Rethink Real Estate. For Good.

Finance

The Color of Law.

Richard Rothstein is a distinguished fellow of the Economic Policy Institute and a senior fellow (emeritus) at the Thurgood Marshall Institute of the NAACP Legal Defense Fund. He is today widely lauded as the author of The Color of Law: A Forgotten History of How Our Government Segregated America (2017), which excavates a history of how federal and state policies were created to explicitly segregate metropolitan areas, creating racially homogenous neighborhoods. Richard feels the damage done by these policies is so systemic that a very big step is needed – a new civil rights movement – one that is focused on housing segregation and its economic fallout.

Both an economic analyst and journalist whose career primarily focused on issues of race and education, Richard has also published Grading Education: Getting Accountability Right (2008), and Class and Schools: Using Social, Economic and Educational Reform to Close the Black–White Achievement Gap (2004). From 1999 until 2002, he also served as the national education columnist for The New York Times.

Richard was a senior fellow at the Chief Justice Earl Warren Institute on Law and Social Policy at the University of California, Berkeley, a Tisch Visiting Professor at Teachers College, Columbia University, and adjunct professor at Occidental College in Los Angeles. He also worked as a senior correspondent for The American Prospect. He lectures widely on issues of equity, race, and education.

Insights and Inspirations

  • Richards argues that federal, state, and local policy explicitly segregated metropolitan areas nationwide and that these policies violated the Constitution.  
  • Activists must rise up to insist on change. To propel change forward quickly. A national civil rights movement to ensure that we all get to reap the economic benefits of living in this rich and diverse country.

Information and Links

  • Read the book. It’s a good primer for those interested in development and zoning history, as well as how to think about what equitable housing means.
  • Richard talks to Ta-Nehisi Coates on C-Span.
  • And is interviewed on Fresh Air!
Read the podcast transcript here

Eve Picker: [00:00:12] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Richard Rothstein, a journalist and researcher at the Economic Policy Institute. He is widely lauded as the author of ‘The Color of Law: A Forgotten History of How Our Government Segregated America.’ In this book, he explores how federal, state and local policy explicitly segregated metropolitan areas nationwide. And he argues that these policies violated the Constitution. Richard recognizes that many small steps are being taken today to remedy this, but the damage done by these housing segregation policies is so overwhelming that he believes a very big step is needed to jumpstart desegregation in a meaningful way – a new civil rights movement, one focused on housing segregation. Be sure to go to EvePicker.com to find out more about Richard on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:46] Hello, Richard, I’m really delighted to have this opportunity to talk to you today.

Richard Rothstein: [00:01:51] Well, thank you very much for engaging with me on this topic.

Eve: [00:01:54] Oh, yes, it’s an important one. You’re perhaps best known today for the research you’ve done on the history of housing segregation in the United States, and the really important book that you’ve written that’s called ‘The Color of Law.’ And I’ve heard you say every metropolitan area in this country is residentially segregated. I’m wondering how we ended up in this very racially segregated landscape.

Richard: [00:02:23] Well, we have a national myth about how we ended up. That myth is flawed. The myth is that what we’ve got is something we call ‘de facto segregation’ that just have sort of happened by accident. It happened because of private bigotry on the part of homeowners and landlords and white neighborhoods who wouldn’t sell or rent to African Americans. Or because of businesses in the private economy, purely private economic actors like real estate agents, banks or insurance companies that discriminated. Or maybe we tell ourselves it’s because people just like to live with each other of the same race. It’s all natural that way. You feel more comfortable if we do it. Or maybe we say it’s because of income differences. African Americans on average have lower incomes than whites, not all, but on average, and so can’t frequently afford to live in higher opportunity. White neighborhoods, all of these individual bigoted but personal decisions, not governmental actions, is what created residential segregation. And we tell ourselves that what happened naturally can only happen naturally. It’s other nonsense. The reason we have residential segregation in this country is because of a network of racially explicit federal, state and local policies that were designed to ensure that African Americans and whites could not live near one another. In any metropolitan area, we have a totally unconstitutional system of residential boundaries. They were established in the mid 20th century in such a powerful way that they still determine where we live today.

Eve: [00:04:06] Wow. So what what are some of these policies? Can you be a little more explicit?

Richard: [00:04:13] Sure. I could go on for hours, but I’ll mention just a couple of them. In the post-World War II period, the Federal Housing Administration and Veterans Administrations determined upon a policy to move the entire white working-class and lower middle-class population out of the urban areas where they were then living, into single family homes in all white suburbs that came to ring American cities. At the time, in the post-World War II period, low- and middle-class, working-class and even middle-class families were all living in urban areas. We hadn’t suburbanized at that point. They were living there because we were a manufacturing economy and factories had to be located near deep water ports or railroad terminals. So did banks and other service industries that were servicing those factories, because they needed to be able to get their parts and ship their final products, in that way. And so, we had an urban population, both African Americans and whites, living in urban areas. But the federal government determined to move the whites, not the African Americans, but the whites only, out of those urban areas of the single family homes into all-white suburbs. Perhaps the most famous of these is Levittown, east of New York City. 17,000 homes in one place, single family homes. The developer, William Levitt, could never have assembled the capital to build a subdivision that enormous on his own. No bank would be crazy enough to lend him the money to do that. To be worth, as I said, the suburban country, at that time. The banks thought that it was a crazy idea that nobody would want to move there. The only way that Levitt could assemble the capital is by going to the Federal Housing Administration and Veterans Administration, submitting his plans for the development, the architectural design of the homes, the construction materials, he was going to use, the layout of the streets, and a commitment that the Federal Housing Administration, the Veterans Administration required, that he never sell a home to an African American. The Federal Housing Administration and Veterans Administration even required that Levitt place a clause in the deed of every home prohibiting resale to African Americans or rental to African Americans. But this was a racially explicit policy. It wasn’t the action of rogue bureaucrats working in federal agencies. It was written policy. The Federal Housing Administration had an underwriting manual that was distributed to appraisers throughout the country whose job it was to evaluate the applications of builders to create new subdivisions or even smaller projects. The manual said you could not recommend, for a federal bank guarantee, a loan to a developer who was going to sell to African Americans. And the manual went so far as to say you couldn’t even recommend for a federal bank guarantee an all white project that was going to be located near where African-Americans were living, because in the words of the manual, that would run the risk of infiltration by inharmonious racial groups. This was, I say, an explicit racial policy. Levitt, with that kind of a guarantee, built this large subdivision and builders all over the country did the same. They were inexpensive homes. These were returning World War II veterans, mostly who bought these homes. They sold at the time for eight, nine thousand dollars, perhaps. Today’s money, inflation adjusted, that’s about 100,000 dollars. Well, as you know, those homes not in Levittown, not in any suburb in this country, no longer sell for 100,000 dollars.

Eve: [00:08:09] Right.

Richard: [00:08:10] The value of those homes appreciated. The families who bought them gained wealth from the equity they now had in their homes. And as a result, today, African American incomes are about 60 percent of white incomes. You’d expect African American wealth to be similar. But in fact, while African American incomes are 60 percent of white incomes, African American wealth is only five percent of white wealth. And that enormous difference between the 60 percent income ratio and the five percent wealth ratio is entirely attributable to unconstitutional, federal housing policy that was practiced in the mid 20th century. I’m sorry. Go on.

Eve: [00:08:53] Now, that’s OK. So, One of the biggest consequences of this housing segregation is just the loss of generational wealth that we’re struggling with today.

Richard: [00:09:04] Yes, absolutely. Those, the white families who bought those homes and gained this wealth use the wealth to send their children to college. They used it to perhaps take care of emergencies, medical emergencies or temporary unemployment. You know, if you have wealth and you lose a job, you can weather the temporary unemployment. If you don’t have wealth, and you lose a job, you’re pushed further down the social and economic scale. And the white families also use it to subsidize their retirements, and most importantly, to bequeath wealth to their children and grandchildren …

Eve: [00:09:39] Yes.

Richard: [00:09:40] … who then down payments for their own homes. So, that’s why I say that these policies are so powerful that they still determine the racial landscape of today.

Eve: [00:09:50] So, how many years did it take us to get where we are today because of those policies?

Richard: [00:09:57] Well, you know, the policies began, the federal government wasn’t involved in housing at all until the New Deal of Franklin Roosevelt and the Depression, the federal government’s first entry into the civilian housing market was at the beginning of the New Dealm the Roosevelt administration. When the Public Works Administration, one of the first New Deal agencies, beginning in 1933, built the first public housing in this country for civilians and everywhere it built it, it segregated it. Frequently, again, creating segregated patterns where they hadn’t previously existed. In many of these downtown urban areas, that I described earlier, that, where both blacks and whites lived. You know, the great African American poet, novelist, playwright Langston Hughes describes how he grew up in an integrated downtown Cleveland neighborhood in the early 20th century. That’s not how we think of downtown Cleveland today. But, as I said, we had the factory districts. The jobs were located in a central location, so the black and white workers had to live in roughly the same areas. But so, Langston Hughes describes how he grew up in an integrated downtown Cleveland neighborhood. He said his best friend in high school was Polish. He said he dated a Jewish girl in high school. It was an integrated high school in an integrated neighborhood. The Public Works Administration went into that neighborhood, demolished housing to build two separate projects, one for whites, one for African Americans, creating a pattern of segregation there that hadn’t previously existed. And it did this everywhere it went as did subsequent successor federal housing agencies and local housing agencies. So, I’ve mentioned now two big policies that the federal government followed. One was its public housing program. The other was its subsidization of suburbanization for whites only.

Eve: [00:11:58] Um hmm.

Richard: [00:11:58] And there were many, many other policies as well, followed by federal, state, local governments, all racially explicit, all of which interacted to create the segregated landscape that we now have in this country.

Eve: [00:12:11] So, are we trying to fix this now?

Richard: [00:12:16] No, we’re not. We’re not. There’s …

Eve: [00:12:19] Oh, that’s awful.

Richard: [00:12:19] Well, no, we’re not. We, to the extent that there’s any attention to this issue, it’s the attention to the condition of the low-income, segregated neighborhoods in which African-Americans are concentrated. Not all of them, but many of them. I’m not in any way suggesting we shouldn’t be paying attention to that and focusing on things like evictions and rent control and inadequate housing supply. But we are not paying any attention yet to the segregated nature of those communities or to the segregated nature of communities outside those low-income downtown areas where they’re segregated on an all white basis. But we need to pay attention to it. Our democracy, I think, is under great threat because of the extreme polarization we have in this country, political polarization that largely tracks racial lines. And I don’t think it’s conceivable that we can preserve this democracy in a healthy way if so many African Americans and whites live so far from each other that they can’t empathize with each other or understand each other’s life experiences. So, I think it’s urgent that we do pay attention to these racial boundaries, but we are not yet doing so.

Eve: [00:13:43] So, A couple of things that have been attempted have been like the Fair Housing Act and eradicating redlining. Have they have any impact at all on this polarization of the landscape?

Richard: [00:13:58] Well, of course, they’ve had a small impact. I mentioned Levittown earlier in our conversation, created as an all white suburb by the Federal Housing Administration in the post-World War II period. That community of 17,000 homes is now about one to two percent African American. The homes there now sell for 400, 500,000 dollars. There are African Americans who can afford to buy those homes at those prices. But the, Levittown is located in a neighborhood that is about 15 percent African American. So, the difference between that, the two percent that the Fair Housing Act, you know, was able to address and the 15 percent that you would expect if it were not for these policies of segregation, is the difference that the Fair Housing Act cannot address. Those homes, as I say, are now unaffordable to working class families of either race.

Eve: [00:14:58] What do you think it will take to correct this?

Richard: [00:15:01] Well, the policies to correct this are well known. No mystery about them. What’s missing is a new civil rights movement that’s going to be as aggressive in addressing residential segregation as the civil rights movement of the 1960s was in addressing public accommodations and interstate transportation and employment segregation. We don’t have that yet. We are, I will say, having a more accurate and passionate discussion in this country now about the legacies of slavery and Jim Crow than we ever have had before in American history. We had Black Lives Matter demonstrations this past summer and spring that engaged 25 million Americans, demonstrating for police reform, for community policing, for the demilitarization of the police. They didn’t address housing issues, neighborhood segregation, but out of that consciousness, it’s possible that a new civil rights movement will emerge that addresses the underlying causes of police abuse of African Americans, which are largely the fact that African Americans are so segregated in low-income neighborhoods and concentrated there. So, I’m hopeful, not confident, but I’m hopeful that such a new civil rights movement will emerge.

Eve: [00:16:28] And do you, do you know any organizations really actively working to correct the housing segregation issues, in particular?

Richard: [00:16:40] Well, there are many, many organizations doing, taking small steps, and being successful in taking small steps. It’s not that we’re not doing anything at all. But we don’t have a systematic attack on segregation. There are some communities that are beginning to look at their zoning ordinances and the way in which they function …

Eve: [00:17:08] Yeah.

Richard: [00:17:08] … to perpetuate this unconstitutional system of segregation. There are organizations that are sponsoring mobility programs for African Americans, giving African Americans who have housing subsidies, we call them Section Eight vouchers, giving them more opportunities to find rental units in the higher opportunity communities. There is some work being done, but we don’t have a systematic effort. I am involved now with a group of national civil rights leaders who are creating something they call the National Committee to Redress Racial Segregation. And it’s hoped that they will be able to launch that national committee in the near future. And the purpose of that National Committee would be to support and create local civil rights groups that will take the kind of action that’s necessary to make it uncomfortable to maintain these segregated patterns. But we’re not there yet.

Eve: [00:18:16] Yeah, I think for me, I mean, this is a lot to absorb and pretty shocking. How do you educate so many people? There’s this trickle down effect, right? So, every bank, every local community bank, that lends money to developers or home buyers or anyone like that has to really examine their practices very carefully. I know enough about what goes on in racially segregated neighborhoods and banking to know that that in itself is an enormous task to just educate everyone to behave differently.

Richard: [00:18:57] My perspective is that our focus should not be on educating banks and developers and insurance companies. Our goal should be to create local activists who will put pressure on those banks and insurance companies and developers, realtors, to behave differently. If this is not something that can happen from the top down any more than the civil rights victories of the 1960s came about because we educated restaurant owners or bus companies to behave differently. It happened because we have an activist civil rights movement to force them to act differently. And I think if we think of that as a model, we’ll be on a better path to understanding how we can have these changes. As I said, we’re having a more accurate and passionate discussion now about this in this country than we ever have had before. So, there’s the potential for creating such civil rights groups, but they haven’t emerged as of yet.

Eve: [00:20:05] Yeh, it’s a really big task. And one of the question for you. How do you deal with pushback, like that was only in past, or there are a few bad apples, or arguments like that in the face of what you’ve uncovered and what’s the truth?

Richard: [00:20:22] Well, we don’t have unlimited time today, but I did describe two big policies that the federal government followed, both in creating the suburbanization and in its public housing program to create the segregation. That wasn’t just a few bad apples. If we had more time, I could go through dozens and dozens of these policies at the federal, state and local level, all of which networked together to create this segregation. So, it was not a, it was not a few bad apples that that this. This was a systematic government policy. As I said, the segregation we have today is unconstitutional because it violated the Fifth and the Fourteenth Amendments to the Constitution when government enacted these policies.

Eve: [00:21:11] This is really fascinating, and I do hope that this new civil rights movement emerges, and I’d love to hear more. I’m going to be reading your book in great detail, and I hope all our listeners do as well. Thank you very much for your time.

Richard: [00:21:27] Thank you very much.

Eve: [00:21:36] That was Richard Rothstein. A history of housing segregation in the United States is a shocking one, and we will be grappling with the damage done for many decades to come. There is a glimmer of hope this year as more open and concrete dialogue emerges between blacks and whites. Richard’s hope is that activists will rise up to insist on change to propel change forward quickly, a national civil rights movement to ensure that we all get to reap the economic benefits of living in this rich and diverse country. You can find out more about impact real estate investing and access. The show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Richard, for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Richard Rothstein, EPI

Hello, Neighbor.

Max Levine’s organization, NICO (Neighborhood Investment Company), has a mission “to localize wealth creation and broaden access to neighborhood equity.” The Los Angeles neighborhood Max lives in, Echo Park, has an income average of $40,000, whereas the average home is valued at $900,000 – an enormous discrepancy. Max and his business partner, John Chaffetz, began exploring the gap between home ownership and renting, testing financial models of what might fall in between. They ended up with the innovative idea of a neighborhood REIT (real estate investment trust) that would allow members of a local community, property owners and tenants, to literally invest in the place that they live by buying shares of local properties owned by an investment trust. Their first effort is NICO Echo Park, with an initial portfolio of three rent-stabilized apartment buildings.

NICO, not surprisingly modeled as a B-Corp, aims instead to create both societal benefit as well as modest financial growth. By taking the REIT structure and applying it at the local level, stakeholders who want to have a financial stake in their neighborhood can buy shares, starting at only $100. They can make a one-time token investment or make monthly investments to build up a deeper, long-term commitment. In addition, NICO has given each of the tenants in their buildings $1,000 worth of shares. 

Though now in LA, Max spent his working career mostly in New York City, as a financial analyst and later as CFO at Storage Deluxe, a self-storage giant, with a stint working on their subsidiary, UOVO Fine Art Storage. He even took an entrepreneurial break to open a delicatessen in Brooklyn. He is also a member of Top Tier Impact, a small, global community of investors, entrepreneurs and experts whose goal is to “accelerate mainstream adoption of impact and sustainability as the way of investing and running companies.”

Insights and Inspirations

  • Home is neighborhood. It’s a unit of organization.
  • With NICO, Max wants to create a new housing typology, located between renting and home ownership.
  • There’s a lot of love in neighborhoods. And that’s super-exciting!
  • The relationship between residents and property owners, or landlords and tenants, needs to be radically reframed. 

Information and Links

  • Max has been listening to the amazing music and programming from their friends at Dublab, and which has helped keep their spirits high during the last year.
  • He and his team are super-proud of the work that Helen Leung and the team at LA Mas have done to help coordinate the Northeast LA Community Response to the Covid-19 emergency. Helen is a board member of NICO Echo Park, Benefit Corp.
  • Max also wanted to highlight the work of Women’s Center for Creative Work, which has also inspired them. 
Read the podcast transcript here

Eve Picker: [00:00:11] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Max Levine, founder of NICO. A few years ago, Max noticed a very big gap between traditional home ownership and renting, and he wondered what might fall in between. At the same time, he wanted to explore how to create localized wealth and neighborhood equity, and he found the solution to his quest at his own back door. In Echo Park, the neighborhood he lives in, a highly diverse neighborhood, incomes average forty thousand dollars, yet the average home sells for nine hundred thousand. Max took a huge leap in order to bridge that gap by creating NICO, a neighborhood investment company, or REIT through NICO locals can literally invest in the place that they live in by buying shares of local properties owned by NICO. But Max doesn’t want to stop there. Listen in to hear more. And be sure to go to EvePicker.com to read the show notes page for this episode. You can sign up for my newsletter so you can get access to information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:50] Hello, Max, thanks so much for joining me today.

Max Levine: [00:01:53] Yeah, thank you so much for having me. It’s great to be here with you.

Eve: [00:01:57] So, I’m really fascinated to hear, because like me you’ve plunged into the fintech crowdfunding world to solve a problem. And I think your NICO is sort of a version of Small Change, although a little bit different as we’re going to discover. So, it’s really nice to interview someone in the same industry.

Max: [00:02:15] Absolutely. Great to connect with you.

Eve: [00:02:19] First, I wanted to ask you what problem you’re trying to solve.

Max: [00:02:21] NICO really started, NICO stands for the “neighborhood investment company” and we really started, really with an observation of just how broken housing in this country is. And initially, we sort of were focused on thinking about, you know on one hand, you have traditional home-ownership which is held up, you know, sort of the American dream and this example of what Americans should aspire to, sort of the responsible thing. But it’s so out of reach for so many people. And, you know, on the other hand, you have renting, which is more accessible, lower barrier to entry, certainly more flexible. And for us, you know, housing as being this sort of, I’ll use the word “choice,” but it’s not really a choice for so many people because homeownership is still out of reach.

Eve: [00:03:13] Yeh, that’s right.

Max: [00:03:13] But there’s these two options, right? And so initially we start to think about how could we play a role in creating the third option that sits in between traditional homeownership and renting, one that confers some of the benefits of traditional homeownership, you know, the opportunity for wealth creation and connection to place and sort of putting down roots. And on the other hand, you know, was sort of flexible and more accessible the way that renting is. And so, that was sort of the first observation is, you know, if you were going to design a housing system for today’s world to reflect the realities of the real economy today, our thesis is the system would probably not look too similar to the system we have in place. And our, you know, vision is to try and create, you know, really a new product that is more in line with the way the economy is working today and specifically around access to capital and opportunities for wealth creation for folks.

Eve: [00:04:10] Right, Yeh, I always think of rental as not providing comfortable stability.

Max: [00:04:16] Yeh.

Eve: [00:04:16] For example, when places gentrify you can’t be certain that your home won’t be taken away from you, which is troubling.

Max: [00:04:23] Yeah, correct. Right. And I would say it’s even deeper than that. You know, I think that’s a big element. Housing stability and security is a big element of it. I mean, even the word, right? Even the words “landlord” and “tenant”.

Eve: [00:04:36] Um hmm.

Max: [00:04:36] And those are words that are rooted in medieval servitude. Right? That whole paradigm and the whole way that that relationship is set out is one that is, you know, not rooted generally in equity or respect. Right? And so, I think there’s also sort of an element where that relationship between, you know, residents and property owners or landlords and tenants, needs to be radically reframed. And I think housing stability and security is a big part of the outcome of what that could look like. But I think there are other ones as well. For instance, I think there’s a real bias against renting as an option. I think it’s viewed as being ‘less than’ homeownership.

Eve: [00:05:22] Right.

Max: [00:05:22] And I think that narrative that exists really broadly needs to change because the reality is, you know, renting is. If it evolves a bit, I think has the potential to be a better option than homeownership for a lot of folks.

Eve: [00:05:37] Yes. yup.

Max: [00:05:38] And that’s part of the future that we’re trying to build through our product.

[00:05:42] And I would say the other, you know, sort of big thing that we’re trying to solve for is, you know, when you ask people where they live, where home is, you know, nine out of 10 times they’ll say, I live in Echo Park or I live in Inwood or I live in Greenpoint. They’ll sort of lead with the neighborhood, right? For us at NICO. The neighborhood as a unit of organization, to us, is sort of the most important of social organization that we have, right? Because it’s larger than your family unit, but it’s still close enough and personal enough that you develop really meaningful connections with folks in your community, whether they’re neighbors or small business owners or organizations that you support or volunteer with. And so, for us in thinking about how to create a new housing typology in between renting and homeownership, it was really important to think about how we could sort of give the appropriate place and the appropriate role to the neighborhood. And NICO, which is the neighborhood investment company, is really sort of come out of both of those lines of inquiry.

Eve: [00:06:54] That’s interesting. So, how does NICO work?

Max: [00:06:58] We have launched what we believe is the world’s first neighborhood “real estate investment trust” or neighborhood REIT. And what that means is that, you know, we’re a real estate investment company that owns a portfolio of income-producing properties and potentially other real estate-related investments, within a specific neighborhood. And so, the first neighborhood REIT is here in Echo Park, in Los Angeles. It’s called NICO Echo Park Benefit Corp. And it’s a company that has a share structure that owns portfolio property. Today, we own three rent-stabilized multifamily apartment buildings, one of which is a mixed-use building with some retail on Sunset Boulevard. And people can invest into the REIT through our website, mynico.com, and become shareholders in the company that owns this portfolio of property. And our vision with this and our, you know, what we’re trying to sort of build is we want to create an opportunity for thousands of people within a community, many of whom, in the case of Echo Park, most of whom are excluded from being homeowners, we want to create a way for them to be able to build wealth, build belonging and sort of participate as primary financial stakeholders in their neighborhood through a responsibly managed, impact-focused, neighborhood investment company. And that’s what it is.

Eve: [00:08:29] So, why Echo Park?

Max: [00:08:32] There’s a lot of reasons why Echo Park, but I don’t think that this concept is limited to Echo Park. I think some of the dynamics that are playing out in Echo Park and have played at in Echo Park are playing out in communities all over the country. Some of these reasons are sort of specific to Echo Park and some, I think, are speaking to the broader dynamic that we see in communities like Echo Park all over the country. So, the first thing I would say is that Echo Park is an incredible dynamic beloved neighborhood. Dodger Stadium is here. There’s an incredible music and creative community that’s been here for a long time. And, you know, people who live in Echo Park choose to live there because they love what this community is about, and it is speaking to them and it’s the place that they want to call home. So, there’s a lot of neighborhood love here. At the same time, you know, the median household income in Echo Park is approximately forty thousand dollars a year. The average home price is over nine hundred thousand dollars, and, you know, about seventy five percent of the households in the neighborhood are renter households, right? And so, that speaks to this huge gap where homeownership is really out of reach for a lot of folks, right?

Eve: [00:09:51] Yes.

Max: [00:09:52] And there’s a lot of love and there’s, you know, a desire to be more secure, qnd being a resident of this community and, you know, Echo Park has experienced significant amount of gentrification. It’s a neighborhood that has experienced a lot of change over the last 20 years, I would say, you know, maybe especially over the last 10 years. And that dynamic creates, which we primarily view through a lens of inclusion or exclusion, right? Who is benefiting, who is accruing benefit from this change, who is being harmed by the change? And so, this dynamic where people love their neighborhood, they’re excluded from being homeowners because it’s just too out of reach, and the neighborhood is changing in a way that feels kind of out of control. You know, we want to create a way that over time, and this isn’t something that can be sort of solved in six months or a year or even five years, but we think over 10 years or 15 years or 20 years, if you have a way for many more people, radically more people within the community to be able to build wealth in a fair, flexible, incremental way, we think that that could drive some very, very special outcomes relative to the current paradigm, if those people are able to build wealth through investing in their community.

Eve: [00:11:12] So, can anyone invest, or do you restrict investment to locals or people who live in Echo Park?

Max: [00:11:19] Yeah, so investment is open to local people and to non-local people. Within the REIT, we have two classes of shares. We have a class of local shares, Class L shares and a class of non-local shares. And so, it’s open to both groups, though the local shareholders have some benefits on some concrete terms of the offering, like the redemption plan, which is how people would request to get their money out. Or, and also, and you know I’d love to talk a little bit more about this, we’re a benefit corporation. You know, sort of at our, at a DNA level for our company, we have a legal responsibility to balance financial returns to our shareholders with social and environmental impact of our business on stakeholders, right? So, on a group of people beyond just our shareholders. And our local shareholders are one of the key stakeholder groups that we will count on to help inform specifically our non-financial objectives and our non-financial measurement and performance.

Eve: [00:12:19] Right. So, what percentage of your investors actually live in the neighborhood, to date? I know that might change, but I’d be interested to know that.

Max: [00:12:28] We launched the offering, and I should say the offering itself is a Reg A+ offering, which means that NICO Echo Park is a public, non-listed REIT. So, we’re regulated by the SEC, you know, there’s a lot of sort of robust reporting, audited financials, all sorts of stuff like that.

Eve: [00:12:49] Oh, I know it well.

Max: [00:12:50] Yeh. And what that allows us to do is, whereas many real estate investments, most real estate investments are only open to, you know, what the government calls accredited investors, which is another way of saying rich people, By being a public company, and using this type of offering, we’re open to both accredited investors and non-accredited investors or non-wealthy people. And so, we’ve set our investment minimum at one hundred dollars, which is very low for this type of offering. And our, you know, objective in that is to make sure that as many people as want to, within the community and nationally, have the opportunity to support this model and participate in this model. We haven’t publicly disclosed the breakdown between local and non-local investors, so far. I think that we’ll probably do that on our supplemental filing. That’ll be coming up pretty soon. So, I’m going to sort of hold on answering that question. It’s a significant portion of the investors who’ve come through the offering.

Eve: [00:13:52] Yeh, yeh. Well, that’s really good to hear. That’s what I hope will happen. So, when when someone invests 100 dollars, what do they get?

Max: [00:13:59] Anyone who invests into the offering becomes a shareholder in the company that ultimately owns the portfolio properties. And so, you know, people who become shareholders, they own shares in NICO Echo Park Benefit Corp. And what accrues to them are, you know, sort of the pro-rata profit and appreciation that we expect to generate as long-term owners of these properties. And I’ll also say that, you know, one question that comes up a lot is people want to know whether investing in this means they own a specific unit or a specific property. You know, the answer to that is, is no. They become a shareholder in the whole portfolio and the portfolio, you know, we expect to grow it pretty substantially over time. So, it’s not just investing into the properties that we own today. It’s also investing into the company that will own additional real estate assets within the neighborhood, as we grow it.

Eve: [00:14:56] So, they’re really in it with you. And that’s a pretty big responsibility for you, I imagine. That’s how it feels.

Max: [00:15:02] We view it as a big responsibility, you know. And I would say the big responsibility is sort of two-fold, I should say, at least two-fold. One is, when you take investor capital, you know, they’re trusting you to make decisions on their behalf, you know,  and be stewards of that capital. So, I’d say that’s one level of responsibility that we view. And I would say the other, you know, sort of major level is this approach to neighborhood investment through a benefit corporation structure, through a neighborhood REIT, this is really the first of its kind, right? In a lot of ways. And so, you know, we have a responsibility to be incredibly thoughtful and understand, you know, the context that we’re coming into and, you know, in the neighborhoods where we’ll be active in pursuing this model, and I think we’ve set a very high bar for ourselves, right? We’ve set …

Eve: [00:15:55] Yes.

Max: [00:15:55] … a bar where, you know, we are trying to balance financial returns to our shareholders. And we believe that the market-oriented solutions are an important part of, you know, what moving through this pain that so many people are in around housing in their community. We think more market-oriented solutions are a big part of that solve, and that balancing, you know, it’s going to take some time to get right, right? And I think that we have sort of designed our, our impact framework and our product in a way that is intended to evolve with stakeholder input over time, right? So, we aren’t making a claim that, hey, this is what it is and we’re going to get it exactly right. I think we built it in a way that gives it space to evolve into what it needs to be in response to, you know, stakeholder input and feedback and sort of our community over time. And balancing all those things will be a challenge, you know, but that’s the challenge that we’ve signed up for and that’s the future that we’re trying to create.

Eve: [00:16:57] Yeah, I mean, we have non-accredited investors as well on Small Change and I sometimes think that one needs to feel even more responsible for 100 dollars when it comes from someone who doesn’t have a lot more. It’s maybe more meaningful.

Max: [00:17:13] Yeah

Eve: [00:17:13] I don’t really know how to put it, but that 100 dollars is a stretch for a lot of people. And so, there’s this extra feeling of responsibility around it.

Max: [00:17:23] Yeah, we certainly feel that way.

Eve: [00:17:26] You know, under a Regulation A+ offering, you can, at the moment, raise up to 50 million dollars. Is that right or is it 50 million a year? I can’t remember.

Max: [00:17:34] It’s 50 million per year. Yeh, we can raise up to 50 million per year.

Eve: [00:17:38] And, is that what you hope to raise?

Max: [00:17:41] Yeah, so, you know, to date, we’ve raised, prior to launching the offering, raised about 30 million dollars of real estate, debt and equity capital. We used that to acquire the seed assets. Since launching the offering, we’ve added to that. And I wouldn’t say it’s my expectation that we’re going to raise 50 million dollars, you know, in the first year or two, because I think the nature of the problem that we’re trying to solve, or the problem that we’re trying to be part of solving is, you know, that folks who have been excluded from wealth creation, they don’t have 50 million bucks sitting around, right?

Eve: [00:18:17] Yeh. And it takes a lot of education. I think real estate investment is difficult and requires a lot of education as well. So, it is, it’s hard. Yeh.

Max: [00:18:29] Yes. I would say we hope to make really good use of the offering, but our priority is less about how much money we bring into the offering and more about how many people, specifically how many local investors, are participating in the model. That’s really our, you know, sort of North Star for the next couple of years.

Eve: [00:18:50] So, how long will this offering, or this REIT remain open?

Max: [00:18:55] So, again, I have to be a little careful about what I say with securities law. So, I don’t want to sound evasive. My understanding is that we can keep it open on a rolling, permanent or semi-permanent basis, subject to renewing some of the paperwork. So it’s out intention to basically keep it open.

Eve: [00:19:14] Ok, that’s pretty exciting. So, can you tell me a little bit more about the buildings in the IT and how you’re hoping to expand your portfolio? I heard you say that some or all of them are rent stabilized. Can you expand on that a little bit?

Max: [00:19:31] All of the buildings that we own today are rent stabilized. We’re not limited at the REIT to only investing in rent stabilized buildings, but we like that asset class. We like that type of building a lot. When I say rent stabilized, I’m talking about in the city of Los Angeles, there’s a rent stabilization ordinance, which is a very broad program. Any multifamily buildings, which I think is two or more units that were built prior to 1979, are part of this program, as a default. So, it covers, you  know, a significant portion of the multifamily housing stock in the city of Los Angeles. And, you know, what that program currently does is basically puts very strong protections in place for existing tenants, right? And so, the amount that property owners can raise rents on existing tenants is capped at a rate set by the city, for example, and it’s more regulated than market units. So, we really like, you know, those protections. And, you know, we are, as I mentioned earlier, we’re sort of trying to reframe this relationship between, you know, residents and property owners where landlords and tenants, in industry speak, and we love the fact that we can invest in assets where strong protections for tenants are built into the asset price. We sort of love that as an asset class. The buildings themselves, there are three buildings that are all in core Echo Park. We have one at 1650 Echo Park, I have one at 1416 Echo Park, which is a block off the intersection of Echo Park and Sunset. And then we have a property at 1461 Sunset, which is a few blocks down Sunset from Echo Park. So, they’re very proximately located, the portfolio totals 80 residential units and four retail stores, all of which are occupied by locally owned small businesses. And, you know, we are targeting future investments that are rent stabilized, some that are, you know, maybe retail investments, some non-rent stabilized properties, mixed-use properties. And, you know, our investment parameter is sort of, its geographic, like it’s not limited to Echo Park. So, the way the offering describes our investment parameters are, you know, Echo Park, Silver Lake and proximate communities. So, that gives us a bit of room to look …

Eve: [00:21:54] Ok.

Max: [00:21:54] … beyond core Echo Park, though our initial portfolio is very concentrated, you know, historically significant, you know. All of the assets were built in the 19 …. I want to say the 1920s, approximately, though if we’ve got any history buffs on here, there might be, you know, 10 years plus or minus on that. But they’re all sort of very recognizable buildings that have been part of the community for a long time. And, you know, part of what that, coupled with the protections under the RSO program does, it means that the buildings are occupied by a really socio-economically diverse set of residents. And that also is, you know, important to the type of product and community and inclusion that we’re trying to build through our product.

Eve: [00:22:38] So, we have a rent stabilized building. Is it hard to make enough money to cover the expenses? And how do you cope with that? You know, you have pretty lofty goals here in keeping costs reined in is … hard.

Max: [00:22:52] I would say that all of the assets, you know, like asset prices, just, this is more broadly than our building, but asset prices really reflect expected future returns, right. And so all of the properties are comfortably covering their expenses, comfortably covering their debt service. They’re all conservatively financed with long-term fixed-rate debt capital. And the portfolio has been highly occupied since we acquired it. So, you know, we continue to manage to a high level of occupancy. And the pricing of the assets and the way these types of assets are priced and valued is reflective of the protections that are in place. And so, they’re all doing great on a property level.

Eve: [00:23:36] So, I have to say, it’s a lot, and kudos to you. You actually, three companies in one. Real estate development, management company and a crowdfunding platform. And that’s a lot.

Max: [00:23:48] Well, I would say that we’re not really a real estate developer. So, you know, we won’t do, as we’re currently set up now and under the terms of the offering, you know, we’re really not set up to do ground up development or to do even substantial renovations.

Eve: [00:24:03] Well, real estate owner, then, which is different than property manager.

Max: [00:24:07] That’s true. Yes. So, we’re really an asset manager, a property manager. And then we have, you know, the offering and the sort of capabilities that go with managing that type of property.

Eve: [00:24:17] Yeh. So, how do you hope to scale?

Max: [00:24:22] Yeh, so we have ambitious goals for this company, and I would say that, you know, we hope to be doing sort of regular acquisitions into NICO Echo Park over the next number of years. I’m not sure exactly what that looks like from a number of units or a capital investment standpoint, but we believe that this neighborhood, you know, has the opportunity to grow pretty substantially and to grow our impact and grow, you know, the model. And then, you know, separate apart from that, we’re actually in a in sort of a fourth line of business, which is, we have a non-real estate owning sponsor company, which actually owns sort of the functions that you outlined before. And through our structure, you know, we seek and expect to be launching additional neighborhood REITS in other neighborhoods around the country, probably starting next year.

Eve: [00:25:15] Wow. Okay, big goals. So, what’s the biggest challenge you’ve had?

Max: [00:25:22] It’s a great question. I mean, running a company through a pandemic has certainly been challenging …

Eve: [00:25:28] Oh yeh.

Max: [00:25:28] ,,, Having a team that is, you know, very much in sort of the formation phase and, you know, team building phase have to go remote and get to know each other over Zoom, you know. We have team members who have not met in person. People who have joined our team since the pandemic started. And so, I think that’s a challenge. And I think the other, I would say the sort of more macro challenge is that what we’re doing is a bit counterintuitive, right? It’s on a populist level, it’s a bit counterintuitive. And so, what I mean by that is to say that the relationship that we are trying to realign, you know, at its core is really kind of the relationship between investment capital and what motivates it and how it defines success, with people in communities like Echo Park who’ve had a pretty negative relationship with investment capital, right? Because they’ve been excluded from it. And it’s come in and I think the perception, which I believe is largely, you know, accurate, is that when capital comes in it typically means that there is risk to me as a long-time resident. Risk to me and risk to my neighbors as long-term residents. And so, I think that trying to start to solve some of these issues through being an investment company, I think that’s a bit of a barrier for people to get over. And I think that’s pretty fair and pretty deserved. But, you know, our model is such that we’re really sort of taking that on, and, you know, I think the great sort of untold story of gentrification and neighborhood change is that real estate, you know, really was not an institutional mainstream institutional asset class 20, 25 years ago, right? And now it is.

Eve: [00:27:19] Yes.

Max: [00:27:19] It’s a big part of the allocation. And so, I don’t think that capital is the only sort of factor. I think the housing shortages is also one. And I think, you know, there’s a lot of other ones. But, you know, the pressure that that huge, organized flow of capital has put on, you know, neighborhoods like Echo Park is really hard to understate. And so, to our view, to NICO’s view and to our theory of change, until that powerful, large flow of investment capital can be realigned to actually be viewed as a tool and a resource for stabilizing communities, and including folks who are previously excluded in the wealth that’s created through that investment, we’re not going to be able to really solve, you know, these issues at a level, right? And so, I think it’s a bit of a counterintuitive move for people who are used to viewing investment capital or a company or an investment company in a specific way, which is this feels like a threat to me and my neighbors, into something where this offering and this way of being can actually help to stabilize this community and help to drive the types of outcomes that are important to me, you know, in my own community.

Eve: [00:28:41] Yeah.

Max: [00:28:41] I think that’s sort of a lot to get your head around. And we understand that that will take time. And where the rubber hits the road is sort of our actions and the way that we’re managing this portfolio and balancing our various priorities. You know, are we doing that in a way that is genuine and, you know, sort of worthy of people’s trust, right? And that’ll take some time to to earn that, and that’s part of our journey here.

Eve: [00:29:08] Yes, yeh. You know, just shifting gears a little bit, are there any other current trends or innovations in real estate that you think are really important to the future of cities or be a future of housing?

Max: [00:29:21] I think that the sort of renewed focus now on the equity or dis-equity that’s built into the public realm, and also into the sort of planning process …

Eve: [00:29:32] Yes, yeh. I’ve been watching that. It’s interesting.

Max: [00:29:35] I think that conversation is super-exciting and has the opportunity to really reframe how people and how communities are able to have agency in terms of what happens within their community. I think public projects, public space projects, development projects, you know, we’re certainly seeing and starting to feel within the sort of the real estate industry the pressure that comes with that, you know. And I think there’s a genuine attempt by, you know, more and more private sector actors to take that seriously, and to legitimately and earnestly try and figure out how to be engaged with the community and to, beyond just sort of the tokenism of, hey, we’ll throw in a garden, have a couple of feedback meetings or something like that, like I think there’s sort of the start of a groundswell of, you know, we need to build equity into how we think about …

Eve: [00:30:35] Right.

[00:30:35] … development in the public realm. I think that’s super-interesting and very important. And I hope we can play a role in that. And then I think things like technology that is helping to create more efficient, less expensive, quicker ways to actually generate, you know, new housing. You know, there’s no path out of this housing crisis that doesn’t come with building a lot more housing. That’s not the business that we’re in. But I think that construction is super-painful, and it’s sort of in the Stone Age, right? In terms of how that process actually works on a deal level. And so, I think anything that makes that process, you know, more transparent, more noble and less risky, more scalable, will help to create a lot more housing. So, I’m very excited about that.

Eve: [00:31:22] Yeh.

Max: [00:31:22] And I would also say that the sort of, you know, more broadly, shift in focus by institutions and family offices and, you know, other sort of sources of that mainstream real estate investment capital toward strategies that are legitimately ESG strategies or impact strategies, I think that is super-exciting and very important. And for us, we always come back to what is that relationship between capital and what capital is seeking to do, and how is that aligned with the financial and non-financial impact of communities and people in communities, right? And so, I think that shift in awareness and that shift in priority towards strategies that are legitimately focused on ESG and impact, I think that’s a great first step in starting to reframe that relationship at scale.

Eve: [00:32:18] Yeah, because in the end, without shifting capital, not much is going to happen.

Max: [00:32:25] Right. And if you think about affordable housing as a, as an example of this, like, we’re pro affordable housing, you know, but the structural limitation of subsidized affordable housing …

Eve: [00:32:38] It’s huge.

Max: [00:32:38] … is that it requires a subsidy, right? And so, like, the subsidy that it requires is limited. Right? And therefore, there’s only so many tax credits that go out every year.

Eve: [00:32:50] And it’s time consuming. It doesn’t let you produce affordable housing fast, which we need to do.

Max: [00:32:56] Yeah, exactly. And so, we come to this place and NICO is really built around this theory of change, that until market forces of capital, right? Until market rate capital, which is a huge, you know, effectively it’s an infinite pool when you think about how the capital gets recycled, until the priorities of that change, and until the structures around that change to be focused on delivering financial returns and acknowledging the non-financial impact that that capital has. Until that happens, the scale of any potential solutions that count on subsidy or philanthropy, which is a form of subsidy, it’s, the scale of that potential impact is just limited when you look at the scale of the market.

Eve: [00:33:44] Yup.

Max: [00:33:44] So, we’re excited to start to see that shift a little bit.

Eve: [00:33:49] Well, this is something that’s been really interesting, and I’ve really enjoyed learning about NICO, and I’m especially looking forward to see what comes next. So, thank you very much for joining me.

Max: [00:33:59] Great. Thank you so much, Eve. And thank you also for all the work you’ve done over the years with Small Change, with impact real estate. We’re huge fans of it and very appreciative for your leadership in our nascent industry.

Eve: [00:34:24] That was Max Levine. His life is focused on building equity through real estate. With NICO, he’s working to bridge the gap between those who own assets and those who don’t. If you live in Echo Park, you can invest in Echo Park, and what you invest in will ensure that the neighborhood remains available to everyone. For everyone. NICO’s first three buildings are rent stabilized. It’s a very big goal and Max is chipping away at it.

Eve: [00:35:05] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Max, for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Max Levine/NICO Benefit Corp.

One room at a time.

Atticus LeBlanc is the founder of Padsplit, a technology platform dedicated to affordable housing, with no barriers of entry. Atticus, who studied architecture and urban studies at Yale, has been an affordable housing advocate and real estate investor for over a decade, with a company that owns and manages over 550 affordable residential units. But he founded Padsplit with a much bigger goal in mind. He wants to dramatically change how we address affordable housing by using space that is now under-used – whether in our own house or a rental property. He wants to make every available room a safe, clean home for someone who really needs it, all while providing a fair return to homeowners.

PadSplit’s platform allows homeowners to list a room, or to work with local contractors to reconfigure a house to optimize the space for multiple tenants. PadSplit houses typically offer five to eight furnished bedrooms, with shared bathrooms, kitchen, dining, and laundry rooms (no living rooms), with all utilities, internet and a cleaning service included, for a weekly rent. To rapidly provide new affordable housing in our changing economy, Atticus wants PadSplit to take hold in a really big way. So, he’s planning to grow the 1,100 rooms that are on PadSplit today, to many hundreds of thousands of rooms. PadSplit is his moonshot. 

Atticus has written in-depth Op-Ed pieces for the Forbes Real Estate Council blog, is the co-chair of ULI’s UrbanPlan Education Initiative, and he co-chaired the Design For Affordability Task Force in 2018.

Insights and Inspirations

  • Atticus wonders how we’ll ever catch up on the affordable housing we need to build if we don’t think differently.
  • Every spare, unused room can be a fresh start, and safe home, for someone who needs it.
  • PadSplit is a private market solution to a problem that is generally managed inefficiently with subsidies.
  • PadSplits are generally located near public transit.
  • No traditional corporate leases. No deposits. Month to month. Fully furnished. Stay a month or stay a year. People can live in PadSplits to live close to their job (where they otherwise may not be able to afford a unit), or simply to get back on their feet.

Other Information

  • Atticus has three rituals that keep him grounded: Journaling, exercise and nightly dinners around the table with his family. He also loves fishing and backpacking whenever he can escape from his work routine.
Read the podcast transcript here

Eve Picker: [00:00:09] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Atticus LeBlanc, founder of PadSplit, a technology platform dedicated to affordable housing. Atticus has been an affordable housing advocate and real estate investor for over a decade now, his company owning and managing over 550 affordable residential units. But he founded PadSplit with a much bigger goal in mind. He wants to dramatically change how we address affordable housing by using every space that is underused, in our own house or in a shared home. He doesn’t care how. Every room is a safe, clean home for someone who really needs it. You’ll want to hear more. Be sure to go to EvePicker.com to find out more about Atticus on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:26] Hello, Atticus. Thank you so much for joining me today.

Atticus LeBlanc: [00:01:30] Absolutely. Pleasure to be here, Eve. Thank you for the opportunity.

Eve: [00:01:33] Yeah, I’m really looking forward to that conversation. Because you’re doing something pretty unusual. You started a company called PadSplit, and I’m wondering why you started it.

Atticus: [00:01:45] Sure. Yeah. So I think ever since I was a kid, I enjoyed solving problems. And maybe charging at windmills bigger than, bigger than where appropriate at any given time. And this has just been a really big windmill. I’ve been in in real estate my entire career here in the Atlanta area, going on 18 years now. And have been an entrepreneur for the last 15. And then in housing, specifically, for the last 12. As an entrepreneur in the housing space, I came to see a lot of what I felt was wrong with the industry, and the growing, let’s just say, affordable housing crisis for lack of a better word, and lack of supply, and lack of customer discovery for people who were the front line workers within our communities. And folks who ultimately had to commute hours or several hours a day to be able to afford a place to live and get to their place of work. And so, when I got to a point in my career where I felt like I was comfortable financially and had built up enough of the real estate portfolio that could support my own family, this was kind of a moonshot endeavor to look at ways to really solve the underlying fundamental issues of housing, on affordability, not just in the Atlanta market, but trying to do so around the country, and potentially around the world.

Eve: [00:03:10] So, PadSplit splits pads, it’s a great name. What does a PadSplit house look like, typically, after you’ve finished renovating it?

Atticus: [00:03:21] If we’ve done our jobs well or if our owners and real estate investors have done their jobs well, it looks from the outside like any other traditional housing unit, whether that’s a single family home or apartment. On the interior, it’s a little bit different. But essentially it’s just geared to allow single person households or individual workers in our communities to be able to rent individual rooms rather than entire homes. So, because we, we’re a marketplace and we align incentives with real estate investors who are generally looking for higher returns, one thing that may be different is you’re typically going to see more bedrooms in a PadSplit home than you would in a typical home. And the reason for that is in a traditional rental home environment, or any home environment, you have a lot of inefficient, underutilized and unmonetized space. So, if you’re going to rent a property, there’s almost no cost included in the rent for the formal dining room, for instance …

Eve: [00:04:28] Right.

Atticus: [00:04:28] … or the home office. And there’s no reason why, given the fact that we have a lack of housing supply, that these spaces shouldn’t be utilized to actually house people. And so, what PadSplit does as a marketplace, it allows those spaces to be utilized on an individual contract basis with each one of those people who needs a place to live. And in doing so, also makes the home more profitable for those real estate investors. And so, the difference is you would see, instead of a formal dining room, you’d see that room converted into a convertible living area where you actually have a bed instead of a dining room table. And that owner is getting paid for it rather than not.

Eve: [00:05:11] So, by doing this, you can include traditional investors who get a return and you don’t need subsidies, you’re not relying on the government to produce affordable housing. Is that right?

Atticus: [00:05:24] Exactly. Exactly right. Yeah, and throughout my career I’ve worked with a number of more traditional affordable housing programs and have consistently been frustrated by …

Eve: [00:05:35] Oh, they are so complicated.

Atticus: [00:05:37] Yeah, it, well, not just the complication, but the time. The time and energy and effort that goes into creating those units, and meanwhile, we have an abundance of outside opportunity. Right? There is …

Eve: [00:05:52] I think also not just the time and energy. I’ve done some work like that, too, but it’s an industry that kind of hasn’t caught up to what people want today. So, it can be pretty inflexible.

Atticus: [00:06:03] Absolutely.

Eve: [00:06:04] About, you know, what an affordable housing unit should look like.

Atticus: [00:06:08] Yeah, I’d say there are two major issues with the affordable housing industry, let’s call it. And one is the fact that virtually every program is designed to limit profit. And where profit is created or treated as an enemy. And instead they will pay as a percentage of cost. It’s OK to get paid as a percentage of cost, but not as profit. And what you do is you misalign incentives there. Where an affordable housing developer who’s maybe redeveloping a property, they have a home with perfectly good kitchen cabinets, but if they’re getting paid on a percentage of cost, they are now motivated to spend those public dollars to replace those perfectly good kitchen cabinets with brand new ones, because they only get paid if they actually spend that additional subsidy. And I’d say, overall, in most of the programs I’ve worked with, they generally have that same ideology. That they need to pay a fee rather than thinking about what is the most efficient solution possible.

Eve: [00:07:15] Right.

Atticus: [00:07:16] The second issue is just customer discovery, in that if you look at the Low-Income Housing Program, for instance, which has been probably the most successful affordable housing creation program in American history, three million units over about 30 years, there’s still no customer discovery there, where they’re evaluating the needs of the individual residents. The rules that are governing what types of units are created are ultimately from a consortium of government officials with some private advice from developers, but almost never based around purely, OK, you are a person who is in need of housing – What exactly do you need and what is the most efficient way to create that?

Eve: [00:08:02] Right. Right.

Atticus: [00:08:03] And so as a result, you spend a lot of money creating something that isn’t necessarily geared towards the end customer.

Eve: [00:08:09] What do you include in a PadSplit room, and how did you discover what your customers want?

[00:08:15] Yeah. So, what’s included in a room, and really this goes hand-in-hand with what the customers want. Rooms are fully furnished. They include all utilities, Wi-Fi, laundry, telemedicine and credit reporting into one single bill. And that bill is charged on a weekly basis, or on individual pay periods when people get paid. And this came out of the customer discovery process when I was managing properties that I owned, and particularly in lower income apartments, I ran into situations where I saw people that would end up late on their rent and under eviction because ultimately they decided to pay a utility bill, a cable television bill, for instance, in the middle of the month, and didn’t have enough money left over by the time the first of the month rolled around to be able to make that payment. And it was mind boggling to me, initially, that why would anyone ever choose to do that? And as I dove a little deeper, it occurred to me, well, wait a second, you know, we’re obviously, we’re almost at the end of the month now, but if I asked you or anyone else, what day of the week does November first fall on? No one, almost no one would know off the top of their head.

Eve: [00:09:40] Right.

Atticus: [00:09:40] But we all know that today is Wednesday. And if I get paid on Friday, it’s very easy for me to budget around that.

Eve: [00:09:47] Right, right, right.

Atticus: [00:09:48] And at the same time, if I’m living paycheck to paycheck, then it’s very difficult for me, and me personally, I mean, I’ve long put a lot of my stuff on autopay just because I know I won’t remember. But if you don’t have the financial capacity to do that and you have to really be careful about your budgeting, it’s not easy when you have a cable bill that’s due on the 12th and a water bill that’s due on the 23rd and so forth and so on. And you start to compile all these bills. And people are just not spending their money as wisely as they should be because it’s not top of mind.

Eve: [00:10:26] Right, right.

Atticus: [00:10:27] And the prioritization of those expenses is not anything that’s easy to do. And then on top of that, as I looked at the traditional housing industry, and in a rental property where people would have to pay large upfront deposits, we all know that there’s a huge portion of the population that doesn’t have the money, doesn’t have any savings …

Eve: [00:10:48] Yes.

Atticus: [00:10:48] … to be able to do that. And so you really want to just wait around for them to build the savings so they can get the deposit? Or do you want to figure out a way to create easier access? And so, that’s really what we’ve done, is created lower barriers to entry for individuals who are in need of housing, but also kept the billings on a regular schedule that’s easy to remember so that they can afford them.

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

Atticus: [00:11:11] And they don’t have to come up with those upfront costs to outfit their bedroom or apartment or house on the front end, that just further exacerbates their affordability issues.

Eve: [00:11:22] So, where you start your operations?

Atticus: [00:11:25] So, started here in Atlanta. I really kicked off my housing career, I’ve been in Atlanta now for 20 years, almost. I kicked off my housing career in late 2007, early 2008. Really a touch before that, but really just got into the swing of things before the crash had really been public, but it was clear that something was going on, and that home values were much lower than they should have been, although at the time I had no idea why, and no one could really tell me why. But it’s been a long time coming. And we’ve been working on this problem for a long time.

Eve: [00:11:58] You started in Atlanta. How many units you have now and where they located?

Atticus: [00:12:03] So, we have about 1100 units today.

Eve: [00:12:06] Oh, wow.

Atticus: [00:12:07] And they are still mostly in Georgia, although we have a handful of units in the Texas market. And we’ve got some in Alabama, we’ve got some in Virginia. And we’ll be making a larger push into, into the Houston metropolitan area, as well as a couple other markets here over the next several months.

Eve: [00:12:28] And what are your tenants look like? Who are they?

Atticus: [00:12:31] Here in Atlanta, our members, as we refer to them, average income is around 25,000 dollars a year. It’s the cashier at your grocery store, the barista at your at your coffee shop, the security guard at any local retail establishment or hospital, Uber drivers, Lyft drivers, administrators in various government offices.

Eve: [00:12:54] That is shocking. Administrators and government offices.

Atticus: [00:12:57] Oh, yeah. Yeah, I mean, we’ve we’ve had police officers. We still have some teachers. Average age is, is just under 40, about 39 years old.

Eve: [00:13:04] Oh.

Atticus: [00:13:04] About 60 percent single women. And here in Atlanta, we’re 97 and a half percent African-American. But yeah, I mean, I refer to this group of people really as the invisible population. But I challenge any of your listeners to just ask next time you’re in some sort of retail environment, or heck, your Amazon delivery driver. But the folks who work in your community, whether that’s a hairstylist or the, anyone at the grocery store, where do they live, ask them where they live. And I think you’ll be intrigued to find the answer. But it wasn’t until maybe five years ago or so, I really started to understand that you could be working full-time in this country and very easily be homeless.

Eve: [00:13:48] Yeh.

Atticus: [00:13:48] And just that there are almost no housing options available for people that earn less than around 35,000 dollars a year that are the traditional options without any subsidy.

Eve: [00:13:57] I always make a habit of asking Uber drivers,= if that’s the full time job. And I’m, I’ve been stunned hear who has to moonlight, Uber driving …

Atticus: [00:14:09] Yeh.

Eve: [00:14:09] … over the years to make ends meet or to pay for groceries or to make the rent payment. It’s pretty shocking …

Atticus: [00:14:17] Yeh.

Eve: [00:14:17] Especially on the West Coast.

Atticus: [00:14:20] Yeah, definitely. I mean, even here in Atlanta, which is a relatively affordable city, we have a young woman who’s now been with us for almost three years, who works as a pastry chef in Midtown. But before PadSplit, she was commuting an hour and a half each direction …

Eve: [00:14:35] Oh, wow.

Atticus: [00:14:35] … to get to her place of work. And then I remember the last time I was in San Francisco asking my Uber driver where he lived. And he lived with his family in Fresno, three hours away. But then four days a week, he shared a studio apartment in Daly City near the airport. And that was how he made it work. So that he could spend some time with his family in Fresno. It’s incredible when you see the lengths that people have to go to just to find reasonable housing. And these really are people that our economy relies on on a regular basis, but really just go unnoticed.

Eve: [00:15:08] That’s pretty heartbreaking. So, I have to ask one question as an urban designer and architect, what do the neighbors think …

Atticus: [00:15:17] Yeh.

Eve: [00:15:17] … when you renovate the house?

Atticus: [00:15:19] Depends very much on the neighbors, right?

Eve: [00:15:21] Right.

Atticus: [00:15:21] It would be no surprise to anyone that we have NIMBY opposition, you know, folks who say not in my backyard.

Eve: [00:15:28] Well, I’ve heard, Atticus, that quite a few people say, on my podcast the last month that NIMBYism is probably the biggest reason why we’re in this predicament.

Atticus: [00:15:39] Oh, unquestionably. Yeah, I don’t deny that at all, and it’s frustrating. I mean, with with a lot of those those conversations where people say, OK, well, yeah, I think the person who works in my grocery store should be able to live here. And my question is always, do the people who serve your community deserve an opportunity to live there? And almost no one ever says ‘no’ to that question. Right? But they will say, well, yeah, but the government is going to fix that.

Eve: [00:16:11] Right.

Atticus: [00:16:12] And, or the cities are working on that problem. And I don’t think anyone really has an idea of just the scope and the depth of the issue and how bad things really are. And the fact that if we as a society are not working to change these issues on our own, nobody’s going to get anything done. And so, yeah, I mean, absolutely, there are lots of neighbors who, under the guise of, quote unquote, protecting the integrity of single family neighborhoods, which they conveniently forget, like all of those zoning codes were based in systemic racism going back a hundred years, that it’s OK for all of this space to go to waste while you have people who are working full-time, that are living on the street or commuting three hours.

Eve: [00:16:58] Right.

Atticus: [00:16:58] And I mean, that’s a real difficulty and something that I think we as the community or as a nation of communities and neighborhoods ultimately have to decide where the line in the sand really is. And at what point do you say, OK, in our country, everyone should have equal access to opportunity and housing opportunity almost goes without saying, but what are we willing to do to live out those ideals?

Eve: [00:17:27] So, you’ve thought a lot about affordable housing solutions. Why this one?

Atticus: [00:17:32] Well, for me, I was intrigued by private market solutions that didn’t require subsidy programs. And don’t get me wrong, I’ve worked with a lot of subsidy programs and particularly housing choices and still am an owner of a number of properties that work with housing choice participants. But just the time, right? It was, how quickly could I do something today that could create a groundswell of support and address the problem as expeditiously as I felt like it needed to be addressed. And so that’s really the reason why I looked at private market solutions, was because I knew that if you could align those incentives to just create more efficient market opportunities, then I had already seen over the course of my career how strong some of those forces could be. Where here in Atlanta, I watched entire neighborhoods change over the course of just two or three years because of the actions and investments of not one large company, but tens or hundreds of independent individual real estate investors and entrepreneurs. Sometimes for better, sometimes for worse.

Eve: [00:18:43] Yeh.

Atticus: [00:18:43] And so, the idea was, OK, well, right now we are decrying the gentrification and displacement in a lot of these communities. And I agree, that I think in a lot of ways, the displacement especially, is heart wrenching and contributes to the same problems that we’re seeing with people having to move further and further away from their places of work. But what if we could take the same group of individuals who really are just pursuing their own best interests, which we can’t expect them not to. And you said, OK, well, instead of contributing to gentrification and displacement in these areas, what if I gave you another option for investing that allowed you to create more affordable housing? And if you could make affordable housing more profitable than the other alternatives that people had so that the best option available was also one that was a societally good thing and created positive social change for these largely marginalized groups, then those investors would absolutely pursue those. And that was really the thesis that led me to create that split in the way that we’ve done.

Eve: [00:19:44] How much do your tenants, or your members pay per month compared to a unit like what, that they would have to go out and get in the marketplace?

Atticus: [00:19:53] Yeah. And it’s not apples to apples, because our units are all-inclusive.

Eve: [00:19:58] No, of course not. There’re furnished, and electric and utilities and everything, right?

Atticus: [00:20:02] Exactly. Yeah. But it’s about 600 dollars on average, across our portfolio, that people pay on a monthly basis.

Eve: [00:20:10] How much vacancy do you have, because that’s always a good indicator.

Atticus: [00:20:13] Yeah. So, right now we have about 45 rooms or so that are available, so we stay pretty well full. Of course, back to the customer discovery and user question. What we found too is if you’re new to town, if you come here and you’ve got a job, you don’t really want to sign a 12-month lease, you’re trying to figure out what part of town you want to live in.

Eve: [00:20:37] Yes.

Atticus: [00:20:38] And so …

Eve: [00:20:39] It’s like co-work, for housing.

Atticus: [00:20:41] Yeah, similar. Similar. Yeah. I mean, it’s but so our terms are certainly shorter. On average, we still see nine months as an average term …

Eve: [00:20:50] Yeh.

Atticus: [00:20:50] But we absolutely have folks who come to town and are trying to get their bearings or get their feet under them, or maybe they’ve just been through some sort of traumatic situation like a divorce or the death of a loved one. And they don’t need something long-term. They need an affordable place to stay for three months.

Eve: [00:21:08] Right.

Atticus: [00:21:08] And so we see those as well. And that certainly contributes to the amount of vacancy as well. But, yeah, we stay pretty well full.

Eve: [00:21:16] And I have a feeling that you chose this path, as well, because it’s a way to scale what you’re doing. I’d love to hear your hopes on scale.

Atticus: [00:21:25] Yeah, I certainly had no business starting a technology company.

Eve: [00:21:30] Kind of like me.

Atticus: [00:21:31] I am a real estate Neanderthal. But I was intrigued by what I had seen AirBnB do over the preceding 10 years, in terms of, just how individual hosts around the world were able to take this model and run with it. And I wanted to do the same thing with much more positive social impact for affordable housing. And I wanted any real estate investor, or homeowner, candidly, or housing provider of any kind, anywhere, to be able to pick up these sets of tools and provide affordable housing in their communities, regardless of what their thesis may be. If they wanted to create housing for farmers or teachers or employees at a certain facility, that they would be able to use these same sets of tools to be able to do that. And that was really, the major reason why I started PadSplit as a technology marketplace as opposed to a real estate company, was because I certainly didn’t fancy creating this mega-corporation that owned thousands and thousands of homes. And, oh, by the way, even if we did, that still wouldn’t be near the impact that I was trying to create in the world.

Eve: [00:22:49] Do you own any of the buildings yourself at all or are they really …

Atticus: [00:22:53] Personally, I have two. The first prototype and then I have one other one. But other than that, no. We have maybe 65 or 70 different owners of all the properties.

Eve: [00:23:05] Oh.

Atticus: [00:23:05] Anyone from an individual homeowner, all the way to institutional or sub-institutional investors. I do have one room in my personal home that I rent through the platform. We don’t really count that one.

Eve: [00:23:17] So, how do you manage those building owners? Because I can imagine some bad ones might creep in.

Atticus: [00:23:24] Well, a lot of that is baked into the model. Right? Where we don’t do traditional corporate leases the way that other similar companies have done, where we’re the ones making the improvements. The owners are ultimately sharing in the profitability. So, they see a direct correlation between the quality of the unit and their bottom line. And that’s really, I think, important about aligning those incentives. And they are the ones that are purchasing, maintaining and renovating those properties. And then also to maintain accountability, a big part of the platform, and this was absolutely from AirBnB, giving the residents in those homes or the members in our platform the ability to rate and review both maintenance and quality of those homes.

Eve: [00:24:05] Um Hmm.

Atticus: [00:24:06] So, kind of creating …

Eve: [00:24:09] That’s encouragements.

Atticus: [00:24:10] … creating 360 degree accountability where not only are those posts motivated by the bottom line, but they’re also accountable to the members inside those homes as well.

Eve: [00:24:22] You touched on systemic racism and I know you’ve written about this and thought about this. And I’d like to know what you think of some of the key examples of racism in housing policy that exist today and that have made this problem worse.

Atticus: [00:24:40] It’s not really a question of what I think. It’s just a question of a history lesson. And there are a couple of points there. One, if you look at any historic neighborhood today compared to what the population makeup was 100 years ago, or call it turn of the, turn of the 20th century, what you’ll find is that there was a much wider distribution of family makeup in those neighborhoods then, and housing choices there, than than there are today in those same neighborhoods. Because since the 1960s, we’ve as as a nation really forced this idea of single family home. And that’s been repeated over and over and over, where one family, one home, in spite of the fact that you look at 35 percent of the population as single person households. Today. And meanwhile, our home sizes have just continued to increase, even though family size continues to decrease. So, you had this this extreme mismatch. How that relates to systemic racism is this, in that, whether you’re looking at as as Richard Rothstein analyzed in Color of Law and has been written about by a number of other publications, the foundation of these zoning codes, when things started to change in really, whether it’s L.A. 1908 or Buchanan in 1917, they stemmed from trying to segregate neighborhoods based on race. Like, that was the foundation of zoning. And if you acknowledge that at any point in our history, regardless of if you believe that it’s happening today, but at any point in our history, if our culture has contributed to wealth inequality on the basis of race, at any point, if that has contributed to our current inequality of income based on race, then you also have to acknowledge that because these housing policies are based around income, they’re also based around race. And so if I say in a particular neighborhood, you who may be lower income and maybe a single person are not allowed to live here by virtue of the fact that the average home is going to rent for 3,000 dollars, I’m discriminating based on race, in that situation. And so, by limiting the diversity of housing stock and housing choices, we are absolutely discriminating based on race while we are discriminating based on income. And the great irony is, across racial groups, there are very few communities who have any concern about discriminating based on income. But very rarely do the same folks ever acknowledge that because you’re discriminating on income, it also means that you’re discriminating based on race, but it’s just, it’s just a fact.

Eve: [00:27:29] Yes. Yup. OK, so then what’s what’s the biggest challenge you’ve had?

Atticus: [00:27:37] Oh, let’s say, the only, only one, huh? Yeh.

Eve: [00:27:41] One of them.

Atticus: [00:27:43] Listen, I mean … It’s a massive problem. And I’d say, the single biggest thing is, is anticipating and managing human behavior at any level of scale. Right? Whether that is relationships with members inside the homes, whether that is relationships between the members, or just the home and people in the neighborhood. And the sheer amount of effort necessary to maintaining all those relationships. Or the foresight to build in structures and processes that align behaviours appropriately. And we’ve done a lot of work on this and certainly put a lot of thought into it. I mean, listen, we sit at this intersection where we are involved in people’s lives 24 hours a day, seven days a week, at the very base of Maslov’s hierarchy of needs, in terms of just the need for safety and shelter.

Eve: [00:28:49] Yeh.

Atticus: [00:28:49] And so, it is about as big a problem as I think I could have ever tried to tackle.

Eve: [00:28:55] Yes, I’d agree with that.

Atticus: [00:28:56] And just the sheer complexity of those different interactions is the single hardest thing in my mind.

Eve: [00:29:02] So, what’s your big, hairy, audacious goal with this, with PadSplit?

Atticus: [00:29:08] For me, it’s always been that you can solve at least a significant portion of the housing crisis on a national and global scale. The big, hairy, audacious goal is that it becomes a household name that just becomes commonly accepted. That if you are in an apartment or if you are in a home and you have extra space, why on earth wouldn’t you trust another individual to lease that space from you? In the same way that I think ride sharing to hitchhiking. Where 20 years ago you would never imagine getting the back of a stranger’s car, whereas today we do it all the time. And those activities are not fundamentally any different. What’s different is the fact that you, as a customer of that service, trust that stranger that you’re getting into the back of a car with. And so, the big, hairy, audacious goal is that same paradigm exists for housing. Where you trust that you can use this platform and and allow someone else into your home without really missing a beat. And that’s just obviously a wholesale change to the way that we think today about, quote unquote, strangers. And if we can empower access to those opportunities, both as a user of housing or as a provider of housing, and to empower those users to become providers eventually and build their own income and wealth, that’s really what we’re setting up for. And we want to make sure that those opportunities exist everywhere.

Eve: [00:30:38] Final question, but I think I read that you were looking for funding and you did receive a chunk of it, is that correct?

Atticus: [00:30:45] We did, yeah. So we closed …

Eve: [00:30:48] Congratulations.

Atticus: [00:30:48] Thank you. Yeah. We closed on on our Series A round of financing a couple of weeks ago. So, we will be around for much longer.

Eve: [00:30:56] You’ll be bigger and doing more of this.

Atticus: [00:30:57] Hopefully. Yeah. We just keep putting one foot in front of the other and are anxious to expand to new markets that are interested in solutions.

Eve: [00:31:05] Well, it’s really been delightful talking to you and thank you very much, and thank you for tackling this very big problem.

Atticus: [00:31:12] Well, we’re trying. But thank you for having me, Eve. I really appreciate it.

Eve: [00:31:31] That was Atticus LeBlanc. He wants PadSplit to take hold in a really big way. He can’t see how we will ever be able to catch up and provide enough affordable housing quickly if we don’t think differently. That empty spare room or that basement den can offer a comfy bed and a safe home to someone who really needs it. So, he’s planning to grow the 1100 rooms on PadSplit today to many hundreds of thousands of rooms. PadSplit is his moonshot.

Eve: [00:32:15] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today, Atticus. And thanks for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Atticus LeBlanc, PadSplit

Why ADUs are a good idea.

What’s an ADU?  It’s a granny flat or a mother-in-law unit, now more widely known as an Accessory Dwelling Unit and usually built as an additional living unit in the backyard of a single-family home. ADUs are typically small, so that they can fit neatly into a backyard, with a compact and efficient floor plan big enough for one or two people to live in.

Adding value all around

One of the greatest benefits of an ADU is the value it adds to a property. Already a popular selling point in many areas, they not only add square footage of independent living space but can also provide supplementary rental income to the homeowner. In the past, zoning laws have prevented this but with the current shortage of housing availability cities and states are enacting policies which encourage the building of ADUs but permitting them to be built “by right”, with no special permitting needed.

Building ADUs increases the amount of housing units while reducing the pressure of cities to expand outwards. Instead of building large-scale low-income housing, building a multitude of small-scale ADUs will increase property values across the board as the integrity and  character of a neighborhood is preserved. And higher density populations can not only bring more commercial activity, more transport options and walkability, but the value of infrastructure investments such as transportation, is expanded when more people use it.

Multigenerational housing

With the housing shortage at crisis levels, multigenerational housing is becoming more widely accepted in the US, and ADUs are likely to become more frequently used for expanded families. An ADU can provide housing for ageing parents, home care helpers or young adult members of a family. It can provide additional work-from-home space or it can allow senior homeowners to age in place.

Cost and efficiency

Building an ADU in your backyard means you don’t have to acquire land and their compact size requires less building materials. In some cases, costs are minimized by manufacturing off-site. Their size makes them inherently energy efficient as well.

Zoning

In some cities zoning laws can make it tough for homeowners to create an entirely new dwelling on their property. They may also face backlash from NIMBY (Not in My Backyard) neighbors. But homeowners who build ADUs are filling an important affordability gap and are helping to address the ever-growing housing crisis.

In Portland, Oregon, the city has introduced a combination of zoning reforms, fee waivers, and outreach to jumpstart the building of ADUs and help address the critical housing shortage. That’s where Patrick Quinton launched his company, Dweller. Dweller specializes in building and providing ADUs to homeowners who want one. Not only do they build the modular ADUs offsite, saving substantial time and money, they handle all aspects of the process, from site planning and permitting, to utilities, installation and landscaping. And they pay for the ADUs as well – financing that most homeowners don’t have. Dweller enters into a ground lease with each homeowner, giving them the option to buy the ADU at some later date, making the process of adding a housing unit and adding a little income for each homeowner, as easy as can be.

Listen in to my conversation with Patrick.

Image courtesy of Dweller, Inc

Learn some more …

The world beyond banks.

Annie Donovan knows impact investing. She joined the Local Initiatives Support Corporation (LISC) last year, as COO, having built a truly remarkable career in community investment by embracing a pursuit of fairness in economics and finance. She found her way to this mission in part through her roots growing up in a working class family, where she was exposed to ideas of social justice early in life.

After a career working at the national level, she says what attracted her to LISC was its “deep, long-term connection to communities.” Previously, at the CDFI Fund, which provides capital to distressed communities, Annie worked on strategies to address local needs using programs like New Markets Tax Credits, CDFI Bond Guarantee Program, Capital Magnet Fund and the Healthy Food Financing Initiative.

A Pittsburgh native, Annie has described how community investment work ‘found her’ while she was serving in the Peace Corps after college. She says, “I learned powerful lessons about entrepreneurship and community finance – and about the capacity for community members to drive their own success if they have the right resources. I wanted to do more of that kind of work after I returned home.”

Annie has served as CEO of CoMetrics, a social enterprise that works with nonprofits to improve their financial management, and as a senior policy advisor in the Obama Administration. She has been a senior fellow at the Beeck Center for Social Impact and Innovation at Georgetown University, as well as at the Center for Community Investment at the Lincoln Institute of Land Policy. She also served as president of the New Markets Tax Credit Coalition.

Insights and Inspirations

  • Annie likes toiling close to the ground. She is committed to ‘local.’
  • She has a heart for social justice.
  • Community engagement is of utmost importance to building equity.
  • “You need to know the community where you build”, says Annie.
  • We can’t solve the issues of inequity without thinking comprehensively – housing, schools, education, the lot.
  • Disruptive capital is critical for solving these problems.
  • What if lots of corporations, like Netflix, contributed their PR funds to helping small businesses instead?

Information and Links

Read the podcast transcript here

Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Annie Donovan, COO at LISC, an organization deeply rooted in the community. Annie has built a truly remarkable career in community investment by embracing a pursuit of fairness in economics and finance. She found her way to this mission through her roots in Pittsburgh, growing up in a working-class family where she was exposed to ideas of social justice early in life. In no particular order, she has served as a senior policy adviser in the Obama administration’s Office of Social Innovation, as the CEO of the social enterprise, Core Metrics, heading the Community Development Financial Institutions Fund, and she spent two decades at Capital Impact Partners, all before taking over as COO at LISC. Be sure to go to EvePicker.com to find out more about Annie on the show notes page for this episode, and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:39] Hello, Annie, I’m really honored to have you on my show and pretty excited to talk to a fellow Pittsburgher.

Annie Donovan: [00:01:46] Well, thank you, Eve. I’m very happy to be here and I’m always thrilled and delighted to talk to Pittsburghers.

Eve: [00:01:55] Good. So, the first question I have is actually about Pittsburgh. So, you grew up in Pittsburgh, and I’m wondering how that shaped the way you see the world.

Annie: [00:02:04] Thank you for that question. It very much did shape the way I see the world. Well, first of all, let me just tell you a little bit about my context. I grew up on the North Side of Pittsburgh. From an Irish Catholic family, I am the 10th of 11 children.

Eve: [00:02:19] Wow.

Annie: [00:02:19] My father’s family, so he was first generation American. His parents both came from Ireland. They actually bought a house on the North Side. So, the way that my, my parents were actually able to afford to raise a family that big was because my grandparents passed their home on to my parents. And so they never had to pay a mortgage. So, yeah. So, that’s how we sort of made ends meet economically, and, you know, were able to create some mobility in our family.

Eve: [00:02:58] What neighborhood was that?

Annie: [00:03:00] Brighton Heights.

Eve: [00:03:01] Brighton Heights. Ok.

Annie: [00:03:03] But the things about Pittsburgh, you know, when you’re from there or when you’ve lived a long time there, you know, Pittsburgh can take a hit for, you know, being provincial. And that’s certainly the case. I mean, in my parents’ generation, my parents had an ethnically mixed marriage because, you know, my father was Irish, and my mother was part German. But in their generation, people even went to church based on ethnicity. So, you know, so there’s a lot of that sort of ethnic pride and it can feel a little provincial. But Pittsburghers are also very unpretentious and very warm and open hearted, I think, and just possess a lot of resilience and, you know, grit. Those are qualities that I’m very proud to have had instilled in me growing up that I’ve relied on throughout my career.

Eve: [00:03:58] So, you know, I think also what I noticed in Pittsburgh and I heard stories about the steel mills actually purposefully separating neighborhoods into ethnicities.

Annie: [00:04:09] Yes.

Eve: [00:04:10] And that sort of prolonged that here.

Annie: [00:04:13] Yes.

Eve: [00:04:13] And it’s made the city architecturally interesting …

Annie: [00:04:15] Yes.

Eve: [00:04:15] … because the neighborhoods are really distinctive and unique …

Annie: [00:04:20] Yes, yeah, very much so.

Eve: [00:04:21] … and look very different. It’s fascinating. And then, of course, there’s the managers neighborhoods and the steelworker neighborhoods, so you know …

Annie: [00:04:28] Right. And you know, interestingly, what happened in my family, I grew up in a working-class neighborhood and it was very working class. My father actually went to school at night and earned a college degree from Duquesne, and he was the only person in the neighborhood who had a college degree. And he was an accountant. He worked for the Allegheny County. So, we had this interesting blend of, you know, when our country was experiencing sort of white flight. Right, so lots of white folks moving out to the suburbs.

Eve: [00:05:03] Yes.

Annie: [00:05:03] And those white folks moved out and then they went on toward more upward mobility. And we stayed in the working class neighborhood. But we were still, in my family, able to experience upward mobility because we owned our home. And my father had a college degree.

Eve: [00:05:21] A degree, yeah yesh, yeah. What led you into the world of community finance?

Annie: [00:05:25] I had always had, I think, a heart for social justice work. I thought a lot about poverty, and I thought a lot about the kind of injustices that were in my world growing up. Of course, I was born in 1964, Pittsburgh being, you know, not only ethnically divided, but lots of really hard lines around racial division, as well.

Eve: [00:05:54] Yeah.

Annie: [00:05:54] And I have to say, I have to hand it to my mother, because when we were growing up, this is probably the mid-70s and my brothers … well, so, in my family, there are six girls, and then three boys, me, and a boy. So, it’s almost like having two generations, you know. And I grew up with the boys. They wanted to start a street hockey league. And you know so, of course, I was out there playing street hockey with them. I’m a Title IX gal, and they were looking for a coach. And so they put an ad in the newspaper and a guy responded to it. And his name was Curtis. He was from the Hill District. And of course, the Hill District is the historically Black neighborhood. And so they signed him up and he came over to Brighton Heights, which was a very white place, and coached the street hockey team. For me, you know, they just got me thinking about, like, why why do we have these divisions? And I have these ideas of what people from from Black communities were supposed to be like. And he wasn’t like that. He wasn’t like my image. And my mother, you know, they’d play street hockey and it’d be time for dinner, and of course, whoever was around my mother invited in for dinner. So, often times Curtis would eat dinner with us. When we said Grace before dinner, the way he bowed his head and prayed, you know, it just struck me that everything I’d kind of learned about our Black neighbors I didn’t see in him. And so this is what got me thinking, like, what was all that education about? And so I’ve always been on a quest to understand what these racial lines are, too, and what the class lines are. And so, you know, I studied economics in college. Early on in my journey there was a 101 economics class and we were learning about rational thinking and optimization.

Annie: [00:07:53] And I remember thinking, well, this isn’t really a fair way to allocate resources across a society. And so I said that to my professor afterwards, who was, you know, a classically-trained economist who was like, Chicago School. And he said, well, this isn’t about fairness, it’s about efficiency. And that was like, OK, I’ve found my mission. And so, you know, and then I joined the Peace Corps, went to the Peace Corps after college. You know, lived in a very poor place. And then, you know, then it really sunk in because the people that I lived around were supremely resourceful and smart and really dirt poor. And so, what was that about? So, that’s when I became sort of even more fiercely committed to it. And, you know, that’s so, that’s been the pursuit of my career since then, is how do we use the tools of economics and finance, and how do we rewrite them in a way that produces a more inclusive prosperity, because we are leaving a lot of talent on the table.

Eve: [00:09:10] Ok, so you’ve had some really big roles from the White House to the head of the CDFI Fund. And now you’re at LISC. And I’m wondering, I’m familiar with LISC, I actually benefited from a loan from LISC years ago …

Annie: [00:09:23] Good.

Eve: [00:09:23] … for one of my projects. And I’m wondering what brought you there.

Annie: [00:09:28] Yeah. So, what brought me to LISC was, so after my experience at the CDFI Fund, I knew I wanted to go back into practice, because that’s kind of where my heart and soul lies. And so, one of the characteristics about LISC is that it is very committed to local – ‘local initiatives’ is part of our name. And I wanted to be in a place that was toiling more closely to the ground. You know, we have local offices, we have 35 and growing, local offices that really are programmatically focused and focused on capacity building alongside lending. And so, that’s where I saw the ability to more closely connect those pieces and not just be finance oriented. But to get deeper, closer to the community. And then the second thing was I saw in Maurice Jones, a leader in our industry who is boldly ambitious, is ambitious for the sake of impact, and I was attracted to that as well. So, yes, so that’s what drew me to LISC.

Eve: [00:10:41] Then like about community capital, what does community development capital look like today versus 20 years ago?

Annie: [00:10:49] Yeah, that’s a really good question. So, I think 20 years ago, if you think about, or even 25 years ago, you know, the sort of the history of community development or community capital, community investment … The community investment world, really, it braids together organizations and institutions that come from different origin stories. So, there’s the origin story of the black-owned banks and minority depository institutions that got underway right after emancipation, for Black Americans to build wealth. There is the credit union movement that was tending to people of modest means who wanted to come together and save together and, you know, have access to financial services that were owned and controlled by them. And then you had the nonprofit loan fund world that emerged because community development really took shape in the war on poverty and the commitment of the federal government to funding community development corporations. There was an era there where there’s a lot of federal funding, and we can talk about urban policy and how that, you know, CDCs kind of shifted urban policy. But then in the beginning of the Reagan era is when the feds really pulled back. And that’s when loan funds really started to emerge to say, well, we have to create new ways to finance the activity of community development. And that’s when the loan funds really started taking root. And then when Clinton came into office, he created the CDFI fund. And that has been a really important policy innovation, still as a policy innovation today, that has been investing the kind of equity capital that the industry needs to grow, that you can’t really get anywhere else.

Annie: [00:12:46] So, the industry has really blossomed, partly because we had good seed capital and partly because we just have been a bunch of people who have had a faith in the people and the communities that we’re investing in and have found a way to work with traditional and non-traditional sources of capital, to blend them in a way that allows investments to work in, you know, places where, you know, my old economics professor would have said you wouldn’t invest in because it wasn’t efficient, the rate of return wasn’t commensurate with risk, and all those sort of traditional measures, you know, that’s the reason capital doesn’t flow to some of the communities that we care about. And we are becoming more mainstream. And even though we’re still a tiny percentage of the financial services sector, I think through, even through the pandemic, you start to see CDFIs emerge, getting more attention in mainstream media. And certainly LISC has gotten a lot of, we’ve been able to raise a lot of resources through this pandemic because there’s a recognition, and we’ve not only done the investing and gotten the money there where people said it can’t go, but we’ve done it financially in a fiscally responsible way. So, we’ve proven that the places and the people we’re investing in are creditworthy. That has allowed this industry to grow. And I think it’s going to continue to grow. I’m optimistic about that.

Eve: [00:14:19] Years ago, I helped found a CDC in Pittsburgh. And what was really fascinating to me, because I was pretty new here and I didn’t really understand this lay of the land very well, you know, I sort of dropped in from another country. But, you know, all of the work we did was to get us to the same place as neighborhoods and places that were doing OK. And I’ve been in, I’ve been in this work for a long time and we never seem to get there. And so, I’m wondering, you know, because when you take a step forward with CDFIs, and maybe this is, you know, a really naive way to look at it, but you take a step forward with CDFIs, and you take a step back with banks who no longer really want to bank in or lend in communities, or want more equity or want, you know, more traditional products to lend in, and it’s just this never ending catch up, so, how does it all get better.

Annie: [00:15:30] Yeah. So, of course, I, I’ve been doing a lot of thinking about this and I think a lot of, a lot of folks have been soul searching around this, particularly because of the uprisings, demanding more, you know, racial, that we address racial equity. And so, it does often feel like, you know, some days it really just feels like we are just doing the work of bandaid, you know, putting bandaids on things. And that’s, that’s where I think this the work right now is really important because we can’t be satisfied with what we’ve done because it’s clearly not enough. And, but I think we are in a moment that we have to take, make the best use of, because we can’t do this on our own, as our, with our little bitty organizations. And even if we’re a billion dollars or two billion dollars or 10 billion dollars, we’re still to itty bitty to to create change on the scale that needs to be, that needs to happen. But that doesn’t mean this stuff shouldn’t happen. And it’s, and it does have to happen because even over my career, you know, 25 years ago if somebody had said that you’ll be working for a CDFI or you will help the, you know, build a CDFI, that will get to be a billion dollars. You know, wow, that would have been, because we, these loan funds were starting at, they just wanted to get to 10 million, you know.

Eve: [00:17:04] Right.

Annie: [00:17:05] And and we we wouldn’t be we wouldn’t have the opportunities that are in front of us now if we hadn’t taken all those baby steps to get to here. So, over the long haul, you know, I hope that we can get there. But, you know, there’s the bigger, we have to be able to impact the bigger picture. And, you know, for example, it was discouraging to me when I was at the CDFI Fund, and the second two years I was there under this administration that, you know, that a tax policy got, got enacted that just, you know, felt like it was going to undo everything that we were trying to do. So, there are these macro forces that, you know, that we have to try to turn the tide on.

Eve: [00:18:04] Yeah, that’s depressing. But I know (laughter) but I know it’s a really long patient game because I’ve been, I’ve seen that, you know, on things I’ve worked on that initially were like, what are you doing? You’re nuts to now being, OK, this is mainstream. Like co-working or lofts downtown or revitalizing downtowns …

Annie: [00:18:27] Exactly.

Eve: [00:18:27] … or all of that. And we’re actually …

Annie: [00:18:29] Exactly.

Eve: [00:18:29] … I think you’re right. We’re in a moment. All of the progress we were heading towards has been unbelievably compressed by everything that’s happened this year. So, maybe that’s a good thing, but …

Annie: [00:18:44] Yeah, and I think that it’s also very complex too, right? Because, even we see in some places tremendous progress running exactly alongside of things that feel like tremendous regression …

Eve: [00:18:56] Yes.

Annie: [00:18:56] … you know, so, and both of those things are happening at the same time.

Eve: [00:19:01] Well, what’s … I’m going to ask you, may not know the answer. But I really puzzle about what’s happening in traditional financial institutions. So, you know, I have this crowdfunding platform and what’s been startling to me and, you know, and our purpose is to help raise money for creative change-making projects and help developers get a little equity together, that seems to be a little more and more equity every year as banks change their position on what they lend for. Because we think that creative, those projects are important for making cities better. B

Annie: [00:19:41] Yeh, yes.

Eve: [00:19:41] But it seems to me that they’re retracting even further because we’re just being flooded at the moment, and equity requirements go up. It just seems to be harder and harder to borrow money, to do things, that are different than the things we have today. And we know we need to do things differently to fix some problems.

Annie: [00:20:09] Yeah, yeah. Well, the way I think about this and what I see from my perch is that I think that we have to, we have to start thinking about the world beyond banks, and, you know, think about and work hard on this, you know, the idea of having broader stakeholders. I mean, banks have been brought to the table on community finance because of the Community Reinvestment Act.

Eve: [00:20:45] Right.

Annie: [00:20:45] And so, so what are the ways in which, you know, there might be policy levers that need to be pulled to get more folks to the table. But also, you know, what the next generation of employees and employers, I mean, I think that we’re in for change and I’m really hoping that we’re in for change with the next generation of leaders. Because they have been raised with different expectations and they are already changing, corporate, the way … corporations are reacting. And you see now, you know, we’ve been the beneficiary of, you know, almost a 100 million dollars in corporate contributions that are going out to small businesses, as, you know, in this pandemic, in the form of relief grants.

Eve: [00:21:44] That’s pretty fabulous.

Annie: [00:21:45] And what we did was, the first one that came in, the first corporation that came in and said, can you do this for us? And we said, yes, we can do it for you, but we’re going to do it in our LISC way. And that means we are going to get to community-serving businesses that are majority-owned by people of color and women. And they said, OK, cool. Go ahead and do it. So, you know, and then the next company that came in said we want to buy that, we want to buy, especially as PPP, the paycheck protection program and SBA, major piece of the the CARES Act, you know, was clearly written in a way that was just going to follow the old rules for how you distribute capital. And then people started saying, wait, wait, wait, there has to be other ways to do this. And so the work that we were doing was tipping the scales. We put our thumb on the scale in favor of community-serving small businesses and gave preference, and we’re ending up with, you know, somewhere in the low 90 percent, of the businesses that we’re funding, are owned by people of color.

Eve: [00:23:04] That’s pretty great.

Annie: [00:23:05] And yeah, and in the paycheck protection program, we got to about 80 percent of our companies being minority women- and women-owned companies. And when you put together and in the, on the private sector side, our formula was where we’re going to advantage certain census tracts. We’re going to advantage minority ownership and women ownership, and we’re going to advantage certain size. So, when you line all those up, it’s not that hard to come up with lots of folks to invest in. And that’s where our money’s gone.

Eve: [00:23:43] So, another question I have is looking at the other side of it. If a real estate developer has access to community capital, what should her reciprocal responsibilities be to that community?

Annie: [00:23:59] I think that’s really, really very important because, and we have to all get better at this as well, in terms of how we doing community engagement, and how we’re bringing people into ownership of what happens at the community level. And so I think, you know, there are just these models and this seems to me to be what’s out there on the fringe right now, you know, and it’s always what’s happening on the fringe that’s eventually going to be where where we all go, hopefully. But what I see is, I’ve been been advising on a project that’s being done by a foundation of philanthropy. It’s not a traditional philanthropy. It’s one of the newer philanthropies. And they are, they’re going to do they’re investing in a real estate project in a very, one of the most distressed census tracts in Washington, D.C. And they are bringing together community stakeholders to say, how do we create a vehicle for people who live in that community right now before the development happens? How do we create a vehicle for them to invest in it and to get ownership in it? And those are, I think, the kind of strategies we need to be thinking about. You know, how do we, because otherwise if you just let this play out via market forces, you get gentrification a lot of times.

Eve: [00:25:40] Right, right, right.

Annie: [00:25:42] So, you know, we don’t want to go in that direction. And that that means giving people real ownership stakes.

Eve: [00:25:48] I mean, I agree. That’s what we at Small Change, I’m having similar conversations with some very large developers who are starting to think about that ownership piece, in really humongous projects in D.C. and New York. And it’s really exciting to see that people are thinking about it. It is hopeful.

Annie: [00:26:08] So, yeah. And if you think about like, so, another example, and this is not at the project level, this is at the fund level. But, you know, we’re managing we’re going to be managing money on behalf of Netflix. And Netflix went out, and this was somebody inside Netflix who said, you know, in their treasury department, why are we sitting on all this money and not thinking about where it’s invested? Why don’t we get this to black-owned institutions and, you know, and that, and that’s when, so, you know, like back to your question, when are we ever going to see this get better? I mean, that’s when it’s going to get better, right? When that person inside that corporation goes to the CEO, and the CEO says, yeah, absolutely, why aren’t we doing that?

Eve: [00:26:53] Yeh, yeh.

Annie: [00:26:53] And then you put it out there. And once, when Netflix put that out there and they made the investment in us, we had so many corporations respond to say, well, how do we do that, too? So, that’s what we have to do. We have to create the bandwagon. But the bandwagon that’s moving money in this direction.

Eve: [00:27:12] Yeh. Yeh, yeh. So, I mean, how would you define impact investing then?

Annie: [00:27:20] Ok, so impact investing to me, I always define it as it’s a spectrum, right, because I like I think it’s important for all of us to have a big umbrella and be inclusive. Right? And on one end of the impact investing spectrum are the folks that would say, you know, you can invest, and do good and do well at the same time. Right? And there’s not really a trade off. And then the other end of the spectrum is, you know, where my work has always been, which is on the whether you call it concessionary or catalytic capital, where you’re trying to, because on that that first end of the spectrum, you’re not disrupting any kind of the market forces. You’re sort of saying the market can do this, but there’s something missing in terms of information flow. So, if everybody had perfect information, then you know that that would solve the problem. So, I’ve never bought into that because I don’t think that it accounts for the systemic racism that exists in our society and in our economy. And so, I think you have to be more disruptive than that. And that requires capital that, that is, that can be designed in a, and stacked and engineered in a way that allows more people to get access to it, to do the kind of projects, to create the kind of businesses that are going to let them into, you know, more economic activity. So, yeah. And my dream is always in my work is always trying to think about, how do we get the people who are on one end of the spectrum down toward the catalytic end? Because if you want to disrupt poverty, you can’t do it on the market end, purely market end.

Eve: [00:29:28] No. Interesting. I mean, impact investing has been growing, I still think it’s small. Do you expect, I’m, I suppose I’m wondering if you expect this, the events of this year to rapidly increase interest in that, too. Well, certainly if you see it from Netflix.

Annie: [00:29:52] Yeah, I think I think it is. And I think the question is, you know, the question that’s on our mind at LISC is how do we, how do we convert the short-term interest into long-term relationships. Because, and how do we get people to see? Because actually, frankly, in the short run, it’s good for a corporation’s brand to step up and do this kind of work.

Eve: [00:30:17] Oh, yeh.

Annie: [00:30:17] I mean they’re … Yeah, and there’s not really much at stake there. And frankly, you know, they could direct, if they wanted to, they could purely direct this out of their PR budgets.

Eve: [00:30:28] Yes.

Annie: [00:30:29] You know, and so how do we, how do we, you know, convert people to the long-term play? That’s the work that’s in front of us right now.

Eve: [00:30:40] Right. So, Just shifting gears a little bit, how, you know, what do we need to think about to make our cities and neighborhoods just better places for everyone?

Annie: [00:30:55] Yeah. I think that we have to, we have to think comprehensively, first of all. So, I don’t think, that’s the other another reason that I wanted to join LISC is because I like the comprehensive approach. Because I don’t think there’s any one dimension to neighborhood life that is a silver bullet. Right? So we have to invest more in education and housing stability is fundamental to economic mobility. And so, we have to invest in all of these things. And, you know, back to, back to the big picture of tax policy and how we tax and spend. I do think we just, the thing is, we know exactly what we need to do.

Eve: [00:31:54] Yes.

Annie: [00:31:55] We just have to invest in it. Right? We know the payoff of early childhood education. We know the payoff of education in general. We know the payoff of preventive health care. So, you know, what more evidence do you need? We just need to have the will and the commitment as a society. And once that’s there, I think everything else follows.

Eve: [00:32:24] Yeh. And I see physically, too, we know the payoff of neighborhood parks and better streets and better lighting and all of those things that everyone wants in their own neighborhood. And some people don’t have.

Annie: [00:32:39] Right. And we have to develop we have to develop our collective will to say that that’s not OK. That’s not the world we want to live in.

Eve: [00:32:49] So, what community engagement tools have you seen that have worked that, you know, you mentioned that that’s a critical piece of it and that’s hard.

Annie: [00:32:59] It is hard. It’s hard for a lot of reasons, one of which is that when community developers who don’t know community, if they don’t know the community, if you’re coming in to this, you know, as a sort of professional, you may have certain assumptions about what people, and I think one of the things we make a mistake on this all the time, like what does the community want? Well, you know what? Not everybody in the community agrees on what they want, just like, and just like in your community, you know.

Eve: [00:33:35] Yes.

Annie: [00:33:35] So, I think starting with listening, and being open is really, really important. And so, I mentioned a, you know, the project where, you know, in Washington, D.C., where the funder was coming in and actually saying, OK, we want to do, we want the result of, to be that people have an ownership stake. But why don’t we find out from the community what that means to them, how they would do it? What, is that what you, is that what’s really wanted? You know, so I think, you know, good community engagement starts with listening, not making assumptions and and bringing people in and just providing the space for voices to be to be heard and listened to. And, you know, just having a faith in that. That that’s, you know, that that’s going to going to lead you down the right path is a good way to get people involved. And I think that also, you know, when I started my career, after I got back from the Peace Corps, I went to work for the Campaign for Human Development. And in that work, we funded a lot of community organizing. And the ability of communities to organize themselves is also an important piece of this. Like the, there’s very little investment that goes into community organizing. And I think that’s a really important component.

Eve: [00:35:24] You know, that’s what I was just going to say, because I think about, like when you’re a very large developer doing a large scale project, you can absorb that community organizing piece.

Annie: [00:35:35] Yes.

Eve: [00:35:35] But when you’re a small developer doing like interstitial projects that are, you know, fit into a neighborhood, that becomes a pretty heavy lift in terms of resources …

Annie: [00:35:46] Exactly.

Eve: [00:35:46] … and there to help, and how do you get that done properly. It’s really, it’s hard. It’s hard.

Annie: [00:35:53] Right. Right. And it’s also, you know, and we need more philanthropy dollars in that because that’s a really hard role for government to play. And we administer a lot of Section 4 money, and that’s out of the HUD budget, and that’s for capacity building of local organizations, and, tt’s really hard money to work with.

Eve: [00:36:16] Yes. Yeh, yeh.

Annie: [00:36:16] You know, it’s, so there’s a need for investment in, of flexible dollars into neighborhood organizing and leadership development.

Eve: [00:36:27] Yeah, no, I agree. So, what’s what’s next for you and LISC? I mean, what do you think the next five years will look like in this pretty fast-moving time that we’re having here?

Annie: [00:36:40] Yes. So. Well, I think that we are on a pathway, move, you know, moving to the next level of growth and scale. And for us, that’s about how do we, how do we use the assets that we’ve built so far to get to the next, to get to that next level? And I think for us, you know, putting impact first, you know, the racial equity piece of this is really important. And I think, I am very hopeful that we are going to be able to do the deeper work there, that we’re going to, you know, take, choose the pathway of doing the harder, deeper work. Because the long-term outcome is going to be better. And we’re going to, you know, try to bring our partners along for that ride. And I think that we are through this period, we have greatly increased our capacity to reach small businesses, and to think about inclusive economic development. How do we build the infrastructure for more inclusive economic development? And ecosystems that support community, small community-owned or locally owned small businesses? And, you know, and we have to be thinking about how are we disrupting systems? So, because we’re at the edges of them now, you know, in terms of their usefulness and we have to build something that’s built to suit, for the next level of scale. So.

Eve: [00:38:41] Thank you very much. I really enjoyed the conversation. And I can’t I really can’t wait to see what you build and where LISC goes and where you go with all this.

Annie: [00:38:52] Well, thank you and I love the work that you’re doing, every dimension, you know, that, every strategy that brings in more capital and the, you know, more of the kind of equity capital that you’re pulling in and democratizing that, I think is a really powerful strategy. And I also wish you the best.

Eve: [00:39:17] Yeh, all takes … Thank you, Annie.

Annie: [00:39:19] Yes. I can’t wait to. I can’t wait to see that happening.

Eve: [00:39:22] Bye.

Annie: [00:39:22] OK. Bye, bye.

Eve: [00:39:29] That was Annie Donovan. Annie thinks we need to start thinking about the world beyond banks. We need to find a way to let communities invest in order to change how we tackle development. To give them a real stake in their own future. Listening is key, as is providing the space for people to be heard. For Annie, impact investment needs to have a big umbrella and be deeply inclusive. She also understands playing the long game, saying that we know exactly what to do, but that we need to develop as a society, the collective will to invest in that knowledge. You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today and thank you any for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker, signing off to go make some change.

Image courtesy of Annie Donovan / LISC