Rethink Real Estate. For Good.

Visionary

Big change.

Ommeed Sathe is a Vice President and head of the Impact Investment unit in the Office of Corporate Social Responsibility at Prudential. He grew up in a family who felt public service, through work or volunteerism, “was fundamental.” And that rubbed off.

Just out of Harvard Law School, Ommeed was in New Orleans after Katrina and decided to put his background in urban planning to use to help the city recover. For four years he worked with the New Orleans Redevelopment Authority (NORA), working on properties around the city. It was with NORA that he began working with Prudential, and became impressed with their willingness to stay working in the community for more than twice as long as other corporations. 

Ommeed joined Prudential’s Office of Corporate Social Responsibility in 2011. His unit manages a portfolio of over $1 billion in impact investments.

The investment work he oversees at Prudential is about 80 percent stable, predictable credits with established sponsors, while 20 percent “are far more risky and untested but have the potential to create significant social impact and to pioneer new markets.” Much of their recent work has been in Newark, such as with the 1901 Hahne & Company department store, and as of 2016, his portfolio had supported the creation of over 1,000 housing units, 250 hotel rooms and 300,000 s.f of retail space in the city, where Prudential is based.

Previously Ommeed was director of real estate development for the New Orleans Redevelopment Authority, and a real estate and land use attorney with Fried, Frank, Harris, Shriver & Jacobson in NYC.

Insights and Inspirations

  • For Ommeed, investing is more than a way to make money.
  • For Ommeed, three key things define impact – the physical characteristics of a project, community engagement and whether or not the project is catalytic in nature.
  • Is bigger better? While other funds aspire to reach 10 billion dollars when the 1 billion dollar hurdle has passed, Ommeed’s aspirations differ. Rather than go bigger he’d like go riskier – with untested developers and untested ideas in untested neighborhoods.

Information and Links

  • Read about Ommeed and the business of doing good at Prudential.
  • Prudential has focused some of their impact investing in Newark, a city that has suffered through 140 years of disinvestment. They helped to restore the iconic Hahne’s Department Store in Newark. Now it’s a vibrant mixed-use center.
Read the podcast transcript here

Eve: [00:00:14] Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing. 

My guest today is Ommeed Sathe. Ommeed is Vice President of Impact Investments in Prudential Financial’s Office of Corporate Social Responsibility.  His unit manages a portfolio of $1 billion in impact investments.

That’s a big number and it doesn’t seem like Ommeed is slowing down.

Ommeed grew up in a family who felt public service, through work or volunteerism, “was fundamental.” And that has clearly rubbed off.

Be sure to go to rethinkrealestateforgood.co to find out more about Ommeed 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, SmallChange.

Eve: [00:01:42] Well hello Ommeed, thanks for taking the time to talk to me today.

Ommeed Sathe: Absolutely, Eve, it’s a real pleasure to be with you.

Eve: Well, that’s great. So I wanted to start with your title, Vice President of Impact Investments at Prudential. What does that mean?

Ommeed: [00:01:59] Yeah, so I head up the company’s impact investing activities, and that’s obviously one of those terms that kind of sounds OK, but it doesn’t really necessarily clearly translate. But what it is, for us, is it’s a portfolio of investments we’ve made that are trying to have both a financial and a social impact. And so they are genuine investments that try to make money, but we invest them exclusively in projects that we think have outsize social investments and in particular in the types of projects that our company and traditional capital markets wouldn’t do otherwise.

So, they’re really meant not to be sort of a subset of what the company was doing already, but to be a portfolio, to be used to be catalytic and differentiated and to invest in places we wouldn’t be investing otherwise and in projects we wouldn’t be looking at otherwise.

Eve: [00:02:51] So how big is the portfolio?

Ommeed: [00:02:53] At the moment, it’s, it’s about a billion dollars.

Eve: [00:02:57] Wow, that’s pretty big. Can you give us some examples of the things you’ve invested in?

Ommeed: [00:03:02] We have sort of two halves of the portfolio. One is around very physical types of projects, affordable housing. We’ve made a lot of investments in our hometown of Newark in big transformative developments and redevelopments. And then we also do some interesting work around new ways of doing agriculture, new ways of sort of growing and feeding the planet. And that’s sort of on the physical side of the work. And on the other side of the portfolio is investments in really interesting social purpose businesses. And those have been largely focused on financial inclusion. And then on education and how do we re-skill and retrain the labor force?

Eve: [00:03:42] That’s pretty great. How would you define impact in real estate? How does Prudential define it? Like, both of you?

Ommeed: [00:03:50] Yes. So, this is actually a really fascinating question. So, I think there’s probably three ways to think about it. You can think about it just sort of on the the most, I’d say, straightforward which is, you know, units of affordable housing, square feet of redevelopment, square feet of the building, and if it’s a LEED platinum. Your, sort of, the physical characteristics of the development very much sort of very clear outputs of sort of what the real estate is. I think the second way to think about it is what’s sort of the community level and at the residents’ level. And so how are residents’ lives being impacted and living in certain places? How are services? What’s the quality and satisfaction of tenants? So very sort of a consumer impact as well as in looking at sort of the communities in which this real estate is. So, are these places where investment wasn’t being made and after you make these investments, does more investment come in? Are those investments leading to good outcomes or is it just catalyzing sort of unhealthy gentrification? Those are a couple of dimensions. And then I think the third and both, sort of, most qualitative and trickiest maybe to sort of measure, but something that really drives us is, is this work in any way catalytic? Does it change the trajectory of what a market is going towards? Does it prove that a new way or a new type of housing or new type of sort of investment strategy that could work thing be replicated in other places?

Eve: [00:05:18] That last one must be more of a hope than a metric that you can measure.

Ommeed: [00:05:23] That’s right, it’s true that it’s nothing than more of a hope. But I’ll give you some examples, maybe that last one, because I think it kind of brings it to life.

So, you know, one of the things that we’ve been looking at and I think we’ve done with the great sort of sort of architectural firms is how do you say we take lots that have been deemed substandard, often sort of ineligible even for development and develop really creative structures and housing and building models that can sort of create value on land that is otherwise essentially worthless. And are there ways to sort of replicate that and make that go to other places? Because it’s interesting, right? Like, you know, with land getting so expensive and all the prime development sites gone. If you’re trying to get more affordable housing into sort of affluent markets, sometimes figuring out really creative design solutions for substandard or non-standard lots is one way to do that. Another thing that we’ve done sort of I think has been really catalytic. We worked with some colleagues down in Washington, D.C. They had recently passed a new ordinance that required much higher levels of stormwater retention. And a lot of our city’s stormwater is actually a sort of surprisingly under-appreciated problem. Enormous source of pollution, flooding. And so, cities are starting to try to grapple with how they do this better.

[00:06:37] And so D.C. passed this ordinance requiring much higher levels of stormwater capture. You know, one of the few ways you can do that on a development is you can either sort of build in essentially bladders in the basement to capture water or green roofs on the roof. But what DC did that was really interesting was they permitted people to fill some of their obligation by making improvements to green infrastructure in other parts of the city. And so we helped fund a bunch of improvements to green infrastructure and you got essentially tradeable stormwater credits. And so this was a version of sort of what people talk about wanting to try to do with carbon by creating tax and trade mechanisms and, but done at the local level around a whole novel problem with stormwater. And so that’s sort of an example of something that I think we helped build the first green infrastructure products and create the first tradable stormwater credits. And we think that solution is really interesting. And we also think other cities will see that, and potentially try re-create a similar solution.

Eve: [00:07:35] That is catalytic. So, you know, when you were talking about unusable lots, I was thinking about an article I read recently about the downsizing of some freeways and the land that that might free up. For, you know, development use. I think that’s a really interesting thesis in this time when we’re starting to see autonomous vehicles and a lot of people who don’t want to own cars. It’s really interesting to think about where land is available, right?

Ommeed: [00:08:04] I think it is. And it’s still strange to me, actually, because there’s a sort of funny meme, right, that what will happen in Silicon Valley finally invents a technology that allows us to build the second story. And, you know, I think that spirit is kind of true even in New York City. You go around and see so many easy and obvious potential sites that you could build on. Sites that are being used for car dealerships, parking lots, abandoned, your public assets, you know, right of ways. And it’s amazing just how much of that land is there when you start to look. And it does feel like some of the lowest hanging fruit, in terms of how do we find opportunities to create more affordable products. Again, it may not be the best location in the city, but it’s certainly habitable and buildable and safe. And I think it’s been really interesting. We worked with this great architecture firm down in New Orleans the Office of John Tate, and they’ve done really interesting stuff thinking about how to do that.

Eve: [00:09:02] Yes. Yeah, I know Jonathan really well. He was, he actually did the first crowdfunding offering with us.

Ommeed: Oh, there you go, it’s a small world.

Eve: It was one of his Starter Homes on an odd lot. Pretty fascinating times. Do you have metrics that you’ve developed to test against projects that come to you?

Ommeed: [00:09:23] We do. There’s a couple of ways, and I think goes back to sort of thinking about the different impacts, you’re capturing metrics for things like the number of affordable housing units, the square feet of, extra, square feet of Y that’s fairly straightforward to capture. You know, I heard this quote the other day. I thought it sort of kind of interesting. We can grind to a fine dust that we can easily ascertain. And yet sometimes in doing that, we don’t really measure what’s most important. And I think the things that are most important are somewhat, by their nature, more ambiguous. And so some of this is actually the process of asking those questions. So, I’ll give you an example with affordable housing. You know, we know it’s desperately needed and in many affluent communities. And yet a lot of times where affordable housing gets built isn’t necessarily the, you know, the most affluent areas. Is that a good or a bad thing? Right. You know, it’s not a question that can be answered with a single metric, because it matters in terms of looking at the public education system and saying, OK, you know, are there good education resources or are there community resources? You know, there’s research by Raj Chetty that sort of speaks to just how relevant place really is the social and economic mobility.

[00:10:27] And that data is not. It’s really interesting and compelling, but it’s certainly not black or white, in terms of its implications. And so one of the things I do think we’re trying to do a better job and actually think is something that’s so under-appreciated in real estate is really to survey tenant residents and try to get data from the people who live in buildings,  about their lives getting better, what’s happening actually as a result of being in this complex here, because I think some of these questions are important questions, but they’re not solvable with the data we have. And yet, you know, every other sector of our economy, it’s you know, if you could buy shoes from Zappos, every one of those companies is has a net promoter score and wonders what it is and as careful about it and uses that as a leading indicator of telling you whether something’s working. And yet in real estate and I don’t know about you, but no landlord has ever, no only one I should say, has ever asked me, like, was I happy.

Eve: Yeah, yeah, interesting.

Ommeed: And it’s striking, the one landlord that did ask me that question was absolutely, no surprise, the single best landlord I ever had.

Eve: Often landlords are pretty scared of the tenants.

Ommeed: [00:11:32] And it’s funny, I do think one of the trends we’re seeing that I think is a really interesting trend, is that as far as people I see and real estate are really moving in this direction, that so much of real estate development used to be about the physical development of the assets, actually getting the things built and getting it through entitlements and through reviews and all of that. And so, the field really focused on the physical construction and not the management and hospitality.

But you just look at sort of food halls or even kind of we-work and co-working spaces. All of those models are fundamental, about taking spaces that exist and thinking about how do we manage them better, how do we program them better? How do we get more stuff out of the same space? More and more, I think real estate is actually moving to hospitality. That if you think about hotels, right, with hotels, you think about brands and you think about your experience. You don’t really think about hotels and associate them with the physical structure. To some extent, everything you see and experience is on the inside.

Eve: [00:12:31] Yes. So, you know, I interviewed someone a couple of weeks ago you might be interested in them in Amsterdam. He has a spin-off, an architect who spun off a company called Superlofts. You can find it on my website.

And it’s very interesting because he creates a community before he, before they even start designing the building. They start meeting with groups of people who want to buy these little condominiums and talk to them about the needs, the dreams. Almost, he said like a video – what would you like a day in your life to look like? And when they have a group of like-minded people together they will start to kind of design the physical space around them. It was fascinating.

Ommeed: That sounds amazing.

Eve: Really fascinating, beautiful architecture as well. So I think there’s a lot of really interesting innovation going on. So, why Prudential? That might be surprising to some people.

Ommeed: [00:13:25] Yeah, it is, I mean, it’s sometimes surprising to me as well. My connection to Prudential’s at a couple of levels. One, before I joined the company, I was in New Orleans working after Hurricane Katrina. And in that role, I led redevelopment for the New Orleans Redevelopment Authority. And we were tasked with trying to really catalyze neighborhood-based redevelopment in the wake of the storm. And in doing that, in that role, got to work with just about every kind of capital source around the country, philanthropic, government, private sector. And we were trying to coalesce all of that capital around really important, really transformative projects. And Pru is just one of the best people we worked with. And in that experience, and it really shaped for me how different the access to capital is by place. So I’d come from working in New York largely in the boom times ahead of the financial crisis, working on often quite foolish projects with unimaginably easy access to capital. And even if they’d worked, relatively low returns and then going to New Orleans and having really vital projects with great returns, but just in a place where there was almost no capital available. And seeing how important it was to have sort of, you know, investments and capital to try to move away from a very limited set of places which have kind of capital they need for reinvestment.

[00:14:45] You know, I think a lot of people who are urbanists, I’m sure this will sort of resonate, you know they’ve grown up in New York, San Francisco, D.C., Boston, you know real estate we call the sexy 7, right, The 7 kind of big, urban markets where capital is unbelievably plentiful. And that’s not really reflective of what it’s like to work in most urban communities around this country. You know, in most urban communities, even good projects have a hard time finding financing. And it’s even harder for projects that are really sort of aspirational at a social level because a lot of those projects are often coming from entrepreneurs or untested, who have limited ability to manage pre-development. The work that you described in terms of sort of crowdfunding and some of that I think is a really interesting angle to bringing capital into those markets. But another is sort of getting institutional money like Prudential to have dedicated programs that really start to look in these non-traditional markets and opportunities.

Eve: [00:15:41] Right. So I’ve done a lot of real estate development like that in Pittsburgh, which is a city that was in pretty bad shape when I started doing the work I did and I relied heavily on public funds and the mayor’s office and the Urban Redevelopment Authority to fill that role. But I imagine that many cities don’t have those sorts of resources for developers. And I also think those funds have dried up a little. So that makes Prudential’s role perhaps even more important.

[00:16:07] Yeah. No, it does. And I think we’re trying to push ourselves to get even more early stage with our investments. You know, I think some of the stuff we’ve done in Newark has actually been very large projects and in some other markets we’ve been able to do projects which are 50 to 100 million dollar kind of projects where we’ll be investing 10 or 20 million at a time. But where I think the real need is to have, you know, institutions like us really push to do more in pre-development to do more with sort of, you know, young and minority development firms and to really try to continue to push earlier, because the earlier you get, the more you see that acute lack of capital. You know, when you really get into the machinery of real estate, you see why and how access to capital is such a profound differentiator. It’s not really the project economics that blow things up. You know, what we see is people get stuck in pre-development.

Eve: Yes.

Ommeed: [00:16:57] You know, they get stuck having, you know, bought land and thinking it would take them a year to get permits. And now it’s two years and they don’t have money to make the payment on an acquisition loan or they’ve got to pay for another X, Y, Z of permitting or entitlement costs. And they just can’t get the project to the finish line. Typically, you know, the most underserved markets are often also the ones that are actually most difficult to operate in because they don’t have some of the robust public sectors like you saw, even saw in Pittsburgh, right, and so you couple those challenges and we really do see it as being a pretty acute need to solve.

Eve: [00:17:32] Prudential would actually go in at such an early stage of pre-development stage? That’s pretty unusual.

Ommeed: [00:17:38] I want to be clear we haven’t done it yet, and I think it’s sort of where we want to get to. You know, as we see it, adding a part of this is just the evolution of the real estate market. When we started this program seven or eight years ago, I’d say, it was really just not a lot of capital flowing in. Like, take a town like Newark, there was almost no equity capital to support redevelopment. And it really felt like even our financing at the project level was pretty transformative. Fast forward to where we are today, I’d say, if you can get a project to being at a closing even in Newark, there’s a lot of sources that’ll provide equity capital now, but it’s the money to support the pre-development and planning, entitlement, that stage of the work that’s really very, very scarce. Because that money’s so scarce, it means that the people who do big projects are going to look can be and have a certain set of values and approaches and people with new ideas and real creativity won’t be able to be even having a seat at the table.

Eve: [00:18:36] So a billion dollars now. What’s what’s the goal for this portfolio?

Ommeed: [00:18:40] There’s a couple of ways you can go, right? Like most people in financial services, you get to a billion and then you want to get to 10 billion. And bigger is just better. Actually, I think given sort of our mandate to be catalytic and creative, we’re trying to actually push to some extent to the opposite. So, not to necessarily get the portfolio bigger, but actually try to push earlier down the risk spectrum and really push ourselves to be more catalytic and more transformative and more creative rather than build to be bigger. Because I actually think this is sort of in my experience, once something gets bigger, it actually gets more vanilla, more predictable and usually if it makes sense, there will be lots of people who’d be willing to invest.

Eve: [00:19:23] Got it. That’s really fascinating. What percentage of the total Prudential portfolio is the impact portfolio?

Ommeed: [00:19:32] Good question. I’d say there’s two ways to think about that. Right, so when you’re an insurance company, you have a tremendous amount of assets. But somewhere in the neighborhood for Prudential, you know, five hundred billion dollars of assets, let’s say. But that’s not really a very accurate measure because the way insurance companies are regulated, ninety five percent of what they do has to be in very safe, predictable bonds and rated kind of loans. And so, the portfolio we manage is essentially 5 percent of the company’s risk appetite.

Eve: [00:20:06] OK. Well, I know a little bit about the work in Newark through Jonathan Tate. I’d love to hear a little bit more about that. I think what you’re doing there is tackling quite a big problem and quite a big project by the sounds of it.

Ommeed: [00:20:19] Yes. You know, so Prudential’s been headquartered here in Newark for the better part of a hundred and forty years, and obviously, the city of Newark has gone through many, sort of evolutions during that time. I think what’s interesting, right, is that you can sort of contrast what we’re doing now with maybe what people did 30 or 40 years ago. There was obviously a fairly disruptive and difficult period of urban unrest, and the riots and a lot of people fled the city, a lot of companies left the city and there was sort of a cycle of disinvestment for many, many years. And we’ve done this really interesting research, actually, you know, Newark, pre the civil unrest had more urban renewal than anywhere in the country.

[00:20:58] And you can watch these videos and they are just heart wrenching because the helicopter shots of the city. And it looks like Berlin after World War Two. And yet the voice-over on the video is so proud of what they’ve done.

Eve: Ooh.

[00:21:14] They state literally there’s been more, you know, more of urban renewal per person in New York than anywhere else in the country. And this was Newark 1950, and you see actually sort of the devastating impact of that cycle in the community. But you can really see some of that and that’s sort of just a random aside. But in the sort of reaction after the civil unrest, a lot of the investment that was made, was made and things like if you’ve ever been to Newark there’s something called the Gateway Center, which is like the Renaissance Center in Detroit. Towers, skybridges connected to transit, you know, kind of fortress style orientation to the urban environment. Instead of doing that, what we decided to try to do sort in this most recent cycle and look, you know, Pru had a role in building those gateway complexes in the 70s and so this is by no means, you know, a story that doesn’t sort of involve us.

[00:23:02] But in the most recent sort of time when a company had a choice around building a new tower, rather than build it near any of the train stations or in any of the sort of locations that would have been most accessible to commuters, we built that tower literally in sort of the heart of the city. Now it’s on Broad Street, which was aptly named, it’s the broadest street in downtown. It’s on the side of what used to be a sort of a former shopping strip. So, it’s a center where all the department stores and movie theaters used to be in downtown. In building that tower, we also made, I think, a really critical decision with the team I run, to not only just build something for ourselves but to start to invest in all of the sort of transformative developments in and around that location. And the most important of those was an old department store called the Hanes Department Store, which during its heyday was a department store that would have competed with Saks. It had a four-story grand atrium like the Grand Magasin in Paris. People would come up and have these amazing memories of putting on white gloves and dressing up and going to this department store.

[00:23:08] There was the Maple Room and the Pine Room and, you know, we just, it was this incredible legacy experience and actually even had a really interesting role as one of the first places where integration happened in the city. Shopping was actually one of those areas where integration was sort of, one of the first places to happen. So, really a pretty legendary history, but had been closed for 25 years and the building itself had completely fallen apart and we made it sort of our passion project to redevelop that building. And we were able to do it in this incredibly complicated, mixed use way. So, the first floor is retail, which is both big box retail and neighborhood retail. The second floor is offices. Third and fourth floors are housing. 40 percent of the housing was set aside for affordable housing. The retail mix is everything from fintech companies and co-working to really cutting-edge nonprofits. And then, maybe the sort of cherry that made it both the most difficult project I’ve ever worked on but also the best, was Rutgers University brought in all of their arts and design program into that building and did it in this way that I think is really unprecedented where, first of all there’s no separate entrance for the university, the public can go into those spaces. But even intermixed in the Rutgers space are private galleries and a rotating space, right in the front of their space for, you know, kind of community serviing arts nonprofits. They essentially have like six month displays where they can come in and sort of gain visibility and access to resources. And so it’s been a real labor of love. And it’s physically, that building, plus the Prudential Tower plus Military Park, plus some other things we were doing, started to re-knit together parts of the downtown. So we followed that up with another half a dozen investments that I think are sort of all, again trying to sort of replicate that playbook of mixed income, mixed use development with a mix of both sort of national needed amenities and community serving retail and office tenants that both sort of try to draw exciting new things, but also, you know, cater to some of our legacy businesses.

Eve: [00:25:13] Yeah, so common theme I’m hearing from a lot of people now is that part of the process of keeping a community whole is to provide space, a community hub, space in some way or another for a community to feel that it belongs while improvements are going on around them. Does that make sense?

Ommeed: [00:25:32] Yeah, absolutely. One of the things that we had in that building is we, we sort of restored this grand atrium and the grand atrium is actually sort of open to the public year around. And so it becomes this place where you see people, especially in winter here right like, it serves almost like, you know, the function of a town town commons and we sort of made it kind of connect both sides of the building so this is a really kind of interesting passageway.

Eve: [00:25:56] That sounds lovely, I’d love to see it. Perhaps this question is redundant, but I’m going to ask it anyway. Do you think socially responsible real estate is necessary in today’s development landscape?

Ommeed: [00:26:07] I do. And it’s got a place to play at a lot of different levels. So I think if you look at sort of the institutional level, I think given some interesting things where people are starting to sort of demand that portfolios be LEED certified and have certain environmental obligations, and I think that’s something that sort of very both important and do-able at the very sort of macro level for real estate. But then I also think, with what we’re facing as a country between the challenges around affordable housing, just radical inequity, and then honestly, we haven’t built a lot of housing in this current boom. It’s one of the most sort of striking things that’s happened is that we haven’t built enough housing, we haven’t created enough units, and that’s driving up the price for everyone. And I do think we, we need capital to be creative and thoughtful about how do you get more going on in places where it’s not and get it to a density in a scale that actually starts to bend the cost curve?

Eve: Yes.

Ommeed: [00:26:59] You know, one of the things that, you know, we get asked a lot is sort of, you know, this gentrification question.

Eve: That’s a big one.

Ommeed: [00:27:06] And again, I think that that question, it’s so much shaped by people’s experience in cities like D.C., Boston, New York, cities that are going through these incredible economic booms but have also hardly permitted any housing. If you look at New York, New York City I think last year permitted as much housing as Jersey City. That’s one city of eight million people, another three hundred thousand during, you know, year 10 of an economic boom. And so, you know, historically, when we’ve had economic booms, we’ve been able to produce a lot of housing. And the thing that’s really striking right now, we’re just not doing that as a country. And so what’s happening is because there’s no real housing production and because we’ve really reduced, for reasons that no one really quite fully understands, geographic mobility, so people aren’t moving like they used to, the jobs that are being created and the wealth that’s being created in certain places in many cases is all being swallowed back up by people’s rent.

Eve: [00:27:59] Interesting.

Ommeed: [00:28:00] The cost of living. And so, you know, I think we are really as a society, not doing what we need to do in terms of connecting people to economic growth.

Eve: [00:28:09] Do you have any ideas about that? I talked to an architect in Australia who’s kind of plugging away building affordable, sustainable buildings and making sure that the first buyers are city-serving civil servants who need to be close in. People are taking it from every angle.

Ommeed: [00:28:29] There’s no silver bullet. Sure, I do think one of the things that we have to rethink from a design perspective is density.

You go to a city like Vancouver, I mean, I think there’s really different ways in which density can be expressed at the street level. And people’s experience, you know, people are very poor at actually gauging how dense something is. So, one of those things is I think actually becoming comfortable saying like, you know, we do want to sort of start to think about infill and densification and how do we do that? I do think some of the stuff that’s happening on the West Coast about accessory dwelling units and trying to come up not with sort of solutions that, you know, are project solutions, but are actually these kind of decentralized solutions, making it much more easy for people to add a unit, or what Minneapolis did with eliminating single family zoning.

Eve: Yeah.

[00:29:19] I think it’s really, really interesting. A few other things we’ve seen that we’re really excited by – in Texas and Colorado and a few other places, we’ve seen this interesting move to take assets that were built in say the 1970s and 80s as large market-rate rental and kind of reverse convert those to affordable housing. And the way that works is that basically in exchange for really substantial tax abatements, buyers go ahead and dedicate a portion of those units to being affordable and they end up working out roughly the same to what it would be if they bought those buildings and invested lots into to aesthetic renovations and tried to remarket them as luxury. So, these are essentially perfectly lovely units built except with carpet and cherry wood that rather than ripping all that out and trying to convert them into luxury housing, you leave them like they are and convert them into good quality, you know, mixed income developments.

Eve: Yeah, yeah, yeah.

Ommeed: [00:30:16] I think some of the reverse conversions are really interesting too, as another theme as to how we can get affordability on scale.

Eve: [00:30:22] You know, in Melbourne, Australia, years ago, I was really fascinated, there was, the zoning department implemented densification along major roads where there was infrastructure. It’s actually a really sprawly city. And so, what they permitted was much higher density buildings, housing, along roads that had bus and train tram. It’s been really interesting watching it unfold, you know you can really see the physical spaces changing. But it’s a really smart move to take existing infrastructure in a very big city, which is going to be very expensive to increase, and find a way to create density around it. I thought that was pretty smart.

Ommeed: [00:31:06] Yeah, it does sound like a really elegant solution.

Eve: [00:31:09] There’s another neighborhood there that I know has now put an overlay district in place where they are not permitting anymore parking spaces moving forward. They’re really trying to eliminate them completely. It’s a very dense, mixed-use neighborhood, very close to the central business district. So, they’re making some pretty bold moves with zoning to try and handle what is sort of a rapid sprawl.

And of course, that means if you can live close in and you can have a smaller unit and you don’t need a car because you’ve got access to infrastructure and it’s more affordable. Right.

Ommeed: [00:31:42] Right. You know, it’s interesting, I question required parking. Most of the development we’ve done has has either had minimal or no parking associated with it because the zoning codes here were permissive and it’s a real driver of, as you said, you know, you can create more units, you can reduce the cost. Parking minimums are, I think, a hidden and really destructive part of many zoning codes.

Eve: [00:32:05] They’ve been very destructive, not just for housing, but even when you think about retail strip malls with seas of parking in front of them which are really all about parking minimums.

So are there any other current trends in real estate development that you think are important?

Ommeed: [00:32:19] We’ve talked about a lot and it’s not so much a real estate trend, but this decline in human mobility and our declining mobility rates, I think is just one of those fascinating social trends that I think has implications for place and how we do things that I don’t think we fully quite grapple with. I do also think that, you know, we’re entering an increasingly dark age for retail.

Eve: Yes, we are.

Ommeed: [00:32:44] You know, there’s aesthetic implications to that but it’s hard to imagine true vibrant urban places without vibrant retail corridors. And so trying to figure out sort of what else can we do on ground floors? We see this problem in Newark, almost every square foot of retail we’ve had has had to be filled by a food and beverages. And even then, after a while, you reach saturation. So, what can you do with spaces that actually are interesting and inviting, and, you know, if you are pessimistic on the future retail?

Eve: [00:33:14] This is a dilemma, because other countries we’re not really, not really seeing the demise of retail in the same way. It’s really a shame for us. Right. It’s very difficult.

Ommeed: Very difficult.

Eve: You also engage the community, right, in your work in Newark?

Ommeed: [00:33:30] We do. One of the things that’s been interesting in Newark is that I think there’s this big cadre of, you know, of what people would call sort of anchor institutions, and that have been a nice kind of vehicle to sort of get all of those different institutions to really try to, sort of, really think differently about this community engagement and not sort of recreate what happened in the 1950s and 60s in terms of just sort of having this kind of urban renewal from the top down.I think part of what we’ve tried to do in insurance in the beginning is, in finding a way to sort of help smaller infill neighborhood based projects, you actually get to interact with people in community and get just an insight, at a much more human level, into what’s sort of driving people and what needs there are felt. I think wherever you can, trying to sort of really, I think encourage transparency.

[00:34:21] We’ve, you know, we’ve been really fortunate, I think, to have good leadership at the Mayoral level in Newark and I think they have really forced and encouraged that same kind of community convening, but also done it in a way that, I think, you know, too often those meetings are either sort of lip service or not willing to sort of push back on these issues, let’s say, around gentrification. And what I think the Mayor has done a really good job of here is both coming up with good policies around inclusion and local hiring, but also signing up for the fact that, look, inclusive growth also means we have to be able to grow and do things the right way and that if you look at a city like Newark, almost everything we’ve built has been vacant buildings are vacant lots.

[00:35:04] You know, there’s still a long arch before you get into displacement. And actually, if you’re adding units of affordability and doing that, you can be constructive in taking the edge off of those pressures.And so I think there’s been a really good set of conversations that aren’t trying to sort of demonize either side, but trying to get to a pretty reasonable resolution. So, we’ve been fortunate here.

Eve: [00:35:28] So I’m going to just ask a wrap-up question. Where do you think the future of real estate impact investing lies for the country? It’s really just a little blip right now. Right?

Ommeed: [00:35:39] Hmm. I think it can be two things at the same time. I do think there’s a real role for institutional capital in pushing more investment into things like affordable housing preservation and sustainable large scale development and I think that’s largely about sort of preserving existing assets and upgrading existing assets and I think that’s one scenario that impact real estate can do. And then I think there’s a need for the kind of catalytic capital that we have to really push money into the places where there’s just very little capital availability. I think you could see two, sort of very different approaches, depending on sort of the type of capital of the scale and the places they go, but both are needed.

Eve: [00:36:23] Well, it sounds like a fascinating job you have and probably most people listening to this, are very surprised that Prudential is kind of taking a lead in this and I’m looking forward to seeing what else you invest in. It sounds pretty fabulous.

Ommeed: [00:37:37] Well, thank you. I’m so excited to go look at sort of some of the examples you mentioned.

Eve: Ok, we’ll talk again soon, OK?

Ommeed: Thanks.

Eve: That was Ommeed Sathe. For Ommeed, investing is more than a way to make money. It’s a way to make a difference. His portfolio at Prudential has already supported the creation of well over 1,000 housing, 250 hotel rooms and plenty of retail space in Newark.  But most importantly while other funds aspire to reach 10 billion dollars once the 1 billion hurdle has passed, Ommeed’s aspirations differ. Rather than go bigger he’d like go riskier – with untested developers and untested ideas in untested neighborhoods.

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 and while building better cities.

Thank you so much for spending your time with me today, and thank you Ommeed, 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 Ommeed Sathe

How to transform a city.

Tom Murphy is the second-longest serving mayor of Pittsburgh (after David Lawrence).

He is noted for overseeing the difficult, but transformative transition of the city from the mid-1990s to mid-2000s during turbulent Downtown development cycles, an initially unpopular funding bid for two new waterfront stadiums, a new convention center (then the largest ‘green’ building in the U.S.) and investment in and development of 1,500 acres of land from abandoned steel mill sites to vacant houses. He built many miles of river trails and ran on them religiously.

“Public space can be the most democratic space in the city”

Mayor Murphy’s administration took a market-driven approach and downsized governmental departments. With the savings from downsizing, Tom created the visionary Pittsburgh Development Fund, a $60 million fund which he employed to leverage private real estate projects and investment all over the city. Public/private partnerships were key to this strategy. He was looking towards a future that not many others saw.

Struggling with outdated taxing structure regulated by the state, as well as state resistance to city growth through annexation, Mayor Murphy made hard decisions such as declaring a budget crisis and pushing through alternative funding sources such as a parking tax for commuters.

By the end of his tenure he had shepherded the city, kicking and screaming, onto a new track which led to it being held up as the model for urban transformation – a former industrial city reinvented as a biotech, medical, university and robotics hub. In 2008, the G-20 was staged in Pittsburgh, highlighting its transformation. 

Mayor Murphy, who studied urban studies in college, also previously served as a state representative for the North Side, as a neighborhood organizer there, and between college and graduate school, in the Peace Corps.

Insights and Inspirations

  • Tom focused on five things as mayor. Finding money for projects that would change the city. Taking control of vacant land. Building a really great team. Creating a vision. And building excellent public/private partnerships.
  • Since ending his tenure as mayor, Tom has come to believe that public spaces matter more than anything else in building better cities.
  • He believes that the interface between buildings and community is critical to the making of a place.

Information and Links

Read the podcast transcript here

Eve Picker: [00:00:14] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

[00:00:23] My guest today is Tom Murphy, Pittsburgh’s turnaround mayor. He oversaw the difficult, but transformative transition of the city from the mid-1990s to mid-2000s. Those were turbulent times and included many highlights and many struggles. During his tenure, he declared a budget crisis, built two stadiums, created a $60 million development fund and built many miles of river trails. Tom Murphy is an authentic city expert.

Eve: [00:01:03] Be sure to go to EvePicker.com to find out more about Tom 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: [00:01:38] Hello, Tom, I’m so delighted that you found time to join me today.

Tom Murphy: [00:01:42] I’m always honored to be with you. You were one of the pioneers in many developments in Pittsburgh when very few people saw the opportunity.

Eve: [00:01:50] You were the second longest serving mayor in the history of Pittsburgh. And in 1994, when Pittsburgh wasn’t sure what it was going to become, was really on the verge of collapse. And you shepherded the city through a very turbulent transition from a place that had emptied out with the closing of steel mills and suburban flight, to a city transformed almost every respect. And I was in Pittsburgh for every moment of it. So, you reshaped Pittsburgh, kicking and screaming all the way.

Tom: [00:02:22] Underlining kicking and screaming, Eve. As you remember, every time we tried to do something, there were, there was controversy. I mean, it just, it was amazing to me.

Eve: [00:02:34] Well, this is slightly conservative city, so maybe that was part of it, but people couldn’t imagine what you imagined. When you begin with a city that has lost its industry and half its people?

Tom: [00:02:47] Well, I’m a product of that, I mean, my father worked for 51 years at Jones & Laughlin Steel steel mill on the South Side. So, my whole life was defined by the shifts he worked there, I mean … you know, he was, he worked in the mill. I mean, he wasn’t a boss or anything, he just worked in the mill and our lives were shaped by that and … and sort of everybody I knew pretty much, their lives were tied to the mill. And so I grew up with that. And to watch that disappear in the, really the 70s and the 80s, I was a state legislator on the North Side, and I don’t think people appreciate how incredibly destructive it is for families. You know, where you had very traditional families where the husband went to work in the mill, you can make a good living, buy a house, buy a car, take a vacation and now all of a sudden that disappeared. You know, the wives went to work, kids who had thought about going to college deferred that, you know, we lost a whole generation from Western Pennsylvania – 500,000 people left and they were overwhelmingly are our kids, young people who were leaving, because they didn’t see a future in Pittsburgh. And so having come through that, having lived it, you know, on the North Side, where we’ve lived for almost 50 years now, and how destructive it was, never thinking I would be mayor. When I became mayor, I mean, my focus was how do we stabilize this situation? And to do that, we needed to re-imagine Pittsburgh in lots of different ways. In how we educate kids, because you didn’t need a high school education, let alone a college education to work in a steel mill. And you know, what we did with all this land, all of these industrial, thousands of acres of industrial property. And the culture of Pittsburgh, which, you know, was almost opposed in the technology industry because they were seen as non-union.

Tom: [00:04:40] And so we went through huge controversies in talking about re-imagining Pittsburgh. And now we’ve come out the other side and, you know, it looks very different.

Eve: [00:04:51] It does. Did you have a strategy from day one?

Tom: [00:04:57] Well, I laugh at that. I mean, hindsight always gives you the strategy. But we did in the sense that we felt we needed five things, right? We needed money. We were a flat broke city and … you know, essentially, as you said, I mean, close to bankruptcy. And we needed to figure out how we will get money so we could invest in Pittsburgh and entice developers. Two, we wanted land control. A lot of this land was tied up in bankruptcies and it was, you know, uncertain titles. And so, a developer who has a choice of buying a 100-acre greenfield site or 100-acre steel mill site, they’re going to buy the greenfield site. It’s safer. And the third was that we needed a really good team of people who were going to be public entrepreneurs, in effect, that were willing to take risk. And the fourth thing we needed, we needed a vision. We needed to be, to sort of know where we wanted to go. And the fifth thing is we needed good public-private partnerships. We needed people who believed that Pittsburgh could be a different place. And you remember back then, Eve, you were one of the few people that …

Eve: [00:06:08] Yeh.

Tom: [00:06:08] … were willing to invest in places like East Liberty. It was very hard to get local developers to re-imagine Pittsburgh. They had their little niche. They were comfortable in it. They’ve been through 30 years of decline. And so all those ingredients, you know, we talked about them when I ran for mayor. And people obviously voted for me. But when we started to do this stuff, they said we didn’t know you meant that. So where do we get money? And the first month or so I was Mayor we reduced the city’s workforce, reduced the number of police officers we had, then shifted six million dollars of that money annually to finance a $60 million bond issue, which we called the Pittsburgh Development Fund, which gave us money to invest in the future. In every city, I mean, I talk, I meet with cities a lot and talk to them and that’s one of the challenges they face is, your demands for the day-to-day. Just ‘today’ is huge in a city. I mean, everybody wants more police. Nobody’s streets are getting salted enough, and potholes, and if you just spend the stuff on all your resources on today, nothing changes. I mean, you’re Pittsburgh and in Pittsburgh we were still declining, so the challenge was how do we get some of those resources and use it to invest in the future, which entails risk.

Tom: [00:07:27] The second thing we did, Eve, we went out and bought, as you know, Mulugetta Birru was head of the Urban Redevelopment Authority, and we had him go out and buy almost 1500 acres of land. You know, we bought what was then the South Side works of Jones & Laughlin. We bought the slag dump in Squirrel Hill. We bought the old Sears site in East Liberty. And then, you know, we looked at each other and said, what do we do with this stuff? And that’s when we began to form great partnerships with developers. Somebody like you who was willing to invest in that old building in East Liberty and, you know, and others. And the $60 million gave us the ability to create really creative and effective public-private partnerships that share the risk with developers who believe that Pittsburgh could be a different place. That’s what we did.

Eve: [00:08:17] I was going to ask the question that, do you believe developers played an important role in the transformation of the city? Obviously you do.

Tom: [00:08:24] I do. I think place is everything. I think it has huge impact on how people live, I think, like crime rates, a whole host of other things. How they, what they think about themselves. I mean, if I live in a neighborhood that has, half the buildings are vacant and there’s a lot of litter and everything, you know, I come out my door every morning, I probably have a different reaction than if I live in a neighborhood that has lots of gardens and clean. And so I think that, it has huge impact. And so developers, from our point of view, as you know, were really important partners. And this is, I tell this story all the time, is when we started to see things happen, developers would come and say, Mayor, I have a great idea for you. And we’d say, with all due respect, tell us why it’s a great idea for you. And we’ll decide whether it’s a great idea for us, and if our self interests come together, we’ll figure out how to be a good partner and share the risk with you. But that assumed we knew what we wanted and so that was one of the really big challenges. As you remember early in my administration, I had a really great planning director, Eloise Hirsh, who really helped shape that vision, as well as Tom Cox and Mulu and Steve Leaper, really helped shape that whole vision of what Pittsburgh could be. It was really reimagining, you know, old steel mills in the South Side and a slag dump in Squirrel Hill. And so we were looking at, not to ignore other things, but we were looking for things that could be catalytic, that could change people’s image of Pittsburgh. And the ballparks obviously help with that, too. I mean that when I was running for mayor, I wasn’t planning to be, have anything to do with sports stadiums. And that sort of was one of the challenges of running the city, as you know, I didn’t think about it. And then all of a sudden, it’s the number-one topic.

Eve: [00:10:17] Well, it’s always the number one topic in Pittsburgh. Sports, so.

[00:10:20] Well, unfortunately, I mean, I don’t know if you know the story, Eve. As I, when I ran for mayor, I was elected mayor in November. In early December, the then-owners of the Pirates gave me a letter that said they intended to sell the team. I don’t even know this, that Dick Caligiuri many years ago had signed an agreement with the team that if ever they were going to sell it, that the city would in affect own the team for nine months in which they would be required to find a buyer. And if we couldn’t in nine months find a buyer, then the team could be sold to another city. And so there I was, having run on crimes, jobs and taxes, now owning a baseball team. It really, literally when I was running in November, I had no idea that the first year of my time as mayor, two years, would be dominated by trying to figure out how to build a baseball park and a football stadium and a convention center. So, that’s life, right? So, we had to figure it out, right?

Eve: [00:11:20] When the sun goes down, with Downtown as a backdrop, it’s a very special place.

Tom: [00:11:27] Well, it’s a, my favorite seat in PNC Park, regardless of what the team is doing, is that, at the very highest point in the left field stands, and because the view of the city at dusk like that is incredible.

Eve: [00:11:41] Was the Pittsburgh Development Fund the most important thing that you implemented? Were there the other programs or policies with very big impact?

Tom: [00:11:49] Well, what’s the Development Fund gave us is, it gave us the ability to be, to be flexible. When I go to lots of cities, they would say, we’d love to do this, but we don’t have any money. The money, for better, for worse, becomes a really important part of being able to pursue your dreams. And so the Development Fund was our money in the sense that we didn’t have to look to the state or the federal government, you know, to wait for months or a year before you figure out whether you’re going to get the money or not. We also, as you know, in the URA, people at the URA led by Mulu and Steve, were very entrepreneurial in understanding how they used tax increment financing and other federal and state sources, so it … it was fairly typical, it might be true in your deal, your deals that you were doing, is that you were getting sources of money from 10 or 12 different sources. And what I have found is that’s unusual in a lot of cities, that cities are not entrepreneurial like that, of understanding how you mix and match money to make a deal work. So, what I say, Eve, is it’s really, it’s really a market driven approach, is that basically you as a developer come and say, you know, I want to do this building, but this is what the bank is going to lend me, and there’s this gap in financing, and if it’s something we want to see happen, we being the city in this case, then we become your partner and figure out how to help finance it, whether it’s our Development Fund or other sources.

Eve: [00:13:30] My experience with the Liberty Bank Building was very typical. I think I had 12 sources of financing.

Tom: [00:13:36] Yeh.

Eve: [00:13:36] Most of the URA money, which I’m really glad gets to be recycled. But Mulu was extremely entrepreneurial. He, first of all, he didn’t quite trust me when we started …

Tom: [00:13:36] Well, but you were a small developer at the time, right? With not a long track record. But with great ideas.

Eve: [00:14:05] There were really interesting meetings. I really became very fond of Mulu. So, but he, you know, his approach was, look, we have this amount of money. 300,000 dollars out of this pot of money, or whatever it was. And you need two million. Go away and think about how it might work. And so I would come back and I’d say, look, I could make it work if you took little interest payments for two years or, you know, whatever, whatever it was that made it to some sort of stabilized scenario. I learned a lot. And then, you know, things shifted very much, and I think the URA lost a lot of its funding in the mid-2000s and the banks got more skittish and it all changed, right?

Tom: [00:14:49] Well, it did and it didn’t. I mean, I think the philosophy in the city changed and maybe … so I was saying this about being market driven. Mulu met with you and you convinced him that the market was what it was, that without flexible public money that could defer interest or payments even for a few years, that that this deal was not going to happen, and we wanted it to happen, and so we would make the loan. The market has become much better in Pittsburgh, though. You were, you know, in my view, the early bird gets the worm in this case, in the case of your building, you were, you were the early bird. Is that you got better financing then maybe after the market’s healthy. So, we tried to be market sensitive in that sense. And at the same time, recognize that we wanted these deals to happen, so we were willing to put, risk public money. I think the key to it, what I learned about myself in this, Eve, as I was, I am not a good day-to-day manager, but I understood how to hire good people and just give them room. And if a deal blew up, you know, that’s what’s going to get reported on the news. But I need to be willing to support the people if they did the deal for the right reasons and it just didn’t work. And we had some of those done, you know, Fifth and Forbes Downtown was one of those examples. But we were willing to take those risks, whether it was with you or other developers, that we didn’t know with the market, we didn’t know if people would move and live on a slag dump in Squirrel Hill or, you know, live in apartments in South Side. We didn’t know what the market was. We were way out there and that was the risk involved in this, and using public money.

Eve: [00:16:33] I moved to Pittsburgh accidentally and was kind of involved in all of this on the periphery, and it really shaped my life. The way I think about cities is very different now. So, thank you for that. The plan that did not work out was the redevelopment plan to reshape Downtown which…

Tom: [00:16:49] Actually it worked though didn’t it? I mean, four of the five blocks that we were going to acquire have been redeveloped.

Eve: [00:16:57] Yes, it did work. But my question was, yeah, it just took time, didn’t it? Took time for people to get used to the idea.

Tom: [00:17:04] Well, it looks differently than what we would have, I mean, we were more focused on a retail strategy and it might or might not have worked. I don’t know.

Eve: [00:17:12] Well, today with Amazon, it might have backfired again.

Tom: [00:17:15] And that’s where you don’t, I don’t know with today’s retailing whether it would have worked or not. If we would have been able to put together sort of what we were thinking. But, in any case, all five blocks have now been redeveloped, that we focused on. And it’s a much more vibrant place. We could see the decline there. I mean, we could look at the sales numbers of businesses that were there and just see the decline of what was going on, and I think felt the need to try to intervene, you know, and maybe did it really in a clumsy kind of way. And but, you know, at the end of the day, it was a necessary intervention that ended up working. PNC played a big part, was a big partner in that with their new building

Eve: [00:17:59] Yes. It was really difficult, I remember. What would you do differently today? A different city.

Tom: [00:18:06] When I’ve come to really love is the public spaces. So, in East Liberty, I think we would have had, we had the opportunity, which we didn’t do, to create a sort of a central plaza somewhere there. That we could have really recreated a much more, you know, in a public space, it can be the most democratic place in the city. And so, I mean and so with Home Depot, we were looking to make a democratic place where people, wealthy people and poor people would all shop. If I had done East Liberty thoughtfully more, maybe we would have created a public space like that, too. And Market Square, in many ways, plays that role Downtown now. There’s a public space where people of, with all incomes and all backgrounds show up. And so even in smaller neighborhoods like Lawrenceville and other places, because there were such, you know, abandonment of property, we had opportunities to really create better public spaces, little town squares. Because one of the strengths of Pittsburgh is with its 90 neighborhoods is, is that we have this real sense of communities and I’ve come to appreciate that much more. And we really would have focused more on creating places where that community can play out in neighborhoods like Lawrenceville and other places. I go to China a fair amount. Not recently. thank goodness. And when I, I get up early in the morning to go for a run and one of the things I see there, and China has done a very bad job of creating public spaces, but where there is public spaces like at six, seven o’clock in the morning, there are hundreds of people there in the plaza doing tai chi or dancing to a boombox. It’s this great sense of community. There’s lots of older people or people running. And you can see feel this community, I mean, people talking and laughing. Every morning they’re there. And we don’t have that tradition in America. But it would be wonderful. We did, but but we ought to create places where that happens. You know, the Blue Slide Playground is a place like that in Squirrel Hill. I mean, famous now because of Mac Miller.

Eve: [00:20:24] I visited Beijing three years ago, and the photo I loved the most from there is a small urban park which had exercise equipment in it. And in fact, I saw this several times …

Tom: [00:20:34] Right.

Eve: [00:20:35] … exercise equipment, really basic. And you could see people all congregating, and doing their little exercises in the park, open to everyone, It was fabulous.

Tom: [00:20:46] Right. We did a half step under Eloise’s leadership in public works. We made a decision to rebuild all of our 100 and some neighborhood parks, like the Blue Slide Playground or the Schenley Park, and also many of the smaller ones. And we would have community meetings and we would hire landscape architects who would meet with the community and, you know, with the playbooks. And then they would work to design the kind of playground they wanted. They would given a budget, 100, 150 thousand dollars, and they could pick from the play equipment books, the playground they wanted. But the instinct we had was right, but we should have expanded it. And in many neighborhoods where, like Homewood. I mean, you have an opportunity in Homewood, still today, I think, to create a really great plaza that would become the center of Homewood, and how you would do that. And East Liberty represented that opportunity. I mean, there were, as you remember, lots of vacant land there that was tax, you know, essentially abandoned. So that’s probably one of my bigger regrets, was not creating places where that sense of community can play out.

Eve: [00:21:58] What do you love most about Pittsburgh? I know you still live here.

Tom: [00:22:01] Our strength and our weakness is our parochialism and that’s what I love most … is that we’re an unusually friendly city. I’m in Washington four days a week, right? And my habit in Pittsburgh is pretty much everybody you see, even before I was mayor, but when I’m mayor I don’t know whether I know them or not, or they know me. So you say hello to people, right? You get on an elevator, you say good morning, right? People, you do that in Washington, D.C. people look at you like you’re … going to rob them. You know, it’s a weird feeling for me. I see that in lots of cities. I would just did Orlando for a couple of days that I felt it there. Same thing, is that, sort of people don’t make eye contact, don’t acknowledge. I mean, if there was just two of you in a place, that you don’t, they don’t acknowledge you.

Eve: [00:22:50] You know, that’s interesting. There are other cities like, I think Atlanta and Detroit are very friendly. I always notice it when I go there.

Tom: [00:22:56] Yeah. So it’s, and I hear that. It’s funny, I mean, when I speak, and I was in 50 cities last year, so I end up engaging with thousands of people. One, is the numbers of people that have lived in Pittsburgh. You know, I mean, that’s sort of the legacy. I always say you’re our failures. We couldn’t give you a reason to stay, you know, there’s so many people that left in the 70s and the 80s. And the other is inevitably people who are not from Pittsburgh. I just was talking to a guy in Orlando yesterday who, his daughter and he, and they’ve never had any connection with Pittsburgh, but she loves the Pittsburgh Penguins. And they go to Pittsburgh every year to see a couple of Penguins game, and he was telling me he’s going in March and, you know, he said, I’ve never been to a friendlier place in my life. Everybody talks to you and it’s just, it’s a great place, right? We don’t even think of that. And that’s partly what I like. And I think that’s the strength of Pittsburgh. When I say parochial is that we are really, those of us who are from Pittsburgh or who moved there, you become really rooted in your neighborhood, and in the city. I think in places like Orlando, that is, you know, a lot of Florida cities in California and even Texas cities. You know, there’s lots of new residents. And so they don’t have that kind of history. And so I, that’s part of the challenge of Pittsburgh. How to keep that, and at the same time not have it be a deterrent to making Pittsburgh a competitive city.

Eve: [00:24:28] But you know, I think what’s most interestingly Pittsburgh, about Pittsburgh to me, is again, I’ve always thought it’s topography saved it from becoming what Detroit has become.

Tom: [00:24:40] Oh, I think definitely, I mean, the hills and valleys and how Pittsburgh is defined, I think is a large part because of its topography. You know, I learned that running for office when I was in the legislature, when I first ran for the legislature. If you confuse people from Spring Garden with people from Spring Hill, they will never vote for you. I mean, they’re very rooted in their neighborhoods, right? And so there’s that whole hierarchy like that around Pittsburgh. When I meet somebody, when they say they’re from Pittsburgh, I typically say, where did you go to school? And that tells me a lot about them.

Eve: [00:25:19] Interesting. Yeah, I think the topography also, it kind of contains each neighborhood. So, I think that that sense of being in a neighborhood is going to stay.  I can’t, I can’t see it disappearing in the city.

Tom: [00:25:33] No, and that’s what, when I was talking about the public space, I mean that’s, that’s what I have a big regret it was around that idea of how do you build even a stronger sense community using public space, whether it’s playgrounds or a park, a community. How do you in a very thoughtful way connect people in that neighborhood so they feel a sense of place? And there’s a purpose for that, because I think if people feel rooted in their neighborhood, I think they’re willing to put up with a lot of problems if they see themselves and others committed to wanting to making it better. I mean, if I can see a light at the end of the tunnel, I’m willing to stay on the journey, right? A lot of people are not willing if they don’t see any end to it. And I think of a neighborhood like Allentown that’s been through a lot of problems. And yet, there’s a strong core of people in Allentown who have really stayed with that neighborhood. And, you know, it has gone up and done and now I think it’s back, going back up again. I know we used say, Eve, you know, that houses in the North Side up in Fineview at the time, I mean, you could buy for 30 or 40 thousand dollars. And we said if Pittsburgh’s population were like any other city and it was growing, those houses would be worth a million dollars with the views. And that was part of the problem, is that we weren’t growing as a city. And it’s still part of the challenge of Pittsburgh, is that we’re doing much better, but we’re still not growing compared to, certainly the region is not, compared to a lot of other cities and communities.

Eve: [00:27:19] Today you work, you’re a senior fellow at the Urban Land Institute, which some of my listeners may not know about. What do you do in your role there?

Tom: [00:27:32] So the Urban Land Institute is an organization founded about 75 years ago by a group of developers concerned about the quality of development beginning to happen in America. And fast forward, the Urban Land Institute now has about 50,000 members worldwide. And it really, it’s focus is how do you create thriving communities? And ULI had participated in several programs in Pittsburgh when I was mayor, and then I got recruited to speak at different ULI events. And when I was leaving as mayor, it was right after Katrina in New Orleans and along the Mississippi coast. And they asked me whether I would go down and work with the mayor of New Orleans and with other public officials across the Mississippi coast. And so I did that for about a year and a half after leaving as mayor. And it was fascinating. I mean, it was really a fascinating experience. And, you know, in New Orleans, their mayor ended up going to jail for 15 years. And the political structure was really fairly inept back then. It’s gotten better. And so I watched, really, New Orleans return in large part because of grassroots decisions and leadership, through churches and nonprofit groups and neighborhood groups, and a lot of outside help. Foundations and movie stars like Brad Pitt. But people, but ultimately, the up-swelling was really, really bottom up. It wasn’t top down. And so it was a fascinating experience to work in, there. And I still am, I was on the board for many years of a community development corporation there. So it’s been an experience. Since then I got to about 50 cities a year and speak at ULI events or other events, and then often end up working with cities for a while. And I’ve written several papers – working on one now for ULI.

Tom: [00:29:40] It’s been a good, a good experience, really a great experience after being a mayor. And part of what I get asked to do all over the world is, in part I get asked to talk about Pittsburgh. How we went from this failing industrial city  to what we’re becoming. And the reason I get asked by, about that is, wheat I’ve come to realize, Eve, is virtually every city in the world, whether it’s Hong Kong or London or Dublin, or are all struggling with some of the same issues that we went through in Pittsburgh, of sort of what what is our place in the world? We were forced to have that conversation because of the collapse of the steel industry. Other cities have not had that kind of dramatic change, but they are seeing the world change and they are trying to figure out how to  stay current and get in front of those changes and manage them.

Eve: [00:30:34] Are there any current trends in real estate development that interest you the most?

[00:30:39] Well,every city, every place I’ve been, and this is, I mean, last month I was in Dublin and London, right. And I was supposed to go, I go to China about four times a year. I was supposed to be going in March. My plane trips are now all being canceled, but I was going to cancel anyhow. But so whether it’s cities in China or European cities, affordability is a huge issue. Of how do people, where do people live? And how do they afford to live? And so how cities develop affordable housing is a big, big issue. Where am I going to work? Because of the impact of technology and we see it in Pittsburgh up close every day as we see a whole litany of driverless cars on the streets of Pittsburgh or autonomous vehicles with attendants in them. But, you know, pretty soon the attendance won’t be there. As I mentioned, I was in Orlando yesterday, just east of Downtown Orlando but still in Orlando is a place called Lake Nona. And they now have, I don’t know, a half a dozen driverless autonomous buses that drive people around this very large development. Nobody driving. Nobody in, no driver. And no attendant. It is just on its own already on a sort of a, sort of private street where bikes and others places can go, but not cars. So we’re seeing this happen and what does that mean? I mean, if you think of 50 percent of the land use of a typical city is for cars, between roads and parking and everything like that, what does that do to how we think about cities. And not it’s not even that kind of technology. It’s why do young people want to come places? Part of what I say is what does General Electric and McDonald’s and Marriott and Fifth Third Bank and Heinz Kraft Foods and what they have in common is over the last five years they’ve all moved their headquarters from suburban office parks into cities. And why are they doing that? They’re doing it because … they’re having a hard time recruiting talent, young people, to move to the suburban office park. Where you need a car to get to. You know, if you do a survey of the Google employees in East Liberty, I’m betting that 25, 30 percent of them either walk or ride a bike to work. So that has huge implications on cities. You know, do you spend your money building more highways or do you build a transit system. That’s part of Orlando’s challenge. They don’t have a good transit system and now they’re  strangling, you know, because of the congestion.

Eve: [00:33:33] Yeah. It’s changing.

[00:33:34] So it’s those debates that I’m watching all over. Mobility is a huge conversation. The equity conversation, I mean, one of the things I see really fascinating, The New York Times did this, I thought, very cruelly. A few months ago they did an article about cities and they talked about winners and losers.

Eve: [00:33:56] Yes.

Tom: [00:33:56] And they talked, and they compared Nashville and Birmingham. And they said Nashville is a winner, they both start at the same place 25 years ago. Nashville is now a hot city, booming, and Birmingham is not. And they talk about, why, how that happens is really a lot to do with leadership. And then within, so we’re seeing cities sort of separate themselves, if you understand, those that are, where Amazon is going to consider locating, and those that are not. And what are the ingredients that make that cut? And then the other, within cities we are watching a huge divide with lower income people and the people that are sort of part of the new economy. And so, I think that equity issue is a huge challenge for cities also.

Eve: [00:34:43] Yes. You know, I have always thought that one of the things that’s most overlooked in discussions about cities and how to grow them is their connection to other cities. And, you know, I think that’s probably Pittsburgh’s growth problem. It takes a really long time go by train.

Tom: [00:35:00] Well, we lost a whole generation of people that would normally be having babies.

Eve: [00:35:07] If you want to get to New York by train, it’s a day. There’s no easy, fast way to get to work hubs. We’re sort of a little bit stranded. And I was always puzzled by the fact that we, you know, people would talk about better transit in the city, but I wanted better transit to other places, nearby, to open up opportunities. If I wanted to do a development project in a city, I wanted to be able to get there in a day in and back. Right?

Tom: [00:35:37] Right.

Eve: [00:35:37] So I, you know, I wonder if you plot out those connections, you know, where the, you know, the cities done well, will land.

[00:35:49] I think it’s a mix. I think mobility is one piece of the conversation of how easy it is to move around a city. Our son, for example, is now 29 years old, does not even have a driver’s license. He lives in Pittsburgh. On the North Side right now with us, he’s moving, though. You know, he is, has been able to manage fine living in Pittsburgh, using Uber and using public transit and, you know, walking a host of other things and abusing his friends every once while they’re able to, you know, he’s able to sort of manage living in a city pretty well. But I think mobility is part of the conversation. And that’s what, when I was becoming mayor, Eve, our focus was we need to figure out how to create a diversity of jobs. And we needed to make Pittsburgh a place where people wanted to live. You know, we’re never going to be, maybe we will someday, we’re never going to be a warm city. Like I was just in Orlando yesterday. It was 90 degrees. We’re not going to be near the ocean, but we had other assets. And so, as you might remember, I was very focused on building riverfront trails for that reason is that was an underutilized asset. You know, we watched, you know, a great music and bar scene sort of, and that happened organically. It’s funny, I watch the, I read the media in Pittsburgh now about the Strip District and we made a very intentional decision not to do anything in the Strip District. We, you know, people would come and why don’t we do this and why don’t we do that in the Strip District.tAnd we really said The place is working really well. Why do we want to get involved in it? Let it, it’s just happening on its own. So. You know, that it’s interesting that that’s the big, big debate right now in Pittsburgh, I guess about, are we killing the Strip District. So I think that you make decisions, you know, some of them are going to be right. Some of them were wrong. Hindsight will tell you whether it works or not.

Eve: [00:37:56] You know, this show is about real estate impact investing. And I want to know what you think a key factor is that makes a real estate development project impactful.

Tom: [00:38:06] You know, I think it’s the public space. Is the building itself attractive, but it’s the space around it, how it engages people that work in that building, and even people walking by, how they might use it. I think that, how it all connects. And you can get senses of it, right? When it works well? I think, you know, there are places in Pittsburgh that I think of that are just great places to be. People like to be there, right? I look at Mellon Park, you know, going back many, many years, long before I was mayor. Still a very iconic place on a nice summer day. It’s packed with people, having lunch. And I think how that happens, and that’s where the public private interface is so importantA and where the public needs to have, to be put money in the game, to say to a developer, you know, we want to get this quality in, and a developer might say, but I can’t afford to do that. And if you look at the books and the market is going to be make it hard for the developer to do that, then there’s a public role for that. I think another good example is that is Schenley Plaza, which for for 40 years or 50 years was a parking lot. I mean, think about that. I mean, I, you know, on one side is Schenley Park, on the other side are the museums, on the other side is the Pitt law school. And then on the other side, the Cathedral of Learning. And what is the highest and best use of that land for 50 years? It was surface parking. And Mark, this chancellor at Pitt and I got together and said we should be, we should do better than that. And so we work with the Parks Conservancy and came up with an idea to put a park there, to take the parking. And I got all this hate mail, but I’m never going to vote for you again. You’re taking away my parking place. And I said, you know, you’ll get over it. There’ll be other places to park it. But this is, this, we can do better than that is the interest of a great university. To a great park. To a great museum. We can do better than that. And you look at that on a nice summer day, it’s filled with people. So creating those kinds of places, I think is is that there’s a responsibility of both the developer and the community. You know, you did something quirky Downtown with those statues. And I bet lots of people walk over, who maybe have never been in Pittsburgh, walk over just to look at them.

Eve: [00:40:58] Yes. In fact, I think the taxi drivers use it for directions when someone says, I want to go Downtown.

Tom: [00:41:05] Yeah. So that’s what I mean. And look at Randyland on the North side.

Eve: [00:41:10] It’s fabulous. Yeah.

Tom: [00:41:12] You know, I mean, it’s just things like that make a cityS so the other word that we use a lot in ULI is authenticity, right? Pittsburgh has a great history. It has a great story. And we could still do better at telling that story. The South Side Works, when we started to develop that we put, had a competition for, and we brought artists and old steel workers who worked there together for like a morning of talking. And then we had a competition for artists. And there’s, at the end of Hot Metal Bridge is a little monument that we established for the steelworkers. But Pittsburgh is an incredible story.

Eve: [00:41:56] So I’m going to ask one last question, because I’ve taken up a lot of your time.

Tom: [00:42:00] It’s fine, I’ve enjoyed it. It’s fun to talk to somebody who actually knows Pittsburgh, Eve.

Eve: [00:42:05] So is there something that you think could really change real estate development in the U.S., for the better?

Tom: [00:42:14] I think it is, is the idea, the partnership idea. I’m amazed that the cities I go to, many developers attitude is I want a minimize my involvement with the city. Maybe there’s a reason for it. I want to get in and get out. I want to get the entitlements, whatever I may need and do what I want to do. So the challenge is the developer has a piece of property. The developer needs to figure out how to make money from that property. I accept that. I want the developer to make money from the property. On the other hand, the city, the city has the responsibility to build a great city. That it will never be a great city if these developers see their development as sort of an island disconnected from what’s next to it. And so the city’s responsibility is to figure out how that all fits together. Give you two examples that drive me nuts. I can drive on pretty much any suburban shopping street. I can go into a gas station. Maybe I want to go to the store next door. And I have to drive back out onto the highway. Or maybe I want to go to a store across the street, I have to go out on the highway. Maybe I have to drive a half a mile to get over there to the other side. So I can’t, there’s no sense of connection between any of that. And the other is, I watch in suburban areas like Cranberry Township subdivisions being developed of 100 acres or so. What would it take for those subdivisions that, maybe there’s five different developers doing one hundred acres each, if they would, then the city’s role would be to say we want to connect all this with a bike trail at the edge of your property so that every, so now instead of having a couple little playgrounds, you might have a five or ten mile bike ride, safe, off road. You don’t have to worry about traffic with your little children. And there is examples of where the public fails. Both the public and private developers fail. Because you create great, great amenities if you begin to think in a bigger way rather than individual pieces of property. That’s what’s destroying development, and quality in America today.

Eve: [00:44:33] Yeah, I agree, I think we both believe that real estate development, just as a financial tool, as a way to make money, isn’t making our cities better.

Tom: [00:44:43] Well, I think you make more money if you build quality. In the long run I think your development is more valuable. I mean, we didn’t get into all the other sustainability and all that which a lot of cities are facing.

Eve: [00:44:54] Thank you very much.

Tom: [00:44:55] Look forward to see you sometime. Bye bye.

Eve: [00:45:04] That was Tom Murphy, past mayor of Pittsburgh. Tom thinks place is everything, so place is what he invested in during his long term as mayor. He did that by reducing operational costs and creating the Pittsburgh Development Fund, a $60 million fund focused on helping developers who were willing to work in places and on projects that made the city better and better. It was a very bold, and unpopular move, but paid off in ways that no one imagined, as did many other moves that Mayor Murphy made.

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, Tom, 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 Tom Murphy

She’s all in.

Janine Firpo is a writer, values-aligned investor, and entrepreneur. She left a career in the tech world many years ago to pursue a more meaningful work experience. This led her into the world of micro-finance and philanthropy. And now, for the last ten years she has been on a personal mission to invest all of her assets so they create a positive impact. It’s a bold move and she is all in.  

A pioneer in Digital Financial Services (DFS), in 2002, Janine initiated and led a consortium of micro-finance leaders to explore the role technology could play in dramatically increasing the scale of financial services to the poor. In 2008, she became one of the first mobile money experts and advisors to mobile network operators, financial institutions, and other early DFS entrants. In her role at the Bill & Melinda Gates Foundation, where she served as a Deputy Director on the Financial Services for the Poor team, Janine and her team designed philanthropic and impact investments to bring poor people out of poverty by leveraging DFS to bring them into the formal economy.

In 2017 Janine left her position at the Bill & Melinda Gates Foundation to focus on bringing more female investors into the impact space.

She is currently one of the lead investors in the Next Wave Impact Fund an impact angel fund designed to help more women become angel investors, and she sits on the board of Zebras Unite, an organization developing the capital structures, community, and culture that non-unicorn start-up businesses need to thrive.

During her career, Janine worked for Apple Computer, Hewlett-Packard, and a number of technology start-ups. She also ran a non-profit that she spun out of her role at HP. Janine has consulted to corporations, government agencies, start-ups, and non-profits around the world.

You can email Janine at [email protected] if you want to know more.

Insights and Inspirations

  • Figuring out what “impact” means in real estate investing is difficult for someone starting out. It’s impossible to find consistent metrics.
  • According to Janine, not only can you expect financial return when you make a socially responsible investment, you can meet or beat the market! 
  • Only 5% of the US population is a millionaire. That means that 95% of the population does not have access to investment opportunities that are largely available to millionaires. 

Information and Links

  • Some of Janine’s cash is invested in CNote, which offers a 2.75% return with great liquidity after 3 months. Janine loves that their updates track how her money is helping women entrepreneurs
  • Being part of the Next Wave Impact has been a great way for Janine to learn about angel investing in the company of other women, all of them committed to making an impact by supporting women-led companies.
  • Janine is also investing Nia Global Solutions a female-led public equity fund. This fund investing in companies that promote sustainable agriculture, good health, quality education, affordable housing, and sustainable life, all the while beating market returns!  
Read the podcast transcript here

Eve Picker: [00:00:03] Hi there! Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Janine Firpo. Janine is a writer, values-aligned investor and entrepreneur. Janine’s background is fascinating. She left a career in the tech world many years ago to pursue a more meaningful work experience. This led her into the world of microfinance and philanthropy. She has consulted and lived all over the world. And now for almost 10 years, she has been on a personal mission to invest all of her assets so they create a positive impact. It’s a bold move and she is all in.

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

Eve: [00:01:21] Hello Janine, thanks so much for joining me today.

Janine Firpo: [00:01:24] It’s my pleasure, Eve. Thank you so much for asking me and for being interested in what I’m doing.

Eve: [00:01:30] Yeah, well, you’ve had a really fascinating career, starting with technology companies when they were startups, and are household names now. And you left that path to follow a very different one. But I wanted to ask you how you started your career?

Janine: [00:01:45] I’d be happy to tell you. So, I actually started my career very early in 1981. It’s a long time ago for many people. And I sort of fell into the computer industry, first in Louisiana, and then when I really got into it, I moved back to the Silicon Valley where I was originally from and I’m still here. And I worked in high tech for about 15 years, worked at Apple Computer in the 80s, and then also did some startup work. And then in 1995 I left a job and I did a solo backpacking trip through sub-Saharan Africa. And what was really interesting about that is when I left on my trip, I was in something called the CD-ROM and multimedia industry. And when I came back, everyone I knew was in the Internet industry. So the internet literally turned on in the four months that I was away.

Eve: [00:02:37] Wow.

Janine: [00:02:38] And I was perfectly positioned to get on that ride, that dot com ride. But when I was in Africa, I saw poverty like I had never seen it before. And I decided that I wanted to use my life in a way that had meaning. And so I set out on a track to figure out how could I use the skills I had, technology and business knowledge, to bring change to the levels of poverty that I was seeing in Africa. And so that launched me on then what became a twenty-year career in international development and bringing technology into Africa, Southeast Asia and other parts of the world. And while I was on that trajectory, I got involved in something called microfinance, which is making loans to poor women, primarily in developing countries around the world. And in looking at what is the role that tech could play in really scaling microfinance, it was reaching 100 million people in the world when I started, and the need was to reach two and a half billion people. That inquiry, other people were involved in it as well, led to something called ‘mobile money,’ which is using the cell phone as a bank for the poor.

Eve: [00:03:50] I was at the Bellagio Foundation in Italy, a few years back, with someone who was writing a book about the M-Pesa.

Janine: [00:03:58] Exactly! M-Pesa, which was one of the first incidences of this, it actually started in the Philippines, but M-Pesa was the example that just shot off the charts within the first year. It came out in 2007, and within its first year it had a million people using the service. And in the second year it was many more millions. And it’s now serving, over 85 percent of the population of Kenya uses M-Pesa now, and it has become a de facto way to move money. And now people are getting loans over it. It’s being used as a financial mechanism for all sorts of things. So, it became an amazing industry. There are now over 250 incidences in more than 90 countries around the world.

Eve: [00:04:44] But it really started because people had cell phones. Right? And they needed to move money.

Janine: [00:04:51] They had cell phones, well, actually the way it really started was  the people behind M-Pesa was Vodacom, and they were trying to apply the cell phone technology to microfinance. And they started in 2004 with a microfinance institution in Kenya. And it just didn’t work for a lot of reasons that I won’t go into. But what they found that was really interesting when they were trying to help this microfinance industry scale its business was that people were using the phone just to move money back and forth. And they saw a real opportunity. So, they retrenched. They rethought everything. They set up all the infrastructure that they needed. And then in … February of 2007, they launched M-Pesa as we know it today, which was a money transfer service. Now, super-fascinating the way it all unfolded.

Eve: [00:05:40] Yeah.

Janine: [00:05:41] Yeah. And then so I had this great career for 20 years. I traveled all over the world. I’ve been to more than 80 countries. I worked all over the world. It was amazing. I loved it, but I was also traveling 50 to 70 percent of the time for 20 years. And the industry became huge. And I was always more interested in startups and new things. And so it just became time, a couple years ago, for me to leave that. And so I retired from that career. And along with being involved in all of that, so, I was sort of a social entrepreneur before that kind of word became a thing. And because I was in the Bay Area I was involved in all of these conversations around what has ultimately become known as impact investing. I was working at Hewlett Packard in the corporate social responsibility world. So, part of just that entire conversation about the new philanthropy and different ways of using our money. And about 10 years ago, even though I am not a high net wealth individual myself, I realized I’d made the choices in my life to live and lead from a life of value, and something where I was making a difference in the world, and I realized my money was working against me. And so I decided I was going to figure out how to invest all of my own money, from my cash to my public stocks to private stuff. If I could do that to real estate, all of it, how do I invest all of that in a way that lines with my values and is supporting the world I want to see.

Eve: [00:07:18] That’s a pretty powerful step to take, Janine.

Janine: [00:07:19] Well, it just was really in alignment with who I was. And it was because I was watching, I was going to these conferences and I was seeing these ultra-rich people and financial, you know, foundations and institutional investors doing this. And I thought, well, why can’t, why can’t the rest of us do this? Why is this yet another thing that’s just being left to the very rich? And so I decided to try on my own. And in the 10 years I was working super hard, so I had financial advisors. They didn’t get me where I wanted to go. And so when I retired a couple of years ago, I took a lot of my assets back. And I’ve been working on this myself.

Eve: [00:08:01] Wow.

Janine: [00:08:03] And I have realized that in the 20 years that I was, have been sort of watching this space, it’s really evolved. And I now think we’ve gotten to a point where the goal of investing your money in alignment with your values is becoming mainstream. At this point, one of four dollars that are invested by institutional investors are invested in socially responsible ways. It just hasn’t trickled down enough to those of us who aren’t wealthy. And it shouldn’t be that way, because there are now products across virtually all asset classes that you can invest in a values-aligned way, even if you’re a non-accredited investor, which means even if you don’t have a million dollars in net worth, you can invest this way. And so I have corralled a bunch of the brilliant women I know who are now helping me develop a book, helping people, primarily women, because we have been really left out of the financial services conversation in a lot of ways, to help them think about how to be smarter about their investing overall and how to do this in a way that aligns with their values, too.

Eve: [00:09:12] That’s pretty fabulous. So, just shifting gears a bit, when we talked awhile back, you mentioned that you were interested in investing in impactful real estate, the next step in this process for you. And …

Janine: [00:09:25] Yes.

Eve: [00:09:25] First of all, I’m wondering why that’s an interest now?

Janine: [00:09:28] Because, well, I currently own real estate. So, when I was a kid, I actually learned a lot about money from my mom, and my mom when I was a really young kid, we didn’t have very much money. In fact, we were kind of poor. We didn’t always know where we were going to get food. We were wearing secondhand clothes. My mom was a coupon shopper. And at some point along the way, she decided that she needed to find a way to make more money. And so she got herself into real estate. She became a real estate professional. And she started learning about buying property, buying and selling property. And so she, we’re talking like back in the 60s, I think, she started going to the courthouse steps and buying foreclosed property and sometimes sight unseen. She would buy them and then she would turn my sisters and I into her crew and we would go … we were, like, this is how I spent my summers, my teen years. Ripping up carpets, refinishing carpets, painting interiors, painting exteriors, cleaning, you know, all of that. We were her crew. And then she would rent these properties out. Sometimes she’d sell them. So, I learned about real estate and I’m in the Bay Area. This is a really hot real estate market. And so I’ve, you know, I’ve learned something along the way. And … I bought my first house when I was 30, and have purchased real estate. So, I have those assets. Now, if I am truly aligning all of my money with my values, then that has to include my real estate. And so I’ve gotten to the point where I’ve pretty much figured out a strategy for all of my other asset classes. My cash has all been moved in alignment with my values. I’m working on doing that with my public equity stuff. My fixed income is moving that way. I’m an angel investor. I only invest in socially responsible businesses and I primarily am investing in companies that are started by female CEOs, because women get less than two percent of the private equity capital in this country. So, we need to support more women founders. So, I’m doing that with a lot of my money already. It’s time for me now to start shifting my focus to the real estate. So how do I get out of, so I’m starting to think about, how do I get out of single family residences, and what might have more values aligned real estate set of opportunities look like.

Eve: [00:12:02] That’s really interesting. I have the reverse problem, so I’m going to probably ask for your help in dealing with my other assets.

Janine: [00:12:11] Happy to do that.

Eve: [00:12:12] So, you’ve been looking. And what does real estate impact investing look like to you? What does that mean?

Janine: [00:12:19] Well, that’s a really good question. And I have to be honest that I’m in the early days of this journey. And so I’m just starting to learn and that’s how I found you. Actually, I was out on the Web and I was kind of searching around and thinking, well, who’s doing anything out there in real estate? And that’s how I found you. So, I know a little bit. So, and I’ve invested in a little bit. So, my last job was up in Seattle working through the Bill and Melinda Gates Foundation. And when I was up there, I heard about a company, that basically what they were doing was they were buying distressed property in Seattle, and they were single family, and they were gutting a lot of these places and then rebuilding them green. And could actually tell the buyer this is what you’re energy saving is as the result of buying this house. So, green is one way of thinking about this. I’m also somewhat familiar with affordable housing. And my current financial advisor actually has me in an affordable housing fund. I forget the name right now. I apologize for that. But they had me in that kind of fund. I’ve been aware of the whole opportunity zone set of things that are cropping up around the country. Although I’ve heard varied things about those opportunities. And, you know, those are basically things that I know. I also am invested, a very small amount of money, this particular deal could only take a thousand dollars from each investor. But it’s a woman here in Oakland, the city that I live in, who is basically raising down payments through gathering money from many, many investors. And then she’s getting loans and she’s buying multi-unit properties that already have tenants, low-income tenants, and what she’s doing is, she’s setting up structures where these tenants, as they’re paying rent, are actually in basically a buy-to-own situation. And she’s turning these buildings into cooperatives that are owned by the people that live in them. So, I think there’s some interesting models out there. I just don’t, I only have seen a smattering of them so far.

Eve: [00:14:40] Yeah, actually, I think, I just interviewed Rebecca Foster, who is also in the Bay Area on the Housing Accelerator Fund, which is a different model, they are working on raising money to preserve existing affordable housing in San Francisco. Yeah, I think there’s lots of ways to make impact and you’re just really scratching the surface. Right?

Janine: [00:14:59] Exactly. And there’s a, yeah, there’s a man that I met recently through something I’m involved in who’s in the real estate business out here. And he’s starting to think about building his career around socially responsible real estate. So, he and I have had a couple of conversations. And one of the things that he sort of suggested to me, although I don’t know that I have enough assets to do this, but he talked about wouldn’t it be cool to like have a building where you could have businesses in it and and tenants in it, residential and office space combined. But really determine that you want a certain kind of business. Like create a space where these are all businesses that are run by women, or these are, you know, so … or these are all businesses that are in this kind of vertical and they’re helping each other and that particular vertical is good for the world. That was kind of an interesting thought.

Eve: [00:16:02] I think a lot of people are thinking about this in many very different ways. Like, I built a portfolio of what I believe are socially responsible projects, but really starting before green was the theme. And I focused on underserved neighborhoods and blighted architecture …

Janine: [00:16:26] Right.

Eve: [00:16:27] And so what I think is interesting about the real estate impact investing world is there’s really 1001 ways to make an impact. You just really need to figure out what matters the most for you.

Janine: [00:16:41] I totally agree. In fact, that’s one of the things that I’m talking about in this book I mentioned is I am moving away from the words impact investing and socially responsible investing and all of that, because I think so many people use those words and they mean different things by them. And what I and it’s, so it’s hard to get a clear definition on it. And what I’ve found is when push comes to shove and you talk to people who are thinking about impact investing, they’re usually talking about private deal flow, private debt and private equity. And I’m really interested in looking across all of your assets. So, what I’ve come to realize is even though I believe that if enough of us move our money this way, we can change the economy. At the end of the day this is really about our individual choices and who we think we are as people and how we want our money to reflect who we are in the world.

Eve: [00:17:35] Yes.

Janine: [00:17:36] Right?

Eve: [00:17:37] When you take money, you use it, you spend time on it as well. So, for me, it’s even more than money. It’s how I spend the time around it.

Janine: [00:17:47] Exactly. In fact, I realized the other day, it’s, for me … so much of this conversation about values align or impact investing, it’s always the extra thing that people have to talk about. It’s, like, here’s your financial issues and how you invest in all of that. Oh, and then there’s this impact investing thing. And I realized, particularly for women and millennials, who the vast majority of us want to invest our money this way, it’s not the extra thing. It’s sort of like the icing on the cake. Yeah, you can go out and you can invest your money to maximize return or whatever. But it’s really kind of boring, in a way, to do, at least to me, it’s like, yeh, so my money is out there and it’s doing whatever and I don’t even know what it’s doing, and all I really care about is the return? No, I want more from my money than that. I’ve worked hard to get it. I care about everything I do in my life. Why wouldn’t I care about what my money is doing? And when I get feedback from the people that I invest in about how my money is being used and what it’s doing in the world, that makes me so insanely happy. And it’s really fun to be able to talk to people about the cool stuff that my money is doing. I love it. It changes the game.

Eve: [00:19:08] Are you still getting your return?

Janine: [00:19:10] Oh, my God, yes! This is not about giving up return. This has never been about giving up returns. I can meet or beat the return that you that any other investment is giving. So, for example, if you look at public equities markets, so, one of the things that I’m invested in is the Vanguard Total Stock Market Index. This is like one of the things that people talk about all the time. Go into an index fund, Vanguard is really cheap, blah, blah, blah. Right? Great thing to be invested in.

Eve: [00:19:41] Right.

Janine: [00:19:41] But if you actually look at that from the perspective of environmental sustainability, there is a website out there called As You Sow that ranks, if you look up As You Sow ‘Invest Your Values,’ you will go to a page that you can say, “I care about fossil free stuff” or “I care about gender diversity” or whatever. And you can put your stock tickers into this tool and it will tell you, it’ll show you a grade that that particular holding gets across all of these different variables. And it will show you how much of that fund is invested in the things you don’t want it to be in it. What are those holdings? And so that stock gets a D on As You Sow. Now, I did some homework on As You Sow and I actually found another Vanguard Fund, an FTSE Social Index Fund, and other funds that not only are getting a better grade like A’s and B’s, but they also get better returns over a 10 to 15 year time horizon than what I’m in, that’s getting a D.

Eve: [00:20:54] Wow.

Janine: [00:20:55] So why am I in that?

Eve: [00:20:57] Yes.

Janine: [00:20:57] I’m going to get out.

Eve: [00:20:59] Well, I have to ask, you spent a lot of time on this, right?

Janine: [00:21:02] Yes.

Eve: [00:21:03] What about those who are just trying to find time in between the cracks to figure out where to put our money?

Janine: [00:21:12] Right. Well, that’s why I’m writing a book, because I realized that this shouldn’t be this hard, and people shouldn’t have to do the level of work that I’ve had to do to figure this out. So, the book is going to tell you how to do it. It’s going to basically, what it’s going to do, it’s going to have three different sections, and the mid-section goes asset class by asset class and tells you this is what this asset class is, here’s how it works, here’s how it’s generally thought about, and here’s all the ways you can invest in this asset class in a values aligned way.

Eve: [00:21:42] Wow. Let’s go back to real estate. So, on your journey to find impact impactful real estate … Now I’m feeling very self-conscious about the word … What information haven’t you been able to find? What’s missing out there for someone who wants to figure this out?

Janine: [00:22:00] There is no place that really says these, this is what this space looks like, and here’s all the different kinds of deals that are available. And, you know, this is what’s going on, these are the cool things that people are doing. I mean, I think that you’re trying to do that through your podcast, and I applaud you. And that’s it. I mean, I realize in order to figure this out, I’m going to have to go do serious homework and talk to a lot of people and see what other people are doing and then start to piece together what feels like an interesting way for me to move forward. Finding the information is super, super hard.

Eve: [00:22:46] Yup, it’s very hard. There’s a lot of high level information that I’m aware of that I, that is really for sophisticated investors. I find it difficult to follow myself and, there is sort of an … exclusiveness around it … investing that I agree with use a little bit disappointing.

Janine: [00:23:10] So, there are financial advisers out there who are socially focused, but they don’t share information about the things that they invest their clients in.

Eve: [00:23:21] Oh.

Janine: [00:23:21] Because that knowledge is sort of their intellectual property. Right? So, there has been an opaqueness around this for a long time. And I feel like it’s time to blow that up, too, and just make this stuff completely transparent. There’s no reason why this information shouldn’t be easily available and easily accessible.

Eve: [00:23:43] Well that’s very exciting. So, have you found anything you want to invest in real estate?

Janine: [00:23:48] Not yet, because I haven’t gone far enough down the path. But I will say the other thing that has intrigued me is the idea of co-living or shared housing kinds of situations. I’ve been intrigued by some of the things that you’ve had on your show and, you know, have added them to my list of possibilities. But I’ve been so focused on the other asset classes and just trying to get this book, bringing this book to life, that I haven’t had the time to do the real homework on real estate.

Eve: [00:24:24] I mean, I think if I was starting out now, I’d be making a list for myself and not expecting to check every box, you know? Certainly if I think about moving other assets, top of my list would be women-owned businesses. You know, it’s just things that you, that I care about, that really matter to me that the next person, you’re about something else more.

Janine: [00:24:48] That’s exactly right. And there is there will be a chapter on this book, in this book about private debt and revenue-based financing and private equity and how women can get involved in that. Angel groups that are women-based angel groups, and some new innovative models that are coming out to bring women in, even at relatively small value points, and online platforms that are available now if you’re not accredited investors. So, there’s actually tons of ways to start investing in women, in businesses and things like that for anyone.

Eve: [00:25:24] So, I’m in the early, right at the beginning stage of talking to a group about a women’s development fund, a fund, not a huge one, a small one that would invest in women-led real estate projects.

Janine: [00:25:36] Oh, interesting.

Eve: [00:25:38] It’s going to take a little while to develop, but I’m very excited about that. I think it’s a, you know, a very strong purpose, right?

Janine: [00:25:47] Yeah, no, it’s great. So, I actually have a question for you. Because I seem to remember and I may have gotten this wrong, but I seem to remember in listening to one of your podcasts at one point that you talked about the fact that people who do impact real estate investing aren’t necessarily going to see the same kind of returns as people would in regular real estate deals. So, first of all, did I hear that right? And if I did, could you say more about that and why that’s the case? And also, what do you think is a good return?

Eve: [00:26:21] I think that’s not necessarily true across all types of real estate; affordable housing is the most difficult.

Janine: [00:26:30] Ah.

Eve: [00:26:30] And that’s because the more you return to an investor or a bank, the higher rents are going to be for the tenants.

Janine: [00:26:38] Right. I get it.

Eve: [00:26:39] So, if subsidy goes away as it has been, and we get a bigger and bigger and bigger need for affordable housing, which we have, this gap, ok? And if investors continue to want to be, quite frankly, a little bit greedy and expect 20 percent internal rate of return, I don’t know how you build those projects and keep housing affordable if that continues. So …

Janine: [00:27:09] Yeah.

Eve: [00:27:09] There are many examples of affordable housing projects we’ve done on Small Change that are offering quite generous returns. But they can do that because they have, they are a mixed-use project, they have new market tax credits, they have a grant from the city, they have, you know, historic tax, they do public-private financing, maxxed to be able to squeeze out the best return they can for investors. Very difficult. And so I think that’s not true for all real estate, but definitely for that class of real estate. I think a lot has to happen for it to be kind of a normal market driven …

Janine: [00:27:55] That actually makes a ton of sense. I totally hear what you’re saying. And I think those kinds of things in real estate and other verticals like health and education, perhaps. That not everything is going to deliver market rate returns. I mean, I think one of the fallacies and the problems that have come out of the impact investing movement, if you want to call it that, is the belief, or that’s come out of our very, the way we think about capitalism, is that everything has a market … everything can be done through the market. And that’s just totally not true. There’s a, there are brilliant things that can happen, like what you’re talking about with affordable housing that can deliver a good return to an investor. If there is a subsidy brought in, or if there is a recognition that, you know, this business model is not going to completely wash its face, it’s not going to completely be able to return what it needs to return. But there’s lots of ways that you can bring in guarantees or you can bring in first tranches of money that are willing to take a greater loss. Or very interesting things you can do with a financial stack.

Eve: [00:29:23] But ultimately is it right for a private investor to get a 15 to 20 percent return on a project that will only move forward if there’s tons of subsidy. Kind of wrong.

Janine: [00:29:37] I’m not sure it is because, look at the alternative. The alternative, and this is kind of what happened in the microfinance world. So, in microfinance, it was reaching 100 million people. It definitely was shown to help bring people out of poverty. It was completely driven by grants. And there was, when I got involved in it in 2002, there was this huge battle going on between proponents of, like, the Grameen Bank, of keeping it completely the way it had always been and fully driven by grants, and a new group of players who were saying, yes, but we can actually commercialize these microfinance institutions and turn them into commercially viable institutions. And there was this huge battle between those two. They hated each other, actually. And what ended up happening is the commercial play actually got proven out. It was shown that you can, in fact, commercialize microfinance and you can reach a lot more, and the whole technology piece that I talked about came out of that as well. And now you’ve got, from the time I got started, so that two and a half, in a basically a 10 year span in that two and a half billion people who were previously unbanked. It’s now gone below two billion. So, by bringing capital that was seeking a return into the mix, that whole thing was able to scale in a way that it would never have scaled just on grants. Right?

Eve: [00:31:18] But I think when I’m talking about is, we had an offering on Small Change that was an homeless housing project in L.A., just a small offering. But the developers were determined to open it up to the community. And the funds they get, the rent they get is actually from the government. So, it’s going to be affordable housing in perpetuity. It’s not going to, you know, increase in value and be sold at a profit. So …

Janine: [00:31:48] Right.

Eve: [00:31:49] … was a fixed return, OK, return over years, which was a nine percent return, which I thought was pretty generous. And that offering actually filled up faster than any we’ve had.

Janine: [00:32:01] Yeah. I’m not surprised.

Eve: [00:32:03] So that question to me was, do you think we could offer a little less and still raise money, because that’s hard, to add in a nine percent return to a project like that? And I don’t know the answer.

Janine: [00:32:14] Well, you try. I mean, I’m … I think the thing is, you know, people are going to look at this like anything else. They’re going to look at it from a risk returns scenario. So in my own personal portfolio, I have money in bonds that are returning me three or four percent. Right. So that’s OK, because I know that those are pretty secure and chances are I’m not going to lose my principal.

Eve: [00:32:42] Right.

Janine: [00:32:42] So getting three or four percent is OK. But if I’m going to put money into a private business where in five years, 50 percent of private businesses will be out of business, then my risk is a lot higher because I don’t know that that business is actually going to succeed and I could lose everything. Right? So I’m looking for a better return in a three to four percent. The same thing is going to be true in a real estate deal. I mean, if you’re asking me to invest in something and I’m going to get a five percent return on it, then I’m going to need to feel pretty dang confident that I’m going to get that five percent return and I’m going to get my principal back. And that’s not always possible in a real estate deal.

Eve: [00:33:27] And you get to feel good because you’ll be housing most people, right?

Janine: [00:33:34] Yes. Yes, I get that. And I also get that people need to make enough return on their money to be able to retire and have the things that they want, too. And they’re not going to put that at risk. So, I think there’s a, but I, you know, I talked to a woman yesterday who’s on the other side of this discussion, and I really liked her a ton. She was great. She’s very committed. She is very, you know, in integrity with herself. And she really believes that people should be willing to make investments and get no return if they’re doing good stuff in the world. And that that is the way the world should go and that we should stop even thinking about return at all. So, she’s got a very different perspective on it.

Eve: [00:34:19] I think if you have enough wealth that you can do that with some of your money, that’s fantastic. But you’re right, most people can’t,.

Janine: [00:34:26] No, they can’t.

Eve: [00:34:27] They need to live, too.

Janine: [00:34:29] So, yeah, in fact, in doing the research on this book, I found that in the United States, there are 14 million people who are millionaires, about 14, 15 million people. Right? Five percent of this, five, six percent of the country. So, if that’s true and if 95 percent of us aren’t millionaires, then, you know, asking people to not get a return on their money is a pretty big ask.

Janine: [00:35:03] Yeah. An I don’t think, and I don’t think that one percent of us who really have wealth are sufficient to solve this problem.

Eve: [00:35:15] Yes.

Janine: [00:35:17] So, we have to find ways that the majority of us can participate in solving this problem. And that means that we need to do this in a way that they can feel comfortable with the return they’re getting. And I think subsidizing to help them do that is not necessarily a bad thing. And I actually think that’s where the really rich people could come in, is that they could provide some of those subsidies, so they can take lower return to help other people’s money come in at a higher level of return.

Eve: [00:35:51] So do you think that these new crowdfunding rules, like my platform, Small Change, where we use regulation crowdfunding to let anyone invest? Do you think that is a path towards a solution?

Janine: [00:36:02] I think it’s one of them, and I think it’s, Yes, I do. I think it’s a really interesting path. And I think that people who are non-accredited, it’s been kind of fascinating to me as well how differently wealthy people invest than people who aren’t. And it’s not right that people who aren’t wealthy shouldn’t be allowed to invest in vehicles that can provide them with more direct opportunities to have impact with their money and to provide them with greater return. I mean, there is way more risk, for sure. And some people could make bad decisions. You need to do your homework with this. But there are a lot of really smart people out there who are non-accredited who would put in the time and effort to make the right decisions and they should be allowed to.

Eve: [00:36:56] No, you and I agree about that. And I also, I really don’t like the idea of classes of investors. So that, you know, I’ve had discussions with developers who think that accredited investors want more, deserve more, and I …

Janine: [00:37:14] Yeah.

Eve: [00:37:14] … can’t agree with that. I think money should be given the same opportunity. And unaccredited investors who had absolutely zero opportunity to get, you know, a half a percent return from your bank account if you’re lucky.

Janine: [00:37:26] Right.

Eve: [00:37:26] That’s just not OK. So …

Janine: [00:37:29] No, it’s not. And you know, the truth is, there’s a great book I read a long time ago by a guy named Nocera about sort of the evolution of money. And, you know, actually even before him, if you go back, San Francisco history. So, this is a story I absolutely adore. The Bank of America. Do you know the origin story of the Bank of America? It’s sort of incredible.

Eve: [00:37:53] No, I don’t.

Janine: [00:37:55] So, quick version. So, it started in before 1906. There was an Italian immigrant in the San Francisco, in San Francisco itself, actually, who decided that, at that time, the only people who could have bank accounts were extraordinarily wealthy people. J.P. Morgan, you know, that kind of ilk of person. And so he decided, you know what, I think the average man and woman should have bank accounts and be able to get loans. And so he started this bank. It was called the Bank of Italy. And nobody used him because nobody trusted banks. And so then came 1906, the famous earthquake of San Francisco. And he rushed to his bank. He took all the cash out of his safe. He put it in a wheelbarrow. He put, you know, fruit and vegetables over this thing that he had all his money in. And he carted it out of San Francisco. And then he met with the other bankers and they were talking about what they were going to do for the city. And the other bankers were saying, well, we’ve got to wait six months before we can open our banks. It’s too dangerous. You know, bad stuff is going to happen. And so this man, his name is A.P. Giannini. He took that cart or whatever he had of money and he brought it to Fisherman’s Wharf and he set up a little table using barrels and a log, and he started giving out money.

Eve: [00:39:30] Wow.

Janine: [00:39:30] People came to him and he gave them loans. And all he asked was their signature. He trusted them. And the people were so responsive to that,  they had so much gratitude, that his bank grew and the Bank of Italy became the Bank of America.

Eve: [00:39:50] That’s a great story. Yeah.

Janine: [00:39:51] Right? So, and if you look at the history of money and you look at, what you find is that time and time again, there was some innovator like him who said, “You know what? This shouldn’t only be for the rich.” That’s how we got money, mutual funds, and that’s how we got invested in, that’s how anyone can invest in the stock market. It wasn’t always that way either. That was also just something for the rich. So, time and time again, we have seen these things come online for wealthy people. And then some innovator says, you know what? It doesn’t have to be this way.

Eve: [00:40:32] Yes.

Janine: [00:40:34] And then the rest of us can participate.

Eve: [00:40:35] Fascinating. So given all of that, what do you think the future of real estate impact investing lies?

Janine: [00:40:43] I’m going to take a step back first and say, where does the future of impact or values aligned investing lie first, and I believe it is going to become ubiquitous. I believe that ultimately this is the way people are going to invest writ large, that their values are going to matter to them as much as their return. And they’re going to realize they don’t have to give up both. And I think that the real estate piece of this, because it’s more complicated for people, is going to be a little longer to come online. But I think there will ultimately be a lot of really interesting opportunities, for all of us, to invest in real estate, too, because it is a great diversifier.

Eve: [00:41:23] Yes.

Janine: [00:41:25] And I’m a huge fan. When I was a young girl, my favorite movie of all time was Gone With the Wind. And, you know, I totally love that she always goes back to the land and she realizes that regardless of what’s happening around her, the land is something tangible and real. And it’s something that she can hold on to. And I think that’s still true today.

Eve: [00:41:49] Well, that was some really fascinating conversation. Thank you so much for joining me, Janine. I’m sure we’re going to be talking again soon.

Janine: [00:41:58] My pleasure. Thank you so much. I enjoyed it, too.

Eve: [00:42:03] That was Janine Firpo. Here are some of the things I learned during our fascinating conversation. First, not only can you expect financial return when you make a socially responsible investment, you can meet or even beat the market. Second, only five percent of the U.S. population is a millionaire. That means that 95 percent of the population does not have access to investment opportunities that are largely available for the wealthy. Finally, figuring out what impact means in real estate investing is difficult for someone starting out. It’s impossible to find consistent metrics. 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, Janine, 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 Janine Firpo

Superlofts. Super fantastic.

Marc Koehler is the founder of Marc Koehler Architects (MKA) and the creator of the fabulous Superlofts project. The studio is located in Amsterdam, the Netherlands. While his firm works on many architectural projects, with Superlofts, Marc is stretching his role as an architect.

For 15 years, MKA has developed an analytically innovative, research-by-doing approach to ambitious, original ideas directed at the future of sustainable urban living.

The Superlofts project pursues the idea of community first, building second. Rather than design and build a condominium project in the hope that the market will follow, MKA are creating curated living experiences and providing highly-flexible living spaces set in urban sites, all the while building with carbon neutrality in the foreground. Superlofts accomplishes this through a customizable co-living and development model which allows people to design their own living spaces from scratch and lets new homeowners co-create their shared spaces, all in service of building a sustainable co-living community. Every aspect of each project is thoughtfully designed – from the exterior facade, to the number of families in each “pod”, to the shared amenities that will encourage community, to the extreme flexibility of the living arrangements.

Having started as a local project, Superlofts is growing into an international movement. Five Superlofts have been completed in Amsterdam and Utrecht, and projects in Groningen, Amsterdam and Delft are under construction. Sites in other international cities are also being researched.

Marc’s studio, MKA, practices a full range of design disciplines from start to finish: concept, architecture & urban design. with a team that includes four core associates and 29 architects, designers and engineers. Their work has been recognized with the World Architecture Festival Housing Award (Completed Buildings) and Director’s Special Award in 2017, World Architecture News Award for Best Housing Project in Europe 2017, Best Dutch Building of the Year (Housing) in 2018, architectenweb award in 2018 and Dutch Building Award in 2015. Recently, MKA won design bids for ambitious new developments such as Poppies, Bosrijk, KBF-Dock, Peak and commissions such as Republica Circular City and MARK that promote the transition towards a circular economy and inclusively built environment.

Marc Koehler (1977) grew up in a Dutch Portuguese family in the northern Dutch town of Naarden. He holds a Masters in Architecture from the Technical University of Delft (TU Delft). Since 2017 he has an advisory role at the municipality of Amsterdam as a member of the Spatial Quality Committee. The committee reviews planning permits in light of the city’s urban design ambitions across themes such as densification, urban renewal, sustainability and cooperative developments.

I can’t wait to visit a Superloft.

Insights and Inspirations

  • We already live in the future if successful urban housing can be modular, co-living villages, co-created by their inhabitants.
  • Building community should be the primary goal of any urban design process.
  • Sustainability is just as much about people as it is about resources.

Information and Links

  • On the Superlofts website you can explore the tools that MKA uses to help home owners, real estate pioneers and architectural partners create buildings for the future.
  • MKA has also launched the Superliving community. Here you can see residents in their dream home and meet MKA’s interior design partners.
  • Open Building is an emerging group of Dutch architects and engineers who are devoted to radically changing the building industry and the built environment to enable a sustainable and personalized way of living.
Read the podcast transcript here

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

My guest today is Marc Koehler, the founder of Marc Koehler Architects and the fabulous Superlofts. His studio is located in Amsterdam, the Netherlands. While the studio works on many architectural projects, Superlofts is perhaps the most exciting project that you will want to hear more about. With Superlofts, Marc is tapping the desire for city living and combining it artfully with flexible living opportunities, carbon-neutral living and community consciousness.

Be sure to go to EvePicker.com to find out more about Marc Koehler 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.

Marc Koehler: [00:01:09] Hi, Eve.

Eve: [00:01:10] Hi, Mark. Thank you very much for joining me today.

Marc: [00:01:13] Yeah. Nice to be here. Thank you.

Eve: [00:01:15] Yes. So, you know, I wanted to talk to you today about the very fascinating work that you’re doing in your studio, Marc Koehler Architects. And, you know, I was especially fascinated by a statement on your web site that says you are in the business of bringing people together and that you build the new ways that people want to live. And that’s a pretty unusual set of statements for an architect. Architects usually focus on buildings, not people. So, I’d love you to tell me what you mean by “the business of bringing people together.”

Marc: [00:01:51] Yeah. Well, our company started 15 years ago. Small architects, boutique design agency, doing private houses, transformations of apartments and so on. And we really had to listen to what people wanted, and how they would like to live. So, what we developed is a methodology which we called ‘The Ideal Day,’ in which we ask people to write down their ideal dream day in their ideal future home … as a film script, starting in the morning, ending in the evening. And then, it’s about how do you want to wake up, or how do you want to come home after work? So, it’s not about how big is this? How many square meters do you need in your bedroom, or in your entrance hallway, but what is coming home for you? What do, what is the routine, the ritual of coming home or going to bed or waking up or cooking or showering? And by describing this as scenes, as, let’s say, scripted scenes of a movie of your ideal future life, people start to imagine the power of change, of possibility. And that’s the real quality of architecture and interior design, is that it can really change your life if you take the opportunity and really think of what you want to achieve with your new space.

Marc: [00:03:13] This is something that grew out into several projects, beautiful houses we did for different people. And then in the middle of the financial crisis, when nobody wanted to invest into, let’s say, apartment buildings in the Netherlands, the only sector of the building industry that continued was private housing. So, townhouses, family houses in the suburbs. And there was a lot of land available around the city center of Amsterdam that wasn’t developed. Banks wouldn’t give anyone a loan because it was a very, very deep financial and real estate crisis, from 2008 to 2015. We, though, had this network of private individuals that did want to develop their dream home. They didn’t want to live in the suburbs, though. So what we created was a framework. Basically an apartment building existing out of concrete frame, with double-high spaces of five or six meters tall, and invited people to design their dream house within that framework. And this is what became Superlofts.

Marc: [00:04:22] And Superlofts basically allows private individuals to design with us their dream home in a vertical kind of village, in the sense that we have multiple floors on top of each other, with collective facilities and a strong community that actually then is the result of this. Because people become engaged, in the process of design and also in the process of, let’s say, co-owning a project with other neighbors. And we manage this whole process. And this is when we discovered that the sense of community, something that was really missing in the city. So, we started to also select people for these projects that actually match with each other, and organized, let’s say … co-creation sessions, in which these future homeowners decided together upon what kind of parking situation they wanted for their cars? Did they want electrical charging points? Did they want a shared car? Or maybe they wanted a roof terrace with a barbecue pit or a shared garden for the kids to play. And we really became real estate developers focusing on how people want to live together in the future. And this is what made us stand out to other real estate and architectural concepts in housing. Superloft is really based on individual freedom and, let’s say, the power of doing things together with your co-owners in the building, and developing shared spaces. And it creates very successful building complexes with a lot of happy people that have a very strong social cohesion, do things together, take care of each other, like in a village, but then in the middle of the city.

Eve: [00:06:21] Wow, so that’s a pretty powerful concept, and it must be very different from, you know, where you started 15 years ago. I’m wondering what sort of shifts in lifestyle you’re responding to.

Marc: [00:06:36] Ah, well, there’s many global trends that also resonate in the Netherlands, which is the shift from suburbs towards living in the city centers, or around the city centers, so people are moving back into town. People are moving closer to the facilities that the city offers. They don’t want to sit in their cars, in traffic jams, bringing their children to horse-riding classes and ballet classes and football class the whole day. So, they choose to move back into the areas where they can have everything close by. So, they don’t lose valuable time in the car.

Marc: [00:07:14] So, that’s one thing. So, in Holland, you see that, all this in … also in London and many other cities. Also in the U.S., you see that former industrial areas are gentrificating into mixed-use residential zones close to the city hubs. And this is kind of, let’s say, a potential area for a new kind of mixed and diverse city where working and living and leisure and mobility – all these aspects are kind of like combined in a new way, a lot of potential for new experiments. The old city centers are, of course, overprotected and with all kind of building codes and historic preservation codes, but especially these zones in this transition zones like called old harbor districts and light industrial areas. They are potentially the new cities where the middle class moves too. And, yeah, Superlofts is often used as a catalyst in these kind of areas. So, we are hired to bring an area that is now underused and mono-functional into movement with maybe 20- to 100-apartment building with shared facilities. This attracts pioneers that … often creators, designers, makers, thinkers and marketers, real estate developers that think, hey, I have an idea of how I want to live, and I think I can develop my ideal home within this Superlofts framework.

Eve: [00:08:49] Well, I want to move in.

Marc: [00:08:52] And then you see that these pioneers are often rewarded with a very strong increase of value of the property over the years, and then surrounding properties profit from that Superlofts has had … let’s say, a function of putting the area on the map, showing as a proven concept that it’s a nice place to live. And this is then where more commercial housing projects are being developed around it. So that’s one an important trend.

Marc: [00:09:22] But I think the second one is that we are moving towards more compact and smart living so that the apartments are becoming smaller but more smartly designed with less space for owning things, more for sharing space, collective sharing services. So, we don’t need our CD collection anymore in the house. We have it on our phone. So, we don’t need all this space to own things. And you see that also in Superlofts. They are becoming more and more compact and therefore also more affordable to broader groups of people.

Marc: [00:09:57] And the third trend, I would say, is sustainability. Climate, positive approach in which we use all these different aspects from water retention to natural cooling in nature, inclusive façades, smart energy and heating concepts to make a real circular approach to how we deal with energy and materials. In the sense that we tried to create closed cycles and loops in which energy is not being used for … spoiled, or wasted. And the same in terms of net nature and water. And yeah, that’s how … we achieve, to make, let’s say, projects with this positive climate, positive footprint in which we we store CO2 in the buildings rather than that the buildings produce CO2.

Marc: [00:10:48] And yeah, and the fourth trend is the one that I described in the beginning, the search for community. People are looking for a sense of belonging, of social interaction.

Eve: [00:11:02] You know what I’m hearing is that you must have a lot of people who are interested in what you’re doing. I’m hearing first you curate the people that are going to live in the next building, whether it’s 20 or 30 or 40 people. And you essentially address the way they want to live rather than create an apartment building with two bedrooms and two bathrooms and some of them with a den, and hoping that you can find people who want to live like that.

Marc: [00:11:26] Exactly.

Eve: [00:11:28] Wow.

Marc: [00:11:28] Yeah. So, what we do is we propose through social media and a website, a proposition for a building that is still very open in terms of offer. So we provide a menu of housing types, very diverse, from apartments on one level to duplex apartments, to work/home combinations, to apartments for seniors with everything on one level with all kinds of facilities or with a little elevator connecting two floors. And then we see how the market responds. So, we do market research and see how, what people’s interests are. And then we make the, based on that, the ideal mix of apartments. And allow people to get an option, like, to take an option, or, how to call that, to reserve an apartment for an amount of money so that we are sure that they are serious in wanting to join the community. And then we kind of puzzle with these people so that everyone gets their ideal type of apartment on the floor they want. And then we’ll have a second round to fill up, let’s say, the empty spaces within the building. And we do this all based on online communication, but as well through interactive meetings, live meetings, let’s say, group meetings in … we rent a place where we invite future homeowners to come together so they can get to know each other and see if they really like each other. And then you still see that people are still moving to the building, because they see, oh, there are these other two families with kids. Well, that would be nice to live together on one floor and share this large roof terrace together, for instance. So, you … meetups create all kinds of social interaction that leads then to a strong community.

Eve: [00:13:34] How fascinating. And then how long does this whole process take from when you sort of make the offer online and start to organize people until when they move in?

Marc: [00:13:45] Well, I mean, the last project we’re now doing … within Hoorn, in the north of the Netherlands. It has 45 apartments, large ones, a tower of 50 meters. And we started six months ago. Now we are offering the website of going live within a month and we will start construction in one year. And then it’s about a year to build it.

Eve: [00:14:12] About two and a half years.

Marc: [00:14:13] So, let’s see. That is one, two and a half years. Yeah, it’s about two and a half years from beginning to end.

Eve: [00:14:20] And do you find that a lot of people drop out if they commit like the half year point and they have to wait two years. Are they happy to wait?

Marc: [00:14:29] No, because this is almost common in The Netherlands, because the difference between how we built in the Netherlands or develop in the U.S., is that people … we don’t we don’t start to build before the apartments are sold. So, the project first needs to be designed. Then it’s, 70 percent needs to be sold before the developer and construction company will actually start constructing the building. So, people are used to have, to wait two years before they are actually moving in. If they are first buyers, in the beginning of the process, of course, you start later. The last 30 percent of the project is always sold in the latest stage.

Eve: [00:15:15] Right. It’s not that different because for condominium projects, which this would be in the States, you would have to have pre-sales in order to get financing. For an apartment rental building, you would build it before …

Marc: [00:15:31] Ah.

Eve: [00:15:31] … but if, yeah, but condominiums are a little bit riskier and I think banks on the whole want to see pre-sales. I am not sure they want to see 70 percent, but it’s a similar process.

Marc: [00:15:42] Ok. And that will also then take about two and a half years?

Eve: [00:15:46] Well, I don’t know. It depends on the project. You know, it depends on what sort of permits you get. It could take a lot longer in a place like San Francisco with, where permitting is really, really slow …

Marc: [00:15:55] Yeah.

Eve: [00:15:55] … versus a smaller place where permitting is faster. So, it depends.

Marc: [00:16:01] Right.

Eve: [00:16:03] So, yeah.

Marc: [00:16:04] Here, by the way, we had our buildings also can be larger than just 20 to 40 apartments. We are now also working on, like, complexes with hundreds of apartments. I don’t think that this way of developing is just possible only in a niche market, tailor-made situation. I think it actually can be done better, when you have a larger scale and more apartments. So, we are, in this sense, also talking to developers abroad, like in London and in Bremen, in Germany, for really large-scale projects. Because the return on the investment is more interesting in terms of software development that is tailor-made for this project. And you can make a much more smooth process really working on, let’s say, online customer journey that done with an interface that is really allowing the future homeowners to customize their homes on their iPad. But the investment of this is so large that it actually pays back only on a larger scale.

Eve: [00:17:11] But how do you keep community in a very big scale project? I know I talked to Jeremy in Australia about, sort of, the ideal size of a community. And I think when you have hundreds of units …

Marc: [00:17:23] I think ideal would be 20 people. 20 apartments, for me, is an ideal size of, let’s say, a basic cell. And then if you do hundreds of houses, you build it up with several cells. So, every entrance and elevator is then one unit of about 20 apartments. And it has its own homeowner association, so they can make decisions with a small, trusted group of people. They share their roof terrace and they make their choices together. It can also be 30 apartments. It’s not, or even more. But, ideally, let’s say, between 20 and 30. And then in a neighborhood development, you just built several of these blocks and then they again communicate on a higher level about how do we deal with the street?What do we want the municipality to offer in terms of bicycle parking in the street, garbage and waste recycling facilities? What do we do in terms of architectural co-ordination so that different blocks actually create a nice ensemble? How do we deal with sun and shading and wind and sound issues that … we can discuss that on a larger neighborhood scale with different communities.

Eve: [00:18:49] Right. So what does a Superloft actually look like?

Marc: [00:18:53] Well, that is very diverse, but we like to see it in the basis as a stripped down core and cell building in which we expose the concrete structure that has a very beautiful, deep facade made out of timber on the inside. I think it’s important that this is something that is very beautifully designed, like we are using like a very deep 40 centimeter, deep timber frame on the inside that allows you to sit in it and to put books or plants in it. And then the rest of the space is very stripped to concrete. And then people are able to customize that space with interior design elements. It can be a mezzanine floor, can be staircases, kitchens, bathrooms, walls, etc. And, in that way, can give their own expression to the space. The facade zone is something we like to control because it’s very important how the building looks to the outside. The building should stand there for hundreds of years and we don’t want to make something that looks cheap or unattractive over time. So we spend a lot of quality time on how the facades are designed.

Eve: [00:20:15] And the building facade is, you know, the wall of an open space that’s shared by everyone. So that’s really appropriate.

Marc: [00:20:22] Each unit, its apartment is then sold as as an open space, but then filled in … with a specific layout of the inner walls, and so on, by each client. They can then choose to do this themselves as a do-it-yourself project. But most of them, they choose from a palette of standard options that we are offering, and we still offer them all kind of finishing options that to customize the space in the way that they really like. Everyone has the feeling that they are part of a creative process, even if you don’t have much time for it. And you choose a basic layout. There is still a lot of nice decisions you can make about how to give expression to your space, and not everyone has time and the creativity to do so. So we offer a whole spectrum of, let’s say, paths, routes more or less intense to make your ideal home. Then, in terms of rental apartments, which we also do, we give these choices to the developer and the real estate agent to together customize the building in the way they think would work best. And then we still try to make the layouts in a way that people have several options in how to place their furniture in this space so that they can decide to put the sofa in at least three positions. So that there is really a choice to make even if you cannot design the layout of the apartment, you can design the layout in a way that you can customize the seating area, and even the kitchen that we’re designing now – a hotel co-living brand with a kitchen that is kitchen island on wheels, so that you can really customize the space to your taste, even if you don’t own the space.

Eve: [00:22:12] Very nice. So, you know, the world has a huge affordable housing crisis. And I’m wondering, I don’t know if the Netherlands has an affordable housing crisis.

Marc: [00:22:23] Yes. Yes.

Eve: [00:22:24] What … who is addressing that in any way?

Marc: [00:22:27] Definitely. And Dezeen maand Business Insider and The Independent newspaper have written all about Superlofts in the light of housing crisis and affordability. And basically what they were analyzing is that Superlofts allows starters, first buyers, an affordable home, because, let’s say, 20 to 30 percent of the value or price of an apartment is in the finishing of the apartment. And often this is too expensive for first-time buyers. And this is what makes them move to rental. However, if you buy the apartment in a core/shell way and it’s already attractive to start living there just with minimum investments, which is basically what Superlofts does, because the basic quality of the empty, open space is already does, so nice that you can just put a bed, kitchen and a bathtub and you can live there in a very nice way. And then in that way, phase your investment over time. So, then you don’t need to invest that 30 percent upfront. But you can wait until you find a better job or your fixed contract. So, it allows younger people to enter the housing market and save their investment in the apartment.

Eve: [00:23:53] And shared amenities also must reduce the cost. I mean, do you have shared laundry rooms? Are you able to limit parking areas?

Marc: [00:24:02] Exactly. And then also the larger apartments are actually a solution to the housing crisis, because what happens is that they are built in a way that they have multiple front doors, they have two front doors. So, you can split each larger apartment into two smaller ones, which results in, people rent out part of their house as a unit, as a rental unit. So, they buy an apartment and rent out part of it to two young people that need a 30 square meter studio, or something. And so it also, in this way, contributes to at least a diversity of housing types in an area, and also affordable rental apartments within a condominium.

Eve: [00:24:47] Interesting. So how Superlofts evolving, then? What do you see in five or 10 years?

Marc: [00:24:53] Well, I think that, several things. One is that we are really moving to timber construction and we are developing our first timber project at the moment in the Netherlands, which is six stories, mass timber. Still, there are smaller units that you can connect into larger ones on top of each other or next to each other. That creates kind of infinite possibilities to make floorplans and adapt them over time to changing lifestyles or market demands. So, when this mid-segment rental project, in 20 years, is released by the government, because there is a 20-year, let’s say, deal on the land-lease that needs to be respected before you can alter the configuration. In 20 years, the owner of the building can reconfigure it without, with minimal costs, because it’s already built in a very flexible, adaptable way. The timber construction is helping a lot. If you make things in concrete, it is more hard to connect units on top or next to each other. You have flexibility within the unit, but not between them. When we move to timber we can make this kind of Tetris game much more flexible and allow in 20 years from now a much higher, let’s say, rest value or repurpose value for the owner of the building. And he can then or she can then transform it into another second market segment. Maybe make smaller units, maybe sell part of it without having to demolish anything. So it actually allows a much more healthy and sustainable way of building if you build in a flexible, adaptable way in timber, because you don’t produce waste. And secondly, you store CO2 in the building because each tree that you, let’s say, take out of the forest and put into your building is a lot of CO2 that you take out of the air and store in the building – as long as you replant the tree, of course …

Eve: [00:24:53] Yes.

Marc: [00:27:09] … which is the case in Europe, in all the forests that you are allowed to take wood from. So, we are really believing that this is going to be a huge solution, or help, a contribution to solving climate crisis, is to mass build, massively in timber. Secondly, we are moving into diversifying our products, into rental, into co-living. And we’d like to partner with developers and real estate pioneers to, let’s say, create a global brand for Superlofts that connects all these different projects both in condominiums and rental into one strong brand that the Superloft members identify with, that activates the community, that offers all kinds of services, such as if you want to rent or sell your apartment, you can do that through our platform. If you want to share services or start a community event, we will allow that. And we offer all kinds of inspiration, creative inspiration on how to decorate your home or a platform of preferred suppliers where you can get design advice or buy really cool stuff for your house. So, there’s a lot of opportunity still to activate a community and to develop Superlofts further into a global brand. And we are looking for partners in different countries at the moment to produce to do so.

Eve: [00:28:42] Fabulous. That’s pretty exciting.

Marc: [00:28:44] Yeah … I don’t know if it’s gonna work, but it isn’t really … my dream already for five years is to actually connect now to different buildings. We have built eight in the Netherlands. I know these people are super-excited to tell about what they are, about their lives and how they are using the building and how they decorated their homes. And we have photographed twenty five of them, interviewed to them, and we are now starting to post that on the website, on what’s called Superlofts.co with ‘co.’ And then there is the Superliving page. And that’s the blog where we are kind of like starting to share this inspiration.

Eve: [00:29:27] That’s wonderful. Are real estate investors in the Netherlands interested in your work?

[00:29:32] Yeah, in general. Well, it’s … In MKA, definitely, in our architect firm, for sure. So, there’s a lot of spin-off for my architect firm because of Superlofts. So, we being hired, as I said, to to design a new co-living hospitality brand that is going to operate globally. So, these kind of people see that energy and creativity that we put in Superlofts can also be put into new housing concepts, that we are being approached by different investors and developers to start new specific concepts for their own properties or investments. And about Superlofts to find partners. It is. Yeah. Actually, when I am thinking, yeah, actually it is going quite well.

Marc: [00:30:19] So, there are there is different developers in both the Netherlands and abroad that would like to do Superlofts projects with us, and I think that in a couple of years from now we will we have projects in London and Germany and maybe the U.S.

Eve: [00:30:37] That’s pretty fabulous. Do you know where in the U.S.?

Marc: [00:30:41] Well, we’ve been looking in Newark. We’ve been looking in Brooklyn, in San Francisco. And the thing is that all these developments, they kind of stalled because of the complexity of legal issues in condominiums. So, this kind of development of Superlofts in the States that, where we were like one and a half years ago, which was really still focusing on condominiums, not so much on rental and co-living, but in that phase when we were in the U.S., we discovered that there was a lot of fear of people suing each other in condominiums …

Eve: [00:31:25] Yes.

[00:31:28] … and that this is what stalled the developments and what made it more difficult to pull it off. But I think that in terms of rental, when we customize the building, not with the end users, but just with the developer and the local design team, that this is actually going to be a much more interesting approach for the U.S., which means we’ll make rental buildings with shared facilities with a lot of diversity and types of lofts, in which the people can actually still belong, become a member of the Superlofts community, and enjoy the creative energy that that we are spreading. But then not in co-designing their building, but more in, let’s say, customizing their apartment decoration or, let’s say, configuring their, the furniture settings of their apartments, the types of furnishings that they choose. This is something we are now looking into, but our focus is really now in London and Germany.

Eve: [00:32:41] Okay, cool. So, I have some final questions for you. And I want to know whether you think socially responsible real estate is necessary in today’s development landscape. Because not everyone thinks about it the way you do, right?

Marc: [00:32:56] Yeah, I think it’s it’s just it’s crucial for two reasons. One, is that we are having a climate crisis that really demands for people that have power to change things, to really step up. And I think real estate pioneers are having a great responsibility and potential to show that we can do things in a radically different way. It doesn’t cost much more. It’s not so much more complicated. It just needs a little bit more time to do the right thing. You need more attention. Slow down a little bit the process so that we have time to really think things through in a more original and sustainable way than just choosing for the standard options. But I think we all know that the world deserves this attention. Right? This is just there would be a kind of crazy not to take the time to really do the right thing at the moment. And secondly, I think in terms of social sustainability, we see that our societies are polarizing a lot. Societies are falling apart in different groups that are standing more and more opposite to each other, even within families. Well, this is partly the result of that we have created cities with a huge segregation between different groups and that we allow ourselves to just go from place to place with our car or on public transport with our headphones on, not talking to the so-called other. We’re not meeting others really anymore. And we’re meeting the same kind of people in this, in the gym as in the offices and in the members club. And that’s, and so on.

[00:34:45] So what is really important is that we create communities around the home so that the home sphere, let’s say that what we in Germany called the meinschaft sphere is, let’s say, a local area network around your home includes maybe the school for your children, your local shops, but also places where you meet your neighbors, that we really start to revalue the neighborhood and the street and the building block as a social structure that allows you to get to know people from your own kind and tribe, but also from others. And that your children, our children aren’t that they become used to the fact that the world is very diverse and that there is diverse ideas and diverse kind of people, and that that is actually enriching our lives and our potential as open societies to survive in this competitive world against other continents in which there is much less freedom and much less diversity. I think the strong potential of the United States, of Europe, is that we can be proud of having these open societies that are diverse and inclusive, and that we really need to revalue the position of the home and the neighborhood in this city as important social catalysts. And I think that community-based residential developments that are not gated communities, but that are designed to interact with their surroundings and that are diverse socially and economically. Small and large, rich and poor apartments, everything mixed. That is the responsibility we have as real estate pioneers to create, let’s say, a better world.

Eve: [00:36:40] So, in a sense, I think, I feel like we’re going backwards. When I first moved to Pittsburgh, I lived in a neighborhood of houses built around 1900 and they all had front porches, and that’s where people congregated in the evening …

Marc: [00:36:55] Exactly.

Eve: [00:36:56] … talked to their neighbors. And then, you know, TV came along and everyone went inside. And the front porch was no longer used in that way. And I think it was sort of replaced all the time in apartment buildings with individual small balconies, but without really sort of understanding the …

Marc: [00:37:14] Yeah.

Eve: [00:37:14] … the loss of that place. Right?

[00:37:16] I so agree. And, you know, it’s so simple to solve this. If you look at an entrance lobby of an apartment building or a condominium, maybe it’s three meters wide. That’s 30 feet wide, a hundred feet long and you just have mailboxes. But if you would make it a little bit bigger and you put a large table there for where you can sit with 10 people, you put the newspaper, you put some flowers. You have Internet. Then suddenly you have an office space or flex-office place in your apartment building. People will start to use it as a place to work. Of course, you need to have a little bit nice design of the space and of the facade and good light and a nice carpet and so on. But it’s a little bit of effort, and then suddenly people that have that are independent workers that work from their home or their apartment can use that space as their meeting room as their, you know? It doesn’t cost anything extra and you have a fantastic social interaction space where you meet your neighbors, where you talk to each other. The same for children. You can they can do their homework with one parent together in that space rather than that every parent has to do their homework with their children separately in their homes. What we see in our buildings is that parents share this responsibility, and say, ok, one of us stays at home every afternoon to take care of the kids coming home after school, because they’re playing in the street around the house. And then at least one parent is there working in the space for something when something happens or if they need some guidance with their homework. This is what my ideal world looks like. Basically, you know, where people choose to live together because they see the advantage of sharing things.

Eve: [00:39:08] What wonderful ideals. Thank you very, very much for joining me. I thoroughly enjoyed the conversation. And I want to come and look at your Superlofts sometime very soon.

Marc: [00:39:17] You’re very welcome. And let’s find a nice spot in the U.S. to do a Superlofts U.S. prototype with a very nice lobby space where people can work on the ground floor. And with all these dreams that we have just discussed, maybe we all we can find an interesting opportunity in the future. I’m sure that there is a lot of interesting developments in American cities at the moment, like in Europe, that really are very interesting to work within. And when you come to the Netherlands, I would love to show you around. We have another website that I would like to tell you about, which has an audio tour along all these kind of community buildings in Amsterdam. So it’s nice for you and for any of the listeners. It’s called the Open Building Audio Tour. And you’ll find it on openbuilding.co, ‘co’ again, which is a platform that I’ve created with 15 Dutch architects with all kind of, everyone showcasing buildings similar to Superlofts which the architect has created, let’s say, community buildings, flexible and adaptable over time, often very sustainably built and, that’s really worth doing when you come to visit Amsterdam.

Eve: [00:40:47] Absolutely. I’m going to, I’m going to get there. Thank you very much, Marc, and enjoy the rest of the day.

Marc: [00:40:53] Thank you. Bye bye.

Eve: [00:40:55] That was Marc Koehler of Marc Koehler Architects and Superlofts. This architect is thoughtfully pursuing the idea of community first, building second, rather than design and build a project and hope the market will come. Instead, his team design their Superlofts around a curated community of people. Every aspect of each Superloft project is thoughtfully designed, from the exterior facades to the number of families in each pod, to the shared amenities to encourage community, to the extreme flexibility of the housing units. I can’t wait to visit a Superloft. You can find out more about impact real estate investing and access the show notes for today’s episode at my web site, 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, Marc, 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 of Marc Koehler by Jordi Huisman.

When public outcry drives change.

We’re facing significant challenges in the housing and real estate market these days. And still it seems hard to convince people that change is necessary to respond to the enormous challenges of climate change and the affordable housing crisis. This is especially true in the real estate industry, where trends and practices have developed over many years and are a little set in stone.

So how does one trigger change? Sometimes unwittingly when an unusual or noteworthy event captures people’s attention. One great example is a planning battle that was fought by an architect in Melbourne, Australia.

Stripped unfairly

Jeremy McLeod, director of the architecture studio, Breathe, is committed to providing affordable and sustainable housing to the Melbourne community. When Jeremy tested these objectives with his first project, The Commons, a mid-sized condominium project in the heart of Melbourne, the project was an unequivocal success, as it quickly sold out, won various awards for sustainability, and was completed on budget.

Sustainable, affordable and pretty gorgeous, people wanted more just like it. And so, with a waiting list of over a hundred people, Jeremy decided to pursue a second project right across the street and went about getting a planning permit to begin the project. The planning permit was approved. And then a neighboring developer challenged it in court. Breathe was building apartments that were 20% bigger, 20% cheaper, and substantially better than traditional apartments in the area, and better than the developer was planning to build. As you can imagine, other developers were concerned that this was going to create issues in the market.

Well-funded and with a powerful legal team, the challenging developer was successful and Breathe was stripped of its planning permit for the building, Nightingale. This put them back to square one, with the task of starting the long planning application process from scratch again. For Jeremy it was a devastating moment and one that nearly broke him and his team.

The public response

While the loss of the permit was beyond disheartening, it unexpectedly became a turning point for the project, bringing waves of public support. The press heard of the permit challenges and became very fired up over the loss of the permit. The idea of shutting down a project that had high community aspirations – affordable, carbon-neutral housing for first-time home buyers in a very expensive housing market – did not sit well with many and got lots of attention. It seemed objectively contrary to the goals of the community. As a result, it worked to spark a powerful public response.

This outcry was only strengthened when the reasons for the permit loss were highlighted. In the Appeals Court, the issue turned over the car parking, namely the fact that there wasn’t a parking lot in the basement. However, the project is on a train line, with a bikeway leading to the CBD right next to it, and 30% of future residents didn’t even have a driver’s license. At least 40% of future residents had already committed to either getting rid of their car or parking it in one of the many lots in the area. All in all, it was a decision that didn’t seem to make much sense.

The result was that support for this type of carbon-neutral, affordable housing literally grew overnight. The waiting list for Nightingale went from 125 to 400 people in one day. Now, there are 8,500 people on the waiting list.

It was a difficult and unusual way to gain support, but the seemingly unfounded stripping of Nightingale’s planning permit was ultimately an incredibly effective way to raise support for a new type of housing. This battle brought some central issues to light, helped frame important topics for the community, and drew attention to what types of changes were possible. In Melbourne, the community responded with resounding support for innovative designs and a new housing model. Hopefully, this is momentum that will carry over to other communities and areas. 

If you want to learn more, listen in to to Eve’s interview with Jeremy about this project and the work that Breathe is doing.

Image of Nightingale I, Melbourne, by Eve Picker