PropTech

Eve Picker: [00:00:17] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Christopher Leinberger. Chris has had a singular career working on urban land use issues, as a strategist, teacher, developer, researcher and author.

Eve: [00:00:47] Growing up in the 1960s and 70s, Chris was actively involved in community affairs and social change issues. He learned the value of connecting coursework and theory with hands-on community engagement early on. Although he first put his business degree to work in the corporate world, Chris found he wanted to run his own organization and opted to take over management, and then ownership, of Robert Charles Lesser & Company, now RCLCo. At the time, it was a one-office, real estate consulting firm in Southern California. RCLCo became one of the largest real estate advisory firms in the U.S., with four offices nationally, by 2000. Chris’s new venture is a startup – Places Platform. This is a project he audaciously hopes will become “the Bloomberg of real estate and the built environment,” developing tools and methodologies to measure economic, social equity and environmental conditions in cities and metropolitan areas. Be sure to go to EvePicker.com to find out more about Chris 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: [00:02:25] So, welcome to the show, Christopher. It’s really nice to have you here.

Christopher Leinberger: [00:02:29] Really pleased to have a chance to chat with you.

Eve: [00:02:32] I read some of your bios, and the common theme in your development work is the one you discovered when you were eight years old, the value of well-developed, walkable urban land. And I’m wondering how that theme came to take center stage in your professional life?

Chris: [00:02:50] Well, it took me about 20 years to realize that that was what was driving me, from the age of eight – how we build our cities and why are certain blocks, certain places, vital and other places are not. And I didn’t know that at age eight. But that’s the basis of urban economics. But I thought that was just kind of a childhood fancy. And after business school, I went to work for two corporations and found out very quickly that I make a terrible employee and went to work with a small consulting firm in Beverly Hills, California, that I eventually bought three years later, Robert Charles Lesser and Company. And that, basically, was a firm that I could now explore how we build our cities and what makes certain places vital and others not so.

Eve: [00:03:47] And what did you discover along the way? It must have been pretty difficult setting out on this path.

Chris: [00:03:55] Well, certainly, this is back in the early 80s, and drivable suburban development was the thing in vogue. And in fact, this consulting firm, which did market studies, financial feasibility, I introduced strategic planning for both real estate companies and places, like downtowns. And I expanded the company from just a West Coast operation to a national, in fact, you know, we did a lot of work abroad, until I sold the company in 2000. It’s still very active today. It’s much bigger than when I was running it, back in 2000. But it was a little depressing to look at the fact that the market seemed to only want masterplanned communities and subdivisions and, you know, strip malls. And that’s what we were doing in the 80s. The market studies and the financial feasibility were all about, you know, this drivable suburban stuff that we in this country invented. But then towards the end of the 80s, it really kind of started with a project I did in Downtown Chattanooga, which was a strategy for Downtown Chattanooga, the first downtown strategy I’ve ever done. And we pulled this strategy together with the city, with the place manager, River Valley Partners, and the county and the banking community and all sorts of … and the great civic sector, just a remarkable civic sector. And we put together a strategy. 14 points to it. And within three years, 13 of the 14 were done.

Eve: [00:05:37] Wow.

Chris: [00:05:37] And it was off to the races. And so, I’ve stayed in, I’ve stayed involved with Downtown Chattanooga for the last 30 years. It’s just been a remarkable turnaround. So, there I found that, good lord, people actually may want this walkable, urban stuff that, that really was so attractive to me when I was eight.

Eve: [00:05:55] Right. Yeah, I think I always dreamed about living above a coffee shop in a downtown.

Chris: [00:06:04] I always dreamed of living on a penthouse of a 1920s apartment building, you know, condo, co-op, whatever, and having a deck all around you and having the cage elevator take you up to it, and so …

Eve: [00:06:21] Fabulous.

Chris: [00:06:22] Anyway, I got the cage elevator. The building I live in, it’s five stories on Mass Ave, and it has the oldest elevator in town, which is a cage elevator that comes right up to our floor.

Eve: [00:06:35] How about the deck all around? No?

Chris: [00:06:38] No, didn’t get that. The ‘deck all around’ is just about to become about 108 solar panels.

Eve: [00:06:45] Oh wow, and I got the coffee shop after about 20 years of trying so … Just an aside, I’m especially in awe of your advisory role in Walk Score, which is a tool that I use every day, apparently with four million other people. So, that’s an amazing tool that’s emerged out of your interest, as well.

Chris: [00:07:06] Yes, I was on the initial board of Walk Score before, and then, of course, it was bought by Redfin, so that board went away. But I have loved the folks at Walk Score. I still use them, you know, in my research at Brookings and George Washington University. And now, in my next phase of life with Places Platform, which is my startup, that is basically Sim City for real, and Walk Score is foundational to that.

Eve: [00:07:37] So, I use it. I developed a Change Index for my crowdfunding platform, Small Change, and I use it to identify, you know, where projects are that walk in the door are located, like every day. It’s a fabulous tool.

Chris: [00:07:51] It’s remarkable. And the other thing that a number of us have found is that in walkable urban places, Walk Score above 60 yields tremendous value enhancement. You know, here in D.C., on the for-sale residential side, one Walk Score point above 60 yields about a 10-dollar-per-square-foot increase in value of a house or a condo.

Eve: [00:08:22] That’s pretty amazing.

Chris: [00:08:22] That’s huge. Places Platform just did our beta test in Grand Rapids, Michigan. So, this is a Midwestern town, small Midwestern town, not exactly a bi-coastal sort of place. And in the office market, one Walk Score point increases office valuations by a buck a square foot.

Eve: [00:08:44] Wow.

Chris: [00:08:45] And that’s, again, for a town that an office sells for 180 to 200 bucks per square foot, one Walk Score point equals a one percent increase in valuation. That’s pretty significant.

Eve: [00:08:58] So, I’m proud to say my Walk Score is, I think, 99.

Chris: [00:09:01] Wow, well that’s impressive. My Walk Score’s 92. I live within about four blocks of Dupont Circle.

Eve: [00:09:11] I live downtown in Pittsburgh, so you really, no, that’s pretty simple.

Chris: [00:09:14] Yes, it’s great.

Eve: [00:09:16] You know, I first became aware of your work when, when I was struggling with a capital stack for a little catalytic development project. And I heard about the Albuquerque project and ‘patient money,’ and those of us who do this sort of development know that it’s very difficult to get traditional financing to accomplish groundbreaking projects. And I just love you to talk a little bit about how you approached that when you started that project, and, in general.

Chris: [00:09:45] It starts with an understanding that there is no such thing as new ideas. As you may have also seen or heard, my favorite urban movie is “Back to the Future,” and it’s the most important urban movie ever made that is popular because it shows the two ways of building: drivable sub-urban and walkable urban, in three different time periods. The 1950s, which was really a reflection of the early 20th century, 1985 when the movie came out, which showed how we completely disinvested in our downtowns and all the energy, and all the money, shifted to regional malls and business parks, and, of course, subdivisions. And then the near distant future, that again this 1980s view of the near distant future, which showed downtowns coming back. And the suburbs going into decline, and who’d have thunk that …

Eve: [00:10:46] Yeh.

Chris: [00:10:46] … in the 1980s. Well, that near distant future was 2015. So, these writers of the movie nailed it, and none of us in the 1980s were thinking that the cities were going to come back that quickly and that well. So, you look at how we used to finance, and much of the money in the capital stack… You know, the capital stack is going to be comprised of two basic categories – equity, you know, cash at risk, and debt, money you get from banks at very cheap interest rates. So, by definition, the equity is the risk capital and it goes in first and comes out last. And with a ‘Back to the Future’ financing approach, that, you’ve got to have 40, 50, 60 percent of your capital stack being equity, and most of that being ‘patient equity.’ It’s not looking for an internal rate of return of 25 percent. It’s going to be put in. It’s going to get paid back when the project matures. You know, don’t bother measuring it. Just recognize that it’s there for the mid- and long-term. And if you realize that, in walkable urban real estate, you can make a bloody fortune. But you just can’t make it in three to five years.

Eve: [00:12:18] But we have pretty impatient investors right now who want to make that sort of return quickly. Two years.

Chris: [00:12:25] Oh, yeah, oh yeah.

Eve: [00:12:26] That’s frustrating for me with my platform, because, you know, some … these projects that I think are so important for the future have a very hard time getting equity.

Chris: [00:12:41] So, you have to be creative, of course, and most the important thing to be creative about is making sure that the land invested in your deal is invested patiently. So, the best example… I’m in partnership with Robert Davis in my development company. Now, we’re both, at this point, limited partners with our development company, which is called Arcadia Land Company, based in Center City, Philadelphia. But Robert’s best known for the project, Seaside, on the panhandle of Florida. And it’s the first New Urbanist project. And Robert got 80 acres from his grandfather as his inheritance on what was then known as the Redneck Riviera. This is where the country boys from Alabama would go down to the beach and drink. And Robert looked at this as a patient equity investment, and slowly but surely came up with a great urban plan, and slowly invested in the infrastructure, block by block. And he sold his first one eighth of an acre lot for ten thousand dollars. He sold his last one eighth of an acre lot for two million dollars …

Eve: [00:14:02] Oh wow.

Chris: [00:14:02] … 25 years later.

Eve: [00:14:04] Wow.

Chris: [00:14:04] And he still owns Downtown Seaside. It’s worth a bloody fortune, with condo prices at 1,500 bucks a square foot. That’s what the ancients knew how to do. And that’s what the Grosvenors in London knew how to do 400 years ago. They were just, you know, farmers that happened to own this farm that became the West End of London. And they never sold the land. They just had long-term leases, and became one of the top 20 wealthiest families on the planet because they invested long-term. So, we have lots of examples, just not that many currently, as we have this ‘get rich quick’ mentality

Eve: [00:14:49] We really do, don’t we? Interesting. What’s your favorite project that you’ve worked on?

Chris: [00:14:56] My second project. I was still running and owning Robert Charles Lesser and Company and got hired by a Seattle family to redevelop a shipyard in Kirkland, Washington, right on Lake Washington, right across Lake Washington from Downtown Seattle. They built Liberty ships there during the Second World War. And this family also happened to own the Seattle Seahawks at the time, and they had their practice field there. And so, they asked me to figure out what to do with it. And we came up with this pretty, at that point, wacky idea of high density, mixed use, walkable urban – a new marina, office, hotel, retail around a plaza, rental apartments, condos, and from day one, decked parking, highly expensive to build, so we could get the kind of density that we needed. And the east side of the Seattle metro area, at that point, you did not charge for parking. So, this was an incredible investment with zero return as far as the parking goes. And everybody, you know, Urban Land looked at it and said, you’re crazy. And I mean, even the office brokers who have no skin in the game, said this is crazy. And we came up with this set of recommendations. And the family, the Skinner family, old mine family up in Seattle, said to me, great idea! Now can you build it? And I said, holy smokes, I’m a consultant. What, do you want me to do something? So for about two years, I was the fee developer and it came out of the ground, it just … to this day, it gets the highest office rents and rental apartment rents in the northwest of the U.S.. Because of its high density, walkable, urban nature.

Eve: [00:16:57] Wow. And you were hooked, right?

Chris: [00:17:00] Oh, yeah, I saw the power of it. It was just really impressive. And, you know, this is your ultimate doing well while doing good. And you can feel really proud of Carillon Point, which is what it’s called … because it’s a long-term keeper. And I asked the family, so, you know, why do you want to do something that’s, that’s so unconventional from the finance point of view? And they said, well, we’ve been around Seattle for 100 years. Our family’s going to be around for at least another 100 years. We’re building with 100 year perspective.

Eve: [00:17:30] Wow. So, then what led you to launch Places Platform?

Chris: [00:17:35] This is kind of a culmination of all the work I’ve done, going back to age eight. You know, I mentioned earlier, it’s the Sim City for real estate and place management and city management. It also could be viewed as the Bloomberg of real estate. Michael Bloomberg, with his original company that made him worth 40, 50 billion dollars, basically created a data set, a database of all the stock and bond markets back in the 70s and 80s, that … and so on one screen in front of you, or actually two or three screens, you could understand anything about any stock or bond that was being traded on public markets worldwide. And that was a huge step forward. Well, real estate is worth about twice as much as all the publicly traded assets in this country, of all the publicly traded companies. And we are not yet at that point, but we have 100 percent database of all the real estate, we’re real close, and that’s what Places Platform is creating. Working with Walk Score, working with Co-Star, working with Zillow and Collateral Analytics, and a variety of other databases that are in their silos, we’re bringing them all together. And we’re looking at it from an economic performance point of view …  meaning we can do gross regional product, GRP, at the place level, at the city level. At this point, we can’t get GRP below the metro level, at least officially, you know, throughout the country. But Places can take it down and tell you what the GRP is of Downtown D.C.. We look at the net fiscal impact, how much does the city net at the place level? How much does Downtown D.C. make for the city of the District of Columbia? The revenues coming in from property taxes and income taxes and sales taxes and all the rest, minus the cost of services, the net fiscal impact. And these walkable urban places almost always make the bulk of the money for a city to pay for public schools, and to pay for welfare and other social benefits. And then, of course, we look at the real estate valuations for all the real estate.

Chris: [00:20:05] We also have three other metrics. One is social equity. What does it mean for somebody who is a low-income household? We also look at it from a public health point of view, and particularly with COVID. And the fourth one that we have not yet developed is, of course, environmental. So, what Places Platform is trying to do is to have a quadruple bottom line. To analyze public policy, infrastructure investment, major real estate development, and understand and quantify what the economic, social equity, public health and environmental, you know, hopefully benefits, are from those investments.

Eve: [00:20:47] Is your hope that this information will propel cities towards the right sort of development?

Chris: [00:20:57] That’s it. I’ve come to realize in my career that there’s either a downward spiral for cities or an upward spiral. And the 80s and into the 90s was the downward spiral. No matter what you did, no matter what federal program, whether it be UDAG grants or Model Cities or you name it, redevelopment, there was a downward spiral that no matter what you did, no matter how much money you spent, it would not change the downward spiral. Well, we’re now in this upward spiral, with, you know, the market share gains for walkable, urban development is just through the roof, and the price premiums are two, three, four times the price per square foot of drivable suburban places. So, we have this upward spiral. And I have found that the upward spiral, if you have correct public policy, can both give you economic returns and social equity returns and public health returns and environmental returns. And this will be a measurement tool to make sure you are achieving all four of those returns. You do not have to sacrifice social equity for these economic returns.

Eve: [00:22:15] So, then I have to ask the dreaded question, do you think that COVID-19 is more than a blip on that upward spiral?

Chris: [00:22:25] To be flip? It is just a speed  bump, it is just a blip that, you know, a year or two from now we’ll look back and just say, that was kind of a weird couple of years. But having said that, I’m not saying that a lot of changes are being sped up. Changes that were in place …

Eve: [00:22:46] Compressed. Yep. Yep.

Chris: [00:22:48] The head of global research for Cushman and Wakefield asked me a couple of months ago to work with them to help figure out what’s the ‘future of office’ in the U.S.. And so we’re in the middle of that work right now, and certainly there’s going to be an impact, particularly on the office market. There’s going to be, in my mind, it’s pretty clear, that there’s going to be a repricing, i.e., a reduction in value of offices. It’s going to affect different metro areas differently, and we’re going to be looking at it, looking at the 30 largest metros to figure out what the impact will be in each of those 30 metros. But, like with every crisis, there’s opportunity, and the opportunity, if we see a repricing and a reduction in occupancy in the office space as more people work from home, and, you know, it’s not going to be 100 percent work from home. We know that. But it will be more than what we had, which is about 11 percent in 2018, according to the census, worked from home during the most recent week that that survey was conducted. It’ll be higher than 11 percent.

Eve: [00:24:07] Yeh, yeh.

Chris: [00:24:07] So, those offices will experience a lot of pain. And the other thing is, that then allows that office space, which is in remarkably great locations, particularly the walkable urban space, to be recycled, probably as residential.

Eve: [00:24:28] Yeah.

Chris: [00:24:28] We are short anywhere from seven to 12 million housing units in this country. That we’ve not allowed the real estate development community to build. We have mandated that they could not build them. And that has created this horrendous affordable housing and homeless situation. And so a lot of those office spaces, as well as a lot of the hotels, are going to become assets that we can convert into housing in great walkable urban locations.

Eve: [00:25:03] Right, right. Aside from that are there any other current trends in real estate that you believe are most important for the future of cities?

Chris: [00:25:12] Yeah. We collectively in real estate and the built environment, you know, urbanists, in general, we really need to address, forcefully, the need to ‘up-zone.’ Up-zone land, and in particular, in cores and corridors. The cores are walkable urban places, both in center cities, but in particular the urbanizing suburbs. Probably 50 percent of new walkable urban development will be in urbanizing suburbs. Metro D.C. is leading the way, not just in this country, but worldwide in the urbanization of the suburbs in Arlington and, you know, downtown Bethesda, Silver Spring, Reston Town Center, National Landing, National Harbor. But it’s a massive up-zoning battle …

Eve: [00:26:07] Yeh.

Chris: [00:26:07] … fought by NIMBYs. NIMBYs are the most pernicious force in urbanism right now, and I am quite ashamed of my generation, I’m a baby-boomer, that are leading the NIMBY charge and it’s the most selfish movement ever. And they’re basically saying, you can’t come here. And if I stop you from coming here, my house is worth more. And it’s all in the land. So, we need to flood the market with more up-zoned, walkable urban land. But it’s only going to be a small percentage of total metro land. Here in D.C. only two percent of the metro area is walkable urban. That’s it. Two percent. And that’s where all the action is.

Eve: [00:26:55] You know, you’re probably familiar with this, but over the last 10 years or so, I visit Melbourne, Australia regularly, and they up-zoned their key commercial corridors in the way you’re describing. And it’s been really interesting to watch it. Are you familiar with that?

Chris: [00:27:10] Very much so. I’ve been to Melbourne quite a bit.

Eve: [00:27:13] Yeh, yeh.

Chris: [00:27:13] You may have run into Mike Day, who’s the leading urban planner in Australia, who’s based there, and he has an urban planning firm that is the largest in the country. And he and I have been working together, particularly in Melbourne and Sydney. Yeh, they really need to up-zone. I mean, they obviously, you know …

Eve: [00:27:32] Oh yeh, Melbourne is sprawling badly.

Chris: [00:27:34] Oh, god, it is horrendous. And the same with Sydney. But, you know, their downtowns are among the top five on the planet.

Eve: [00:27:43] Yeah, they’re fabulous.

Chris: [00:27:44] When you get out of the downtowns, and it’s just suburban hell.

Eve: [00:27:47] Not all of it. Like Melbourne has a really great train network and a wonderful bike network that really connects some of the neighborhoods around downtown, really, pretty well, which is, you know, one good thing.

Chris: [00:28:01] Well, the downtown and the downtown adjacent places are tremendous in Melbourne, as you know better than I, you know, the region of Melbourne is comprised of, like in the U.S., many, many, many jurisdictions. And so the center city is one jurisdiction, downtown and downtown adjacent. So, then all those suburban jurisdictions just don’t get it …

Eve: [00:28:27] Yeh.

Chris: [00:28:27] …and they are beginning to get it. A lot of efforts going into it. So, I have no doubt that they’re moving in the right direction.

Eve: [00:28:35] Well, a city like Melbourne, too, I think it’s one of the fastest growing metros … It’s certainly the fastest growing in Australia, and …

Chris: [00:28:42] And it’s such a lovely place. It is just …

Eve: [00:28:44] It’s a lovely place.

Chris: [00:28:45] Charming as can be. Remarkable people.

Eve: [00:28:49] Ok, then, do you think equity crowdfunding can play a role in building communities for everyone? We’re talking about social equity and how people can get a stake in their own community.

Chris: [00:29:02] I think it’s a critically important trend. And again, it’s ‘Back to the Future.’ This is how we used to build the great real estate. I always used to wonder back in the 80s when I was really trying to noodle through how did the ancients of the late 19th, early 20th century build these buildings that were so well built? They were over-engineered. They were architecturally significant. They were built for the ages as opposed to the junk that we were putting up in the 80s and 90s that were, you know, just slam bang, thank you, ma’am. Throw them up. Assume that in 10, 12 years they’re going to become a slum, and you didn’t care because you got your money out. And it was because of crowd funding. And it was local folks coming together to build, in particular, you see this with hotels that, every city needed a glamour hotel that would show off the best of that city. And all the business folks would come together and put in money to build this hotel, to demonstrate that this city has come of age. And those hotels are with us today as the grand, marvelous anchors of our downtowns. Every city throughout the country has one. But the same thing applies to much of the commercial real estate, that a lot of small investors came along and dropped in the equivalent of a thousand dollars and they owned a little piece of their community. And that did a lot of things. One is they would economically benefit from the vitality. They would walk past it and they could say to their friends, I own that building. Point of pride. That’s the great thing about real estate, is that, you know, unlike software development, which is viper … just vaporware, you can point to a stick and brick building and say, I own that. Great pride, great emotional return. And it also gives you a reason to care about and patronize your hometown. It’s the ultimate doing well while doing good.

Eve: [00:31:10] Yeah, I think you’ve described exactly why I started a crowdfunding platform. In Pittsburgh, you know, in the neighborhood I lived in for a long time, some of my neighbors would just band together to buy a vacant house to make sure that it wouldn’t fall into a slumlord’s hands. And, you know, that was exactly in that era. And I was, I was pretty impressed with that. I thought it was pretty fabulous.

Chris: [00:31:36] Yeh, yeh, I’ve seen that kind of thing happen throughout the country. Chattanooga, again, my favorite small town, has an organization called Chattanooga Neighborhood Enterprises that has redeveloped low-income neighborhoods surrounding downtown with zero, zero displacement.

Eve: [00:31:56] Wow.

Chris: [00:31:56] And it’s just remarkable. You know, there’s so many great examples out there now, over the last 20, 30 years.

Eve: [00:32:04] Well, I’ve really, really enjoyed talking to you. And I can’t wait to see how your new venture evolves. Thank you very much for joining me.

Chris: [00:32:11] It’s been very good to catch up with you.

Eve: [00:32:13] Thank you. Bye.

Chris: [00:32:13] Bye. Bye.

Eve: [00:32:26] That was Chris Leinberger. His fascination with cities started at a very early age and evolved into an astounding career working on urban land issues as a strategist, teacher, developer, researcher and author. He built an enormous advisory company and then moved on to focus on development as a co-founder of the Arcadia Land Company, a progressive New Urbanist development company for which he is still a managing partner. I hope you enjoyed listening to this interview as much as I enjoyed recording it. You can find out more about impact real estate investing and access to the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve: [00:33:20] Thank you so much for spending your time with me today. And thank you, Chris, for sharing your thoughts. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.