Will it really be a game-changing flow of capital to all the Opportunity Zones? Obviously, I left out, in that conversation with the communities and economic development trust professionals across the country, who are hoping that this is a new resource to help revitalize their communities. There is certainly, when looked out through the lens of investment capital, in projects out, real estate projects out, there will be some lowest common denominator that attracts capital to the primary market.

Josh Lavrinc: Rather than changing a capital flow from Silicon Valley to Pittsburgh, which may have been the original intent of the program, and I think was, based on the political leadership that have spoken about it, if there are qualified Opportunity Zones, designated Opportunity Zones in Silicon Valley, in New York, in L.A., then those folks that are already investing in those communities don’t have to look very far to find another opportunities. In fact, West Hollywood, and East Palo Alto, and portions of New York City – of course, they have low-income communities and have been designated Opportunity Zones..

Josh Lavrinc: If there’s a competition among Opportunity Zones across the country for limited dollars, there will not- the problem necessarily won’t be solved by the Opportunity Zone designation, itself. But I think, and reflecting on it 18 months in, I think the real change that can come through Opportunity Zones is the operating business incentive. This doesn’t just apply to real estate projects. The Opportunity Zone benefit applies to capital gains of any type, with some exceptions – some very nuanced tax exceptions – but operating businesses are squarely within the regulations that have come out from the IRS.

Josh Lavrinc: I think that when we see greater investment in operating businesses … There are already folks saying that private equity shops looking to invest in venture capital, looking to invest in companies; Company A is located outside an Opportunity Zone. “Why don’t you just move down the street to an Opportunity Zone, and we’ll make an investment, because it’ll be more tax advantaged for us.”

Josh Lavrinc: When that flow happens, when we see venture capital, private equity, and investment, and operating businesses start to prefer Opportunity Zones, I think that tide – that’s a trend that can occur throughout the Opportunity Zones, not just isolated … When that happens, we’re going to see real businesses relocate, real jobs relocate, real homes relocate. That will attract more jobs, more retail, more housing, and start to really revitalize a community in a fundamental way that I think we talked about revitalization, which is putting dollars into a community.

Josh Lavrinc: There may be adverse impacts of that, if we don’t use those dollars responsibly by providing for affordable housing in those communities, along- maintaining affordable housing at a high quality, for instance, as a community is revitalizing, but hopefully, those jobs that are moving down the street initially … Although the people in those jobs may or may not have come from the target Opportunity Zone community, new jobs that are attracted to that new company, whether they are community goods and services, like retail, or strategically associated companies with the original company that moved, or some other service in the community that has more demand, those hopefully will be employing folks in the community, and is such that, hopefully, the gentrification that happens is inclusive and participatory, so that we’re not seeing a series of outsiders coming into this community alone, but that there is a strengthening of the existing community that may not touch and concern every person.

Josh Lavrinc: Therefore, there’s a need to make sure we’re thinking about responsible community development goals, like affordable housing and investing in social services. That program, creating new businesses in an Opportunity Zone and the downstream impact of a new business locating in a community, I think, is the opportunity to bring together financial return and impact investment, social responsibility, because we’ll then [cross talk]

Eve Picker: -where does that leave real estate in the equation?

Josh Lavrinc: That’s the downstream effect. I think that it only takes one company moving into East Liberty, for instance – Duolingo moving into East Liberty; Google moving into East Liberty – to suddenly revitalize that community. There are much more real estate- many more real estate projects taking place in that community as a result of those business moves..

Josh Lavrinc: If we can continue to see more businesses move into Opportunity Zones that will beget more real estate investment, and folks that say, “We’re going to invest in this community … We wouldn’t have otherwise, because we were worried about compromising our financial return.” But then, when we combine the incentives for capital gains with the Opportunity Zone incentive with the potential transformation of this community over 10 years – transformation meaning revitalization; hopefully, appreciation – now we have a large enough financial return to incentivize us to invest and in this particular community. That’s what we’ve been trying to accomplish all along.

Josh Lavrinc: Obviously, there is place-based responsibility. Just investing in a low-income community is helpful, but it’s also subject-based, use-based responsibility. What are we building in that area? We’re building commercial real estate to support jobs. That’s a that’s a version of social responsibility. If we’re doing it to support housing, that’s a version. Obviously, we want to consider the environmental impact, which I’ve kind of left out of this conversation about financial incentives and social responsibility. All of those things can be serviced. We’ll still have, however, a need for some segment of the market to support the under-resourced portion of the community through other affordable housing, or social services. I think [cross talk] role of responsible tax management and those kind of things for the governing bodies, in addition to charitable and private efforts.

Eve Picker: But also, there’s people in the community who want to invest, as you know, right? I do believe that equity crowdfunding can play a huge role in the revitalization of communities, because now, if you have a business that moves in, or a building that is revitalized, the people in that neighborhood can actually invest in it. That’s a really important piece of building wealth within a community for the community, not just making it better for the community and leaving them on the outside. Difficult, as you know.

Josh Lavrinc: I think that’s a great point that the community, itself, with new financial tools and e-commerce, information-age tools, like crowdfunding and the regulatory predicates of crowdfunding that you’ve harnessed with Small Change, bringing not just capital into these communities for financially viable projects, but also on tapping neighbors, and neighbors, perhaps in a colloquial sense, that might be stretching across the globe that are motivated about something that compromises financial return in order to accomplish impact. That’s a real experiment with social capital [cross talk] can be accomplished. That story hasn’t been told yet, entirely.

Eve Picker: In my time in Pittsburgh, the thing that has had the biggest impact on me is – this is true throughout the Rust Belt, I think. I’m not sure about other cities, but certainly many places I’ve been – how much people love the cities they live in, and how much they want to be engaged in making them better. It’s a pretty astounding phenomenon..

Eve Picker: Give them an opportunity to invest $500, $1,000, $2,000, or whatever, in the place they live, rather than put it in a mutual fund, where they don’t know where it’s going to go, that circulates money locally, and it gives them an opportunity to share in making that place better. It’s an amazing opportunity. Now we just have to educate investors, right, Josh?

Josh Lavrinc: Of course. Yeah, that’s right. Not to mention the bite-sized piece of the investment that you’re talking about. The other power of this is we would all like to own the local restaurant, or the local general store, or name any other part of the community that you utilize and would like to support or own. Without a large amount of resources, it’s practically very difficult to accomplish that.

Josh Lavrinc: This allows, through fractional ownership at very humble investment levels, the opportunity to make a change and invest in something that … Whether it’s financially motivated, or more community motivated, depending on the mission of that particular project or fund, crowdfunding certainly is a powerful tool to try and unlock investment and change for the masses.

Eve Picker: Yeah. Moving away from Opportunity Zones, what other current trends in real estate development are you seeing that you think are really important for the future of our cities?

Josh Lavrinc: I think I would focus on the word ‘community.’ What  by that is I think we’re defining the way – in particular, in cities and urban environments – the way people come together, and live, work, and play. Those are terms popularized by commercial real estate development to try and identify or put a friendly face around mixed-use projects and make them simple to understand, but fundamentally, there is a big social change there of trying to make productive and as accessible a community as possible.

Josh Lavrinc: I was listening recently to another podcast with the co-founder of WeWork, talking about their perspective on co-working, how that came out of a desire to create community. I’m involved with a co-working company here, locally, called The Beauty Shop, in Pittsburgh, where we’re trying to develop similar communities, but growing that community outside of just an office space. Their first thought, back right around of the time the financial crisis, was that people working in isolated environments can be more productive, more happy, more engaged, and feel more appreciated and better-served by those around them that are similarly motivated; similarly making sacrifices for their businesses, if they are put together in a community.

Josh Lavrinc: When you combine that and expand that into residential real estate, can those people perhaps live in environments where they feel more supported and have more of a social fabric? I think this comes along with trends on isolationism and depression that are plaguing our country these days. Those are growing problems for our nation. This is one way to tackle that social problem is bringing together community.

Josh Lavrinc: Obviously, it can extend into other parts of the community, where instead of spending time isolated, commuting to your job, you might be able to create an entire ecosystem around your business, or your apartment, or your entertainment venue, and have that all in one … Obviously, that’s what a city represents [cross talk] extending that community into a broader scale about technology, connectedness, and resource- infrastructure resources in a particular city – all of these things are really the same concept, at a different scale.

Eve Picker: I can’t help but think it’s the modern-day version of the kibbutz [cross talk]

Josh Lavrinc: Yes, right, and-

Eve Picker: -the kibbutz probably got all of this right a long time ago.

Josh Lavrinc: That communal living is exactly what is perhaps needed to get people back, attached, especially in the age of digital devices and the connected-with-ness we have, and yet, perhaps, the over-connectivity that’s coming with that, without having perhaps enough emotional and human support with that connectivity. Definitely, it’s funny [cross talk]

Eve Picker: It’s also affordability, because if you share resources, whether it’s a shared kitchen or whatever it is, then your living costs are going to go down. I think that’s also part of the reason why co-housing options are being explored.

Josh Lavrinc: That’s right. You’re right, when we talk about the impact of an urban environment, or it doesn’t necessarily have to occur just in an urban environment, the community, generally, there are social health and well-being aspects. There are business aspects, and there are certainly affordable aspects of the development that can be brought to bear as a result of the sharing of a common amenity base and spreading those costs across many uses.

Josh Lavrinc: That’s one of the focuses of my current development in addition to fund management and the structured finance consulting, new markets, tax credits, historic tax credits that I work on in my primary business, I also spend a lot of time on commercial real estate development; in particular, recently, anchored by coworking, but has molded that into a strategy around community, where we are looking at secondary and tertiary cities, not primary markets, to try and create these full-scale communities in urban environments. Although I think suburban environments are a huge untapped market, as well, to try and bring together a greater sense of community and all of those benefits that come with it – the social, the financial and the affordability.

Eve Picker: Probably in suburban markets, people are even more isolated.

Josh Lavrinc: Exactly, exactly. When we talk about commute times and disparate destinations for live, work, and play, bring those things together into a town center, into a real Main Street … Revitalizing the main street. Obviously, there are a lot of Main Streets programs across the United States. It’s a very similar theme for community development. But bringing an urban spin to it, with a responsible amount of density and set of uses, I think has a lot of power, and I think we’ll see a lot of that coming up.

Josh Lavrinc: Hopefully, we’ll see that happening in Opportunity Zones. I think if we can bring together Opportunity Zone development and businesses locating in those Opportunity Zones and then try to develop more community, then we’ll see some pretty significant change in the next decade of real estate, business, and real community development conspiring together to implement improvement or accomplish improvement.

Eve Picker: Given all of this, where do you think the future of real estate impact investing lies?

Josh Lavrinc: Well, I think that it probably is the future. I think that the days of solely focusing on financial returns are probably starting to narrow, and it seems that the aware, responsible person is going to make more decisions. As we provide more information and more connectivity to individuals to not only their investments, but to the world around them, and their neighbors, and the people in the communities around them, they’re going to make more conscious decisions to better … To increase their efforts to deploy what investment funds they have into those things that help people around them and the environment around them.

Josh Lavrinc: Whether it’s crowdfunding, whether it’s an Opportunity Zone fund, whether it’s a tax credit incentive, there are … We are seeing a growth in responsible investment, in mission-based investment, and for good reason, because, fundamentally, we aren’t robots. We’re humans, and we have a moral compass, and we have emotion, and emotional intelligence that directs our activities to things that we favor for reasons other than purely financial. The closer we can get to combining financial return – which is almost a third-party neutral arbiter, selecting return responsibly for our good of our income and wealth in the future – if we can start to align that financial return, even more strongly than just the Opportunity Zone, with responsible investment, I think I think we’ll get there.

Eve Picker: We have, in fact, lived through the era of green-washing, and we’re heading into the era of good-washing, right?

Josh Lavrinc: Yeah, that’s an interesting way … Hopefully, it’s not washing at all, but you’re right. You’re right that there’s been popularization, perhaps over-popularization and overuse of terms around, for instance, green. I think we’re getting into a period, an enlightenment, if you will, where individuals are receiving information about their investments, receiving information about what’s happening in the world around them, and then are given opportunities to vote with their own dollars in projects that have real meaning to them and to the people around them that they care about.

Eve Picker: I have three sign-off questions for you that I ask everyone. I’m wondering what your answers are going to be. The first one is what’s the one thing that makes a real estate project impactful to you?

Josh Lavrinc: The impact for me, although I skew towards economic development, I would say it’s serving the people. Keying in on that community that we have spoken about here, we could easily talk about the environmental crisis that we face as a globe. We could talk about the lack of social services and the need in our community for the poor. But I think that cutting across all of those for impact, in my mind, is assessing whether a project is responsibly targeting its community.

Josh Lavrinc: I’m not inventing anything new with that response. When you think about the New Markets Tax Credit program and what community development enterprises across the country look at, when they’re assessing projects, one of the first questions they ask are what are the community’s plans? Does the community have a development plan? Is there community support for a proposed project, prior to awarding a subsidy or incentive? I think there’s really good wisdom in that practice. It doesn’t necessarily mean that you’re getting the best project, or necessarily a particular outcome, but it does mean that you’re considering what that community’s needs are and trying to address it responsibly. That’s how I would answer that.

Eve Picker: The second question – other than by raising money, how do you think crowdfunding might benefit the impact real estate developer?

Josh Lavrinc: Well [cross talk] obviously-

Eve Picker: These are not trick questions.

Josh Lavrinc: No, no, I think … Obviously, I think, when we think about influencers, and social media, and the power of marketing in our current environment, crowdfunding has a way of making something more popular, more highlighted, and can be a great marketing tool, and perhaps a vote of confidence from the community. It might be a third party, whether those people are local to the community or outside, it’s a third-party validation of whether this investment is responsible, or desirable for whatever- depending on the purpose of the crowdfunded group, that it’s meeting their mission. I think there could be strong marketing efforts as a result of the crowdfunded opportunity, but I’m sure there are a couple of other [cross talk]

Eve Picker: -in effect, a community engagement tool.

Josh Lavrinc: That’s right.

Eve Picker: Yeah, yeah. Final question – what one thing in real estate development do you think would improve … I’m going to ask that question again. How do you think real estate development in the US could be improved by just one thing?

Josh Lavrinc: I think that if we could … We can work hard to tie together our incentives, make sure they are aligned. We have a lot of … All of the real estate industry is motivated fundamentally by financial return. We have folks whose livelihood is based on their development project, their construction project, their leasing of the project. That is a powerful tool to impact activity, to create activity financially, for each one of us.

Josh Lavrinc: The more we can align incentives, like the Opportunity Zone, to create the outcomes we want and make sure that those incentives are narrowly tailored to really accomplish what we want … For instance, I think there are some great things about the Low Income Housing Tax Credit, which is an area I don’t practice a lot in – although we’re investing in affordable housing, regionally, that’s not a national practice that I participate in – I think that we see the competition over the program; the structure of a program that tries to compensate with fees, given the lack of value creation. Those fees then create outsized projects that maybe are more expensive than they need to be, or more inefficient than they need to be.

Josh Lavrinc: If we can go back and fix programs to address the value equation differently and think about the model we’re setting up and the downstream impact of that model to be more efficient and more effective for our goals, I think that would have perhaps the most profound effect, because you’re not … Instead of trying to change the fundamental capitalistic income-driven goal of a professional, which I don’t think we can change – other than to redirect it through incentives – and if we can align those incentives with what we think currently are the crises facing our country, which are probably the social isolation, the isolation of resources, so that everyone has access to good education, and training, and jobs, and economic advancement of themselves, and healthcare, and all the rest of those basic needs, and hopefully in a way that’s aligned responsibly for the environment, long term … We have a lot of great rapid change happening there, obviously, with autonomous vehicles and renewable energy. The more we can align these programs into creating a community that’s hitting on all cylinders across both of those major programmatic missions, I think that the better our commercial real estate market will be, the better our professionals will be in accomplishing those goals and the end result for the community.

Eve Picker: Yes. Agreed. Well, Josh, thank you very much for talking with me today. I really enjoyed our conversation, and I’m sure we’ll be talking again soon. Thanks so much-

Josh Lavrinc: I did as well. Thank you very much, Eve.

Eve Picker: Bye.

Eve Picker: That was Josh Lavrinc. Today, I learned that the capital markets can be squarely directed at impact investing. There are some large and strategic funds in Pittsburgh that have been doing this for quite a while now. Impact investing in real estate spans the spectrum from tiny projects, some of which we’ve listed on Small Change, to large funds that focus solely on impact.

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, Josh, 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.