Rethink Real Estate. For Good.

Opportunity zones

Women-owned. Michigan-made.

Jill Ferrari is all about creating impact where it is needed.

An attorney with twenty-five years of real estate development and operations experience, she is also the co-founder (with Shannon Morgan) of Renovare Development, a woman-owned, social impact, real estate development company focused on transformational projects in Michigan. To say Jill knows this space would be an understatement. She has worked in consulting and community development, managed complex brownfield redevelopment projects in multiple states, and she has experience forming complicated capital stacks that combine both federal and local funding with unique financing programs and conventional debt.

Previously Jill was CEO of Shelbourne Development, working on affordable housing, and before that, CEO at Michigan Community Resources, working on community and economic development. And as the former director of community development for Wayne County, MI, she managed the distribution of over 100 million in federal funds to various projects and communities, including the development of housing for victims of domestic violence and returning citizens. Jill also serves as co-chair of the Urban Land Institute (ULI) Michigan District Council and is the founder of ULI Michigan’s Women’s Leadership Initiative, designed to promote leadership for women in the real estate industry. Plus, she is a member of the ULI Michigan Small Scale Development Local Product Council and a member of the Women’s Development Collaborative.

Read the podcast transcript here

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

Eve: [00:01:06] Jill Ferrari is the developer who believes in community. She and her partner, Shannon Morgan, co-founded Renovare Development in Detroit just a few years ago. They focus on transformational, mixed-use projects in urban areas and rural main streets that meet community needs. Both Jill and Shannon bring significant experience to their new venture, including private real estate. Government roles and non-profit community development. This gives them the broad perspective necessary for the social impact projects they are developing. Their network of municipal contacts and professional service providers are their secret sauce. These connections provide access to redevelopment opportunities throughout the state of Michigan and beyond. Their first six projects, valued at $88 million, are well underway. Not shabby for a woman owned start up. You’ll want to hear more.

Eve: [00:02:16] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:38] Hi, Jill, thanks so much for joining me today.

Jill Ferrari: [00:02:43] Thanks for having me.

Eve: [00:02:45] So you’re a real estate developer with a mission that’s pretty solidly grounded in community. Tell me why this is important to you.

Jill: [00:02:56] When we launched Renovare Development, we knew as mothers that we were uniquely qualified to solve problems through commercial real estate development. As mothers, as women who are caregivers for both our children and our parents, we are cooks, we are problem solvers, we’re executives. We juggle so many different tasks in our lives. We approach commercial real estate development the same way. We look at how communities need to solve certain problems and how real estate can help solve those problems for communities. And it’s just a unique perspective that we are deeply committed to applying in our projects.

Eve: [00:03:44] Most developers need dose of motherhood, right?

Jill: [00:03:48] Or womanhood. You know, I think that we just have a very unique perspective that allows us to see ourselves and our parents and our children in projects. So when it comes to multigenerational products like ADUs and granny flats, or the types of programming in commercial retail centers, we are thinking about our children, we are thinking about our parents and it helps create more sustainable, more community driven projects.

Eve: [00:04:19] You co-founded Renovare with your partner, Shannon Morgan, and when was that? And how did the two of you meet? And why?

Jill: [00:04:27] Right. We met during the crash of 2008, 2009. I was working in community development, I was the head of community development for Wayne County, Michigan. We received a large package of stimulus funds at the time. Shannon was a C-suite individual at a large development company, and she completed a few projects for me. Single family rehab, mostly. And she just stood out as a problem solver. A lot of the developers were really struggling to use those federal funds correctly and within compliance. And Shannon and her team were just really skilled at meeting compliance requirements and getting that money out the door appropriately. And we developed a relationship. And 10 years later, we were working at the same affordable housing development company and just had a really similar vision on what it meant to create transformational projects that really solved community needs. And I think a lot of that is that mother’s perspective, that woman’s perspective, on how development should be done. And we’ve been together since 2019, and we rarely have different perspectives on how things should be done. So, it’s really nice a few years into your partnership that you still think you chose the right person.

Eve: [00:05:51] That’s really great. It’s a perfect marriage. And when did you launch Renovare?

Jill: [00:05:55] We formed in 2008 but didn’t officially launch until 2019.

Eve: [00:06:01] Okay. So, why Michigan? You’re based in Michigan, you’re in Detroit, you’re sticking to Michigan.

Jill: [00:06:08] We have decided to start in Michigan because of our relationships. We have chosen projects, not really because we’ve sought out the location, but because we have been invited. We’ve been invited to a community by the municipality to solve a certain housing need, or we’ve been invited to a community by a major employer to partner on a project or by a local non-profit. All of our projects are partnerships with some local employer agency non-profit who has identified a community need that needed to be solved. And when we launched and made it public what we were trying to accomplish, the invitations were endless. And we’ve chosen these first six projects because we believe deeply in the communities that they’re located in and the partners that we have. And we would love to expand outside of Michigan but the need for housing here and community centric commercial spaces is so deep that we could spend our entire careers and leave legacies for our children just by working in the state of Michigan. But we have some great relationships outside of Michigan. Women across the country that we are connected to that have invited us to come work on housing in their states, and we hope to get to those projects.

Eve: [00:07:30] So what’s the overall strategy for the company?

Jill: [00:07:35] When the company launched, we made a commitment to each other that we would focus on a diverse pipeline of projects. We had seen colleagues really focus on just multifamily or just low-income housing tax credits, and we knew that in order to be sustainable, we needed to pursue a diverse mix of product types. So, in our first six projects, we have a single-family development in Ypsilanti, Michigan. We have long term hold projects, mixed use developments in multiple cities, and we have a low-income housing tax credit project. And the reason that we formulated our business plan that way is that the cash flow is diverse from the different product types, and we wanted to make sure that we maintain that diversity over time because it makes us stronger and makes our cash flow more sustainable.

Eve: [00:08:32] So, some of them are for sale, some of them for rent. Some of them are going to be completed before others. There are developer fees, there’s income from rental or all of that mix of cash flow.

Jill: [00:08:44] Exactly. Some are tax credit projects. Some have more market rate units than others. Most of our, almost all of our projects, have workforce housing as a component of the project because we both come from workforce families. We are blue collar born and raised. And we believe that there are just thousands of Michigan families out there that fit that workforce demographic that can’t afford to buy a home, and we want to be a part of that solution.

Eve: [00:09:14] So actually, I’m going to diverge a little bit. People talk about workforce housing versus affordable. What’s the difference?

Jill: [00:09:21] In our definition affordable housing is from roughly 30 percent area median income to 60 percent area median income. Workforce housing is 60 percent area median income to 120 percent area median income. And that’s where most of our housing is focused.

Eve: [00:09:41] Ok, so where I live, they consider that affordable housing. And the lower end would be really sort of dire need target housing. Ok, got it. These are complicated projects. How do you finance them? Like, I could imagine that the financing of these projects takes up more time than anything else.

Jill: [00:10:04] I think that’s where we’ve spent the majority of the past two years. First, it was identifying the communities and the partners that we wanted to work with, and the next step is the capital stack and really understanding how these pieces work together. Shannon has tremendous experience in low-income housing tax credit ownership in other projects in Michigan, and my background, I’m a lawyer by training but my background has really been about creating unique financing solutions for real estate projects. So, our partnership is very compatible in what we’re trying to accomplish here. But it is a very difficult process to figure out how to stack these deals to make them work. And it’s why most market rate folks don’t spend the time because the fees are less, the cash flow is not as strong, but they are transformational projects that mean everything to the community that they’re in.

Eve: [00:11:01] So to keep a housing project affordable means that equity investors can’t get as much return. I’m really surprised at how many people don’t understand that. That, you know, the more return you give a bank or an investor, the greater the rent or the sale price is going to be, and the less affordable it’s going to be. So, who’s out there who helps kind of fill that capital stack for you

Jill: [00:11:25] In the state of Michigan we are using a local tool, a tax increment financing tool, that is helping create affordability in the single-family units. It was originally written as a brownfield redevelopment financing tool. However, cities in the state of Michigan are utilizing a piece of that legislation that talks about economic development to create workforce housing. So, we’re kind of left, as developers, to using tools as creatively as the state and the community that we’re in will let us to create workforce housing. But to your point, there aren’t a lot of gap financing tools for this population. There aren’t a lot of philanthropic dollars outside of entitlement communities, you know, large urban areas. So, it is really difficult, and we filled the gap with corporate sponsors, we’ve filled the gap with local foundations as equity partners, and it’s just a lot of work.

Eve: [00:12:30] You’ve got six projects that you’re pushing forward totaling how much value?

Jill: [00:12:36] Eighty-eight million in total development costs.

Eve: [00:12:39] And when do you expect the first one will break ground?

Jill: [00:12:43] We are hoping to break ground in Ypsilanti in the summer and the rest of the projects will follow throughout the fall and next year.

Eve: [00:12:53] Okay, and then do you expect your pipeline to grow once that’s underway?

Jill: [00:12:58] Yes. Once again, following the sustainable cash flow model, we’ll be looking for some single-family developments to close in 2024. And then after that, we’ll kind of go back to some mixed-use projects. And again, looking in the state of Michigan, but also, we are partner driven. So, if there’s a partner that pulls us out of the state of Michigan or a community that desperately needs us, we would look elsewhere too.

Eve: [00:13:25] Ok, I want to just shift gears a bit and talk about some of the challenges you’ve been confronted with as a woman, as a developer working in community projects, all of those things. You talk about challenges that you’ve been confronted with, that perhaps a white man would not have been confronted with.

Jill: [00:13:47] Yeah. Fundraising for the development company has been one of the most exhausting and educational experiences I’ve ever gone through. And I have been in real estate for over twenty-five years. The capital world, VC world and angel investment world is really not suited for women commercial real estate developers. It’s a high-risk industry. Investors don’t really understand how to evaluate the opportunity. It’s not an app that anyone can use. Very different from some of the successful tech apps that have raised millions of dollars. So, this space is definitely a very lonely space. And friends and family are a very strong audience for investment, but we have a very strong identity. We are definitely looking to raise significant cash flow and provide an attractive return. But at the same time, we are picking projects based on partnership and community need. So, a lot of investors don’t really understand what we’re trying to do or why we’re trying to do it. So, it’s really difficult to raise money, and it’s been a journey. But we have met some women along the way that are in this space that have been tremendous resources, you included. I think that this space is growing. There’s a lot of emerging women commercial real estate developers who are looking to launch and do their first projects. And I think this growing ecosystem of support for women in commercial real estate is getting stronger, and I’m just happy to see it.

Eve: [00:15:36] It’s very exciting. What about when you go to a bank for a loan? Do you think you’re treated any differently there?

Jill: [00:15:44] It depends on whether we are meeting their needs. So when we talk to banks that have Community Reinvestment Act obligation and we’re working in one of their target communities, the red carpet is rolled out. If we are looking in small towns across Michigan that are not part of anybody’s targeted lending strategies, it is really difficult to get lenders interested in projects. And that’s where we see, one of the biggest challenges in what we do, is that the need for housing and the appetite for lenders is completely mismatched. And we are hoping that the commercial lending industry evolves where there are loan loss reserves and risk management strategies so lenders will be more likely to lend in these smaller towns because there are employers across the state of Michigan who are hoping to expand, are in a position to expand, but are choosing not to because of the lack of housing.

Eve: [00:16:49] Interesting. That’s really tough. So, right now you’re raising funds for your company and this first set of projects on Small Change. Why crowdfunding in amongst all of this?

Jill: [00:17:03] Because our mission is to help solve community problems, we wanted to incorporate the community into our company, and we’re really interested in the way that Small Change was structured and the audience that was being reached and wanted to tap into the network of individuals across the country that are passionate about supporting women in commercial real estate. And honestly, part of our hope is to build momentum for other commercial real estate developers that are women, that they’ll follow in our footsteps and be able to raise funds through the community to help them launch.

Eve: [00:17:47] Well, it’s all really pretty exciting. I’m very excited for you. It’s a great thing to have a new company to work on. But what’s your really big, hairy, audacious goal? Where would you like to be in five 10 years?

Jill: [00:18:03] Oh, I want to take my child on a tour of completed projects, and I want to go to some of those projects and have the community members know me and remember me and maybe even vaguely if we do this right. But I think both Shannon and I feel deeply that we want to leave a legacy for our children. And that’s all really why we’re doing this.

Eve: [00:18:31] That’s really wonderful. I also want to be invited on a tour, maybe sooner than five years. I’d love to see the projects you’re working on, and…

Jill: [00:18:39] We’d love to have you back in Michigan.

Eve: [00:18:41] OK! Well, thank you, Jill. Thanks for joining me today.

Jill: [00:18:45] Thank you for having me.

Eve: [00:18:49] That was Jill Ferrari. For Jill, her career as a developer and her womanhood are entwined. Her personal experiences as a mother and caregiver are brought to the table in every project that she and Shannon tackle together. Surely this is an added bonus.

[00:19:12] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jill Ferari

She’s breaking barriers.

Joanna Bartholomew, owner of O’Hara Developments, is a woman who’s breaking all barriers. 

While Joanna’s background is in social work, community health and financial education, real estate is in her blood. Her father was a developer, and as a young girl she spent time with him, both in the office and on job sites. So it’s no surprise that she launched her own real estate company.

But being a Black woman in the real estate industry is not quite enough of a challenge. On one hand, Joanna is focusing on broad community development by tackling decaying properties in East Baltimore (one block at a time) and breathing new life into them. But on the other, she is committed to providing outreach to the people who will occupy them. To make sure that what she is building will serve the community effectively, Joanna’s organization offers up financial literacy courses and down payment programs, to both educate and support new potential home-owners. All of it to make sure everyone can have a chance at home ownership.

Insights and Inspirations

  • Joanna is one of a few. A black woman with her own real estate company.
  • She’s focussing on community development one block at a time, tackling decaying properties and breathing new life into them.
  • Her past career in social work creeps into her real estate work. She offers up financial literacy and down payment  programs so that everyone can have a chance at home ownership.
Read the podcast transcript here

Eve Picker: [00:00:17] Hi there, thanks for joining me on Rethink Real Estate. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo, in order to build better for everyone. When I’m not hosting the show, I’m running my real estate crowdfunding platform, SmallChange.co, where you’ll find impact real estate investment opportunities open to everyone, or you can learn more about me and catch up on some podcasts at my website EvePicker.com.

Eve: [00:01:14] Today, I’m talking with Joanna Bartholomew, owner of O’Hara Developments and a woman who’s breaking all barriers. While Joanna’s background is in social work, community health and financial education, real estate is in her blood. Her father had a real estate company. And as a young girl, she spent time with him in the office and on job sites. So it’s no surprise that she launched her own real estate company. But being a black woman in the real estate industry is not quite enough of a challenge for Joanna. She’s focusing on community development one block at a time, tackling decaying properties and breathing new life into them. You’ll want to hear more.

Eve: [00:02:04] 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/rethinkrealestate to support this podcast for the price of a cup of coffee.

Eve: [00:02:25] Good morning, Joanna. Thanks so much for joining me.

Joanna Bartholomew: [00:02:28] Hi, Eve. Good morning. Thanks for having me. Yeah.

Eve: [00:02:32] So you’re a pretty rare breed, a black woman developer. And I was wondering how you got there from your initial career choice of social work. That’s quite a journey.

Joanna: [00:02:46] It quite is. So I actually was raised in real estate. My father was a developer. So, growing up, I knew him to just be the person that always would have me in these rooms of either going to a settlement or going to the old Hechinger, which was the former Home Depot, picking up the lumber and looking at like design sketches and things like that. I still remember having to take a construction class in an elementary school. And I have to be honest, I probably picked the classes I knew I could pass. My house, that I had to build it looked better than all the other kids in the class because of my dad. But fast forward, you know, being in the field of social work for some years and working with families that were facing various challenges, one of the most common things that we saw was their access to equity, their access to wealth. And in the population that I worked with were people that looked like me and other brown families that had limited access. And it wasn’t because of anything other than the knowledge and knowing where to get information. So what I wanted to do, expanding on, I said, you know, it’s time for me to fire my boss, get into the roots of what I know, and bring both worlds together so we could be able to provide access to equity. And one of the first places you could do that with is in real estate.

Eve: [00:04:11] So isn’t that interesting? Because my parents sort of grew up always investing that I grew up with my parents, always investing in real estate. They actually were refugees, so they had very little, but that’s when they had money and that’s what they invested in. So I was also very comfortable with real estate. And it really is about a comfort level, isn’t it, with something you don’t understand.

Joanna: [00:04:33] Right. Right.

Eve: [00:04:35] It’s really interesting.

Joanna: [00:04:37] And it does take a level of comfort to know what you know in your brain and have to manifest that into reality. And it requires some guts. And if you have the privilege of seeing that in your younger years, when you get older, it does feel a little bit more comfortable vs. a family that doesn’t know anything about these type of financial terms and systems. And now you’re adding on a big house responsibility onto it. So we want to be able to be that line of support.

Eve: [00:05:06] So what sort of projects do you focus on?

Joanna: [00:05:10] So our projects primarily are residential. The majority of them are three level homes, three story homes where they’re row homes there in the urban community. And we are either transitioning them into single family homes where they can use the whole space for their family or we are actually converting them into duplexes, most of them being bi level units, two bedrooms, two baths, where people can also be able to rent from them for a period of time. Now, with our renters, we do something a little different because, again, we’re encouraging homeownership. We take a portion of their rent and we put it into escrow. So when they’re ready to be able to transition to being a homeowner, they could actually use those funds, especially if they’re purchasing one of our properties towards either down-payment or any moving costs.

Eve: [00:06:02] Oh, wow. So how long does it take for someone to save enough that way to purchase a house?

Joanna: [00:06:11] Well, it really just depends. I mean, everybody’s situation is different. How much they need for down payment, is different and they may not even use it. They may use it towards their moving costs. They can use it however they choose. But I would say if I had to put a number on it, most people could be able to use those funds at least in about a year and a half. Right. So.

Eve: [00:06:35] Right. So this is the social worker in you emerging in real estate.

Joanna: [00:06:42] Yes. Most developers could care less about where you’re moving to next.

Eve: [00:06:46] This is really, this is really cool. So you’re really working on the whole thing. The real estate project and the people who live in the projects.

Joanna: [00:06:57] Yes.

Eve: [00:06:59] So where do you focus on your projects?

Joanna: [00:07:02] So as of right now, we have I would consider it to be our staple development site, which is in Baltimore City. We’re actually restoring a nice portion of the neighborhood. Some people say that we bought the neighborhood, but I don’t feel that way. It’s about two continuous blocks, I would say, in that area that we’re focusing on. And majority of them are actually not all of them are three story buildings. And we’re planning for about 15 single family homes and eight buildings that will actually be duplexes.

Eve: [00:07:35] So I’ve seen the blocks and the architecture is really stunning. And these buildings have been vacant for a while, haven’t they?

Joanna: [00:07:45] Yes, they have, unfortunately in a lot of urban neighborhoods, what we hear and what we see is the aftermath and some of it we’re still fighting that’s affiliated to redlining. And redlining is something that has caused a lot of funds to not be placed in certain neighborhoods over the years, which would have allowed people to become homeowners, which then also brings in other things as far as, you know, very poor behaviors in terms of drugs and things of those nature. So these are neighborhoods that have that are being revamped. But we have to be intentional in how we do it in these spaces, because these are people that have lived here in some shape or form for a long time. But in this particular area of Baltimore, Baltimore had a great flight at one point where a lot of these homes became became vacant. So we’re working with various city programs and some individuals in terms of the acquisition of the properties. And we also make sure that we work with some of the neighborhood associations as well, making sure that they are aware of some of the programs that we have. One of the beauties about adding in the social work piece is that because of our program and through our non-profit, we’re also able to provide up to 43,000 dollars in down-payment assistance as well.

Eve: [00:09:00] Wow. So you have to tell me more about the non-profit. You’re throwing things at me really fast. So what condition are the buildings in?

Joanna: [00:09:11] It varies. Some of them. I mean, you have to, I tell people all the time what we see in like the Home Depot and Lowe’s now as lumber is nothing in comparison to some of the true lumber that was there way, way back in the day. So these houses have stood the test of times. I mean, they have great solid bones. Some of them are still pretty intact and maybe they just need heavy cosmetic work. But there’s also some of them where the roof has already caved in and now we’re doing a lot more extensive work. There’s a good portion of them that are also considered to be historic. So when we restore those, we have to follow certain architectural guidelines. So we have to put back like wood windows. If the staircase was still intact, we have to restore the staircase to its original state as much as possible. We have to take certain pictures, submit it to the historic alliance there to be able to make sure that we’re following things to code. So it’s a little bit a mixture of both that we experience.

Eve: [00:10:18] Cool. So when it’s done, how many units will there be? What will this project look like?

Joanna: [00:10:24] So in this phase of the project, which I consider to be Phase A, there will be a total of 31 units. Between the single families, the units from the duplexes and one of the duplexes has a commercial space at the bottom. So it’ll be 31 units and the the duplexes will bi-level two bedroom, two bath, kind of give you that New York feel a little bit. So it will have that, that feel of a home because you can be able to go upstairs and downstairs. One of the things that we did during the time of when the pandemic first hit and really, really heavy, we readjusted the layout for the single-family homes because we know some people are not going back into the office for work for some time and some children are still going to do hybrid learning or they’ll be learning 100 percent from home. So those homes have a loft area that could be converted back to a bedroom later on, if they chose to. And it also has a private office for whomever wants to use that as well. So we wanted to meet the families where they are in the times that we’re living in because we don’t know how long we’re going to be living this way. So it’s a very convertible house. I would say that can truly grow with you.

Eve: [00:11:40] And what is Phase Two?

Joanna: [00:11:43] Well, Eve, maybe I could say a little bit about that. So,t Phase Two is at very, very early stages. We have some land there that we are considering to do some development on. We can’t talk too much about it, but it could be some brand new construction with some condos. So we’ll see.

Eve: [00:12:04] Ok, and I know you’ve talked to me in the past about open space as well and how that knits into your overall strategy. And can you talk about that?

Joanna: [00:12:15] Yes. So through our non-profit, we manage about 27, 25 lots, give or take, in the East Baltimore section of the city. Our biggest thing is, is reducing vacant lots. So right now, a lot of the lots, we’re just keeping them clean as much as possible. Some of them are side lots next to homes. Some of them are just completely wide open spaces where they used to be homes, but they had to be demolished for whatever reason, more than likely because it was a safety hazard to the neighborhood and they’re just completely open. So what we’ve been doing with one of the particular areas, which is about a little over a quarter acre of land, that space, we’re actually transitioning that to a community park. So on our in our neighborhood, right behind some of the houses that we’re planning to build to restore there, you would now have a community park right in your backyard where you could really be in your kitchen and look out and see your kids playing or any of those things there. It’s going to be really nice. We’re using a concept that we like to call It Takes a Village. So we are blurring the lines of Baltimore City and really allowing people from different cities and states to donate and be a part of reducing vacant lots in urban neighborhoods, period. And that has been going pretty well. So we’re excited to see what it looks like when it comes together.

Eve: [00:13:39] So I want to come back to the non-profit. You said you have a non-profit as well, which is kind of unusual for a developer. Why? And what do you accomplish with that?

Joanna: [00:13:48] So through our non-profit, we only manage space, the green spaces, because they are not providing us any rent. So through our reinvestment model, we donate a portion of our profit from our developments into our non-profit. That helps us to be able to provide financial wellness workshops for the neighborhood. We’ve recently partnered with JPMorgan Chase Bank, which we’re really, really excited about, to be able to offer workshops to the neighborhood. We also have a summer financial literacy program that we’re actually in our fifth year. I couldn’t believe it, the other day when I saw the number. We’re in our fifth summer providing financial literacy specifically for young women. And then we also have our housing and financial counseling program. So for us with a non-profit, it’s not necessarily totally focused on real estate, but it does manage the last that we adopt and or that we own under that umbrella.

Eve: [00:14:46] It’s a really interesting strategy because often in neighborhoods like the one you’re working in you would only be able to have a non-profit developer to accomplish all of this. This is not yet. I’m sure it’s still a soft market. Is that what you’re experiencing? I mean, the market values are going to be different in a in a more established neighborhood in Baltimore, certainly. Right.

Joanna: [00:15:12] Right. So I would say that right now we are still in the early transition part of this neighborhood. We do have some brand new development that has already happened. They they did modular homes right in our backyard where we are. And those were eight. Yeah, I think we’re eight of modular homes and they look beautiful. And we have some other homes that have already been restored and they vary. In terms of price point, you do have some non-profits that have actually built those homes and they were able to take advantage of different funding and they were able to offer them under three 300,000. And then you have some of your traditional developers who have come in and done restoration projects and they’re selling for over 300,000. So we’re still very much in the early phase in this particular area. And it just it does vary.

Eve: [00:16:03] Right. So not absolutely ground zero.

Joanna: [00:16:05] Right.

Eve: [00:16:06] So tell me about some of the challenges you’re being confronted with, both as a developer and with this project.

Joanna: [00:16:15] Right, so as a female developer, one of the challenges is that I’m often taken as the secretary when I walk into most places then the owner. And it’s nothing wrong with being a secretary or an administrative assistant. But it’s the assumption of the fact that she could actually be the owner, that sometimes can be a bit frustrating. And so that can kind of get underneath my skin a little bit. I try my best for it not to get to me, but it can be a bit uncomfortable. I feel like when I get into spaces and I get in and I get a chance to connect with other female developers, I almost feel like it’s a sorority. Like you haven’t seen your sorority sister since college. You’re like, oh my God, just another person like me. And we’re able to connect. Thank God. I had somebody call me yesterday and they were all the way in Boston and they said, Joanna, do you have like two minutes just to say hi to someone? They saw you online. She also female developer. Can you just say hi? And we were like, oh, my gosh, this is great. We have to connect. And, you know, I say that to say Eve, we need more females in this space. We need to have more women investing for sure. But we need to also have more women in the real estate industry. And this has been a very much a male dominated space for a very long time. I still come across in business meetings, in business meetings where men will say, sweetie, honey and I have to correct them.

Eve: [00:17:41] Yeah, oh yeah.

Joanna: [00:17:43] I’m not sweetie, would you say this if I was a man and we were talking about the deal? No, let’s you know, so I have to, often, correct that as well. So that’s some of the challenges that I face on the female side of being a developer. But building in Covid-19, I mean, who would have thought that this would be the time that we would really be doing this would be right in the middle of Covid-19. And it’s like, oh, my goodness. I think the beauty for me, though, because I’m often the person that’s thinking outside of the box, Covid has made every industry have to think outside of the box. So now when I’m going into spaces and I’m talking about for profit and non-profit and down payment assistance and thinking about the actual individual and how it affects their family, people are actually more open-minded now than they were three years ago when we first started.

Eve: [00:18:39] I think that’s very true. Yeah. Yeah, yeah. So so what about financing? I mean, you know, most of the honeys I’ve received have been at banks. I sometimes want to come back with sugar, but that won’t work.

Joanna: [00:18:58] Well, in regards to financing, we’ve been able to be in a good position. I mean, Baltimore’s is one of the places that we that we have our our staple project. We’re also doing some work in the Philadelphia area. And this is this is not the beginning. This is not a very this is the beginning of this level of how we’re going about things. But I’ve been able to do some projects in the past where I was strategic with those funds and really allowed that to be the spark of what we’re working on now. We’ve also done…

Eve: [00:19:28] I think I think it was asking more like how did banks treat you when you walk in the door? You know…

Joanna: [00:19:35] Banks are a little bit a little bit different. I think I’ve come across more of the honeys and the sweeties in the private the private conversations. That could be a little frustrating, but I think the bank so far has been pretty good. And we haven’t had to really work with too many of them. Most of our financing when we’ve done construction and things of that nature has been more of your alternative options. Some people call them hard money and things like that. But I haven’t had a bad experience at the bank, knock on wood that they won’t.

Eve: [00:20:10] Well, that’s an improvement. OK, so no other serious challenges. It looks like you’re roaring along. What about perception, like in the neighborhood?

Joanna: [00:20:23] Well, I would tie that in. And that’s part of where I was going with that. Perception in the neighborhood especially, and I’ll focus on Baltimore because Philadelphia is home for me. When you’re going into a city where you’re not from there, it does require another layer of work. You have to understand how their systems work. But right down to how can you get your utilities turned on is a whole new system, even with some of the things that we’re coming from a different city. Not necessarily using Philadelphia systems and trying to put them into Baltimore, but you’re looking at different systems from various cities. In addition to things that you have learned from a different industry and you’re bringing them into a city that you’re now in a room with other creatives, but now you’re bringing a different process to them because they may have only understood how things go in Baltimore, but now you’re bringing in new information and you want to do this in a strategic way where you’re not trying to flex a muscle and so to speak to them. But you want them to start thinking outside of the box of how they can be able to address some of the challenges. So I would say in a nutshell, it’s been positive overall, but at the same time, we’ve had situations where you do have people wondering, well, who is this woman? Where does she come from? How does she know this and how does….but now I could say that we’ve gotten past that part. And I want to say 95 percent is very much welcome in opening. We can pick up the phone, ask questions, get the support that we need with no problem. And Baltimore has become almost like a second home for me.

Eve: [00:22:08] That’s nice. But what about the neighborhood itself, the people who live there?

Joanna: [00:22:12] Right. So the people that live there? One of the things that I did from the very beginning, and this is before we did any construction on any property, I went I knocked on the door of the local church and I sat with one of the associate pastors asking them questions about what, how the neighborhood operates, what’s the vibe in the neighborhood, and I did not I did that not only with the church but even when we were out, some of my meetings are not just your formal neighborhood association meetings or your land use committee meetings. Some of these meetings, Eve, is right on a stoop. Sitting with someone that lives in the neighborhood. Asking questions and engaging with them before your you know, they just see you doing demo. And that has been very helpful. So, I mean, I think I might have one of the best security systems in the area, and that’s called neighbors now because of the fact that we have this relationship. So we will welcomed very early on with positivity. I didn’t have any issues with neighbors because I went to them. I didn’t wait for them to come to me.

Eve: [00:23:16] That’s great. So they trust you and they’re looking forward to what you’re building, right?

Joanna: [00:23:20] Oh, yes, absolutely.

Eve: [00:23:22] That’s wonderful. So you just made it a little harder for yourself. You added crowd funding to the mix. Your project of Aruka Midway in Baltimore is listed on my platform, Small Change. And that’s just another layer of complexity. Why did you do that? What do you hope to, what do you hope the outcome is?

Joanna: [00:23:50] What I hope for the outcome to be is for in urban neighborhoods, for wealth to be more normalized by the people that live there. And this is what I mean by this. Growing up I grew up in North Philly. That’s considered, quote unquote, the hood for some people. And when we will see development happening, even if you went off to college or came back, you’re like, oh, my goodness, what happened here? Ms. so-and-so used to live here. This school building used to be here. One of the common threads in the neighborhood and not just in North Philadelphia is, well, I didn’t even know what happened. Nobody ever talked to us about it. And we often feel boxed out, left out. And then definitely there was no one saying to us, well, how we could be able to at least reap some part of the return for things that are happening right in our neighborhood, that they also want us to patronize it. You want us to come shop at these retail places and things of that nature. So while we’re doing the crowdfunding raise, is to now provide an opportunity for people that live in the neighborhood, people that can relate in urban neighborhoods or those that want to support this type of development structure for them to also have a piece of what we’re also going to be reaping as well. That’s why we’re really creating it. We’re already doing the education in the community. We’re already providing the housing counseling through partnerships. We’re providing down payment assistance. So now the thing is, where can we do this in a way that, yes, we are able to raise the funds to do the development, but we also strategically do it in a way where those that can connect with this area in some shape or form can also be able to see what it looks like when you get that dividend check every year or see what it looks like when you can say, I own a piece of that restaurant that I go to every Sunday for family, a family breakfast. Those things start to matter. So that’s why I decided to create Aruka Midway. It’s a part of restoration for the neighborhood. And Aruka actually means restore in Hebrew.

Eve: [00:25:55] Oh, I didn’t know that. Thank you.

Joanna: [00:25:57] Yeah.

Eve: [00:26:00] Yeah. So, yeah, there’s something very palpable about people wanting to be involved in and engaged. And crowdfunding seems to just go that extra step. They can actually say I own a piece of that. I made it happen. Right?

Joanna: [00:26:13] Yes, absolutely. It’s the story that’s able to be told.

Eve: [00:26:17] Right. So what’s next for you? What’s ultimately your big, hairy, audacious goal, Joanna?

Joanna: [00:26:26] Believe it or not, and some people are often like, what, you don’t want to do this in 20 other cities? I absolutely do not. I want to live. I want to be able to enjoy the fruits of my labor and be able to enjoy time with my family. So doing this in more than three cities is not the goal. Three cities will be our max. We’re still identifying what that third will be. And ultimately, what we want to be able to do is for companies that see this to be a structure of purpose in their real estate development, is to be able to sow a seed and be their partner in helping them get started. Be a part of that funding for them where they could be able to come to O’Hara Developments and say, hey, I found a block, I found a neighborhood, or maybe it’s just one house. I know it fits into your model. Is there a way that you could support me? So if we could do that in a way of being some form of an equity partner in the beginning, giving them the consultation that they need, the support that they need. As long as they are looking to mirror a socially conscious and impactful model, the way that we have it, we want to be able to be that source for other developers in urban development.

Eve: [00:27:41] That’s a great goal. So thank you. Thank you very much for talking with me today. I hope that listeners will go check out your offering on SmallChange.co. We can’t talk too much about it here, but there’s lots about it there. So here’s to your success, Joanna.

Joanna: [00:28:00] Thank you, Eve. Thank you and thank you for having me today.

Eve: [00:28:09] That was Joanna Bartholomew. Joanna Bartholomew changed her career path from social work to real estate, and yet she didn’t. It’s not just about the vacant and decrepit row houses that she’s rehabbing one block at a time. For Joanna, it’s also about the people who will occupy them. She immerses herself in the community to make sure that what she is building will serve it well. And she offers up financial literacy and down-payment programs so that everyone can have a chance at home ownership.

Eve: [00:28:51] You can find out more about this episode or others you might have missed on the show notes page at EvePicker.com, or you can support us at Patreon.com/rethink real estate for the price of a cup of coffee. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Joanna Bartholomew, O’Hara Developments

Of service. In Erie.

Christina Marsh is the Chief Community and Economic Development Officer at Erie Insurance.

Immersed in her organization’s community development work, much of it in their home base of Erie, in Pennsylvania, Chris works directly with CEO Timothy NeCastro to lead and plan targeted revitalization efforts. She helped create the Erie Downtown Development Corp (EDDC), also supported the creation of a related equity fund that has raised more than $27 million dollars towards downtown development. And now EDDC is tackling the redevelopment of four blocks in Downtown Erie, in large part because of her efforts.

“I love building new,” she says, “In my career, it’s all about building new. It’s about helping others build their own competence, their own capabilities, helping other women succeed in business and growing their own leadership. There is always that teacher in me.”

Having been at Erie Insurance since 1994, Chris has served as senior vice president of their Enterprise Portfolio Management Office, senior vice president of Human Resources, and led Erie Insurance’s implementation of Sarbanes-Oxley as vice president of Financial Reporting. Before that she worked at Ernst & Young, where she earned her CPA. Chris holds a bachelor’s degree in accounting from Mercyhurst University, where she now serves as a Board Trustee. She is on the executive committee of the Erie Regional Chamber and Growth Partnership Board of Directors, and was appointed to the PA Early Learning Investment Commission as a regional Commissioner, advocating for quality early learning in the community.

Insights and Inspirations

  • Erie Insurance believes in service, and so does Chris. They have a corps of volunteers ready to spring into action. And they have seeded a community emergency fund.
  • Chris and her team spent one and a half years studying Cincinnati Center City Development Corporation (3CDC) as a model for the Erie Downtown Development Corporation.
  • Erie is down on itself, so the work of building it back requires more than just dollars.
  • Bruce Katz thinks Erie’s downtown is a proxy for the nation during the Covid19 crisis.  

Information and Links

  • Take at peek at Erie’s comprehensive plan, Erie Refocused.
  • Learn more about the EDDC here, which Chris is very proud to have helped create. 
  • Chris admires the work of the Milton Hershey School because she believes in the power of education.
Read the podcast transcript here

Eve Picker: [00:00:13] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

Eve: [00:00:20] My guest today is Christina Marsh, chief community and economic development officer at Erie Insurance. Erie insurance has played an unusually large role in their community. In her role, Christina has helped to create a community development corporation, an equity fund that is now at 27 million dollars and has also been involved in the purchase and development planning for four blocks of Erie’s lovely downtown. Christina, first and foremost, sees her role at Erie Insurance as one of service to the community they are located in.

Eve: [00:01:02] Be sure to go to rethinkrealestateforgood.co to find out more about Christina on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

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

Christina Marsh: [00:01:29] Hi Eve, thank you. Thanks for having me.

Eve: [00:01:32] I’ve heard and wondered about Erie Insurance and the company’s role in economic development in a boom that’s really underway in Erie and I wondered who’s behind it? Is that you?

Christina: [00:01:46] There’s many of us actually behind it. And what I can say about Erie Insurance, I’ve actually worked with Erie Insurance for over 25 years now, and just a couple of weeks ago we celebrated our 95th year anniversary as an organization. Our founder, H.O. Hirt, always instilled in our core values and belief system in being, above all, in service and not just service to our agents and our customers and employee to employee, but certainly to the communities that were a part of. Erie is our namesake and our hometown and has been for 95 years so we have a very strong historian, civic leader, community advocate in our chairman of the board, Mr Tom Hagen, who’s certainly behind a lot of the visionary efforts that are happening here in Erie and certainly on behalf of Erie Insurance. And our CEO, Tim NeCastro, this is his hometown. He became our CEO a few years back as all of this new energy, this renaissance, was beginning. So really, the timing was right for Erie Insurance to come in and take a bit of a leadership role. We are now the largest employer in Erie County and the only Fortune 500 company that’s headquartered here so we take that responsibility very seriously.

Eve: [00:03:10] And so what’s, what’s your role at Erie Insurance?

Christina: [00:03:14] So, I am the community and economic development officer and when Tim came into the role as CEO, he and I had worked together over the years in all different capacities, even at Ernst & Young before we both joined the Erie Insurance many years ago. And he invited me in to help with all that was happening in the community. We do a lot of convening and coordinating, not just of our time, but of our resources with others so this way, as community leaders, are collaborating like never before, on public and private sector sides, that we’re also able to multiply the impact of all the investments that we’re making as well.

Eve: [00:03:54] Wow. So, just tell me a little bit about Erie. Actually, I’ve been there. I know a little bit about it, but not a lot. Anyone is listening may not have been there.

Christina: [00:04:02] Sure. You know, Erie, Pennsylvania, is the fourth largest city up in this north-western corner of Pennsylvania. We are the only port here in Pennsylvania with a beautiful lake and bay-front, which is one of our greatest assets that we’re leveraging. We’ve had quite a bit of investment, private investment, over the past several years, Erie Insurance being one. We are located right in the core, downtown. We have over 40 acres there. There’s a beautiful public square right in the core that we consider the beating heart of the region. It’s called Perry Square. It’s been beautified, lots of investment has been made there as well. So, it’s really centered on a strong core. We have two health systems that are strong, Allegheny Health and UPMC. UPMC is anchored right downtown as well with Erie Insurance, as well as Gannon University on the west side of the square. So, we have three strong anchors in our downtown. So, we have four universities and one of the largest medical schools, LECOM, here in Erie as well.

Christina: [00:05:08] So we have many rich assets, a mayor who took office in early 2018 that has a strong vision for Erie being a community of choice. So, he’s leading that effort with a strong balance of embracing the diverse cultures that are here. We have, in the city, we have about 20 percent that are new Americans, those that have resettled here. So, we’re embracing those communities that are, you know, starting their own rich cultural aspects, as well as ensuring that we create and continue to build upon a strong and healthy and vibrant downtown and bay-front. We do have a lot of rich assets and things to do here in the community that’s very generous and a lot of grit to it. We’ve certainly seen some of the decline, though, as many Rust Belt communities have over the years. We’ve lost, you know, 40,000 people in the city of Erie over the past six decades for various reasons and so some of the infrastructure over the past few decades has certainly declined. And we are working now to really reinvest in that infrastructure, whether it be our public schools or our streets or buildings that have really cool and unique architecture.

Eve: [00:06:30] So it’s a pretty typical Rust Belt story. Loss of jobs, loss of people, loss of tax base and declining infrastructure as a result.

Christina: [00:06:40] Absolutely.

Eve: [00:06:41] You didn’t mention one of my very favorite assets in Erie, and that is Presque Isle, which has to be one of the most beautiful state parks I’ve ever been to, one of my favorite places.

Christina: [00:06:51] You’re right, it is. I think sometimes, you know, I’m not from Erie originally, I grew up in Long Island and when I had family and friends come and visit, then we go to Presque Isle or look out over the lake there. They don’t imagine it to be as beautiful as it is. Of course, you know, it’s a free public park, which is also amazing.

Eve: [00:07:11] Yeah, it is amazing.

Christina: [00:07:12] And the traffic isn’t nearly what it is on the Long Island beaches so it’s a great surprise and certainly, yes, a beautiful asset.

Eve: [00:07:21] It is. I’ve enjoyed it for many, many years. I think the state parks in Pennsylvania are altogether gorgeous, but that has to be the most beautiful. What’s a typical project that you might become involved in, in Erie?

Christina: [00:07:34] The first one that we took a leadership role on was the creation of the Erie Downtown Development Corp. We had eight community leaders in late 2017. They really took the Erie Refocused plan to heart. We had a comprehensive plan at that time that the community had built together with a consultant, Charles Buki. There was something called a Metro 100 at our Jefferson Educational Society, it’s a think tank here in Erie. And our CEO was there, Tim NeCastro. Afterwards, he spoke to Buki and said, you know, here’s six hundred million dollars of, you know, work ahead of Erie and this comprehensive plan for the city, where do you even begin? And Buki recommended, of course, starting in an area of strength, which is our core downtown, and build out from there and stay focused. He also suggested that that group take a look at 3CDC in Cincinnati. And so, there was a small contingent called the Cincinnati 8 of our business and community leaders, our Erie Community Foundation leader’s been a strong partner in this, and off they went to Cincinnati to talk with Steve Leeper, who I believe you would know from Pittsburgh days.

Eve: [00:08:53] Yeah, I do and there is the Tom Murphy connection, right?

Christina: [00:08:58] Exactly. Steve Leeper’s been very generous with his time and resources so that we could accelerate creating a similar model here in Erie. Definitely a different scale and a different starting place from where Steve was at that time. That’s where, for the first year and a half, Eve, that’s where myself and my team spent most of our time in helping to bring leaders around the table, create the model for the Erie Downtown Development Corp., a non-profit, and then really began raising funds to help fill gaps, particularly in these early days as we patiently await the building and the return of the market. You know, we raised over 27 million dollars. We knew that we needed collaboration, Erie Insurance could not do this alone. We needed the support and buy-in from the community. We really needed to create new hope for Erie. Our mindsets, we’re still very down on ourselves. We had a lot of national press that was really taking advantage of the Rust Belt story in the negative sense and we really wanted to turn that around to create hope and optimism for our community and change the mindset around to: it’s not only okay to love Erie, we do love Erie and we’re ready to do something about it, and do something about it for everyone for generations to come. And that’s really a lot of what we did in those early years.

Eve: [00:10:20] So the Downtown Development Corp., if I’m correct, actually has purchased a block, maybe a block of property, to do a rather large development in the core of downtown, is that correct?

Christina: [00:10:32] That’s right, Eve. Actually, there is a block, it’s right on North Park Row. So, Perry Square that I referred to earlier, that is right on Perry Square. But they’ve also purchased properties in, actually, a four-block square in that downtown corridor right on our main thoroughfare of State Street, which is really key. So, yes, and that first project that you’re referring to is on North Park Row. It’s a beautiful, older, historic building, comes with some challenges because it does need a lot of work. At the same time, we are in one of the poorest zip codes in the state and in the country. It is in a designated census tract for Opportunity Zone. And so, we know that it’s also in a designated food desert. It’s intended to be first floor food hall, urban market to create food supply and resources for those that live and work right in the downtown area and become a destination, we hope, for those that want to come downtown and visit it and be a part of the revitalization effort.

Eve: [00:11:39] You have the buildings. You have the funding. What’s the timeline? What’s the plan for starting construction?

Christina: [00:11:46] Yep. So, construction has begun. The EDDC actually began really pulling out a lot of what was in those older buildings and starting to repair and ready them for the food hall on the first floor. Not much has been done on the upper floors yet, the apartments and so forth. But they invited an application process of having vendors apply to be a part of one of the vendors in the food hall.

Eve: [00:12:14] Oh wow.

Christina: [00:12:15] And they received over 20 applications and they’re interviewing now to narrow down to nine. They really wanted to be diverse. We’ve done many surveys and community meetings and trying to study what the residents that live there today and employees that work, you know, that come downtown and work every day, are most interested in and are really trying to meet the diverse needs of our community. So, yeah, by first or second quarter of next year, we should have an opening of our first food hall right downtown. So, we’re very excited about that.

Eve: [00:12:52] That is very exciting to see a dream, sort of, become reality, right?

Christina: [00:12:56] Absolutely.

Eve: [00:12:57] I think, what I’ve seen of the Erie plan, it’s a big plan and what are the hoped-for outcomes?

Christina: [00:13:04] One of the beautiful things about this role, community and economic development for Erie Insurance, is that we participate in many different aspects of creating a vibrant community. And, you know, some of the overall goals are ensuring that we have jobs and access to jobs ready in the next three to five years through the work that our Chamber of Commerce is doing under new leadership. That we are creating a ready pipeline for workforce so this way, those in the communities that might not be ready or have access to education or a hands-on training, can have that access and are ready when the jobs are ready. So, we’re matching the needs of the employers with those that are in our community today. You know, success for us looks like just an overall improvement in the quality of life. And that’s measured in so many different ways, not just the vibrancy of the downtown, the buildings are the tools to support that. What’s the human experience? What are our community members really experiencing? While we’re growing for the new and bringing in new businesses and the targeted industries to really leverage the assets that we were just talking about that are right here in Erie today.

Eve: [00:14:21] Well, this is not a small task that you’ve taken on. And I’m, I’m wondering what background led you here?

Christina: [00:14:30] Well, it’s been very interesting because it’s not one, you know, that my, you know, 20-year-old self would have imagined in any capacity, I’m certain. But, you know, all of the experiences that I’ve had in the past, whether it was through my finance role at Erie Insurance, Ernst Young or otherwise, through my people role, you know, leading H.R. for a Fortune 500 company, certainly teaches you a lot about appreciating that people aspect of what we do every day and, you know, our culture is built around being, above all, in service, and we only do that through the human touch. So that’s an important element of who we are as an organization. So, you take all of those experiences and learnings and, and I love learning and building new, that’s what I’ve done in my career. So, to give back to a community that I’ve been a part of and have raised three children in, my husband and I, I mean, it’s been such an exciting time for Erie and certainly personally in my career.

Eve: [00:15:32] I’m smiling over here because it sounds great. So, you know, what I’m most interested in is impact and socially responsible real estate. And I’m wondering what socially responsible means to you, and especially in this context.

Christina: [00:15:50] We actually, we talk quite a bit about that, Eve, because we’ve used the phrase that you hear a lot “the rising tide lifts all boats”. And we say that, and I think in the beginning it sounded like, you know, if we could redevelop the downtown core and have that ripple effect through other neighborhoods and certainly out throughout the region, that that would be great for all parts of our community. And that’s true. At the same time, when our mayor came on, Mayor Schember, he shone a light on where there were disparities and where there were deep-rooted strongholds within different minority communities. And he actually launched an initiative called the People’s Supper Initiative. And these types of suppers occur through, all throughout the country. We participated in that with himself and his administration. He was serious about understanding some of the root causes of some of the hurts and perceptions and realities of different communities, the African-American, Latino and new Americans, and really rallied behind let’s have suppers and understand, you know, where we are as a community and let’s build trust, so that as we move forward as a community and building the new, that no one gets left behind. And that’s been a serious attention spot for him and if you were to ask the mayor what his number one priority is, and we are hoping he has his 12 years in office as he would like, that he wants to eliminate prejudice and disparity in areas. And that’s a that’s a tall order, we understand.

Eve: [00:17:43] A very big goal, yeah.

Christina: [00:17:44] Very tall. But because we come at all of this development, whether it’s the chamber on the economic development side, whether it’s for the EDDC on the real estate development side or other organizations, including our own, we come at it with a balanced perspective of, yes, we know we want a world class downtown and bay-front. Yes, we want to create a community of choice for everyone. But we do it knowing that we also need to embrace our diverse cultures. And I think that balance point always has given us pause to think, do we have the right voices around the table? Do we have our traditional leaders? Where do we need more input from the neighborhood centers, from those civic leaders? How are we ensuring that we are bringing the entire community forward through all the efforts and all the investments that are being made? So, it’s something that’s important to us. I wouldn’t say we have it all figured out yet.

Eve: [00:18:47] Well, does anyone?

Christina: [00:18:48] But we are paying attention to it.

Eve: [00:18:52] Well, that’s great. That’s a difficult problem to solve anywhere in the world. Are there any current trends in economic or community development that you’re following or that you think are very important?

Christina: [00:19:04] One of the trends that we think for us is important is ensuring that we stay true to Erie Pennsylvania. Honoring our past and all the assets that we have to leverage, while building for the future. We hear a lot about, yes, you know, we have access to federal and state resources and, you know, look to those at the right time, but really taking a local approach. We follow Bruce Katz quite a bit. You know, he, of course, talks a lot about the New Localism. He also has been a strong partner the past few years. But really taking that local approach to: what assets do we have, where are our challenges, where are our opportunities and how can we move Erie forward with those assets in mind? And not trying to be something that we’re not. We expect that that will help us be more successful. We’ve learned a lot over the last several decades, certainly over the last several years. We continue to study other communities like Pittsburgh, like Cincinnati, Buffalo, others in our region. But we do think that that local approach and collaboration is going to be key for us.

Eve: [00:20:18] Do you think it’s a moral imperative that large companies like Erie Insurance get involved in building better communities where they are located?

Christina: [00:20:28] Yeah, absolutely. And, you know, it’s always been part of our DNA from our humble beginnings 95 years ago that we would be, above all, in service throughout the communities that we’re a part of. At the same time, the market is demanding it. So, we see that, even for employees now that are coming in, that they themselves want to be active citizens of the communities that they’re a part of and they expect that the organizations that they work for. So that purpose-driven, balanced with the profit-driven, is becoming more and more important but thankfully for us, that’s just the way we’ve always operated. So, it’s, it’s an easy way for us to think about it, quite honestly.

Eve: [00:21:14] And so, how do you think we need to think about our cities and neighborhoods overall, so that we build better places for everyone?

Christina: [00:21:23] For how we think about it, we think, you know, involving those that are in the community today is really important. You know, when I first came into this role, I thought, well, let’s study these other communities and that worked really well there, let’s bring that here, you know. But people live in neighborhoods today, and each neighborhood is very unique. And to talk with neighbors and understand their needs and build for, you know, a future for them and how that then ripples out to other parts of the community, I think that’s one of the better ways that we can do that and be sure that the resources are available to those that don’t typically have access to resources that they need to move their communities forward. At Erie Insurance we have what’s called the service corps. And we have volunteers at the ready. And non-profits and other organizations make requests for events or even just help in painting a library at a school. And we’ll send employees out. You know, employees are willing and ready, you know, to be sent out to help wherever the need is. So, we’ve really leveraged that as a strong platform.

Eve: [00:22:34] Yeah, that’s really lovely. I also think, sometimes when you look at best-case studies, it can derail you a little bit. I think looking at where your community is and how it should grow can be much more powerful.

Christina: [00:22:50] Yeah, yeah. That’s what we’re finding.

Eve: [00:22:52] Yes. So, I have to ask what’s happening in Erie during this horrible pandemic?

Christina: [00:23:01] For Erie, like many if not all other communities, our first priority was response. Response to those that have some basic needs, because of the loss of jobs or, you know, businesses stopping. And so, we actually participated with our Erie Community Foundation in seeding a Covid19 emergency response fund. To meet child-care needs, basic food needs, shelter for organizations that are on the front lines providing that to our community members. We ended up, in a very short time, being able to support 40 different non-profits with over $670,000 as a collective fund. So, that was our first priority, was certainly the response to those basic needs. Now we’re pivoting to, so what do we look like coming out of the recovery? You know, for all that’s been invested, we had this great and still have a great spirit of collaboration. And thankfully, the health systems, Erie Insurance, we’re weathering this. We’re being very thoughtful about the safety and stability and health of our community members and our employees. At the same time, we don’t want to lose sight that there’s much more ahead for us on the positive. And so, our Chamber is leading a Restart Task Force. We had our first meeting last week and we have, again, through a sense of collaboration, we have non-profit organizations, universities, manufacturers, other business groups at the table with working groups gathering data, baseline data, to figure out where our priorities need to be as we start emerging and recovering from the impacts of this pandemic. So, we’re not standing by. We’re not standing still and we’re working together through it.

Eve: [00:24:51] That’s pretty fabulous. So that, you know, none of us really know what the path forward will look like. I’m sure things will be different, but we’re not exactly sure how. So, I think that’s the best you can do. So, the big final question is, what’s next for you in Erie and Erie insurance?

Christina: [00:25:10] That’s a great question. We are paying attention to what our community is asking for through the work of our community foundation, our Chamber, all of the transformational efforts that are taking place. And we’re sort of taking the lead of the community and we’re the next big need may actually be. We created our 50-million-dollar Opportunity Zone Fund last year. So, we’ve been, actually, taking a look at deals related to start-ups that are another part of the engine of a vibrant community. We ourselves, at Erie Insurance, we were a start-up, you know. 95 years ago. H.O. started this insurance company and look at where we are today. So, we know that there are many examples like that across the country and we hope to be a part of restarting the economy for generations to come. So that’s, that’s where we will be.

Eve: [00:26:09] That’s pretty fabulous. Well, thank you very much for talking with me. It actually sounds like you’re having a lot of fun in amongst the challenges, because challenges are fun, right?

Christina: [00:26:18] Yeah.

Eve: [00:26:21] I really hope that continues and I, every time I go to Erie, I do see change and I’m looking forward to seeing more. Thank you very much.

Christina: [00:26:28] That’s great. Thank you, Eve. Appreciate the opportunity. Alright, take care.

Eve: [00:26:41] That was Christina Marsh. In a recent interview Christina said “I love building new. In my career it’s all about building new. It’s about helping others build their own competence, their own capabilities, helping other women succeed in business and growing their own leadership. There is always that teacher in me.” Christina’s skills, which are formidable, are cloaked in her humility. First and foremost, she sees her role as one of service to the community.

Eve: [00:27:14] You can find out more about impact real estate investing and access the show notes for today’s episode at my website, rethinkrealestateforgood.co. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:27:34] Thank you so much for spending your time with me today. And thank you, Christina, 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 Christina Marsh

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

Advancing community development.

Joshua Lavrinc is a multi-disciplinary real estate professional with a breadth of experience in development and finance consulting, lending and investment, and fund management. He’s also a colleague and friend of mine in Pittsburgh,

What sets Josh apart is the type of funds and projects he is involved in. He’s carved out a little niche for himself in Pittsburgh, helping to raise and manage funds like the Strategic Investment Fund and Power of 32 Site Development Fund through his company, Callay Capital. Callay, a real estate investment advisory firm, was formed to advance economic and community development goals and that’s just what Josh does. And he’s an expert on alternative financial structures as well, like New Market Tax Credits and Opportunity Zone Funds. He sits on Novogradac’s national Opportunity Zones Working Group. 

More recently Josh founded Grow Community Development to explore the real estate development work he really loves. Some examples of the projects he is involved in are the recently opened the Oaklander Hotel and is working on impactful, mixed-use projects in Pittsburgh and Detroit anchored by co-working company the Beauty Shoppe. Josh’s education includes a B.S. in Accounting from Pennsylvania State University, a J.D. from the University of Pennsylvania and a Certificate of Management and Public Policy from the Wharton School of Business. 

Listen in to hear more about Josh and his thoughts on impact in real estate and Opportunity Zone Funds.

Insights and Inspirations

  • The capital markets can be squarely directed at impact investing.
  • There are some large and strategic impact funds that have been around for a while, like Pittsburgh’s Strategic Investment Fund.
  • Impact investing isn’t just one size fits all. It can serve projects of many shapes and sizes.

Information and Links

  • Josh is proud of the Oaklander, the first hotel development project he has co-developed with business partners Jim Noland and Concord Hospitality.
  • Josh loves the Rich Roll Podcast series which explores Rich’s plant-fueled feats of boundary-pushing athleticism and fuels Josh’s exercise routine. He likes this latest episode in particular.
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 me today for the latest episode of Impact Real Estate Investing. My guest today is Joshua Lavrinc, a colleague of mine in Pittsburgh. Josh is the CEO of Grove Community Development, a real estate development and consulting company. He’s also the CEO of Callay Capital, a fund advisory and management company.

Eve Picker: While Josh started his professional life as an attorney, he pretty quickly moved into the capital-raising world and has stayed there ever since, but he shifted his role to developer, development consultant, and fund manager, squarely in the impact arena. What sets Josh apart is the type of funds and projects he’s involved in. He’s carved out a little niche for himself in Pittsburgh, helping to raise and manage funds like the Strategic Investment Fund and the Power of 32 Site Development Funds.

Eve Picker: In this podcast, we explore the inherent challenges in impact investing. Be sure to go to EvePicker.com to find out more about Josh 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 Picker: Hi, Josh, how are you?

Josh Lavrinc: Good morning, Eve. I’m very well, thank you.

Eve Picker: Josh, I know a lot about you, but our listeners do not. I would love you to just tell us a little bit about yourself.

Josh Lavrinc: Fantastic. Well, thanks for the opportunity to speak. I’m in Pittsburgh, as you are these days, working on real estate investment, in particular, for socially responsible mission-based investments, which we’ll talk about as we proceed in the conversation.

Josh Lavrinc: My background … I’ve lived in several places in the Northeast and went to college, undergrad, at Penn State, where I learned accounting, among other things; started my career as an accountant very briefly, before deciding to continue on to law school. After studying accounting and being in an accounting firm for a short while, I decided to proceed to law school, and went to the University of Pennsylvania in Philadelphia with my now wife.

Josh Lavrinc: We stayed there for about five years, through law school and practicing law, really in the areas- two areas – one, real estate finance and development and the other area, structured finance, working, in particular, on commercial mortgage securitization for large rating agency clients and large investor clients. Then combining that with a more traditional dirt practice, as they call it, on real estate development, and then representing banks, insurance companies on lending and investment, as well.

Josh Lavrinc: When it was time to have children – my wife is from Pittsburgh – we came back to Pittsburgh and here we’ve been since about 2005. I continued practicing law for a few years until the market crashed in 2008. I had left the law firm to start a development career and started, actually, a distressed debt strategy that was difficult to pull off, raising capital and sourcing distressed debt transactions as a way to try and acquire property at the right basis during that cycle.

Josh Lavrinc: With little resources to pursue that strategy, my partner and I at the time – he was also young with new children in the house, like I – we decided to look at residential real estate as an overlooked asset class; something that had been hit pretty hard by the financial crisis. We started a real estate development and construction company in Pittsburgh, which went on. After starting that up. about 24 months into it, I sold my interests and moved on to the mission-based investment fund management platform that I’ve grown and am part of now. I sold those interests, and he went on to become the largest owner of houses in Allegheny County, where Pittsburgh is located, in 2014..

Josh Lavrinc: I have a residential development and an investment background thanks to those couple of years, but I’ve moved back into commercial, which was much more of my professional training. I’m excitedly applying my skills for a particular mission rather than an array of clients, an array of projects, where I had responsibilities previously, just to execute on a transaction somewhat disconnected from the underlying projects. Now, I’m on the front side of the transaction, helping, assisting clients in figuring out how to finance those projects or actually providing the capital for those projects, and with a particular mission, as I was saying [cross talk] I can talk a little bit about that.

Eve Picker: Yeah. Can you tell us a little bit about the mission? That’d be really great.

Josh Lavrinc: My current partner, Jim Noland, had a mortgage banking firm back in Pittsburgh that he had started in the late ’70s-early ’80s. At some point, towards the end of that decade, some of the local union building trades came to him and said, “We’ve been investing in these national strategies with our local pension fund money. They will create financial returns, but they’re invested in projects at major metros that are very large, and they don’t really have any impact on us, here locally, so we would like to see if we can invest our money in local projects, create jobs, and create financial return.”

Josh Lavrinc: So, before it became popular to talk about responsible investments or mission-based investment, here was a fund that formed. Fast forward, that fund is called the Employees Real Estate Construction Trust. It’s a regional fund from Cleveland, Ohio, through West Virginia that has a collection of union, municipal and private pension fund investors, the majority of whom originally were local union building trades. There is a 100-percent union building-trade labor requirement attached to those funds for every investment they do, in order to create high-quality jobs through the union building trades and invest that money for financial return, locally.

Eve Picker: How much has been invested locally through that fund over the years?

Josh Lavrinc: It’s been, I believe, over a billion dollars at this point, although the corpus of the funds is in the $200 million range, a little over that [cross talk]

Eve Picker: -that’s pretty high impact, Josh.

Josh Lavrinc: Pretty high impact, and that’s not a track record I can claim responsibility for. There’s a great team. There’s a trustee of those funds, AmeriServ Bank. My partner, Jim Noland, and his company, Penn Trust Real Estate Advisory Services, Incorporated, of which I was part, has served as the real estate advisor, essentially in charge of origination, and execution, and servicing of all those assets. There are strategies within those funds – a debt strategy and an equity strategy. They’ve been very flexible in the market; able to do things a little more aggressively than conventional lenders and have built up a great reputation in the development community in this region, as a result of that, and their great, diligent, and friendly relationships.

Eve Picker: That’s how you dipped your toe in the water of impact and socially responsible developments. If you fast forward today, what other projects have you worked on or what other funds have you managed that fit that criteria?

Josh Lavrinc: Great. When I met Jim Noland on a nonprofit board he and I were serving on, he was pursuing a program with the State of Pennsylvania – the Commonwealth of Pennsylvania, I should say – called the Building Pennsylvania Mezzanine Loan Program, trying to do support; provide gap financing to support commercial projects in promoting an economic development mission in the state. That program successfully was pursued, and we’ve used that a number of times, including to finance the Ace Hotel here in Pittsburgh. That’s one additional mission-based fund that we continue to manage from time to time.

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: We should tell people, the Ace Hotel in Pittsburgh is a pretty high-impact project, because it’s a hotel that was … The hotel actually re-utilized, renovated a beautiful old building that had been long vacant in a very underserved neighborhood that was quite poor at the time. It really did a number of amazing things. It’s not just an Ace Hotel. It’s an Ace Hotel that really made an impact, I think.

Josh Lavrinc: Yeah, it came at a time, just before this … Really at the cusp for … This neighborhood in Pittsburgh, East Liberty, had been, prior to that, fairly distressed. Certainly, the Bakery Square project and the folks at Walnut Capital helped to transform that neighborhood, among others, but our friends, Nate Cunningham and Matthew Ciccone – Matthew sort of envisioning that project …

Josh Lavrinc: A former YMCA associated with a church across the street; had been sort of mid-block. Not a hard corner. Not an easy site to see, and certainly, at that time, not a neighborhood where you thought about hospitality assets, nor a brand, in Ace, that lenders still to this day think about wanting to see a major franchise and the loyalty customer base of that franchise brought to bear. Difficult to do boutique hotel financing in this neighborhood, mid-block, in the conversion of a former YMCA, but it turned out beautifully. It has been a social magnet for that neighborhood and certainly part of the recovery, I think [cross talk] 

Eve Picker: So that’s what-

Josh Lavrinc: Interestingly enough, another- Oh, go ahead, Eve.

Eve Picker: No, you go ahead.

Josh Lavrinc: Interestingly enough, at that time, we also arranged senior financing, or I should say bridge financing, with a fund called the Strategic Investment Fund, which I now manage through our company, Callay Capital – a third fund in our portfolio of funds that we manage. At that time, we were doing servicing for this fund and had helped with origination. We weren’t formerly the fund manager, we were just a particular service provider, but it was a good fit for that mission.

Josh Lavrinc: That fund now has recently changed its mission a bit but was originally formed in the ’90s to revitalize downtown Pittsburgh in the wake of the collapse of the steel industry. I should say not just downtown Pittsburgh, but also industrial reparation of the river valleys, where so much steel job loss actually was experienced. The Strategic Investment Fund’s intent was to create economic development – primarily its focus – in those river valleys, but also to revitalize housing and make a vibrant downtown community in the Pittsburgh CBD, in particular. It was very active in financing residential, retail, some hospitality, and a lot of commercial in the region, but focused on those two strategies.

Josh Lavrinc: Again, subordinate financing, taking aggressive pieces of the capital stack that were unable to be financed by conventional lenders – second, third mortgages, bridge loans, those kind of financing. We now manage that. The strategy is shifting a bit. We’re looking at- now that downtown Pittsburgh has essentially become revitalized, although, perhaps not at 100 percent, it’s drastically different than it was even 20 years ago. The mission now is to try and spread that growth into other neighborhoods that have more challenges for resources and try and help those more challenged communities. There’s also a sub-mission to assist with the affordable housing crisis that we have nationally and trying to create affordable housing. We’re looking at affordable housing in well-resourced communities, as well as lesser-resource communities [cross talk] In the last-

Eve Picker: No, you go ahead. Go ahead.

Josh Lavrinc: I was just going to say the last fund that we’re managing currently, as an active fund, is the Power of 32 Site Development Fund. This was a fund in 2014 that we raised to assist in creating shovel-ready sites for our region to promote a land development and attract companies from across the globe to locate here in our region and create jobs.

Josh Lavrinc: It’s called the Power of 32, because there was a larger think-tank initiative trying to promote the greater Pittsburgh region, identifying with four states: Ohio, Maryland, West Virginia, Pennsylvania – 32 counties in those states – and really community development, broadly – rails to trails, and venture capital, and site development. A bunch of initiatives were discussed, and we were one of those initiatives was to do the site development and we were chosen as the fund manager and helped to raise and implement that fund. It’s been successful to date. We’ve raised about $50 million and have … We’ve done about $25 million of projects right now, and we’re continuing that investment.

Eve Picker: That, in itself, is a huge body of work, but I know you’re squarely involved in socially responsible real estate and finance in Pittsburgh, but I also know that you are working on your own real estate development projects. You and I have partnered to try and raise money for Opportunity Zone real estate, which I’d love us to talk about and the difficulties around that entire tax law and how it’s playing out. Do you want to talk about that?

Josh Lavrinc: Yes, absolutely. That’s the fund that has not been named yet-

Eve Picker: That’s right.

Josh Lavrinc: and we are … Eve and I have been actively involved since the tax cuts and JOBS Act of 2017 came out. In the wake of the announcement of the designated Opportunity Zones in April of 2018, or March of 2018, we’ve been actively monitoring this potential huge impact game-changer for socially responsible investment and impact investment. Maybe I’ll unpack that a little bit and just-

Eve Picker: I think that’s a great idea.

Josh Lavrinc: -how it’s set up.

Eve Picker: I was going to suggest that, yep.

Josh Lavrinc: When we talk about impact investment or social responsibility and investment, these all sort of have a categorical place, I think, in my mind, around certain missions. I think any time we’re talking about investment funds, there’s obviously a financial mission, but when we talk about socially responsible or impact investments, we’re coupling financial investment, without trying to compromise it, with some social mission and likely environmental; which might be part of social, but I would break out as a third category. So, financial, social and environmental missions; social sometimes is referred to as community.

Josh Lavrinc: I think that community development should and does occur in all communities. Most of the time, when we talk about community development, we’re talking about low-income communities and trying to help the communities with less resources, but really, there can be good community, positive community development. For instance, we’re pursuing right now an affordable housing project in Pittsburgh’s Strip District, which is a neighborhood that’s on fire for job growth, and retail development, and hospitality resources, adjacent to the CBD, and multi-family apartment, market-rate apartments, condominiums, office. All of the commercial real estate products are well represented there, but not affordable housing.

Eve Picker: In other words, it’s gentrifying very, very quickly.

Josh Lavrinc: Yes, and I think it was a fairly low population community to begin with, because it’s primarily industrial in nature, right? [cross talk]

Eve Picker: It was. That’s correct. That’s correct.

Josh Lavrinc: -there are concerns about displacement and gentrification throughout all of these conversations about responsible community development, but here’s a community that maybe did not have a large, low-income population, and we need to try and develop it in a balanced manner and help-

Eve Picker: That’s correct.

Josh Lavrinc: I think a key to creating affordable housing and creating a region, a strong region for all, is in those hot neighborhoods to try and remember the responsible uses, as well. We’re working on a project that I hope we’ll be closing on later this summer to create a significant amount of affordable units in that neighborhood. A slight digression there from our categorical discussion of impact investment.

Josh Lavrinc: Just one example of community development, though, is affordable housing, and most of the time, that market, whenever we have a use that doesn’t bring in rents that are sufficient to motivate investors on their own – hence the crisis we’re in, where we don’t have enough supply because there’s not enough financial investment incentive to attract investors and developers to create that product – there’s some subsidy or incentives. And in this case of affordable housing, obviously, there’s the Low Income Housing Tax Credit, and those-

Eve Picker: Well, I’ve got to interject here. You have said a couple of things now that I think are absolutely key. That is that there’s not enough financial incentive; that we’re trying to do socially responsible projects, while at the same time keeping the financial returns the same. That, I think, is the crux of the issue. I think that perhaps we’ve all gotten a little bit too greedy, but it isn’t- it isn’t always possible to keep the financial return in the 20-to 25-percent internal rate of return arena for a project that is socially responsible. Yet you and I have not … I think we both don’t believe that we have investors really ready to invest for less. They really want both. Am I right? They want the financial returns, and they want [cross talk]

Josh Lavrinc: Yeah, they do. They do [cross talk] and it’s tough to deliver both. It’s tough to deliver both, especially when you get into … When you get into a structured product like the Low Income Housing Tax Credit, you’ve got rent restrictions – for good reasons – that go on for sometimes upwards of 20 years. That’s difficult to project a financial return on sort of … All real estate is perhaps a depreciating asset, other than their land value, that require repair and reinvestment over time. If you have a challenged underlying land value because it’s in a less-resourced community, you have a restriction on the income potential of that property, it really becomes a very specialized, niche investment opportunity [cross talk] like most other investments.

Eve Picker: -yeah, because the asset value can’t increase over time because it’s restricted. Typically, investors- or often investors are looking for some return over the years and then some share the upside at the end, when the project is sold. But the upside on an asset, on a building that has been restricted, is just not going to be there.

Josh Lavrinc: That’s right. Sometimes, it is. Obviously, on the margins, there are exceptions. When you have something in a rent-restricted unit to a project in a rapidly, or even not rapidly, but a neighborhood that changes over the course of 20 years and becomes very valuable at the end and you lift the restrictions. That’s no longer developed for the same mission. That then, perhaps … The value becomes in converting that to another use. I think the silver lining to all of this, interestingly … How do we reconcile financial return and investment? You hit the nail on the head. There requires some compromise, in the absence of other incentives. I think the Opportunity Zone program or incentive is potentially one of the solutions that can really spur new impact investment in communities. The reason I say that- oh, go ahead.

Eve Picker: No, I was going to say for our listeners who don’t know what Opportunity Zones are, they were introduced as part of the 2017 JOBS and Tax Act. I think there are over 8,000 of them. Am I right, Josh? 8,000 [cross talk]

Josh Lavrinc: -25 percent of all eligible low-income census tracts in the United States were delegated to the state level to be selected by the chief executives in each of those states, and then they designated 25 percent of those. It is a large number, as you said, Eve, across the country. There has been a lot of focus on this program, about whether it’s really a program. I’ve used that word a couple of times. It’s an incentive, for sure, but it is different than a tax-credit program or other incentive program that we’ve seen in the past in that only those with capital gains can directly benefit by investing into an Opportunity Zone – one of these designated low-income census tracts.

Josh Lavrinc: The benefit is in a short-term deferral of a prior capital gain. If, meeting the qualifications, you can maintain that capital gains investment in an Opportunity Zone for a whole period exceeding 10 years – a long-term investment -then you would receive a step up in basis for that capital gains that was reinvested into a new investment to the fair market value of that investment at the end of that hold period [cross talk] has the potential for tax exemption, essentially.

Eve Picker: That’s correct. I think it’s actually a great program. It could be a great program. It has a couple of really, I think, serious flaws, and it’s inequitable in the fact that only someone with capital gains can really take advantage of it. That already skews it towards wealthy investors. Secondly, in the selection of these census tracts, one can only imagine how much politics was involved, because you and I know that the tracks that were selected in Pittsburgh, particularly difficult, and they were selected for the right reasons, because those really need the most investment. But other states didn’t really think about it that way, or other cities. They selected tracts that already had investment and they thought they could attract more dollars to. Even the selection of the census tracts has been inequitable. I don’t know what you think about that, Josh, but …?

Josh Lavrinc: Yeah, I think it may have been equitable in that everyone every state was participating, and every leadership group had discretion to choose the census tracts that made sense for their for their states. But when you do things equitably, it doesn’t necessarily always result in an equitable distribution of resources after that. I think, unfortunately, there will be … With our real estate lens, thinking about it in a real estate investment perspective, over the past 18 months, as we have … When I say ‘we,’ I mean all of us; all of the thought leaders on the investment, accountants, lawyers, investment professionals coming together, talking about Opportunity Zones.

Josh Lavrinc: There has been concern about how will this come about? What is the financial impact of this incentive? Will it really be a game-changing flow of capital to all the Opportunity Zones? Obviously, I left out, in that conversation with the communities and economic development trust professionals across the country, who are hoping that this is a new resource to help revitalize their communities. There is certainly, when looked out through the lens of investment capital, in projects out, real estate projects out, there will be some lowest common denominator that attracts capital to the primary market.

Josh Lavrinc: Rather than changing a capital flow from Silicon Valley to Pittsburgh, which may have been the original intent of the program, and I think was, based on the political leadership that have spoken about it, if there are qualified Opportunity Zones, designated Opportunity Zones in Silicon Valley, in New York, in L.A., then those folks that are already investing in those communities don’t have to look very far to find another opportunities. In fact, West Hollywood, and East Palo Alto, and portions of New York City – of course, they have low-income communities and have been designated Opportunity Zones..

Josh Lavrinc: If there’s a competition among Opportunity Zones across the country for limited dollars, there will not- the problem necessarily won’t be solved by the Opportunity Zone designation, itself. But I think, and reflecting on it 18 months in, I think the real change that can come through Opportunity Zones is the operating business incentive. This doesn’t just apply to real estate projects. The Opportunity Zone benefit applies to capital gains of any type, with some exceptions – some very nuanced tax exceptions – but operating businesses are squarely within the regulations that have come out from the IRS.

Josh Lavrinc: I think that when we see greater investment in operating businesses … There are already folks saying that private equity shops looking to invest in venture capital, looking to invest in companies; Company A is located outside an Opportunity Zone. “Why don’t you just move down the street to an Opportunity Zone, and we’ll make an investment, because it’ll be more tax advantaged for us.”

Josh Lavrinc: When that flow happens, when we see venture capital, private equity, and investment, and operating businesses start to prefer Opportunity Zones, I think that tide – that’s a trend that can occur throughout the Opportunity Zones, not just isolated … When that happens, we’re going to see real businesses relocate, real jobs relocate, real homes relocate. That will attract more jobs, more retail, more housing, and start to really revitalize a community in a fundamental way that I think we talked about revitalization, which is putting dollars into a community.

Josh Lavrinc: There may be adverse impacts of that, if we don’t use those dollars responsibly by providing for affordable housing in those communities, along- maintaining affordable housing at a high quality, for instance, as a community is revitalizing, but hopefully, those jobs that are moving down the street initially … Although the people in those jobs may or may not have come from the target Opportunity Zone community, new jobs that are attracted to that new company, whether they are community goods and services, like retail, or strategically associated companies with the original company that moved, or some other service in the community that has more demand, those hopefully will be employing folks in the community, and is such that, hopefully, the gentrification that happens is inclusive and participatory, so that we’re not seeing a series of outsiders coming into this community alone, but that there is a strengthening of the existing community that may not touch and concern every person.

Josh Lavrinc: Therefore, there’s a need to make sure we’re thinking about responsible community development goals, like affordable housing and investing in social services. That program, creating new businesses in an Opportunity Zone and the downstream impact of a new business locating in a community, I think, is the opportunity to bring together financial return and impact investment, social responsibility, because we’ll then [cross talk]

Eve Picker: -where does that leave real estate in the equation?

Josh Lavrinc: That’s the downstream effect. I think that it only takes one company moving into East Liberty, for instance – Duolingo moving into East Liberty; Google moving into East Liberty – to suddenly revitalize that community. There are much more real estate- many more real estate projects taking place in that community as a result of those business moves..

Josh Lavrinc: If we can continue to see more businesses move into Opportunity Zones that will beget more real estate investment, and folks that say, “We’re going to invest in this community … We wouldn’t have otherwise, because we were worried about compromising our financial return.” But then, when we combine the incentives for capital gains with the Opportunity Zone incentive with the potential transformation of this community over 10 years – transformation meaning revitalization; hopefully, appreciation – now we have a large enough financial return to incentivize us to invest and in this particular community. That’s what we’ve been trying to accomplish all along.

Josh Lavrinc: Obviously, there is place-based responsibility. Just investing in a low-income community is helpful, but it’s also subject-based, use-based responsibility. What are we building in that area? We’re building commercial real estate to support jobs. That’s a that’s a version of social responsibility. If we’re doing it to support housing, that’s a version. Obviously, we want to consider the environmental impact, which I’ve kind of left out of this conversation about financial incentives and social responsibility. All of those things can be serviced. We’ll still have, however, a need for some segment of the market to support the under-resourced portion of the community through other affordable housing, or social services. I think [cross talk] role of responsible tax management and those kind of things for the governing bodies, in addition to charitable and private efforts.

Eve Picker: But also, there’s people in the community who want to invest, as you know, right? I do believe that equity crowdfunding can play a huge role in the revitalization of communities, because now, if you have a business that moves in, or a building that is revitalized, the people in that neighborhood can actually invest in it. That’s a really important piece of building wealth within a community for the community, not just making it better for the community and leaving them on the outside. Difficult, as you know.

Josh Lavrinc: I think that’s a great point that the community, itself, with new financial tools and e-commerce, information-age tools, like crowdfunding and the regulatory predicates of crowdfunding that you’ve harnessed with Small Change, bringing not just capital into these communities for financially viable projects, but also on tapping neighbors, and neighbors, perhaps in a colloquial sense, that might be stretching across the globe that are motivated about something that compromises financial return in order to accomplish impact. That’s a real experiment with social capital [cross talk] can be accomplished. That story hasn’t been told yet, entirely.

Eve Picker: In my time in Pittsburgh, the thing that has had the biggest impact on me is – this is true throughout the Rust Belt, I think. I’m not sure about other cities, but certainly many places I’ve been – how much people love the cities they live in, and how much they want to be engaged in making them better. It’s a pretty astounding phenomenon..

Eve Picker: Give them an opportunity to invest $500, $1,000, $2,000, or whatever, in the place they live, rather than put it in a mutual fund, where they don’t know where it’s going to go, that circulates money locally, and it gives them an opportunity to share in making that place better. It’s an amazing opportunity. Now we just have to educate investors, right, Josh?

Josh Lavrinc: Of course. Yeah, that’s right. Not to mention the bite-sized piece of the investment that you’re talking about. The other power of this is we would all like to own the local restaurant, or the local general store, or name any other part of the community that you utilize and would like to support or own. Without a large amount of resources, it’s practically very difficult to accomplish that.

Josh Lavrinc: This allows, through fractional ownership at very humble investment levels, the opportunity to make a change and invest in something that … Whether it’s financially motivated, or more community motivated, depending on the mission of that particular project or fund, crowdfunding certainly is a powerful tool to try and unlock investment and change for the masses.

Eve Picker: Yeah. Moving away from Opportunity Zones, what other current trends in real estate development are you seeing that you think are really important for the future of our cities?

Josh Lavrinc: I think I would focus on the word ‘community.’ What  by that is I think we’re defining the way – in particular, in cities and urban environments – the way people come together, and live, work, and play. Those are terms popularized by commercial real estate development to try and identify or put a friendly face around mixed-use projects and make them simple to understand, but fundamentally, there is a big social change there of trying to make productive and as accessible a community as possible.

Josh Lavrinc: I was listening recently to another podcast with the co-founder of WeWork, talking about their perspective on co-working, how that came out of a desire to create community. I’m involved with a co-working company here, locally, called The Beauty Shop, in Pittsburgh, where we’re trying to develop similar communities, but growing that community outside of just an office space. Their first thought, back right around of the time the financial crisis, was that people working in isolated environments can be more productive, more happy, more engaged, and feel more appreciated and better-served by those around them that are similarly motivated; similarly making sacrifices for their businesses, if they are put together in a community.

Josh Lavrinc: When you combine that and expand that into residential real estate, can those people perhaps live in environments where they feel more supported and have more of a social fabric? I think this comes along with trends on isolationism and depression that are plaguing our country these days. Those are growing problems for our nation. This is one way to tackle that social problem is bringing together community.

Josh Lavrinc: Obviously, it can extend into other parts of the community, where instead of spending time isolated, commuting to your job, you might be able to create an entire ecosystem around your business, or your apartment, or your entertainment venue, and have that all in one … Obviously, that’s what a city represents [cross talk] extending that community into a broader scale about technology, connectedness, and resource- infrastructure resources in a particular city – all of these things are really the same concept, at a different scale.

Eve Picker: I can’t help but think it’s the modern-day version of the kibbutz [cross talk]

Josh Lavrinc: Yes, right, and-

Eve Picker: -the kibbutz probably got all of this right a long time ago.

Josh Lavrinc: That communal living is exactly what is perhaps needed to get people back, attached, especially in the age of digital devices and the connected-with-ness we have, and yet, perhaps, the over-connectivity that’s coming with that, without having perhaps enough emotional and human support with that connectivity. Definitely, it’s funny [cross talk]

Eve Picker: It’s also affordability, because if you share resources, whether it’s a shared kitchen or whatever it is, then your living costs are going to go down. I think that’s also part of the reason why co-housing options are being explored.

Josh Lavrinc: That’s right. You’re right, when we talk about the impact of an urban environment, or it doesn’t necessarily have to occur just in an urban environment, the community, generally, there are social health and well-being aspects. There are business aspects, and there are certainly affordable aspects of the development that can be brought to bear as a result of the sharing of a common amenity base and spreading those costs across many uses.

Josh Lavrinc: That’s one of the focuses of my current development in addition to fund management and the structured finance consulting, new markets, tax credits, historic tax credits that I work on in my primary business, I also spend a lot of time on commercial real estate development; in particular, recently, anchored by coworking, but has molded that into a strategy around community, where we are looking at secondary and tertiary cities, not primary markets, to try and create these full-scale communities in urban environments. Although I think suburban environments are a huge untapped market, as well, to try and bring together a greater sense of community and all of those benefits that come with it – the social, the financial and the affordability.

Eve Picker: Probably in suburban markets, people are even more isolated.

Josh Lavrinc: Exactly, exactly. When we talk about commute times and disparate destinations for live, work, and play, bring those things together into a town center, into a real Main Street … Revitalizing the main street. Obviously, there are a lot of Main Streets programs across the United States. It’s a very similar theme for community development. But bringing an urban spin to it, with a responsible amount of density and set of uses, I think has a lot of power, and I think we’ll see a lot of that coming up.

Josh Lavrinc: Hopefully, we’ll see that happening in Opportunity Zones. I think if we can bring together Opportunity Zone development and businesses locating in those Opportunity Zones and then try to develop more community, then we’ll see some pretty significant change in the next decade of real estate, business, and real community development conspiring together to implement improvement or accomplish improvement.

Eve Picker: Given all of this, where do you think the future of real estate impact investing lies?

Josh Lavrinc: Well, I think that it probably is the future. I think that the days of solely focusing on financial returns are probably starting to narrow, and it seems that the aware, responsible person is going to make more decisions. As we provide more information and more connectivity to individuals to not only their investments, but to the world around them, and their neighbors, and the people in the communities around them, they’re going to make more conscious decisions to better … To increase their efforts to deploy what investment funds they have into those things that help people around them and the environment around them.

Josh Lavrinc: Whether it’s crowdfunding, whether it’s an Opportunity Zone fund, whether it’s a tax credit incentive, there are … We are seeing a growth in responsible investment, in mission-based investment, and for good reason, because, fundamentally, we aren’t robots. We’re humans, and we have a moral compass, and we have emotion, and emotional intelligence that directs our activities to things that we favor for reasons other than purely financial. The closer we can get to combining financial return – which is almost a third-party neutral arbiter, selecting return responsibly for our good of our income and wealth in the future – if we can start to align that financial return, even more strongly than just the Opportunity Zone, with responsible investment, I think I think we’ll get there.

Eve Picker: We have, in fact, lived through the era of green-washing, and we’re heading into the era of good-washing, right?

Josh Lavrinc: Yeah, that’s an interesting way … Hopefully, it’s not washing at all, but you’re right. You’re right that there’s been popularization, perhaps over-popularization and overuse of terms around, for instance, green. I think we’re getting into a period, an enlightenment, if you will, where individuals are receiving information about their investments, receiving information about what’s happening in the world around them, and then are given opportunities to vote with their own dollars in projects that have real meaning to them and to the people around them that they care about.

Eve Picker: I have three sign-off questions for you that I ask everyone. I’m wondering what your answers are going to be. The first one is what’s the one thing that makes a real estate project impactful to you?

Josh Lavrinc: The impact for me, although I skew towards economic development, I would say it’s serving the people. Keying in on that community that we have spoken about here, we could easily talk about the environmental crisis that we face as a globe. We could talk about the lack of social services and the need in our community for the poor. But I think that cutting across all of those for impact, in my mind, is assessing whether a project is responsibly targeting its community.

Josh Lavrinc: I’m not inventing anything new with that response. When you think about the New Markets Tax Credit program and what community development enterprises across the country look at, when they’re assessing projects, one of the first questions they ask are what are the community’s plans? Does the community have a development plan? Is there community support for a proposed project, prior to awarding a subsidy or incentive? I think there’s really good wisdom in that practice. It doesn’t necessarily mean that you’re getting the best project, or necessarily a particular outcome, but it does mean that you’re considering what that community’s needs are and trying to address it responsibly. That’s how I would answer that.

Eve Picker: The second question – other than by raising money, how do you think crowdfunding might benefit the impact real estate developer?

Josh Lavrinc: Well [cross talk] obviously-

Eve Picker: These are not trick questions.

Josh Lavrinc: No, no, I think … Obviously, I think, when we think about influencers, and social media, and the power of marketing in our current environment, crowdfunding has a way of making something more popular, more highlighted, and can be a great marketing tool, and perhaps a vote of confidence from the community. It might be a third party, whether those people are local to the community or outside, it’s a third-party validation of whether this investment is responsible, or desirable for whatever- depending on the purpose of the crowdfunded group, that it’s meeting their mission. I think there could be strong marketing efforts as a result of the crowdfunded opportunity, but I’m sure there are a couple of other [cross talk]

Eve Picker: -in effect, a community engagement tool.

Josh Lavrinc: That’s right.

Eve Picker: Yeah, yeah. Final question – what one thing in real estate development do you think would improve … I’m going to ask that question again. How do you think real estate development in the US could be improved by just one thing?

Josh Lavrinc: I think that if we could … We can work hard to tie together our incentives, make sure they are aligned. We have a lot of … All of the real estate industry is motivated fundamentally by financial return. We have folks whose livelihood is based on their development project, their construction project, their leasing of the project. That is a powerful tool to impact activity, to create activity financially, for each one of us.

Josh Lavrinc: The more we can align incentives, like the Opportunity Zone, to create the outcomes we want and make sure that those incentives are narrowly tailored to really accomplish what we want … For instance, I think there are some great things about the Low Income Housing Tax Credit, which is an area I don’t practice a lot in – although we’re investing in affordable housing, regionally, that’s not a national practice that I participate in – I think that we see the competition over the program; the structure of a program that tries to compensate with fees, given the lack of value creation. Those fees then create outsized projects that maybe are more expensive than they need to be, or more inefficient than they need to be.

Josh Lavrinc: If we can go back and fix programs to address the value equation differently and think about the model we’re setting up and the downstream impact of that model to be more efficient and more effective for our goals, I think that would have perhaps the most profound effect, because you’re not … Instead of trying to change the fundamental capitalistic income-driven goal of a professional, which I don’t think we can change – other than to redirect it through incentives – and if we can align those incentives with what we think currently are the crises facing our country, which are probably the social isolation, the isolation of resources, so that everyone has access to good education, and training, and jobs, and economic advancement of themselves, and healthcare, and all the rest of those basic needs, and hopefully in a way that’s aligned responsibly for the environment, long term … We have a lot of great rapid change happening there, obviously, with autonomous vehicles and renewable energy. The more we can align these programs into creating a community that’s hitting on all cylinders across both of those major programmatic missions, I think that the better our commercial real estate market will be, the better our professionals will be in accomplishing those goals and the end result for the community.

Eve Picker: Yes. Agreed. Well, Josh, thank you very much for talking with me today. I really enjoyed our conversation, and I’m sure we’ll be talking again soon. Thanks so much-

Josh Lavrinc: I did as well. Thank you very much, Eve.

Eve Picker: Bye.

Eve Picker: That was Josh Lavrinc. Today, I learned that the capital markets can be squarely directed at impact investing. There are some large and strategic funds in Pittsburgh that have been doing this for quite a while now. Impact investing in real estate spans the spectrum from tiny projects, some of which we’ve listed on Small Change, to large funds that focus solely on impact.

Eve Picker: 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, Josh, for sharing your thoughts with us. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Joshua Lavrinc