Rethink Real Estate. For Good.

Impact

Democratizing investment. A huge step forward.

Mark Roderick describes himself as a very “boring” corporate and securities lawyer, but he’s not. Since the JOBS Act of 2012, Mark has spent all of his time in the investment crowdfunding space. Today he is one of the leading crowdfunding and fintech lawyers in the United States. Mark writes a widely-read blog, which offers a wealth of legal and practical information for portals and issuers. He also speaks at crowdfunding events across the country, and represents industry participants across the country and around the world.

Most recently Mark launched a new firm, Lex Nova Law, a boutique corporate law firm representing crowdfunding, fintech, startups, blockchain and cryptocurrency along with more traditional legal sectors.

Along with the rest of us in the crowdfunding industry, Mark applauds the SEC for its proposed upgrades to all of the online offerings: Rule 504, Rule 506(b), Rule 506(c), Regulation A, and Regulation CF. In this podcast we focussed on Regulation CF, which promises to turn into the little engine that could when these changes take effect.

“These proposals are great for the Crowdfunding industry and for American capitalism. They’re not about Wall Street. They’re about small companies and ordinary American investors, where jobs and ideas come from” says Mark.

The proposals and the reasoning behind them take up 351 pages. You can find an SEC summary here, or the full text here. Some of the key highlights for Regulation CF include much expanded investment limits for both accredited and non-accredited investors, and an increase in the maximum amount an issuer can raise in any one year from $1.07 to $5 million.

Insights and Inspirations

  • Mark believes the latest round of changes to the crowdfunding rules will bring some fundamental changes to the industry including higher quality deals.
  • As the deals get better, so will the industry grow, and more investors join in.
  • He expects to see changes in the physical landscape in just 5 years as these rules begin to have a far-reaching effect.

Information and Links

  • Read the entire 351 pages of proposed changes to the online crowdfunding rules here and a more digestible summary here.
  • Mark’s investment crowdfunding blog provides a wealth of information for those in the industry.
Read the podcast transcript here

Eve Picker: [00:00:08] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:14] My guest today is Mark Roderick, founder of Lex Nova Law and one of the top online crowdfunding experts in the country. I asked Mark to join me today to discuss the very exciting changes proposed by the Securities and Exchange Commission to regulation crowdfunding. In case you haven’t heard of it, regulation crowdfunding, or Reg CF, is the securities regulation that is really the first step taken by the S.E.C. towards democratizing investment. The additional changes proposed will give this regulation real legs.

[00:00:57] Be sure to go to EvePicker.com to find out more about Mark 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: [00:01:18] Hello, Mark, it’s delightful having you on my show.

Mark Roderick: [00:01:21] Well, thank you very much. It is delightful sort of being there.

Eve: [00:01:25] Very good.

Mark: [00:01:26] Virtually.

Eve: [00:01:25] Just sort of. Yeah. Okay. Today, we’re going to talk about raising equity online, which is a pretty wonky subject, but you and I like it. And raising equity online is also known as equity or investment crowdfunding. You said these proposals are great for the crowdfunding industry and for American capitalism. They’re not about Wall Street. They’re about small companies and ordinary American investors, where jobs and ideas come from. And you were referring to some proposed changes to equity online raising funds. And according to the S.E.C., a majority of entrepreneurs and emerging businesses raise capital using an exempt offering framework under the Securities Act. And they raise everything from seed capital for new businesses, to funding growth on the path to an initial public offering, and, also, raise equity for real estate. So, I wanted to talk about the rule changes and why you think they’re so great.

Mark: [00:02:35] Well, okay. Big question and a big, big topic. I mean, maybe I’ll just start at the granular level and then kind of work backwards. If you are in or around the existing industry, And I’m going to call it the Title 3 industry or the Reg CF industry, as opposed to what we might call the Rule 506(c) accredited investor industry. The accredited investor industry in real estate is super-healthy. People are raising a lot of money and platforms are profitable and all kinds of wonderful things are going on. In contrast, the Reg CF world, the industry, it’s sort of, you know, like when you cross the railroad tracks and crossed into the less affluent part of town. It’s a very, almost, I don’t want to get too hyperbolic, but, you know, it’s a little bit of a desolate landscape.

Eve: [00:03:41] Oh yes.

Mark: [00:03:41] It’s very difficult to make money for funding portals, and it’s a vicious cycle as opposed to a virtuous cycle. So, it’s hard to make money. Very small companies with very limited resources are applying because of the limits – we can only raise up to a million dollars a year, and in real estate, in particular, that’s not very much money. And that leads the portals, the funding portals, too many of them, not yours, I should say, but too many of them have adapted to that situation. You know, you’re trying to squeeze money out of people who don’t have any money and have led to a lot of shortcuts, and what I called gimmicks, and that is a vicious cycle because investors, who are not dumb, see that, they see that’s what’s going on. You know, they just ignore the entire industry. And that means that high quality companies are that much less likely to try to use Reg CF. And it has been a vicious cycle.

Eve: [00:04:46] Just backing up one minute. I think some of our listeners maybe not familiar with Reg CF or regulation crowd-funding. So, I just feel like I need to fill in a little bit. Regulation crowdfunding and other online crowdfunding rules grew out of the Jobs Act of 2012, and the intent was really to move online crowdfunding for donations to crowdfunding for investment, right? And so regulation crowdfunding is the rule that lets anyone over the age of 18 invest, but really kind of limits how much they can invest, and how much the company raising money can raise. Those limits, I think, have been the real stumbling block, right?

Mark: [00:05:31] Yeah.

Eve: [00:05:32] So, this has translated into smaller offerings, just like you said, which these funding platforms, which are very heavily regulated to use that rule, it means that they can’t make a lot of money. And that’s kind of where you left off, right?

Mark: [00:05:50] That is exactly right.

Eve: [00:05:52] The new rules, which you seemed very excited about last week, I think, will make some big changes in that landscape.

Mark: [00:06:01] Yeah. They will make a couple changes that are, I think, taken together, just gonna be very, very important and are really going to, to continue that bad metaphor I was using, really revitalize the Regulation CF neighborhood. These are the two most significant changes. As you said in your overview, Regulation CF or Title 3 – those are interchangeable names for the same set of rules – limit very severely how much each investor can invest. And the idea here was to protect widows and orphans from all the shady entrepreneurs out there. But even if the widow or orphan wants to invest his or her entire net worth into a questionable company, the Reg CF rules won’t allow that. To the contrary, they allow only very small investments. And that means that when you’re trying to raise money in Regulation CF, you have to find lots of investors, because each of them can only contribute a very small amount. And, you know, that’s hard. Marketing is hard.

Eve: [00:07:21] It’s very hard.

Mark: [00:07:22] It is also inconsistent with other S.E.C. rules, which in general allow accredited investors to invest as much as they want. One of the fundamental concepts in U.S. securities laws since the 1930s has been that rich people can take care of themselves. They don’t need the government to protect them. And so the term ‘accredited investor’ is sort of a stand-in for rich people. All of the other S.E.C. rules, really, allow accredited investors to make bad decisions, you know. An accredited investor can invest his or her entire network in a single deal. And people have noted, since the outset of regulation crowdfunding, that the regulation crowdfunding restrictions are inconsistent with that general concept. So, one of the changes just made by the S.E.C., or proposed, is that, what do you know, accredited investors will no longer be subject to those severe limits. In fact, they won’t be subject to any limits. So, now if you can attract some accredited investors, you know, you can get people to write big checks. So, that’s an important change. Really important change.

Eve: [00:08:40] Yeah. Yeah. I mean, I’ll give one example that has impacted us. We have quite a few account holders or investors who are accredited by definition based on their net worth. And they have very healthy networks, but they’re retired and they own their houses and their income is maybe below 100,000. And under the regulation crowdfunding Reg CF rules, one of these investors was limited to investing 4,000 a year under Reg CF. But as an accredited investor, she can invest however much she wants. That’s how weirdly bad the rule is right now.

Mark: [00:09:20] Yeah. And just to take that one person, I don’t know how much of a check that person might write, but let’s say it’s, you know, 25 or 50,000 dollars, which is not an unusual investment in the Rule 506(c) world. So ..

Eve: [00:09:34]  Yeah.

Mark: [00:09:35] … she goes from even conservatively …

Eve: [00:09:38] She couldn’t be bothered investing 4,000. She might be interested in 15,000 or 20 or 25 but not …

Mark: [00:09:44] Yeah.

Eve: [00:09:44] Yeah.

Mark: [00:09:45] So, it doesn’t take many of her, you know, the difference between four and say, even conservatively, 25. Those numbers add up quickly. That change in itself was significant. But, in addition, the second change is they’ve raised the limit from a million dollars to five million dollars. And that means bigger companies, companies with more revenue, more products, more services, more scale. Bigger companies can now start using Reg CF. Yeah, I mean, you know, Eve, that a million dollars is not very much in the real estate world. Five million dollars really is a lot. Lots and lots and lots of deals are done with equity of two or three or four million dollars. So, it vastly expands the number of ticket holders who are allowed to attend this event. And then, when you put those two together, you know, now we can do a three million dollar raise where we can raise as much as we want from accredited investors. That, suddenly, becomes an extremely viable business. And that’s the point that funding portals will now be able to make money. In fact, they’ll be able to make significant amounts of money. You know, that’s like, again, going back to that metaphor, that is pouring a lot of money into that neighborhood. And you’re going to see, in my view, just a fundamental change. You’re going to walk through the streets and say, oh, that used to be a dilapidated building. It looks nice now. And so on and so forth. And you’re going to see better business practices from the portals. I believe you’re going to see much higher quality offerings on those portals. In fact, you’re going to see websites that were formerly only in the Rule 506(c) world who had shunned Regulation CF. You’re going to see those companies getting their portal licenses and saying, hey, we can now expand our investor clientele at very little cost. You know, we’ve been marketing only to Rule 506(c) accredited investors. Now we can market to everyone. Why not?

Eve: [00:12:10] Maybe the answer, response to why not, is the regulation that is attached to, being a funding portal, and not to 506(c).

Mark: [00:12:20] Yes. I mean, it’s certainly an impediment. I mean, you’ve been living in this world for the last five years and the regulation can make you pull your hair out. But the business opportunity, it seems to me, is … the landscape just changed completely in my view, you know, I … within the last three weeks before these proposals came out someone called me, a company, you know, we want to be a funding portal. And I tell them, because I try to be very straightforward with anyone, you know, you’re not going to make any money. It’s a funding portal.

Eve: [00:12:55] Right.

Mark: [00:12:55] You know, you want to go, have to expand, vertically integrate. But it’s a very, very difficult business. And that was advice I’ve given in the last two weeks. You know, I’ve had people contact me since the proposals, and it’s totally different advice. This is a real opportunity.

Eve: [00:13:13] Yeah, yeah, yeah. Interesting.

Mark: [00:13:14] I mean, how do you see it affecting your business? You’re in the business.

Eve: [00:13:19] The thing you haven’t touched on yet is, there’s a couple of things that really matter to me. And one is, yes, the fact that accredited investors can invest whatever they want really matters, because I no longer have to offer side-by-side offerings which are very complicated and time-consuming. So, by a side-by-side offering, I mean a Reg CF plus a 506(c), at the same time. So, that can go away. I think the fact that the investor limits have been turned upside down is huge. The fact that now an investor can invest the greater of their net worth or income is absolutely enormous for my crowd. And then I think the single purpose entity rule, which we haven’t talked about yet, is huge. Until now, if you’re going to use a regulation crowdfunding offering type, your investors must invest into the actual deal, which is often not the way that real estate deals work. So, being able to collect a group of investors in a single purpose entity to invest into a project, or a series of projects, is a very big deal. And I’ve been talking to one institutional developer who was really pulling his hair out and trying to figure out how to make Reg CF work for the community he’s interested in using it for, and that particular change makes the whole thing possible. There’s more, I’m sure, testing the waters. I mean, we haven’t talked about all these things, Mark. So, the marketing rules around Reg CF are stifling. And so I want to learn more about what does it mean now to be permitted to have a demo day or to test the waters to, you know, just show the deal before you actually register it with the S.E.C.? I think all of those things really matter.

Mark: [00:15:13] Yeah. There are some other important changes, including, as you say, this so-called testing the waters. We used to have this ridiculous rule, really, that subjected, you know, these tiny Title 3 issuers to more stringent rules, you know, then the largest companies. It was crazy.

Eve: [00:15:35] Yeah.

Mark: [00:15:36] If you were talking, some developer was trying to create this little project, you know, you had to tell that person, you can’t even whisper that you are considering a Title 3 [offering] … You can’t tell anyone, you know, don’t tell your wife. And it was just this ridiculously restrictive rule. So, that is now going to be swept away. And basically, for all intents and purposes, Title 3 companies, issuers are going to be like everyone else. Yeah, you can talk to people about it. You can’t take their money. But that’s an important change for sure. The demo days. Meaning when you’re local science center has a demo day you are now actually allowed to … to attend. It was crazy that you couldn’t attend before. We should mention that they’ve taken some things away. Many Title 3 issuers, the security that they were offering, as you know, were called SAFEs – Simple Agreement for Future Equity. Very popular. The S.E.C. has been convinced by someone that that is not an appropriate instrument for a small company to issue. So, they’re going to absolutely get rid of them. Another very popular instrument – revenue sharing notes. It isn’t clear from the proposals, but it sure looks like they’re getting rid of revenue sharing notes or at least want to.

Eve: [00:17:04] Interesting.

Mark: [00:17:05] You know what the lord giveth, the lord taketh away. I know there’s going to be, during the public comment period, there’s going to be a lot of people complaining about those two things. We did take a couple steps backward, but I think we took about 10 steps forward, so, on the whole, they have made the market much more robust. Yeah, I think it’s very exciting, I, you know this is a world that, you know, you and I have both drank the Kool-Aid a long time ago. This is about providing capital for lots of people whose access to capital has hitherto been restricted. And it’s also about providing investment opportunities to ordinary Americans that have hitherto been reserved for the ultra-wealthy.

Eve: [00:17:55] Yeah.

Mark: [00:17:55] And that’s why my blog post said, you know, this is not about Wall Street. It is actually about undermining Wall Street. It is about a sort of direct to the people, democratic American capitalism. And I think this is a really good step in the right direction. I don’t see any down side personally.

Eve: [00:18:17] Yeah, so you think the number of funding portals is going to explode?

Mark: [00:18:20] I do.

Eve: [00:18:21] It’s about 50 now, right?

Mark: [00:18:23] Something like that, yeah.

Eve: [00:18:24] And in real estate?

Mark: [00:18:26] I do. I think you’re going to have some competitors, which is good. Yeah, I think there are going to be real estate funding portals, I even think, Eve, I think that the big real estate, the Rule 506(c) sites, I think they’re going to consider very seriously having subsidiaries that are funding portals.

Eve: [00:18:47] Interesting.

Mark: [00:18:48] I think it’s a natural to expand their customer base. You know, I’ve always said that portals are like retail stores. And I read a blog post once, saying a portal is like DSW. And DSW doesn’t limit the kinds of shoes that it sells, and it wants every kind of customer to walk in the door, right? And even, you know, a brand like Mercedes Benz, they don’t sell only a 100,000 dollar cars, you know, they sell a 35,000 dollars car. Why? Why do they do that? It’s not to make money from selling a 35,000 dollar car. It’s to get people into the showroom.

Eve: [00:19:33] Yes.

Mark: [00:19:33] And expand their demographic customer base. And I think that’s the natural route for portals as well. We want to accredited investors. We want non-accredited investors. We want everyone, right? I mean, that’s always make sense to me.

Eve: [00:19:46] Right. Right right, right. So, can you think of some examples of projects that you saw in the past that if they went live now, would do so much better? Or is that too hard a question?

Mark: [00:19:57] You’re, I mean, you’re the one who would know that.

Eve: [00:19:58] We have an offering live right now, which was just so complicated to put together, a side-by-side offering. And, you know, an opportunity zone fund offering. They really needed a single-purpose entity for the opportunity zone fund investors. And, of course, we couldn’t use it for Reg CF, so the Reg CF investors missed out on the opportunity zone, tax discounts. And, you know, thinking about how that would be put together under the new rules, it would be so easy.

Mark: [00:20:31] Yeah.

Eve: [00:20:31] I spent months putting it together.

Mark: [00:20:35] I mean, probably every project you’ve ever had on your platform.

Eve: [00:20:38] Yes.

Mark: [00:20:39] You would’ve had the ability to pitch it to accredited investors. Simultaneously. And you would have been legally been earning commissions on all of those transactions.

Eve: [00:20:50] Yes. Yeah. That’s a really big problem.

Mark: [00:20:53] I mean, your life would have been very different.

Eve: [00:20:54] Well, I can’t go back five years, can I?

Mark: [00:20:57] No.

Eve: [00:20:58] So, what about the whole ‘not being able to talk about the terms of the deal’? Like that’s been another really huge stumbling block when you do advertise Reg CF offering, you’re not permitted to talk about the teems. You can’t say, you know, the offering is nine percent preferred return. You’re not permitted to say that. You’re not even permitted to say the minimum investment amount. Whereas with a 506(c) offering, you can say all of that. Is that going to change?

Mark: [00:21:27] Not yet. It wouldn’t surprise me if it changed in the future. So, yeah, you’re gonna be stuck with those same advertising limitations. Now, I will just say that you can say those things.

Eve: [00:21:41] Yes, but that’s all you can say, right?

Mark: [00:21:42] But that’s all you can say.

Eve: [00:21:44] Yeah.

Mark: [00:21:45] And you can say a lot. You know, you can say come invest in this fabulous multi-family project in Downtown Pittsburgh, and it’s 72-percent leased and it’s gorgeous and it’s environmentally friendly. You can go on and on and on and say all those things.

Eve: [00:22:04] You can’t say “it’s gorgeous” because it’s in adjective, right?

Mark: [00:22:07] Ok, well, now I think, I can, I think you can say “gorgeous.”

Eve: [00:22:11] No, I can’t.

Mark: [00:22:13] The only thing you can’t say is …

Eve: [00:22:15] I got my knuckles rapped for saying “bold.” Yeah.

Mark: [00:22:20] You just can’t say, and by the way, we’re raising two million dollars for that project. You know? You can talk about the project until you’re blue in the face.

Eve: [00:22:29] Yeah. Well, that’s been pretty good for us because we want to talk about the projects, but still it is a stumbling block. I think people sit up and pay attention when you say you can invest as little as 1,000 dollars and they’re looking at an ad talking about a great project, but they don’t really know. It’s a question of will they click through? Right? It’s definitely a stumbling block.

Mark: [00:22:50] Yes. And it will continue to be.

Eve: [00:22:53] Yes. Ok. So, I want to just shift gears a little bit. We’re doing this a bit backwards. But how did you become an S.E.C. crowdfunding expert, and why?

Mark: [00:23:04] Actually, Eve, I think our stories are in some ways, similar. So, I mean, I’ve always been a boring corporate lawyer. And in being a boring corporate lawyer, I’ve represented entrepreneurs my whole career. And when you represent entrepreneurs, one of the things you spend a lot of time doing is helping them raise capital. Entrepreneurs are always looking for capital, and raising capital used to be, you know, really, really hard. It’s still really hard, but it used to be, before the crowdfunding rules, a lot harder, as as you know. And when I saw the Jobs Act on the horizon, this must happen back in like 2011, which is amazing, of course, how quickly time flies.

Eve: [00:23:50] Yes.

Mark: [00:23:51] But I said, wow, you mean you’re going to be able to use the Internet to raise money? This is huge. It’s transformative. It’s disruptive. It’s fantastic. And I drank the Kool-Aid right away and thought this would just be a great thing for the American economy. And I said, it’s going to be fun and I want to be involved with it. So, I immediately decided that that’s what I was going to do. So, I learned all about it and started writing this blog and started speaking about it in public. And I’m so enthusiastic about it, and the rest is history. So, that’s my story, which in some ways is probably similar to yours, right?

Eve: [00:24:33] Yes.

Mark: [00:24:34] You saw it and you said, aha!

Eve: [00:24:36] Yes. But not enough of us yet. Right. Still a pretty small industry.

Mark: [00:24:41] Still a pretty small industry, but it is growing, you know. People are raising, we talked about five million being a pretty good real estate deal, you know, people are raising 15 million now. And that, when, you know, when you and I got into this industry, the concept of being able to raise 15 million dollars for a deal online was unthinkable.

Eve: [00:25:06] Yes.

Mark: [00:25:06] You know, people were raising 250,000 dollars to do a fix and flip. The industry is now funding from very significant deals. And because entrepreneurs are always looking for capital, you know, the entrepreneurs of the world are really paying attention.

Eve: [00:25:26] Yes. Yeah.

Mark: [00:25:27] I’m a pretty good barometer because I am pretty well-known in the industry and I will, so when I say my phone has sort of been ringing off the hook, that’s a pretty good industry barometer.

Eve: [00:25:40] It is. Yeah.

Mark: [00:25:41] You know, it probably means lots of peoples’ phones have been ringing off the hook. And this latest change really has gotten people’s attention.

Eve: [00:25:49] Yes. Well, it should.

Mark: [00:25:52] So, I think in 2020, I really think the industry, those of us who survive the coronavirus, anyway …

Eve: [00:26:01] Oh, that’s depressing.

Mark: [00:26:02] Yeh, and I … then are going to, you know, really see a significant uptick.

Eve: [00:26:10] Yes. So, I have to ask the next round of improvements that the S.E.C. makes, what do you want to see on that list?

Mark: [00:26:17] So, I get asked that question a lot and I never have a ready answer because I’ve been doing this, you know, I’ve been practicing law for so long. I have learned not to think about possible legislative or regulatory changes because they are so rare and so unpredictable, you know. There are two things you never want to see being made. One is sausage and the other is law. I just focus on the world that I have, that I’m in, rather than on how it might be improved.

Eve: [00:26:57] I get it. The thing I think about is of regulatory burden, which is enormous for small companies. Really enormous.

Mark: [00:27:05] And how would you address that?

Eve: [00:27:08] For a small company that’s never done something like this before. As a member of FINRA, not only are you following, you know, the regulation crowdfunding rules, but you’re also following FINRA’s rules, which require many, many, many things, like WURM compliance of emails and evidencing and things I never knew existed. It’s very time consuming to learn at all, and it’s time consuming to keep it up and to do it properly. And I have a feeling that many platforms are not doing it properly because it’s just too hard. So, I think that really needs to be addressed in one way or another. You know, I don’t know what a full-blown broker/dealer compliance book looks like. I’m sure it’s worse. But in some ways I feel like FINRA wasn’t ready to handle these smaller companies, they’ve never done anything like it before. The compliance is … huge. And, you know, we’re surveilled every quarter, and they said, well, every word. And that that’s their job. So they have to, I’m not saying they shouldn’t, but it’s all required, and it’s a lot.

Mark: [00:28:19] Yeah. And I mean, maybe I would say the next significant change maybe should be from FINRA rather than from the S.E.C..

Eve: [00:28:31] Yes, possibly.

Mark: [00:28:32] I completely agree with you that FINRA didn’t know how to deal with this and they started off with a light touch, you know. The first funding portals that I represented that, they were easy to get approved. And then FINRA just didn’t know what to do. And, you know, the easy answer is from a regulatory point of view was always to make it more difficult. And so we’ve ended up in this kind of crazy situation where funding portals, small, small organizations, are subject to the same regulatory treatment as, you know, as Morgan Stanley. And it it is clearly not a good fit.

Eve: [00:29:16] That’s right. Although I have to say that they’re trying, and in their communications with Small Change, at least, the tone is more about helping us be aware of what we’re supposed to do. So, it’s not a bad tone, but still, the regulatory burden is there. In a sense, I think FINRA got lumped with this without anyone much thinking about the consequences. Does that make sense?

Mark: [00:29:39] Yes. I mean, I’m not attacking FINRA, because, as you say, they’re just doing their job. No one told them, you know, you should act differently with the respect that this particular species of FINRA member, as you know, I mean, these days we’re submitting policies and procedures to FINRA that are, you know, 75 pages long …

Eve: [00:30:03] Oh, wow.

Mark: [00:30:03] … could be a two person company where, you know.

Eve: [00:30:07] Yeah.

Mark: [00:30:07] The policies and procedures amount to the two people saying this is how we’re going to regulate ourselves. You know, there’s no one else to regulate. There’s no one to supervise.

Eve: [00:30:17] Yeah, no, no. I know. It’s a shame.

Mark: [00:30:21] It’s almost been an absurdity, but there you go.

Eve: [00:30:25] So, yeah. Let’s root for FINRA making the next change or, something happening that permits for FINRA to make the next change, because I’m not sure they’re fully in control of that themselves. I don’t really, I don’t really know. But, you know, we we pay a lot of money to a company called Smarsh to archive all our emails, all our websites, everything, so that they’re all WURM compliant. That’s a big burden for a tiny company.

Mark: [00:30:52] Well, there you go.

Eve: [00:30:52] We also pay a lot for insurance, which is crazy expensive. I have a feeling that many funding portals don’t …

Mark: [00:31:00] Just don’t do it. Yeah.

Eve: [00:31:01]  … pay for insurance, because they can’t afford it. I like to sleep at night.

Mark: [00:31:05] I guess, what from the FCC, you know, rule 204, which is that burdensome advertising rule that you were alluding to earlier. That does seem a little too harsh. The idea of it, the theory of regulation crowdfunding is that every investor should have access to exactly the same information at all time.

Eve: [00:31:29] That’s right. Yep.

Mark: [00:31:31] And so that’s why they don’t let you freely advertise. They want all attention to get focused back to the funding portal.

Eve: [00:31:39] Right.

Mark: [00:31:40] Which is supposed to be the sole source of the information. And so, yeah, I totally understand that. I’m not going to say there’s no reason for the rule. I think maybe this is an example of ideology, sort of, getting the better of practicality. The rule is just impractical. And …

Eve: [00:32:02] Yes. Yeah.

Mark: [00:32:04] The ideological purity of it I think is outweighed by the burden that it places on, again, on very, very small companies.

Eve: [00:32:13] We’ve ended this on a bad note.

Mark: [00:32:15] Yeah, but well we’re sort of searching for ways that maybe in five years from now, maybe the S.E.C. will make the rules even better.

Eve: [00:32:26] Yeah.

Mark: [00:32:26] But these little rules, you know, again, we’re dealing with tiny companies and you know, big companies have the resources to hire lawyers, like me, or even have their own in-house lawyers. But these are tiny companies. So, a lot of these rules, as you know, in your position as a funding portal end up just being tripping points, you know, traps for the unwary.

Eve: [00:32:50] Yes.

Mark: [00:32:51] Yes, we could do with fewer of them. But on a positive note, again, 2020 is going to be a very, very good year.

Eve: [00:33:00] Yes, it is. And final question, what’s next for you?

Mark: [00:33:06] What’s next for me is, you know, I’ve just started a new law firm, Lex Nova Law. Super exciting, fun, high tech, really cool, hiring more people, training more people to learn about these rules. And part of my job in the crowdfunding industry is to educate people. So, I love being on the forefront of education. And another part of my job, I think, is to make the industry better. And that means more compliant, but also more efficient. The Internet, which is what crowdfunding is all about, it requires efficiency, right? It is …

Eve: [00:33:54] Yes.

Mark: [00:33:55] It is a tough taskmaster. You know, Amazon. You try to compete with Amazon in retail, man, you find out how efficient they are. So, lawyers, the key kind of friction points in the syndication world, in the capital formation world. You know, lawyers have to become more efficient. And I work on that all the time and try to work with industry leaders to make the crowdfunding industry better for investors, in part by making it more efficient. So, that’s the answer your question

Eve: [00:33:55] Great. Well, I’ve had the privilege of working with you on that. And I agree. Efficiency really matters. Thank you so much for joining me. And I also can’t wait to see what the year holds.

Mark: [00:34:42] Thank you so much.

Eve: [00:34:44] Okay.

Mark: [00:34:44] Have a great day out in sunny Pittsburgh.

Eve: [00:34:51] That was Mark Roderick. We got into the weeds together about the proposed improvements to regulation crowdfunding. He and I both understand what these changes will mean to capital formation. As Mark said, these proposals are great for the crowdfunding industry and for American capitalism. They’re not about Wall Street. They’re about small companies and ordinary American investors, where jobs and ideas come from. You can find out more about impact real estate investing and access to the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Mark, for sharing your thoughts with me. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Mark Roderick

Why choose?

It’s becoming increasingly important for investors of all levels to make socially conscious investments ensuring that their investments align with their values. Broadly referred to as impact investing, this type of investing means supporting organizations, businesses and projects that will have a positive social or environmental impact.

While impact investing has historically been associated with high net-worth individuals, in recent years it’s gained increased popularity with middle-class investors who, though having more limited resources or capital, nevertheless wish to have their investments return more than just mere financial dividends. But, understandably, some people may find themselves torn between investing in something that will have a positive impact and investing solely based on return.

The encouraging reality is that investors don’t have to make that choice – you can make impact investments and still see market or above-market returns, and there are an increasing number of examples of ways to do this. Janine Firpo is an interesting case study of an investor that’s gone all-in on impact investing and is consistently realizing strong returns on those investments.

A case study

Janine had been working in the computer and multimedia industry since the 80s, and in 1995 she took a year off to travel. During that year, she backpacked through sub-Saharan Africa and was powerfully moved by the poverty that she saw in the region. Returning from that year abroad she had become determined to find ways to use her technology and business knowledge to help reduce poverty.

As a result, she spent more than two decades traveling the globe, helping to bring technologies and development projects to Africa, Southeast Asia and other regions with high rates of poverty in her role with several philanthropies. After this period of nearly constant travel, she retired from that career and returned to the Bay Area, where she became familiar with the broader ideas of social philanthropy and impact investing. She began to realize that she had committed herself to leading a life of value but hadn’t carried that same philosophy over to her investments.

A vision for investing

Janine felt that her investments were, in a way, working against efforts in her own life and work. With this realization, she made the decision to invest everything she had in a way that supported her values, and that might help to build the world she wanted. She shared this vision with her financial advisors but found that they were not able to fully meet her goals. So, she took back control of the assets and began to invest them herself.

Janine has since spent extensive amounts of time researching investment opportunities and finding investments that align with her thinking, and not surprisingly she has found that it can be a time-consuming and remarkably difficult project to start from scratch. In order to help make impact investing easier for others, she is currently writing a book that condenses and shares the results of her efforts, while providing step-by-step guidance for value-aligned investing.

Returns for impacting investing

When asked whether she is getting acceptable returns from these new investments, Janine responded with an emphatic, “Yes!”, noting that “this is not about giving up returns. This has never been about giving up returns.” As an example, she shared her experience with a particular holding in her portfolio. She used the website AsYouSow.org to learn more about how this holding aligned with the values she prioritized and found out that it had a rating of D (not good). She then found another holding with A and B ratings on those values and invested in that instead and found that over a 10-15-year time frame, the alternative investment actually had yielded higher returns. Clearly, a win-win for Janine, and would also be for many middle-class investors looking to protect and grow their savings and retirement funds.

To learn more about Janine Firpo’s efforts to make impact investing more accessible, listen to her full podcast interview. Or check out some of the real estate impact investment opportunities available at Small Change.

Image from Piqsels licensed CC0, Public Domain

A bold experiment in coal country.

Brandon Dennison founded Coalfield Development in 2011 to offer a unique workforce approach focused on transforming communities – a bold experiment in tackling the generational poverty West Virginia has long wrestled with.

This experiment grew out of his early memories while growing up in a comfortable middle-class family in West Virginia. Others were not so fortunate. West Virginia’s jobless rate is high. But Brandon noticed that people wanted to find work, even if only through odd jobs, and this memory stayed with him. While still at school, Brandon developed a business plan for Coalfield Development, the first step towards launching the nonprofit which is focused on countering the generational poverty and lack of economic opportunities in West Virginia.

Coalfield’s workforce model is called 33-6-3: 33 hours a week are spent in on-the-job training, along with participation in training workshops; six hours a week are devoted to community college and business classes for an associate degree in applied sciences; and three hours a week are committed to personal development coaching and life skills. 

Coalfield has since expanded into a family of small, social enterprises. Revitalize Appalachia is developing a green-collar workforce deployed on projects that include rejuvenating empty buildings, and which was pivotal to starting Solar Holler, southern West Virginia’s first solar installation company. Refresh Appalachia produces fresh, healthy, local food. Reintegrate Appalachia is part of a region-wide coalition to support people in recovery from drug addiction on the path to finding employment. And Reclaiming Appalachia Coalition is a multi-state network exploring more innovative, sustainable approaches to mine-land reclamation.

On the development side, since 2013, Coalfield Development has incubated two wood shops, a coffee shop and an antique mall. In addition to a 2019 Heinz Award, Coalfield was recognized in 2018 with a $1 million grant from the Rockefeller Foundation/Chan Zuckerberg Initiative to replicate their model in Appalachia. 

Insights and Inspirations

  • Brandon believes that the American small town is poised for a comeback.
  • He is most proud of the deep human development his programs deliver, where participants move from hopelessness to optimism and confidence.
  • Real estate projects tackled by Coalfield Development do much more than deliver a building. They house new enterprises, create jobs, and train people in a multitude of skills.

Information and Links

  • Refresh Appalachia is turning coal mines into farms.
  • Solar Holler is pursuing innovative approaches to bring solar within reach of people and places who have always been left out.
  • Revitalize Appalachia builds community-based construction projects along with on-the-job training. Crews are local and projects are green.
Read the podcast transcript here

Eve Picker: [00:00:08] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:15] My guest today is Brandon Dennison, a young creative powerhouse working to bring an economy to mid-Appalachia. As a young adult, Brandon noticed the poverty and lack of jobs in the town he grew up in. That early memory stayed with him through his college years. While still at school, he launched Coalfield Development, which is focused on workforce development to counter the generational poverty and lack of economic opportunities in Western Virginia. While workforce development is the center of Brandon’s focus, that has also spilled over into creative, sustainable and community-centric real estate development. Brandon’s work has been recognized with a Heinz Award, and a $1 million grant from the Rockefeller Foundation/Chan Zuckerberg Initiative. You are going to want to hear all about it.

[00:01:24] Be sure to go to EvePicker.com to find out more about Brandon 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: [00:01:58] Thanks so much for joining me today, Brandon.

Brandon Dennison: [00:02:01] Happy to be here. Thanks for having me.

Eve: [00:02:03] So, we are rebuilding the Appalachian economy from the ground up. That statement is front and center on the home page of Coalfield Development, the organization you founded and lead. Well, I’d love you to tell me exactly what that means.

Brandon: [00:02:20] Well, it is a bold statement. There’s no doubt about that. And we are trying to model and pioneer what a whole new and better and fairer and more sustainable economy can look like for our region. This is a region that’s been overdependent on coal for far too long and that overdependence has left us economically vulnerable. It’s also left our environment in a difficult situation, not as clean as it should be and it’s hurt, it’s ultimately hurt the fabric of our societies and our communities, as you can see with the growing opioid and addiction crisis that we’re in. So, at Coalfield, we know that we can’t re-employ every single unemployed person that’s out there in Appalachia, but we can model what a newer and better way of doing things can look like.

Eve: [00:03:13] So, you know, what does that modeling look like? Have you developed programs? What are you working on?

Brandon: [00:03:18] Yeah. So, we incubate, mostly from scratch, but also in partnership with other entrepreneurs, we incubate what we call social enterprises. These are business models that blend the compassion of the nonprofit world with the efficiencies of the for-profit world. And the enterprises are in new sectors of the economy where we can innovate and show what a more sustainable economy can look like. So, for example, we’ve helped start the first solar installation company in southern West Virginia. We have an organic agriculture company. We make t-shirts out of recycled plastics. We make wood furniture out of reclaimed lumber from dilapidated buildings, some very innovative businesses. And we use those businesses to put people back to work, and then to support their lifelong learning and development.

Eve: [00:04:06] And so how many businesses like that have you developed to date?

Brandon: [00:04:09] From scratch, we’ve helped start 11 new social enterprises that we own and operate. And then we’ve also invested in more than 50 other social enterprises throughout the region.

Eve: [00:04:21] That’s a lot. That’s over 60, already.

Brandon: [00:04:25] Yeah.

Eve: [00:04:26] And so that creates a lot of jobs. How many jobs have those enterprises created?

Brandon: [00:04:32] We’ve created more than 250 new jobs. And those are permanent positions. And we’ve trained over 1,000 people through our training programs.

Eve: [00:04:41] That’s that’s pretty amazing. So, tell me a little bit about the programs that you’ve developed, as well.

Brandon: [00:04:47] When we hire a person onto these social enterprises, we hire them according to what we call our 33, 6 and 3 model. This is how we organize the work week, 33 hours of paid work each week, six hours of classroom time. All of our crew members are working towards an associates degree at the local community college. And three hours a week of personal development, which is, essentially, it’s life stuff …

Eve: [00:05:15] Yeh.

Brandon: [00:05:15] … to help our people overcome the challenges that are getting in the way of their quality of life. So, it’s a very holistic model. And what we found is, whether it’s in agriculture or construction or manufacturing, the model’s replicable across different sectors of the economy.

Eve: [00:05:31] So, you’re also providing, I think, a lot of support services in a variety of programs, like you, you say you train people. How do you do that? What resources you provide them with?

Brandon: [00:05:43] So, this is a paid experience. The 33 hours, it’s paid work, it’s a real job. And then we do a scholarship for the “6” and the “3,” so none of our college students have student debt. And then we layer on some additional life support. We have a zero interest emergency loan program that folks can tap if they have an unexpected emergency. And we facilitate a personal development program, which is really its reflection, where part of those three hours we’re creating time for folks to really evaluate where they’re at in life, and sometimes for the first time, assess a future and how to attain that future.

Eve: [00:06:22] So, it sounds like you have a huge amount of support, I think you’re just probably telling me little pieces of it, for a lot of people. And what impact has that had? I mean, how are you measuring success? What does that look like to you?

Brandon: [00:06:40] Well, there are some easy ways to do that. And then there are some deeper ways to do that. What excites us is really the deep human development. When we see a person who’s been able to calm chaos in their life, and they’re now able to develop a life plan and goals and start to achieve those goals, and start to have a quality of life they never thought attainable. That’s why this organization really exists. So, we measure our success by jobs created, and businesses created, and people trained. But then we also, internally, every crew member has a monthly evaluation by which we track their professional development. And then every week we also have a personal reflection which actually monitors and tracks the improvements in the well-being of the person themselves. So, we can measure this through peer-reviewed surveys on things such as optimism and self-confidence and sense of self-agency and self-worth. And that’s harder to measure. but that’s really the magic of this organization, I think, are those deeper human, really, transformation is not too strong a word for what we see happen in people’s lives. We’ve seen people go from struggling with addiction to, all the way to becoming entrepreneurs. Folks who have been couch surfing and homeless to first time homeowners and opening savings accounts. So, I don’t think transformation would be too dramatic a word.

Eve: [00:08:10] No, absolutely not. That’s pretty remarkable. Tell me, how does real estate development fit into your model?

Brandon: [00:08:19] Yep. So, we have a niche with real estate where we take on older historic buildings. We use our locally hired construction crews to revitalize those buildings into mixed use, mixed income hubs for economic development. So, what I mean by mixed use, there’s usually an affordable housing component. We do the housing green and sustainable upstairs, and then downstairs there’s usually a small business component where we’re creating new space for new businesses to come into the communities. New social enterprises to open up shop. And then by mixed income, you know, we’re creating assets that are really accessible for people of all different incomes. And so, the real estate component really supports the personal development and the enterprise development strategies that we’ve already talked about. And it’s important for gaining community trust because it’s so tangible. I think sometimes there is a lot of cynicism down in southern West Virginia. There’ve been so many government programs and mission trips and charitable efforts that folks have become really skeptical about what it actually means for their lives. I think part of the reason our real estate component is so popular is it’s tangible. People see an empty building coming back to life. They see their neighbors moving in there, having a great place to live. They see new businesses opening and putting people to work. And it’s hard to deny that positive momentum.

Eve: [00:09:44] Yeah, that’s true. I think real estate is pretty fabulous that way. It’s sort of visible proof of change, right?

Brandon: [00:09:50] Yup, exactly.

Eve: [00:09:51] Yeah. How many projects have you completed?

Brandon: [00:09:55] I would have to add that up, exactly, but I’d say at least about a dozen. We have another three or four in our in our pipeline, right now.

Eve: [00:10:03] And your role in these projects, are you the developer, or do you help someone else who’s developing the project?

Brandon: [00:10:11] We are almost always the developer. So, we have the competency as an organization to put the finances together, to lead the community engagement, the community visioning. We’re usually the contractor. We’re a licensed general contractor. So, that creates local jobs through which we can use that 33, 6 and 3 model that I referenced earlier. Sometimes we’re the owner and manager, but not always.

Eve: [00:10:35] So, I have to ask if there’s something you don’t do?

Brandon: [00:10:40] (Laughter) That’s a fair question.

Eve: [00:10:41] Because you’re rattling off, like, an extraordinary number of accomplishments, and I’m sure there’s more tucked away that you’re not talking about.

Brandon: [00:10:48] So, I studied nonprofit management in graduate school, so I know the term “mission drift” and it’s always a concern. But kind of our theory of change for southern West Virginia is that things had gotten so stagnant and so, sometimes hopeless feeling, that what was needed were really were some bold experiments. And that it wasn’t enough to just pick one area and say, this is what we do and this is all we do. And so, we are into a lot of different things, but it’s actually kind of on purpose.

Eve: [00:11:19] Yeah, it sounds like you’re pretty happy about it, too, Brandon.

Brandon: [00:11:23] Yes. Because of those transformations, that I realize, it’s hard not to wake up excited about what we’re doing. This is where I’m born and raised. So, I love this place. I’m committed to this place. And to get to see people transform their lives and communities transform, you know, literally empty buildings transformed into new places of business. It’s inspiring to be a part of it.

Eve: [00:11:46] So, let me let me ask you, are you working in one town, city, or are you working all over the state?

Brandon: [00:11:55] We have partnerships all over the state now, and even a few outside of our state borders. But most of our work is focused in southern West Virginia, kind of near the Kentucky border.

Eve: [00:12:07] Okay. And tell me again what sort of problems? You, I know, there’s an opioid crisis, I mean, what sort of unemployment are you dealing with there? What’s happening economically in that part of the state?

Brandon: [00:12:21] Well, I’ve had to learn the hard way the difference between generational poverty and circumstantial poverty.

Eve: [00:12:28] Yeh.

Brandon: [00:12:28] Circumstantial poverty, you have folks who have had stable income, have had good jobs and lose those jobs, and it is very scary. But there’s kind of a base or a foundation for them to rebuild off of. Whereas, with generational poverty, you’ve got several generations gone by without wealth and assets accumulating. And it’s just a deeper, more complex sort of challenge. And that’s the kind of challenge we’re facing in Central Appalachia and have been for generations. And so, that’s why our work goes so deep and long. You know, we’re creating actual jobs. These are two and a half year contracts. We’re sticking with people all the way through the end of their associates degree, which is, usually takes two and a half years. So, it’s more expensive, it takes longer, but it’s what’s required, given the complex generational challenges we’re staring down.

Eve: [00:13:20] What is unemployment like there?

Brandon: [00:13:23] Unemployment is, it’s always above the national average. But what actually stresses me out even more is the labor participation rate. Unemployment measures people who are out of the workforce, but are actively trying to get back into it.

Eve: [00:13:36] Right.

Brandon: [00:13:36] Whereas labor participation, that measures the number of folks who are trying to be in the workforce versus those who have totally given up. And we have a lot of counties where less than 50 percent of the working age population is in, actively in the workforce. And that, frightening. You can’t build a modern, healthy economy with a number like that.

Eve: [00:13:56] No. So, then what is your and your organization’s long term goal? What do you hope things will look like in 10 years?

Brandon: [00:14:03] This is why we’re so committed to starting new businesses ourselves. It’s not enough to just train a workforce for the businesses that exist because there’s just not enough economic activity happening right now to really build an economy for the future. And so, this is why the startup component of our work is so important.

Eve: [00:14:24] Yes. So, out of everything you’ve done, what do you think’s been most successful and perhaps what’s been least successful?

Brandon: [00:14:32] Well, one of our social enterprises was a coffee shop in a small town in southern West Virginia that we were very proud of. It was in a formerly vacant building. It was a beautiful project. It filled a need and a gap that wasn’t being met in the community. The idea for the coffee shop came out of community charrettes, But ultimately the coffee shop, it just didn’t make it financially. And I think what that reinforced for me, you know, retail businesses are going to struggle until we’ve rebuilt that economy to have outside investment coming in, to have businesses, like manufacturers or construction companies that really generate a multiplier effect, it’s gonna be tough for a retailer-type businesses to take hold. So, it was so sad to close the coffee shop, but we learned so much from that. And on the success side, I mean, I think of the human beings whose lives have transformed, the 250 new jobs that we’ve created. And ultimately, what those people as part of social enterprises have achieved, is they’ve modeled what a whole new and better economy can look like, especially when you think about that solar company.

Eve: [00:15:41] Yes.

Brandon: [00:15:41] To think that we’ve grown a solar installation company. It’s totally for-profit now. No grant money needed. We did that right in the heart of coal country. That’s a pretty bold accomplishment.

Eve: [00:15:51] That’s pretty bold. Yeah. Just going back to real estate a little bit.

Brandon: [00:15:56] Sure.

Eve: [00:15:57] I’ve done this sort of real estate project myself, and I’m wondering how you fund your projects.

Brandon: [00:16:03] It’s always a mix. We never like to do a project that can’t sustain at least some debt. You know, we feel like if it has to be 100 percent grant-funded, that’s probably not a good sign that it’s viable. And yet in our distressed communities, to expect a property to handle 100 percent debt service is not fair either.

Eve: [00:16:23] I don’t think you can expect that in too many places anymore, so, especially if you’re trying to build affordable housing where, you know, affordability depends on keeping debt down. So, it’s very tough. Yeah.

Brandon: [00:16:36] So, we almost always have a bank loan that, anywhere between 10 to 20 percent of the projects, sometimes more. And then we fundraise. And for the housing piece, the Federal Home Loan Bank of Pittsburgh has been a fantastic funding partner for us. And on the commercial side, we’ve had some good luck with the United States Economic Development Administration.

Eve: [00:16:59] Ok, creeping up to 40 percent would be a good thing, right?

Brandon: [00:17:03] Yeah.

Eve: [00:17:04] Yeah. I think given in Pittsburgh, projects that are in underserved neighborhoods typically need, maybe 40 percent of subsidy, and the market’s gotten pretty strong here. So, it’s very difficult. What you’re doing is very, very difficult. And what role does the community around you play in the funding of these projects?

Brandon: [00:17:24] Part of the problem with the generational breakdowns that I was referencing earlier, that means there’s not been an accumulation of wealth over the generations. And so we do not have a philanthropic base like what many urban areas have.

Eve: [00:17:40] Right.

Brandon: [00:17:41] Our local community foundation can really only do grants of five to ten thousand a pop. One in Charleston that can do a little bit better. So, we are really forced to look to the public sector for funding help and we’re forced to look outside of our region for folks who understand the oppression and the divestment that’s happened here, and are willing to help us try and rebuild a stronger base.

Eve: [00:18:06] Yes. So, that brings me to the question. You know, I have an equity crowdfunding platform. Do you think that could play a role in building communities for everyone where you work?

Brandon: [00:18:16] I think so. I think it’s a brilliant model. And I think, you know, to answer your question more directly from before, about the role of the community, what makes our projects really go is this the sense of community ownership. So, we start every project with multiple community town halls, and charrettes, and the community members actually sit down with the architects and help design these projects. So, we often times, even though Coalfield is technically the owner and the developer, there is a wide sense of connection and ownership to these buildings from community members themselves. And so I think that sort of approach that we take might very well make us a good fit for your crowdfunding approach.

Eve: [00:19:00] What community engagement tools have you use that have worked best?

Brandon: [00:19:05] We used to start with a charrette right out of the gate. We realized the charrettes go better when there’s more knowledge built up of the history of the building, and what’s possible and what’s not, given the funding source. And so, we start with the town hall, sometimes two or three, just to build the awareness of the history of the building and the funding sources at play.

Brandon: [00:19:26] Then we have a charrette, and sometimes more than one charrette, to actually let the community members sit down with the architects and have their fingerprints on the actual blueprints for these projects. And then we continue to engage the community once the properties are up and running. We hire local community members to staff these facilities. And we continue to lead community engagement efforts well into the future operations of the buildings.

Eve: [00:19:52] So, community engagement from beginning to end, right?

Brandon: [00:19:56] Yeah, absolutely.

Eve: [00:19:58] Going back to you. I’m just wondering what your background has been that’s led you down this path, creating this pretty amazing organization.

Brandon: [00:20:06] I was born and raised in southern West Virginia. I had a happy middle-class upbringing, but I knew all around me there was a lot of pain and suffering. I went away to school about six hours east of here, and I got very involved with a progressive Presbyterian church. I loved the youth group and I would take the group on service trips, all over, mainly to learn and to do a little bit of service. And I had some amazing experiences, but everywhere I went, I felt like, where I belong was back home in my own backyard because I knew that’s where I could probably have the biggest impact. I understood that place the most. And then the very last service trip I led was to Mingo County right back in southern West Virginia. And we had this experience where we were doing service work on a house. And these two young guys approached us and they had tool belts slung over their shoulders, and they asked us if we have work available. And I explained we were volunteers, and they went on their way, and it was just a brief, brief interaction. But I felt like that brief moment really summed up the situation in southern West Virginia, which is, we have people who want to work and want to learn and want to be a part of something, but our economies stagnated so badly that there’s nowhere for that gumption to really be applied. So, that was the seed that really started me thinking about Coalfield Development.

Eve: [00:21:30] And then after that, how did you get it off the ground?

Brandon: [00:21:33] I went to graduate school to study nonprofit management with the Indiana University. I knew that I wanted to move back home but Indiana had a great program. And while I was there, the business school actually was helping start this new program in social entrepreneurship. And that was a phrase I’d never heard before, but it really caught my attention. The more I learned, the more I felt like, here was something different, and new and potentially more effective than some of the other public and nonprofit programs that have been tried back home. I had an internship in the summer of 2010 to kind of listen and learn. And then I took the whole second year of graduate school and just threw myself into the business plan for Coalfield Development. And then I, when I was done with school, I moved back in with Mom and Dad and they gave me financial cover and shelter to make a try at this thing.

Eve: [00:22:26] (Laughter) Very good. Have you moved out? I have to ask.

Brandon: [00:22:30] (Laughter) I did finally make it out. I’m married and we have two boys now.

Eve: [00:22:34] Thank goodness. Your parents are probably saying thank goodness too. Right?

Brandon: [00:22:38] Yeah, probably so. It’s kind of, like, the millennial thing to do, you know. (Laughter)

Eve: [00:22:42] It’s a very millennial thing to do. Really. It’s been a tough 10 years, right?

Brandon: [00:22:49] It has been.

Eve: [00:22:49] So, then, do you think socially responsible real estate is necessary in today’s development landscape?

Brandon: [00:22:56] I think it’s critical and I think it’s too often overlooked. You know, we organize our organization by what we call three core capabilities. It’s the personal professional development. It’s the incubating of the social enterprises. And then it’s the community based real estate. And the community based real estate in many instances is what’s making the first two possible. You know, it can be complex. There’s many different funding sources. It takes years for these projects to get pulled off. And so sometimes it’s not the easiest … kind of sexiest piece of our work to talk about. But it’s a critical component.

Eve: [00:23:31] Yes. Yep. And are there any current trends in real estate development that interest you the most that you think could be relevant, too?

Brandon: [00:23:39] Well, I think the American small town is poised for a comeback. Rural has challenges, but I think more and more, people are looking for a good quality of life. They’re looking for outdoor recreation opportunities and clean air and clean water and peace and quiet. And with some historic buildings. When you think about sustainability, I think, historic preservation gets overlooked. But one of the best things we can do to build new housing in a sustainable manner is to preserve our current building stock rather than knock it over and put it all in a landfill. So, I think there, the future of the market might be good for rural small towns. I hope so.

Eve: [00:24:18] Yeah, I think you’re probably right. I was in Australia recently and I travelled to Hobart, which is in Tasmania, to the south of it. And it was fascinating because Melbourne is the closest city to the north and it’s one of the most expensive cities in the world and growing really, really quickly. But it was this tiny little city. I hesitate to call it a city, it’s very small. And it had really had a huge influx of young people who were experimenting, and building businesses in exactly the way you’ve described. Just trying to, kind of, build up a new place for themselves where they could afford it. It was pretty dramatic.

Brandon: [00:24:59] Very cool.

Eve: [00:24:59] Yeah, very cool. Yeah.

Brandon: [00:25:00] I think that’s the future.

Eve: [00:25:01] Yeah. I think, you know, people have to find their way out of some of our cities which have become just too expensive for most people. How do we think about our cities, towns and neighborhoods so that we can build better places for everyone?

Brandon: [00:25:17] I think historic preservation, again, is a key part of that conversation. I think that mixed use, mixed income projects are important. The reason the mixed income, you know, if you look at affordable housing development in years past, it’s often, it’s taken low-income people and shoved them in a corner of the city and kind of consolidated all the challenges that come with poverty. It really cut people out of pathways and avenues and access to opportunity. The mixed income is important, and the mixed use is important as well, so that we’re not just creating affordable housing, but really, we’re building up communities that include small businesses and recreation opportunities and community engagement opportunities that contribute to a whole quality of life.

Eve: [00:26:07] So, I think basically you’re saying we should just keep mixing it up, right?

Brandon: [00:26:11] I think so.

Eve: [00:26:12] Just mix it up. Well, thank you very, very much for your time. I really enjoyed talking with you and all the best for this pretty fabulous organization that you’ve built.

Brandon: [00:26:22] This was a great conversation. I love the work that you’re doing as well. And I hope we can find a way to work together.

Eve: [00:26:28] Absolutely.

That was Brandon Dennison of Coalfield Development. Brandon measures success in the lives he helps to transform, from poverty stricken and jobless to optimistic and confident. Each participant in the 33-6-3 program that he developed works for 33 hours, studies towards an educational degree for six hours, and works on personal development for three hours, each and every week. While workforce development is the center of Brandon’s focus, that has spilled over into creative, sustainable and community-centric real estate development as well. Historic preservation, community engagement and job creation all come together in a very holistic real estate development program.

Eve: [00:27:30] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, Eve.Picker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Brandon, for sharing your thoughts with me. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Images courtesy Brandon Dennison, Coalfield Development.

Scaling up.

Brian Gaudio believes that everyone deserves access to good design. The inspiration for starting Module came while he was directing Within Formal Cities – a documentary about the housing crisis in South America, which debuted in 2016. Brian, then a college senior, saw the broader possibility of modular “pay-as-you-go” design. As opposed to simply designing yet another prototype for affordable housing, he decided to create a startup around it. And so Module was born.

Brian Gaudio and his team are based in Pittsburgh, Pennsylvania. The three principals bring eclectic experiences in affordable housing, urban design, theme rides, industrial product design, tiny houses and small scale interior remodeling to the table. At Module they have turned that expertise into creating perfect little housing solutions that meet zero energy standards, and are smaller and flexible so that they can grow with a family’s needs.

Module envisions houses half of the typical size of American houses being built today, working as infill and affordable housing solutions – 600 s.f. to 1,600 s.f. – the smallest model could be erected on a 20-foot wide city lot, a standard lot width in Pittsburgh. New homes reimagined for a newly reimagined city. Rooms (and floors) can be added (like Legos) as needed, a concept that has been around for a number of decades as a path to home ownership, with sustainability a critical added component. Their first house was built to Passive House standards, but they’re using the Zero Energy Ready standard now, since it is easier to work with.

Prior to starting Module, Brian was a Fulbright Scholar in Santiago, Dominican Republic, where he led an urban design research initiative. He has lectured and given presentations for the American Institute of Architects, the Rockefeller Foundation, and numerous universities in the US and abroad. Brian has design experience in both the for-profit and nonprofit world. He worked in Blue Sky Department at Walt Disney Imagineering where he helped create new ride concepts for the Disney Parks, and he served as an architectural intern at the Gulf Coast Community Design Studio. Brian graduated Summa Cum Laude from North Carolina State University with a Bachelor of Architecture where he was a Park Scholar, started a non-profit organization, and was a finalist for the Harry S Truman Scholarship.

Insights and Inspirations

  • Module wants to build 100 units in the next four years. Brian’s goal is to make change through scale.
  • Brian thinks the Friday Morning Serial at the Gulf Coast Community Design Studio is one of the most engaging and inclusive community experiences he has experienced.
  • A close second is Pittsburgh’s Open Streets.

Information and Links

Read the podcast transcript here

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

Eve: [00:00:06] My guest today is Brian Gaudio, founder of Module Housing. While working on a documentary about the housing crisis in South America, Brian, then just a college senior, saw the broader possibility of modular pay-as-you-go design. As opposed to simply designing yet another prototype for affordable housing, he decided to create a startup around it. And so Module focuses on perfect little housing solutions that meet zero-energy standards, and are smaller and flexible, so that they can grow with a family’s needs.

Eve: [00:00:53] Be sure to go to EvePicker.com to find out more about Brian 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: [00:01:9] Hi, Brian. Thanks for joining me today.

Brian Gaudio: [00:01:24] Hi Eve, thanks for having me.

Eve: [00:01:29] It’s a pleasure. So, I’ve been watching you build your company, Module, for a few years now, and I’m really excited to talk to you about it. You’ve decided to focus your life’s work on designing modular housing, affordable-by-design housing. And that was a pretty bold move straight out of school. So, what problem are you trying to solve?

Brian: [00:01:47] It is a big problem. And it’s a problem that, in school I was always, you know, in studios I would always be thinking about. It was something that was rattling in the back of my head, was how do we bring good design to more people, right? In architecture school we’re often told how important design is. And then we get out in the real world and we realize how the designers need to have a larger seat at the table. So, in my work after school, it was always trying to answer that question of how can we bring good design to more people. And there may be non-traditional ways to do that, is what I’ve been learning.

Eve: [00:02:20] That was the biggest problem. But I think I also read that you became very interested in affordable housing issues during your Fulbright Fellowship. You want to tell us a little bit about that?

Brian: [00:02:30] Yes. In school I actually was studying under one of the fathers of community design and participatory design, Henry Sanoff. He had founded an organization called the EDRA, the Environmental Design Research Association. So, I was sort of a student of his and a student of Brian Bell, who had started the Public Interest Design Institute, in the United States. So, it was really learning from folks who were leaders in the public interest design space. So, after school, I tried to pursue that as a career and worked at the Gulf Coast Community Design Studio doing affordable housing and disaster recovery housing, as an intern there. For those who don’t know, Biloxi, Mississippi, on the Gulf Coast, is not too far from New Orleans. And when Hurricane Katrina hit New Orleans, it also hit Biloxi. So, I spent a little bit of time on affordable housing in Biloxi, Mississippi. And then, also, after that, went to the Dominican Republic and did a Fulbright scholarship trying to understand housing affordability as it relates to disaster recovery and urban design, in general. I was working in a neighborhood that was alongside of the, a waterway that during some of the tropical storms, people would be washed away, and housing would be wiped away.

Eve: [00:03:49] Hmm, wow.

Brian: [00:03:50] So, that research was really thinking about housing from the perspective of, where is it safe to have people housed? And what do you do when a neighborhood exists in a place that is really at risk, when we think about environmental and natural disasters? So, that was some of the kind of affordable housing work and research I was doing right out of school.

Eve: [00:04:15] That’s pretty intense work. So, how does that tie into what you’re doing today? I mean, what got you from there to where you are today, building small modular homes.

Brian: [00:04:28] Being exposed to these different methods of practice … so, in Biloxi, Mississippi, I was working for a nonprofit architecture firm that was an arm of Mississippi State University. So, I was exposed to this business model of a nonprofit architecture firm. And then at the Fulbright, it was really a bit more of an academic endeavor. Technically, the Fulbright’s under the U.S. Department of State, but you work with the local university. So, again, thinking about some of these issues from a, an academic perspective, I would call it. And then after that, I had spent a little bit of time with a friend directing a documentary, again, trying to educate ourselves on the problem of housing affordability. So, in that documentary, we interviewed a lot of architects, governments, designers, businesses about the housing crisis in other countries, specifically in South America. And it was in this kind of three, four years or so of, I would call it, a research phase, of understanding what are the practices and models that other organizations and groups are taking as it relates to housing affordability and what things worked from those models and what things didn’t work. And I guess how that ties into Module, what we’re doing today was, while these nonprofit architecture centers, these design centers, can work really well at a neighborhood scale, the question I always had was how can we move beyond the neighborhood scale and effect change at a greater scale? You know, at the city scale, and at the state scale, and eventually at the scale of a, you know, a country like the United States? How do we take some of those principles that worked really well at the neighborhood scale, but may not be able to affect thousands of people?That’s really why we chose to start Module, not as an architecture practice, but as a startup company. The idea being that you could scale faster through alternative capital means and have ultimately a greater impact once we do reach that scale. So, that’s kind of how those experiences influenced starting Module.

Eve: [00:06:29] That’s a really interesting path. I know you also were a company in Alphalab, which is a, I suppose, a startup accelerator. Has that worked for you, as a startup company, rather than a building company?

Brian: [00:06:44] Yeah, it’s a very good question because we went through, so you are referring to Alphalab and for those who are not in Pittsburgh, Alphalab is a startup accelerator, kind of like TechStars or Y Combinator, where they give early stage companies, basically folks with an idea and maybe a business plan, some initial seed capital, typically 50,000 dollars and some free office space and mentorship, to basically start to try to build their own business. A lot of the businesses in that accelerator program were tech businesses. So, think about software as a service company, SaaS companies like Slack, for example, you know, being the typical type of company that’s supported by an accelerator. So, I think we learned a lot about asking questions and testing our hypothesis through that accelerator program. And we were able to raise some initial angel capital, I would call it, in the Pittsburgh startup community and get our name out there and, you know, learn how to market, create a website and things like that. I think we also learned that as we look at investors and ways to support our business, you know, a typical venture capital investor is not likely the right kind of investor for a company like Module because they look to 10x their money in five years, which, we’re building a different kind of business than that. So, those are some of the things we learned from Alphalab.

Eve: [00:07:06] Yeah, interesting. So, you don’t think you’re a unicorn, like the rest of us, right?

Brian: [00:07:07] Right. No. Not in the traditional sense, no.

Eve: [00:07:18] So, what distinguishes your product, your modular housing products, from other products in the marketplace.

Brian: [00:08:26] So, as we think about off-site construction, modular housing, prefab construction, there are many companies now who are pursuing this as a business model. And I think we identify with the overall trend. The reason why so many people are pursuing modular or prefab construction is the labor shortage is getting worse and worse. And Eve, I know in your business, you’re doing a lot of development. So, I’m sure you’re familiar with the shortage of qualified skilled labor here in Pittsburgh. But at a national scale, we have that challenge. So, the labor shortage is real. And then we have a supply shortage, as well, in certain markets. So, they can’t build things fast enough. And so that’s really why prefab or off-site construction has started to take off. So, parts of the home or the development are built in a factory environment, shipped to site, installed with a crane on a traditional foundation. So, as we think about our company, Module, and what differentiates us, we are really thinking about the entire customer experience. So, we’re offering turnkey design-build-develop services. So, we’re not a manufacturer of homes. We work with a third-party manufacturer and we work with a third-party contractor. So, we don’t own those parts of the supply chain. But what we do own is the customer experience. And we’re trying to really redesign the customer experience, and redesign homeownership from the ground up, because we think the typical way that the top ten voters in the country do it are very dated. The floorplans they are using are dated, the construction methods that they’re using are dated often times. And today’s consumer is used to the convenience of making purchases online and browsing of things online. And they want things now, and they want help. A lot of customers expect to have, kind of the user experience that they go through purchasing a computer or something, in all of the purchases in their lives. And not many builders can offer that experience. So, I’d say that’s one thing that’s really unique about us as a company is the customer experience that we’re building through our web application. If you go to our website ModuleHousing.com, you can see some of that. That’s one thing that’s unique about our product. I would say the other thing is all of our homes are certified by the U.S. Department of Energy as zero energy-ready. We build to that spec. It’s a sustainability spec. And we chose it because we believe it offers the best bang for your buck as we think about customers. So, while LEED and Passive House may be, sometimes those certification programs can be really challenging and costly to do. We feel that the Zero Energy Ready Home program offers some of the benefits of lower operating costs in your house at a much more reasonable price point.

Eve: [00:011:11] So, it’s an energy program for everyday people.

Brian: [00:11:15] Mmm hmm. Exactly.

Eve: [00:11:16] Yeah, interesting. What is your process? Can you describe that?

Brian: [00:11:19] Yes. So, we work with, I’ll call it, several types of customers. We work with individual home buyers. So, folks who want to purchase one of our homes or build a home with us. And then we will also work with real estate investors or mom-and-pop developers, I’ll call it. So, these are folks who may have purchased land recently. They may have fixed up some houses or have some rental units, but they’re not a new construction contractor. But they own land and they’re looking to do something with it. We service, I’ll call it, mom-and-pop developers and home buyers. And we’ll do two types of processes. One is, if you’re a home buyer, you come to our website and you fill out a form on our website. And on that form you’ll share here’s my current needs, my future needs, my financial health, and here’s some of the areas that I’m thinking about owning a home in the city of Pittsburgh. And we have a proprietary GIS database of every vacant lot in Allegheny County. We’re able to basically help that customer find the right lot for them, help them purchase that lot, and then help them build a home with us. So, we’ll take them through the process from zoning approval, permitting, financing, estimating, and we will basically hold their hand through the process, through construction administration, until we’ve turned over the keys to their house. So that’s really a turnkey service that we offer. And then, the other type of process we have is as a developer. So, we as a developer on spec, will go out and purchase land and build multiple units at once and then sell those units to customers. We’re working on a project right now in Garfield, in Pittsburgh, where we are building four units, it’s a mixed-income project, and we’ll be selling those, those will be on the market, those will be finished this summer. And that’s where we are going out as a company, acquiring the land, financing the project, and then customers will come in and have a traditional mortgage when they purchase the homes.

Eve: [00:13:12] And as these homes affordable compared to others? Where they sit in the marketplace?

Brian: [00:13:19] We will build for multiple income brackets. For instance, this project in Garfield is a good example, where we have a home that will be sold to a buyer making 80 percent or less of area median income. So, that home will be sold for 183,000 dollars. I believe that’s the list price right now. And that’s only for income-qualified buyers, who meet certain income limits. And we’re able to do that because we had partnered with a nonprofit community development group in the neighborhood and Urban Redevelopment Authority of Pittsburgh, and we were able to secure a subsidy to subsidize the cost of that home to a buyer in the neighborhood. So, in that case, we’re serving a kind of, for sale, affordable, 80-percent AMI customer. But our bread and butter products, our market rate product is going to be anywhere from the mid-threes to 500,000 dollars for a home. And to give listeners some context, as we track the new construction in the city of Pittsburgh, a lot of the new construction that’s going up in the East End of Pittsburgh is going to be 600 to 800,000 dollars. So, that’s kind of the going rate for a new construction builder-grade home in the East End of Pittsburgh. And because we’re building less square footage and we’re building, basically, in neighborhoods just next door to those, we’re able to provide what we believe is a better quality product at a price point, let’s call it the 400,000 dollar range, for our client.

Eve: [00:14:53] That’s somewhat affordable, and partnerships to really create serious affordability. But like everything else we’ve heard and know, it’s very difficult to build truly affordable housing without subsidies, if not impossible. This is another example of it. You really need a subsidy to make that work, right?

Brian: [00:15:11] Absolutely. I think coming out of school and you’re thinking, you know, as I am thinking about myself graduating from school, I’d be like, wow, you know, we can design anything and we’ll find a way to make naturally-occurring affordable housing with just great design. Then you realize affordable housing is really about financing, you know, and the capital stack. So, that’s one lesson we’ve learned over the past four years.

Eve: [00:15:33] Yes. And so you’ve been at this for four years. How many houses have you built now?

Brian: [00:15:38] So we’ve finished our first home for a customer last year, in 2019. It was a one bedroom, one bathroom home in Friendship. It was sort of an aging-in-place model. We built it for a clients’ parents. So, almost like an in-law suite, or an accessory dwelling unit, but on a separate property. That project is finished and we are now under construction to complete our next four homes. And those should finish in the summer of this year. And we have some other projects in the pipeline.

Eve: [00:16:08] What’s the big hairy goal for Module?

Brian: [00:16:12] The big goal is really to push the industry. I feel that the way we build homes is dated. From the types of design, to the types of families and household types that a lot builders are serving. We want to push the construction industry to really wake up and understand that there are different types of customers who need to be served and we’re ignoring those customers. So, I think that’s really the goal. Module is a  vehicle to do that. So, as we think about the young first-time homebuyers who are burdened with student loan debt, getting married later, fewer kids, they don’t need to buy the homes that their parents bought in terms of size and programming and things like that. So, we’re trying to push the industry to say, hey, there’s a huge entry level housing need in the country. And there’s also a huge need for baby boomers who are looking to downsize, and they have too much house. And we need to be thinking about these two customer types, because they’re going to be a huge component of the nation’s housing needs. That’s really the ultimate goal for Module, is how can we push the industry forward and provide a demonstration of how a development company can do that responsibly, really.

Eve: [00:17:22] What are your goals just for the next few years? You’ve built a few houses.

Brian: [00:17:26] Yeh.

Eve: [00:17:26] How quickly can you ramp up now? I know how long it takes to get to the point where you get the first one out the door, so now things should speed up a little, right?

Brian: [00:17:35] That’s right. Our goal, we talk about 100 units over the next four years, in Pittsburgh. So, that’s the goal that we’ve set out. And so for us to do that, we have to start taking on larger projects. So, I’m looking at parts of the city where we can do, I’ll call it, impact-scale projects, thinking 20 to 40 units and working with the local neighborhood groups to understand what their needs are and how we can serve them. So, we’ll be finished our first spec project in this summer and we’re looking at projects where we can build 10 or more units. And that’s really what will help us scale faster. We’ll do some of these one-off customers, you know, taking them through the process, just sort of, it’s about brand awareness and it’s about understanding the customer journey. But really, we want to be working on projects where we can assemble sites that build 10 or more units at once.

Eve: [00:18:25] And you think you’re going to stay in Pittsburgh for now.

Brian: [00:18:28] Yes, we will. Obviously, to build thousands of homes, we’re gonna have to get outside of Pittsburgh. But Pittsburgh will be the first market. It’s my hometown. I’m from here originally. And so, we thought it was a worthwhile test market. And what Pittsburgh has some other cities don’t, is we have an insane amount of vacant land that is yet to be built.

Eve: [00:18:59] We really do, don’t we?

Brian: [00:19:00] That’s one asset that we have. So.

Eve: [00:19:01] Yes. Yeah.

Brian: [00:19:05] And that’s one reason why, getting getting projects off the ground, you know, if we were in New York, for instance, getting access to land as an upstart developer might be nearly impossible. And so, there are still parts of the city of Pittsburgh where there are larger parcels of land, and we see that as one benefit of being in Pittsburgh.

Eve: [00:19:14] Great. So, I’m going to shift gears a bit and just talk to you about impact investing, socially responsible real estate. And do you think that’s necessary in today’s development landscape, thinking about the impact of what you build?

Brian: [00:19:28] Absolutely. I think, and one reason, kind of when you talk about a goal of our company or a reason that we were founded, is we feel that often times what gets built in a particular site may be really great for the bottom line of a particular limited partner or, for the preferred return of a particular investor. But that becomes the primary goal of the project. And the folks who end up living in the space, whether they’re buying it or renting it, are an afterthought. And I’m not saying that’s, by no means are all developers that way, but we’ve seen a lot of development projects that really ignore the end user. And I think why I’m excited about impact real estate investing is the ability to bring the end user back to the forefront of the conversation, because we build housing ultimately to shelter people. And I think sometimes people in this industry lose sight of that. So, I think impact investing has the ability to bring the end user back to the forefront of the conversation.

Eve: [00:20:33] Yeah. You know, when you talk about that, are there any current trends in real estate that excite you or interest you the most, that you think might have legs in the future?

Brian: [00:20:43] Trends with respect to impact investing, or just trends in general?

Eve: [00:20:46] Anything, I mean, obviously you think modular housing is important. But anything else out there? I’ve been watching, we’ve seen co-working, for example, really change the landscape. Today, I was reading along those lines about people who are starting to co-purchase homes because they can’t …

Brian: [00:21:07] Yeah.

Eve: [00:21:07] … they can’t afford them individually. So, there are some weird trends emerging in an effort to deal with this housing affordability crisis.

Brian: [00:21:17] Absolutely. Speaking of those trends, I mean, we operate in the startup world, so we do meet a lot of startup companies working on innovative finance models. And there’s a company called Divy, which again, sort of supports co-purchasing of homes. And that’s a company, you can look up Divy. And there’s another company called CoBuy. So, these are finance companies which help either friends or folks who want to purchase a house together. So, that’s one model. There’s been a couple other startups as it relates to purchasing of homes where they will buy the house for you and you will rent from them for a certain period of time, and then with the option to purchase. I don’t remember the name of the company that I was reading about the other day, but that’s another interesting finance play. And then, I follow, obviously, these smaller, you know, lot size movement. So, with what’s happening, California with ADUs really interests me. And then I think it was Minneapolis that out with the single family zoning restrictions …

Brian: [00:22:19] Yeah, that was really interesting. Yeah, they’re really interesting trends, aren’t they? People sort of really adapt to the marketplace in really fascinating ways, beyond just the companies that emerge. People are immensely creative. So. that’s kind of comforting, isn’t it?

Brian: [00:22:36] Yeah, absolutely. There’s a company that’s working on 3D printing of houses, which I am a bit skeptical, I admit, I’m a little bit skeptical of. But I think it’s amazing that we have, now, three or four startup companies that are 3D printing homes. I think of it as a fascinating R&D project. I’m not sure how commercially viable that technology is. But the idea that, you know, it sort of get to the same pain point of modular construction with regards to the labor force.

Eve: [00:23:06] Yeah. I mean, I think …

Brian: [00:23:07] Preprinting the home, that could really save some labor costs.

Eve: [00:22:12] Yeah. I mean, that seems to be the heart of it all. Because when you think about affordable housing, there’s always been the skeptics. It doesn’t really matter what city or state you’re in. There is a gap between the cost of building something and what someone can afford to pay towards that cost. There’s just this financing gap. And until we figure out new technologies in construction and ways to reduce the cost of construction, that gap just isn’t going to disappear. It’s not going to go away.  I don’t see that there’s any other way to make it go away. It’s a really big problem. Yeah, it’s a really big problem. How do you think we need to think about our cities and neighborhoods so we can build better places for everyone?

Brian: [00:23:59] As I think about a neighborhood and a city, sometimes neighborhoods are microcosms of the city. So, for instance, we’re working on a project in Garfield, which is, sits in the East End of Pittsburgh. And Garfield was a neighborhood that still has a significant amount of vacant property and blighted properties. But it’s a neighborhood that’s starting to turn the corner.

Eve: [00:25:26] A few years ago, like, 400 of the 1,700 lots were vacant. That’s a real big number.

Brian: [00:22:24] Yes. And, you know, I think there’s evidence of a neighborhood like that, that’s starting to make significant progress in reducing blight. But the question that everyone has is how do you reduce blight and promote new home ownership and things like that in a neighborhood without pricing out people who are from the neighborhood, or displacing residents. You know, like gentrification happens, it is a thing. Change happens. And managing that change, I think, is something that a neighborhood, like at the neighborhood level, can be done. But then I think there’s, we’re in the city of Pittsburgh. We have to think about managing change, encouraging growth in our city and then trying to manage that in a way. And I was just at an event yesterday with someone from the city of Pittsburgh, a representative from the city, and they talked about the number one need Pittsburgh has is turnkey new construction for people who are relocating to Pittsburgh. And I was really surprised by that statement. But I think it shows that while at a neighborhood level, there may be a particular issues that are really important, at the city level, sometimes those issues can be quite different. And so how did neighborhoods speak to cities and back and forth is a really important dialogue that has to happen.

Eve: [00:25:45] So, do you think a neighborhood like Garfield is managing the change? Because I know it’s changed a lot in the last few years. It was a very poor, underserved neighborhood, and it’s received quite a lot of attention in the last few years.

Brian: [00:25:59] I think it is a neighborhood that’s actively managing that change. There are some neighborhoods … we work with a lot of neighborhood groups, and we’re not a nonprofit. Right? We do have a mission behind us, but there are some neighborhoods in the city of Pittsburgh where you talk about development and new construction, and people will just, they don’t want even have a conversation about it. And they’re trying to prevent change from happening. And that can be really challenging for the residents, and for people who want to be working in that neighborhood or living in that neighborhood. So, I think Garfield has done a good job of … and then there’s other neighborhoods on the other side where they’re just sort of like, hey, it’s we’re open for business, you know, no rules and no regulations. So, I think Garfield has done a good job of balancing those two. And I think it’s really up to the local community development organization, because they’re looked at as the kind of voice of the neighborhood. So, how well can that director and the staff people manage those multiple voices? And they need to see, for instance, Garfield talks about, we need to see affordable new construction, but we need to see market rate new construction as well. We don’t say we don’t want that, we need that for our neighborhood. So, I think groups that realize you have to have a balance of those things are always the ones that we like to work with.

Eve: [00:25:19] Yes. So, what community engagement tools have you seen that have worked? You talk a lot about working in communities and making sure that you’re sort of representing what they want. That can be hard, right?

Brian: [00:26:11] Yeah, it can be really hard. In Biloxi, Mississippi, we had different methods for community engagement. One method I really liked was we would host, and this is at our design studio in Biloxi on the main street there, we’d host something called Friday Morning Serial, S-e-r-i-a-l, but we served cereal, so we served cold cereal and coffee. And every Friday we would invite someone from the community to come in and talk about what they’re, what they’re doing, who they are. And we would invite folks from the neighborhood to sit. And it wasn’t a long, wasn’t a TED talk. It wasn’t overly produced. It was come, talk for 15 minutes, and then we’re just gonna have cereal and chat. And honestly, that was the best community engagement I had witnessed, because it was, it was a great organic way for people to start talking to their neighbors and learning about one another. And it wasn’t like this formal presentation of the drawings, OK, here’s the development site, it was a very natural conversation. That was one piece of engagement that I participated in that I thought was really fun.

Eve: [00:27:39] That’s sounds really, that sounds charming.

Brian: [00:27:42] Yeah.

Eve: [00:27:44] We should do that here. That’s really lovely.

Brian: [00:27:47] We should. And perhaps you’ll have the, Elizabeth, she was running Friday Morning Serial at the Gulf Coast. Maybe she’ll be a podcast guest at some point.

Eve: [00:27:57] Oh, very good. Yes.

Brian: [00:27:59] But in Pittsburgh, there’s another kind of non-traditional community engagement. There’s an event every year called Open Streets, where in different neighborhoods, they will shut down the streets to vehicular traffic and let people walk and bike in the middle of the street through different neighborhoods. And we’ve participated in that several times. You know, kind of little pop up booth. And that’s a great way to talk to people and engage with folks, because they’re out there having fun. And it’s another way to get some informal community participation. So, it’s called Open Streets Pittsburgh. And I think it’s a great event.

Eve: [00:29:36] Well, I’m really delighted you mentioned that because, do you know I founded that, I  co-founded that.

Brian: [00:29:43] Oh really? Well, there you go.

Eve: [00:29:45] Yeah.

Brian: [00:29:45] So, did you found it with the intention of doing that?

Eve: [00:29:48] Founded with the intention of opening the streets to everyday people. It’s not rocket science. People were doing it all over the world. Pittsburgh’s always a little bit behind, right? But I’m really thrilled to hear you say that it’s meaningful to you. It’s a great event.

Brian: [00:30:07] And it just activates neighborhoods in a different way. When you’re walking through the streets …

[00:30:111] Amazing.

[00:30:11] … I think they’ve done a good job of putting it in neighborhoods where the folks who typically engage in Open Streets, they might be more cycling-oriented, or like transit advocates, but they’re doing it in neighborhoods now which may have seen a lot of disinvestment over the past 30, 40 years. And I think it’s a great way to get people engaged in the neighborhood.

Eve: [00:30:32] Yeah,.

Brian: [00:30:32] Non-traditional. So good job, Eve, and other co-founders.

Eve: [00:30:43] I did not do alone. But, you know, it’s interesting because streets and roads take up so much of our open space and it’s pretty wonderful to be able to, you know, use it as a park for a short time. Once a month, you know, you just open the space and get rid of the cars, let people go out there, and have exercise classes, or walk, or bike, whatever they want to do. It’s a really wonderful thing. It’s really fabulous. So, I’m glad you enjoy it. But you and I also have talked about equity crowdfunding. And I’m wondering, you know, that’s what I do. And I’m wondering, you know, if you think that would be helpful for engaging a community like Garfield. In what’s happening there?

Brian: [00:31:15] Yeah. Yeah. As I think about equity crowdfunding, or just crowdfunding, in general, you know, part of the model opens up the company to a broader audience. Right? Not as many people participate in real estate deals as to equity crowdfunding deals. And then when you add the marketing component to it, you’re really telling a story. I’ve saw some of the projects that you’ve had on your platform. And Jonathan Tate, he and I have spoken together at a couple of events, and I really think it’s an opportunity to tell the story of a particular project really well. So, in addition to funding the project, I think the narrative that you create and the engagement that you can have in an open, a more open platform, is exciting. That’s when I think about equity crowdfunding.

Eve: [00:32:05] Yeah. I think for me is, my hope had always been that it would be a way to let communities invest in what’s happening around them. And I don’t think it’s working too well for that yet. I think there’s just a very nascent industry and people don’t know very much about it. And I think that maybe investing is a pretty threatening activity for most people who’ve never done it before. So, I hope that over time we can educate people and they understand that investing in their own community could be a really great thing. But that’s down the road, right?

Brian: [00:32:38] Yeah.

Eve: [00:32:38] So, I’m going to wrap up with one question that I really want to ask you, and that is if there was one thing that you could change about real estate development in this country, what would it be?

Brian: [00:32:50] I would change … the people who are thought of as developers, the type, you know … like I am late 20’s white male. Right? So, I may not be like a slicked back hair, like 50s suit-wearing 55-year old guy, who’s a real estate developer. But I think there are many other people who don’t think of real estate development as a career, a path. Whether it’s particular minorities or gender types. I would love to see more diversity in the world of real estate development, because I think the more people that are able to see that as a career and engage in it, then will bring fresh perspectives to the projects that we see developed around our country. And when it’s this, you know, when it’s kind of the majority of folks working in that field or who are perceived as successful in that field, fit one type of persona, then it limits the quality of projects that are going to be executed. So, I’d love to see many more types of people become developers then kind of what we think traditionally of as a developer.

Eve: [00:34:03] Well, I completely agree. And I want to thank you very much for spending your time with me today. It’s fascinating. And I’m sure we’re going to be talking again soon.

Brian: [00:34:12] Absolutely. Thank you very much, Eve. I’ve really enjoyed it.

Eve: [00:34:13] That was Brian Gaudio. As a young student, Brian absorbed ideas from many places. Both Elemental’s incremental housing in Chile, and the 100,000 Houses Project by the Philly-based firm Interface Studio Architects, have influenced his thinking along with the housing crisis in South America which he was exposed to during the filming of his documentary. It’s fascinating how new ideas are developed out of such varied influences.

Eve: [00:34:45] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Brian, 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 Brian Gaudio

The importance of community.

When we think about housing, especially in urban areas, we’re not just thinking about a place to rest our head. Instead, housing must include some broader amenities, such as access to transportation, services and jobs. And even more importantly, as more and more people move back from the suburbs to urban neighborhoods, there is an increased focus on finding community. Today, city planners, developers and architects are paying attention to the role of community in the planning and building of urban spaces.

One notable example which goes even further, by creating spaces fully centered on the people who will occupy them, is the Superlofts project.

Background

Superlofts was founded and grew out of the architectural studio Marc Koehler Architects by Marc Koehler. Superlofts combine some extraordinary features to create amazing and unique buildings, with flexible housing layouts, carbon neutral living and curated communities.

The vision behind Superlofts is rooted in a process that Marc and his team developed in Amsterdam. Fifteen years ago, the studio was a boutique design agency, primarily focused on designing houses and renovating apartments. They learned the importance of listening to what people wanted in a home.

The ideal day

Over time Marc’s team developed methodology known as “The Ideal Day.” Rather than asking clients what about their physical space needs, they asked them to describe their daily routine. Their clients scripted out an ideal day in their life, how they imagined an ideal day, from waking until bedtime. Using these scripts, Marc and his team designed spaces that responded to the way their clients wanted to live, not to the spaces they thought they should have.

This exercise helped people to imagine the possibilities for themselves, and for change and improvement in their lives. Marc believes this is the fundamental purpose of his work – to find ways that architecture and design “can really change your life if you take the opportunity and really think of what you want to achieve in your new space.”

The business of bringing people together

Marc describes Marc Koehler Architects as being “in the business of bringing people together.”  This is a unique role for an architect to assume. They are generally focused on buildings and spaces, not on people. Superlofts is the culmination of this idea. Superlofts is “a system for living that puts people in control with a flexible, modular, co-creation approach to the ultimate urban space: the loft.”

The first Superlofts project began with a simple concrete frame structure. Future homeowners were able to build their dream space in a “vertical village.” The process involved co-creation sessions which brought together the future residents of the building and provided them with the opportunity to plan how they wanted to live together. This filled an important need for many people by introducing them to the community of people they would be living with and providing them with the powerful opportunity of developing shared spaces. Ultimately, Superlofts aims to create urban villages with buildings where people’s daily lives intersect, allowing them to be responsible for one another.

The Superlofts concept flips the normal planning and design process on its head. Rather than starting with the building, planning and design starts with the people. The resulting spaces are functional and sustainable, communities with happy people that are well-connected and supported. This a new way of thinking about how to create ideal living environments in cities.

Listen to the full interview with Marc Koehler to learn more about Superlofts and the business he has built himself, bringing people together.

Image courtesy of John D Norton