Rethink Real Estate. For Good.

Finance

Slaying Gentrification.

David Kemper wanted to find a way to safeguard established renters against gentrification. His goal was to build a real-estate investment model that both stabilized existing rents and gave a voice to that community. Too many have suffered from racism and disinvestment in their neighborhoods. Across the country, communities are being torn apart because residents are being priced out of the neighborhoods they have called home for decades. Just as resources and new opportunities come to a community, its longtime inhabitants often get pushed out.

So David and his team are working towards an alternative: cities with inclusive, mixed-income neighborhoods. These diverse and dynamic neighborhoods will deliver better economic, social, and health outcomes, especially for lower-income residents. The model they have developed, MINT (or Mixed-Income Neighborhood Trust), is a sophisticated and replicable ownership model. Each MINT develops, owns, and operates a rental housing and retail portfolio. MINTs harness the money coming into communities to keep rent affordable for existing residents. Trust Neighborhoods, David’s non-profit, works with neighborhood-focused organizations to facilitate the formation of each MINT with the goal of a self-sustaining organization, run by the neighborhoods themselves. This gives neighborhoods equal footing with developers contributing to the gentrification taking place.

David and his co-founders started Trust Neighborhoods in 2019 and have since launched three MINT pilots in Kansas City, Missouri and in Tulsa, Oklahoma and Fresno, California. They have already shown to be beneficial. But they are just getting started. Neighborhood Trust is growing, and they hope to work with neighborhoods across the country, forming MINTs in each city and protecting community members who have too often been overlooked. 

Read the podcast transcript here

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

Eve: [00:01:00] David Kemper wanted to find a way to safeguard established renters against gentrification. His goal was to build a real estate investment model that both stabilized existing rents and gave a voice to that community. The model he landed on, MINT, or mixed income Neighborhood Trust, is a sophisticated and replicable ownership model. Each MINT develops, owns and operates a rental housing and retail portfolio. Trust Neighborhoods, David’s non-profit, works with neighborhood focused organizations to facilitate the formation of each MINT, with the goal of creating a self-sustaining organization run by the neighborhoods themselves. Trust Neighborhoods is still new, but David has said that they hope to expand their reach and work with neighborhoods around the country. Listen in to learn more.

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

Eve: [00:02:30] Hello, David. Thanks very much for joining me today.

David Kemper: [00:02:33] Thanks very much for having me on.

Eve: [00:02:35] You launched something called Trust Neighborhoods in 2019. And I wanted to ask you first, what problem are you trying to solve?

David: [00:02:45] Yeah. I’m one part of the three of us who are leadership at Trust Neighborhoods is Kavya Shankar and Jason Dehaemers, and the problem we’re trying to solve is that you have neighborhoods which have experienced disinvestment over decades, often from racist reasons, that now are finally having investment come into them and becoming a higher opportunity, both by public efforts, by private efforts and a lot of efforts on the part of current residents. But just as those neighborhoods are becoming higher opportunity, the very residents which are most deserving of participating in that and have often contributed so much to creating that experience a second injustice of being displaced from that neighborhood, not only denying them that experience of living in a higher opportunity neighborhood, but often even creating harm beyond that prevention of opportunity and around that problem is why we started working with neighborhoods through our nonprofit Trust Neighborhoods to help set up these mixed income neighborhood trusts.

Eve: [00:03:41] When did this need become clear to you? What’s the journey you took?

David: [00:03:46] We followed different paths in the leadership team. My particular path was through working at New York City government in affordable housing, and that was first in a department there called Housing Preservation Development, where I got to do a lot of refinancing of LI-tech which low-income housing tax credit deals and HUD multifamily deals, which is really the current meat and potatoes of American affordable housing finance. And you both saw how those worked at volume and the non-profits and neighborhood-based organizations that use them and also where it wasn’t working, which is especially around what real pinpoint anti-displacement looked like.

David: [00:04:22] The city of New York at the time was then interested with the arrival of de Blasio and really pinpointing neighborhoods where likely gentrification would create displacement. And a lot of the effort was around creating inclusionary zoning to prevent that displacement. And I had the good fortune to be part of the team who was working on that, and then a new team that was set up in capital planning in the city planning department and trying to work with neighborhoods facing that pressure to proactively prevent displacement. But there’s kind of this rhetoric in New York, which is wonderful, but, you know, New York is everywhere. And there’s this idea that they would build a model and it would work for the whole country. And I grew up in Kansas City and have stayed deeply appreciative and tuned into a lot of cities like it. And you see this phenomenon playing out across the country, including Pittsburgh, certainly very familiar with it.

Eve: [00:05:12] Oh, yeah.

David: [00:05:13] And the mechanism is not going to be that you’re going to prevent displacement by incentivizing what’s going to happen when a five-story building is torn down for a ten-story building. A lot of the displacement and change in ownership and lack of control is happening long before that. So, the same principles are playing out, but you really need to focus on building a different kind of set of tools. And fortunately, both found others who cared about, and we had the time to work on this, but most of all spent time with a lot of neighborhood based organizations in neighborhoods that had either undergone gentrification or facing it. And really sat down with them and said, what are your pain points? How are you spending your days? What are you looking at for tools? And almost consistently you had this need identified of saying, if we could just have our own ownership group, that could really do cross-subsidy in our neighborhood in a way that we could raise outside capital akin to the developers we’re competing against that can move at the speed of the market. It’s not applying for a grant for a house that gets receipt that that grant was received months after the house was sold and really do it at the scale at which we were experiencing displacement. And bit by bit, we worked with some neighborhood partners on honing that model, launching pilots, and now we’re working to get out across the country.

Eve: [00:06:31] And that model, you call it MINT, right?

David: [00:06:35] We call it MINT, a mixed income neighborhood trust.

Eve: [00:06:38] So tell me precisely how it works.

David: [00:06:40] In some ways, it’s very simple. Some ways a little more complex. We help the neighborhood set up this mixed income neighborhood trust. It is an LLC which has all of its voting shares controlled by something called a perpetual purpose trust that is somewhat distinctive from some uses of trust models where there’s not national trust, there’s a legal trust which is assigned to a purpose agreement which controls all the votes of this new entity. That trust then has a trustee group which has the existing neighbor based organization on there and resident representation and adheres to a purpose agreement which we work with residents, the neighborhood based organization, on writing when we’re setting this up, which really identifies what anti displacement means, what protect me belonging means what long term financial sustainability for this new institution looks like and then really build in also details and nuances, that are particular for each neighborhood. That serves as a long term constitution that then this operating company of the Mixed Income Neighborhood Trust has to adhere to as it buys, develops, and then long term owns a mixed income portfolio, which today we’re entirely focused on housing in a way that prevents the displacement of residents in that neighborhood.

Eve: [00:07:57] So the trust is actually a developer.

David: [00:08:00] In some ways. It’s a vehicle to allow a neighborhood to serve in a developer function for its neighborhood. And the way we’ve set up is that each mixed income neighborhood trust will have a general management function, which is essentially a budget line that goes back to the neighborhood-based organization. So you aren’t building duplicative new institutions. You’re really building the capacity of groups that have been on the ground, have legitimacy, have been doing the hard work, and too often are then excluded from actually having that level of control and autonomy within their neighborhood as it experiences this kind of pressure. So really important for us is not just hitting numbers on preservation of affordable units, but really also changing power structures in these neighborhoods where especially women and people of color have been precluded for so long.

Eve: [00:08:50] I’m trying to wrap my head around this. It sounds pretty powerful. So if a new developer comes to the neighborhood and purchases a property outright, what control does this Trust or MINT have?

David: [00:09:04] It is just in parallel with that. There’s no outright authority it has. It’s more putting the neighborhood on more equal footing with a lot of more conventional developers that may be participating in a neighborhood that is facing gentrification.

Eve: [00:09:17] I see, okay. And so, how is a MINT portfolio designed?

David: [00:09:23] So one of the one of the key things we begin with is really doing an analysis with the neighborhood-based organization of what does protecting displacement need, what is the real need in the neighborhood. An example of this is one of the first neighborhoods we worked with was in Kansas City, Missouri, in the northeast section of neighborhoods there, and the neighborhoods called Lykins. And from a parcel view of housing in that neighborhood, they have 1700 units of housing and 900 of those are rental housing with basically zero regulated within that. They are next to a neighborhood that has had some of the fastest rising rents in the city. They’re beginning to experience that same pressure coming on the side of them. So, the beginning was talking with residents saying, look, you have 900 households that are renting in this neighborhood at this average rate. What does it look like to make sure that those households, some of those will move into homeownership? Some of those will not be necessarily having their income rise as fast as the market is rising. What does it mean to protect them from displacement and then working with them to identify how can we maximize the preservation of those units? What does cross-subsidy look like from likely rising rents and unrestricted units we put under that same ownership group? So it self-finances affordability, which works for a subset of neighborhoods and then saying also what is feasible?

David: [00:10:40] In terms of what are rehab partners or construction partners you can work with and what kind of volume can they work with? What is the churn happening in a market? Is this a neighborhood where you’re seeing hundreds of units bought and sold every month or is this something where you’re seeing a dozen bought and sold every month and then putting together a capital stack that makes that feasible. We really do that whole hands-on diligence process with them and service a lot of the short term capacity which a lot of neighborhood based organizations just don’t have to set up that kind of vehicle. But then once it’s set up with that governance, with those partnerships in place for renovation, for property management, and that scope of of what they want to be building in as their own ownership, as much as possible we then build their own autonomy to be running that and attuned at the neighborhood level as they build that ownership and manage it in an accountable way long term.

Eve: [00:11:27] So tell me, how long does it take to go through this process, from thinking about it to actually forming a group that’s governing itself?

David: [00:11:36] Yeah, I mean, we’re kind of figuring it out. We did the two pilots. We are in the midst of a third one right now. We’re in the midst of a fourth one right now. So, we’re learning exactly what the long term process looks like. It’s probably about nine months to a year in terms of our experience, but it may be that right now, I think one of the bigger bottlenecks has been capital appetite, especially for more philanthropic sources. And we’re building it so that long term can take in non-philanthropic sources that are okay with low returns, which certainly can move faster. We don’t know what looks like if that bottleneck is not there for how fast it happens.

Eve: [00:12:12] Interesting. So, the pilots, where are your pilots and where’s the third one? Kansas City and.

David: [00:12:17] Our pilots are in Tulsa, Oklahoma. Certainly, a really meaningful place to get to work, especially in 2021 with the memorial of the race massacre there. And then in Kansas City, which is also where we’re based and very meaningful to work with a neighborhood in our own home in a way that is disciplining and really holds us to doing quality work. The third, which is currently in formation, is in Fresno, in central Fresno with some really great neighborhoods there as the downtown is experiencing growth and preserving a lot of housing stock as well as hopefully providing alternative to owners that have been in the neighborhood they would like to have purchased out.

Eve: [00:12:58] So how far are these experiments in? Like the the MINTs are formed? Have they purchased properties? What are they doing?

David: [00:13:08] Yeah. As noted, Trust Neighborhoods came together in 2019. We really worked with the neighborhoods and the pilots and on the whole scoping and 2020 and both those pilots launched in early 2021. So, they’re just over a year old right now. But both have really seen promising signs so far. They both control well over a dozen units of housing. I think the one can see is almost up to two dozen now.

Eve: [00:13:30] Wow.

David: [00:13:30] And out of that is some real glimmers of hope, both in terms of just operational efficacy, seeing the governance really have resonance in that governance. But most importantly, some of those of early glimmers of impact, like the Mixed Income Neighborhood Trust in Tulsa, which was set up with Growing Together, which is focused in the Kendall-Whittier neighborhood, is the Kendall-Whittier Neighborhood Trust and I was actually just out there last week as they did a celebratory open house for another one of the renovated units that’s open, and had both residents and contractors and funders and everyone all together having paletas really feeling the promise of the work. But alongside things like that were it’s a deep renovation project, they’ve had ones where they’ve just bought housing that was for sale in the neighborhood and been an alternative to a lot of what are kind of unsavory buyers and sellers in that neighborhood, and there was one that was selling and a they bought it and the seller told them, you know, every other buyer told us they were going to clear out the residents in these units in order to renovate them and re rent them at a higher rate.

David: [00:14:37] And instead the Kendall-Whittier Neighborhood Trust was able to own them and have all the residents stay in place along with the budget, to actually improve the quality of those units of housing discovered families that are in the school, which is a place based school that would have told you’re not able to come back to your school with your kids on a couple of months’ notice of a new school year. So, it was a real change to instead get a knock on the door from the Kendall-Whittier Neighborhood Trust saying, hey, look, you’re not only in a safe place versus this threat which is facing you, but we’re also here to make sure that you’re not displaced as this neighborhood continues to become a better place.

Eve: [00:15:17] That’s very powerful. So how do you plan to scale? I mean, how many neighborhoods will be successful?

David: [00:15:24] Yeah, that’s a lot of a lot of our focus is yeah. From the beginning which which may be distinctive in some ways is that we really have had an eye toward saying we are not content if this happens for a dozen units in one neighborhood, the scale of the need in just one neighbor is larger, that the scale of need across the country is hundreds of neighborhoods which are very rapidly changing. And we at this point get a lot of cold outreach from neighborhoods across the country that say, we’re interested using this model, we’ve heard about you, can we work together? Our biggest limit on that side is our own capacity of a team as we grow that team and grow our own operational ability.

David: [00:15:59] But we’re really focused on building our own team to be this short-term service, which is a big piece, is really being able to step in and work with neighborhoods across the country on setting it up. A big part is building long term capital supplies. We’ve had a generous supporter who has come in for funding the design of a fund that will be the national with ready capital, which we hope will solve that bottleneck issue and help build that overall market, which can bring in a lot of capital which is not usually participated in both community governance models and models focused on anti-displacement and changing power structures in this way. And then a big piece is just learning from each neighborhood trust and really powerfully having them start to build their own peer group in a way that is self-reinforcing, builds us as a better support partner, but also can build on their own experiences, lessons learned interpretations from those governance bodies of what anti displacement really looks like and very hard decision making moments. And then also step in as they discover things which are even more valuable to each neighborhood trust. And already the two pilots have met and compared notes. And we think it will only get stronger as you have more and more mixed income neighborhood trusts in the country working these neighborhoods for the residents.

Eve: [00:17:14] So that was one of the questions I have. Like, community engagement is really hard. Do you experience friction when you set up one of these? Like what does it take to get everyone on board?

David: [00:17:29] Community engagement is hard, but what we’ve been doing with the Mixed Income Neighborhood Trust is so different from a lot of what more conventional community engagement is. I think the place to pinpoint there is, we are helping the neighborhood-based organization set up these entities that have residents in long term governance. And that is very different from a typical project where there is a community engagement period, which then ends and residents never have another maybe not even another voice, much less any actual real power in that institution or project. And residents are smart, and they get it. And if they think they have a six-month engagement process to try to convey all the complexity of experience in a neighborhood and any possible thing in this, that will be a very hard process. And instead, with this both, I think we’ve worked with really great partners on designing community engagement, which both make for very productive sessions, where people come into it already with a sense of having had time to do one on ones with everyone and talk through their experience and have that as a, as a jumping off point. But then the most important thing is they then step into the actual governance long term. So, there’s a real ability to keep on iterating and having a voice in the model and in this new institution in their neighborhood. That’s actually something I think we thought was going to be a lot harder and has been really energizing to spend time with residents who just get this and are excited to have this kind of institution as a vehicle for creating this kind of change in their neighborhood.

Eve: [00:18:56] So how big is your team and what sort of skills are represented at the moment?

David: [00:19:01] Not very big. Five of us full time right now. We’re doing some hires right now.

Eve: [00:19:05] Small but mighty, right?

David: [00:19:07] Yeah. Part of the building up the capacity to actually take on the scale of problem and our skill set is mixed. Kavya had been out in the White House and had done organizing work as well as some amount of investment side work. And then Jason is utterly brilliant all things finance, governance and had really worked more in the investment banking, private equity world and then some corporate governance and just delights in building out an actual new financial structure which is solving for things that are more complex than just making money. And then my background was more in the affordable housing finance community development side. We’ve got two wonderful more junior members of the team, Natalie and Ben, who have both actually come through Venture for America, which has been a great source of team members and a delight to work with.

Eve: [00:19:55] So you’ve been working on this a little while. I’m sure you’re thinking about improvements. How could it be improved and why? It can’t be perfect, right?

David: [00:20:04] A big thing is the pilots in place as they grow. And I think then building out their own governance and being improved in that way.

Eve: [00:20:13] This is a pretty entrepreneurial idea. So, entrepreneurs never sit still for very long.

David: [00:20:18] Yeah, I think a big part of the improvement also is building that peer group in terms of having the neighborhood trusts speak to each other more. Building out just a lot of the capital familiarity. Right. There’s a risky moment at the beginning of saying, can you put money into a new vehicle that is creating this kind of impact, and will that really work? And as we start to see them work, that makes it so it’s a lot easier for the next one to say, yes, I want to see that happen too. I think as each neighborhood-based organization kind of learns what what means to be taking this on and building into their existing institution. And as you varied organizations right now, they’re, one is a neighbor association, one is one of the purpose-built communities, one is a CDC. So, as you start to have a peer group of different kinds of neighborhood focused organizations that are using this, that will make it even better.

Eve: [00:21:06] And do you think this is really unique? Is there anyone else doing similar work?

David: [00:21:11] There are aspects that are unique in their aspects that are very familiar. A lot of the land trust community and world, I think, is using community land trust towards similar spirit and functions. But I think unique here is the ability to use the outside capital, the outright control of the land versus separation, the focus on, there’s a lot of renters being displaced, There’s a big focus of this, versus a lot of CLTs tend to have more home ownership focus. We early on have met with a lot of peers across the country that we sort of think are doing relevant, familiar work. And a big part of ours is not having too much pride of authorship of really learning for others. A part of that early on is we were calling this a mixed income land trust and we spent time with the Kensington Corridor Trusts out in Philadelphia. And they said, hey, look, you know, we’re really trying to establish more the terminology of a neighborhood trust here. And we said, sure, great, we don’t we don’t have any pride of term here.

David: [00:22:04] We have a really great to actually be part of helping build on what you’re doing. So, we decided to call it a mixed income neighborhood trust. And so a noted MINT kind of sounded nice too. So, that was part of it. We’ve also liked a lot of the shared equity worlds and built out. The Kresge Foundation include us in the community of practice of several groups working on shared equity models, which certainly plays into a lot of what you in Small Change have also been building into and that’s been really great to be part of. And Elwood Hopkins, who’s led that has just been a great champion and convener. And then I think also on, if you see models and neighborhoods facing gentrification that have relatively succeeded in doing cross-subsidy to the benefit of their neighborhoods. Some of those have come out of almost less conventional models than necessarily a community developing corporation. Where if you look at what the Hasadim community has done in South Williamsburg, in New York, it’s experienced massive gentrification pressure, which, because of ownership and cross-subsidy, has in many ways actually made it more affordable for that community through their cross-subsidy and ownership of land. Likewise, you see some of that with some of the Chinatown family societies in New York, and you see a couple of clusters of that in different places in the world. And there are some community development corporations, I think, use their assets. We right now are working with the East Boston Development Corporation in Boston, which has been both an amazing partner to work with and also the way in which they’ve built out the organization ownership and building their own self-financing mechanisms is really in line with what we’d like to see this model enable for more neighborhoods. So, it’s been amazing to get to work with them as a partner in that.

Eve: [00:23:39] So, how many more neighborhoods do you think will have mint in one year or three years from now?

David: [00:23:46] One year. A few, but three years. We’d like to see actually getting up to really doing this at scale.

Eve: [00:23:55] And what does success look like to you?

David: [00:23:57] Success looks like living in a country where we have cities that have mixed income neighborhoods led by especially residents that had been excluded and discriminated against, especially black and brown leadership of institutions that are creating high opportunity neighborhoods that work for everyone. And not only does it hopefully make it so that those neighborhoods become very high opportunity neighborhoods in a way that works for a mix of incomes and identities there, particularly each neighborhood, but also it stops this phenomenon in America where we’ll see investment go into one geography. And there’s almost this assumption that you’ll end up not serving a large chunk of residents who will get displaced somewhere else. And then almost, then you’ll continue to see a cycle where you’re chasing poverty to different geographies, just as all these efforts to try to improve a place come to fruition. Instead, we stop that. I think with half a dozen MINTs in each American city, you could actually create a thing where at the core of each American city are these mixed income neighborhoods which are robust, wonderful, I think could be some of the best neighborhoods in the country. And you also have this window of opportunity, the United States, where we buy deep tragedy of racism and suburban investment. We’ve ended up with the cores of our cities being massively underinvested and undervalued. But, we in many ways are the anomaly in the world on that. And we’re seeing our appetite shift where the cores of our cities are becoming the most valuable places, which is much more akin to everywhere else in the world. It would be a tragedy, I think, to then see us also just have it where if you don’t have the money, you can’t afford to live anywhere near the middle of the city.

Eve: [00:25:39] I think that shift is already happening.

David: [00:25:40] Yeah, we have we have a window of opportunity, I think, for a crucial subset of neighborhoods to at least secure some place near the center of the city that especially carries such deep meaning and current social capital institutions in a way that could create a very different kind of city.

Eve: [00:25:58] I’ve been living in a downtown myself for quite a few years now and have gone from being one of the first residents to one of many who look very affluent to me now. And it’s disturbing. I really feel like the vitality of mixed people using a place is really being wiped out. So, I agree with your argument here. So, I have one more question for you, and that is what keeps you up at night?

David: [00:26:29] Oh, lots of things. At the very beginning, I really did not sleep that well. There’s a lot more stress and things, I think. As we built out a really quality team that’s helped with the sleep. Journaling helps the sleep. You know, you write down your worries.

Eve: [00:26:46] I’m so glad it’s not me alone.

David: [00:26:48] Then you don’t have them bouncing around your head in the middle of the night. I mean, you always you always kind of swing back and forth too, you have this thing where you go, there are moments where you go, oh yeah, this is doing great and we’re going to run with it. There are moments that you go, oh, is something going to hit us that we aren’t expecting and everything’s going to fall apart? And I feel fortunate that more and more of the days are the former.

Eve: [00:27:09] Yes, yeah. Or there are moments where it’s like, why am I doing this? It’s a very hard road.

David: [00:27:16] We’re up against a daunting scale of historical injustice, of momentums, of other forces in the world. So it’s understandable. It’s hard, but there’s also hope.

Eve: [00:27:27] I think you’re also up against greed, unfortunately. So, the gentrification of neighborhoods is going to continue. The question is, is how many can you catch and save? Right.

David: [00:27:39] Yeah. I think the hardest thing for us right now has been when we have neighborhoods that say we really want to work with you, now is the moment. And we’ve just had to say we just don’t have the capacity to work with you right now. And that’s been really hard.

Eve: [00:27:54] That’s heartbreaking.

David: [00:27:55] I remember one very early on going, well, you know, whether or not you work with us, we’re going to be here fighting displacement, our neighborhood. So, it’s not so much are we going to work together and find displacement more? They’re going to be there doing it regardless. It’s just really hard to not have the ability at this point to say yes to everyone and get these in place with the speed which with these words are changing.

Eve: [00:28:20] Is there any like white label option that you can create for do-it-yourselfers?

David: [00:28:26] We’ve occasionally sent along pieces. Unfortunately, it’s just, I think a big reason why we built the team is that a lot of people know all the principles, it’s just, don’t have the capacity in a team that actually will step in and run with it. So, that was, we have no pride of that. We’re happy if someone else wants to do it. Just a big part is building the team to be able to actually say yes to more places and run with it.

Eve: [00:28:52] Well, you’ve chewed off a huge problem, and I really hope you’re super successful and I can’t wait to see where you are in three years. Maybe we’ll have one in Pittsburgh or 2 MINTs.

David: [00:29:05] Yeah, we’d love that.

Eve: [00:29:07] That would be fantastic. Yes. Let me know if you need any introductions.

David: [00:29:12] Yeah, well, if they’re are neighborhood based organizations, this resonates with their priorities and what the neighborhoods are, then. .

Eve: [00:29:18] There’s tons. I feel like someone once told me that community development work started in Pittsburgh. It’s got an enormous number of neighborhood-based organizations. I helped found one myself, a CDC. So, every neighborhood has one. It’s a pretty active place that way.

David: [00:29:37] Well, we’ll follow up. Definitely.

Eve: [00:29:38] Yes, definitely. But thank you very much and congratulations and good luck.

David: [00:29:44] Eve thank you.

Eve: [00:30:01] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of David Kemper

On making waves.

Eve Picker, founder of Small Change, talks to Brian Gaudio of Module Housing.

Eve has a passion for cities and for working on real estate projects that make a positive impact in neighborhoods. Originally from Australia, Eve trained as an architect and has a master’s degree in urban design. She moved to Pittsburgh where she fell in love with the city and, through a series of ‘accidents’, transitioned from architect to real estate developer, building a small but meaningful portfolio of projects.

In 2016, Eve launched Small Change, a real estate crowdfunding platform matching developers with every day investors. The idea was born out of the Jobs Act of 2012 which allowed crowdfunding to be used for investment, rather than just donations. Now people who wanted to make their neighborhoods better could become investors in developing properties on their own streets.

Small Change focuses on impact by scoring every project to ensure that it creates impact in some way. They also tackle a lack of diversity within the real estate industry – over 54% of developers working with Small Change are women and minority developers. And they help those developers raise meaningful funds – up to $5M per year from anyone who is 18 or over.

Listen in to the conversation.

Image from PxHere

New markets for main street.

NuMarket was born out of the pandemic. Ross Chanowski founded the social crowdfunding platform in 2020 because he felt there wasn’t a way for communities to purposefully support the survival and growth of their local businesses. In an interview with The Boston Globe, Ross said that he wanted to develop a way for customers to meaningfully support the businesses they love while, yes, getting something in return.

On NuMarket, main street businesses raise funds for a variety of reasons like renovations, expansion, a popup, a new product line or even a second location. But instead of going to a bank to get a loan, they go to their customers, raising funds through contributions made in an online campaign on NuMarket. The payoff for each contributor is  120% of their money back in credits that can be used at that business. Contributors receive a bonus from the businesses they support, and those businesses get much-needed funds from the customers who love them!  To date, NuMarket has helped 23 small businesses raise funds through successful campaigns with more coming. The amounts raised vary, but the largest (and first) raise was completed by Mamalehs, an iconic delicatessen in Cambridge, that raised over $185k to open a second location. Prior to launching NuMarket, Ross was living in the UK, completing his Master’s degree work in social innovation at the LSE. While there he found time to co-found Jungle, a collective of creative thinkers, designers and strategists growing companies with social impact, working to build product ideas with intrinsic impact. Their current project is Jungle Brew – cold brew coffee designed for socially impactful behavior. Past engagements for Ross include Allen & Gerritsen and Draftfcb and an internship with former House representative Barney Frank. Ross is currently an advisor at the Kenarava Group in Kenya, “a progressive company offering climate-smart agribusiness solutions for a healthier, sustainable future.”

Read the podcast transcript here

Eve Picker: [00:00:12] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo, in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateForGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:01:04] Ross Chanowski wanted to help when the pandemic hit, so he founded the social crowdfunding platform NuMarket as a way for communities to purposefully support the survival and growth of their local businesses. He wanted to develop a way for customers to meaningfully support the businesses they love while yes, getting something in return. Ross has put his background in marketing and a master’s in social innovation and entrepreneurship from the London School of Economics and Political Science to good use. Numarket helps Main Street businesses raise funds in a compelling way. Make a contribution to a business you love now, and you’ll get goods and services back with a 20% bonus, ten bagels become 12 in your tummy, all the while supporting the bagel shop you love. It’s a lovely story about a lovely business. Please listen in to hear more. If you’d like to join me in my quest to rethink real estate, there are two simple things you can do: share this podcast and go to rethinkrealestateforgood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:42] Hi, Ross.

Ross Chanowski: [00:02:44] Eve, it is great to see you and hear you.

Eve: [00:02:48] I’m really happy to talk to you today. And, you know, Numarkets is one of my favorite companies. I’m really excited to talk to you. So let’s talk about Numarket. NuMarket, I think, is a pandemic, baby, right?

Ross: [00:02:59] It is, yeah.

Eve: [00:03:01] When did you found it and why? And how?

Ross: [00:03:05] As we all have found, pandemic time feels like a very odd construct. So thinking about two years of being in it, I’m still not quite sure when it started. Now we got going, we launched into the world in February of 2021, and the impetus and the idea and research behind New Market, I think had been happening for years before that and a lot of interesting in different ways. But when the pandemic hit, there was a clear insight that everyday customers of businesses and people in communities desperately wanted to do something positive for the places that that they love and that they need. And we were all struggling to find ways to do that. We were hashtagging on Instagram. We were tipping our delivery drivers and bartenders on the way out. We were buying gift cards, kind of doing anything we could, but it definitely didn’t feel like we were giving the kind of support that we could. And on the flip side, businesses were finding it incredibly difficult to get financing at the time to survive. But for decades before that, to to thrive and to open. And so there was something of matching those two up, this desire to support and be a critical part of independent businesses and businesses that couldn’t find avenues to financing that worked for them. So that’s where NuMarket came from. And what we do is we create crowdfunding campaigns for those businesses to raise money from their customers and community. But the contributors to those campaigns, they get more back than what they put in, 20% more, actually, as credits to use towards the business over time. So, it’s not a donation. You’re getting a lot more back than what you put in and you get to use it towards the business in the months that follow, in the years that follow. So, it generates this really interesting economic engine around these important and critical independent businesses all around us.

Eve: [00:05:23] Interesting. So, I’m having a thought. Could Small Change run a campaign on NuMarkets and offer people some investment coupon for future use?

Ross: [00:05:37] You know, I know we’re recording and if there are any regulators listening, we have to check that out first.

Eve: [00:05:43] No, this is, well, what’s interesting and this was going to be my next question. So NuMarkets doesn’t fall under any securities law, does it?

Ross: [00:05:52] Right. So, we’re issuing promotional credits. That’s kind of what our model entails. You are not receiving back cash. It is not a security. It is in the promotional credit category where you’re getting that 20% back as essentially a voucher to use towards goods and services, not that different from a gift card. And we’re very clear about that with everyone involved in knowing that there are some risks involved. But you’re getting this great chance to support a business. And unlike some donation-based platforms, where your money is going towards incredible causes, this is going towards businesses, for profit businesses like restaurants, yoga studios, online platforms, things like that.

Eve: [00:06:44] Right. I don’t think it would break any securities law, but we’ll talk about that later.

Ross: [00:06:50] I didn’t realize this was going to be a whiteboarding session.

Eve: [00:06:53] No, I mean, it really just occurred to me. My favorite Korean restaurant right next door, if they came to you and they did a campaign and I, what do you call it, make a donation. It’s not really a donation. Yeah, a contribution. It’s a contribution. So, it’s some way between investment and donation. So, make a contribution. Then thereafter, I could buy their bibimbap for 20% less.

Ross: [00:07:19] Exactly. Yeah. And you could buy their bibimbap, you could buy drinks, you could get anything that’s in there. Goods and services that they’re offering, which is one of the things we found has been a really big value add, where contributors get to use it, how they’d like to. And for businesses, they get to do exactly what they do best, which is just run their business. You don’t need to change your offering. You don’t need to offer any special packages or anything like that.

Eve: [00:07:47] So what do these businesses I mean, what do these businesses generally raise money for?

Ross: [00:07:54] Yeah. It’s we find a really big mix of things, new locations, new product lines, being able to move from, let’s say, a brick-and-mortar model to a nationwide or worldwide delivery service or the opposite. We find a lot of delivery, whether it be home delivery locally or nationally, moving into more of a permanent space. A lot of pop ups that are turning into brick and mortars. So, we’re at this point where some really amazing, vibrant and oftentimes funky businesses get to fund their dreams and get that validation that those dreams are real from their funders who turn into their best customers.

Eve: [00:08:45] That’s pretty cool. So, walk me through how a campaign works.

Ross: [00:08:50] Yeah. Campaigns, they last for 30 days, and you get a unique URL and campaign page designed with content that shows sort of who you are as the business owners, what your business is, and really gets to the soul of why you’re doing what you do. And anyone with access to a credit card can contribute during that 30-day period. You can gift contributions if you’d like to, to others, which we find a lot. You can leave testimonials that really show how much a lot of these great independent businesses are loved. So, it’s really special there. And then after the campaigns end, what we do is we handle all of the credit distribution, and we start doing that one month after the campaign ends. And that one difference for us of how our credits work is that we break them up monthly. So, we’ll start sending you your credits just one month after the campaign ends super quickly. And we do that monthly for six months. The way that math works out is, let’s say you contribute $100 to Eve’s Cafe. You would get back a total of $120 in credits, and you’d get $20 worth of credits every month.

Eve: [00:10:09] Okay. And this is to make sure that the funds are raised to spread out for the business as well.

Ross: [00:10:19] Exactly, yeah. And what we found happens quite often is you’ll have $20 worth of credits in month one and you’ll go in and you’ll spend those 20 credits and spend above them. So, there’s this really great engine around supporting independent businesses in a really, really strong way, not just as funders, but as your most loyal customers.

Eve: [00:10:43] How did you come up with that formula?

Ross: [00:10:46] Just trying to understand, I think, and talking with a lot of business owners and understanding the problems that are that are facing them and just taking a human first approach of, you know, just talk to us. Tell us what’s going on. Tell us why when you look for institutional funding, it’s difficult. Tell us why when you might find that funding, it’s difficult for you. And then, and then iterating. You know, our model wasn’t always exactly like this. We have great feedback loop and we’re super close with our customers and have a willingness to make those changes when we see that they’re needed.

Eve: [00:11:28] Interesting. Okay. So, I have to ask then, what percentage of your customers are not white male?

Ross: [00:11:38] Yeah, we don’t sort of publish exact data, but it’s a vast, vast majority.

Eve: [00:11:45] So often they fit into that minority or woman-owned business category that we all know does very poorly in the fundraising world.

Ross: [00:11:56] Yes. Yeah. The statistics on that are shocking.

Eve: [00:12:01] They’re really shocking. I think something like 2% for women owned businesses it’s ridiculous.

Ross: [00:12:07] Yeah, we’re very excited about the opportunity that we have in front of us to try to change that. And we’re at this point way above a majority of the businesses being led and managed by women and people of color.

Eve: [00:12:23] So what’s their average amount raised for businesses that you’ve helped so far? And how many have listed campaigns with you?

Ross: [00:12:31] Yeah, we’re up over 30 right now in the past year and at a pretty solid growth rate, which is exciting but also daunting, as you know. Yeah. And the average contribution amount, which I think is one piece of of data that is that’s pretty important for us, is around $150 per person. So, and that’s kind of the spot that we like to be in, which is no matter if you’re putting in $10 or 10,000, what you’re getting back is going to be the same. You’re getting that 20% back. And so we’ve found all different types of people from all different income levels who are able to participate and get that 20%.

Eve: [00:13:19] It must also depend on the business what value $150 has. Like it’s going to be different for bake shop than for something that sells more expensive goods, right?

Ross: [00:13:31] Yeah. Yeah, we found some really interesting, I think at this point slightly anecdotal, data on that of how do contributions change based on your average cost of goods. What’s been really interesting for us is the success of recurring purchase models. So, things like subscriptions, we’ve had some everything from farm delivery boxes to dumpling delivery and those have done incredibly well. I think there’s something to the idea that you know, as a customer that you’re going to be either going in or getting delivered something every week, every month. So, it makes a lot of sense to support and get 20% more.

Eve: [00:14:19] Interesting. Okay, let’s talk about geography. Where where do you do this right now?

Ross: [00:14:23] Yeah, we just kind of moved into Nationwide in the US. So, we started off in Boston in New England with a really, really great community of customers. And we, just this month, started launching campaigns that are across the country. What’s been really interesting, given what’s going on in the world right now, is that where you’re based has taken on an entirely new meaning on both sides of the platform. So, for contributors, people are living all over the place. Maybe you’re spending three months out of the year in New York, three months out of the year in Albuquerque, three months out of the year and in Indonesia. And for businesses, it’s a little bit of the same. You might be based in Los Angeles, but most of your customers are in Miami or in Topeka or wherever it may be.

Eve: [00:15:14] Interesting. So, do you find people contributing who are not customers or might be new customers for these businesses? I suppose the question is, is there crossover between campaigns? Are you building your own contributor base? Yeah.

Ross: [00:15:31] There is, yes. And we’re still early on. And I think that number will, we hope, grow. But we have found a really strong amount of repeat contributors, whether that’s our doing or the fact that there are just some really great businesses in similar communities, it doesn’t really matter to us. We’re just excited that people want to see this model grow and they want to see great independent businesses grow. We’re just there as the tool to make that happen.

Eve: [00:16:03] You said you’ve gone national. Where have you had campaigns?

Ross: [00:16:08] We’ve had some in California. We’ve had some in Florida. We’ve had a lot in New England, Connecticut, Boston, up in Maine, expansion into Maine, I should say. And in the next few weeks, we’re going to have a little bit more dotting across the country.

Eve: [00:16:26] Okay. None in Pittsburgh yet, right?

Ross: [00:16:29] Not until you help us out Eve. That’s what we need.

Eve: [00:16:31] I’m going to help you out, I’m going to help you out!

Ross: [00:16:33] You’ve got to spread the word.

Eve: [00:16:35] I think it’s a really great idea. So, do you think this model might become mainstream?

Ross: [00:16:40] We’re pretty confident that it will if we do our job well. I think that’s kind of the feeling that we all have right now, which is if we can continue to spread the word about it and make it known to more independent business owners that this is an option and that there is great support and there’s a way to engage your community of customers, we do think it can go mainstream. I guess it depends on your definition of mainstream. We’re not focused on world domination as a tech platform. I think we’re focused on being an option for every independent business that wants that option. Yeah.

Eve: [00:17:20] What’s your revenue stream? How do you get paid?

Ross: [00:17:23] Yeah, it’s pretty simple. We take a percentage of the funds that are raised in the campaigns. We have no subscription fees, no upfront fees. So, the only time businesses see us in their accounts is when we send them their funds at the end of the campaign.

Eve: [00:17:40] Shifting gears a little, you know, I looked at your background, which is very interesting, and community and social impact are clearly a really big theme in your life. There must have been a story. There’s got to be a journey that led you to NuMarkets, and I’d love to hear it.

Ross: [00:17:57] Yeah. Eve, if you recall to how we met, one of the big themes of that accelerator was Origin story. And unfortunately, there’s no great origin story. It’s, I guess, the seeds of how NuMarket came about in my background, were doing work and research that took me to some places all over the world and getting to see how different financial models work, how different businesses engaged in commerce and getting a lot of exposure to just difference.

Eve: [00:18:38] But to be fair, you’ve got a masters in entrepreneurship and social impact. So, you you’ve had a path towards this, right?

Ross: [00:18:46] Sure. Yeah, absolutely. And I think what that sort of academic piece of my life did was to really frame around the idea of understanding the problem from a very human lens. So instead of taking an idea and overlaying it onto people, it’s let yourself understand the challenges and day to day problems that are facing real communities and try to design ideas and business models and products against that. I can remember being in very specific instances and looking at the way that people have funded independent businesses all over the world, the ways that they’ve been able to create financial inclusion and just being so interested and impressed and engaged by those experiences that in some odd way Eve, leads to you running down the stairs one day and saying, Oh, I think I think now it makes sense. I think now NuMarket is ready. I think we’ve got the model.

Eve: [00:19:56] Right, I get it. But there’s another company that you’re involved in that intrigues me and I’ve just got to hear about, and that’s called Jungle. Tell me about that.

Ross: [00:20:05] Yeah, so Jungle started off sort of consulting and working with other corporates on how to increase their community impact through their revenue models. And in a strange twist and turn of events, it ended up being a coffee company that I started a few years ago, a handful of years ago now, with the idea that coffee is the most ubiquitous and habitual product that probably exists in the world where I’m holding one right now, we all…

Eve: [00:20:40] Here’s mine.

Ross: [00:20:40] I shouldn’t say we all. There’s yours. Exactly. It’s something that many people across the world really understand and purchase, and it affects over 25 million people across the supply chain. So, ended up starting a cold brew coffee company in in London a handful of years ago and a very different, of course, business model to what NuMarket is. But I think a lot of the partners and customers that we had are the same people and same type of people that we’re supporting at NuMarket now, owners of coffee shops, owners of bakeries, restaurants. We just launched a campaign for a coffee producer in Lawrence, Massachusetts, and it’s pretty cool to see, see some of the same challenges that we were facing in the coffee world and be able to support people doing it themselves now through NuMarket.

Eve: [00:21:38] Very cool. You’ve developed a thesis which is really fascinating. What do you think needs to be fixed in the world of small business? I know that’s a really big question, but I’m asking it anyway.

Ross: [00:21:50] Yeah, well, you know, there is, there’s no doubt that there’s power in commerce and who holds the purse strings. And I think the thing that we’re focused on from a systemic change perspective is allowing everyday customers to be the arbiters of the success of these businesses. So, if you’re the ultimate end user, you’re the person who’s buying the product. If we allow those same people to decide who gets the funding to start and grow, I think we’ll see a big, big change towards businesses that are important, that are independent, that are really, really doing great things for their communities, as opposed to businesses that have one very clear single bottom line, which is how fast can we grow? How quickly can we increase our margins as opposed to can we make people’s lives better and also make money at the same time?

Eve: [00:22:46] So if you were going to leave your mark on the world, what would that look like?  How would you like to leave your mark on the world?

Ross: [00:22:54] Eve, that is such a big question.

Eve: [00:22:57] It is! But you’re pretty close, I think, you know.

Ross: [00:23:01] Yeah, not even.

Eve: [00:23:03] Okay, I didn’t ask. What would your gravestone say?

Ross: [00:23:09] Oh, that’s a good one, too. Well. You know, I think it would just be. You know Eve, I don’t know and I’m going to be honest, I think we’re supposed to answer these questions with authority and strong character and all of that in these types of settings. But I think it’s okay to not know and to still be figuring that out. And right now, I think what I want my mark to be today, it’s just to have done worthwhile work.

Eve: [00:23:46] I’m pretty much in the same place. She led a good life. She was a decent person. That’d be pretty good. Yeah.

Ross: [00:23:53] And had a few good cups of coffee. Right, right. And a few bad ones too.

Eve: [00:23:58] Okay. So, I have to ask, ‘cause you sound pretty prolific there, what’s next for you? Like, are you focused solely on growing this business or is there something else you’re cooking up?

Ross: [00:24:10] I think I’m very laser focused on growing NuMarket in a way that is positive on a lot of levels. But I think there are lots of challenges and opportunities to solve those challenges out there. And I hope that whether it’s through NuMarket or through other efforts, that I and our team can start to tackle those and find some great momentum towards this idea of mutual value models. How can everyone involved in the equation of commerce or economies put something in and get more out from doing so? So, we’ll see where that takes us and we’ll see whether that’s tomorrow or ten years from now or ten weeks from now.

Eve: [00:25:01] Well, it’s fascinating. And I have one final question, if I find a business for you in Pittsburgh, will you come?

Ross: [00:25:08] Absolutely. I’ll come tomorrow. Let’s have some Korean food. Let’s have some good coffee.

Eve: [00:25:14] It’s a deal.

Ross: [00:25:16] We should hang up and stop recording now so we can start, we can start creating spots

Eve: [00:25:20] Okay. Thanks very much for joining me.

Ross: [00:25:24] Thank you, Eve. It was a pleasure.

Eve: [00:25:35] Ross Chanowski is passionate about building businesses that are needed and that make a difference. It looks like NuMarket is well on its way to making a mark.

Eve: [00:25:56] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Ross Chanowski

Landing a home.

Alex Lofton is on a mission to make the home buying process more accessible and attainable for essential professionals, a group that typically cannot save the equity needed to buy a home. He co-founded Landed to help teachers, healthcare workers, government workers, and other members of the public sector (essential workers) become homeowners through a shared equity, shared appreciation down payment program. Essential professionals are crucial to the existence and vitality of the communities in which they work and Landed allows investors to support and uplift these individuals by contributing to their path towards homeownership.

Alex’s mother was a schoolteacher. His family could not afford to own a home until his grandmother died and left them one. This transfer of intergenerational wealth opened a lot of doors for Alex and his family, allowing them to start building their own wealth. But many people can’t go to “the bank of mom and dad” when they want to buy a home, says Alex. And this prohibits a substantial number of people from ever becoming homeowners, a group that continues to grow as housing prices continue to increase. This is the origin of Landed.

With over 1000 homes purchased and with significant backing, Landed expects to expand nationally and scale quickly, providing more families with the opportunity to fulfill their dream and build a future. Home ownership.

Alex worked as a member of Barack Obama’s field team mobilizing citizens and organizing volunteers throughout that campaign and then served as a regional director at Obama for America. He got his start in real estate at Forest City (now Brookfield properties) where he worked as an MBA summer associate.

Read the podcast transcript here

Eve Picker: [00:00:09] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo, in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateForGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:01:01] Alex Lofton’s Mum was a schoolteacher. That’s who he was thinking of when he founded Landed. Alex is on a mission to help essential professionals build financial security and buy homes in the communities they serve. By essential professionals Alex means schoolteachers like his mom. Firefighters, police and health care professionals. All of those professionals that a city can’t function without, all of whom we take for granted, and many of whom can’t save enough for a down payment on a home. Landed has developed a shared equity down payment product for this target market. Their product might be as essential as the essential workers they serve. With a Series B raise in their back pocket Landed is growing rapidly to put home ownership in the hands of everyone. Please listen in to hear more. If you’d like to join me in my quest to rethink real estate, there are two simple things you can do, share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies. Hi, Alex. I’m really excited to have you on the show today.

Alex Lofton: [00:02:33] Thanks for having me. Really appreciate you reaching out and connecting.

Eve: [00:02:38] So I reached out because I really want to know what Landed is. You have a company called Landed and I want to know what you do.

Alex: [00:02:47] Well, I’m happy to talk about Landed ad what we do. Landed is on a mission to help essential professionals, think your teacher, your nurse or firefighter buy homes and build financial security in the communities they serve. Recognizing that these folks uphold us every single day and we should do what we can to uphold them, and what we offer is a down payment program, a shared equity, shared appreciation down payment program that helps them get into a home and build wealth and feel rooted in the communities they serve.

Eve: [00:03:21] That’s a very particular need that you’re fulfilling. Can you take me on the journey? What made you decide this was a need worth pursuing?

Alex: [00:03:30] Totally. All roads lead to Landed there’s a lot of them. Some core things are very true about the world we live in. Number one cities and the communities we live in are becoming more and more expensive. And the options for people to be able to afford a roof over their head, especially be able to access homeownership, the pathways that are becoming fewer and fewer and the ways that most people are able to get to being a home buyer and being a homeowner are through having a bank of mom and dad, someone they can go to and help them give up capital to get in. If you don’t have that, you’re kind of screwed. And for me personally and my co-founder personally, we looked around and said, how are we going to be homebuyers someday? We don’t have that option. And so, part of this is very personal. When you look at your personal situation, then you start wondering, well, if we’re wondering now what about the folks who are working in our schools and for our cities, whatnot? What are they going to do if they don’t have a bank of mom and dad? So, some of that is the trends in the market that are that we’re all experiencing are housing being so tight. Another part for me is personal, my mom was a fourth-grade schoolteacher, my dad was a social worker. And I grew up, won the lottery on love and support, but money was always tight. And it wasn’t until Granny died and passed along her home until that’s when things changed for us financially. And so, we were lucky that was intergenerational wealth being transferred. First time that happened to my family. But most people don’t have that access to that, especially people who are kind of in the middle in roles are crucial to thriving community and thriving society, but, yet may not be able to have the fortune my parents had. So, trying to figure out ways to not have it be so granny has to die for everybody to be able to make the decision that they can build a life that they want for them and their families and their community.

Eve: [00:05:14] I can see a TV series coming like Granny has to die. That would be really awful. Okay. You said something really important here about people who are crucial to our society. Can you like just expand on that a little bit? You talked about schoolteachers, so you have a very particular market, right, or target market.

Alex: [00:05:37] Particularly, so the folks that we work with, our customers, are people who are employed by institutions in education, in health care, or in the public sector more broadly. One thing is we all have essential people in our lives, right? That’s not to say that these are the only essential people, but these roles teaching our kids, helping us when we’re sick, helping us in an emergency, and making sure that we have the transportation that we need, the roads, we have all these things that we don’t have, this basic infrastructure. It’s basic infrastructure. The plumbing that we take for granted every single day, then the outlook doesn’t look very great if you don’t have all those things, right. And at the same time, these are roles that while arguably should be paid more, I will be the first to say teachers should be paid more. They oftentimes have salaries that allow them to, say, afford rent to be able to live somewhere, but they may not have enough to do that and save for a down payment. This group is one that is thinking about something like home ownership. They’re oftentimes not at a point of thinking about do I even have a roof over my head? One of the questions like, okay, I have a roof over my head, but do I kind of have a pathway to owning that roof? And so, if that’s where your head is at, one of the core barriers to being able to move from being a renter to an owner is having a down payment, that’s the number one reason why people aren’t able to buy a home is having capital upfront. And there are many tools out there that have been built to be low down payment options for folks. But there are a lot of reasons why those are blockers. Number one, they can get really expensive on a month-to-month basis. You’re borrowing more money or you’re taking out private mortgage insurance or whatever. The month-to-month cost goes up and then all of a sudden you look at your monthly budget and you say, oh my gosh, I can’t afford, then, my car payment. I can’t afford, you know, the food that I’m trying to buy. So, no, I’m not going to be a homeowner. And so, if you can move people to having a larger down payment, then their month to month cost will go down. And so that’s the mechanics that we’re trying to work on.

Eve: [00:07:45] So this is a real equity down payment that you participate in.

Alex: [00:07:48] This is a truly, yeah, true equity is not debt. The idea is how do you get more equity in the transaction on the front end to help make sure homeownership feels on a month-to-month basis more like renting than owning from a dollars’ point of view. And then when you’re able to, as soon as you’re able to, you exit that partnership, that equity partnership, so you can be the full owner of your home. I’ll stop there. I’m happy to go into details now.

Eve: [00:08:13] That’s really interesting. The other thing that you didn’t say is these essential people, they’ve chosen professional lives and careers that, really, are not going to give them a lot of upward mobility. Being an educator or a health care professional or in the public sector, you kind of know what you’re going to be paid going in and it’s never really going to change very much.

Alex: [00:08:31] Well, you’re right. You’re right that either, you know, working in the public sector or the quasi-public sector, because a lot of America isn’t all public that provide these services. But you’re right, you have a little bit more of a predictability of what you’re going to make over time. There’s a challenge with that when you’re what you’re making over time isn’t rising at the cost of everything else. There’s also just the reality that the way that our home ownership system has been designed. You know, I think the romantic story is that you can save hard. Save a little money. Work hard, save a little money, buy that house. Which used to be the case many, many decades ago. But now the way it is, is you really need to have an infusion of cash to get started. And so that falls along the lines of families who’ve been able to build wealth over time in our country that oftentimes falls along race lines, too. And so, a lot of what we found is that this is a product that anybody can use, any essential professional can use. And the folks who oftentimes find it being the most game changing are those who haven’t come from families with wealth. And the difference between black families and white families in this country is something like 35, 40% swing between those families who are black and have been able to pass along intergenerational wealth and those who are white, and they will pass along intergenerational wealth. And this is a replacement for that. This can be someone who comes, this can be something that can come in and try to replace it. So, there’s a lot of layers here as to why, you know, it helps various individuals. But the main point is without some sort of pathway to having a sustained.

Eve: [00:10:03] Yeah. You know, I interviewed someone you probably should meet in Australia. An architect.

Alex: [00:10:07] Oh, interesting.

Eve: [00:10:08] Who’s building condominiums for exactly the same segment of society, because those essential workers are being pushed further and further out from the major cities. They’re just like in our major cities. And when you have a two-hour commute and you’re on a nightshift at a hospital, as a nurse, it’s just impossible, you know? So, he’s tackling it from a physical end.

Alex: [00:10:30] Well, we had the story of an employee at a school in the South Bay of San Francisco near San Jose that drove two and a half hours each way to work and multiple times just chose to sleep in his car during the week because it was a much better choice than trying to go home and come back, right? And he actually had a home two and a half hours away, but his lived experience was much closer to homelessness than it was being able to come home to the place where you can call your own that we all kind of dream of.

Eve: [00:11:04] Which is important at the end of a long day, right?

Alex: [00:11:06] Right.

Eve: [00:11:07] So who are your customers and where are they?

Alex: [00:11:10] Great question. So, our customers span a wide range. We have people who are first time homebuyers much closer to earlier in their career. We have people who are looking to retire and have never owned a home and wanting to do that or have owned a home and maybe even downsized at one point. But then because of the economic realities of their family, kids are moving back in. They need a bigger house and so be able to afford a bigger house because prices have gotten more expensive, they need support to get in. So, we have a wide range of folks, but typically 68% of our home buyers are first time home buyers. They are purchasing properties that are condos, town homes, single family homes, predominantly single family homes, but a whole variety of types of homes. We started our work in the most expensive metropolitan areas in the US, starting in California. So, a lot of our homebuyers in California, in and around San Francisco, L.A., as well as places like Seattle and Portland and Denver. And then as we have expanded the operation, we’ve gone further and further east, even further and further west, we’ll launch in Hawaii, but also on the East Coast, New York and D.C. and very recently are expanding our work to go much more national. But all of those cities are where primarily, where our homebuyers are purchasing. And they tend to be not only your teacher and your nurse, but also everything from a janitor or someone who works in food services, who is employed by that institution, to administrators. What those folks are purchasing is different because depending on their family situation, you know, oftentimes they’re dual income households, but not always. And some of our less expensive markets comparatively to San Francisco, you have more single folks purchasing homes. In the more expensive markets, they tend to need to be double income to be able to afford anything. But depending on where you are or what your financial situation is, will kind of dictate what level of support you choose to take out.

Eve: [00:13:12] So how many families have you helped so far?

Alex: [00:13:16] With our down payment program we’ve helped over 1000 folks purchase homes, which is very, very exciting. Big milestone and it’s just getting started. We’re right at that sweet spot.

Eve: [00:13:26] That’s even more exciting, right?

Alex: [00:13:28] Yeah, it’s showing that people want it and need it. And it’s been an awesome journey so far. But that’s why now we’re focusing on expanding our operation nationally. A partnership, so, the way that we are able to make this whole thing work and part of the innovation I like is, beyond the actual housing down payment support innovation, is our business model where you can actually think of Landed as two parts. One part is a operating company that is called Landed Inc that is a real estate brokerage. That also has a joint venture mortgage business associated with it. There’s a set of products and value that we’re trying to offer individual consumers, and every time we offer that value in the home it’s purchased, then we receive some revenue.

Eve: [00:14:13] Right. So, you get commissions like any other real estate brokers.

Alex: [00:14:15] Real estate agents or, yeah. So, the more transactions happen, the bigger the business becomes. So that’s the business side. And then on the other piece is our property business, propco, as the industry likes to call it, which is basically an investing business. So, investors who are excited to invest in residential real estate can put their money into this company and we can distribute that money in the form of the down payment support. And then when the home buyer decides to end their contract with Landed, they share back in some of the appreciation of the home back into that fund. And that’s where our investors are able to get their return. So, we are able to balance the interest of the partnership between people who want to invest, and people want to buy homes. And that’s kind of almost a separate entity or operation from us as a business growing. Our interest is just impact, scale. You know, the more folks that use it, the better. So…

Eve: [00:15:11] So who are your investors?

Alex: [00:15:14] Wow, what a great question. I spend a lot of time talking to all sorts of folks.

Eve: [00:15:18] I’m sure you do.

Alex: [00:15:20] We have venture capital investors who invest in the operating company.

Eve: [00:15:23] I heard. And congratulations.

Alex: [00:15:25] Thank you very much. And that helps us grow and scale. But then the investors in our propco is a pretty wide range of folks. It started off focused primarily impact investors, people who are interested in the opportunity to help retain and attract talent to these sectors in our expensive markets. The biggest one that people will know is Chan Zuckerberg Initiative, the philanthropic arm of Facebook founder, and they wanted to see this model take off. Their interest wasn’t to make money off of teachers. Their interest was, hey, is there a sustainable model here that, if proven, could actually take shared equity from being what it has been, which is a very localized tool? Since the seventies, some great programs out there have existed for a long time. Cities have done it like San Francisco. Universities like Stanford have done it for their employees for quite a while, but it’s never been scaled. So how do you actually do that?

Eve: [00:16:24] I was a recipient of a program like that when we moved to Pittsburgh, so.

Alex: [00:16:27] Oh, really?

Eve: [00:16:28] I think the Redevelopment Authority had down payment programs. I mean, there had been tons of them around.

Alex: [00:16:33] Lots of them around.

Eve: [00:16:35] They’re local, right?

Alex: [00:16:36] Yeah, they’re local. As a result, they tend to run out of money because there’s only a limited amount.

Eve: [00:16:41] And they also usually get their money, which, in a very targeted manner. So their money has restrictions on it.

Alex: [00:16:48] Lots more restrictions.

Eve: [00:16:49] Yeah. So that really impacts who can access that.

Alex: [00:16:53] That’s right. And then the reality is, given today’s markets in real estate, if you can’t transact in a quick manner, in a manner that leads the fewest number of hurdles to making the transaction happen, you’re going to your bid isn’t going to be chosen. Your bid is going to be the first one to go out the window. So, part of our goal is to fit into that, but back to the investors. So, there’s a combination of those who are interested on the impact side and then those who want to make money off of real estate for their investors. So, we have organizations that are investing pensioner money that say, hey, my job as a fiduciary is to grow the money, these retirees of other teacher retirees. And we’re going to invest their money into real estate. And this is one of the ways that we’re going to do it is through this shared appreciation program, we have a variety of interests that are investing in the down payment program with the idea that eventually this should sit alongside any proper investment strategy that can help diversify an institution that’s interested in investing in real estate. It could be alongside any other strategy like single family rental strategies that’s existed for a while, where people, institutions buy properties and rent them back out to folks. This is a different way of doing it. Way that I would say is a little more cooperative with the home buyer instead of maybe competing with the home buyer to buy the same property, you’re actually saying, hey, we’re going to help you get into the home, become a home buyer, and then at some point you exit the partnership, you become the full home buyer, and then we’ll share a part of the appreciation between that.

Eve: [00:18:23] So I have to ask a question that’s always on my mind because I’m all about democratizing investment. So, the investors, the propco investors, any everyday folks in that or is that all accredited investors?

Alex: [00:18:36] Yeah, great question. So far, no everyday folks. It’s all accredited investor.

Eve: [00:18:40] You and I have to talk about that.

Alex: [00:18:43] So part of the reason I got really excited, the original, one of the original concepts here is that can we build a market for this type of investment so that if I had an extra five K and I wasn’t an accredited investor, why not share 100 bucks? And I wasn’t an accredited investor, and I wanted to put some money into a fund that was distributing into residential real estate in a way that I felt good about it, helping other people become homebuyers. I’d love to do that. Still, something I hope we can help usher into the world. What I see is we’re just building towards that, building towards something like that. It’s all sequencing. You’ve got to start somewhere, prove it out, build, and it’ll come. And we’re kind of on that path but haven’t quite made it there yet.

Eve: [00:19:25] Because really, you know, then your impact is not just on the people you’re helping with. Yeah.

Alex: [00:19:30] Totally, totally. I mean, I will say to the extent you want to make the argument that because we have partnerships with institutions that are investing retirement money of teachers, you’re helping a similar group.

Eve: [00:19:42] You’re really getting triple bottom line there, I guess.

Alex: [00:19:44] So you’re able to go to both. But I think even being able to put the decision-making power into the consumer to be able to participate in this would be really cool. But again, there’s a lot of economic and regulatory reasons why you have to build towards that thing. You can’t always just jump straight there.

Eve: [00:20:00] I totally get that. Okay. It’s really pretty exciting. So, it’s a complicated model and so I want to know how you landed, no pun intended, on this model.

Alex: [00:20:13] I will say what they really love about our name, is it’s just surprising how many times the word landed comes up in language. Funny story. At the airport, Sea-Tac Airport, you land and it says landed on the board. I’m like, oh, wow. What great advertising right there.

Eve: [00:20:29] Exactly. Exactly.

Alex: [00:20:30] How do we land on this model? Complicated. I mean, that’s part of the thing here. What we’re trying to do is move a what is considered a relatively sophisticated economic model into the hands of more people in the hands of average, everyday people. My story here is I was sitting in intro to finance class at business school, not a place that people usually associate with being inspired. But I can say I was inspired in this class because we were talking about the concept of diversification. And what struck me is that I am an overly educated kid, but I come from a middle-class background, lower middle class background. No one was talking about concepts of diversification, spreading out your money in different places so that you can make sure it grew even if the economy went up and down in different ways. I didn’t have a concept of that. All I knew is that people were trying to get enough put together enough money to try to buy a home if they could even do that. And so the question was like, why? Why is there such a difference in the tools that are available between those who have money and those who don’t? What can we take, some of these tools that people usually are able to use when they have money, make them more accessible to folks so it met them where they were financially. Buying a home, going from a renter to being an owner is an example of where we still have a zero and a one. There’s not much of a gradient between those two things. And so, you go from being solely a consumer to jumping to in the Bay Area, trying to buy over $1,000,000 property. No financial council would ever tell you that’s a good idea to concentrate all your money that fast. So how could we be a part of starting towards building products that move people from a zero to a one in a more gradual manner in a way that stair steps them into ownership and allows them to properly fit their financial situation. But that does mean taking a relatively sophisticated financial tool and moving it into the hands of more folks. That’s also why we’ve cared a lot about doing this right, having a set of values, a company we felt good about that we could stick to finding what’s fair between our homebuyers and our investors, etc., and then doing a lot on making sure that we are taking the best lessons from the past where there were challenges or problems that people face as a result of new financial tools and make sure that those don’t pop up so that people don’t look up one day and be like, Oh, I thought it was a good idea, ended up really screwing me over. And so, a lot of this has been about how do you make sure people know what they’re getting into, educated around it, also encouraged to move on from a program like this when they can financially do it because they don’t want to share appreciation forever. So, all these types of things that we really take a lot of time to make sure this product is truly helpful for consumers because it’s also good for investors. You don’t want a product that blows up in a consumer’s face, it will blow up in the investor’s face. So really making sure that’s done properly has been a focus of ours.

Eve: [00:23:24] I appreciate that. My parents were refugees, so they were in the zero group for a long time and actually real estate was their pathway to the middle-class for sure. But you know, at a time when real estate wasn’t so expensive, I don’t know if that would be true even in Australia nowadays. So, um, so I have to ask is there anyone else working in this space that you know of?

Alex: [00:23:48] There are other people who offer products that are some version of, taking the equity in the home and either breaking it up, sharing it with others, whether it be shared appreciation models, equity takeout models, shared equity, other types of shared equity models. But no one’s really doing it in a way that’s targeted around a specific group of people. Thinking of this as a starting point for a specific group of people to really have a wider set of tools to help them become financially secure. Like I like to think about organizations like USAA and what they did for the military. When I think about the work that we’re doing, you know, they started with an insurance product for a very long time for military families, vets, and then they expanded the set of products that they have to do more, wrap around financial services for that specific group. And that’s more how I like to think about what we’re trying to do. Our down payment program is, is the anchor helping people with the biggest transaction of their life. And if we do that well, we can also introduce other products to them that help them build either before they’re a home buyer or help them build towards being a home buyer or after they’re a home buyer. And that’s different. That’s different that a lot of folks are thinking about it in who are thinking also about shared equity.

Eve: [00:25:00] Yeah, I think it sounds like you’re being successful because you’ve got a very clear niche that actually has a very big return.

Alex: [00:25:08] You know, I think about the down payment program. It’s I mean, I’m a nerd. Help think about this a lot as a product. Of course, I like our product, but I think it’s one thing to be oriented towards I’ve got this product and I have to shove it in everybody’s face. And it’s another one to say this product really enables people to do something in their life. How do we help people do more of that, and be a little less attached to the product and a little bit more attached to the consumer or the outcomes they want to have. And when you focus it in on a particular group of people with a particular role in society, then you can really tailor what you offer to them to the realities of their life. And that’s what we’re trying to do.

Eve: [00:25:47] Are there products you’re thinking about?

Alex: [00:25:49] Oh, yeah, I’m thinking about all sorts of products, everything. I mean, the reality is when you look at what is holding people back from building wealth, even becoming home buyers mean anything that help manage the process of home buying and then being a homeowner in a way that’s more streamlined and more cost efficient. I mean, there’s so many different pathways there. We’re still at a point where we want, we have a really great down payment product and we’re just getting started. We’re only serving a very small percentage of the people who could potentially serve. The opportunity is still huge to continue to focus on what we already do. But the more, you know, the more customers we have, the more we are hearing from them, about what would be most helpful. So, trying to take that information in and design towards more products.

Eve: [00:26:27] That was going to be my next question. What potential does this hold, this product?

Alex: [00:26:32] I think the shared equity or shared appreciation, I get really excited about it because I see it as a cooperative model between investment capital and individual consumers. And if we get it right, which includes having a supply of housing so that there are things to buy, right? I care a lot about that.

Eve: [00:26:54] That’s the really wrong thing at the moment, right?

Alex: [00:26:56] Yeah.

Eve: [00:26:56] Yeah. I don’t know whether we’re going to be able to fix it.

Alex: [00:26:58] Care a lot about that. We don’t build homes, right? We are helping people buy homes. We need homes to be built in the grand ecosystem of housing we’re big proponents of supply growth, but if we get this right, then there is a pathway for the investment part interest in residential real estate to actually be paired with the individual to help them on their path to growing wealth. And that’s just that’s a win-win on both sides. And that kind of helps to spread out risk, spread out reward, which means more balance. Any natural system that you look at tries to spread out as much as it can so it can balance. And that’s what we want our economy to be doing. So, I think that that’s what’s really exciting at the heart of something like shared equity. It just could be really great for our economy and really great for individuals as well as investors. I think this on the ability to focus on the financial health of our essential professionals and people we rely on every single day who are upholding our communities. I think it has an opportunity to have our communities thrive more. When you have more people who are rooted where they live, whether it be the teacher who lives in the community in which they teach and has a special relationship or a deeper relationship with the place and the people that they are working with every single day, or the policemen on the corner who actually lives in that community. There’s a lot of implications there that are very different than when people are traveling two and a half hours or leaving the profession altogether and you don’t have anybody, right? So, I think there’s a ton of potential here, not to mention it’s a huge market, right? So, if you, if we actually as a business fill the need for the 25% of salaried workers that are your essential professional and in these industries, that’s a huge business opportunity to deliver a whole lot of value to folks.

Eve: [00:28:50] I have one more question for you, and that is what keeps you up at night?

Alex: [00:28:56] Oh, man, I have two answers to that one. One is we need to make sure that this country continues to have a exemplar democracy that allows for organizations of all sorts for profit, nonprofit, public sector alike to thrive and to allow us to continue to have the marketplace of ideas and the marketplace, the literal marketplace of stuff to thrive as a society. And there’s a lot of signs with that that’s being that’s being been under attack for a while and more intensely recently. And so, I think we should all be paying attention to that and do what we can to make sure we still have that as our playing field to work on and live in on the Landed side. You know, I’m so excited. This is such an exciting moment at the company because for a long time we’ve been very restricted. Where we can serve folks. Capital has been much more conservative about where it would go when we certain markets now we have capital partners that are much more interested in going wide saying, hey, this is a need in many, many, many places besides our just our most expensive cities. How do we get it out there? Which is such an opportunity. And it also means national scale as whole another level operation. So just building an organization that can sustain all that is fun and is hard and keeps me up at night. But that’s the good stuff. That’s why we that’s why a start-up people get into start-ups. It’s really, really a fun, fun ride.

Eve: [00:30:20] Well, you’re a rock star and thank you very much for taking the time to talk to me.

Alex: [00:30:25] I appreciate you taking the time. Yeah. Thanks so much.

Eve: [00:30:34] Alex Lofton is passionate about helping essential professionals in education, health care and government unlock the financial benefits of home ownership. And he’s built a rapidly growing business, Landed, around his passion. Landed is taking off.

Eve: [00:31:03] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Alex Lofton

52,500 clients served.

Tom De Simone came right out of graduate school on the East Coast with an urban planning degree, and dove right into the wonderful world of housing policy on the West Coast. He first worked for the Deputy Mayor’s office in Los Angeles and then in the City’s Housing Department. He did research and analysis on pretty much … everything: zoning, marketing, downtown housing, economic development, homelessness, housing and development funds, land trust models and outreach to lending institutions. After four years, he joined Genesis LA as project manager, becoming VP of Real Estate, and since 2013, President and CEO.

Genesis LA is a community investment loan fund, a CDFI. They direct loans and investments from their fund, which is capitalized at about 60 million. They finance acquisitions, predevelopment, construction, and community and economic development projects. Their focus is on nonprofits, small businesses, and women and minority owned enterprises, and they primarily work in underserved communities. Founded in 1998 out of Mayor Richard Riordan’s office, Genesis LA works in the heart of Los Angeles County, but they have funded projects as far out as San Bernadino, Long Beach and San Fernando. Projects include LA Prep (Mott Smith) and Star Apartments (Skid Row Housing Trust), My Home Mi Casa (affordable housing) and the Sheenway School (charter school). Drawn to small, unused lots of land that often go untouched by large developers, Tom’s organization likes innovative housing projects which can transform underused spaces.

Read the podcast transcript here

Eve Picker: [00:00:06] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo, in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateForGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:01:00] Tom DeSimone is totally into community finance. He runs an $80 million community loan fund called Genesis LA. It’s a community development financial institution which looks and feels like a bank because they make loans, but with special superpowers reserved for triple bottom line projects and customers. Community Development Financial Institutions emerged in the 1990s specifically to build capacity and projects in places that banks don’t want to be. So CDFIs like Genesis LA filled that niche, investing in economic development, community services, housing and providing working capital for small businesses. Genesis LA boasts a lot of impact. For a start, 90 percent of their investments are made in distressed census tracts. Sixty five percent of borrowers are women and/or minority businesses. Fifty five percent of projects promote environmental and community sustainability. So, if you’ve always wanted to understand community finance, then listen in.

Eve: [00:02:15] If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast and go to RethinkRealEstateForGood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:41] Hi, Tom, I’m really excited to have you on my show today.

Tom De Simone: [00:02:45] Thank you, glad to be here.

Eve: [00:02:47] You run a CDFI, a Community Development Financial Institution, and what are CDFIs?

Tom: [00:02:55] Yeah, good question. Many would say CDFIs were the original social impact investors. We evolved out of the federal government in a formal way. But even before that, CDFIs were the venue that folks who wanted to change the systems of capital really got together. Activists, civil rights folks, jaded bankers, and they created a variety of different funds. LISC is a popular CDFI folks might have heard of, Enterprise. So some of these predated the formalization of CDFIs, which really happened under the Bill Clinton administration, where the U.S. Treasury Department created the CDFI fund. And what that did was sort of give a stamp of approval to these funds that they had accountability; they were actually creating social impact in lower income communities across the country. And it also created government subsidies to them to help put equity into these funds so that they could then leverage debt. And so that’s what we do as CDFIs. There’s over a thousand CDFIs across the country. The majority of us are unregulated loan funds, so we have social accountability, regulatory accountability to the government but we don’t have the same banking rules so we can become much more flexible with things like loan to value for a loan, or the underwriting of a borrower, or debt service coverage, or a lot of these different terms that you hear bankers, you just can’t provide a loan. And we as CDFIs can be just much more flexible. And so we do that by aggregating grants from the government, debt from banks, grants and other sorts of social loans from foundations, and just a variety of different places. And we aggregate all that capital on our own balance sheets, and we re-lend it out through a fund model. And CDFIs do everything from consumer lending to home mortgages to small business to real estate. It really runs the gamut across the country, both small and large.

Eve: [00:05:00] Yeah, I was going to ask, how are they different from banks? I’m interested to hear it’s really a loan to value, that banks are really constrained about what they can do and you are not.

Tom: [00:05:09] Yeah. And you know, many of our borrowers, for example, will have years with losses, especially non-profits. You know, one year they make a surplus, the next year they have a deficit, and a lot of banks can’t lend to a borrower who in the last three years has had losses in any year. And so, we can really just look bigger picture at a lot of these folks and help drive capital to the kinds of unbanked borrowers out there.

Eve: [00:05:34] So the original impact bank, basically.

Tom: [00:05:37] Mm hmm. We’d like to think that.

Eve: [00:05:40] Okay! So, they’ve been around now for almost 30 years. Has anything changed during that time?

Tom: [00:05:46] Yeah. The field has grown tremendously in that time, and probably even more so in just the last 10. CDFIs have become much more recognized. So we’ve become an important partner with banks in their Community Reinvestment Act or CRA requirements, which is a great endorsement from traditional capital sources that they are willing to capitalize CDFIs. So that’s really changed. The federal government’s become a consistent investor through grants. Again, if you were thinking similar to a bank, you know you have investors, shareholders who put equity into the bank. That’s what the government is doing to us. We don’t have shareholders, so the government is giving grants that we can then leverage debt with and blend it together to provide capital. So, the government’s become much more of a consistent and ongoing partner in that work. And then many more CDFIs have sprouted up. You know it’s hundreds over the past few years that have really been getting into those micro markets that have been underserved for decades.

Eve: [00:06:47] So because of the grant influx, you can blend that with other more expensive funds and lend it out at more reasonable rate for higher risk of project.

Tom: [00:06:55] Exactly. And we buffer losses, right? The grant dollars will experience the loss before the debtors will, and so they’re willing to invest.

Eve: [00:07:04] You know, I live in Pittsburgh, and I learnt that community development corporations, I think, had their start here, and they were probably the precursor for CDFIs that whole activist grassroot movement in the 60s and 70s, right?

Tom: [00:07:18] Yeah. Yeah, well, in many ways, you know, CDCs, Community Development Corporations, where the developers, the boots on the ground trying to do things, and they’re our borrowers. That’s most of our borrowers are CDCs. And so, you know, I think what was missing from that formula was, who will finance them outside of local government, federal government grantors. And that’s where the CDFIs have come along to blend traditional finance with the kinds of things CDCs are doing on the ground,

Eve: [00:07:46] So they really grew out of the original hipsters. I suppose that’s the way to look at it. Okay, so you run Genesis LA, a CDFI, and how big is Genesis LA and where are you located?

Tom: [00:07:58] Yeah, we’re in Los Angeles. We serve L.A. County, which is just one county, but would be the 10th or 11th largest state in the country if it were its own state. So it’s a huge place, 10 million people here, and we serve many low income communities here in L.A. We do that with direct loans we make. We have about an $80- $90-million balance sheet, which we make loans off of, to different community development projects. And we also participate in the New Markets tax credit program, which is sort of an incentive program that the federal government, new markets allocation to groups like us, we compete for that annually, and it provides about a 25 to 30 percent subsidy to development projects. So, we have to leverage the rest with other types of leveraged finance.

Eve: [00:08:45] That’s typically what’s needed in underserved neighborhoods that are not a hot market, right? In Pittsburgh it always used to be 40 percent. It just is pretty standard no matter where you are, there’s this financing gap.

Tom: [00:08:56] That’s exactly right. And so, we use that as well. And we’ve had almost $400 million of those resources over the years that we’ve deployed.

Eve: [00:09:04] Yeah, that’s interesting. Tell me a little bit about how businesses find you and what they look like.

Tom: [00:09:09] Yeah. Really, it’s a lot of word of mouth. We don’t advertise. We don’t have billboards around town. We really try to serve a niche in the market. We’ve really said, what are larger CDFIs not able to do? Because maybe these projects are to nuance, these borrowers are too small, they’re inexperienced. And so what are the things sort of falling through the cracks, not just of traditional finance banking, but also other CDFIs that have a larger national footprint? And so we’ve tried to gather those crumbs that fall through those cracks here in Los Angeles and really try to provide almost a boutique service to them. So, we get a lot of word of mouth referrals. Because of that, people realize that we’re a place to go when sort of no one else will lend to you. And part of how we get really comfortable with that is we provide a lot of what we call capacity building services with our borrowers. So most of our borrowers are nonprofits. Many of them, though not all of those nonprofits are first-time developers or they’re just trying to build a facility for their operations, trying to do something different, maybe create housing differently than we’ve done it before. And so, we work really closely with them to help structure their budgets, their performers, raise other capital with them, bring in other technical advisors on the real estate side, you know, contractors, architects, engineers, that sort of stuff. And so, we’re really trying to help resource not just capital, but some of the other components that are critical to making a development happen. And so after you go through a process like that with many of these borrowers, you know them so intimately and you’ve been a part of bolstering the viability of their project, that it’s a huge risk mitigator for us to then be able to deploy capital. And so, you know, that kind of experience that our borrowers go through often becomes a really great referral source, basically for others who are in a similar position, and we get a lot of our borrowers that way through just friendly networks.

Eve: [00:11:10] Yeah, it doesn’t sound dissimilar to what we do at Small Change because, you know, it’s that very large group of people who are working on innovative projects that banks can’t really appraise, or first of their kind, or unfortunately, still, if they don’t look like the rest of the development world, they may get turned down. So, yeah, those are really an enormous number of people that are left out of the system. It’s actually a number I’ve been trying to get at. If you have any ideas, I’d love to know, you know, how many people are left out of the system, this sort of very homogeneous white real estate industry?

Tom: [00:11:45] Yeah, that’s exactly right.

Eve: [00:11:47] That really caters towards people making money on buildings that are commodities. It’s not about making better place. It’s really interesting. Tell us about some of your favorite projects.

Tom: [00:11:59] Yeah, we’ve got a lot. I know you’ve spoken with Mott Smith on one of your other podcasts.

Eve: [00:12:05] Oh yeah, that sounded like a fabulous project. That’s amped kitchens, right?

[00:12:09] That’s right.

[00:12:10] That sounded like a brain damage sort of project.

Tom: [00:12:13] Mott’s up for the brain damage. He’s hardened that brain over the years. Yeah, I mean, it’s a, it’s just one example. But you know, this is a borrower that didn’t have a ton of liquidity, had a big project with a big budget and was leasing to small kitchens.

Eve: [00:12:29] And a really brand new idea, right? That wasn’t really a proven concept. So like for our listeners, if they haven’t listened to the Amped Kitchen podcast, it’s really kind of co-working for kitchens, right?

Tom: [00:12:42] That’s exactly right, yeah. So, it made tons of sense, but you know, he needed to close financing with no leases because these are little small businesses that are not going to sign a lease for 18, 24 months down the road. They can’t do that. So you just take that. Forget all the other constraints of lending to a project like this. No bank is going to lend to a project with zero lease-up. And then certainly something that has no comparables to look at, either. So those are the kinds of things that come our way. We did another project a couple of years ago. It’s now open, really younger Hispanic guy in the city of Montebello, which is an inner ring suburb here in Los Angeles. He was an entrepreneur. He’d done a lot of food, entrepreneurialism with start-ups and taco trucks and carts and things like that, and he wanted to create a sort of an outdoor food hall that would help revitalize the main street of Montebello. Same story, you know, first project, very little liquidity, scrapping up some dollars with friends and family, that sort of a thing. And so we work with him for over a year and helped him to get this built. It started right before the pandemic, and then he had to suffer through the pandemic. But he’s up and going and fully leased, and he’s got eight effectively start-up or newer, all minority-owned food businesses in this food hall. So, you know, the kind of borrower really struggles because they don’t have the balance sheet, they don’t have the track record and again, they’re leasing to non-credit, what banks would say non-credit tenants. And so those are all the sorts of things that we just find ways to get comfortable with it.

Eve: [00:14:16] It sounds a lot, it sounds pretty fun. And these are the things that really make a difference to those neighborhoods, which is the most gratifying thing, right?

Tom: [00:14:24] Yes, absolutely.

Eve: [00:14:26] Ok, so what’s your background? How did you get here? And did you imagine you would be here? Was this your goal in life?

Tom: [00:14:34] Yeah, I thought I wanted to be a developer. I think I might have more fun on this side now. But I started working in government after college. I worked in the mayor’s office here in Los Angeles, and then I did a year at the Housing Department. And during those two years, I realized, gosh, all of these projects and these social goals we’re trying to achieve on the government side still all depend on financing, and I got to go figure out how that works. And so I went back to graduate school and studied regional planning with a focus on real estate, and came out of graduate school, thought I wanted to go work for an affordable housing developer, but had the opportunity to come to Genesis LA as sort of a loan officer role. And it’s just been a blast because the diversity of things that I’ve been able to be exposed to has been so much broader than just, you know, doing affordable housing, which is brain damage in and of itself. But you know, being able to do commercial and nonprofit and some operating businesses and affordable housing has just been such a great laboratory for me. It just personally, to have satisfaction, but also to unwrap some of these challenges as an organization at Genesis and really try to make capital flow better to these sorts of underserved borrowers.

Eve: [00:15:56] I have to say this, from the outside it feels like the banking system is broken. If you have to create a completely different one to make this happen. Like, does anyone talk about that, like, are there moves to make banking friendlier to projects like this?

Tom: [00:16:18] Yeah, it’s a great question. There’s a lot of criticism in our field of banks, and interestingly enough, there’s criticism outside of our sector from people who feel some CDFIs at least have become too much like banks. I think it’s a factor of scale, to be honest. I think if you think about scale, the bigger the scale something gets generally, the more standardized it has to become. You’re doing things at volume, it’s sort of press and repeat. And I don’t want to, you know, make little the nuance to it but that’s sort of scale, right? Like you think of the mortgage market. It’s sort of you fit in the parameters of Fannie and Freddie, and you can sell the loan to the secondary market. So it’s a very, it’s a sort of a narrow box. And I think that’s, that defines the lending sector and certainly banks. And to me, what we have to do on our side, as CDFIs and as a finance industry, is think of it as a holistic system and have the deployment of capital happening at a variety of scales. So, there’s the things that fit in the big box. I think we want those systems so we can move as much capital to as many people as we can, but not forget those folks who don’t fit within that box because that’s where the work of CDFIs have really been set up, is to make sure that we can service those folks that just don’t fit in the standard process. And we can’t lose sight of that as we as CDFIs scale up ourselves.

Eve: [00:17:51] Yeah, no, I think that’s right. So then given that this exists, how does community capital look today, compared to 25 or 30 years ago? Does it look wildly different? Is there more happening? Like, how, what sort of impact has this had?

Tom: [00:18:06] Yeah, I think there’s a ton more CDFI capital going out there. I don’t remember the numbers offhand, but billions and billions are moving every year in the CDFI sector. It’s tremendous. Many CDFIs now are bigger than a lot of your community banks. You know, 500 million, a billion-dollar balance sheets, some of them. But I think you know, what’s a little bit lost in that is not every problem can be solved with debt. In fact, many problems can’t be solved with debt. Unfortunately, there’s still a lot of disadvantage in the United States, and people don’t have the income to pay the kinds of rents, whether it’s a resident in an apartment building or a small business, and it does take subsidy or patient money, whatever you want to call it, and I think that’s where the CDFI system just, it can only go so far. We really do need to come up with other programs, whether that’s government subsidy or philanthropy, to kind of close some of those gaps. Those gaps exist because there’s inequality in this country and, you know, capital seeking a return is just not going to solve all of those problems.

Eve: [00:19:14] Do you think we’re there yet? Like very patient capital, small returns?

Tom: [00:19:22] You know, in some ways, we’re getting there in other ways. I don’t think so. I think more people have opened up their investments to smaller returns and sort of social impact investing. I think one of the problems is most of that money is short term. You know, they kind of want to get repaid quick and where deals become not viable.

Eve: [00:19:43] This is really all about patience.

Tom: [00:19:45] It is patience. You need that low return or no return for the long run, right? You can borrow cheap money for construction, but who’s going to be your permanent lender on that apartment building that can only support half the debt that it cost to build it? Where do you get that other half of the capital? And that’s where I don’t think social impact investing has has been willing to take that position, and that’s where government or somebody else really has to step in.

Eve: [00:20:13] Interesting. So that’s really the missing piece. Is anyone thinking about it, building it, addressing it?

Tom: [00:20:19] Yeah, that’s a good question. Not from the traditional capital markets. You know, there’s talk, you know, in Washington and in places like that about more government roles for some of this. But I have not seen it from kind of the funds and the investor markets. You know, I see a lot of these tech companies have opened up, you know, the Googles, the Apples, but even they want to be the last dollar in. They want to revolve the money multiple times. So again, it’s a short-term cycle that they’re trying to revolve their money in, and that’s not really where the gap is. The gap is on the long-term patient piece. That’s what’s missing. And I think as the federal government sort of retreated from the sixties and seventies to be a little less of an investor in these kinds of things, it’s made it more challenging to make these kinds of projects work.

Eve: [00:21:11] Yeah. I want to go back to redlining, which is supposed to have been eradicated. What’s your experience with that in L.A. and the people you serve? Are they turned down often by banks for no other reason than the way they look or where they live?

Tom: [00:21:29] Yes, it’s been a few years since I had this experience, but we were trying to refinance a loan in South Los Angeles, which is an underserved community, minority community and an interesting story to this very point. We were talking to a bank. They’d looked at the financials. They looked at the business model. They loved it and they wanted to go to the next level. And I got a call that their supervisor went out and drove past the site and decided it wasn’t the right fit for them, which was absolute code for redlining, or not even so coded. So, I definitely think it exists. This was a few years back now, but these kinds of patterns very much do exist and continue to be barriers to getting traditional capital into the neighborhoods.

Eve: [00:22:16] Very depressing, I don’t know how you change that unless a whole generation of people dies.

Tom: [00:22:23] Yeah, it is entrenched.

Eve: [00:22:24] We’re working with a developer right now, a white developer who’s helping provide technical support to black men who are trying to buy a building and renovate it. And it’s really a pretty fabulous project, and they’re pretty fabulous people. And he said they went to several banks and put a whole portfolio together, including photographs of these two men, and were turned down and were turned down and were turned down. So, they submitted it without photos, and that’s when they got interest. And, you know, I even wonder, I don’t know if people are doing it purposefully anymore. I think it’s just; I don’t even know what it is. I don’t know what to say about it, but I hear stories like that all the time. And it’s

Tom: [00:23:07] Discouraging, very.

Eve: [00:23:07] Yeah, very discouraging. So, if a developer has access to your sort of capital, which is really hard to assemble by the sounds of it, should they have some sort of reciprocal responsibilities?

Tom: [00:23:21] Yes, that is a condition of a lot of our financing. So, we’re looking to have our borrowers support small businesses or minority businesses or to rent more affordable housing or to populate their buildings with some nonprofit that’s providing services.

Eve: [00:23:39] So there is an impact goal, it’s not just about, you know, building a building in a place where no one’s built it before, it’s about building a building with a purpose.

Tom: [00:23:48] Absolutely. We basically say we need to see how our investment is supporting some low-income end user. Are they a consumer, are they a resident, are they a recipient of some services? But we need to see how you’re interacting with low-income people, not just that you’re in their neighborhood and ignoring them. You have to be improving their life. Otherwise, we’re not the right fit.

Eve: [00:24:10] And how do you prove that? What proof do they give you? What evidence?

Tom: [00:24:14] Yeah. You know, some of it is, have they done stuff like this before that we can look at? We look at projections and kind of what they’re planning to do, and then we do a lot of follow up after the project is done. We do annual or semi-annual reporting. We go out to the sites. As a local investor we can get to these projects very easily. We have them report on their sort of impacts. We talk to other people who might know them, who can sort of speak to the impact that they’re having. So there’s a lot of oversight that goes way beyond the checking their covenants and their financial ratios.

Eve: [00:24:47] Right, right, right. So this is really intense work, Tom, for small loans.

Tom: [00:24:52] Yes, it is.

Eve: [00:24:53] Do you limit how small a loan will be because of this? Or do you look at all comers, no matter the size?

Tom: [00:25:00] Yeah, we don’t do microloans as they call it, which is sort of 50,000 and less, but we have some loans that are around the hundred, two hundred thousand dollars.

Eve: [00:25:09] That’s really small.

Tom: [00:25:10] It is small, but we also go up to, I think, six million is our loan limit now from our CDFI loan fund. So, it’s a balance for us. You know, I think a lot of investors look at the return on every single investment. Is it worth my time to do this one deal? And we look at it as a portfolio, we realize that we might make some big loans that turn a nice interest payoff to us and we might do some small loans that, if we were really tracking our time on it, we’re probably losing money. But we look at it as an ecosystem, a portfolio approach. And that lets us, what it actually pays dividends both socially and economically to us is that a lot of those smaller things we’re investing in are giving us information and ideas that can be replicated or scaled up later. And they’re the seeds for something new and that can become a whole new product line or a business line for us to make the kinds of investment returns we need to stay afloat.

Eve: [00:26:11] Interesting. I want to ask one other question about this. So, you provide debt. How much equity do you require of these businesses?

Tom: [00:26:21] It varies. We have lent unsecured loans, for example, to a lot of affordable housing developers. They don’t own the land. Maybe they’re going to do a ground lease. So, we have given them a couple million dollars unsecured. It’s really based on their reputation. So, they have no equity, we’re their equity at that point, at least. We’ve done construction and permanent loans where our borrowers have had, you know, five or 10 percent equity in because they just don’t have enough capital. So we try to be flexible.

Eve: [00:26:52] Well, that’s wildly different than banks, right?

Tom: [00:26:56] Very much so.

Eve: [00:26:57] Which are really at 35 percent, which makes it almost impossible for someone who’s trying to build a business for themselves in real estate for the first time to even find a bank to talk to.

Tom: [00:27:09] That’s exactly right. Our standard policy is 85 percent loan to value, but we make exceptions, we really do. And we work with folks on how to bridge that gap if everything else is checking out.

Eve: [00:27:22] So I’m going to ask you one more question because we met before this virtually, sort of, do you think that investment crowdfunding can play a role in building community capital?

Tom: [00:27:34] I do.

Eve: [00:27:35] And I ask you this question because we raised money for a project that I believe Genesis LA loaned the funds for. And actually, often banks we work with don’t like the idea of crowdfunding. So I’m wondering if CDFIs on the whole are a little more entrepreneurial? See the possibilities?

Tom: [00:27:58] Yes, we do. We absolutely do. We were involved in an eight-unit bungalow court that Small Change raised equity of $100,000. It was a great pairing, I think, because it helped bring the traditional equity capital into these projects and sort of de-risks the loan for us. We don’t have to be thinking of that going to above that policy limit. And it really helps make deals look more traditional, but through the grassroots, and I think it’s a tremendous opportunity going forward.

Eve: [00:28:28] And what I love for that project on our side is the speed with which they raised the money because people really, they want to help. And it was it’s a little, it’s a project for formerly homeless people and people invested small amounts quickly. And so, you know, there’s this crowd of people out that want to participate, which is pretty fabulous, too. I think.

Tom: [00:28:51] It is.

Eve: [00:28:52] Big picture question. So, there’s this enormous disparity between the wealthy, the haves and the have nots, not only in what they own, but in how they go about banking and building a business. How do you think we need to think about our cities and neighborhoods and these types of business to make our country more equitable for everyone?

Tom: [00:29:17] Yeah, it’s a weighty question. I think we have a lot of soul-searching to do about the inequality that we still face. And really, what kind of investment is needed to give every person and every neighborhood in America the right opportunity to move forward. I have a board member who sort of said this once and I’ll paraphrase, but you really, you can’t have a meritocracy if people can’t have an education, have health care and have a roof over their head. And I think we can’t expect that some investment programs or a loan guarantee program or something of that sort is going to solve these issues if we haven’t taken care of those baseline things in communities. And I’m not saying that the government has to pay for all that sort of stuff, but I think we have to look at this as a public and a private partnership to get those baseline conditions sorted out so that, you know, lending and investing can work and can work more equitably than it does. But we have a deficit on just the basic conditions for a segment of our population and our geography in this country that we’ve never really, I think, taken a serious effort to resolve.

Eve: [00:30:41] No, and I think it’s becoming more and more visible and obvious every day. As you were describing the CDFI system, I’m thinking, well, it’s two different systems for two different groups of people in one country, because you know, the one system, the big one, the banking system just doesn’t service everyone for whatever reason, so that’s a little disturbing. Ok, final question, what’s next for you?

Tom: [00:31:13] We are getting more programmatic. We’re trying, to some of the points that you just mentioned, we’re trying to get on the front end of some of these challenges and not just be a lender who’s investing in some good ideas that come our way, but how do we start to change some of these systems? How do we close the the homeownership gap in this country, which is a major wealth generator for those who can get in, for example? How do we reform some of the ways we go about building affordable housing? It’s sort of a singular system now, it’s terribly inefficient, it’s very expensive, and it leaves a lot of good ideas on the sidelines. So, we’re really trying to figure out how can we get in to some of these things much earlier, not just as a traditional lender, but as sort of a someone at the development table with our partners. There’s another peer CDFI leader who once said something along these lines, and I love it because we basically are trying to do the same thing, which is, when the kinds of projects we want to see don’t exist, sometimes we just have to go out there even as CDFIs and create them ourselves. And so, we really see our role increasingly being, how do we get in on the incubation side than just on when the projects ready for financing. And I think that is part certainly not all, but part of how we begin to address some of those issues that you said about the great inequalities in the United States.

Eve: [00:32:39] Well, thank you very much, Tom. I’ve really enjoyed it. I learned a lot more about CDFIs than I knew. A little more depressed now, but I think we’re going in the right direction.

Tom: [00:32:49] Yeah, it’s an imperfect system. I think we as CDFIs see it as how do we get big enough that we’re like a true peer to the banking system or a subset of the banking system? And I think, like I said, it’s great to get scaled up, but we also can’t lose the other things that don’t fit in the big box, right? And that’s where there’s always nuance. There’s always a niche we have to make sure we address.

Eve: [00:33:15] Well, thank you.

Tom: [00:33:16] Thank you.

Eve: [00:33:28] With 52,500 clients served and 1734 housing units funded, Tom is happily chugging away on making impact where it matters.

Eve: [00:33:47] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Tom De Simone