Rethink Real Estate. For Good.

Impact

Cities are networks.

Over the last 25 years, Bruce Katz has established himself as one of the foremost policy experts working on urban and metro areas. He founded the Metropolitan Policy Program at the Brookings Institution, whose work has helped to reshape and revitalize several cities in the U.S. He is currently a Distinguished Fellow at Drexel University, heading their Nowak Metro Finance Lab. Bruce has also co-written two books on the challenges and opportunities of global urbanization: The New Localism: How Cities Can Thrive in the Age of Populism (2018), and The Metropolitan Revolution: How Cities and Metros are Fixing Our Broken Politics and Fragile Economy (2013).

Bruce’s recent work includes investigating how ‘clusters’ or regional innovation districts helped the resurgence of certain regions, both in the U.S. and abroad, as well as exploring how cities can thrive in the age of populism – what he calls The New Localism. He writes, “Power is drifting downward from the nation-state to cities and metropolitan communities, horizontally from government to networks of public, private, and civic actors, and globally along transnational circuits of capital, trade, and innovation.” It is this ‘new’ framework of governance and economics that drives his current work.

Bruce began his career as senior counsel, then staff director, for the Senate Subcommittee on Housing and Urban Affairs, then served as chief of staff to Henry Cisneros, former Secretary of Housing and Urban Development. He also co-led the Obama administration’s housing and urban transition team.

Insights and Inspirations

  • Cities are networks. They must knit together solutions.
  • It’s an imperative. We need a different model in the U.S. for growth so that it is sustainable and inclusive.
  • Transforming our cities requires long term thinking. It will take a 20 to 40-year cycle.
  • Improving the quantity and quality of affordable housing in the U.S. will take a radical systemic change.

Information and Links

  • Bruce and colleagues are thinking (and writing) about the Covid19 crisis and business recovery for minority owned businesses.
  • Bruce’s books are available here.
  • Research and briefs on The New Localism are available here.
Read the podcast transcript here

Eve Picker: [00:00:07] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:13] My guest today is Bruce Katz, co-founder of New Localism Advisors. Over the last 25 years, Bruce has established himself as one of the foremost policy experts working on urban and metro areas. He founded the Metro Policy Program at the Brookings Institution and is credited with reshaping and revitalizing several cities in the U.S. More recently, he co-wrote several books shifting his thinking to how cities can thrive in the age of populism, what he calls the new localism.

Eve: [00:00:52] Be sure to go to rethinkrealestateforgood.co to find out more about Bruce 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: [00:01:13] Hello, Bruce. I’m so pleased you could join me today.

Bruce Katz: [00:01:16] Well, thanks for having me.

[00:01:18] Yeah, it’s really a pleasure. So, I would really love to talk about your current work and what you call the new localism. And first, I just wanted to know what that means.

Bruce: [00:01:29] Well, I think the new localism is the way we solve problems in the world today. Cities are networks of public, private, civic, community institutions, intermediaries. They’re not governments. And I think the kinds of challenges we have today require multidisciplinary and multi-sectoral solutions. And so, cities have become the places where you can do that. Whether it’s around transportation or housing or small business or any number of other significant challenges we have today.

Eve: [00:02:10] How do you see this trend emerging?

Bruce: [00:02:12] Well, I think it’s been emerging for quite some time. In the United States it’s emerged partly to fill the vacuum left by a dysfunctional and erratic federal government. In many states, also, which have ceased to function in any effective and efficient manner. I mean, obviously, you’ve seen this play out during the Covid crisis in the United States. So, I think what has happened is governments at the higher levels, quote unquote, of our societies have become hijacked by partisanship and have been divided by ideological polarization. And so, the only place where pragmatism and problem solving is the order of the day is the local, is the city level or county or metropolitan level, because that’s where you have different stakeholders who come together to collaborate to compete and collaborate to solve problems. So I think this is partly as a response to the growing partisanship in the United States and around the world, and partly just because 21st century solutions, which are enormously complex, require multi-sectoral horizontal solutions rather than one agency, one bureaucracy, which is more the way government is organized, resolving the issue.

Eve: [00:03:38] So, yeah, I’m not sure whether I find that comforting or scary. So, if the federal government is letting us down, we have to rely on each other locally that could be really good in a way that that could really promote innovation and entrepreneurism that’s probably impossible at the federal government level.

Bruce: [00:03:59] Well, I think for, you know, the mid 20th century is when we saw national governments balloon up in the United States. It happened in the aftermath of the Second World War. And there’s a purpose with national governments. They play a very important role around the safety net, around, obviously, universal health care and, you know, other essential supports for families. They obviously, the defence role they play around the military and so forth. I mean, there are certain things that a national government does that local networks can’t do, and they should do that job well. But they are not the full sum of a nation, you know, and the United States is a federal republic with enormous amount of power and capacity and resources distributed and decentralized. And so, really what the new localism is about is about harnessing and leveraging all this incredible, innovative power that we have in our country to solve problems and push forward. And the national government can be a platform for that and be a participant in it. But we shouldn’t be looking to that level to solve issues that, at the end of the day, require so much local interaction and local networks.

Eve: [00:05:33] That makes a lot of sense. So, I mean, what does this mean pragmatically then, for cities and metropolitan areas, at least in the way they are organized and might reorganize themselves moving forward?

Bruce: [00:05:48] Well, first is recognition that cities are not governments and metropolitan areas are not government, so you shouldn’t be thinking the way we think about government. When we think about government, we say, well, what’s the Department of Transportation going to do? Or what’s the Department of Housing going to do? Very bureaucratic, very vertical, very hierarchical. Cities are networks so we should be thinking about, if we’re going to solve our congestion problem or solve our housing affordability problem or grow Black- and brown-owned business. What’s the network way of doing that? How do we knit together different kinds of sectors, different ways of thinking, different sources of capital? It’s more likely that those solutions that are horizontal rather than vertical will be more sustained over time.

Bruce: [00:06:37] So, you know, thinking through network governance, right? Not just who do we elect to be mayor or county executive, which is very important, but really, how does universities and health care systems and corporations and entrepreneurs and the public sector philanthropies, how do these work together around solving specific concrete, tangible solutions or problems? I mean, what I’m trying to basically put forward with the new localism, which I co-wrote with a close friend of mine, Jeremy Nowak, is a completely different way of thinking about how we solve problems in the 21st century. And it’s to get away from 20th century thinking about government and silos and compartments as a way to do that.

Eve: [00:07:29] So, you know, I have I have a couple of questions around that and one is what brought you to this thinking?

Bruce: [00:07:36] Well, I spent my professional career moving from the federal level to the local level. I was chief of staff at HUD, the federal Department of Housing and Urban Development in the United States. I was chief of staff, staff director of a U.S. Senate subcommittee on Housing and Urban Affairs. So, I, I spent 10 years in the federal government working on issues of importance to cities but coming at it from a top down perspective. Then I left to start a city think tank at the Brookings Institution in Washington, D.C., and really spent the next two decades working with cities all over the U.S. and around the world and beginning to work out a different theory around bottom-up nation building, essentially.

Bruce: [00:08:24] And so I’ve traveled a pretty long circle here of starting at the federal level, wanting to work on cities, but then really trying to work with cities and think through different mechanisms, different approaches and fundamentally different, more transformational outcomes that we’re trying to achieve. So, you know, we’re in an odd moment now because of these multiple pandemics that we’re facing in the United States and beyond. The health pandemic, the race pandemic. But at the end of the day, I think success will occur ultimately when communities, cities, counties, metropolitan areas are able to operate in this in a very radically different way than they’ve operated in the past.

Eve: [00:09:13] Interesting. So, you know, are there some cities that have emerged that are shining examples of this new power shift or new localism?

Bruce: [00:09:24] I think many cities actually have, and the crises that we’re going through have forced more collaboration across multiple sectors. In the book, The New Localism, we wrote a lot about Pittsburgh, which is sort of an informal network of philanthropies, universities, hospitals, corporations, government, community, to sort of lift Pittsburgh from the depths of a industrial collapse, which happened back in the late 1970s. Pittsburgh today is seen as that incredible vanguard of the innovative economy, partly because of…..

Eve: [00:10:04] I have to, I have to say full disclosure. You’re not just saying that because I’m in Pittsburgh, right?

Bruce: [00:10:10] No, not at all. I didn’t even know you were, but.

Eve: [00:10:12] I’m in Pittsburgh, so I’ve seen that transformation firsthand. It was pretty interesting and mind blowing to watch. But please, please go on.

Bruce: [00:10:24] Pittsburgh was a normal older industrial city in the United States. It would have been left for dead. I mean, most were, right? I mean, the comeback of Pittsburgh is because of local leaders understanding their distinctive advantages, investing in them for decades without any significant returns. And now, as the economy restructures and we move to the next generation of technologies, Pittsburgh has the ability not just to be a competitive city, but to be an inclusive city. So, Pittsburgh has an informal network that has been operating for decades. Indianapolis, which we also talk about has a more formal structure where the corporations and the universities and the philanthropies came together and set up an entity called the Central Indiana Corporate Partnership to literally help steward the economy for several decades. And what distinguishes Pittsburgh and Indianapolis is the ability to think long term. The US is a very short-term culture. Someone once said to me their idea of planning was lunch. We have a culture that looks at, you know, the corporations look at quarterly returns. You know, people watch stock market gyrations on a daily basis. The key here is to think in these 20, 25, 40-year cycles, just that’s how long it takes to really restructure economies and to have them have full inclusive effect.

Eve: [00:12:01] That’s really interesting. So, you know, I’ve actually seen that myself as I invested in properties in Pittsburgh maybe two decades ago. And now the city is, I don’t know if I would say booming, but it’s certainly in a very different place. But, you know, one of the things that we haven’t done well here in Pittsburgh and I’m sure is probably mimicked in other places, is the race issue where I think Black people have been left behind for a whole multitude of reasons. And, you know, the affordable housing which affects every city certainly becomes worse when a city gains more value. So, are local leaders really thinking about that well enough in advance?

Bruce: [00:12:48] Well, I think this is a, you know, this is an interesting thing about the United States and the other story we tell of the new localism is around Copenhagen. And how Copenhagen was able to move from an older industrial city where manufacturing collapsed to really one of the wealthiest cities of the world in a 30-year cycle. They did that because they established a public asset corporation that was able to use the land and the buildings that were owned by the public sector to basically grow a very different kind of economy and then to generate revenues as the economy grew so that they were able to reinvest in infrastructure. So, there was a public benefit to growth. In the US, the benefit to growth only accrues to the private sector, right? In Northern Europe, in Germany and the Netherlands and in Denmark and the Nordics there is a public benefit. The public has a piece of the pie, so to speak. So, as the pie grows, you’re able to generate revenues that can benefit a much broader segment of the population.

Eve: [00:14:00] That’s interesting. Yeah, the other place I’ve been watching with interest is Australia, because I’ve been gone from there for a long time, but they really lack an affordable housing policy and they’re…. it’s a very wealthy country. And from what I’ve seen, they’ve done a very poor job of transferring any of that wealth for public benefit. So, I don’t think the US is the only place with this issue. Don’t know if I’m right, but that’s my guess.

Bruce: [00:14:31] Well, I think it’s, again, I think of the US. The US as quite odd because in the United States we tend to localize education policy and to some extent, nationalize housing policy. The rest of the world operates in a completely different way. They tend to natutionalize education policy and localize housing policy, right? So, the reason why Hamburg and Copenhagen and Stockholm are able to grow very robust economies but continually invest in affordable housing is because it’s localized in these places. They’re not looking to their national governments to somehow solve the housing problem. They’re basically baking in affordability in the way they grow. And so, a lot of what really applies to cities is to think at a system level but to also think at a global level, because somewhere in the world there’s a city that’s cracking the code on whatever the issue that bedevils you. And that means that there’s just a very broad sort of pool of cities to draw from.

Eve: [00:15:42] Yeah, interesting. Do you know of any cities in the US cracking the affordable housing code, so to speak?

Bruce: [00:15:50] I think they’re mostly sort of at the edges of the affordable housing problem because I think it’ll take a radical systemic change. I mean, I think it’ll take what essentially is more of a German or Danish model and applying it here. We’re doing bits of that, but we’re not doing it at the scale they’re doing it. So, I think we haven’t quite broken out of our own failed system to tell you the truth. You know, on the other hand, you know, the Germans and the Danes and others could learn a lot from our innovation ecosystem, right? The US is hard wired around technological innovation and the rest of the world, you know, some parts of the world are obviously very competitive with us, but we have basically built the very unique U.S. innovation ecosystem. Built, by the way, on federal research and development like at Carnegie Mellon or Pitt, or etc. But we’re quite good at that and we’re quite terrible at these other things.

Eve: [00:17:00] Yeah. So, and then, how do you think this pandemic, the health pandemic, might change the trajectory for these rising cities, the cities that are actually doing a good job of new localism?

Bruce: [00:17:15] Well, personally, it just depends how long this going to go on for?

Eve: [00:17:20] A yeah, we know it’s going to go for a little while, right?

Bruce: [00:17:22] I’m very concerned as we keep cycling through this. So this is a moment where you really do need the national government to step in and sort of catch everyone if they fall, catch people through unemployment insurance, catch small businesses through capital that’s fit to purpose, catch local and county and state governments because of the loss of fiscal revenue. This is the role the federal government, right? This is why we have a federal government. They play this role during natural disasters like hurricanes or floods. Well, this is a hurricane happening everywhere, for an uncertain period of time. And what we really don’t have at the national level at this stage, curbing the spread of the virus or responding to its economic effects, is any kind of functional, predictable, reliable partner. It’s just partisanship. We’re know nothing-ism, you know, on steroids. So, I am worried that the aftermath of this pandemic is going to be with us for a long period of time because of the centrally federal malpractice. Other countries have already come out of the pandemic like the Nordics, and they were smarter about how they supported their workers, their companies and their cities during the entire process. So, I’m very worried about the decade long effect of the corona virus. And on top of it now, we have civil unrest following the death, the murder of George Floyd and we need systems change in the US. And that’s the only way that we’re going to accelerate any kind of inclusive growth recovery. And it’s going to require some real soul searching about why the economic performance and prosperity we had pre-covid was not shared by large segments of our population. So, there’s no return to normal here. And normal was not getting us the kind of outcomes we wanted in the first place.

Eve: [00:19:39] Yeah, exactly. No more is not getting us the outcomes. You know, the question I have is how, there’s so many answers to this, how do you make cities more equitable places for everyone? Because they are inequitable in a thousand and one ways. And yeah, I could see that networks of people are perhaps the only way to solve it. I don’t know. It’s a very big problem.

Bruce: [00:20:05] Well, we do take what we’re good at. We’re very good at innovation in the US. It’s partly because we have an ecosystem in every major city. Take Pittsburgh, we have advanced research. We have the companies. We have start-ups and scale-ups. We have capital to commercialize research, you know, with angel loans, seed money, series A’s, Series B, we have incubators we have accelerators. We have an ecosystem. If you move that over to, how do we grow Black-owned business or Latino-owned business or even women-owned businesses. There frankly is no ecosystem.

Eve: [00:20:40] No, there’s no ecosystem.

Bruce: [00:20:41] We have a, we have sets of goals. Sometimes we have set asides, but we don’t really have this deep infrastructure, intermediaries and different kinds of capital that fit the purpose. So, I think that’s what has to happen. We should take what we’re good at and begin to apply it more broadly. We’re never going to be the Danes or the Germans or the Israelis or someone else. I mean, we need to take what is exceptionally American, this network of sectors that tend to come together and collaborate to compete globally, we need to build on that because that is what makes us highly distinctive in the world.

Eve: [00:21:24] Yeah. On a slightly different track. Do you think there are any current trends in real estate development that are important to the future of cities? Keeping in mind the pandemic as well, I think about this a lot. And, you know, I own real estate with restaurant tenants, and we talk about whether they will survive or not and what it’s going to look like.

Bruce: [00:21:49] Well, to some extent, what you’re describing is that a lot of landlords in the US are really small business, so…

Eve: [00:21:56] Oh yeah, they are. Absolutely.

Bruce: [00:21:57] So, there’s a domino effect to this crisis as we just shut down the economy. The first that were affected were the face-to-face businesses like restaurants and bars and hair salons. But all of those businesses are ecosystems unto themselves. They have lenders, they have landlords, they have suppliers, they have workers, they have customers. So, this whole crisis has exposed the intricacy and the complexity of our economies. I’ve been working on this idea about a new kind of intermediary that we’re calling regenerators, you know, in our main streets, where many of our face serving businesses are co-located and concentrated. And over the course of the next several years, I think what we need to do is have entities that can refill vacant buildings quickly, maybe pop-ups that can provide master leases. So that we don’t see a collapse in the real estate sector, essentially looking for an intermediary that can stabilize important cadres and business districts and main streets in our cities until we really begin to see businessman come back to where it needs to be. So, I think part of the issue here is just the need for different kinds of business models. If we think that every small business is going to snap back by itself, I think we’re delusional. I think we need more collaborative, cooperative models, particularly around retail and particularly around these business districts in which a lot of enterprises co-locate. And real estate’s a big part of that.

Eve: [00:23:47] Yeah, it is.

Bruce: [00:23:47] Another cost of the equation.

Eve: [00:23:50] Yeah, definitely. I am also very worried. But I’m pretty sure we’re going to get through it one way or another. So, what what’s your hope for cities and metros maybe in the next five or 10 years?

Bruce: [00:24:06] You know the imperative, I think at this point, is that cities and metros begin to grow in very different ways, right? The kind of growth that we had in the US pre-crises was not sustainable and was not inclusive. I mean, the US was not making the kind of transition to a carbon neutral future that needs to be made. Copenhagen is, Stockholm is. But our cities were not. At the same time our cities were not really growing income or wealth for large portions of their populations due to a whole complex set of reasons, some deeply rooted in our history. So, we need a different growth model in the US. And there’s a lot of commitment to, quote unquote, inclusive growth and quote unquote, sustainable growth. But those are slippery terms. They’re vague terms. So my hope in the next year or so is that U.S. cities and metropolitan areas commit to some audacious goals for the next decade and then use this period to sort of back cast the kind of more ambitious initiatives and system change that’s necessary so that they can achieve those goals. And if the federal government can be a partner, fantastic, they should be. If states can be partners, great. But the vision for what our future should look like should be essentially designed locally.

Eve: [00:25:46] Oh, I can’t wait to see that.

Bruce: [00:25:47] These are systems or communities with radically different pasts and different priorities, and they should, so, every major city in Metro of the US should be going through this kind of process.

Eve: [00:26:01] It’s an exciting thought. And so, final question, what’s next for you? You said you’re very busy.

Bruce: [00:26:09] I’ve been spending a lot of time thinking about this question about, and, you know, first of all, looking at the current set of data that we have in the US around Black-owned business, brown-owned business, and trying to think through what would be a step change. You know, only two percent of employer firms in the US are owned by Blacks today. They’re 14 percent of our population. There’s a whole set of reasons around that. So, the question is, if over the next decade we were going to double that share or triple that share and also have Black-owned businesses participate in sectors of the economy which tends to pay higher wages, have higher benefits, higher revenues. What would that take? And I think that’s the kind of system building that I’m really interested in working on, perhaps with the next administration, should that come to pass in this election, but also really growing from the local level on up. So, intensely focused on building what I call community wealth in the US as a antidote to the kind of deep racial and ethnic disparities on income, health and wealth we have today.

Eve: [00:27:31] Well, I, I really can’t wait to see what comes of it and I really appreciate the time you’ve taken today. Thank you so much.

Bruce: [00:27:38] No, thanks for having me. I really appreciate the.

Eve: [00:28:00] That was Bruce Katz. Bruce thinks we should stop thinking about cities as governments and instead think of them as networks. The question is, how can we knit together lasting solutions to improve our cities from a network of leaders, both public and private? Transforming our cities requires long term thinking. It will take a 20 to 40-year cycle. But Bruce believes this is an imperative. We need a different model in the U.S. for growth so that it is sustainable and inclusive.

Eve: [00:28:40] You can find out more about impact real estate investing and access the show notes for today’s episode at my website EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:28:58] Thank you so much for spending your time with me today. And thank you, Bruce, 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 Bruce Katz

The high cost of free parking.

Various studies indicate that approximately 30 percent of city land in the United States is allocated to parking. The Department of Urban Planning has estimated that New York City alone has approximately three million on-street parking spaces. Interestingly, only 3 percent of them have meters.

Let’s get this straight. While housing costs are rising, often because of the cost of land, we’re giving away free parking, which takes up a lot of land. At the same time, all of this free parking leads to traffic congestion which in turn leads to air pollution, fuel waste and global warming.

Perhaps we have our priorities all wrong. Dr. Donald Shoup certainly thinks so.

Dr. Shoup is a distinguished research professor at the Department of Urban Planning at the University of California, LA. His book, The High Cost of Free Parking, turned an otherwise academic topic into a significant policy issue. In it he suggests some radical (or perhaps not so radical) ideas. He believes that cities should charge for curb parking. This means there would be no shortage of parking but, like real estate that’s valuable, it won’t be free. And with advances in technology, payment for parking can easily be cashless and frictionless. Mobile phone payments are already possible and soon in-car apps will guide you to available parking, will provide you with the cost of that space and will automatically stop charging you when you leave. 

He suggests too that it’s important that people see the direct benefits of paying for parking. The revenue could be spent in the immediate vicinity of parking space, on added public services such as cleaning and fixing sidewalks, planting street trees and adding lighting and security. Or perhaps the revenue for the best spaces could go to a local charity. If the spaces near the front door of a grocery store gave their revenue to charity and the rest of the lot were free, people might choose to support that charity for the convenience of parking close to the front door.

“It’s like putting a cash register out at the curb” says Donald. Hear more in my interview with Donald.

Image by Mad Ennok from Pixabay

Building virtual communities.

Michael Lee, a cultural planner and designer with an architectural background, co-founded SNDBOX in 2017. A design studio working to create tools to integrate communities, businesses and creative projects, they are relying on the new tools of the blockchain world.

In 2019, Michael and his team launched the BLDGBLOX app, which they describe as “the end-game project for SNDBOX.” It leverages blockchain technologies to “facilitate seamless social-investment in civic institutions, real estate projects, and cultural programming.” During these first early years of development, Michael’s team has

  • Distributed $438,000 USD in project development funds to 13 built projects and programs;
  • Built a global community (28 countries) with hundreds of designers, non-profit organizations, program leaders, and more;
  • Developed the world’s first public development using blockchain governance and cryptocurrency, Steem Park.
  • Organized workshops, exhibitions, and public events that highlight public utility with blockchain.

Previously, Michael was a resident entrepreneur at the Harvard Innovation Labs, a member of the group called Base 15 Studio which focused on public design advocacy, or “creative consultancy.” Before starting graduate school he participated in a design collective founded by Cornell University architecture graduates, Hither Yon, based in Berlin, Rome and New York. And while still at Cornell he did art outreach in Johannesburg, as well as a year in Rome working on a film installation project. Michael also has a proficiency in Korean, Italian, German and Spanish.

Insights and Inspirations

  • BLDGBLOX is a place where new projects can be born.
  • We’ve always thought that blockchain = crypto. Here’s an amazing example of blockchain being used as an organizing tool.
  • Michael wants to democratize the power of data.

Information and Links

  • Michael checks in on on IOBY (In Our Backyard) frequently to see what new high impact neighborhood projects are being crowdfunded.
  • He’s proud of Steem Park, his first attempt at democratized city-building. 
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.

Eve: [00:00:18] My guest today is Michael Lee of BLDG BLOX a civic technology company dedicated to empowering neighborhood stakeholdership. Their goal is to help shape better, more resilient and inclusive cities. In this podcast, we’re diving into Michael’s current primary focus, an online platform called BLDG. It’s a platform for neighborhood collaboration and it’s picking up steam. So, listen in to learn more.

Eve: [00:00:57] Be sure to go to rethinkrealestateforgood.co to find out more about Michael 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: [00:01:21] Hello, Michael, I’m excited to have you here today.

Michael Lee: [00:01:25] Hi Eve, thanks for having me on. I’m very excited to be here.

Eve: [00:01:26] It’s a pleasure. So, you’re a wayward architect, much like me, and you’ve built a very cool app, which I’d like you to tell me a little bit about.

Michael: [00:01:36] Absolutely. So, you mentioned the background in architecture. Just a little back story. I was trained as an architect. I moved towards public art and cultural consulting. And back in 2016, my co-founder introduced me to a lot of developments that were happening in the blockchain space. And so blockchain can be very complicated with cryptocurrency and things like that but for the sake our app and this conversation, essentially, we were looking at decentralized technologies. Ways that we could create and distribute more value, track it and, with our background in architecture and urban design, we saw an opportunity for that to impact the way we do real estate, the way we deal with communities and community growth. And so, we created a company called BLDG BLOX and for the past few years we’ve been developing this app. We just launched it at the beginning of this year before everything happened with covid. It’s called the BLDG app, it’s live and the app is a online bulletin board to manage projects with your community. So, these are real estate projects, these are coworking spaces, mutual aid groups, non-profits. Any organization or new initiative that is looking to build alongside, build consensus, build value with the communities that are involved.

Eve: [00:02:53] Okay. So, you use blockchain and do you use other technologies on this app? I’d love to know a little bit more about the technology.

Michael: [00:03:02] Sure. It’s a web application, so you don’t have to download anything. You go to bldg.app, BLDG app and it’s all online. Similar to how you use Kickstarter, Instagram. So the front end is fairly user friendly, you can use Google or Facebook to log in and on the back end we’re starting to implement and integrate everything that goes on in the app. Typically with a lot of social media apps, web applications, you don’t really know where the data is going and what’s being tracked. On ours we are starting to link it to the blockchain. So, all the activity is very transparent. And our goal is to be able to make all that data transparent, compile it in a way that other organizations, whether it’s, it can be investors as well, can start to see how a project, in this case a real estate project, is acting, what kind of value it’s distributing, how people engage it and start to value, again, in this case, social impacts in a way that can be measured more dynamically. So, we’re starting to use this transparent ledger system as a way to create a new foundation for impact. That’s kind of the way we’re seeing it.

Eve: [00:04:12] How interesting. And who will have access to that ledger and all that information?

Michael: [00:04:17]  When the blockchain information becomes live, when all these transactions become live, anyone can see the information. And on the application, itself, when those metrics are up, we’ll have a much more user-friendly UI for people to understand: OK, this project is involving this amount of people this is not a value transferred, these are the number of community members involved in a project. This information will all be tracked holistically in the app as people use it, and we’ll present it to different project owners, so they know how much impact. however they define impact, is going into the project.

Eve: [00:04:55] Well, that’s really interesting. So, I’m going to change some of the questions I was going to ask you. I was going to ask you, how is this different than other social media apps like Facebook or perhaps Nextdoor or Meetup? But, you know, the data collection that you’re doing is pretty radically different than any of those, right?

Michael: [00:05:16] Right. That’s generally the ethos of a lot of people who work with this new technology, with blockchain. And what you see with a lot of applications is you don’t really know what data is being collected and how it’s being used. We generally know that it’s monetized privately with adverts and things like that. We want to be able to open up, democratize, the power of data and open it up so that people can use it in all different ways. In this case, and this is really the long term vision of this first app and other functionalities or apps that we produce under the umbrella of BLDG and BLDG BLOX, is that we can start to track data dynamically and then use that for, for example, driving certain people to invest in certain projects or to decide which projects they think are really impactful for their community and be involved in those. Data can be used in a lot of different ways that I think we just haven’t gotten to that point yet. And this new infrastructure really motivates us to expand and explore those possibilities of data and make more informed decisions, more empowering decisions.

Eve: [00:06:24] I did play around with the app a little bit, and I see when you go to some of the communities, they have sort of slightly different functions. So, when you create a new page, what are your options? How do you set up a community? What sort of communities can you set up?

Michael: [00:06:40] So you can log onto the app right now and create a project page. It’s fairly straightforward, takes about a minute or two to create one. And then the idea is you would send that page just like an Instagram page to anybody that you think is part of the community or wants to be part of that community. They can sign up and join right away and then everybody involved can start to post questions or polls or ideas or different things that they want to offer. There’s different tags for events, for polls, for ideation. And the idea, again, is to allow anyone to bring to the table whatever they want to and start discussions or start voting or start to see if they can gather the resources, they need to push that particular project forward. And so we’re already starting to see projects that are more university-based or socially-based with mutual aid groups, especially now during Covid under the quarantine, and the projects are fairly diverse and everyone is on there basically to try to pool resources, help one another and make decisions together. And that’s really what the app is geared towards.

Eve: [00:07:48] Interesting. So, could you use this as a community engagement tool if you’re a real estate developer?

Michael: [00:07:55] That’s definitely the goal. We’ve already started to work with co-working spaces where the owner of the coworking space is the real estate developer or the one that developed it. And the idea, and our thesis here, and we want to get deeper with the real estate industry and with prop tech and people that are looking at more of these impactful ways to do real estate, is integrate this application with their development process and allow, and we’re starting to see real estate firms do this more and more, allow people who are maybe the tenants of the building or people who live nearby where the community board that is involved with the decision making of that building to be involved and help make further decisions, help maintain the project, help gain equity in the project, whatever that might be in both financial and non-financial ways, and generally nurture this idea of community buying and stakeholdership with the people that are involved, which I generally believe, my thesis behind all of this is that the more people that are involved, the more doors that are open for a community to have buy-in and participate, the more successful a real estate project will be in the long term. And so that’s really our ethos when it comes to how this impacts the real estate sector.

Eve: [00:09:11] You know, I have Small Change, which is a crowdfunding platform. And because we are members of FINRA and use a crowdfunding regulation that permits anyone to invest, we’re highly regulated and we can’t really host discussions on our website. So, what sort of page would you create for Small Change that might help people educate themselves and talk to other people? What would that look like?

Michael: [00:09:38] So, Small Change is a great example because you can look at it as an organization that houses projects under it. And so, with Small Change itself, you can use the page to interact with the people who are crowdfunding on the page, host more evergreen information. So, tutorials or tips that will help anyone that wants to engage with Small Change. And then, on a secondary level, all of the projects, because presumably any project that is crowdfunding on your platform wants to have meaningful impact not just in this crowdfunding process, but also likely once the project is erected and live, and people are occupying it. They want to make sure that their project lives on in an impactful way and impactful stakeholders are part of it and it continues to have that kind of general consequence with the neighborhood that it’s being built in. And so, each one of the projects could have its own page and then people can continue to support the project financially and non-financially, which is a big emphasis on our platform. If certain projects need help with physical aspects of the building, with the architectural design, with the construction documents, that’s one thing they can solicit, and members could offer. If they need help with programming or maintenance or they need help with integration with local organizations and institutions to be involved in their project. That’s the type of, sort of playground, as some of our users have put it, that these types of projects could create so that their constituents can come together and contribute things that typically have been very difficult to contribute in the past beyond the financial aspect. And we’re already working with some crowdfunding platforms to see if we can expand the initial financial support that has been opened up to a larger audience and then see if they can continue, that audience can continue to support those projects in non-financial ways as well, with their expertise, with their network, with their in kind donations and categories like that.

Eve: [00:11:34] Interesting. You know, there’s always sort of a push pull with real estate developers who are, that’s kind of an evil would at the moment isn’t it, developer? How they communicate with the community. It can be very difficult and there can be a lot of friction so it sounds like this might help bond some relationships.

Michael: [00:11:57] That’s precisely what we want to hit on. We understand the friction there. I myself, I go to community board meetings and I see, I live in Bushwick and Backstein, New York City and Brooklyn and there’s development happening all the time. And when you go to these meetings with developers and the community, it’s very palpable, the tension there. And our approach to this and our understanding is, because there isn’t a good way for communities to collaborate with developers, for that communication to actually scale and take place, the resulting situation is one of great tension and opposition. And we’re seeing that. We’re seeing a rise in NIMBYism, a rising neighborhood opposition. Just last year, we had the whole fiasco around Amazon’s HQ2, in Long Island City. And so, we’re looking at projects like this. And we see that not just at the highest, at the very top with Amazon, Google, Facebook, where their campuses have been consistently opposed, but also at a much smaller scale. So, with mixed use housing in New York, that’s a big point of tension. And there’s always this negotiation, which tends to be very tense, tends to be not so good-willed, or at least get to that point.

Eve: [00:13:10] Right, very confrontational.

Michael: [00:13:12] Very confrontational. And we want to transform that environment. And I really believe that if we had the right tools, that environment would be different. And if we can transform that environment to one where people feel like their voice is being heard, they’re participating in it, we can turn it into a from a lose-lose situation, into a win-win. Because currently there’s so much risk on the side of real estate developers because they understand that, with all these tools of social media and the way communities are mobilizing, it’s very easy to oppose projects. And on the other side, communities are struggling with the idea because they want to see meaningful and impactful development, but because they’re not able to come to the table with developers in a meaningful way, those tend to become very risky for them and it’s easier to oppose. And so, it’s currently a very lose-lose situation. But if we can insert the kind of right tools and the ways for people to communicate, we’re hoping we can flip that on its head.

Eve: [00:14:05] Have you thought at all about, and this is a really difficult question so I apologize in advance, but have you thought at all about communities that poorer, have less investment, may not have access to computers and, you know, an online app and how this would fit into those communities, how you would make it accessible?

Michael: [00:14:27] That is definitely a difficult challenge that we’re struggling with on an ongoing way. And part of our answer, at this point, goes into design of the app. So, we didn’t want to have a downloadable mobile app. We think that creates another point of friction. It’s just a website you go into, you can sign in with any email. And so, we definitely want to make it technologically as accessible as possible. The other way that we’re trying to get over that is working very closely with the organizations that sign up for the app. And so, presumably anybody that creates a project page, there’re a real person or real organization. They have a physical presence wherever they are, and their projects are mostly physical. So, spaces and buildings and such. And so, we constantly communicate with them to make sure that we can bring in even constituents that don’t use a computer or device very often. We can bring in their input, we can have a way to capture that data, that advice, those comments, different ways that people who aren’t on the computer all the time can contribute. And so, this is a way that we’re dealing with the issue. But we definitely see that as an ongoing hurdle. We want every demographic to be involved. This is even more sensitive in places that people don’t have access to those resources. And this is what makes the Covid19 situation so unfortunate. Before everything happened, we were constantly holding workshops, we were showing people how it was done, we were pairing people who do use the computer fairly often with people who weren’t, trying to make this engagement as digital as it was physical. And now we’re trying to adapt to the situation and make sure that even, you know, if you aren’t as technologically fluent or don’t have access to those resources, your information and your voice can make its way to the application. That’s definitely a very sensitive and difficult point and we’re always working on that.

Eve: [00:16:18] Unfortunately, that pandemic has disenfranchised those communities even further. It’s really pretty sad. So, tell me again how you arrived at this app. Your background, you’re an architect. You’ve gone to a pretty unusual route.

Michael: [00:16:36] We have gone an unusual route. And the one thing we’ve always interested in is the process. Even when I was studying architecture and practicing architecture, the process in which buildings were designed and created seemed very linear, depending on what was being created. It didn’t take into account the community that was being impacted the most. And this, of course, is a common theme in real estate as well. And so, the concern is how do we bring as many people into the process as possible? And when we looked at the current tools, at the time around 2015 and 16, we just came to the conclusion that no matter what you did with things like Facebook pages, or on Slack, it’s very difficult to scale decision making, engagement, to exchange resources and distribute resources. And that’s how we came to this idea of creating a new digital tool. And again, we were lucky because it timed well with the emergence of blockchain and decentralized technologies to explore this. And if you look at the blockchain sector, we see a lot of people with real estate backgrounds actually exploring this as well. So, you have groups like Elevated Returns and HARBOR, RealBlocks. These are real estate firms that are introducing ideas of fractionalized, equity. And starting to use real estate equity more like corporate stocks of shares, making them more liquid accessible. And my ultimate goal is to introduce this idea of sweat equity into the real estate market and any general organizational market. And that’s kind of how we got to this idea of the application and starting off with one that brings communities and organizations together.

Eve: [00:18:22] Interesting. So what other projects are you thinking about? You said this is one of, you know, one of a number.

Michael: [00:18:30] Well, so, we want to start, and we are starting with the BLDG app as the first step. And within the app and around the app we want to create more functions and more components. For example, right now on the app you can create a project page and start to engage with the community, distribute responsibility, you can see what backgrounds your community members have, whether they’re an engineer or a marketing person and so forth, and start to bring those resources together to try to drive and motivate those project further. We’re going to implement more of that blockchain data system that I just explained and have it so that other companies, other investors, can look at these projects and make decisions on their own behalf based on this data and what’s going on. And whether that’s in another app or in this one, we want to continue to grow out more functions where people have more opportunity to engage in their local real estate projects, to contribute to them, to help make decisions and then eventually get to the point where people can earn sweat equity in those real estate projects based on their contributions to those projects, not just the financial contributions, but also, like you see in start-ups or in general any corporation, people can earn equity based on their commitment or how long they’ve been there or their general value to that company. We want to get to that point. And so, we are constantly going to expand on the tools that real estate companies that investors that community stakeholders can use to determine that value for any given local project.

Eve: [00:20:04] Interesting. So, then I have to ask you, what’s the big, hairy, audacious goal for this app? Like, where would you like it to be in five years or in 10 years?

Michael: [00:20:13] In five or 10 years I would like it to be a place where new products are born or existing ones are continued and everyone involved is, quote unquote, rewarded for their contributions. That’s the type of economy that myself and my team are really working towards, that no matter how small scale the project, no matter how new or no matter how big and burdensome, like a large mixed-use project for example, people’s contributions allow them a level of equity or a level of buy-in to those projects. And people who are involved are constantly discovering new opportunities as they commit themselves to those projects. Because we all understand, to a certain degree, that the success of a real estate project is based on so many multi valuable factors. The environments, the general safety of it, the vibrancy, the culture that’s there, the diverse community that’s there and we want to be able to quantify that value in a way that’s constantly evolving and anyone that helps contribute to those forms of value are rewarded with something that allows it to have buy-in to those projects.

Eve: [00:21:22] So has that happened yet at all, in any form?

Michael: [00:21:26] To my knowledge, we have not seen that happen financially in the real estate sector. There are social impact, real estate firms that are experimenting with, for example, reduced rent based on if you help maintain the property that you own. We’re seeing different kinds of economic deals being put into place that are trying to incentivize people who actually have equity to maintain it and they can get some value back with its reduced rent or other opportunities like that. I would like to see that pushed and evolved even further where, you know, you’re the doorman that lives in your building, or maybe the person who, the tenant that has a educational business in your building, these people can continue and are incentivized to contribute and earn an actual financial stake in the project in the long term. We understand that these are the types of people and programs and activities that give a building or a city the value that it has. And we should be able to recursively reward the people who are actively contributing to that value, not just see it as a mutually exclusive thing that happens within our buildings.

Eve: [00:22:34] Yeah, yeah. Interesting. So final question for you. What’s next for you? You sound super busy and I know what it’s like working on something like this, it’s all consuming. Covid19 has shifted things a bit, so what’s next?

Michael: [00:22:50] So definitely. Bringing up Covid19, you know, we are all struggling with this transition to a more remote environment. And I think, like you mentioned before, the disenfranchised communities are suffering even more now. They don’t have access to all of these tools. That’s another reason why we wanted to create this space. We didn’t want to create another just hammer or tool for the digital environment we wanted to place where people can bring their Zoom conversations together or they are resource sharing on Google Drive to one place. Our goal for the near future is just to help these communities, one by one, transition to the site, make use of all the tools and try to get their community together, because this is a time when communities are kind of just being torn apart naturally because we are physically distinct from each other and distanced. We want to help rebuild this community, or these communities, by transitioning them to these online tools. We’re very excited and very hopeful. We’re already getting a lot of feedback from people saying that, you know, the current tools are very unscalable. There are 10 or 20 different tools that they have to manage all at once. And it’s very difficult to scale on that promise to their constituents that they’ll stay involved, that they’ll keep them involved in their process.

Eve: [00:24:04] Very difficult. Very difficult.

Michael: [00:24:07] Right. And we want to be able to push a bit of that momentum and help support these communities. Anyone that signs up to the site organically, we reach out to and we say, hey, can we help? You know, tell us about your organization, what are the challenges you’re struggling with? Is there any way we can help any features you think we could implement? Because the app is constantly evolving. And we’re also constantly reaching out to organizations that we think we can help. We’re seeing everywhere, you know, people who are less active on Facebook or their own websites and media channels because we know that internally they’re struggling with how to transition into this new environment, especially now. And we are constantly trying to outreach to them and say, look, we know you’re struggling. We know you need different kinds of support and these tools were doing OK when you were meeting in person or working in person but now that we’ve transitioned, it’s very difficult to keep things in order and keep everyone involved. So, at this point, we just really want to help as many organizations as possible transition and make use of the resources available. And we want to be one of those stable resources.

Eve: [00:25:15] Well, I think it’s a terrific idea and I’m going to start by suggesting it to a couple of developers who raised funds on Small Change and are perpetually struggling with how to relay progress to the investors. So, I think it would be a great way to create a little community of investors. So that’s a starting point for us and you and I will be talking more about how it might work for Small Change, I’m sure.

Michael: [00:25:39] Absolutely. That would be fantastic. I mean, anyone that’s raised on Small Change or is hearing this and thinks that this might be interesting, social impacts, real estate investing is, is definitely interesting because when I speak to a lot of real estate developers, they are all interested in this idea or already committed to this idea. And yet it’s difficult to find places where you can communicate with other like-minded people, share those resources  and in terms of impact real estate investing, we definitely want to help foster that type of conversation and that resource sharing.

Eve: [00:26:11] Maybe that’s the first page to start?

Michael: [00:26:13] It might be. That might very well be.

Eve: [00:26:15] Something around this podcast page. And I just did a retrospective for the year and in the first year I recorded forty-nine podcasts, which is probably why I’m so tired.

Michael: [00:26:27] Well you’re doing something incredible for the community and we definitely want to build on that momentum. I mean, there’s so much experience and lessons to be had.

Eve: [00:26:37] That’s what I was going to say. The people I interviewed are, each and every one of them, a rock star doing their own thing. And that’s a that’s a lot of experience, too, corral. It’s really interesting. So, I’ll definitely be in touch. And thank you very much for taking the time to talk to me today.

Michael: [00:26:53] Thank you Eve. Thank you for having me on.

Eve: [00:26:59] That was Michael Lee of BLDG BLOX, a civic technology company dedicated to empowering neighborhood stakeholdership. His online platform bldg.app is currently in its beta phase. Michael’s goal is to help civic organizations, communities and companies build community and scale decision making. The app is designed to support community building in a myriad of ways. It can be a tool for organized public engagement for new projects, it can support initiatives with campaigns that mobilize their communities or local causes, or it can even serve as a shared workspace. I’m excited to see it unfold.

Eve: [00:27:45] You can find out more about impact real estate investing and access to the show notes for today’s episode at my website rethinkrealestateforgood.co While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:28:04] Thank you so much for spending your time with me today. And thank you, Michael, 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 Michael Lee, BLDG BLOX

No guilt. Just action.

Cynthia Muller is the Director of Mission Investment at the W.K. Kellogg Foundation based out of Battle Creek, Michigan. 

Described as a “thought leader of the impact investing ecosystem and a trailblazer in the field,” Cynthia has been at Kellogg since 2016, first serving as a program officer with their Mission Driven Investments division, then as its director. Previously, she developed and managed the impact investment practice at Arabella Advisors, which involved deal sourcing and structuring of investments in health, education, micro-finance, housing and green technology – domestically and abroad. 

At Kellogg, the team she works with does grant-making and makes investments (in both nonprofit and for-profit organizations). Their core mission is to “improve the lives of children, their families and their communities, with an emphasis on investments that help to dismantle the root causes of racial inequity.” Since Kellogg’s Mission Driven Investments was created in 2007, they have put $100 million towards market-rate investments, and $50 million strategically towards below market-rate program-related investments.

Cynthia also served for seven years as the director of strategic investments for Capital Impact Partners where her work on impact investments targeted health, food, education, energy efficiency and economic development. And she serves on the boards of Groundswell and Enterprise Community Loan Fund. She holds a Master of Business Administration from the Foster School of Business at the University of Washington and a bachelors degree in psychology from Stanford University.

Insights and Inspirations

Information and Links

Read the podcast transcript here

Eve Picker: [00:00:15] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:22] My guest today is Cynthia Muller. She’s the director of Mission Driven Investment at the W.K. Kellogg Foundation. Cynthia doesn’t see herself as a leader, but she is. She’s been described as a thought leader of the impact investing ecosystem and a trailblazer in the field. Cynthia has been at Kellogg since 2016, first serving as a program officer with their mission driven investment division, then as its director. There she is wholly focused on their core mission to deploy investments that help to dismantle the root causes of racial inequity. She’s taking action.

Eve: [00:01:18] Be sure to go to rethinkrealestateforgood.co to find out more about Cynthia 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: [00:01:41] Hi, Cynthia. I’m just really delighted to have this opportunity to talk to you.

Cynthia Muller: [00:01:47] Me too, Eve. It’s been great, it’s great to connect and I’ve been a huge fan of the podcast and I’m really excited for our conversation today.

Eve: [00:01:54] Oh, that’s lovely to hear. OK, so I like having fans. So tell me, just to set the scene, what’s your background and how did you become a leader in impact investing?

Cynthia: [00:02:11] I honestly, I didn’t set out, by any reason, I certainly don’t think of myself as one now. I’m really just a practitioner and I have the fortune to work for the W.K. Kellogg Foundation, where I lead our Mission Driven Investment program, which is about 13 years old, focused on impact investment. We do both MTRIs, our mission really did invest in market rate investments, as well as concessionary investments known at the foundation as program-related investment. And it’s a small 450 million but it’s really exciting because that pool has really been a tool for us at the foundation to learn how do we invest with a more equitable lend? How do we invest understanding that not only are we achieving a financial return, but we are also targeting demonstratable, tangible social impact?

Cynthia Muller: [00:03:02] And so, 13 years ago when our board approved this, they also declared us an anti-racist organization. In that same year in 2007, our predecessor, previous president of our foundation, as well as board members who are currently and of the past, had, knew that there were opportunities for us to think about how do we use tools differently, how do we think about systems differently? And so, 13 years later, it’s all culminating now this intersection between understand that there would be systems that people operate in and even though these systems are built for everyone, they don’t work for everyone. And I think what I’m heartened, despite this is a terribly difficult time to see what all of the loss of life, as well as the challenges that many folks are facing, and in particular, the poor Black, native and other marginalized groups that were already systematically left behind who now, yet have a double whammy to try and catch up.

Cynthia: [00:04:08] But that is also an incredible opportunity for groups that we fund and that we partner with. These are groups that are in communities. These are groups that, through their advocacy, lived experience and continued representation of the communities, know exactly what tools, what resources they need in order to build the community that will work truly for everyone. So, I’m so excited about that, this work and about the ways in which we can think about these systems, right? Because we’re in such a period of inflection. We, in philanthropy, you know, obviously we, like a lot of other industries, are going through our own reckoning and how we navigate the non-profit sector and social impact and even how we navigate being complicit in some of these practices of white supremacy in these systems. So, for me, it’s really helping to figure out how to use these tools to unlock and really help to support our folks in developing resources, tools and funds, models that truly could be resonant and sustainable for communities in the long term.

Eve: [00:05:12] I read somewhere that you said, you talked about approaching racial equity, not with guilt, but with an impact lens, which I love. I think that’s a really meaningful shift in understanding for me, I suppose. And I wanted to start talking about, like, this is a really huge subject we all know but I’m in the little real estate industry section of it and I wanted to start talking about, you know, how the real estate industry fails people of color and what you think are some of the key things going wrong.

Cynthia: [00:05:47] Sure. And, I want to couch my remarks carefully, because, again to the point, I don’t want to guilt, you know, folks in these conversations. These conversations are really to help illuminate, right? Illuminate how people actually experience working in these systems. And I think, in real estate industry in particular, I think is interesting, obviously built off our understanding of what it means to own land. Our, I should say, Western understanding of what it means to own land. And that’s derived from obviously the theft of land from Native Americans several hundred years ago.

Cynthia: [00:06:25] And so, the start was there. The start with our fundamental understanding of what it means to land. And so, when you have a society that has been built on taking land from folks already there and then re-giving it out, well of course you’re going to have flaws in the system several hundreds of years later because it perpetuates this idea of who owns the land and who has the right to decide on it. But that’s not to say that for 2020, I think in the ways that real estate has left Black communities behind, I think it’s similar to how the finance industry or even the entertainment industry has left Black communities behind. They leverage the work, the creativity of folks in use of their land. And it really started with slavery, with the renaming of the 40 acres and a mule. And so, folks who had nothing coming out of reconstruction where they were promised this land and they had it for a couple of years before it was unfortunately taken back and given to other folks, and in that case, those who have resources. And so, I think compound that over generations. Right? Every time there was an opportunity for black and brown people to build an asset, to build wealth, unfortunately and systematically, it was taken away through, either through force like we saw in, you know, in many examples that we’ve been learning about, but we also learned through other means, through legal means, right?

Cynthia: [00:07:53] And for me in my own journey, in understanding how these systems work, and even myself being complicit and working in organizations that didn’t know, or to understand how, you know, we continue to perpetuate this divide through our financing structures, through how we even underwrite our deals, who we consider deal-worthy, even by zip code. And so I think all of that’s to say that we all operate in this environment of a real estate where we understand who owns things based on who it’s passed down to, the legal structures, but as we have learned through great reporting like The Atlantic and The New York Times and others, there have been generations of folks who’ve been losing their land. And one of the greatest examples right now is the great Black land theft. There’s a great, great piece in ProPublica on just that. Basically, the systematic theft of Black land that’s been left to families through generations. And unfortunately, the families that they gifted this land are unable to, for a variety of reasons, maybe they don’t have the assets to find a lawyer or understand how to reach the appropriate folks to document ownership. And so, this creates more vulnerability and predatory behavior by others who see it as an opportunity.

[00:09:11] And so, I think that’s all to say that’s how the system works. We see how the money comes in. We see who is getting financed, how these big real estate funds are able to amass all this property through systematic purchasing. And we see how this plays out in local communities where there are a handful of individuals or families that own the real estate, right? And so, unfortunately, for folks who, like myself, my father was in Vietnam, came back from the war, settled in Alaska and worked as a civilian on the Air Force base for many years and was ultimately able to buy his own property. But that was after a lot of handwringing. He had to jump through a lot of different hoops, thinking about financing in different ways because traditional banks were going to put him through extra steps that he wasn’t willing to go through. So, every time we talk about creating wealth for people, that’s great. But it’s not that everybody has the same access and opportunity to create that wealth. I think that’s, quite frankly, how real estate fails black and brown communities. That lack of recognition is very much obviously focused on the bottom line and that exchange of the assets and who owns and how much revenue we can glean from it but we never systematically just sit down and think about who actually is benefiting from this and who is it benefiting from this?

Eve: [00:10:37] I mean, that’s just a huge problem. And, you know, and the predatory behavior is continuing today in different ways. So, it isn’t like it’s stopped. So, what would it take to correct this? We’re talking about banks that won’t lend to certain groups of people. We’re talking about people who go into poor neighborhoods and purchase homes for less than market value. We’re talking about all sorts of, kind of, failings that ultimately impact people who don’t have the resources to deal with it, right?

Cynthia: [00:11:13] Mm hmm, that’s right. So how do we, how do we help them, right?

Eve: [00:11:16] How do we start, right?

Cynthia: [00:11:20] So now that we’ve painted this dire… What’s out there? There are some incredible areas of opportunity and great work. One of those is really around community development finance. This is an industry that’s been around for 40-something years. This really came out of church groups, non-profits creating loan funds all over the country to do justice, to be that bridge finance or for, in those places and those communities, for those people who are being overlooked. And so, there are several thousand CDFIs across the country, they’re all kinds of shapes and sizes. Some of them are national, some of them are in places, some of them are thematically structured, but they’re all in the service of deploying capital. And a lot of them are very much active in the real estate market because a lot of great programs in the 80s and 90s and then the aughts have really allowed the industry to flourish. New market tax credits to various CDFI fund programs, healthy food financing.

Cynthia: [00:12:24] I do think the CDFI space has done a tremendous job. We’ve got a great history and track record of these transactions. I think the challenge is that the industry is a little dispersed. Obviously, it’s all over the country and each CDFI has its own individual strategy. And I think further, the CDFI industry has been really, really thoughtful about scaling up and figuring out how do we start to do larger deals so we can be a more significant player with the larger banks. And I think we’ve proven that case. I think, unfortunately, though, we have veered a little bit away from providing capital to the folks in the most need.

Cynthia: [00:13:05] And I say this because when we, as we have been trying to marry this impact and finance, I think this field is borne out of a number of different things and I think the folks that have come to it have brought all of this incredible insight and talent and resources from a lot of the institutional finance investment. Some of those folks came from banks, they came from investment banking, they came from equity, venture capital, the whole industry. Now if you think about it, what are those industries lacking? A lens into these communities, a connection into these communities. And unfortunately, I think that it still comes out in different ways. And so, I’ll say that while we have incredible groups that are providing capital to low-income communities, we’re still not hitting the most marginalized. We’re hitting cities, we’re hitting gentrifying areas. And so, if you actually look at some of the loans across the country, we are, we’re actually, we’re doing work but we’re hitting the wrong areas.

[00:14:02] And so for me, it’s really helping to illuminate what these other opportunities look like and that CDFIs and others have the opportunity to really bring their lens and this 40 years of working in low income communities to the space, and to provide that capital. That quite frankly, and it’s already happening in so many ways. In the news recently, we’re hearing about groups like Netflix and PayPal who are deploying tens of millions of dollars into CDFIs and community banks to help folks address these needs. And PPP, the subsequent round after the first round, they made sure to include CDFIs because, obviously, they realized really quickly that there was a whole flock of folks that were being left behind. I think CDFIs aren’t the panacea, but I do think they are a huge partner, along with other asset holders that help to influence how we structure the practice.

Eve: [00:14:55] Yes. I think developers., OK let’s talk about developers. They’re often, you know, that’s often considered a bad word in underserved neighborhoods, while there are, I think, quite a few developers who really want to do the right thing. So how we train developers to fully understand the consequences of their projects? And can we do that? Can we really, like, look ahead 20 years and understand what might happen in a neighborhood?

Cynthia: [00:15:27] Yeah, I think we can. I think we got a little bit of a lesson with Opportunity Zones. While…. hold out with me here. Opportunity Zones obviously a lot of challenges. I personally have a lot of challenges with them in the way that the program is structured, and I think folks have talked about this in detail. So, I don’t think I have anything else to add. But I do think there were a number of my peers who were really trying to figure out just that. How do they help to show, demonstrate, the practice of making these investments in communities with that land? Right? Because that was the general intent that I think that a lot of folks had expected and unfortunately the program did not have enough accountability metrics to really allow for that to really play out.

Cynthia: [00:16:15] And so we’ve gotten what we’ve gotten, you know, a lot of deals that didn’t go into high need communities. However, the work that Kresge Foundation funded really around, how do we look at these transactions with that lens? I think that was the most valuable piece of what we learned from Opportunity Funds so far, is that we can go in with a good intent, right? We know that the idea was to bring in new money, right? But we also realized that, unfortunately, capital markets need some accountability, you know. And I know that there’s varying degrees of how we can play that. But it’s clear to me that had we been clear about when you’re going into these communities, here are kind of the criteria. How are you engaging with the community? What’s the community’s voice? Does the community have an actual equity stake in this development? If so, how? Right? So how do we get past this rubber stamp where people hold community meetings to say they did it and say the community’s involved, right? How do we actually push for meaningful?

Cynthia: [00:17:18] I think the answer is pretty simple. I think the answer is that communities have a voice. And a voice that I think that people have been so surprised and shocked by. And it’s been social media. Think about what we are able to see now right outside of the news. When I was growing up, you saw the news and that was your world view, right? And whatever news you’ve watched? And now your world view is not just the news you watch, it’s the social media system and the people you connect with. And so, think about communities you see all over the country right now with, you know, Municipal Boards and cities debating and hearing the community talk about how they’re being failed. And that is raising the visibility around a lot of the gaps. And I think that’s really where the opportunity is. Because when you have a community that engaged, that community is willing to be involved and willing to go with you on that journey. And also, it means that there is an accountability there, that you can’t just come into that community and say you’re going to do one thing and not follow up.

Cynthia: [00:18:19] And I think that, quite frankly, developers, unfortunately, have a reputation. And I think this is an opportunity for them to work in a meaningful way, because I think in the long term that actually benefits them. If they have a community that’s bought into, right? It’s going to compound the prosperity of that asset, of that community and the longevity of that community, right?  And bring in more folks. And so, you want that compounding effect, but you have to spend the time to do it. And unfortunately, underwriting, due diligence, structuring doesn’t allow for that. So how do you do that in a meaningful way that still allows folks to get their deals done to set up these projects to house, provide services to folks without going through a two-year journey of learning this community? And I think the answer, quite frankly, is that the community has to be involved in the development, right? It means that we have to think about their engagement differently. And it’s not just the developer who’s developing, it’s the community who’s developing their own community. It’s a very deep philosophical shift, but it’s one where I think where it’s the time for us to be having a conversation.

Eve: [00:19:23] Yeah, no, I agree. But I think, you know, it’s a very different conversation when it’s a small developer versus a large one. It’s about resources and what’s possible and it’s a huge industry doing a lot of different things. It’s difficult.

Cynthia: [00:19:40] When you talk about small, like, the small developer, and I’m thinking about, you know, obviously there’s the developers in New York and L.A. and then you’ve got developers in the Midwest and in these smaller cities. And there are different dynamics there, right? There’s a little bit more, obviously, insular, you know. It obviously depends on who owns what assets, the political leanings of folks in power and whatnot. But I do think, given Covid, given the Black Lives Matter uprisings, we’re in a place in time where that’s our leverage. Right? Because we all want to build stronger communities. We all want to live in safe, strong communities. And I think that’s the message for us, right? Where we’ve been living in the last four months in Covid and all of this. And there’s so much fear and people just want to get to their communities. And so, it just feels like, if there were a call-out to developers, it would be now. You have an opportunity to rewrite how you show up in communities, how you develop communities, who you develop communities with.

Eve: [00:20:50] So, I want to go up the food chain just a little bit more because it isn’t just developers. When developers look for equity, which, you know, over the last 15 years they have needed more and more of as banks have retracted the amount they will lend. You know, when you need to find 35 or 40 percent of the development cost as equity, you have to pay for that. Now we’re in the market where there’s investors who are seeking a return for the risk they’re taking. And I think, more than anything, that return drives what goes on, right?

Cynthia: [00:21:26] It does.

Eve: [00:21:27] And I think there are expectations of return in real estate that I’ve heard, you know, are 25 percent internal rate of return. How can you ever build anything affordable for a community when that’s the equity that you have access to? You know I have Small Change and I’ve been trying to raise money for meaningful projects, and this is this is the question I always get from developers. How much return do I have to give to investors to raise the money? And I don’t really know the answer because I think there is kind of the level of greed and I wish that were kind of reduced right now, but I don’t know the answer. I don’t know if you have thoughts about that.

Cynthia: [00:22:12] While impact investing or social mission investing or whatever folks call it, I think we’re in a moment. There’s enough of us now, we’re in major investment banks, we have our own celebrities now and I think our practice out there. Listen, like Netflix dedicating 100 million to Black banks all over the US didn’t happen overnight, right? These funds that are 200-million-dollar impact funds didn’t happen overnight. There are investors who understand how to manage risk and how to manage impact. I think the challenge is in creating a better flow between those investors and to folks that are raising those dollars. And that’s the piece that I think we constantly run up against. What’s nice is, through the global impact investment networks, through groups like SOCAP and Confluence and others, we have these great anchor organizations within our field that are really able to connect folks to the deal. So, for instance, at Confluence I just think they do a fantastic job, really kind of digging in in specific things and bringing their investors together. So, like any investor that has an interest in an area can go in. And in with other folks that have been looking at similar deals and to engage. I think it’s really creating more visibility and awareness around that practice.

Cynthia: [00:23:36] And one of the things I think that it’s already being seeded, it’s been seeded, is that we are in so many business schools right now, there’s so much impact investing being baked in into MBA programs, into graduate programs all over the country. We are also, we have a dearth of folks who are interested in the space and not enough jobs. And so, I think that I would put it out to developers to really start to look at that. There’s a whole dearth of folks that are coming into the industry with this orientation. Hire them, engage them, especially if they’re from these communities. Because what I have found is that a lot of these students and the young folks, the way that they’re coming up in the world is not in these silos, the way that the world is so much more fluid. And so, it makes so much more sense, the why. For them this is, this integration, is much more, is a no-brainer. Unfortunately, we’re on the other side of it or trying to reorient our infrastructure, our approach, our lens into that. And so, I would say for investors and for folks, for developers, smaller developers, looking for this type of investor, I that that with the impact field in the regard that we have community foundations in every major city in this country, we’ve got family foundations, we’ve got private foundations, and we’ve got a lot of individuals, like a lot of your listenership and your partners, right? And so, we have to start to message that and get that out more. And I think it’s starting to take root. It’s just, it’s a lot. It’s a lot in this environment, right? To introduce in a completely new framing.

Eve: [00:25:12] It is. Yeah. And then, you know, there’s also redlining, which was supposed to be gone, right?

Cynthia: [00:25:21] No, yeah, no it never went away, never went away.

Eve: [00:25:24] It never went away. So how does that get eradicated? How will that go away?

Cynthia: [00:25:31] So familiar. You know, there are recent reports of some of the cases, and current cases of redlining are still there. And so, I think this is also a finer point, right? So, while we are being aspirational, working in this new normal, we still have to recognize we have vestiges of this old practice. And I think that for many groups that are wanting to engage, and what do I do now, it’s really continued to let up and figuring out how do we support those communities. Look at the communities that haven’t been, who haven’t had any investment. And it’s not easy, it’s not hard to find them, right. And you can see exactly who has been flown over and the bank does, or what have you. Start looking at them.

Cynthia: [00:26:16] So, whenever folks come to us and they’re like, oh, my gosh, we got we’ve got 50-million-dollars, which we do. All right. So, I ask them to look at their issue areas, look at and think about who’s benefiting and who isn’t, and then really focus on who isn’t. And that’s your baseline. And then you build from there you look at, all right, so if this community does not have access to housing, we’re like, well, OK, well what other alternatives, right? Is a smaller housing unit? Is it partnerships with other groups? It’s really helping them to reframe their lens instead of how the deals fit within the future is, to look at what the actual deal is and how you look for the opportunity.

Cynthia: [00:26:56] And I think that given that this recession will hit us very much in places different than the last recession and in a sense, because, look how Covid is hitting us now. The wave will be similar. So, I think the developers in those places that will be in a tremendous amount of opportunity and need for creativity.

Eve: [00:27:22] Yes.

Cynthia: [00:27:22] To help to buy up some of these properties, to help them ensure that they maintain affordability, that they are owned by Black and brown community. And so that’s where I would go. I would look at that and start to think about how do we, how do we help reinforce these communities.

Eve: [00:27:38] Right. Oh, OK.

Cynthia: [00:27:43] Sorry, we said we’d go heavy and deep.

Eve: [00:27:48] I know, it’s hard work, isn’t it? Just shifting gears, a little bit, how much money is being deployed in impact investing at the moment and how much you expect that to grow?

Cynthia: [00:28:01] Yes so impact investing has, over the last few years, has grown a tremendous amount. And so, in the most recent global impact investment report, I believe that the size, and they, every year, they do a survey of self-identified impact investing and impact investors, that every year it’s been going up. And so, this year, I think we’re up into several trillion. And what’s really exciting is if you actually look at the impact investing, if you look at that survey, do it every year, you can see, year over year, exponential growth of the folks that are identifying in this space. And even more so, if you look here in the US, you can see more and more folks that have, who have investable assets, who are very much interested. So, the signs show that there is interest.

Cynthia: [00:28:44] I think the challenge is like, OK, what is that interest, right? And how do we translate that interest into capital and into these deals? And I think that’s the piece that, what we do in our grant-making and with our peers in the impact investing field, it’s where, how are we creating new vehicles, whether they’re investment vehicles and organizations or even thinking about the fintech infrastructure, right? So, there’s a lot of conversations around that. And how do we attract investors to participate in, kind of, this fintech revolution or should we in some cases? And I think that’s all to say, that there’s a momentum and it’s just connecting that momentum with folks who have capital. And the folks who have capital are very much interested in that. A least based on my schedule calls.

Eve: [00:29:34] You said the folks that have capital and that that’s actually what interests me most because everyone has a little bit of capital. I think about how everyone could be involved. And, you know, when you build a new project in a neighborhood that is funded through foundation funds or government funds or new market tax credits or however, you basically increasing, eventually, the asset value of that neighborhood. And then there are people who are left behind. We call that gentrification. I think there’s probably some good things about gentrification. You can’t, you know, not leaving neighborhoods in deplorable states is one of them. I think investments have to be made. But how do you make sure that the little people also get to be part of this, maybe even get to invest?

Cynthia: [00:30:27] Yeah, and I think the more that we can democratize investing, I think the better. The same way think about social media, the way that we’ve democratized people’s voices. Some would argue there’s a downside, and there definitely is…

Eve: [00:30:42] Yeah, there definitely is.

Cynthia: [00:30:44] I will not deny that. But think about it. Think of the voices we’ve been able to hear; think of the things that we’ve been able to see.

Eve: [00:30:52] Yes.

Cynthia: [00:30:52] Think about the deals. Now translate that to investment. Think about the deals we’ll be able to do as a result of people’s voices and perspectives who outside of our industry. And I think there’ll be a reckoning for us around what does risk actually mean? When you think about the risk of National Guardsmen coming into your city and bringing, and all of the chaos that could come with that, right, because some of these protests? And so, I think risk is really what’s on the table, is like, how do we, a free market, define risk? And that’s what’s really happening, because it’s clear that people have defined risk in ways that have been self-serving to one group or groups over others, right?

Eve: [00:31:36] Yes.

Cynthia: [00:31:36] And so, and that’s where we’re at. That’s where we’re at. But wait a minute, you didn’t have, you know, how many folks were like, wait a minute, you know, why couldn’t you waive our rent? These are all issues that are based on the system, but we can dictate the system based on what the need is in this given moment. And I think that that’s really caused a lot of consternation in folks, and particularly those folks that are coming, that are growing up, progressing in their careers and realizing they’re not going to have the same opportunities as the parents.

Eve: [00:32:11] Right.

Cynthia: [00:32:12] Or the grandparents. Are you even remotely, you know.

Eve: [00:32:17] So, a completely different question again. What community engagement tools have you seen that have really worked?

Cynthia: [00:32:26] Power mapping. It’s probably one of my, the best tools in the sense of really, if you are an investor who wants to, you want to make sure that you’re engaging in community in a sufficient and a meaningful way and, be real, like the Black community, right? And often folks especially, say a white developer, or white-led organizations don’t know how to navigate that. So, I would encourage folks to look at things like power mapping and helping them to understand why some communities will be so resistant to developers. This takes reflection and really understanding around the barrage of issues that these communities are facing. And obviously, place is paramount, but now on top of that, access to health care, access to jobs. And so, when you think about that and you have developers that are coming in, we’re going to fix your lives with this new development and then not deliver. And then rinse and repeat. That bears out, that really shows up in the community. I encourage folks to always go into understanding power. How has it been stripped from this community? You know, in the past, how has it enabled the community? You learn about the history, right? It really helps you to understand, how do you find a project, or structure a project, that will get through and be meaningful and beneficial to the community. So, I always start with power mapping.

Cynthia: [00:33:48] I also start with, you know, there are a lot of really great local data and analytics there. Folks who are just totally crunching the data for the communities, right? And really using that to program. Look at them. A lot of folks like to bring in national groups and they’re great, too but I think these local groups have access to data, they have the nuance of this data, that I think is far more powerful and insightful to folks who are thinking about a comprehensive project. That’s the data that helps to tell the story of that community. And so, so many stories of communities have been forgotten or reframed. And so, I would also think about them, making sure you’re getting an understanding of that community, not the, you know, not the one that’s told you by folks who are selling it, but really the community. Right? And so, you know, when you’re going in, you know what you experience with blockers in that development.

Eve: [00:34:46] That’s really, that’s really fascinating. OK, so, where do you think the future of real estate impact investing lies, like 10 years from now? What does this all look like?

Cynthia: [00:34:57] Gosh. Hopefully, it means we see more community making decisions about what businesses are there and more deep engagement, right? I think we’ve seen a lot of national chains that go into various communities and doing a lot of extractive practices, unfortunately. And so, I’m hopeful that we see a little bit of a rightsizing of that, right? And I think where we see much more meaningful and thoughtful engagement from a lot of our national corporates who are a critical partner to community development all over this country. I also hope that we have better models for underwriting these projects and ensuring that we’re thinking about risk in the proper way. And then we are also, we’re comfortable with a different form of return from some of these projects we’ll take. We all, many of us, are long-term investors, right? But we all, we say we’re long term investors, but that’s not how we act. And so, I think that’ll be an interesting piece, I hope that it helps us to shake out a new framing around that.

Eve: [00:36:05] And so what’s next for you? What are you working on?

Cynthia: [00:36:10] A couple of things. Something that I’m really excited about, well as much as you can be excited about trying to systematically eradicate racial injustice in the capital markets, is really some of this ecosystem building. So, for instance, like I said, you know, this recession is going to be so localized and so for, in my mind, that it creates a lot of opportunities with a lot of our local leaders and a lot of folks are about to become local leaders. And so, there’s the conversations that are happening in some of these cities around that and thinking about innovative financing structure. So, I’m really excited about that, Eve. I’m also excited about getting a little more visibility to many of our under-banked and under-financed regions, most notably in the US south. The US south are going to have like 45 percent of our population, is probably the most impoverished counties and cities across the country. And yet we barely have banked them. We barely have community banks and other resources to help these communities, kind of figure out the tools and structures that would work for them and so, for me, it’s really connecting those dots and really helping them build those eco systems and driving more capital and connecting investors to those burgeoning opportunities and businesses and funds.

Eve: [00:37:36] Well, I think you’ll have your hands full, in fact, I think we’re all going to have our hands full, but it is, as you said, an opportunity. Thank you so much for talking to me today. I really enjoyed our conversation. Hope we continue it.

Cynthia: [00:37:55] Likewise, Eve.

Eve: [00:37:55] That was Cynthia. Every time there has been an opportunity for black and brown people to build an asset, to build wealth, says Cynthia, it’s been taken away from them. Who do we consider deal-worthy? Cynthia thinks we are in a moment and so do I. This may just be the moment where we should all sit our guilt aside and just take action.

Eve: [00:38:22] You can find out more about impact real estate investing and access the show notes for today’s episode at my website rethinkrealestateforgood.co. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:38:39] Thank you so much for spending your time with me today. And thank you, Cynthia, 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 Cynthia Muller

Rent to buy.

How do we address the affordable housing crisis? There are lessons to be learned from all over the world. 

Kris Daff, in Melbourne, Australia, is developing an important solution. Australia’s housing market is very expensive and lack of tenure in the rental market results in significant levels of housing anxiety. At the same time, Kris, a real estate developer, was disenfranchised with the for-sale housing market in Australia. Usually there are display models and a sales suite, a real estate agent is appointed, and there’s a lot of expensive marketing deployed. The goal is to have investors or residents pay ten percent up front for the right to buy an apartment when a building is finished. Kris finds this to be an impersonal relationship between developer and homeowner, especially as more often than not investors are buying units with managing agents acting on their behalf. At the same time a superannuation investment industry which is the fourth largest pension fund in the world has emerged in Australia, and institutionally owned housing is likely to be on the rise threatening home ownership for those who really need it even further.

Kris wanted to find a way to get affordable homes into the hands of people who need them the most. To that end he embarked on his own international research project on how housing is delivered in other countries, large-scale housing owned by one entity and offered for long term secure rental for residents for whom ownership may be difficult. He took what he learned from US commercial housing models and Europe’s approach to the development of long-term rental housing and melded the two into a unique housing model. 

His company, Assemble Communities, builds uniquely affordable housing products that offer a stable, permanent housing solution for low to moderate income earners. They provide tenants with a five-year lease and an option to purchase their property at the end of that lease. They’re not obliged to buy but Assemble provides a program of financial coaching and cost-of-living savings initiatives to help them get there. To date, over 10,000 people have registered their interest with Assemble.

There are no pools or saunas here but Assemble has created an important solution to an enormous problem.

Listen to my interview with Kris Daff.

Image courtesy of Assemble Communities