Rethink Real Estate. For Good.

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Sharing luxury.

Have you ever imagined spending the weekend in a grand luxury estate in the country?

America’s luxury estates were built in the late 1800s during ‘The Gilded Age’, a term made popular by Mark Twain. After the Civil War, with the onset of industrialization, the nation enjoyed unprecedented prosperity, Great fortunes were amassed with the expansion of tobacco, railroads, steel, fossil fuel industries and technical and scientific progress, not to mention no personal income tax.

Some of this wealth found its way to the Berkshires, only 150 miles from New York City. There some of the country’s wealthiest families, The Astors and Westinghouses among them, built their second homes, or ‘cottages.’ Carole Owens, author of The Berkshire Cottages — a survey of the palatial summer retreats constructed by millionaires in the post-Civil War Gilded Age — believes the influx of literary and artistic luminaries “gave the Berkshires a panache that attracted wealthy New Yorkers and Bostonians looking for more than just sylvan beauty.”

More than 75 grand estates were built in the Berkshires and they were built to last for generations. Designed by prominent architects to emulate the grand estates that were so admired on European travels, each one was more extravagant than the last. These mansions were constructed in a variety of architectural and decorative styles from different European countries and from different eras such as Queen Anne, Beaux Arts, and Renaissance Revival. Inside, they were overflowing with antiquities, furniture, collectibles and works of art, often imported from Europe.

Over time, as the gilded age ended, and manufacturing moved south, these mansions were reduced in number, demolished or some succumbing to fire. A few have been preserved as museums to paint a picture of the privileged Gilded Age summers. Some have become exclusive resorts and hotels. And one, previously owned by the Tappan family, is now Tanglewood, the summer home of the Boston Symphony Orchestra. And the rest, most likely due to the cost of maintenance, sadly have been abandoned.

In the Berkshires, you’re surrounded by natural beauty. With its proximity to New York and Boston, the region remains a popular vacation destination today. It’s recognized as a cultural hub with a thriving arts scene, is renowned for annual festivals, offers outdoor activities year round and has a farm to table food scene.

Daniel Dus grew up in the Berkshires and is familiar with those abandoned and underutilized luxury estates. He’s launched a new company, Shared Estates, and plans to reposition some of these estates for current times. For one, they’ll be renovated to carbon neutral standards, the ultimate in recycling projects. But perhaps more important Daniel and his team want to reposition these luxury estates for the sharing economy. No longer for the wealthy, they will be available for middle class families to enjoy. And he’s taking the democratization one step further by offering anyone over the age of 18 the opportunity to invest through a crowdfunding offering.

Listen in to Eve’s conversation with Daniel Dus.

Image courtesy of Shared Estates

Everything old is new again.

Daniel Dus lives and breathes solar. After college, he moved into real estate, got an MBA and then leapt head first into the energy industry. Today, Daniel heads the North American Renewables division for Adani, an Indian multinational group that has one of the largest solar portfolios, globally.

But his heart is equally someplace else –  in the Berkshires. That’s where he grew up and that is where he is planning his next act. The Berkshires, in western Massachusetts, a vacation and cultural destination, has an amazing inventory of luxury estates dating from the 1800s up to the early 1900s. But many of them now stand dramatically underutilized. Daniel and his team at Shared Estates want to develop these estates for the shared economy, bringing them within reach of the middle class. Plus, they will make all the projects carbon-neutral, through sustainable practices and carbon offsets.

Previously, Daniel worked for Dynamic Energy (with a focus on greenfield development, community solar and shared renewables), Safari Energy, and Martifer Solar (where he was responsible for over 1,200 solar clients under leases, power purchase agreements, community solar projects). He also helped found Solairo Energy, working on turnkey solar and wind generation projects. He is a certified solar designer, and holds over 50 certificates in energy hedging, grid infrastructure and emerging energy technologies.

Insights and Inspirations

  • Luxury estates like this can really only be fully utilized in the shared economy. And they are by no means only in New England. Hint. Hint.
  • These unique projects can only be done affordably in rural areas, and these are communities in growing need of economic support.
  • Banks do not want to lend in rural areas.
  • Every one of their properties contributes a percent of income to a local nonprofit, further benefiting the community.
  • Why not make it (or any project) carbon-neutral?

Information and Links

  • Daniel and his team are crowdfunding equity for their next shared estate, The Freeman Berkshires, at Small Change. And anyone over the age of 18 can invest. Check it out!
  • Vote Solar is a national advocacy group working on solar energy issues at the local level.
  • Daniel renovated The Playhouse, originally built by George Westinghouse, and the first place in the world powered by AC electricity. Now it’s the number one estate to stay in on VBRO.
Read the podcast transcript here

Eve Picker: [00:00:11] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Daniel Dus. While Daniel has forged a career taking him to the top of the solar industry class, his heart is someplace else, in the Berkshires. That’s where he grew up and that’s where he’s planning his next act. The Berkshires, Massachusetts, is rich with travel destinations and has an amazing inventory of luxury estates dating back to the 1800s. As industry collapsed, so did the use of these estates. Many of them stand dramatically underutilized today. And that’s where Daniel and his team come in. You’ll want to hear how Daniel is planning to reposition these estates for the sharing economy. Be sure to go to EvePicker.com, to find out more about Daniel 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: [00:01:42] Hello, Daniel. Thanks so much for joining me today.

Daniel Dus: [00:01:44] Thank you, Eve. Great to be here.

Eve: [00:01:46] So, your career has been in the solar industry, and I would love to start by just hearing what you’ve accomplished in your career.

Daniel: [00:01:56] Yes. 15 years in solar now. I’ve had the pleasure of helping create and build some of the largest solar companies and projects in the solar space, in the United States, over the last 15 years. Currently, with a company, when I joined, had just completed its first solar project, and it’s recently ranked the largest solar company in the world with 15.4 Gigawatts of operating and contracted projects.

Eve: [00:02:25] Oh, wow.

Daniel: [00:02:26] So, seeing growth like that in the space, which is really focused on carbon, SOx and NOx, emissions reductions, is really, really been exciting – to see the industry go from almost nothing 15 years ago, to now solar is number one in energy in terms of new, installed capacity year over year. So, just that transition, rapid transition, has been exciting to be a part of.

Eve: [00:02:52] Yeah, I’ll say. So, what’s your background? How did you get into the solar industry?

Daniel: [00:02:58] Actually came into solar out of a focus on real estate. I spent a few years developing real estate along the East Coast U.S., and that’s where I was exposed to the trades, financially structuring projects, and ended up selling those assets, but it, this was right in the middle of the financial crisis. Nothing really made sense. Went back to get an MBA and launched my first solar company out of the Drexel business incubator, so … and the rest, as they say, is history.

Eve: [00:03:30] Oh, very good. So, that brings us back to where you are today. Because I’ve gotten to know you for an entirely different reason. And that’s your new company that you’re starting up, called Shared Estates. So, why the name Shared Estates? Tell me a little bit about that.

Daniel: [00:03:45] We fell upon it as an exemplification of our primary objective, or one of our primary objectives, which is to bring these beautiful, historic, storied estates that in the past have primarily been in the hands of the wealthiest U.S. families, and bring those into the reach of the middle class. In many cases, our properties will cost less per person than a standard hotel room would, but with significantly different benefits and amenities. So, we really want the community to enjoy these spaces, use these spaces. One of the really fun things about the business is seeing families and friends create memories in these spaces. So, it’s a major driver for us.

Eve: [00:04:30] Basically, buying and repurposing enormous luxury estates, and sharing them in the shared economy.

Daniel: [00:04:39] Yeah, that’s exactly right. And our geographic focus offers quite a few of these properties. The Berkshires of western Massachusetts, also known as inland Newport, often, was developed in the 1800-1900s. Many of the wealthiest families built these estates there. They called them ‘country cottages,’ but these are often multi-100 acre, often over 10,000 square foot properties. And there’s not as much of a market for these properties as single family, second or third homes today as there was then. And they often end up being very underutilized. I mean, talk about an underutilized asset. Often, they may be used a couple of weeks a year, a few weeks a year, by these families. And so, we’re taking those estates and we’re putting them into the shared economy where they can be much, much more accessible both to the local community, as well as to the tourist economy there.

Eve: [00:05:35] That’s really interesting. How did you come up, upon this idea? Like, it’s an unusual take on a real estate company.

Daniel: [00:05:41] It’s a good question. I wish that I could say that I analyzed the market, that I did a bunch of market data research and saw that large group, short-term rentals was a rapidly growing subset of the short-term vacation rental market, and the broader tourism market. But that’s not the case. I fell into it entirely. I was living in Manhattan and purchased a property in the Berkshires, which is where I was born and raised, and originally was going to use it for weekends, myself, and went through a deep rehabilitation process, and ended up taking a job in Philadelphia, so moved a little too far away to really use it for myself. And I put it on HomeAway VRBO, originally at, I think, $350 per night. And I figured if it rented 20, 25 percent of the time that it would cover its own mortgage and that would be a win. Well, it booked so much in the first 72 hours that I had to raise the price multiple times, and it now books for well over a $1000 dollars a night, and books 65, 70 percent occupancy. So, it’s just such a phenomenal project that it really opened my eyes through the process of developing and listing the property to this underserved market, right? There are very few, if any, large-format, short-term rentals in urban areas, because if they existed they’d be exceedingly expensive. But, in rural America, there are a lot of these properties that are beautiful and really underutilized today. So, it, really fell into it.

Eve: [00:07:18] Was that first property the Playhouse?

Daniel: [00:07:20] Yeah, that’s right. So, the Playhouse is a great example. It was originally built by George Westinghouse in the late 1800s. It was the first place in the world ever powered by AC electricity. He built an AC microgrid there to test what was really the theory of Tesla and the products being developed by Westinghouse and Stanley. So, we know that President McKinley, Tesla, Stanley, Lord Kelvin all visited the property. Westinghouse in the late 1800s had an electric boat; he had an electric car he drove around the property. It was really a leading point of innovation at the time. And this particular structure was called the Playhouse because he built it as a gymnasium, basically, for his children. 7000 square feet. He had a bowling alley in the building …

Eve: [00:08:13] Wow.

Daniel: [00:08:13] … and he later converted it into a theater space, for when his kids were getting older, and entertained there. So, it’s a beautiful open floor plan building …

Eve: [00:08:25] Yeh, I’ve seen photos of it. It’s stunning. It’s beautiful.

Daniel: [00:08:27] Yeah. And it was, when we took it, our architect told us that it was structurally failed. It was literally ready to fall over, and required a lot of structural work to maintain the open floor plan and to make it structurally sound. But in the process, we created a space that has really resonated with folks, where they can bring groups of families, family and friends, and enjoy each other and celebrate each other – weddings, anniversaries, birthday parties and other small gatherings like that.

Eve: [00:08:56] I think you told me that it was ranked number one, or is ranked number one place to stay.

Daniel: [00:09:03] That’s right. Yep. It, on YVRBO, it quickly shot up to the most-booked, most-reviewed property out of over 500 properties listed in the county on VRBO.

Eve: [00:09:13] That’s amazing. That’s a great story.

Daniel: [00:09:16] It was. It was. You know, I love the space. I love the property. It means a lot to me and I love that folks get to make memories there.

Eve: [00:09:26] So, how does this fit in with your solar background?

Daniel: [00:09:32] Yeah, it’s a, it’s a good question and one I get often. Solar development, financing and construction is very similar to real estate development, financing and structuring. You’re talking about zoning approvals, you’re talking about geotechnical studies. If you’re doing any ground work, you’re talking about structuring projects for financing, financial modeling. You’re talking about construction and ownership and operation and optimization of assets. It’s all exactly the same in both industries. It just is that the asset itself is slightly different, but a lot of overlap there. I’m a Stanford-certified project manager, Villanova-certified Six Sigma, and that’s because developing processes for execution of these projects is really at the core of these businesses. So, I think there’s just a ton of overlap.

Eve: [00:10:24] Yeah, but I suppose I’m also wondering, what of your love for the energy industry are you going to bring to these properties, because they weren’t built that way?

Daniel: [00:10:34] Yup. That’s exactly right. And Shared Estates is also, to a large extent, a conduit for investment in a carbon neutral and sustainable asset. That’s, all of our properties will be carbon neutral, offset by either on-site or off-site renewable energy projects, which we’re very excited about. And so, we will bring that attribute to all of our properties.

Eve: [00:11:02] And I think probably some other features that I’ve heard about, but we’ll go into that later. So, In the Berkshires, which you seem to be focusing on, how many underutilized estates are there?

Daniel: [00:11:14] There are a surprising number of them. Again, it was over the span of over 100 years of this economy developing and building, but also had an industrial heyday, itself. General Electric had a major presence there, thousands of jobs. So, there are dozens and dozens and dozens of these estates, in varying states. Some of them are really in rough shape, frankly. These historic properties really need dramatic investment to help bring them up into today’s standards, with IT infrastructure, you know, sometimes structural upgrades, definitely bringing back their former glory and beauty. So, everything from landscaping to paint, new fixtures, etc, is all really critical for these properties. And we try to do that and maintain historic elements of them, as well. So, at the Playhouse, for example, we retained the original Westinghouse lighting fixtures from the 1890s.

Eve: [00:12:14] Oh, lovely.

Daniel: [00:12:14] And so, we do our best to keep the historic elements of the properties. But there are a remarkable number of these in the Berkshires. And frankly, nationally, there are a lot of large, rural farmhouses that are not in their heyday today that could use deep renovations, and other properties that really are, I think, historic to America and deserve to be rehabilitated and brought into the shared economy, which in my opinion, is one of the best possible uses for them.

Eve: [00:12:45] If I want to rent one of your estates how will it compare to holding a gathering in a traditional local venue like a hotel, just price-wise.

Daniel: [00:12:55] In my opinion, this is the core to our ultimate success. The macroeconomics of our properties versus the alternative. There’s kind of no comparison in my mind. Our properties will often be less per person than a standard hotel room would be, but our properties will have … in the next project we’re doing, we’ll have 40 acres of private space, it’ll have a dedicated pond, docks. It’ll have a five-acre vineyard, greenhouses, multiple living spaces, multiple dining rooms, multiple quiet spaces, an office, library. All for your own private use with yourself, your friends and your family. You just have to get a group of family and friends to travel with you. But, in terms of the amenities, there’s just no comparison. These are the most luxurious possible properties. And with the right group of friends and family, on a per person basis, they could be less than a holiday.

Eve: [00:13:52] That’s amazing.

Daniel: [00:13:54] Yes.

Eve: [00:13:54] So, this is really the shared economy in a very different way.

Daniel: [00:13:58] That’s right.

Eve: [00:13:59] So, you have the Playhouse under your belt. You said, you mentioned the next property. You want to tell us a little bit about that one?

Daniel: [00:14:06] Sure. Yeah. We are calling it the Freeman Berkshires. So the Freeman is currently an 11,300 square foot brick mansion on about 40 acres, with a private pond, tennis court. We are going to deeply renovate, rehabilitate this property, new fixtures, new paint, add some square footage, hopefully.  We’re going to install a 500 square foot English-style greenhouse and extensive gardens, five acres of vineyard, and in-ground pool, and really bring this into 2020. Modern IT infrastructure. Games rooms and a virtual gaming room, so that there’s something for all generations. The name, the Freeman Berkshires comes from a local woman, Elizabeth Freeman. She was the first African-American slave to sue and win her freedom under the Massachusetts constitution. And she was abused at the hands of her, quote unquote, Master’s wife. And so, the property will be a tribute to her. We’ll be installing a sculpture garden by local artists in tribute to Elizabeth and her story. And we’ll be donating a percent of profits to the Elizabeth Freeman Center, a local nonprofit that’s been operating since the 1970s, serving battered and abused victims of assault and sexual assault. And so, we’re very excited, and that local nonprofit engagement is part of every property that we’ve done and will do. The Playhouse contributed to St. Jude’s, Sierra Club and the local Humane Society on a recurring basis. So, we’re very excited about the Freeman Center contract and we’ll be closing imminently here in the next weeks. And so, we can’t wait to get started on it.

Eve: [00:15:54] So, tell me a little bit about financing. I mean, I have been hearing over the last few months the difficulty that people are having financing anything unusual in the real estate market. And this is definitely unusual.

Daniel: [00:16:08] Yeah. And in fact, our biggest challenge, Eve, is that these are rural projects. They’re all in rural America. And what I didn’t realize before going to the market the first time, a couple of years ago, for commercial financing in rural America is that many banks will simply not finance projects in rural United States. They’re very focused on urban areas, suburban areas. Commercial lenders like to invest in New York, Manhattan, Philadelphia. They basically red-line rural America, and in places like the Berkshires that really need economic development, that’s a real problem.

Eve: [00:16:47] Did they just come out and say we don’t lend in rural America.

Daniel: [00:16:52] Yeah. I have had dozen of lenders simply say, you know, we do not invest in rural properties. Which …

Eve: [00:17:00] Wow.

Daniel: [00:17:00] It’s kind of like red-lining. Right? I mean, I can’t think of any other …

Eve: [00:17:06] Yes.

Daniel: [00:17:06] … comparison. So, it was pretty shocking, frankly. The local banks are fantastic and supportive, but they often have relatively modest caps on the amount of capital that they can contribute. And so, the value of Small Change really shines here in its ability to help bring capital into places like this, and frankly, to offer the ability of the local community to invest. As you know, traditionally, only accredited investors can invest in GP/LP-type structures like ours, and that’s highly limiting, you know. The local community is not, on average, worth a million or more dollars, but they’re the ones that, they deal with the tourist economy every day, they often work in the tourist economy, and so, they should be able to benefit from that economic activity.

Eve: [00:17:53] So how are you financing this project if you don’t have the bank? How do you do it?

Daniel: [00:17:57] Yeah, this project is particularly unique. We’ve obtained seller financing for a large portion of the acquisition cost, actually 95 percent of the acquisition cost, allowing us to focus our equity on the rehabilitation and upgrade of the property and aesthetic improvements. And we will be conducting a Small Change raise. So, we’re excited.

Eve: [00:18:20] Yes, we’re excited, too. So, but how long did it take you to negotiate the seller financing? That’s not an easy thing to accomplish.

Daniel: [00:18:28] It was almost a year, Eve.

Eve: [00:18:29] Wow.

Daniel: [00:18:29] Of what it was about 11 months of back and forth, and educating the seller on us, what we’ve done, what we plan to do …

Eve: [00:18:38] Wow.

Daniel: [00:18:38] … and ultimately reached a deal that we’re really happy with and I think they’re happy with, too.

Eve: [00:18:43] So, tenacious must be your middle name.

Daniel: [00:18:47] You have to keep that deals, right …

Eve: [00:18:49] Yeh, yeh, yeh.

Daniel: [00:18:49] … that’s the nature of development.

Eve: [00:18:51] So, final question for you. What’s your big, hairy, audacious goal? Where are you going with all of this?

Daniel: [00:18:58] For Shared Estates, specifically, I’m born and raised in the Berkshires. I love the Berkshires. I drove by these properties when I was a kid and fell in love with them. And the Berkshires is a really special place. The Boston Symphony Orchestra summers there at Tanglewood, has the oldest and longest performing dance center in the country, Jacob’s Pillow. It has one of the largest standing Shakespearean companies in the world, frankly. And these beautiful bucolic views. It’s just a phenomenal and special place. And I really want Shared Estates to contribute to the local economy, through taxes, through the nonprofit contributions we’ll be making, hopefully through investments by the local community in the business. I want the business to be ‘by and for’ the local community. And I want it to contribute, honestly, millions and millions of dollars of benefit, both direct and indirect, to local businesses. Every one of our properties supports local businesses. We champion and celebrate local businesses. We have local gift baskets and literature, and we really try to get folks who sometimes travel … they used to travel from Europe, now generally in New York and Boston, as those families are traveling more domestically. And we’ve seen a dramatic uptick, frankly, in our activity in rentals.

Eve: [00:20:19] Oh, that’s interesting, yeh.

Daniel: [00:20:19] But we really want this to be a massive engine of growth for the local economy, and to be a benefit to the local organizations there. I mean, that’s, that’s really our goal.

Eve: [00:20:30] That’s a pretty fabulous goal. And I hope you’re incredibly successful. So, thank you very much for joining me today.

Daniel: [00:20:37] Thank you, Eve. It’s been a pleasure.

Eve: [00:20:38] I hope I get to visit sometime.

Daniel: [00:20:40] Absolutely. Us, too.

Eve: [00:20:41] Ok, bye.

Daniel: [00:20:55] Bye.

Eve: [00:20:55] That was Daniel Dus. He’s planning a comeback for the many underutilized luxury estates in the Berkshires. Daniel and his team plan to reposition them for the sharing economy. Not only will they be available for middle class families to enjoy, they’ll be carbon neutral renovations, making them the ultimate recycling projects. And he’s taking the democratization of these estates one step further by offering the opportunity to invest to anyone over the age of 18. These estates won’t just be owned by the wealthy any longer.Eve: [00:21:42] 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, Daniel, 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 Daniel Dus

Yes! In my backyard!

Two years ago, after careers in financing, government and local economic development, Patrick Quinton co-founded a new startup, called Dweller, in Portland, Oregon. Like all metro areas, Portland faces an affordable housing shortage, and Patrick, from his previous role as head of Portland’s real estate and economic development agency, knew that the city had “the most ADU-friendly code of just about anywhere.” A 32×14 foot ADU (accessory dwelling unit) could be dropped into a typical 50-by-100-foot lot without hitting the setbacks and without requiring city design review.

Patrick, and his business partner Brian Lynott, knew that in order to scale, they needed to deal with two key friction points. The first is the complexity of building an ADU, which most mainstream homeowners cannot tackle.  And the second is the financing required to build one, which many homeowners simply lack, either in savings or equity. Enter the ground lease. By leasing space on a homeowners property, Dweller can install an ADU, hook it up to city services, and then take full responsibility for its management. The homeowner pays nothing upfront, and gets paid for use of their land from a portion of the rental income each month. Finally, the homeowner also gets to buy the ADU at a pre-set price at any time within the next ten years. Dweller’s ADUs are built off-site in a factory, further lowering costs, and they handle all permitting and installation. They currently offer six styles, and floorplans from 392-660 square feet.

Before Dweller, Patrick spent over eight years at the Portland Development Commission (now Prosper Portland), five of those as executive director. Early in his career, Patrick worked for eight years as a commercial lender at Shorebank, a widely-recognized finance leader in community revitalization, and then had eight years at Textron Financial Corporation providing financing to small and mid-sized companies in health care, energy and technology. He has degrees in government and public policy.

Insights and Inspirations

  • Patrick wants to scale Dweller to a point where mainstream lenders truly see the possibilities and want to invest (a lot) in the ADU market.
  • It isn’t magic. By removing the land cost and building ADUs in a factory, the cost of a newly installed ADU simply drops.
  • Ground leases allow moderate-income homeowners to incur no cost up front, and make money toward purchasing the ADU outright. Plus, it creates new, affordable rental space in desirable neighborhoods.
  • This is a way to (literally) drop in affordable housing supply without having to acquire new land, or even disturb the existing fabric of a neighborhood.
  • There is no comparable affordable housing solution at this price point. Or even close.

Information and Links

  • It’s almost impossible find bank financing to build the Dweller ADUs, so now Patrick is crowdfunding equity, on Small Change, for the next portfolio of ADUs he’s building.
  • Though he no longer works there, Patrick is very proud of the work of Prosper Portland. An urban renewal agency, Prosper has remained relevant by focusing on Portland’s most pressing needs, with a racial equity mission and a focus on community partnerships on all projects.
  • He is also on the board of Latino Network, one of the largest social service agencies focused on serving Oregon’s growing Latinx community. The organization’s executive director, Carmen Rubio, was just elected to Portland’s City Council and will be the first Latinx leader to serve on the council.
  • Patrick says that when you live in the Northwest, you are never far from nature and the conflicts over who controls our natural resources as well. He suggests a podcast series on the Timber Wars, by Oregon Public Broadcasting, that is worth a listen.
Read the podcast transcript here

Eve Picker: [00:00:13] Hi there, thanks for joining me on Rethink Real Estate. I’m on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I’m on a journey to find the most creative thinkers and doers out there. I’m not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, please join me at Patreon.com/rethinkrealestate where there are special opportunities for my friends and followers.

Eve: [00:01:22] Our episode, Yes! In my Backyard, made it to the top of the charts.  More of you downloaded this episode than any other one to date. And since my guest, Patrick Quinton, is currently offering an opportunity to invest in his ADU’s on SmallChange, we thought you might be interested in listening to Patrick’s vision  again. Dweller is Patrick’s startup company. He manufactures turnkey accessory dwelling units (ADUs) with a goal of addressing the very pressing housing needs of his hometown, Portland, Oregon. Patrick started Dweller because he knew that Portland has “the most ADU-friendly code of just about anywhere.” A 32×14 foot ADU can be set into a typical 50-by-100-foot lot without hitting the setback limits and without requiring city design review. If you haven’t heard his story, we think you’ll want to listen in.

Eve: [00:02:25] If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast or go to patreon.com forward slash rethink real estate to learn about special opportunities for my friends and followers, and subscribe if you can.

Eve: [00:02:52] Hello Patrick! Thanks so much for joining me today.

Patrick Quinton: [00:02:55] Thanks, Eve. It’s great to be here.

Eve: [00:02:57] Great. So, a couple of years ago, you co-founded a company called Dweller to address the pressing housing shortage in Portland, Oregon. And you’ve had a pretty substantial financial and economic development career. So, I’m wondering what prompted you to move to the uncertainty of a startup life?

Patrick: [00:03:18] Yeah, I sometimes ask myself that as well. My most recent job, prior to this, was I ran the city of Portland’s development entity. At the time it was called the Portland Development Commission. It’s now called Prosper Portland. But, obviously in that role I had my hands in a lot of different, large-scale projects, and had benefit of lots of public funding, and so had an opportunity to have an impact in a way that, across a lot of different things, but when my time came to leave there and I was thinking about, not just kind of what I wanted to do next, but what type of role I wanted to have, I really felt like I wanted, you know, to use the cliche, roll my sleeves up and really be closer to the work. And in particular, I had been thinking a lot about private models of solving any of a number of public issues. And certainly affordable housing was at the top of the list. So, you know, I didn’t leave with the idea of starting an ADU year company. I left to try and explore and think about, you know, what to do next. And my business partner, Brian, came to me with this idea, and at first I didn’t think it was the right idea. I didn’t think it had the opportunity to have as much of an impact as I had hoped. But the more I thought about it, the more I realized it really was the right opportunity to both build affordable housing, you know, to really have a direct impact, but also to prove a model that we both felt people had been toying with this, but really not making any progress. And so, it’s always kind of a leap, and it’s always, you got to drink a little bit of the Kool-Aid, but we really did feel like we were on to something new and kind of at the beginning. And so, you know it’s been a fun adventure.

Eve: [00:05:13] Dweller manufactures ADUs, right? And for those who don’t know who are listening, what’s an ADU?

Patrick: [00:05:21] Yeah, so ADU stands for Accessory Dwelling Unit, which is an unfortunate name for something that we’re trying to popularize. But it just means that it’s a secondary, permitted unit on a residential property. It’s typically referred to as a backyard cottage or a mother-in-law unit. But, in any form, it is a second living unit. And because it’s a separate permanent unit, it can be used as a rental. It can be used to house a family member. Obviously, it can be used for somebody to have, you know, their TV room, but its power is in, it creates another housing unit on land that nobody assumes can accommodate any more housing. And so you’re able to drop in additional housing supply without really having to acquire new land, or even disturb the kind of existing fabric of a neighborhood. So, it’s backyard housing. I mean,  that’s kind of the easiest way to talk about it.

Eve: [00:06:22] So, it’s a density play. It’s really kind of utilizing expensive land in a more efficient way. Right?

Patrick: [00:06:30] Exactly. There’s no way that anybody could develop housing on the land in these types of neighborhoods without this type of unit that didn’t have to acquire land and can be built on a small scale. It’s the ideal way to take advantage of this excess land.

Eve: [00:06:44] So, tell us about your model and how you arrived at it. Because I think there’s lots of different ways of building ADUs.

Patrick: [00:06:52] Once we dive into the ADU world and you learn more about it, you know, and we’re on the West Coast, so the West Coast has been doing this for a while, you look and you see lots of ADUs have been built. But, basically, what’s been going on is people who have money have been building a lot of kind of cool backyard houses. And so while they’ve been proving that you can do this, it really hasn’t been available to mainstream homeowners who aren’t sitting on a ton of money. So, we really wanted to create a model that would get a lot of ADUs built, but more importantly, really open the market up to more mainstream homeowners. So, we wanted to bring the cost down for ADUs and then help them finance it. And we brought the cost down by developing standardized ADUs that are built in a factory. So, high quality construction, but we’re just taking out a lot of the waste and inefficiency that happens with building a unit on site. And so, that’s really made our ADUs a lot more affordable than your average ADU. And then the second thing is, we’ve created a way for homeowners to finance an ADU without putting any money into it themselves. So, those are the two main things we wanted to address. And we feel like with those issues solved, we think, yeah, now your average homeowner and thousands of similar homeowners can now put ADU on their property when, you know a few years ago, that really was impossible.

Eve: [00:08:23] Can you share with us how much it costs to build one of these pre-manufacturing units?

Patrick: [00:08:28] So, our typical project is about 120,000 dollars, all in. So, that means that, you know, a homeowner can come to us …

Eve: [00:08:35] That’s very reasonable.

Patrick: [00:08:36] Yeah, when you consider the average price of an ADU here in Portland is around 200,000 dollars. And the average price in other West Coast markets in California, and Seattle, is around 300 or higher. So, yeah, 120 brings it into the range of affordable for many homeowners. It’s still a big financial decision, but it’s definitely a lot easier for homeowners to get over that hurdle.

Eve: [00:09:02] Yeh, I’ll say, that’s pretty reasonable. And then, so, how many units have you built and operate to date, as a start?

Patrick: [00:09:08] We built 15 units in total, and then, you know, I know we’re going to get into this, but we actually own nine of those. So, we operate nine of those as a small portfolio of affordable ADUs rentals and we rent those out to long-term rentals. So, local residents, and they’re sprinkled throughout the city of Portland. The other units we just sold. There’s homeowners who come to us and have the money and want to buy from us. And we’re happy to do that. And homeowners who buy from us who have money, you know, they like the efficiency, the no-hassle aspect of it as well. So, it’s not simply that, you know, homeowners can afford it. It’s that ADUs have traditionally been a big project for a homeowner. It’s, they become a mini-developer and most people just don’t have the time to do that. Because there’s a lot of pitfalls along the way. So, we also attract a number of buyers who just want to buy ADU like they buy a car, or some other big purchase. They don’t want to have to learn how the car is manufactured.

Eve: [00:10:10] Right. Where are these located, the ones that you built?

Patrick: [00:10:12] They’re located in residential neighborhoods throughout our city. You know, Portland is, like many cities is, has tons of great residential neighborhoods. And what people don’t realize is that in most cities, even in the city itself, you know, you walk down any residential block and there’s a nice big backyard in these properties.

Eve: [00:10:32] Yes, yeah.

Patrick: [00:10:33] And so when you look across the landscape in Portland, where most of the residential neighborhoods are, if you were to fly over them, you would see all this space that you really don’t see from the street side. And a lot of them are really modest neighborhoods with bungalow-style houses and homeowners who, you know, they want to have the extra income. That’s really the prime motivation.

Eve: [00:10:55] So, you are doing two things. You’re creating affordable homes and extra income for people who need it.

Patrick: [00:11:00] Yup, yup.

Eve: [00:11:02] And the third thing I’m realizing as you’re talking about this … ADUs are built in places where there’s already infrastructure. And so, they’re going to be close in, and provide housing for people perhaps without needing a car because the developed neighborhoods have transit, etc..

Patrick: [00:11:18] From an urban policy perspective, that’s one of the reasons why so many jurisdictions have been promoting ADUs, is because it’s an easy win on the housing side. You don’t have to fight over how you develop a big corner lot. You’re dropping it in. You don’t have to build new streets or sidewalks, like you’re saying, and you get to take advantage of existing parks. And even, you know, schools. Like people … this is an understated aspect of this. But when a household that typically rents gets the rent in a neighborhood that’s primarily single family, owner-occupied houses, they’re generally accessing better schools. And so, it opens up even that, for renters.

Eve: [00:11:58] Yeah, probably better shopping and proximity to grocery stores, etc..

Patrick: [00:12:02] Exactly.

Eve: [00:12:03] Yeah. So, what do they look like? Do you have a number of models?

Patrick: [00:12:07] We do now. You know, as like any company, we started off with one model. You know, we really were trying to work out the kinks, but also just kind of see where customers are. But we generally sell units that are between four and 500 square feet. It looks like a one bedroom apartment. There’s a lot of talk about tiny homes these days, which is another really great form of housing. But ours are bigger than that, and most ADUs are, and they look more like apartments than what people will see in a lot of these tiny home images. So, they have full bedroom, full bathroom, usually a shared kitchen, living space. ADUs can come in all sorts of architectural forms. But what’s interesting about it is a lot of them have, what they call a shed roof or mono slope roof, which is different than most houses which have the peaked roof, gable roof. So, ADUs tend to have a little bit of a different feel there …

Eve: [00:13:00] It’s a little bit more of a shed aesthetic, like the garden shed, yeh?

Patrick: [00:13:03] Exactly. When you look into the back yard, you don’t see a mini house. You see a structure that looks more like a larger shed.

Eve: [00:12:12] Yeh.

Patrick: [00:13:19] But inside it’s built out like, you know, any apartment that you would see in a big apartment building.

Eve: [00:13:19] Right. I’ve lived in a 450 square foot unit and loved it. It was the perfect size and there were two of us. So, if you don’t have too much stuff, it’s great. What makes them affordable? This is a loaded question, because I know you’re also striving for affordability, just through your mission. I suppose the question is not what makes them affordable is small and well-thought through manufacturing, but what’s your affordability mission beyond that is, I suppose, what I’m asking?

Patrick: [00:13:49] I do want to actually just talk about one thing that, about affordability, before we get into making them affordable rentals is, and there’s a lot written on this. You know, the average cost of a new housing unit is, you know, if you’re talking about an apartment building or something like that, here, it can be 300 to 400,000 dollars, a unit. In California, the Bay Area, right, they’re talking about 700 to 800,000. And …

Eve: [00:14:14] It’s crazy, yeh.

Patrick: [00:14:15] The mere act of building a new housing unit has become so expensive. And when governments and other organizations that care about affordable housing are rounding up dollars to build new affordable housing, they have to find a lot of money to build a number of housing units of any scale. So, to say I can build a housing unit for 120,000 dollars, regardless of what the purpose is, that’s a big deal. And there are other companies doing this. So, the ADU industry is positioned to add a lot of housing supply at a price per unit that almost no other aspect of the housing industry can achieve. And, you know, one of the main savings is we don’t have land cost. Right? So, it’s not magic. It’s not like, you know, somehow we’ve figured out the magical way of building that takes out of the cost. It’s that we’re leveraging existing land. So, basically, if it’s a homeowner, the homeowner is kind of contributing that land to this transaction. But it’s not money that we have to find. And then we generally, because we build small units, and if you are building the way we build in a standardized fashion, then you can take out all these inefficiencies, as I mentioned earlier. So, that’s like this whole powerful part of the ADU world is …

Eve: [00:15:31] Yeh.

Patrick: [00:15:32] … if we really can figure out how to get thousands of ADUs built, we’re going to be building those units at a lower cost per unit than pretty much any form of housing.

Eve: [00:15:44] I mean, when you look at a multi-unit building, you’re talking about fire sprinklers and stairs and elevators …

Patrick: [00:15:50] Exactly.

Eve: [00:15:51] … and, you know, accessibility, really expensive.

Patrick: [00:15:53] Yup.

Eve: [00:15:53] And all of that has to be subsidized to keep it affordable.

Patrick: [00:15:57] Yeah.

Eve: [00:15:57] So, tell me about the ground lease and, you know, who’s interested in it. And what sort of success you’re having finding people who want to do this.

Patrick: [00:16:06] And so, as I mentioned earlier, we really wanted to help address the financing challenge for homeowners, and just a bit on that. So, basically an ADU is typically a project. It’s taken on by a homeowner and the homeowner has to not only manage it, but pay for it.

Eve: [00:16:20] They have to hire an architect and probably an engineer.

Patrick: [00:16:23] Yeh. And so when homeowners go to pay for things like this, they typically are going and getting home equity financing. I mean, obviously, there’s people out there who might have that money just sitting at the bank. But that’s, that’s typically not most people. So, they go and get home equity loans, and I think the home equity loan has certainly become pretty widespread over the past 20 years. So, everybody gets that that’s out there. But when you really dig into the numbers, lots of people are sitting on small amounts of equity. Very few people are sitting on a lot of equity, certainly enough that’s going to allow them to pull, you know, 120,000 dollars out in our case, but for the average cost, you’re talking about a lot more.

Eve: [00:17:05] Right.

Patrick: [00:17:06] And even then, you’re asking people to take out what is basically the bulk of their life savings. It’s you know, the statistics all indicate that most people have their net worth tied up in their home. So, like, that’s the ADU financing challenge is, it’s all home equity based and most people don’t have it, and the ones who do have to make this massive decision and …

Eve: [00:17:27] Oh yeh. It actually turn them into mini developers. You’re asking homeowners to be real estate developers and work through all the issues around that. That’s a lot.

Patrick: [00:17:38] And so, that’s just a risk profile that you’re not going to find in your average homeowner. So, we wanted to figure out how do you finance this in a way that takes out all of those obstacles. And so we came up with, we didn’t invent it, but we’re one of the first ones to really try it, is to use what’s called the ground lease. Under a ground lease we lease a part of the homeowner’s property. So, we generally lease a defined part of their backyard. And then by doing that, we then have the right to develop on that part of the property, and then we develop the ADU ourselves using our own capital. So, we’re building the ADU on the homeowner’s property at no cost to them. And then we own the ADU then and we’re able to manage it and rent it out. And then we share a percentage of the rent that we collect each month, back to the homeowner. And that’s essentially our lease payment to them. So, once again, we’re tenant in their backyard because we’ve leased that part of their backyard, so we owe them monthly rent. And so we pay them that as a percentage of the rent. And then the homeowner has the right to buy us out of that lease at a prearranged price at some point during the lease. 

Patrick: [00:18:50] So, in essence, the homeowner is getting the ADU on their property at no cost to them, and then they can, when the time is right for them, choose to pay us back. Right? So, it operates like a loan, but it’s not a loan. It’s, you know, it’s us going in and building and owning the ADU. And we think this is a particularly well-suited type of financing vehicle for ADUs, because not only does it overcome these challenges that we’re seeing for homeowners who want an ADU but can’t finance it or can’t pull the trigger on taking all their equity out. But it also puts these ADUs immediately into the rental market, because we’re owning it and then we’re managing it like any other long-term rental. So, not only are we getting ADUs built, but we’re getting them immediately available to local renters, which is one of the big policy objectives for promoting ADUs, is to have more affordable rental units. And then when the homeowner buys it out, they can decide if they’re going to keep it as a rental. But for at least some period of time, five, 10 years, it operates as a rental unit in neighborhoods that really need it. So, it’s just this kind of unique way of looking at how to get over the financing hurdle that has all these ancillary benefits.

Eve: [00:20:09] So then, you’re launching a crowdfunding campaign to raise equity on my crowdfunding platform, Small Change. And why are you doing that?

Patrick: [00:20:21] The financing challenges don’t go away just because we’re building on aground lease. Somebody still has to fund this. And so, that financing challenge then gets pushed onto our shoulders. And so we’ve tried to figure out how to fund the development of new ADUs using a lot of traditional financing methods. And so, if you think about a real estate transaction, you know, you have some equity, you go out and you borrow money from a lender, and usually you can kind of piece together the right capital sources. But this structure is unique in that we don’t own the land and we don’t have rights to the land. So, you’re asking lenders and investors to really bet on this structure and the stream of income from it. And even though I would argue until I’m blue in the face, how secure this is and what a great investment this is because of the regular income coming in, it doesn’t look and feel like what lenders and investors are used to seeing. And so, it doesn’t fit in one of these boxes. And so, we’ve tried to look for traditional lenders, non-traditional lenders, all sorts of folks who fund even affordable housing projects. And we just haven’t found lenders who are willing to do this with an eye towards scale. And so, at the end of the day, we felt like there’s a lot of interest in this type of housing. There’s a lot of people that we talk to who love the idea of ADUs, who really want to see more ADUs built. These are average folks who want to help with the affordable housing crisis. And so, we actually have always thought in the back of our minds, you know, this would be a great crowdfunding opportunity, but we really thought, you know, we should be funding this in a traditional way. And we had to beat our heads against the wall for a long enough time before we decided, you know what, let’s actually look into crowdfunding because we feel like there’s a really strong interest out there for what we’re doing.

Eve: [00:22:16] Yeah. So, the challenges never end. Right? So, you’ve got a product that sounds like it’s scalable, that may really help the affordable housing crisis. And yet you’ve not been able to find a lender to, at least lend, yo know, 60 percent of the cost of building these, even if you have to go find equity, which I personally find really shocking … that we don’t have lenders in this country that can think a little bit out of the box. I mean, there are, as you said, non-traditional lenders, lenders that are focused on affordable housing, nonprofit lenders with a mission to help affordable housing. What has to change for this to work?

Patrick: [00:22:57] Yeah, this is multi-layered. So, the first thing is that I think that everybody can point fingers at each other. So, I think your actual lenders would point fingers at regulators and their auditors, and say, if I put this loan on my books I am going to get killed when audit comes around. Or they’re going to say, point to actual, you know, this is how we have to underwrite them. So, you have that. I do think you have, regulators and auditors might come back and say, we don’t say they can’t do this. They just have to kind of make the case and show us how it’s collateralized. So, I think some of it is this, like, you know, do I want to take this fight on as a lender when I can go look for another deal? So, I think there’s a lot of this, like, who’s self-interested enough to make it happen. And so, that gets to the second layer, which is getting scale on this proves it out, and then it will give, I think it’ll begin to open up the eyes of lenders. So, I do think we need to prove out that there’s a market for not just a lot of ADUs getting built, but also for folks with money that folks who deal in much bigger numbers with more zeros than we do right now, say, hey, I can put 10, 20, 50 million dollars to work right away, into this market. Now, I’m interested. So, I think we’re in the chicken/egg classic stage. We’ve got to prove it out, get some scale, and show people not just that it’s safe, because I think that’s actually the easier argument to make. It’s really can this thing be scale, can achieve scale, and can it really end up putting a lot of money to work? And so, whether it’s a regulated lender or a group of lenders that come in and do this, or whether it’s some more of a kind of investment banking type of approach, I think that scale is going to unlock, you know, one or both of those eventually to get more money into this market.

Eve: [00:24:49] Or maybe crowdfunding is, if enough investors …

Patrick: [00:24:52] Crowdfunding, right. You’re more the expert. I’m new to this. My natural inclination to think its smaller scale. But you’re right, that, you know, the beauty of crowdfunding is maybe it is.

Eve: [00:25:01] There are other platforms that have gone fairly large scale …

Patrick: [00:25:03] Right. Yeah, exactly.

Eve: [00:25:04] … but they have a very traditional real estate projects. Again, they’re kind of following the model. So, I think Small Change is a bit unusual in that it will help developers like you with unusual projects that are awkward to finance is the only other way to say it, like awkward to finance, because we think that in the long run it’s the right thing to do. So, I’m really excited you’re doing that on our platform.

Patrick: [00:25:29] I have one of our early investors, friends of family, this is a long time friend of mine. She does a lot of investing and she was one of the people who was really nudging us to explore crowdfunding. And she thinks just like you do, she thinks, like this is the way to scale, like she thinks this is just going to grow, and she has money to invest, so lots of options as an investor and she is sold on crowdfunding. So, she’s in a lot of different crowdfunding deals. She believes this is the way to go. So, you, I think you’re right.

Eve: [00:25:51] Yeah. I mean, its, instead of investing your money in a bank or mutual fund, you invest it directly into what you care about. And that’s a pretty beautiful thing.

Patrick: [00:25:52] Yup.

Eve: [00:26:12] Hopefully, there are enough affordable housing advocates out there who want to invest in affordable housing that will help you, and maybe we can find them. What does scale look like for you?

Patrick: [00:26:22] I think scale, obviously, it involves not just numbers, but I think multiple markets. We operate on the West Coast, so we see the housing crisis really clearly, you know, and it’s all relative. So, sitting in Portland, Oregon, we have a housing crisis. But then what we hear about in California, or up in Seattle, we know it’s even more challenging. And then we know that communities across the country are all experiencing this. So, I do think that we want to see us being able to offer this ground lease product in other markets. And, you know, the beauty of what we’re doing, and I think what’s happening in the ADU industry, is that we don’t have to be the builder. We can work with other builders and help them serve more customers in their markets by bringing this financing product to them. And we’re seeing a lot of growth in new ADU builders who are building more affordable units in other markets. So, the issue is not going to be capacity. It’s going to be how do we bring more financing options to homeowners? So, we think that’s where the scale comes from, is being able to partner with builders in other markets.

Eve: [00:27:31] And I agree. So, I have to ask, are there any other current trends or innovations that you think might help this crisis or might help construction costs come down, that you’ve been tracking?

Patrick: [00:27:46] I’d like to be more optimistic. I do believe in cycles, so I think we’re going to get out of this current moment. Where in the construction industry where costs are rising and we do have backlogs. The timber price goes up, there’s no way to, you know, the housing costs go up. So, we’re definitely in a challenging cycle there. I think that the more efficient that we build, the less waste that you have in the construction process, I think the less susceptible you are to those price changes. We’re just going to get more and more efficient and there may be alternative timber products that are able to also drive the cost down there. I think the other issue, which kind of gets in a little bit into the weeds, but building a prefab or factory built AU, however you want to call it, you know, there’s challenges in getting that unit into the backyard of an existing house. So, you can imagine a regular residential street in an urban neighborhood, or even suburban neighborhood. It’s not like you can just back the thing in the backyard. It’s usually not enough space. So, we’re using cranes and all sorts of things. We have power lines. We have …

Eve: [00:28:55] Wow.

Patrick: [00:28:56] … lots of obstacles. So, there’s a lot of properties that have space, the homeowners ready to go, the whole thing, and we can’t get there. So, we’re seeing a lot of innovation on how can you basically take the house and be able to, like, construct it on site. So, house-in-a-box. So, there’s prefab walls and things. But how can you make that process as efficient as building it in a factory, but eliminate a lot of the installation challenges that we have? If you can, if we could figure out how to get those types of units into pretty much any property, regardless of how much space you have to install, or what obstacles in front, I think that itself is going to open up …

Eve: [00:29:35] Right, right.

Patrick: [00:29:36] … the ADU market. I think that innovation will happen. I think it’ll happen more quickly than the financing innovation will happen. It’ll make the financing challenges even more acute because you have more homeowners who are ready to move forward and they’re looking at a, you know, 100,000 dollar … And the other thing I’ll just say which, every industry in the world can say this, but, you know, Amazon talks about selling these houses and you have an Airbnb, you have all these companies out there with massive scale that may or may not be able to carry through on this, but we should probably assume that some company of prominence is going to come forward with a solution as well. And I think it’s good for the market, assuming they do it responsibly. Amazon says I can sell you a 20,000 dollar house, that’s not, it’s not it’s an irresponsible thing. But it could really help with innovation, it could help with efficiency, those kind of things. So, I do think we’re going to be seeing that in the next few years. We’re going to be seeing some large companies that you wouldn’t expect to be in the middle of this, are doing it.

Eve: [00:30:42] I think it’s a great idea, and I wish you all the best of luck. I can’t wait to see how you grow and I hope you make your way over to the East Coast sometime, as well.

Patrick: [00:30:54] Thank you, Eve. We do, too. We love the West Coast, and there’s certainly a lot of work to be done out here. I get a lot of phone calls from folks in your neck of the woods. Atlanta, D.C.. We really do hear from people all over the country who want to see our model there.

Eve: [00:31:07] So, financing, we’ve got to figure it out. Thank you very much.

Patrick: [00:31:11] Thank you, Eve.

Eve: [00:31:35] That was Patrick Quinton. Patrick launched Dweller to help address what he thinks is the most pressing issue in Portland, Oregon, right now: a critical lack of affordable housing. He applied focus to the problem and decided that in order to scale, he needed to deal with some key friction points. The first is the complexity of building an ADU, which most homeowners can’t and won’t tackle. And the second is finding financing to build one, which most homeowners don’t have. By entering into a ground lease with the homeowner, and building and financing the ADU for them, Dweller has made the process as easy as can be. But now Patrick must struggle with an industry in its infancy and lenders who are not quite ready to go down the path of financing ADUs built on a ground lease. These are the growing pains of a company that is first in the marketplace.

Eve: [00:32:38] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed, or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Images courtesy of Patrick Quinton, Dweller

Greenfields are boring.

Adrian G. Washington is the founder and CEO of Neighborhood Development Company (NDC). Their mission is to develop exciting residential and commercial properties that cultivate vibrant communities. What does that mean? And how does a developer do that?

Well, that’s what Adrian and I talk about so listen in.

Adrian has over 30 years of experience in urban real estate development, construction and management. He founded NDC in 1999 and has served as President since then — except for a two year leave of absence from 2005 – 2007 when he left to lead the Anacostia Waterfront Corporation (AWC), the entity charged with leading a $10 billion, 20-year initiative to revitalize Washington, DC’s Anacostia Waterfront and surrounding communities. NDC has developed over 1,000,000 square feet of real estate, focusing on emerging urban neighborhoods while respecting the rich diversity of their existing fabric.

Adrian grew up in the city’s Anacostia neighborhood and is a lifelong resident of DC. He received his B.S. in Economics and Political Science from Stanford University and his M.B.A. in Marketing and Finance from the Harvard Business School. And he has received numerous individual awards reflecting his leadership in the development industry.

Insights and Inspirations

  • Why develop a green field when you can redevelop an existing neighborhood and help it to thrive?
  • See the people who are living there. They embody the neighborhood.
  • Mix it up. Build affordable housing right next to luxury housing.
  • Work with small businesses out of the community. They can become valuable tenants, not just for the developer but they bring value to the community as well.
  • There’s lots of opportunity in Opportunity Zones.

Information and Links

  • Adrian is excited to see NDC’s Benning Market built. It’s a food hall in River Terrace North East, and many of it’s investors came through a Small Change offering.
  • NDC supports DC Greens, a local non-profit dedicated to food justice and health equity in Washington, DC.
  • The project that Adrian is most proud of is the Residences of Georgia Avenue. This block buster project increased affordable housing options and healthy food options in a neighborhood considered a food desert. 
Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker. If you listen to this podcast series, you’re going to learn how to make some change.

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Adrian Washington. Adrian is the founder and CEO of Neighborhood Development Company, a Washington, D.C. real estate company focused on rebuilding vibrant communities through their work. Adrian fell in love with this type of development work and decided to make a career out of it, much to the good fortune of the neighborhood he works in. For Adrian, greenfields are boring. Nothing gives him greater pleasure than digging into a forgotten and neglected site and turning it into a neighborhood asset. I’ve had the good fortune of working with Adrian at Small Change, helping to raise funds for some of these projects.

Eve Picker: Be sure to go to EvePicker.com to find out more about Adrian on the Shownotes page for this episode and be sure to sign up for my newsletter, so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve Picker: Good morning, Adrian. Thank you very much for joining me.

Adrian Washington: Thank you, Eve. It’s a pleasure to be here.

Eve Picker: So you have a real estate company called Neighborhood Development Company, and we’ve been lucky enough at Small Change to help you raise funds for one of your projects. Your company is in Washington, D.C. I’m just wondering if you’d like to tell us how long you’ve had Neighborhood Development Company, or NDC, and have you lived in D.C. all of your life?

Adrian Washington: I’m a native Washingtonian. I’ve lived here most of my life. I went away and went to school down in California; lived out there for a while; lived in Boston, but, essentially, I’ve been in D.C. all of my professional … I grew up here, and I’ve lived here all my professional life. I’ve been involved in real estate, altogether now, going on over 30 years and formed Neighborhood Development Company a little over 20 years ago, back in 1999.

Eve Picker: That’s quite a stretch. NDC’s mission, in your words, is to develop exciting residential and commercial properties that cultivate vibrant communities. What does it mean to you to cultivate vibrant communities? How does a developer do that?

Adrian Washington: We’ve always operated in urban areas of primarily Washington, D.C. and really always neighborhoods that were emerging; that were maybe down and out at one time or were starting to turn around. What we found in these neighborhoods is that we don’t look at them just from a brick-and-mortar perspective. We see the people that are living there now. They want their neighborhoods improved, but they don’t want to be displaced. They want shops and things that serve them, but don’t serve just outsiders. They welcome newcomers, but they want to feel those newcomers respect the place that [inaudible]. We see our role as balancing those things of making a neighborhood better for people who are living there, attracting new residents who want to be part of those communities, attracting businesses that want to be part of those communities, but not to displace people and not to alter the fundamental character. As developers, I think it takes like a real balancing act that we work with on a day-to-day basis.

Eve Picker: I do think it is a real balancing act. How do you fend off displacement?

Adrian Washington: We do it in, I guess, a number of ways that I think are unique in some developers in that we do both very high-end market-rate developments, but we also do affordable housing. We do affordable housing in a number of ways. We do it in traditional ways that more traditional developers do it, using government subsidy and the many programs involved. We also do it in more creative ways. For instance, we’ve worked in the past with failing cooperatives, where a group of tenants own their building collectively, and it’s just not working out, either because of bad management, or whatever. We team with them to provide our services with them but do it in a way that allows them to stay in their homes. That’s one way we do it.

Adrian Washington: Another way we do it is we really, in our commercial work, really like to work with entrepreneurs. Your typical developer may want that credit tenant. They want that CVS, or that Walgreens, or someone national. We really- we don’t go that way. We go in the opposite direction. For instance, in one of our developments, we have a salsa teacher, and she was doing lessons- it was a nice young couple. They were doing lessons out of their basement in the neighborhood.

Adrian Washington: They were so successful, they wanted to have their first studio. They came to us, and we had a space in one of our buildings, so we worked with them on the design; we worked with them on getting government grants to help them build out. We helped them with the construction. We gave them a favorable lease that started out low, and it allowed them to develop the business.

Adrian Washington: It was just a great neighborhood success story, where they stayed in the neighborhood. They had a service that appealed to both the newcomers and people who were in the neighborhood. They successfully grew their business. They’re now opening a second location. I think it’s really about creativity; using the skills we have as developers and businesspeople and connecting with people who have hopes and dreams – maybe not the same skills – and working out win-win solutions.

Eve Picker: That’s a really lovely story. Other developers might say that’s taking a risk with a little startup business that you don’t necessarily need to take. You could go get a credit tenant. So, why do you take that risk?

Adrian Washington: Well, I think a couple of reasons. It is kind of, on paper, riskier. Although we see with all the changes in the retail economy, yeah, you could have some business like a Blockbuster – going back in time, when everyone thought it was really successful, and now it’s out of business [cross talk]

Eve Picker: Yeah, that’s true.

Adrian Washington: Or even something like a McDonald’s, where everyone thought McDonald’s used to be the gold standard. Even now, you see some of those stores shutting. There’s not ‘no risk’ in a credit tenant, but I agree that there’s more hand-holding; there’s more involvement. You’ve got to pick your entrepreneurs carefully. You’ve got to help nurture them. Typically, they’re people who are great enthusiasts about what they know – if it’s salsa dancing or handmade pottery – but they don’t know about marketing; they don’t know about financing. You’ve got to work with them more.

Adrian Washington: We just find that more rewarding. It’s just fun. It’s creative. We feel like we’re helping people. We feel that we’re seeing eye to eye, because even though we’ve been in business 20 years, we’re still thinking of ourselves as an entrepreneur. The neighborhoods love it, so I think it makes us more popular in the neighborhoods. We’ve found that the success rate that we’ve had with these businesses is really pretty high and that the occasional failure that comes along, we just kind of build that into our pro forma. We’ve found that we were able to replace people who don’t like it with other people. All in all, we just find it’s more socially rewarding, it’s financially fine, and it’s just a lot more fun.

Eve Picker: It adds to the economy of the neighborhood you’re in, which is really lovely. Developers do lots of different sorts of things, and I’m wondering how you ended up here. How did you …? There must have been a path that took you towards this type of development.

Adrian Washington: Eve, I think it’s like a lot of things in life. I don’t know, maybe there are people who have these- design these great plans at age 12 and follow them through. I really didn’t. I went to undergrad; I went and got an MBA. I worked for a national consulting firm, and I thought that was my path, but I really hated it. At the meantime, I had bought a house in an emerging neighborhood and fell in love with that culture. I think I was really ahead of my time. I saw the appeal of walkable, livable neighborhoods. I saw the appeal of eclectic neighborhoods that had different types of architecture, that had different types of people, different races, different income groups, that was close to urban centers. I just thought that was great. I loved being in that neighborhood. I loved the change that I saw was going on. I loved the physical aspect.

Adrian Washington: Back when I was younger, I did everything. I did carpentry; I did plumbing [inaudible]. I just loved that whole environment. I think I was always an entrepreneur at heart … I was going to a day job that I hated, and I had this hobby that I loved, so I said, “Well, why don’t I see if I can turn this hobby into a business?” That was 30 years ago. It hasn’t been a straight line. There were struggles; there were failures; there were just dumb-ass things that I did that didn’t work out, but I always came back the next day and tried to do it better, and I’m really glad I did.

Eve Picker: Be sure to go to EvePicker.com and sign up for my free educational newsletter about impact real estate investing. You’ll be among the first to hear about new projects you can invest in. That’s EvePicker.com. Thanks so much.

Eve Picker: That’s a great reason why. It’s pretty wonderful to be able to be doing something that you really love and that adds to communities everywhere. So, I’m going to move on now to a project that I know you’re working on, called 1100 Eastern Avenue, which is one of your latest projects. We’re fortunate enough, at Small Change, that we’re going to be helping you to raise a little money for this project. I wanted to talk a little bit about it. Can you just tell us a little about what the project is, how big it is, the uses, where it is?

Adrian Washington: Well, sure, Eve. I’m really excited, and our whole team’s excited about 1100 Eastern. It’s really a project that embodies our beliefs, and uses all of our skill sets, and is just very exciting. It’s a mixed-use projects. Ground floor is a retail component; not that large, about 4,000 square feet. I think one of the great things about it is that there were … The site is sort of a rundown former- like a strip shopping center. A couple of the tenants there were folks that, frankly, the neighborhood was happy to see leave. It was a liquor store and an old carry-out. Not to knock those people, but they weren’t really what the community wanted.

Adrian Washington: There were a couple of tenants the community really did like. It was a barbershop that had been there for really a couple of generations. The current owner’s father had founded it back 35 years ago. She was still running it, and it was really a neighborhood institution. Then there was a daycare center. One of the things that we’re doing is allowing those people to come back to the new development in brand-new facilities. We’re even able to offer them, starting out, kind of with our philosophy, at the same rents they were paying, which were far below market. It’ll allow them to build up the market over a number of years, so we’re very excited about that.

Adrian Washington: Now, on the floors above it, there are five stories above it. These will contain 65 units of mixed-income housing. There’s housing for very low-income people, who were formerly homeless, who will be able to get wraparound services to allow them to transition to a more normal life. Then there are other units that will be for people of moderate incomes; people anywhere from – these are technical terms – but from 40 percent to 65 percent of the area median income. These range from what we would call pretty subsidized housing to more workforce housing, so we’ll have a range of people there.

Adrian Washington: We’re also very proud of what we’re doing is that we’re giving a really big mix of unit types. Typically, in any kind of new construction development, you’re seeing just people were just building one- and two-bedrooms, or studios. What we’re able to do in this building is to provide one-bedrooms, two-bedrooms, three-bedrooms, even a few four-bedroom apartments. It really will serve a number of different types of people in the neighborhood – seniors, people with families, people with kids. It’s just a great project that will really help everyone in the neighborhood, so we’re very proud and excited about it.

Eve Picker: That sounds really, really wonderful. The four-bedroom units are so unusual nowadays, and extended families are important, so that’s pretty great. I understand it’s also an Opportunity Zone, which is, as we all know, a very hot topic right now. How will that impact the development?

Adrian Washington: Opportunity Zones are exactly what you said, Eve; it’s a very hot topic. People are still figuring it out. I think that, unfortunately, early on, a lot of the Opportunity Zone benefits are going to people who are creating projects that would have been created anyway. We’re very proud that we feel this project will fit in what the Opportunity Zone true mission is, which is to bring capital to underserved neighborhoods – as I said, our commercial businesses, our neighborhood-serving businesses that were going to be displaced and that people in the community wanted to stay.

Adrian Washington: What we’re doing is we’re using Opportunity Zone benefits to attract capital to help keep these businesses in. So, I think that’s important. But, also, I think one of the key things I feel that Opportunity Zones is that the projects have to make sense, even if they weren’t in Opportunity Zones. We are a business that prides itself on not just being do-gooders, but being solid businesspeople, so we’ve underwritten the project carefully. We understand the costs, and the risks, and all of the factors. We think this is a project that works, even if it wasn’t in an Opportunity Zone. But we’re very happy to allow people who are investors who want to get a good return on their money, but also to have a meaningful social impact, to have all that, plus the tax benefits of the Opportunity Zone.

Eve Picker: For listeners who don’t really understand Opportunity Zone funds, because they are very complicated … Took me a long time to understand. The fund, in this case, is actually the project. It’s just the entity that the project is using as a legal entity, the LLC, that will become a fund, right? If people invest-

Adrian Washington: Yes, that’s right.

Eve Picker: It’s a 100-percent Opportunity Zone fund because it’s just a single-use fund, just one project. So, if people invest in it, they’re investing actually into the project itself, not into a fund that then serves a whole series of projects. They can take a really close look at the underwriting and see if they like it. I would agree with you, at the moment, the Opportunity Zone fund benefits are kind of gravy. I have yet to see a project that is moving forward simply because of those benefits. They don’t seem to be enough to make a project happen, right?

Adrian Washington: Exactly. We’ve used that approach, not just in Opportunity Zones, but with our other investor- projects. What we found over the years is that people- they want to know what they’re investing in, both from a business standpoint … They want to kick the tires, see if they believe in the construction costs, and the neighborhood statistics, and the tenants that are being there. They want to understand that. They also want to understand the story behind it. What’s going into the neighborhood? How will my investment benefit [inaudible] neighborhood? They really want to touch, and feel, and see that. We’ve had a lot of success over the years in doing that. This project really works in the same manner, where people can really learn about it, learn about us, learn about the neighborhood, learn about the businesses, and say, “Yeah, I want to put my money here. I believe in it as a financial investment. I also believe in it, in terms of its social [mesh].

Eve Picker: I think what I’m most excited about for Small Change is the fact that we’re helping you raise money for this Opportunity Zone fund. We may very well be the first Opportunity Zone fund offering investments- very small investments to everyone over the age of 18, not just accredited investors. I think many of the funds that we see around the country have really big minimum investment amounts of $100,000 or $200,000, or $500,000. This is going to be much smaller for everyday people, which personally I find very exciting. It’s yet another way to make it accessible to your investors in your neighborhood, right, Adrian?

Adrian Washington: Right, and we’re excited, too. Eve, as you know, and the audience may not know, is that you guys raised money for us on another project, our Benning Market project – a neighborhood called River Terrace. It was a nice way to raise money, but I think more importantly, it helped build support and build involvement in the project. I have people in that neighborhood who told me, “Yeah, I saw … I’m an investor in your project, and …” [cross talk]

Eve Picker: That’s great. That’s really great, yeah.

Adrian Washington: -“… and I saw it because I lived down the street and I wanted to be a part of it. I just thought it was cool that you allowed us to participate in that.” I think it really does build more of a sense of community; it builds more of a sense of involvement; it invokes transparency, because, frankly, I think that, in these days, developers are viewed with a lot of distrust. I think that by allowing community members to invest at investment levels that they can afford really helps to break down those walls, and do that, and helps to increase visibility. We were really happy with the results we had with you on our first investment, which is literally breaking ground in a couple weeks, and we are very excited to work with you again on the Eastern Avenue Project.

Eve Picker: That’s great. You’re going to have to send me updates on the first one, because we’ll post them for our other investors. People like to see [cross talk].

Adrian Washington: We’ll send you groundbreaking pictures. How about that?

Eve Picker: That’d be fantastic, yeah. Talking about this little piece of community engagement – crowdfunding – community engagement has to play a big role in your projects. I’m wondering how you handle that. That can be tricky sometimes.

Adrian Washington: It can be tricky. Like I said, there’s just a lot of distrust around development, and in our political climate, I think there’s just [riding] distrust in everything, so I don’t take it personally. I think the key is you’ve got to be out there early and often. We’re working a different project, in a different part of the city, and we’re a couple years away from groundbreaking; really a year away from an actual serious design and engagement, but we’re already out there in the community, asking people what they want, telling them about ourselves, letting them see some of our other projects.

Adrian Washington: You’re never going to please 100 percent of the people in any community. What I’ve found over years is that what you can do is the best you can do, which is to be accessible, be transparent, to listen, to be honest. Sometimes, people want something, you’re like, “Yeah, we can do that.” Other times, people want something, and I’ve seen a lot of developers be vague and sort of say, “Oh, well, maybe we’ll look at that.” I try to be honest; I try to say that, “Sir, ma’am, we just can’t do that, and here’s the reason why. I know you won’t be happy about that,” but I think it’s more important to be honest than it is to try to gloss over a problem.

Adrian Washington: It really takes a lot of work. It’s changed over the years. 20 years ago, we didn’t have to do nearly this level of community involvement. I think, particularly in underserved neighborhoods, that people were happy that you were just there and building something; pretty much, you didn’t have to do more than that. Nowadays, it’s different. People realize that their neighborhoods are an asset, and that people want to develop there, and they are demanding to be heard and respected. If you’re not there, you don’t hear them, you don’t respect them, you’re gonna suffer for it.

Eve Picker: Yeah, I think that’s right. Moving on to more global themes, here, I’m just wondering what you think we all need to do to make our cities and neighborhoods better places for everyone, so that no one gets left out.

Adrian Washington: That’s a big question-

Eve Picker: It is a big question.

Adrian Washington: -I don’t know if we can solve that all in one podcast. I’ll focus on our roles as developers. Clearly, there is a need for more housing in our cities. There’s a need for housing that serves all different income levels and all different family types. It’s not the ’50s anymore. It’s not just mom and dad, and 2.3 kids, and a picket fence. There are all types of households.

Adrian Washington: The development process has gotten tougher. Besides the community involvement piece, the environmental and sustainability requirements are much higher, the zoning is trickier. It’s hard work. I think our job is to use the skills that we’ve developed over the years to work in partnership with communities, to let them see how they can help us, and, in turn, using our skills to help them work on win-win solutions; involve government, because, obviously, they’re important, and have patience, but have perseverance. Development is tough.

Adrian Washington: I think that to be successful, you’ve got to have a long-term view. You can’t feel like you’ve got to make a killing on every project. You’ve got to look at your entire body of work, so at the end of the day, at the end of your career that you’ve made a fair return on your investment, your time, and your risk, but you’ve also contributed to society. I think it’s possible, if you have those things in mind. Honestly, it’s more rewarding and it’s more successful, if you do it that way.

Eve Picker: Clearly, you think socially responsible real estate is necessary in today’s development world, and that’s the way you manage your business, but I’m wondering, are there enough developers out there thinking about impact and thinking in the way that you’re thinking? If not, how might we improve that? I still see a lot of greenfield developments that, quite frankly, shock me in this day and age; that that sort of work continues. I still see banks wanting to finance those models over and over again, because it’s easy to think about them. I’m wondering how we shift to a [kinder] development world.

Adrian Washington: I think it certainly is growing. I agree with you completely. I drive around, particularly when I’m not in D.C., and I see so many greenfield developments. Just to me, personally, it’s just kind of boring. I didn’t get into this just to make a ton of money. Like I said, I want to be fairly compensated for what I do, but it’s more about that.

Adrian Washington: To answer your question, I think I see more and more of it. I think, particularly the younger generation … I’m older. I’m not a millennial. I guess I’m a young baby boomer. But, particularly in the generation behind me, I see people who want to do that, and not just in real estate development, but in other fields in life. They want to do more than just do a job and make money. They want to make a meaningful impact on the world. They want to have that reward, which helps them feel better.

Adrian Washington: Also, what I’ve found in my business, is it helps to attract and retain young employees. They don’t want to just build some cookie-cutter, 200-unit apartment building in a greenfield, just like everybody else. They want to do projects that are creative, that involve different financing sources, that touch people’s lives, that take challenges [cross talk] and from a business standpoint. I think it’s a movement that is slow in coming, but I clearly see it’s building, and I think it’ll be more and more.

Eve Picker: Yeah, I think you’re probably right that it’s gradually building. Do you see any current trends in real estate that you’re fascinated by or you think are going to make a difference moving forward?

Adrian Washington: Yeah, I see … Clearly, the trend for co-living and coworking is the big trend. WeWork is obviously the big kind of corporate behemoth example of that, but there are a lot of other smaller, more entrepreneurial types of interests. I’ve see coworking spaces designed around women, or women with kids that have daycare centers, or people with social causes, like a nonprofit type of thing. I see that as a big trend.

Adrian Washington: I see co-living. I think that where people, either because of monetary reasons, or because of social reasons, don’t want that house by themselves, but want an opportunity where they can either live with roommates or live in a more communal environment, where things like kitchens and things are shared, and where there’s a social network in place that typically people who are new to an area- it’s a way for them to connect. I see a real sort of striving for more connectedness, as our world, in a way, becomes less connected. I think there are great opportunities to expand on that model. I’ve seen some very successful ones here in Washington, D.C., so it’s something I’m keeping my eye on.

Eve Picker: Yeah, I think a lot of people are. I’m going to ask you three signoff questions that I ask everyone. The first one is what is the key factor that makes a real estate project impactful to you?

Adrian Washington: I’d say the key factor is that it meets the needs of the community that it’s in. The only way you get that is to get out, and talk to the people there, and understand what they want. Some communities, they want more affordable housing. Some people, they want less. Some people want retail that’s a particular type; other people might want a retail that’s missing, like, say, a Fresh Grocer, which is like an example of another project that we did. We put in a Fresh Grocer where it’d been a food desert. It really involves talking to the community, understanding what they want, and then using your skills to develop- to deliver it.

Eve Picker: When it comes to crowdfunding, do you think there are other things that can help you as a developer, not just involving investors, but how might crowdfunding benefit your project, as a whole?

Adrian Washington: I think crowdfunding benefits us in a number of ways. The couple that most come to mind – and I [inaudible] an example earlier for one of our projects – is many people in the neighborhood become investors in the projects. They’re invested not just financially, but they’re invested emotionally. They tell their friends; they frequent there more often. I think the crowdfunding helps allow, particularly, local residents to be involved.

Adrian Washington: I think the second way that that’s really helped us and helped the project is that it’s a real brand builder. Eve, when we did the project with you guys, we got so many press kits about the project. We were [cross talk].

Eve Picker: That’s fabulous. That’s really fabulous.

Adrian Washington: I was interviewed a couple of times at the local news station, I was interviewed by national publications. People that I would- said “Hey, I heard about your project. What’s crowdfunding like, and how do you like it? It just really enhanced our company’s visibility, our project’s visibility; it was a real brand enhancer, and it’s something that I did not expect and something I was very pleased with.

Eve Picker: I’m grateful to hear that. That’s wonderful. Then, this is a really big one – if there were one thing that you could change about real estate development in the U.S. to make it better, what would that be?

Adrian Washington: I think that the thing that I would really change is not so much government policies. I understand the need for regulation around safety, and sustainability, and community impact, but I would change more the attitude of the people in government who do those. I think there is too much of a – particularly in inspections – ‘gotcha’ mentality, where, instead of working with us, and understanding that we’re doing the best we can … Yes, maybe this one particular light switch was two inches too high or too low-

Eve Picker: Oh …

Adrian Washington: Not just a ‘gotcha’ mentality, not just, “Okay, you messed up on that. Fix it, and we’ll come back when we’re ready and tell you whether you missed anything else,” more a partnership for governments to understand that we’re good guys. We’re doing the best we can; that we want a safe project, a sustainable project, and to work more cooperatively with us, and help us succeed as partners, and not to be adversaries.

Eve Picker: That’s a great way to end this interview. So, Adrian, thank you very much for your time. I really enjoyed talking with you, and I’m sure we’re going to be talking again.

Adrian Washington: Great, Eve. Thanks for having me.

Eve Picker: That was Adrian Washington. Adrian is not afraid of a challenge. His company focuses on challenging sites in challenging neighborhoods, always making sure that neighborhood folks are involved and that their neighborhood is improved by the final project. I love that Adrian finds greenfields boring. I love that he sees the people in a neighborhood first, and I love that he nurtures local businesses, bringing even more value to the projects he develops.

Eve Picker: You can find out more about impact real estate investing and access the Shownotes 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. Thanks so much for spending your time with me today, and thank you, Adrian, 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 Neighborhood Development Company

Lead by example.

Jonathan Tate leads by example. I met Jonathan through my crowdfunding platform Small Change, where he raised funds for several of his project in New Orleans. With his New Orleans architectural practice, Jonathan focuses on architecture, planning and odd opportunities such as what to do with odd-shaped lots that no-one knows what to do with. I find that immensely appealing and so do lots of others. Jonathan has received awards and press ranging from Curbed to Fast Company. He’s a rising star.

Jonathan is a graduate of Auburn University, where he was a multi-year participant in the Rural Studio, and Harvard University Graduate School of Design. He has been recognized by Emerging Voices 2017 of the Architectural League of New York.

Together, on this podcast, Eve and Jonathan geek out a little on odd buildings, odd lots, odd clients, crowdfunding and the role of creativity in building better cities.

Insights and Inspirations

  • Lead by example.
  • Dig in to non-formulaic, non-cookie-cutter solutions.
  • Odd-shaped and forgotten lots can lead to a new genre of housing.
  • A homeless person can build a house with the right set of drawings.
  • Equity crowdfunding could equalize a neighborhood around development.

Information and Links

Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you’re going to learn how to make some change. Thanks so much for joining us on this podcast. I’m Eve Picker, and my life revolves around cities, real estate, and crowdfunding. In this podcast series, we’ll be digging deep to discover how we can build better cities by building better buildings.

Eve Picker: Jonathan Tate is my guest today. I met Jonathan through my crowdfunding platform, Small Change, where he’s listed a couple of his projects in New Orleans. Jonathan’s architectural practice focuses on architecture, planning, and odd opportunities, such as what to do with odd-shaped lots that no one knows what to do with in New Orleans. I find that immensely appealing, and so do lots of other people.

Eve Picker: Jonathan has received awards, and press, ranging from Curbed to Fast Company. He’s a rising star. If you want to know more about Jonathan, after you’ve listened to this podcast, please visit EvePicker.com, where you’ll find links, and other goodies on the show notes page, and where you can subscribe to my newsletter on all things real-estate impact.

Eve Picker: Jonathan, what’s your background, and what path led you to where you are today, with your practice in New Orleans?

Jonathan Tate: Well, first, I want to say thank you for having me on, and it’s good to talk to you today. Let’s see if I can answer the question in terms of background.

Jonathan Tate: I don’t know how far to go back, but it might help just to say that I just started off, actually, in architecture in what I would say is a world-class practice, but a very conventional practice. We were located in Memphis, Tennessee. Then, in 2005, after Katrina in New Orleans, we relocated to the city. Roughly speaking, it was more like 2008, for me, to move down here.

Jonathan Tate: Through that process, and then, additionally, with the recession, and then, additionally, I was teaching at the time, it just … I don’t know. That’s sort of the origins of how our practice became our practice is what I’d say. At least those are some of the pieces that all added up to our multifaceted focus as an office.

Jonathan Tate: The lineage being exposure to New Orleans, in a recovery standpoint; trying to assist in that recovery, but also in academia, where research, and engagement in topics that were sort of extra-architecture, in a way, all led to the establishment of our practice, today, which tries to focus both on architecture – making buildings – but also, all the other things surrounding what it takes to put together a building, or a city, or [inaudible]. That’s kind of where we came from.

Eve Picker: What prompted you to move to New Orleans? I know we had Katrina, but why move your office there? What were you hoping that would accomplish?

Jonathan Tate: Well, the thing is, we were … Memphis is close, but really far away at the same time. We were in a state with a practice, where we were busy … Again, it’s ’05, and it’s rolled into ’06-’07; we were busy, but not that busy, and we were trying to re-calibrate, and stand up a little bit, just to drive in … Anyway, focus on things that we cared more about, and less about just staying busy.

Jonathan Tate: Then comes Katrina, and we just wanted to help. There’s a kinship with the city. We were both along the river. We spent- A lot of us in the office had sort of grown up coming down here. We really got wrapped up in what was happening, and wanted to help, basically.

Jonathan Tate: We were invited by a number of different people to speculate on what we thought the future of the city was. Again, we were doing this from afar, and an opportunity arose for my partner at the time to be able to move down to New Orleans, and do a sort of visiting-teaching position at the university here, Tulane.

Jonathan Tate: That was kind of our segue to making a decision just to move everything down. We, through this process, recognized that there was only so much we could do in this environment. being, again, away in another city. I haven’t had a chance to kind of be on the ground, and see if we could really have an impact. That was important to us. We were able to act on that; then, eventually, we moved the … He came down, and eventually, we decided to move the entire office down.

Eve Picker: Has it played out that way? Do you think the work that you’re doing intersects with impact, and socially responsible work in New Orleans? How do you think you’re, in your little practice, helping the city?

Jonathan Tate: Well, yeah, actually I do believe that it does, but in different ways is what I’d say. I wouldn’t say it’s more nuanced; it’s just that we don’t … It’s not always … Frankly, it’s over 10 years, now; the city’s kind of passed the recovery mode. Forgive me for saying, but there’s still things that need to be resolved that were consequences of the storm.

Jonathan Tate: What I would say, more importantly, and back to the original question, is there’s an ethos about how you engage in urbanization in the city, and how an architect can participate in that discussion, and contribute. That ethos is what’s really in the office, whether what we’re doing specifically relates to recovery, or whatever.

Jonathan Tate: It’s, I’d say, more the spirit of that, and being here at that time, shortly after the storm, and just seeing the energy in the architectural, and planning community, and how there was a lot of ideas, and vitality, and just a real commitment to try to make this place survive, and be greater than it was.

Jonathan Tate: That spirit … Again, sorry for using these terms, but I’d say that spirit sort of has infused the office in a lot of ways, and it’s still – as a lot of people in New Orleans connect, and resonate on that level – but we’re- it’s definitely a part of, and been embodied in our office, for sure.

Eve Picker: Be sure to go to EvePicker.com, and sign up for my free educational newsletter about impact real-estate investing. You’ll be among the first to hear about new projects you can invest in. That’s EvePicker.com. Thanks so much.

Eve Picker: Do you want to just tell us quickly about a couple of projects that you think kind of embody impactful real-estate projects that you’re working on? I know about them, but our listeners don’t, so I’m hoping you’ll explain a couple of things you’re working on.

Jonathan Tate: Sure, sure. There’s actually two- a couple of projects, and I should say, as an office, we had plenty of, like, “Here, we just do work for people,” and I love all the work that we do for people, and I love all our clients. It’s fantastic.

Jonathan Tate: Running parallel to that, we have projects that are self-starters, let’s say; projects that we initiated, either through partnerships with people, or on our own. Those are the ones that I generally talk about, when we’re having this kind of conversation. I’ll sort of start it there.

Jonathan Tate: The one would certainly be our housing program, which we’ve dubbed the Starter Home*, with an asterisk, which is a infill … You  mentioned in your intro, it’s an infill-housing-development agenda, if you will; a strategy, a Project sort of with a capital P.

Jonathan Tate: What we’ve done was formulate a position about a need for a particular type of housing in New Orleans, and this is topical, by the way. I think, as we framed it, it’s applicable in any city in the US, or at least from an American context, I think it’s applicable anywhere.

Jonathan Tate: In effect, we were looking for housing opportunities that were leveraging what we saw as unrealized property, or land in urban, or strictly city environments; then trying to locate, and design housing on these sites that were focused on either first-time home buyers, or last-time home buyers, or anywhere really in between.

Jonathan Tate: The idea about the housing was is that it’s sort of right-sized. It’s resisting the sort of bloat that we’re seeing in the housing industry, in general, and, as a consequence, was driving down some of the costs of the housing. It’s by no means affordable, but it’s certainly mid-market housing.

Jonathan Tate: In that, we’re trying to interject design, and offer to the speculative buyer what we think is all the contemporary work, versus most speculative housing you’re going to see; A tend, or a trend towards traditionalist, at least in single-family housing.

Jonathan Tate: That one- that project, again, the Starter Home* project is something we’re really proud of, and that we worked on for the last year … It’s gone on five years now, basically, and we’ve managed to build  … I think collectively we’re at our 16th home. The last ones were ones that we ran through Small Change. It was the first project that we worked with you on there.

Jonathan Tate: Along the way, we’ve done a number of different houses. One that I’m starting to kind of look back on, and think of, more deeply, anyways, is a project that we categorized under Starter Home*, but it was something that we did for an individual, who was formerly homeless. He had purchased himself a small lot; basically one of these little remnant parcels that … I think, in total, it was about 800 square feet of land. I forget the exact number, but it’s small.

Jonathan Tate: We, with his help, designed a home for him. It’s basically a micro house. It was, at the time, the smallest; I think it still is the smallest permitted home in the city of New Orleans. It was under 200 square feet.

Jonathan Tate: We did it in a way that he could self-build it. We sort of helped him with the construction; we created a set of documents that were permittable, but also something that he could actually go out, and build by it. We helped him in that process, and with pulling that together.

Jonathan Tate: Now, weirdly enough, we don’t promote it a lot, but it’s one that has a lot of meaning for us, and it’s getting a little bit of traction here in the city, just with people that are interested in looking at other housing; other ways to provide housing for people that aren’t just building homes; it may be  looking at a micro home, and looking at, again, these small parcels. That one’s really interesting. Again, it’s under that framework of the starter housing. I can keep going. There’s another project that we’re- or I can stop there.

Eve Picker: No, no, no, go ahead. One more project.

Jonathan Tate: Yeah. The other one I’d say is another project that has been hosted on the Small Change site, and another self-initiated project. It’s actually, at least in theory, again, that we’ve come up with an idea, and then formulated a building around the idea.

Jonathan Tate: The idea being a cooperatively owned B&B that … Basically a hotel, or a small hotel, in this case, where the operations are provided by the co-operative. The co-operative is made up of artists, and other creative individuals that need time to do their work, but don’t often have that time, because they’re too busy making money at a job, basically..

Jonathan Tate: The thought being is that we would create a co-operative. The co-operative would do the operations for the hotel, and then,  in return for your work at the hotel, you actually get room and board.

Jonathan Tate: Then, depending on how much you decided to work in the hotel, the theory goes that you work one day a week – you may work a little bit more; you may work less – but the rest of that time, because you’re not worried about where you have to live, or where you’re going to get your next meal, you’re able to focus on, and concentrate on your work.

Jonathan Tate: That one’s underway now, the one here, but we’ve already done one in Clarksdale, Mississippi. That one’s up, and operational, and it’s sort of our model that we’re translating down here. Those are two projects that I think that-

Eve Picker: Obviously, you think socially responsible real estate is necessary. Do you see any current trends that interest you the most, that might propel that type of real estate further [cross talk] Maybe another question I want to ask you, also, or maybe this one comes first is, in your practice, now, which do you prefer? Do you prefer doing these self-starter projects, or working for your client?

Jonathan Tate: That’s a good question. I’d rather answer that one, rather than the trend. I’m terrible at trends [cross talk] all I get asked is … I’m no good at predicting that, I should say. In terms of  working with things, the truth is that I go back and forth. It depends on what day of the week, or what process, or phase that it’s in.

Jonathan Tate: I think what I enjoy most is that they both exist simultaneously, because it’s … Again, it can be a headache sometimes. I really do enjoy working with clients, and other people, and helping them with their vision, and I also really enjoy, and appreciate the opportunity to kind of make some pivotal, and essential decisions around the things that we do. It’s not that I would say I prefer one or the other. What I prefer is that they both exist.

Eve Picker: Right. Okay, I’m going to retract the trend question, and I’m going to ask you if there’s any anything in the world of real estate that you’ll particularly interested in that’s new that you’re following? Let’s not call it a trend.

Jonathan Tate: What we are moving in to, and what we’re trying to think about more … There’s nothing new about this, in some ways; it’s just I’m not sure that people have been critical about it, in certain ways. It’s all this mid-rise housing, and the typology around multifamily housing …

Jonathan Tate: It’s what we would sort of colloquially call a four-over-two, or a three-over-one, or whatever, but where you have a base that’s not constructed non-combustible, which means it could be retail; it could be parking; it could be whatever. On top of that, you’ve got the obligatory three-four floors of housing that sit on top of it, which is the kind of building block of what we’re seeing here in cities, now, and have, historically.

Jonathan Tate: It is also, in our mind, leading to the homogenization of urban environments, because it’s become formulaic. It’s what we’re really digging into now, and again, this isn’t a trend; this isn’t necessarily anything new. It’s just we’re starting to question what that is, and how we can engage in that conversation, and maybe turn it a little bit, and see if there’s a way to make a richer- or get a richer project out of it.

Eve Picker: I think the other question I had is do you think there are some trends, and I know you don’t like that word, in real-estate development that are really important for the future of our cities?

Jonathan Tate: In my world … It’s funny; this is a question, again, it’s hard for me to really answer in some ways, because, believe it or not, and I often say this, I don’t see myself as a developer, at least not by definition.

Jonathan Tate: What I mean by that is we’re not really set up as a development practice, per se. We do development, but we’re not organized around development as a business model. Consequently, weirdly enough, I don’t really follow development as much. I don’t pay attention to it probably the way that I should but …

Jonathan Tate: That’s not to say we don’t interact with it in interesting ways. Obviously, we’ve got clients that are developers, aside from ourselves … There’s things that are floating around now that … Actually, honestly, a lot of people come to us to talk about, or a fair amount of people come to us with interest in, and want to discuss crowdfunding, the world that you’re in. It certainly has a lot of interest, and I think people are trying to figure out how to utilize that as a tool.

Jonathan Tate: Lately, Opportunity Zone seems to be the thing that everyone wants to hear about. Those are financial trends, and what people are starting to focus on. I think your earlier question about any sort of social-minded real-estate development … In our world, we don’t see- you see a little bit of it, but you don’t see a lot of it, and it certainly doesn’t feel like a trend, unfortunately [cross talk]

Eve Picker: If you think about it, crowdfunding is fast – raising equity through a crowd, but co-working has had a meteoric rise, where people share office space, and share amenities, because it’s flexible, and it allows them to move around; it allows them not to put down a lot of money on a space they may not need. The same is going to happen with housing, right? We’re seeing [cross talk] housing, and we’re seeing all sorts of new versions of living, and working together that didn’t exist maybe 10 years ago.

Jonathan Tate: Something we’re starting to get … On that same track, something that we’ve started to engage with a little bit, in a couple of different cities now, is the role of the food market as an incubator, and a jumping-off point for restaurant entrepreneurs. That’s a whole ‘nother model that seems to be proliferating wherever we go these days.

Jonathan Tate: That’s right. I think, for me, what’s interesting about that is that it allows places that don’t have much activity, or that someone may not go to, to open an office, because it’s a neighborhood that they’re not sure about, but it allows that neighborhood to kind of gather people who are doing things. That may begin invigoration of that neighborhood.

Eve Picker: If a nonprofit opens a co-working space, they’re able to offer space to small businesses in the neighborhood, and they really have nowhere else to go, now, all of a sudden, you have some sort of expression of what’s actually happening in the neighborhood. That’s really interesting, I think [cross talk]

Jonathan Tate: Yeah, I totally agree, and we’re certainly seeing that. I guess what I like about it, in addition to what you’ve described already, is the forefront of revitalization of a portion of a city, or at least that’s one component of it.

Jonathan Tate: It also involves, often, non-developer types that are working towards these goals. I think by the time these kind of ideas make their way up, and they become, again, formulaic in some ways, that’s when developers feel like it’s safe to take it on, and implement different-.

Eve Picker: That’s right, and that’s why bankers feel it’s safe to take it on..

Jonathan Tate: That’s right.

Eve Picker: We’re sort of stuck in this circle of traditional financial institutions not wanting to fund the things that will eventually make the places we live better. Someone has to kick that off, right? That’s you, with your odd lots, or me, with my crowdfunding.

Eve Picker: There have to be those early starters, which I think brings me to my next question – how can we improve on that? It is so hard, as you know, to do those little startup projects, and they really don’t provide much financial return. Clearly, we like doing them because they provide us some other sort of satisfaction. How can we get better at incubating those sorts of ideas for cities?

Jonathan Tate: I think, one, you have to lead by example, in a lot of ways, and that’s certainly what we were trying to do. We had no … With the housing in particular, there’s no expectation that we were going to build thousands of units of housing, which we certainly need, like most cities [inaudible] help with a lot of issues, just availability, but also affordability. There’s that.

Jonathan Tate: I think providing some evidence that this is a thing that one can do … Then you see the adaptation of that, and the adoption of that, and how it can sort of roll through … When I fortunately find myself in these kind of conversations, a lot, are people that are interested in it, that just need some encouragement, and some support.

Jonathan Tate: That said, as a way to make sure this continues to happen, or at least facilitate this happening, I think creating networks, collaborative networks, where people can call on one another for expertise, or just general encouragement, as we’re saying, I think that’s an important thing. That’s the community, right?

Eve Picker: Right.

Jonathan Tate: That’s what it takes for this to happen.

Eve Picker: Yeah. I wish every city had a Department of Big Ideas, and a little bit of money set aside for the projects, which they maybe turn their noses up at, because they’re small, and they don’t think they’re important enough; those little projects can sometimes have an enormous impact in an unintended way.

Jonathan Tate: Yeah.

Eve Picker: One of the stories I like about you, Jonathan, is you’ve created this whole thesis around odd-shaped, forgotten, and abandoned lots in New Orleans. Recently, didn’t New York City run a little competition on odd-shaped lots [cross talk] took from you. How did that competition end up, and why did they do that?

Jonathan Tate: Well, definitely don’t want to take credit for the idea there, but they … Actually, I followed it. We did not compete in it. We didn’t submit anything for it, but have certainly followed it. I think it ended up they selected some winners, and we’ll see if they’re interested, and want to actually construct the housing that’s on there, or that they’ve proposed, let’s say.

Jonathan Tate: Weirdly enough, I was having a conversation with a New York region developer early on … When I say early on in our process of building this housing … They said to me, “That’s really fascinating, but it only works where you are, or in similar-sized cities. It doesn’t make any sense in New York, at all.” Then, three years later, the city is saying, “No, this is exactly what we should be doing with these lots.” [cross talk]

Eve Picker: -another really great example of that is the Ciclovía that’s in Bogota, Colombia. I talked to the Mayor Peñalosa, who started that. He said they had no operational funds, and it was really a question of whether they created the Ciclovía, which is an open street once a week for the residents of the city, who are very poor, and the city had many problems, or whether they paved the roads.

Eve Picker: They chose to do this open street for the people, instead. The last time I looked, I think it was 100-miles long. Every Sunday, they close the streets, and people go out there, and run, and bicycle, and do lots of other learn things. That idea has spread to practically every city in the world.

Jonathan Tate: Yeah.

Eve Picker: It’s had an astounding impact , just that idea, so, those little ideas [cross talk]

Jonathan Tate: I think you’re right. Look at something  the High Line in New York, as well. I feel like every city is clamoring for their own version of that, now, too, because they just see how impactful, and how it’s making use of an abandoned resource, right?

Eve Picker: Right, so maybe … Go ahead.

Jonathan Tate: I was going to say, that’s part of this ethos, as well, when we when we talk about the development, or redevelopment of cities. It’s like looking at things not as, I don’t know, refuse, or eyesore, or junk, or waste, or whatever you want to call it.

Jonathan Tate: It’s just like there are opportunities all around us, and just understanding how to capitalize on those spaces, on those buildings, on those structures, it really takes imagination. That’s really, I think, what we should be supporting, and trying to cultivate. Back to your idea of the Department of Big Ideas, I think that’s a great idea.

Eve Picker: In other words, use every corner of the city, and don’t waste it, because we’ve built the infrastructure, and we paid for it, and there are people there. Anyway …

Jonathan Tate: Yeah, yeah.

Eve Picker: Well, I have to ask you, you’ve crowdfunded a couple of projects on our site, and I’m wondering what role you think that equity crowdfunding can play in building communities, or building better communities?

Jonathan Tate: Yeah, it is … Well, I’m going to have to say I’m absolutely enamored with it, as a process, and as a platform, and as a tool to help with development. The thing that I think it can do more of, and frankly, I haven’t done a great job with our own raises is how it might galvanize neighborhoods around development.

Jonathan Tate: I think that’s the one of the principal aspirations of this is that you can- that everyone should be able to participate, and be involved with the redevelopment of their own neighborhoods, or their own community, or their own city. They should be able to support that in some way.

Jonathan Tate: Again, here’s a tool for us to use that would enable people to support, and basically cast a vote for what they felt like were strong investments in their city, and that they see a benefit of that.

Jonathan Tate: That’s where, actually, if, or as the next raise comes, that’s the thing that would be … At least for us, on the crowdfunding raise, it’d be the thing that I’d want to try to focus on more of is just how do we pull people into it that are directly impacted by it?

Jonathan Tate: That’s where, again, that’s what I would see as one of the great advantages of this; just leveraging it, and making people aware of it. Then sort of pulling them into the process. I think that’s an important tool.

Eve Picker: Yeah, so, I think other than raising money, as you said, it can galvanize a neighborhood, and it could provide- even could provide proof to a zoning department that a project could go … I think there are maybe other things that we haven’t thought out about that it could help with kind of the crowd [inaudible], right?

Jonathan Tate: Yeah, and there again, it becomes emblematic, and you see it is  here’s a test case, and it proves that it’s right. It doesn’t have to be grandiose. You don’t need to raise $10 million. I think if it was a small project that a lot of people were able to participate in, then that’s … They have an ownership in that, [inaudible] people around it have ownership, and that’s great.

Eve Picker: Right. I suppose I have one wrap-up question; it’s a big one. That is how do you think real-estate development, or architecture, or thinking about cities could be improved in the US?

Jonathan Tate: Whoa, that’s a big one. Let me think … Let me think about that. Going back to the comment that I made about mid-sized housing, if you asked me that question today, I’m, again, increasingly interested, but also frustrated with the built environments that we’re seeing kind of rapidly expanding in most cities that reflect a lack of imagination, or better yet, the propensity for developers to sort of follow known models.

Jonathan Tate: In this case, it’s like we understand a certain kind of housing type, or you just kind of build that, because it’s known, and it’s comfortable, and we can rely on it. I don’t particularly care for the consequences of that in our cities. As things are popping up, it’s just- we’re losing characteristics, and qualities of our urban environments that I think make going to Pittsburgh different than coming to New Orleans, right?

Eve Picker: Right.

Jonathan Tate: I’d say that’s the piece. If we can start challenging the development community to think about things a little bit differently, or to try to localize a little bit more … I understand the economics around all of this, and why it is what it is, but it’s just revealing what’s happening now, just acknowledge it, so that, as we move forward, we could challenge some of those preconditions a little bit, and come up with work that feels like it was born out of the location that it belonged, right?

Eve Picker: Yes, yes, absolutely. Maybe the most important thing you said is lead by example, because if you do some terrific projects, others will follow, as we saw you do … You tackled odd-shaped lots, and New York City followed.  Perhaps, the timeline’s too long? I think having creative people working on cities, like you, is absolutely essential, and I want to thank you for that.

Jonathan Tate: Well, thank you.

Eve Picker: With that, let’s wrap up. I thank you very much for joining us, and I’m sure we’re going to talk again.

Jonathan Tate: Yeah, great. Thank you.

Eve Picker: That was the amazing Jonathan Tate. Today, Jonathan gave me three great takeaways. First, to always lead by example. Second, that I’d forgotten things can have great value, and third, that it’s worth looking beyond formulaic answers to solve tricky urban issues. What did you learn?

Eve Picker: You can read more about Jonathan on the show notes page for this podcast, at EvePicker.com. While you’re there, please consider signing up for my newsletter to find out more about how to make money in real estate, while making some change.

Eve Picker: Thanks so much for spending your time with Jonathan, and I today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of OJT (Office of Jonathan Tate)