Rethink Real Estate. For Good.

Visionary

7.4 million short.

Matt Hoffman’s primary interest these days is the intersection of housing and technology. He is an active early-stage investor in companies with tech-enabled solutions that can transform the housing sector in a way that increases affordability and sustainability. And he’s also  a founding partner in HEALTH+, a suite of telehealth services bringing healthcare and lower cost prescription medications to lower income residents of multifamily housing. 

With over 25 years experience in the private, public, and non-profit sectors as a social and business entrepreneur, Matt has served as Vice President of Innovation for Enterprise Community Partners a national organization working to deliver capital, policy, and solutions to the affordable housing sector. In that role, he built an investment portfolio of HousingTech companies and led the launch of an online brokerage for social impact investing called ImpactUs. His previous experiences include serving as a policy advisor to the U.S. Secretary of Commerce and running a federal interagency task force on e-commerce; providing business strategy and policy consulting to high-tech and startup companies as Vice President of E-commerce at Infotech Strategies; and co-founding and running a real estate development company in Baltimore, Maryland.

Matt has served on numerous non-profit boards and currently chairs the board of Integrated Living Opportunities, which builds community for young adults with autism seeking to live independently. He is a graduate of Harvard’s Kennedy School of Government (MPP) and Brown University (BA).

There is no doubt that Matt is squarely focussed on how technology can disrupt our failing housing industry. With a shortage of 7.4 million affordable housing units today, Matt is thinking big.

Insights and Inspirations

  • Housing Tech Ventures, where Matt is managing partner, is focused on backing companies with tech-enabled platform solutions that have the prospect of changing the housing market in a way that increases affordability. He likes companies that are tackling very challenging problems.
  • We’re 7.4 million affordable housing units short of our housing needs in the US today. Over the next 10 years we’ll need to build another 4 million rental units just to keep up along with 8 million homes for sale. Ouch.
  • Even if we had the funds, we won’t have the labor. Other technological solutions have to step up.
  • Matt is thinking big sourcing companies like CityBldr which uses machine learning to aggregate land, or credit companies like Till – trying to solve credit issues for low income tenants. 

Information and Links

  • Matt chairs the board of Independent Living Opportunities, a startup that works to enable adults with intellectual disabilities to live independently.
  • When Matt is not thinking about housing and tech, he’s practicing on his congas, djembe and darbuka, trying to become a better drummer! Tom Teasley, Matt’s percussion instructor, is one of those special people bringing good to the world. 
  • Matt hopes that his startup, Housing Tech Ventures, will bring market-driven solutions to the housing market in order to increase housing availability and affordability.
Read the podcast transcript here

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

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Matt Hoffman, whose primary interest these days is the intersection of housing and technology. He’s an active early-stage investor in companies with tech-enabled solutions that can transform the housing sector in a way that increases affordability and sustainability.

Eve Picker: He’s also a founding partner in HEALTH+, a suite of telehealth services bringing healthcare and lower-cost prescription medications to lower-income residents of multifamily housing. This is built on his background of over 25 years’ experience in the private, public, and non-profit sectors, as a social and business entrepreneur and serving as a policy advisor to the U.S. Secretary of Commerce.

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

Eve Picker: Hi, Matt. Welcome. Thank you for joining me.

Matt Hoffman: Pleasure to be here, Eve.

Eve Picker: I know that your interests have shifted over the years, and you worked as a developer in a large mission-driven organization for a while, but you’re now pretty squarely focused on technology and innovation. I’m just wondering how that shift happened.

Matt Hoffman: While working in residential development for 15 years, in one capacity or another, it became very clear that the housing market was getting away from most Americans, whether they were renting or seeking home ownership. By that, I just mean it just wasn’t accessible or affordable. People obviously are housed, but not in an optimal way. Looking at the market, a question that I asked myself, coming from a policy background, was how could we transform the way that we build, that we preserve housing in the country?

Matt Hoffman: Although there certainly are some key policy levers that we could pull, I felt that the biggest shift could come from the market side, itself, and through the application of technology, which really has not penetrated the housing sector like it has most other sectors of our economy. That really was the draw – trying to solve for the housing affordability challenge that the US faces right now and looking for entrepreneurs who were looking to apply technology and business model innovation enabled through technology to the housing market.

Eve Picker: You created HousingTech Ventures?

Matt Hoffman: I did. HousingTech Ventures is a technology-focused venture fund seeking early-stage companies – seed stage and Series A – that have solutions that are tech-enabled solving a problem in the housing market in a way that, at scale, could increase housing affordability. The way I think about it is where are the entrepreneurs in the housing sector that could provide that kind of transformation or disruption, even, to the marketplace that Uber did to the taxi market or Airbnb to the hotel market? It’s not so much that they eliminated the incumbents, but they really forced those incumbents and the regulators who oversee those markets to change their business practices.

Matt Hoffman: We need to see that in the housing market, and the evidence is clear. We have 7.4 million units-  a shortage of 7.4 million units that are affordable to lower-income Americans. We need to add 400,000 new units per year – that’s a net number – to serve the number of renter households that are coming into the market over the next decade; that’s 4 million units right there. We need to add 8 million units of home ownership over the next decade for the new household formation. We clearly are not going to get there using the same practices that we’ve been using over the past several decades. In fact, it’s getting harder as we try and address existential issues, like climate change, which, rightfully so, are forcing us to change our policies, which unfortunately make it harder to produce housing.

Eve Picker: Yes.

Matt Hoffman: We need that kind of disruption and transformation in the housing sector.

Eve Picker: I usually think about this in terms of building, construction, disruption, but I’m sure you’re thinking about it in in other ways. Can you tell us about any disruptors that you are seeing that are very different?

Matt Hoffman: Sure. I’m very excited, first, about what we’re seeing in the construction-tech sector; entrepreneurs who are applying technology to how we build. Fortunately, there’s a lot of capital flowing to those companies; whether that’s 3-D printing, or construction-site management, or the use of drones, or robotics, especially related to bricklaying and drywall hanging; lots of opportunity in construction tech, and that’s all good. That’s automation, which produces greater efficiency, which will lower the cost of inputs to produce housing.

Matt Hoffman: I have been focused more on business-model innovation that’s enabled through technology. What excites me about that, first and foremost, is it’s less obvious, and there’s not as much capital flowing, so I tend to be attracted to harder problems to solve. Automation, in general, is happening throughout the economy. It’s finally penetrating construction and the building trades, and that’s going to happen over time. The real challenge is how can we accelerate change? I think that’s through business-model innovation.

Matt Hoffman: Let me give you a couple of examples of the type of companies that I’m interested in. There’s a company, for example, in Seattle called CityBldr, an early-stage company that is using machine learning in identifying opportunities to build housing, by-right, according to the zoning code, by aggregating potential development parcels, which is a very difficult [cross talk]

Eve Picker: -it’s very difficult. Yeah.

Matt Hoffman: What I like about the CityBldr’s approach is there are sophisticated software tools for developers to use to do that type of modeling, but the approach that CityBldr is taking is both on the supply and demand side. So, the supply side are the landowners, the current landowners, who essentially have a lock on the property. The demand side, in this case, is the developers or even cities that are seeking economic development and revitalization for an area. This tool is egalitarian in that it enables both parties to come to the table and look what could be built and does a pro forma that demonstrates to both sides what the economics are of the deal and what the land value the deal can tolerate.

Matt Hoffman: I’m hopeful that through this type of analytics being applied in the marketplace, we’ll be able to unstick deals that don’t get done for a variety of reasons and put tools in the hands of both buyers and sellers to enable development to happen and to enable it to happen by-right, so we can get the highest and best use for land that’s appropriately placed, that’s in demand, and that can help alleviate the housing challenge. That’s a machine-learning example.

Matt Hoffman: We also have companies that are unlocking credit opportunities for people who’ve been shut out of the credit markets. There’s a company based here in Washington, D.C., where I am, called TILL (T-I-L-L) that’s working with renters who are either no-file, or thin-file, to use the credit vernacular. In other words, they have no credit or poor credit. These renters, like anyone, sometimes experience unforeseen challenges that restrict their cash flow.

Matt Hoffman: Example: someone is doing all the right things. They’re housing themselves and their family. They’re working, and the car breaks down; they need to pay $1,000 to get the car repaired, and they need the car in order to get to work. But now they’ve spent $1,000 on the car that they were going to spend on rent. They don’t have savings. What do they do? Really, their only … They have two options. One is to not pay the rent. They don’t pay the rent, not only do they face late fees, but they could get evicted. The other option is to go to a payday lender, which will likely charge upwards of 400-percent APR and put them into an endless cycle of late fees and loan renewals. These are loans that are designed for the customer to fail.

Matt Hoffman: TILL saw the opportunity with these borrowers to provide them with a loan structure that’s designed for them to succeed. In other words, it’s not a predatory situation. TILL can provide the service and make money without preying on these very vulnerable borrowers. What does that do? That’s essentially de-risks the credit from the landlord because TILL pays the landlord directly, and it also enables the tenant to bridge whatever minor financial crisis that they’re currently facing, get back on track, and, most importantly, stay housed. They don’t have to move themselves or their family and potentially end up on the street. Those are just two examples. One is, obviously, zoning. One is credit. There are many others I could give, as well.

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

Eve Picker: Yeah, I think I saw one … I think it was New York Times, just this week, where these two guys started a company where they help people with rental security deposits, which I suppose might be another barrier of entry for a lot of people.

Matt Hoffman: Exactly. Again, that’s a credit-based model, or financial-services- based model. There’s so much opportunity for business-model innovation around financial services and credit. In the US, if you want to house yourself, most people have only two options. You either sign a 12 -month lease, which does require an additional security deposit, or you sign a 30-year mortgage.

Matt Hoffman: We are much more sophisticated than that. We can offer people a host of options for both home ownership and for renting that can better suit their economic situation, and even their temporal needs. Maybe someone only is prepared to obligate themselves for three or six months instead of the standard 12 months. Unfortunately, the business models have not only been locked in by the market side, but also by regulation, much of it very well-intentioned for tenant protection, but, to a large extent, I think that’s inhibited owners and landlords from innovating and offering other solutions. I think that’s largely, in part, because we’ve had too many bad actors in the real estate market who’ve preyed on tenants who, especially at the lower end of the income spectrum, are very vulnerable. We’ve had some pretty heavy handed regulations which, when that occurs, tend to inhibit innovation.

Eve Picker: Well, I can see why you’re fascinated by all of this. Still, that’s like how on earth do we bridge the 7.4 million short? That’s crazy. That’s a very big number.

Matt Hoffman: One way to do that is not only through production. There’s no way we’re going to build our way out of this in the near term. The shortage for affordable units is actually 7.4 million. That’s according to the Harvard Joint Center for Housing Studies, which is the annual report, which is the Bible of the industry. If you put a number on that of $200,000 per unit, that’s $1.5 trillion of capital, we would need to build our way out of it. Not to mention, how would we address the labor issues, the labor supply issues? We clearly don’t have enough construction workers in the country, right now; as well as where would we build it, permitting, et cetera? We could not build our way out of this.

Matt Hoffman: We also need to look … That’s the supply side, but there is the demand side. We are seeing co-housing and other models emerge where, again, we’re moving away from the traditional model of one tenant or two tenants per unit and looking at unrelated parties sharing spaces in ways that are not locked into that 12-month lease. There are companies, like Nesterly, out of New York, which is opening up a service in Boston that matches millennials with seniors who have extra rooms in their apartment that they’d like to rent. The millennials that they’re targeting are typically seniors- I’m sorry, students, of which Boston has only 250,000 full time students. Plenty of market share there for them to penetrate.

Matt Hoffman: Then, other companies, like Common, and Starcity that are bringing co-housing to the multifamily market. PadSplit, which is bringing co-housing to the single-family-rental market. On the demand side, we’re filling in with different models that can not necessarily produce new units but can house more people. That’s going to be essential because the two biggest demographic cohorts in our country are millennials, which is a bigger cohort than the baby boomers, and seniors. Those two cohorts – millennials, and seniors – will continue to be the largest for the next couple of decades. Their housing needs are significantly different than what has become the typical housing scenario – which I referred to earlier – of 12-month lease or 30-year mortgage that has dominated the marketplace for the last multiple decades.

Eve Picker: Yeah, okay. I think that’s right. Family structure is also changing. The house for mom, dad and 2.3 kids isn’t really quite the way we live anymore is it? Or many of us-

Matt Hoffman: It’s not. You actually have a pretty interesting innovator in Pittsburgh who’s addressing that. Brian, at Module, has a company that’s thinking of the home as essentially an expanding unit. Constructing a new home, starter home, that’s two bedroom/one bath, but it’s built in a way such that you can add on additional components as a family’s needs change. Add a bedroom and a bath as children are introduced into the equation; add an accessory dwelling unit, if parents come home to live, or even students who’ve graduated and return to live at the family home while they start their careers.

Matt Hoffman: This notion of being able to stay in place … When we talk about aging in place, we often think of people in their 60s, 70s, and 80s not wanting to go to a nursing home and holding onto the family home or an apartment. What I think the new definition of aging in place, that Module and others, who are introducing the concept of a transforming home, bring to the market is that the home can be more than just a single- serve a single purpose or a single point in time without major renovation.

Eve Picker: Yes. Still, my frustration with a modular market like that is it’s so expensive. It really- it just hasn’t reached the point yet where it makes a lot of sense for most people. It’s, I think, a good idea, but it’s still extremely expensive, but maybe that will change really soon.

Matt Hoffman: One of the things we need to change, I think, with regard to that – and I’m not a modular expert per se – but oftentimes the cost of development or construction only looks at the structure until the point it’s delivered to the marketplace and not at the ongoing operating costs. I think that factory-built housing, whether it’s modular, or panelized, or manufactured, most people would agree it produces a better product. It’s better built.

Matt Hoffman: It’s not built in the environment where it’s exposed to rain, weather, and other issues, so the operating costs can be reduced – there’s fewer repairs, the seals are tighter, et cetera. I think, over the next few years, my prediction would be that we’ll find that people who are developing and financing housing will do a better job of calculating forward costs and not just the project-related costs, when they’re factoring in the viability of factory-produced housing.

Eve Picker: Really, what it requires is for financial institutions to factor in those forward-looking costs so that someone building a modular home gets a credit for it, because the operating expenses are going to be lower, and therefore, they can maybe borrow more. I think that’s part of the problem. People are trying to hit a budget at the beginning of a project. They only have this much money, and they need that much space.

Matt Hoffman: That’s exactly right. I think that this all goes back to a very valuable lesson I learned called the Golden Rule. I didn’t learn it in Sunday school. I actually learned it early on in my career as a developer. It’s not the Golden Rule that you think. This Golden Rule is he or she who has the gold, makes the rules. I learned that as a developer, getting very frustrated, going to banks, trying to borrow money for projects that I thought were extremely compelling and would be financially rewarding. But as a new, young developer, I was consistently getting rejected for my loan applications. A more seasoned developer said that my problem was I didn’t understand the Golden Rule when I was trying to argue the logic of investing in my project.

Eve Picker: That’s right. Anyway, I do think that innovation has to occur at the bank level, at the mortgage level, along with all of this. It’s pretty hard to borrow money, as you know, not only because it’s the first project you’re doing, but also because it’s different. It doesn’t fit the cookie-cutter project that banks want to invest in. I hope bankers are listening here … Anyway, you also have another company that you’re a partner in, HEALTH+. I’m wondering how that fits into all of this.

Matt Hoffman: I decided that one of the best ways to be a venture capitalist was to understand the other side of the table. It was actually a little bit more serendipitous than I’m presenting in that expression. As I started to structure HousingTech Ventures, I was approached by someone in the insurance business I’d known for a long time. He explained that one of the products that he sells to employers is a telehealth product that rides alongside the standard health insurance that people get offered from their employers.

Matt Hoffman: It’s a 24/7 service called Teladoc that any employer that offers it to their employees, the employee can call, speak with a licensed medical doctor, 24/7, either over the phone or video-chat platform that’s offered through their app. What he explained was that employees love this, because most of the time … In fact, the industry reports about 70 percent of the time, visits to the doctor could be handled over the phone. This is cold and flu, upper respiratory, sore throat, earaches, stomach ache, things of that nature.

Matt Hoffman: Oftentimes, I’m sure you’ve had the experience where you know that you need an antibiotic or some other medication, but you need to go see the doctor in order to get the prescription written. You go, and it turns out to be the exact scenario you predicted. With the tele-health, you obviate the need for transportation, for the unexpected hours that you can end up waiting in the doctor’s waiting room, even though you have an appointment, or worse, for some people who go to emergency rooms for non-emergency care, that can be a significant amount of time – four to five hours – not to mention that it’s a use of resources that are needed elsewhere.

Matt Hoffman: His epiphany was what if we replace the employer with the landlord and offered this product to especially lower-income renters who struggle to access health care? Having spent 15 years in affordable housing and interacted with many lower-income renters and understanding the difficult situation that they’re often in having to make difficult choices, I recognized that this would be an invaluable tool. The question really was, could we get landlords to see that by having healthier tenants, it would be worthwhile them paying for the healthcare.

Matt Hoffman: It’s at a price point where it really does make sense, because a healthier tenant is someone who goes to work, and lower-income people mostly or hourly workers, which means shift work. So, if they are awakened at 3:00 in the morning by a child who is not feeling well, and they have to be at work at 6:00 or 7:00 in the morning, they’re put in a very difficult situation. Do I take my child to the doctor, and if I do, do I potentially miss work, and if I miss work, do I get fired? Since, most shift work, that is the penalty for not showing up. Or, do I go to work, and my child remains untreated? In this country, with the resources we have – the doctors, not to mention the capital – people shouldn’t be in that situation.

Matt Hoffman: This really isn’t a social program because, for the landlord, if that tenant misses work and it disrupts their income, they’re likely to have to move out, either of their own choice or through eviction. If that happens, it can cost the landlord $2,500 to $4,000 in turning that unit. So, it really does make sense to prophylactically provide a tenant with access to this type of healthcare. We started this company about five months ago, and we’ve already started rolling out with several landlords, and we’re getting very positive feedback.

Eve Picker: That’s fabulous. So, you’re a startup?

Matt Hoffman: I’m a startup, so that’s why I’m kind of eating my own lunch … That’s not the right expression, but eating my own cooking, because I am out in the marketplace with large- and medium-sized landlords, primarily, trying to sell them something, just like startups are coming to me, trying to sell me on an investment in their company. I understand the challenges of presenting your case, knowing that you’re right, and believing in what you’re doing, and having people on the other side of the table say no, or even worse than no is maybe [cross talk] maybe puts you in no man’s land.

Eve Picker: I’m going to connect you to a landlord who I think might be interested, in D.C., okay, when we’re finished. I think it’s a fabulous idea.

Matt Hoffman: Wonderful.

Eve Picker: What do you like best about the world of real estate impact investing? We’re clearly in the middle of it.

Matt Hoffman: What excites me about impact investing in real estate is that traditional real estate investing is all about yield. I think whether it’s commercial or residential, we’ve really gotten away from the power of architecture, and design, and the effect that the built environment has on the human condition. The impact side of real estate investing brings that back to the table.

Matt Hoffman: I’m in Washington, D.C.. If you come visit us downtown, now, every new building, because of the height restriction we have here, is a glass box that’s built out the lot line. I can put you on almost any street, and there’s very little distinction between any of the buildings, and you’d have no visual reference for where you were, especially if we took away the street signs. I think that’s really a missed opportunity, not just for the aesthetics of the city, but it really diminishes the livability of the city, because it becomes just a purely functional place. I think that architecture, both on the commercial and residential side, and how we build communities is so critical to our existence, to our positivity, to our engagement with each other.

Matt Hoffman: Impact investing, in my opinion, is bringing that element back in. Maybe less so on the design side, because you still have the economics of the deal, which are largely driven by land costs and the cost of capital, which we were talking earlier, but how people live in structures, whether they’re single-family, or multifamily, or even commercial properties. The impact investing side is bringing that element to the table again. For people who are passionate about society, whether it’s connected to real estate or not – if that passion is connected to real estate or not – I think can participate now in real estate investing and the power of real estate to determine what our society- how it evolves.

Eve Picker: Maybe equity crowdfunding has a little role in that, because communities can actually also participate in what’s going to happen in their community. That’s what I would hope for it anyway.

Matt Hoffman: Oh, absolutely, because impact investing is all about alignment of values with the investment. You have capital; you have values; you deploy the capital in a way that aligns with those values. I think that’s what I’m driving at with how we can connect something more than just the economics of a real estate deal to that deal, whether that’s about affordable housing, education, health care, job training, employment, whatever that might be. Certainly, climate change, that’s the most obvious one. We’re seeing a decent amount of capital, I think, flow into real estate that is more sensitive to climate change. We have a long way to go, though.

Eve Picker: Where do you think the future of real estate impact investing lies? You say we have a long way to go; what’s kind of the [cross talk]

Matt Hoffman: When it comes to money, I think that people have good intentions, but, at the end of the day, most people want the highest deal that they can get in any investment. We need to build awareness globally, not just in the US, about the long-term effects of any investment and make more transparent that the investments that you make that yield the highest returns often fly in the face of your personal values. We, as an impact … Someone who’s been involved in impact investing for the last decade or so, I don’t think we’ve made that message very clear to people. I think it’s the most powerful element of impact investing.

Matt Hoffman: I think that most capital that’s deployed in impact investing in the future will be done at the local level, because that’s where people will be able to touch and feel their money making a difference. When we abstract investing, like we have, the sophistication of the financial markets now is such that if you have some means and are invested, you have exposure globally, and you don’t have to have millions of dollars to do that. You can do that through unsophisticated retail accounts and financial advisors, as most for 401ks, or those types of vehicles have access to. When you abstract it, you remove that personal connection. Impact investing enables us to reinstitute that connection, and I think that’s going to be the most compelling thing that unlocks more capital that goes into charter schools, affordable housing, healthcare clinics, et cetera, that we deem to be true impact.

Eve Picker: I hope that’s right, because I think you’re right; I think people still thinking, first and foremost, about the financial return and not the triple bottom line. It feels to me like, in the impact investing world, people want both. They’re not willing to compromise yet. I hope that changes a little bit.

Matt Hoffman: Well, I think if you continue to promote these types of conversations and raise awareness, it’ll be a big step forward to doing that.

Eve Picker: Good, good. I have three sign-off questions for you that we talked about before, and I’d love to know your answer. The first is what do you think is the key factor that makes a real estate project impactful to you?

Matt Hoffman: For me, the key factor is does it have an element that can be modeled by others to change how we house people? Impact is about transforming what we’re doing right now. I love projects where I can look at something and say, “I haven’t seen that before, and that can be applied over there, and over there, and over there, and replicated time and time again, at scale.” I think that that’s the key factor for me.

Eve Picker: That’s pretty interesting. Then, crowdfunding can benefit an impactful real estate investor in just raising money, but I wonder if you think it can benefit in other ways, as well.

Matt Hoffman: I do. I think that crowdfunding has the ability to bring new partners together at the local level. As I was referencing a few minutes ago, these local projects, whether they’re economic development, trying to drive new jobs, or retain jobs in a community, or build senior housing, which we need a lot more of, or transform a downtown, all of these elements, I believe, get people excited. It’s the crowdfunding element, where everyone can participate in achieving that vision that I think can make the big difference. Obviously, bringing the capital to the table is essential and the primary purpose of crowdfunding, but there’s a strong social element to it that can bind a community together that I think is equally as valuable.

Eve Picker: I do agree with you. Finally, this is a really hard one – if you could change one thing that would make real estate development better in the US, what would that be?

Matt Hoffman: Without a doubt, it would be eliminating or, at best, modifying single-family zoning. We’ve seen two examples of it in this past year, in Minneapolis, and the state of Oregon. Those regulations have been passed. I’m a firm believer that we need to densify many- not all, but many neighborhoods and at least put the power of that densification back in the hands of property owners and local urban planners.

Matt Hoffman: Without that, and our inability to continue to sprawl – we shouldn’t do anyway, but especially in light of climate change – and our lack of ability to invest in new infrastructure, we’re going to continue to languish in this current period of having an immense shortage of affordable housing. Without a doubt, for me, it’s eliminating single-family zoning and allowing much denser development to happen in neighborhoods that are well-located, connected to transit, near good schools, and in economically thriving areas.

Eve Picker: Well, that was really fabulous. Thank you, Matt. I really enjoyed talking to you, and I’m sure we’ll talk again.

Matt Hoffman: Thank you, Eve.

Eve Picker: That was Matt Hoffman. There is no doubt that finding affordable housing solutions through technology is foremost in Matt’s mind. He’s thinking big, sourcing companies like CityBldr, which uses machine learning to aggregate land, or credit companies, like TILL, trying to solve credit issues for low-income tenants, and Matt has thrown his hat into the ring by launching his own startup, HEALTH+. With a shortage of 7.4 million affordable housing units today, we need Matt to keep thinking big.

Eve Picker: You can find out more about impact real estate investing and access the show notes for today’s episode at my website 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, Matt, 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 Matt Hoffman

Connecting impact and creativity.

Laura Callanan is connecting impact investing to the creative economy. 
To accomplish this, she founded Upstart Co-Lab. Upstart Co-Lab’s goal is to show impact investors that the arts can be a powerful economic driver in communities. 

Laura brings a powerful background to Upstart Co-Lab. Before launching Upstart Co-Lab, Laura was senior deputy chair of the National Endowment for the Arts; consultant with McKinsey & Company’s Social Sector Office; and associate director of the Rockefeller Foundation where she managed the endowment and co-led impact investing, closing two investments in the creative economy.

She has also been a visiting fellow at the San Francisco Fed, a scholar in residence at UC-Berkeley/Haas School of Business and a Rockefeller Foundation Bellagio fellow. Laura chairs the GlobalGiving Foundation, advises Shift Capital, and is a member of the British Council Creative Industries International Council. 

Listen in to Eve and Laura to learn how creativity is connected to impact, and how together they can build better cities.

Insights and Inspirations

  • Incremental change is insufficient. Be open and bold!
  • Artists are by nature peculiarly suited to community development since art is built on tradition, whether it embraces it or not.
  • Creative endeavors can bring every bit as much to the economy as any other enterprise.
  • Strategy and focus are key to accomplishing Upstart Co-Lab’s big goals. Make the case. Build the coalition. Bring investible products to market.
  • Laura is intrigued by the hunger for immersive experiences. Is this a reflection of the isolated lives we live?

Information and Links

Read the podcast transcript here

Eve Picker: Hey, everyone, this is Eve Picker, and if you listen to this podcast series, you’re going to learn how to make some change. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. 

Eve Picker: Hi there.  Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.  My guest today is Laura Callanan, The founding partner of Upstart Co-Labs. Upstart believes that creative people solve problems. It is disrupting how creativity is funded by connecting impact investing to the creative economy.  One way the creative economy drives impact is in communities.

Laura brings a powerful background to Upstart Co-Lab.  Just a few of her many past roles include serving as senior deputy chairman of the National Endowment of the Arts;  consultant with McKinsey & Company’s Social Sector Office and associate director at the Rockefeller Foundation 

Be sure to go to evepicker dot com to find out more about Laura on the shownotes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, SmallChange.

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

Eve Picker: Hi, Laura. It’s really a pleasure to have you here. Thank you for joining me. I’ve come to know you through your most recent enterprise, Upstart Co-Lab, where you’re a founding partner. I’m wondering if you could just tell us a little bit about Upstart’s mission and goals?

Laura Callanan: So Upstart Co-Lab is a field builder, a catalyst, a connector. We are connecting impact investing to the creative economy. We know that creative people solve problems. Like all entrepreneurs, they need capital to do it. Most creative entrepreneurs are very socially minded. Artists care about the human condition and that extends to the work they do through an enterprise model. So, the capital that fits them best is social capital, impact capital. Upstart Co-Lab is trying to unleash more of that impact investment capital for the creative economy.

Eve Picker: That’s great. How do you propose to accomplish that? I know you have a few different strategies you’ve been working on, but I’d love to hear more.

Laura Callanan: Well, from the beginning, we realized that what we were doing for the creative sector, in a lot of ways, followed on from what leaders had done around gender lens investing, so we went to the mothers of gender lens investing, and we said, “How did you do it? How did you take this idea, and, in a pretty short period of time, it really infused the notion of gender lens throughout the impact investing space?” They said it was a three-part recipe: make the case, build the coalition, and bring investable products to market. So, that’s what we’ve tried to do.

Laura Callanan: We have undertaken research to get facts, and case studies, and examples in hand to be able to really articulate the opportunity for investors and the demand for capital in the creative sector to really represent that case. We have shared what we’ve learned through the research published on our website, through opinion pieces in the Financial Times and other publications, in conference panels and keynote talks. We’ve been trying to get these ideas out into the world. That’s how we’ve done the first step.

Laura Callanan: Building the coalition, we have been working with strategic partners from the very beginning. We’ve taken an approach of being small, nimble, spunky; trying to take our ideas and work with much larger, older, better-established partners to get the idea of the potential for the creative economy to make change and do good, infused into the work of community development – finance institutions, impact platforms, like CapShift, and Small Change, your own platform, and work with partners who can help us make these changes happen quickly. 

Laura Callanan: We’ve also been building relationships on the investor side. Through a number of conversations in small and large meetings, we’ve really started to build this community of impact investors who recognize the power of art, and design, and culture, and heritage, and creativity to drive change. We have recently re-oriented our approach to what we’re calling Upstart 2.0, and we’re really going to focus on building a member community of the ambassadors, the evangelists who – as donor-advised funds, as private foundations, as endowed cultural institutions – want to take these ideas back to their peer group.

Laura Callanan: Then, the third step – bring investable products to market – our greatest example of that to date is work that we did with the Local Initiative Support Corporation (LISC) to launch a New York City Inclusive Creative Economy Fund. This is working with the oldest and largest national community development finance institutions, harnessing the power of their AA rating; harnessing their ability to underwrite and manage loans to real estate projects – in this case, affordable workspace for multi-tenant creative economy businesses.

Laura Callanan: We’ve found this to be really exciting, because we set out to raise $5 million of impact capital for the New York City Inclusive Creative Economy Fund. We closed the fund after about six months, having raised $6.2 million [cross talk] all Foundation that capital is fully deployed. We’re talking with LISC now about what a $100 million National Inclusive Creative Economy Fund could be [cross talk] That’s been our approach: make the case, build the coalition, and bring investable products to market to make it easier for investors to deploy their capital.

Eve Picker: I think you must be a very focused person not to get distracted, because that’s … You make it sound easy, but it’s pretty big. I’m very familiar with LISC; one of our would-be issuers on Small Change actually tried to use that program. She didn’t end up being able to buy the building, but it was that program that would have made it possible for her. That’s pretty great. How do you think that LISC might expand that? Are you talking to them about expansion?

Laura Callanan: As I said, the national fund is in the works, so let’s just wait and see when that’s ready to be announced.

Eve Picker: Okay, very good. I have to backtrack a little bit and say, why is all of this important to you, personally?

Laura Callanan: I majored in theater in college. I started my career working in the arts. My husband, my late husband, was a playwright and a novelist. So, in my personal life, I’ve always had a connection to creative people and the work that they do. I guess, now about eight or nine years ago, I had a lunch with a guy named Jim Howden, a founding artistic director of an off-Broadway theatre company in New York, Signature Theatre Company. And I at that point, I’d known Jim for about 20 years. I had known him from the very first days at the very beginning of his founding Signature Theatre Company.

Laura Callanan: We were having a lunch, and catching up, and he was talking to me about the $70 million Signature Theatre Company had raised in a public-private partnership to create a new three-theatre complex in West 42nd Street in the Times Square area. He was talking about how that new space would allow Signature Theatre to expand their programming. He reiterated the commitment to be sure that every ticket for every play was affordably priced at about $25. He was just describing all of the vision and what was going to happen next.

Laura Callanan: The architect on the project was Frank Gehry. They were designing a 7,500-square-foot open lobby space that would be a community center … A community green in the middle of Hell’s Kitchen was how Jim talked about it. He was just describing all of these plans. I knew where this company had started. The budget for their first year with $30,000. They were in a borrowed space way downtown. Things had not always been smooth and easy. They had made a commitment to equity and access from the early days. I knew that it had not been a smooth trajectory, but here was Jim talking about what was happening next.

Laura Callanan: It was at a moment that I was working at McKinsey & Company in the social sector office. I was in the middle of an engagement with the school foundation, so I was thinking a lot about social entrepreneurship. I heard these words coming out of my mouth. I said, “Jim, you’re what they call a social entrepreneur, but nobody calls you that because you’re working in the arts and you don’t call yourself that because you’re working in the arts. But take it from me. I am a highly paid McKinsey consultant. I know this stuff, and this is what you are.”

Laura Callanan: I left the lunch really scratching my head and thinking, if this guy were not a friend, would I put him in the same group as Muhammad Yunus, Wangari Maathai, Paul Farmer, Wendy Kopp, all of these card-carrying social entrepreneurs? If Jim is objectively a social entrepreneur of that caliber, is he the exception that proves the rule? Is there nobody else in the arts who could be called a social entrepreneur, or is there this whole overlooked cohort of talented, socially oriented, potentially hugely successful leaders who, for some reason, have not benefited from the grants, the networks, the incubators, the accelerators, the impact capital that other social entrepreneurs have access to?

Laura Callanan: I thought about this for a while. A few years later, in my role as the senior deputy chairman of the National Endowment for the Arts, I started to explore what it would take to close this gap for creative people who’ve decided to move beyond the studio, beyond the theatre, beyond the concert hall, and to work in their communities and to work as every bit of a social entrepreneur. That’s the background and how we got started with Upstart Co-Lab. 

Eve Picker: That’s pretty fabulous. So, I suppose the question is – what’s the end goal for Upstart Co-Lab? What does it look like when you’ve succeeded? 

Laura Callanan: When we’ve succeeded, every impact investment advisor on their website, next to talking about how they can help their clients invest in community development, and environmental sustainability, and by using a gender lens, they’ll also have a nice tab, a nice page, that talks about all of the ways that their clients can invest in the creative economy. We want to see this be as much of a theme, as much of a focus for impact investors as all of the other things that are already grabbing attention and investment dollars.

Laura Callanan: Our goal is to integrate this into the thinking of all impact investors and, frankly, to welcome a whole set of potential impact investors who’ve been sitting on the sidelines up to this point. By our calculation, more than $58 billion sits in the endowments of our museums, performing arts centers, libraries, or just endowed foundations, schools like Juilliard and RISD. 

Laura Callanan: These are institutions that are, at the moment, under some pressure for taking small donations from folks connected with opioids, tobacco, fossil fuels, and weapons. There’s been a lot in the headlines in recent months about cultural institutions declining contributions from these tainted sources. But the conversation stopped a bit short, and folks have not yet recognized that these are institutions controlling billions and billions of dollars and, unless they have taken active steps, are likely invested in, and earning returns from tobacco, and fossil fuels, and weapons, and private prisons, and some of these other things. 

Laura Callanan: The future that we hope we’re building through Upstart is one where all impact investors have more access to the great opportunities happening in sustainable food, ethical fashion, social-impact media, and other parts of the creative economy, and that artists, art lovers, arts institutions, who are investing, are able to learn about and are welcomed into a larger conversation about socially responsible investing through the door of the creative economy.

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

Eve Picker: It’s really a shift in thinking, isn’t it? You’re an early pioneer in thinking that the creative arts are social impact, and you really have to wait until that idea takes hold with the masses. That’s a pretty hard road- 

Laura Callanan: Introducing any new idea takes some time, and some patience, and some moral fortitude. We’re trying to bring all of that to our work.

Eve Picker: Yeah, that’s pretty wonderful. That brings us to real estate, which is really my interest and the interest on this show. You talked about investment in creative enterprises. What do those enterprises look like? 

Laura Callanan: Let me describe one where real estate is a really core component. It’s interesting because it’s actually in the social-impact media space. When you hear social-impact media and you think about film and TV, music, video games, things like that, you think about content. That seems to be the furthest thing- as far as away as possible from real estate. But actually, real estate can play a crucial role.

Laura Callanan: I’m speaking to you today from the Hudson Valley of New York. One of my neighbors is the actor-director Mary Stuart Masterson. She is an example of a creative person who is also very much a social entrepreneur. She is launching a film and TV studio here in the Hudson Valley called Upriver Studios. She is doing it, in part, because she would like to be able to work where she lives, when she acts, and directs, and produces. But she also understands that film and TV can be a significant economic driver for a region. 

Laura Callanan: There’s a tax credit in this region of New York state, as in the rest of the state, and other places around the country, that incents producers to bring their projects here. One of the obligations to qualify for the tax credit is that your project needs to spend two days shooting on a certified soundstage in the geography, or the tax credit doesn’t apply to you. 

Laura Callanan: Mary Stuart, and her business partner, Beth Davenport, are launching Upriver Studios, a women-led New York State benefit corporation that will be environmentally friendly. They’re looking at solar power, and a green roof, and some other features like that, as well as environmentally friendly on-set practices.

Laura Callanan: It’s a hoteling model. They will have the state-of-the-art facility, and producers, directors, projects will come in; rent the space. It’s very fit for purpose. It’s a specialized space. There is sound attenuation; there are loading docks. There are high ceilings. There’s shop space. There are all of these things that are very particular to what it takes to film a TV series.

Laura Callanan: The advantage of this, for the community, is a couple-fold. First of all, every TV series generates between 150 and 200 production-crew jobs. We all think about the actors, and the writers, and the directors who are behind some of our favorite programs, but in fact, they’re the minority of people working on the show. There are all of the electricians, and the grips, and the sound folks, and the hair and makeup folks. You look at all those names that run on the credits at the end of a movie or at the end of a TV show [cross talk] 

Eve Picker: -Yeah, pretty long list. 

Laura Callanan: -150 to 200 people. These are quality jobs. Most of them are union jobs. They pay between $75,000, and $250,000 dollars a year. They have excellent health benefits. To bring this sort of work to this region creates a real opportunity for folks to work in those jobs. There’s a sister nonprofit to Upriver Studios, called Stockade Works, that is training the 21st century production crew to be ready to take those jobs.

Laura Callanan: There’s also an economic multiplier benefit. There’s also a tourism benefit. People like to go to the place that they learn about on their favorite TV show. So, the real estate is crucial to all the rest of this working; to the training program paying off; for the graduates of the training program to have a place to work; to attract folks to come, in partnership with the tax credit; provide the access to the sound stages that will make people really want to come to this region. That’s an example of real estate, as I said, connected to a content-focused industry – TV and film.

Eve Picker: So, that’s a pretty sexy use. While you’re speaking, I’m thinking that also, I think, restaurants are creative.

Laura Callanan: Absolutely. We are working right now on a deep dive around sustainable food, as it pertains to the creative economy. Obviously, there’s a big focus, within impact investing, on food and agriculture. We’re not looking at the crop. We’re looking at what it is on your plate. As I was thinking about it earlier today, we’re not focused on the milk, but we are focused on the cheese, right?

Eve Picker: Yes, yeah … 

Laura Callanan: So, the cheese factory is an example. We’re not focused on the groceries as much as we are the recipes. Those recipes get turned into delicious dishes in kitchens … We see a lot of community kitchens and commercial kitchens that can support multiple small-scale entrepreneurs. So, absolutely. Then, the restaurant, as an experience – the setting, the location, the ambiance, the type of building that it’s in – it’s all part of thinking about food and eating as a form of culture and community, not just nutrition.

Eve Picker: So, I’m realizing we’re actually talking to someone who may be a neighbor of yours about a restaurant idea, which is really immersed in the community. They would like to open the door for investment at a very small amount – $250 per investor – because they really want to involve the community. That’s another interesting way to look at it. From what I understand, creative enterprises seep into a lot of different things. I have to remind myself from time to time what a creative enterprise is; probably, Small Change is a creative enterprise, because I’m trained as an architect. Do architects count, Laura? 

Laura Callanan: We see that a lot of creative people are creative in many ways. They get trained as architects, or painters, or actors, and they decide to start different enterprises. We don’t talk about creativity as a skill set or a mindset. We focus on creativity from an industry perspective. We think that’s the way that investors can understand best. We had to do a lot of thinking early on about how we were going to scope our focus, because you’re right, people can be creative in many fields. But in terms of the type of work we’re trying to support and that we’re trying to get impact investors to pay attention to – food, fashion, media, other types of creative businesses, and the sorts of real estate projects that we’re describing here that make it possible for those creative activities to take place.

Eve Picker: That makes a lot of sense. This is a general question I usually ask – do you think socially responsible real estate is necessary in today’s development landscape? I don’t know how much you know or are involved in just real estate development. Do you have thoughts about that?

Laura Callanan: Well, it’s something that people who think about arts and the creative sector can’t overlook, because, as I’m sure you think about often, creative people are pioneers in different ways, not just in terms of the work they do, but where they choose to live and do their work; often looking for affordable places to be to give themselves the flexibility and the capacity to experiment and take risks.

Laura Callanan: Increasingly, we see examples where creative people are in neighborhoods that are ripe for gentrification. There can be confused conversations about the role that the presence of creative people plays in stimulating or contributing to that gentrification. Obviously, I believe that gentrification is a problem that lands on the doorstep of the asset owners and the developers, not the residents and the renters in a neighborhood. The creatives are frequently, like other residents, in a renter capacity. 

Laura Callanan: We spend a lot of time looking at academic research and other reports about how the presence of artists and creatives in a neighborhood is not the precipitating factor for gentrification, but actually occurs after the gentrification has begun. We think a lot about what different paradigms could be that would enable residents in a neighborhood to benefit as the neighborhood strengthens; how they can be rewarded for being good neighbors, for sweeping their stoops, for keeping their sidewalks clean – all that stuff that makes the neighborhood inviting and habitable – and what the system could look like – where the folks who are responsible for growing the value of the real estate assets in a community can actually benefit, even if they’re not the owners, themselves.

Eve Picker: Yeah, I do think that there is also a piece of this that government is responsible for, because if there’s an open free market, then it’s very difficult to control, but there are ways to control gentrification that benefit everyone, if you think about it early enough. I’m wondering, are there any current trends in arts innovation that interest you?

Laura Callanan: We don’t think about arts innovation, specifically. We’re thinking about that larger creative economy; we’re thinking about the role that industry plays [cross talk] 

Eve Picker: -that’s Upstart Co-Lab, but I’m just wondering if there’s anything that fascinates you.

Laura Callanan: Anything that fascinates me … I’m intrigued by our hunger for experience, and this is something where creative people are playing a role. I’m sure that you’re familiar with Meow Wolf, the phenomenon that started in Santa Fe that’s spreading to Denver, and Las Vegas, and Phoenix, and Chicago, and Washington, and on, and on, and on.

Laura Callanan: This is something where artists have come together. They transformed – in the Santa Fe example – an abandoned bowling alley. They turned it into this funhouse; this art gallery; this community space. It’s a place that attracts folks of all ages. All economic, demographic, sociological backgrounds, come, and walk through, and participate in Meow Wolf and find it intriguing.

Laura Callanan: The appetite for these types of immersive experiences, I think, is a reflection of our very isolated, tech-enhanced daily life. I love it that creative people – whether it’s through a food experience, whether it’s through an art experience, a music experience – that they are at the heart of what people choose to do when they leave their laptop.

Eve Picker: Yes. I think probably Starbucks was one of the first companies that realized this and created an experience out of coffee, right?

Laura Callanan: Exactly.

Eve Picker: What should those of us who are not in the creative world be following? What of these trends do you think is most important for the future of our cities? 

Laura Callanan: There’s an important role in the creative future for diversity, equity, and inclusion. Put aside the moral and ethical imperative. There’s just an imperative in terms of what’s going to come out- what’s going to generate the most intriguing content, the most relevant experience, the most interesting food, or fashion.

Laura Callanan: As you know, heterogeneous groups of people have been shown to solve harder problems, better and faster. If you think of both challenges and opportunities as problems to be solved, the more engaged the broader set of actors can be in contributing to imagining what comes next, the better the results will be. From a serious point of view, it’s a more effective solution. From a more lighthearted point of view, it’s that beautiful, delicious, joyful, wonderment experience, right?

Eve Picker: Yes. 

Laura Callanan: That having a variety of perspectives, a variety of experiences, a variety of backgrounds, a variety of skills brought together to imagine what’s next will get us the best result.

Eve Picker: Yeah, I think you’re probably right about that. It’s just very hard getting there, isn’t it?

Laura Callanan: It depends. If you hang out with enough creative people, it can make you ridiculously optimistic, so … 

Eve Picker: That’s what I need to do, then … Because you have a very different point of view than many of the people I’ve talked to, who are developers, or work in the securities world, or are really focused on the built environment. You have sort of a more expanded view, I think. How do you think we need to think about our cities and neighborhoods so that we build better places for everyone? You may have just answered that.

Laura Callanan: Well, we think that the creative people and creative organizations, meaning arts- and design-type organizations, have some lessons that are useful to the rest of the economy. We’ve started to articulate values for an inclusive, creative economy. I can just share them with you because our hope is that we can transform; we can improve; we can strengthen the entire economy by sharing some of these lessons from the creative economy.

Eve Picker: Yeah, that would be great.

Laura Callanan: These are things that we’ve touched on already, but one is an orientation that’s open and experimental. So, openness and experimentation, I think, is crucial. It will help us to keep pace in our rapidly changing world. Continuous improvement, radical new approaches, that’s what we need. Incremental change is insufficient given the dynamism, the complexity of the world that we’re in. Sometimes, small improvements are just simply inadequate, and you need something that’s much more bold. 

Laura Callanan: You get that by being curious and having this learning orientation. Artists, designers, very much are built that way, and I think that’s a general approach that can benefit all types of businesses, all sorts of real estate projects, governments, philanthropy. I think everyone benefits from that approach. That’s the first value that we think the creatives can share with the rest of the economy.

Laura Callanan: The second one – diversity and inclusion – we’ve already talked about; the capacity to solve problems better and faster that comes when you’ve got diverse perspectives on the task. It’s not just that it’s the ethically right thing to do. It’s that there’s business value. There is a strategic advantage to approaching it in this way. Creativity simply can’t be optimized if you don’t have both diversity and inclusion at play.

Laura Callanan: The last idea is one around tradition and innovation and recognizing that communities have both – I’ll call it – knowledge and wisdom. With that, they’re able to learn from the past experience and apply that to what’s coming up next in the future. You know that creative people are always reacting to what came before. They might be building off of it. They might be rejecting it outright and trying to do something very different, but creative work is always in context, and it’s in context with what has preceded it.

Laura Callanan: The long-term thinking, the sense of stewardship that social-sector leaders and impact investors hold, I think, is very compatible with the way creatives do their work. I think creative take it even a step further; having a really deep respect and awareness of prior tradition, but not being restrained by that or being held back by that; using that actually as a launch pad to innovation.

Laura Callanan: Those are the three ideas that we think are crucial. Creatives just know this in their bones to be open and experimenting, to welcome in diverse perspectives and be very inclusive of various voices and to connect to tradition and innovation. We think that those are ideas and lessons that can strengthen the entire economy.

Eve Picker: I’m very honored that you asked to partner with Small Change and that we’re now highlighting creative economy projects on our site. I’m just wondering what you think equity crowdfunding- how you think it can play a role in building these special creative economy projects and communities?

Laura Callanan: I think it’s crucial as a way for projects like Upriver Studios that I mentioned a minute ago, or a Meow Wolf, that started in one community and is now expanding to the next six or so communities around the country. I think it’s important for these organizations, these enterprises, to engage the communities that they’re in, in an active way.

Laura Callanan: This is a way to signal that it’s not just building something for a small group of employees or a small group of investors. If you are a Mary Stuart Masterson and you’re launching something that you hope is going to really boost the economy of the Hudson River Valley, this is a way to say, “And you, my neighbor, can have a stake in this. You can benefit as we grow this thing together,” whether or not your $250 dollars, your $1,000 dollars, whatever the small bite size might be of investment that’s facilitated through Small Change … It’s a really clear communication to local folks that this is for them and that they’re welcome.

Laura Callanan: I think it’s a really strong indicator for larger-scale investors who want to test the morals and the intentions of a real estate developer. It gives them a really strong indication. If the developer is going to take the time and engage with the local community and allow them to participate through a crowdfunding structure, then they’re serious about boosting the local community. If they can’t be bothered, I think that is a real question mark about the intention of the developer.

Eve Picker: That also extends to planning departments and zoning hearings. If you can bring along a crowd of people who are supporting the project, that’s a very strong statement, I think, in many ways-

Laura Callanan: Absolutely.

Eve Picker: Where do you think the future of impact investing lies? I ask this because I’m afraid it’s still just a word that people use. I have yet to really believe that people will take a lesser return because a project is socially responsible. Perhaps that’s coming, but still hard to believe.

Laura Callanan: Well, I would disabuse you or anyone listening to this podcast that impact investing is asking people to take a lesser return. I know that 25 years ago, when I started to get into the impact investing space – when the space was very new and impact investing was not the term it went by – that there were a few early, less sophisticated, less professionally managed investment opportunities, and that might have been the story back in the 1990s.

Laura Callanan: I would say that we have Goldman Sachs, BlackRock, UBS, Morgan Stanley – all these large names, these premier financial institutions, participating in the socially responsible and impact investing sector, not because they and their clients are expecting to make less money. We can have a whole separate conversation about the whys and wherefores for this. We can talk about the risk management component of introducing social, responsible ESG factors into decision-making, but I would hate for anyone to hear this conversation and walk away thinking that they’re going to lose money by engaging in impact [cross talk] 

Eve Picker: I don’t think lose money but let me just pose the question a bit differently in what I see, and that is, in particular, affordable housing. As a real estate developer, when you work in an underserved neighborhood, it is very hard to get projects to pencil out; very, very difficult. That’s why there are so many subsidies around affordable housing projects, and that’s why it’s slow to build them fast enough.

Eve Picker: If you want to keep a project- an asset like that affordable for the next 15 or 30 years, it’s not an asset that will increase in value. It’s a difficult thing to invest in. Absolutely, investors in those types of projects will have to take a lesser return than if they invested in a more traditional real estate project. There’s a real differentiation there, and I would love to have this conversation with you- 

Laura Callanan: No, that suggests that each investment’s looked at in isolation, and an investor is looking at their total portfolio. There should be some things that are lower risk and commensurate return, and here are some things that are going to be higher risk and commensurate return.

Laura Callanan: When we were talking with investors about the New York City, the LISC New York City Inclusive Creative Economy Fund, we were talking to them about an eight-year note with full recourse to a AA-rated issuer that was paying 2.75 percent annual interest. As I talk to you today, in September of 2019, and we sit with an inverted yield curve, the 2.75 interest on a seven-, eight-year investment from a AA-rated issuer is looking awfully good. So, a lower-risk commensurate-return opportunity, which has a place in everybody’s portfolio.

Eve Picker: I see it- I’m not seeing it yet in my world, but I hope to see it. I think there’s still a lot of people who don’t think that way … Maybe we can convince them. There’s just some sign-off questions that I’d like to ask.

Laura Callanan: Sure. 

Eve Picker: What would be the key factor that makes a real estate project impactful to you?

Laura Callanan: Well, the community orientation, clearly, is something that we would probably both agree on. I see that- it’s not a surprise to me that a lot of the creative economy real estate projects that I’m aware of are deeply focused on their role in their community, whether it’s Meow Wolf, Upriver Studios … We haven’t yet talked about Greenbelt Hospitality, which is launching out of Phoenix. These are examples where the entrepreneurs behind the projects all are really thoughtful about their community, and real estate is core to what these businesses are all about. The businesses can’t succeed if the community is not engaged. I think that that’s fundamental.

Eve Picker: Yeah, I agree. If you’re looking at the real estate landscape in the U.S., which you see every day, if there were one thing that you could change to make it better, what would that be?

Laura Callanan: Well, I think there’s got to be a regulatory solution to the gentrification question. Obviously, improving communities is a good thing. The only reason that we have a term like gentrification that conjures up something that’s really, really bad is because when the community improves, there are winners and losers. I think there needs to be a regulatory fact or a solution that comes into play to close that gap, because the notion of keeping communities where they are already and not allowing them to strengthen is not an alternative. It’s not a solution to the issue.

Eve Picker: Yeah, I totally agree with you. Thank you very, very much. Thanks for spending the time with us. I really enjoyed the conversation, and I’m going to continue having conversations with you off the air, okay? 

Laura Callanan: My pleasure. Thanks, Eve.

Eve Picker: Thank you. Bye-bye. That was Laura Callanan of Upstart Co-Lab. She shared some powerful concepts with me. First, that strategy and focus are key to accomplish big goals, like the goals that Upstart Co-Lab has. Second, that creative endeavors can bring every bit as much to the economy as any other enterprise. Third, that artists, by nature, are suited to community development. Art is built on tradition, whether it embraces it or not. Expect to hear more about creative economy investment opportunities in the next few years, because that is what Laura is determined to do.


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

Photo of Laura Callanan by Helga Sigvaldadottir.

Living the Jetson life.

Jennifer Castensen is the vice president of programming at Hanley Wood, a company which serves the construction and design industry through their analytics-driven Construction Industry Database.

In this capacity, she provides leadership and collaboration across all verticals in the building products industry to drive innovation. Castenson establishes themes and coordinates content from Metrostudy and Meyers Group, Hanley Wood’s industry leading data and research arms, along with content from the editorial team to provide audiences with fresh, innovative content in a variety of forums. Castenson also serves in a project management and editorial capacity for multiple concept projects spearheaded by the Hanley Wood editorial teams. Prior to joining Hanley Wood in 2015, Castenson spent nine years as the vice president of marketing for a building product manufacturer. 

Jennifer has her finger on the pulse of innovation in the building industry … and she loves it. Listen in to hear all about the rapidly evolving building industry and what Jennifer thinks the next big thing will be.

Insights and Inspirations

  • In the future housing will need to deliver far more than just shelter. Think the Jetsons.
  • Lots of attention is being paid to pre-fab. Innovations in prefab may well be a major part of the solution to the lack of housing in the United States.
  • Lots of attention is being paid to vertical integration. New companies and processes are emerging that promise to change the building industry forever.
  • A focus on health and well being is having massive cultural implications in the building industry.  
  • We need to stop thinking that change in the building industry is slow. Change is moving very fast.

Information and Links

  • The HIVE community brings an energy and passion for innovation and improvement in future housing options that Jennifer loves.
  • The HIVE 50 list showcases people, products, and processes that are leading the charge to inspire creativity, improve performance, and explore better ways to build. Look for the 2019 list in November.
  • Jennifer is proud of the concept project – Building Positive + Living Well – that she was involved in with Skidmore, Owings and Merrill and Amli Residential. She believes this work redefines how we will live in the future, in a healthier, more sustainable way. 
Read the podcast transcript here

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

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Jennifer Castenson. Jennifer is the VP of programming at Hanley Wood, a company which serves the construction and design industry through their analytics-driven Construction Industry Database. Based on this information, Jennifer establishes themes and develops content to provide Hanley Wood’s audience with up-to-date industry intelligence. As such, Jennifer has her finger on the pulse of innovation in the building industry, and she loves it.

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

Eve Picker: Hi, Jennifer. It’s really lovely to have you here. You have a fascinating job. I know that you’ve been on the marketing side of the building industry for at least a dozen years. Is that right?

Jennifer Castenson: Yeah, for a decade.

Eve Picker: A decade? Yeah. Now, as I understand it, you use leading data or research information from the industry to help establish themes and content for Hanley Wood, is that correct?

Jennifer Castenson: That’s correct. Yes.

Eve Picker: So, that means that you have your finger on the pulse of innovation in the building industry, which is pretty fabulous.

Jennifer Castenson: It’s amazing. It’s a really fun job, and it’s also very amazing to see the innovators who are behind the scenes and actually doing something to change all of the challenges that are facing the housing industry right now.

Eve Picker: Tell us a little bit more about what you actually do.

Jennifer Castenson: What I do at Hanley Wood is mostly programming for our events. Hanley Wood has a number of different publications and mediums, and we have conferences associated with a lot of those that we call branding conferences. Then we also do custom events where we program for our partners in various capacities.

Jennifer Castenson: For our conferences, we are very focused on creating a theme, and sticking with the theme, and finding experts who can deliver the content in the best way; who can deliver best practices; who can talk about research, innovation within a certain space. I work on the conference program in determining, with our editorial team, what is the right focus. Then I go out, I search for, find the experts, and then work with them to deliver the content at the event.

Jennifer Castenson: I also work on editorial content, working with some of those leaders in the industry to write certain material for our websites. That could be Builder, which focuses on single-family; for Multifamily Executive, for Architect, for Journal of Light Construction, or Remodeling or ProSales. I’m looking very holistically at the industry and then solutions for each one of those verticals within the industry and how we can help the industry leaders move forward strategically into the future.

Eve Picker: I was one of the fortunate ones who was found by you a couple of years ago, right? That’s how we [cross talk]

Jennifer Castenson: Yeah. Thank you so much for being part of Hive.

Eve Picker: Yeah, that was great. How did you end up in this role? This is pretty recent, right?

Jennifer Castenson: I’m going on four years that Hanley Wood. Before that, I worked for Organized Living, which is a building products supplier. Like I said, I was there for about a decade doing marketing and sales, and I was working with Hanley Wood. I had been part of the events from a sponsorship and exhibitor standpoint and knew the folks very well, and they recruited me in to be part of the Hanley Wood team.

Eve Picker: Pretty great. Your world intersects, then, with … You know this podcast is about impact in real estate, and the building industry is part of real estate, so your world intersects pretty squarely with that, as you see innovation emerge. I’ve seen that you’re a prolific speaker, as well as being an organizer, and you actually moderate panels yourself. So, you’ve touched lots and lots of topics; some of them, really big ones, like power, or affordable housing, or ADUs, or prefabrication. What theme do you think has the loudest drumbeat in the building industry today?

Jennifer Castenson: That’s a really good question, and I really have to think that there are two, and they, just like you said, intersect with each other. I think prefabrication/offsite construction and vertical integration are the two that I’m referring to.

Jennifer Castenson: I think modular and offsite are getting more and more attention. They’ve been around for a very long time. However, in today’s age, they are getting the benefit of new and enhanced technology. Then, they are extending the benefit to many different aspects that are really important to today’s construction environment. There’s more sustainability factors. There are more efficiency to respond to the need for more affordable housing.

Jennifer Castenson: That touches on the less need for less labor, faster construction cycle, less labor, and therefore reducing the time, reducing the costs. That’s just really, really critical in today’s age that we’re pulling together projects faster and at lower cost to put homeownership or rent in the hands of more people. But then, also the sustainability factors. There’s less onsite waste. There’s less waste altogether.

Jennifer Castenson: The projects can happen in any type of environment, which is also important, because if you look at climate change, we’re dealing with a lot of different climate factors, but if you’re inside of a factory, then the housing can continue to be built regardless of what the conditions are outside of that factory. Prefabrication/offsite construction just has a lot of different benefits right now.

Eve Picker: I never thought of that last one. That’s really interesting. But still, I’m in Pittsburgh. When I talk to some builders here, they still say that stick build is cheaper here than prefab. How much does that have to do with the labor in any particular market or the building conditions in any particular market? Is it really equally efficient everywhere?

Jennifer Castenson: No. Actually, I would say, nationwide, you’ll find that stick build, traditional build is very similar in cost to prefabrication. However, the time savings reduces the cost. The hard costs are there, and they’re probably the same. Sometimes, prefabrication might cost a little bit more. There are actually markets, right now, where prefabrication is so popular, for a variety of reasons, where the manufacturers are able to then bid up, and it’s … The costs are rising for factory construction. So, all those things are coming together.

Jennifer Castenson: Actually, if you think of labor unions, the costs involved with labor unions, sometimes the offsite construction might help avoid some of the labor unions. It depends on what kind of market you’re in and all of those variety of factors – how many offsite manufacturers are there, and what the demand is for that type of construction, along with labor unions, the amount of transportation to site, because that’s a huge component of it that will drive up costs. All of those things factor into the cost, but then the time savings is the real savings.

Eve Picker: Interesting. So, someone might argue that you’re putting people out of jobs. I’m in a heavy union-labor market in Pittsburgh, so they might not be happy to hear you say that.

Jennifer Castenson: No, I know, and it’s actually … Those jobs are evolving, and it’s a real big question right now. I said the second thing, for me, that I see impacting housing the most is vertical integration. There are a lot of organizations, like Katerra, and I’m also working with another one in the multifamily realm that’s called Cortland, who are trying to vertically integrate more and more and to take parts of the process that weren’t together under one roof and make them seamless under one roof where-

Eve Picker: I’m sorry I interrupted you, but I’m wondering what precisely you mean by vertical integration here? What is all part of that?

Jennifer Castenson: It might be different with different organizations. In the two examples I just gave, it’s very different. Katerra, for instance, is bringing in design, and development, and the manufacturing all under one roof. They’re bringing in even more than that, because they’re manufacturing some of the products that they’re using in their projects and some of the software that they’re using in the design regard.

Jennifer Castenson: It’s making the process- it’s making it more seamless and making fewer connections so that it can happen more efficiently and more effectively. They’re one of the biggest examples of it, but I was talking about Cortland, as well. They’re taking a lot of things under one roof that weren’t considered before, in terms of property management. It’s happening more and more with more organizations-

Eve Picker: Where do you think all of this is leading?

Jennifer Castenson: I think that it’s leading to more affordable housing, for one. That’s the aim that most people have; most organizations have, when they start doing vertical integration. That was why and how Katerra kicked off; and creating efficiencies. It will take some time to ramp up, because those, let’s say, legacy organizations – the big developers, the big builders – they have relationships that will be very hard to break. If you look at- I’m talking about the top 10 developers, legacy developers have relationships, in all the markets they’re building, with general contractors. Once they start saying no to the general contractors and start doing offsite construction or changing the parameters of those relationships, it’s going to be really taxing on their business to, one, just to figure out how to do it-

Eve Picker: Yeah.

Jennifer Castenson: -how to restructure their organization. But, two, what will, then, that general contractor do? That general contractor might go from being involved in 50 percent of the project to only having 10 percent of the project. Is he going to ratchet up his pricing? Those dynamics aren’t-

Eve Picker: Or is he going to be innovative and figure out how to become part of the industry, himself?

Jennifer Castenson: Exactly. Hopefully. Hopefully, there’s innovation behind it.

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

Eve Picker: That’s absolutely fascinating. The ramifications of one change towards the top can be huge, can’t they? Other than these two, which obviously really interest you, are there any other current trends in the building, or the real estate industry, or in cities that interest you the most?

Jennifer Castenson: There’s so much that’s happening, and I think there’s some really big trends in health and well-being from a living standpoint. It’s going to be a massive culture shift within the United States. We have been looking at housing as a shelter, but we’re going to be … As homeowners and as renters, we’re going to be thinking about our housing needs to be delivering more than that. That’s not only from health and well-being; that’s the builders and developers thinking about how to integrate technology in order to do that.

Jennifer Castenson: We are going to be able to, as homeowners, walk into our home and think of it as a character in our lives; to be thinking of it as we can have … Not only can we ask our house to put something on the grocery list, but we can also ask our house to get us ready for bed. That is a whole series of things that will be kicked off by a technology that’s behind the walls, and that will literally help us get to sleep and have better sleep during the night and, therefore, better performance during the next day.

Eve Picker: That is so awesome. It brings to mind a show I used to love called The Jetsons.

Jennifer Castenson: Yeah, right? Yes.

Eve Picker: It feels like we’ll be entering the life of The Jetsons.

Jennifer Castenson: It is. There’s so much. Years ago, I heard somebody talking who was an employee of Disney, and he was saying that we will have characters in our home; characters who speak to us. I feel like we’re almost there. Now, there’s a whole bunch of hurdles with security issues, and there’s also hurdles in terms of integration and what people are willing to pay for these sorts of technologies. However, we are on a fast track because of the way that technology accelerates, so [cross talk]

Eve Picker: -yeah, interesting. But do you think these trends will make for better cities? Are these really important, impactful trends, having [cross talk]

Jennifer Castenson: -I was talking about health and well-being. I think health and well-being, I was focused on it in terms of just one residence. However, more and more people, from an urban planning standpoint, and smart cities development standpoint, are working together. There are more and more collaborations, and more people are understanding, recognizing the benefits of collaboration.

Jennifer Castenson: You’ll see more cities are creating- working with developers or leading organizations in order to change the city; in order to mold it to be not only prepared for the smart city infrastructure, but to have a focus on health and well-being and creating a more strategically resilient community, where people can prosper; where they can, not only economically, but healthy- from a health standpoint.

Jennifer Castenson: Putting access to fresh food in walking distance of residences; putting more public transportation options in place. We are a nation that’s growing older. So, a lot of folks are starting to think about how are we thinking about accessibility, and how are we making that available for this aging population?

Eve Picker: Yeah, that’s really interesting because actually everything you touched on there is part of the Change Index on Small Change. I don’t know if you’ve looked at it lately, but those are the key things – livability for everyone, whether they’re three years old, or 85 years old, right?

Jennifer Castenson: Right. Exactly.

Eve Picker: An accessible, healthy place to live where you can move around, and reach good food, and all of those things. I was having a conversation with someone the other day about assisted living and how it needs to evolve. I think there was an article in The New York Times about how broken the system is. Do you see any innovation in assisted living or the way that people are thinking about housing our aging population?

Jennifer Castenson: Oh, for sure. I think there’s so much that’s going into that. There are new design guides that are going into that and actually being picked up by certain legislations that have to meet-  or building code that are being incorporated into the building code.

Jennifer Castenson: Then, there’s so much in terms of technology to help people. I’ve seen projects where there is technology that can alert a caregiver of somebody who is in a home alone – if they’ve fallen, if they haven’t moved for a certain amount of time; can tell them when to take their medications, can do so much for the aging population, assist them in just living for day to day and [cross talk]. 

Eve Picker: -help them age in place. 

Jennifer Castenson: Exactly. Well, the age place … That’s also, when I was talking about having the access to the public transportation, when people live that- age out of the ability to independently drive their cars, they lose a little bit of independence. So, having access to public transportation or having things within walking distance is really important. That’s why so many people are thinking of community design and not just how someone lives within their own residence.

Eve Picker: Yeah, I know everyone’s thinking ADUs as a way to deal with affordable housing, but I actually think about it a lot as a way to deal with the aging population, because, when I get old, I’d love one of my kids to have me in an ADU in their backyard. That sounds to me much more appealing than an assisted living community. If there’s technology developed that helps keep me safe in that place and able to age like that, that would be amazing, right? 

Jennifer Castenson: Yeah, absolutely, and you’re right. They are an option for affordability, but it’s also being looked at as a second home on property that could house in an older relative. A lot of people are looking at it as that option.

Eve Picker: Or a teenager you don’t want to see every day, right?

Jennifer Castenson: Right. 

Eve Picker: Okay, so the big question is, really, do you think socially responsible real estate or building methods necessary in today’s still development landscape?

Jennifer Castenson: Oh, for sure. It’s actually really impressive that we talk about that change in the building industry is very slow. But if you look at change in terms of code, all of it has been socially responsible, right?

Eve Picker: Yes.

Jennifer Castenson: We’ve actually layered on so much code to be more responsible in terms of environmental impact. Now, we’re using codes in projects, and certifications that also – like the Fitwel program – that are focused on health and well-being in our communities and in our homes. Then, we’re also taking on codes, and we’re involved in another project at Hanley Wood that’s focusing on reducing the amount of embodied carbon. Those types of things are the responsibility- are things that builders and developers are owning. They’ve been evolving quite quickly over the years. They’re taking more and more responsibility for providing housing in a way that is socially responsible, environmentally responsible, and then that is comfortable, and also will help people from a perspective of emotionally, psychologically, and mentally growing. It’s a lot to combine into a home.

Eve Picker: Maybe eventually we’ll become the happiest country on the planet.

Jennifer Castenson: Right.

Eve Picker: We’re far from that right now, right? We’re sort of gradually catching up on some European standards, which is really pretty fabulous. My big wrap-up question is where do you think the future of real estate impact investing lies?

Jennifer Castenson: I was talking about before that we’re working on various conferences, and the one that we had you involved in was called Hive, which stands for Housing Innovation Vision Economics. Through that conference, we do an honors program that’s called the Hive 50, which our editors select the top 50 innovations in housing. I would say that a lot of the innovations are around finance.

Jennifer Castenson: Impact investing has had a smaller presence on that list, and I think that there’s a lot of opportunity for that to grow. I think that as more cities and their collaborations come into the picture, we’ll see more and more of that happening. Tangentially, you see a lot of organizations getting involved in sponsoring, donating, subsidizing affordable housing construction in various areas. That actually has picked up a lot in the last 12 months-

Eve Picker: In fact, there’s impact investing, right?

Jennifer Castenson: Yeah, absolutely. And I think we’ll see more and more of that, just as we are not able to meet the demand of housing in this country, and we’re not actually on a trajectory to meet it anytime soon. So, hopefully we see more of that; more of the money coming in so that we can develop the housing that we need.

Eve Picker: I also have three sign-off questions that I usually ask, because I want to hear everyone’s answer on these. The first one is what’s the key factor that makes a real estate project impactful to you?

Jennifer Castenson: I think what makes it interesting to me is that it becomes something that teaches the industry, the rest of the industry, and that we can pick up at a volume scale and bring it to more places.

Eve Picker: That sounds like innovation-

Jennifer Castenson: Yeah.

Eve Picker: -really is the most important thing to you. You know I have a crowdfunding platform, right? Do you think there could be other benefits, other than raising money, that could come out of crowdfunding in real estate?

Jennifer Castenson: Oh, for sure. Absolutely. I think you have done such an amazing job bringing crowdfunding to a more visible level in housing, and that means … I give you all of the kudos in the world, and I hope that you guys keep elevating that. It has done a tremendous job to give visibility to projects that wouldn’t have made it otherwise. Those projects are the ones that we need more of, because they’re innovative. They’re new approaches to what traditionally, or legacy organizations, are not approaching because of their capital streams, so it’s … I think it’s amazing.

Eve Picker: Well, thank you. I feel like we’re just scratching the surface. There’s so much to do, right?

Jennifer Castenson: Right.

Eve Picker: This is a really big question: if you want to improve one thing about the real estate industry in this country, what would that be?

Jennifer Castenson: If I could change one thing, I think it would just be something about regulation, which I wouldn’t know how to approach because it’s such a complicated web. But I would say that there’s something either to policy and regulation that would remove some of the hurdles and allow building to happen in a more efficient way with maybe some of the responsibilities back on … I’m not sure. There’s just so much to do there.

Eve Picker: No, I think you’re talking about zoning and building codes all wrapped up together, and that’s a lot of stuff to unravel. I know some cities are trying to unravel bits of zoning codes and move things forward in a different way, but, yes, it’s a lot. Jennifer, this was just delightful. Thank you very much for taking the time to talk with me [cross talk] I’m going to call this Entering the Life of The Jetsons.

Jennifer Castenson: I like it.

Eve Picker: Okay. Have a great day. Bye.

Jennifer Castenson: Thanks, You, too. Bye.

Eve Picker: That was Jennifer Castenson. She gave me lots to think about. First, she thinks that a focus on health and well-being is having massive cultural implications in the building industry. Second, in the future, she believes that housing will need to deliver far more than just shelter. And third, innovations in prefab may well be a major part of the solution to the lack of housing in the U.S..

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

How to leave places better than you find them.

Josh McManus is a problem-solver working in post-industrial cities with entrepreneurs, corporations, and foundations to help people positively transform the places that they love. Josh’s experience spans 20 years as a serial social and business entrepreneur. An innovator in entrepreneurial ecosystems, creative economic development and combating population loss, Josh is obsessed with place-based change. An autodidact learner on subjects ranging from invention laboratories to neuroscience to game theory, Josh designs and implements projects that aim to disrupt how people in places think of themselves and their community and maximize the potential of all citizens who reside there.

Previously, Josh worked with the Rock Ventures team in Detroit, helping to buy and renovate many millions of square feet of empty downtown space. Rock Ventures is the umbrella company that serves and connects Quicken Loans Founder and Cleveland Cavaliers Chairman Dan Gilbert’s portfolio of more than 100 companies. 

Nationally, Josh is a Marshall Memorial Fellow and a Next American Vanguard. Locally, he has helped found multiple organizations and has served on a variety of institutional boards in his collection of adopted hometowns including Chattanooga, Tennessee; Detroit; and Bar Harbor, Maine. His thoughts have been featured by Forbes, Fast Company, The Economist, Entrepreneur, GOOD, USA Today, The Huffington Post and Garden and Gun.

Listen in to our fascinating conversation.

Insights and Inspirations

  • Josh believes we are on the precipice of the democratization of finance
  • All segments of the real estate market are innovating and  transforming rapidly, right before our eyes.
  • Just as we’ve lived through a wave of green-washing, we are now in a wave of good-washing. 
  • The sharing economy is flexing its muscles in real estate – office sharing, AirBNB, revenue sharing in lieu of rent, co-housing – and there is more to come.
  • Real estate in the US would be radically improved through the rapid re-writing of zoning laws.

Information and Links

Read the podcast transcript here

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

Eve Picker: Thanks so much for joining us on this podcast. I’m Eve Picker, and my life revolves around cities, real estate, and crowdfunding. In this podcast series, we’ll be digging deep to discover how we can build better cities by building better buildings.

Eve Picker: My guest today is friend, and colleague, Josh McManus. Josh describes himself as a problem solver, strategy implementer, and idea activator, and I know all three to be true. He works in post-industrial cities with entrepreneurs, corporations, and foundations to help people positively transform the places that they love. He’s obsessed with place-based change. We have that in common.

Eve Picker: Previously, Josh worked with Rock Ventures’ team in Detroit, helping to buy and renovate hundreds of millions of square feet of empty space in downtown Detroit. Rock Ventures serves and connects Quicken Loans founder, and Cleveland Cavaliers Chairman Dan Gilbert’s portfolio of more than 100 companies.

Eve Picker: Nationally, Josh is a Marshall Memorial Fellow and a Next American Vanguard. Locally, he has helped found multiple organizations and has served on a variety of institutional boards in his collection of adopted hometowns, including Chattanooga, Tennessee, Detroit, Bar Harbor, and New Orleans. His thoughts have been featured by Forbes, Fast Company, The Economist, Entrepreneur, GOOD, USA Today, and The Huffington Post.

Eve Picker: If you want to know more about Josh after you’ve listened to this podcast, please visit EvePicker.com, where you’ll find links and other goodies on the show notes page and where you can subscribe to my newsletter on all things real estate impact.

Eve Picker: Hi, Josh. How are you this morning?

Josh McManus: Doing great.

Eve Picker: Thank you so much for joining me. I know quite a lot about you, but our listeners don’t. I know that you’re always moving, and I’m wondering what and where you’re working right now.

Josh McManus: I am in Dearborn, Michigan this morning. I’m fortunate to have spent a lot of time in Detroit, and Dearborn over the last 10 years. My work right now is mostly to support Ford Motor Company, as they transform from a past that has been just about cars to a future that’s about movement and mobility, overall.

Eve Picker: That’s pretty innovative stuff. Your background has been- you’ve been involved in a lot of real estate recently in under-served cities. Do you want to tell us a little bit about that?

Josh McManus: Sure. I actually realized recently that it goes back to my childhood. I grew up in the shadows of a Goodyear plant in Georgia, and the life and death of that little town came and went with what was going on in that factory, so I’ve spent the entirety of my career working in post-industrial places. One of the best tools for changing the trajectory of a place is re-imagining real estate. I’ve worked in Chattanooga, Cincinnati, Akron, and then spent a lot of time in Detroit. With each passing set of interventions, have moved up and up in the scope of ambition of the projects that I’ve worked on.

Josh McManus: In the last 10 years, I’ve been very fortunate to work on some really large-scale projects. I got to serve with the team at Rock Ventures, which has amassed over 14 million square feet of real estate in downtown Detroit – over 100 buildings – and I’ve been party to taking most of those buildings from low, or no occupancy to full, or near-full occupancy.

Josh McManus: In the recent work with Ford, I was also very fortunate to be party to helping make the announcement of Ford’s return into their home city of Detroit, with the acquisition of Michigan Central Station, which is really turning into a living laboratory for the future mobility. It was this iconic abandoned structure that’s now getting new life and will be online and operational in 2021, I believe.

Eve Picker: That’s pretty big and exciting stuff. What’s your background, and what path led you to what you’re working on now, and this real estate reinvention?

Josh McManus: Actually, I also had the revelation recently that I come into real estate rightly so. My paternal great grandfather, and paternal grandfather were in the real estate business in Georgia and had some commercial and residential transactions and holdings. Then I spent this blended upbringing, where my dad was a CEO, my mom’s an artist, and I was torn between those two polarities of doing beautiful and good things for the world and doing business things.

Josh McManus: I went on to get business degrees, both undergraduate, and graduate, but most of my work focused on how to leave places better than you found them. I eventually came up with this reconciliation, I call it, for purpose – instead of for profit, for purpose – which is attempting to work at the intersections of moral imperative, and market imperative.

Josh McManus: All of my work in real estate is very much in that direction, which is how do you make places both humane, and maximization machines for human potential, but how do you also make them fiscally feasible, so that you can do the projects again, and again, and at scale. It’s a fine line to walk, but it’s really where my interests are is how do we build for-purpose places that serve people well, serve communities well, and serve capital interests, to the extent that they have to?

Eve Picker: I love the idea of leaving places better than you found them. It sounds easy, but it’s- probably the most difficult thing about it is that people have different ideas about what ‘better’ is, don’t they?

Josh McManus: Yes, absolutely. Real estate redevelopment is a very loaded subject right now [cross talk]

Eve Picker: It certainly is.

Josh McManus: -national conversations on things like gentrification, which are understandable; while, at the same time, there’s national and global conversations about economic stagnation. People are very clear on things they don’t like – when people get pushed out, or when people can’t stay in a place, or can’t thrive in a place …

Josh McManus: That in-between space of how do you make places work for everybody is oft talked about, but very little delivered. I think that’s why I’ve had such a consistent interest in it – how do we build places that maximize the potential for all that are able to retain talent that already exist there, but to attract new talent at the same time? I feel like it’s one of the few things that could be a lifelong pursuit, because it’s complex enough, it’s going to evolve. I know you feel the same way. It’s the problem that I’ll never solve, but I think I’ll always love working on it.

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

Eve Picker: Yeah, I think you’re right … The interesting thing about my interviewing, people I’ve interviewed so far, they’re all tackling the problem from a different angle. It’s absolutely fascinating. Their backgrounds have led them to a different place where they have different skills, and they may be able to help in a different way. I don’t know how you get them all together. It’s very difficult, and it is, as you said, very loaded. Developers are not very popular at the moment, although they may be the answer, in some ways, somehow.

Josh McManus: Actually, I think there’s a new- there’s an emergent field. This has been one of the hard things for me … Going back to when I think you and I met, probably a dozen years ago?

Eve Picker: Yeah, it was a long time ago.

Josh McManus: We met in sort of this ‘island of misfit toys’ faction – the old gatherings of CEOs for Cities. What was fascinating about that is that you had … I was an early social entrepreneur. You were doing both that place-based change, and development work. Then there was a mix of other people that really shouldn’t have intersected with each other.

Josh McManus: What I’ve felt since then is there is this emergent field. I guess my resume would say that I’ve been proxy to a lot of development. I, by no means, would consider myself a developer, and I don’t know that I ever will, but it feels like, to me, that there’s an emergent field that is something slightly different from developer that needs a name. It doesn’t have that name yet.

Eve Picker: Yeah, that’s interesting. Something to ponder. What is real estate impact investing, from your perspective?

Josh McManus: Overall, I think that we are on the precipice of democratization of finance in a way that’s really- that we’ve certainly not seen in our lifetimes. It may have happened in certain ways in the past, where you opened up finance to more people, but the impact falls in this overarching democratization of finance wave that is impending.

Josh McManus: What I mean by that is I’ve always … In some of the economic-theory stuff that I’ve read, there’s this notion of perfect capitalism. A lot people right now are talking about post-capitalism. I’m still talking about perfect capitalism. It would be where supply and demand met each other in real time and worked its way towards efficiencies.

Josh McManus: Impact real estate investing, to me, is just the opening of the capital markets for good projects to meet good capital at a cost that’s sustainable. This is being equipped and enabled by technology, by new modes of thinking, and by measurements that are no longer single bottom line, which I think is totally appropriate.

Josh McManus: The arms race we’ve had towards single bottom line returns, since Milton Friedman economics set in, is very problematic. This return to impact, to me, feels like a return to understanding our core biological instincts, which are self-preservation. Impact finance, to me, feels like a return to what’s right and the pursuit of more perfect capitalism.

Eve Picker: I agree with you on that, but I have to wonder whether it’s really working that way yet. At the moment, I feel that impact investors are seeking the good, as well as the return. We know what it looks like to put together an impactful project in a soft market. The returns are never going to be that great. If you offer bigger returns to investors, that works its way down to the occupant of the building, who might be an affordable-housing tenant. I don’t know. Do you agree that, somehow, this great divide between the haves and have-nots is not just about the money they have, but also the expectations for the money they have? I’m not sure I’m describing that-

Josh McManus: No, no, I follow. I think there’s a couple of forces in play. One is, just as we saw a wave of green-washing over the last 10-15 years – where now everything is organic, and you can’t tell whether organic is good or not – we’re in a great period of good-washing right now. It seems that every way I turn right now, everybody’s an impact investor, because that is fashionable.

Josh McManus: But, then, if you look at the core of some of these folks’ beliefs and return expectations, they truly are willing to receive returns that are multiple bottom lines. Then there are some people who have just good-washed and expect the same arbitrary financial returns that they saw under other boom times that have advantaged capital over everything else. I think that’s an issue.

Josh McManus: I also think that we are, like you say, on the precipice, but not there yet with truly unlocking all capital with all risk orientations. The work that you’ve been doing on Reg-CF, with Small Change, is absolutely fascinating to me, because bringing folks who are holding capital that they’ve only been able to see microscopic returns on, for any sort of lower-risk opportunities – people that have only been able to see a money market account or CDs, these things that have been low, low single-digit returns – allowing those folks to bring capital on that they will now, all of a sudden … Six-percent returns, to them, looks really good compared to what they’ve seen in the past.

Josh McManus: I just think we’ve still got a lot of capital that’s yet to be unlocked that has a different return prospectuses on it. I think we’ve got to be patient in getting all capital onto the playing field and then getting it liquid enough that it can move in the directions of projects where those folks are going to see a proper risk-adjusted return.

Josh McManus: I think, in you guys’ shoes, over in what you’re doing with Small Change, what’s got to be tough is it’s a little bit Wild West, right now, so you can’t tell … It’s hard to tell the difference between who’s good and who’s good-washing, and it may take a period of time before that sorts itself out.

Eve Picker: No, I think it is going to take some time, for sure. How much, I’m not sure [cross talk] but we’ll try to be patient. When you look at cities – you travel a lot; you go to a lot of cities – do you think socially responsible real estate is necessary in today’s development landscape?

Josh McManus: Yeah, I think socially responsible everything is necessary in every landscape [cross talk].

Eve Picker: That was a loaded question.

Josh McManus: -throughout time. I am an avid consumer of a lot of historical information. The times when we put our self in great peril is when we are socially irresponsible. My dad, the CEO, raised me as a capitalist with one caveat. Every time he would remind me that I was a capitalist, he would also remind me that unbridled greed is the Achilles heel of capitalism. Unbridled greed is not socially responsible. It’s also not sustainable. We have to have a system that can allow returns on capital, but can allow returns on … I call them the other ROIs – the returns on individuals. Can individuals maximize their potential? In addition to return on investment, return on individuals.

Josh McManus: Then, also, ROIs in return on ideas. Are we rewarding and testing new ideas? This is especially problematic in the real estate business, because things all too often get too formulaic, too templatized. You and I share a friend in Jonathan Tate, who’s looked at the structure and form of multi-family housing units. There is a big problem there, in that it becomes templatized. The capital gets comfortable with that template, but then that template stops serving people in the way that needs to be. I spend a lot of time [cross talk]

Eve Picker: -that, to me, I think is the crux of it all. We need innovation in cities and innovation in place-making, and our financial institutions are not built to be innovators. They [cross talk] looking at real estate development that perpetuates the same, just in the way you said. It’s a very difficult cycle to break out of. Yet, I see so many creative developers coming to me with the most amazing ideas. How can we unleash them all and finance them all? I think we would have better cities, right?

Josh McManus: Right. The marketplace has to be there, and then we’ve got get … In all of this post-industrial city work I’ve done, I’ve worked a lot with large and small foundations, some national, some place-based. Foundation capital is interesting to me, because I think it can and should be the most risk-oriented capital in the whole world.

Josh McManus: An evergreen foundation that throws off five percent of its corpus every year, and that annualized return rates are adjusted over time, that means that that corpus is evergreen. We allow that in the tax code, because we see a benefit; that there should be a benefit to humanity and the society. That most risk-oriented money should be going into a lot of these real estate projects, especially for model-testing purposes, and that’s not totally the case right now. We’ve started to see some of that happen with some foundations, but they …

Josh McManus: The weird thing that happened, where foundations would get hit up for a lot of capital campaigns; so, then they categorically said, “We’re not going to be in the real estate business anymore.” I completely understand not building another wing on to a museum or building another dorm room at a college or university, but we need to go back and revisit that amongst the philanthropy crowd to say we probably shouldn’t be in the rote real estate business, but we should be in the real estate innovation business. The foundation capital being the most risk-oriented should be the ones that are trying the highest likelihood of transformation efforts on affordable housing.

Josh McManus: It was interesting to me to see the announcement … I don’t know if you saw it or not, from Google, last week. They said they’re going to put a billion dollars into affordable housing in the Bay Area. There’s a crazy statistic out there; I think it’s in the last 10 years, for every 12 new jobs that have been created, only one unit of housing has been created at the same time. You have these incredible pressures … You see Google putting a billion into that, and that’s a survival metric for them. They’re not going to be able to retain and attract talent, if people can afford to live.

Eve Picker: Right.

Josh McManus: I think that philanthropic money should be thinking the same way. If you’ve got a broken real estate market in a community, you may be the intervention of last resort, and you’ve got to fix that positively or negatively. I’ll just give you one example of how we thought about that.

Josh McManus: The work that I did with Rock Ventures is now carried on by a team that’s led by a lady named Laura Grannemann. They have gone very, very deep in working to figure out how to stop the blight machine that exists in the Detroit city limits. That has required not just investments in blight reduction, but significant investment in education of homeowners, so that the foreclosure process is slowed and eventually stopped. It’s required investments in rehabbing some houses for stabilization purposes – full neighborhood-sized interventions.

Josh McManus: I think that’s a good example of the level that philanthropy will have to intervene at to get markets back to operational. Once that happens, maybe they can move on, or maybe they can move to commercial, but we need risk-oriented money in the mix, for sure.

Eve Picker: Yeah. Foundations can invest in lots of other ways that aren’t necessarily bricks and mortar but end up being place-making. There are many zoning codes that need to be looked at, for an example, and changed to permit density in a way that they’re not written.

Eve Picker: One example that I’ve watched with interest is in the city of Melbourne, in Australia, where, maybe it might be as long as 10 years ago now, but a few years back, they introduced density zoning overlay along all the major corridors in the city, because those are transit corridors. They were trying to really implement density without the need for adding more cars. It’s been really interesting watching that emerge. It’s an interesting thesis that’s a little tinker with the zoning code to really make development happen in a different way. I’m fascinated by that.

Josh McManus: Yeah.

Eve Picker: In Pittsburgh,  I had a little non-profit, and built a tiny house, which in itself, was plenty of work and interesting, but the most interesting outcome, to me, was that several years later, just last year, the City of Pittsburgh actually created an overlay district for that little under-served neighborhood, so that they could build an experiment with ADUs, and tiny houses, which are really not part of the zoning code. To me, that was an absolutely wonderful outcome of this little $200,000 project. There’s ways to experiment and innovate, I think, that go beyond just building something.

Josh McManus: You’re bringing attention to something … One of the things that I’ve wanted to see created or to help create that I haven’t had time is what I describe as this [inaudible] from municipal policy innovation.

Eve Picker: Oh, that’d be fabulous.

Josh McManus: It’s under the realization that … It’s funny, because I watched a little bit of the Democratic debate last night, just to see what’s going on in that world. I had the realization, studying American history, there was a time when federal policy was the be-all-end-all for impacting local life in America. When we were debating major social, major fiscal policies, then the federal policy was where it’s at. The debates that we have on federal policies right now do have local impact, but they don’t have the local impact that they did all the way through the 1800s.

Josh McManus: At some point, the game really moved to the states, and state policy started to have a large impact on whether you have state income tax or not, or how you fund education, how you think about crime. During that period, governors were where it was that for impacting day-to-day life at a neighborhood level.

Josh McManus: Today, it’s really down to a place where I think your mayor matters a lot more than your president. That throws a lot of people off, because of the drama that’s happening on our national policy stage right now. The truth is, I travel so much, and the quality of life at the neighborhood level is much more greatly impacted by the policy choices of a city’s mayor than by the president, nor Congress.

Josh McManus: Now, if you follow Twitter all the time and watch TV all the time, you might think otherwise, but the actuality of it, of what your access to transportation is, what your access to parks and public places are, what the quality of your local education offerings are … The folks that have their hands in that are local politicians, much, much, much moreso than national, or state politicians.

Josh McManus: I think this game of sitting around saying, “Well, when is the state or the feds going to help us fix this stuff?” is completely wrong-headed, and the game is really transforming at a local level, in a lot of cities. My time in Detroit … I think my biggest fear for Detroit, right now, is that they went unregulated during the bankruptcy period. There was very low regulation on a lot of development activities and other things.

Josh McManus: Now, they’re turning back on the development regime that’s really dated circa 1950. I think  there’s folks that are working hard to try to update some of that, but these communities that have these leftover enforcement regimes that are from times that are no longer here and didn’t really deliver results that were optimal for all people, this is highly problematic [cross talk]

Josh McManus: -we need to be scrubbing local zoning issues. The way that you’re zoned, from a density standpoint, has a very fast waterfall effect to what’s going to happen with education, and transportation. I think a lot of the citizens don’t realize that, and they fall into a default NIMBY setting, which is ill-advised, because it means that you make decisions that don’t impact your kids, your surrounding neighborhood, your surrounding businesses.

Eve Picker: Right. Well, if you start your school, count me in, because I think [cross talk] I’m always astonished at how much power politicians have and how little they know about urban design, planning, architecture, and the impact that it can have on place, so I think that’s really important. Do you think there are any current trends in real estate development that are really important for the future of our cities?

Josh McManus: Oh, yeah. My observation is that we’re seeing the radical transformation of the three primary forms of real estate right before our very eyes. These are things that have, at least in the US, have held true almost since our foundation. I’ll unpack that a little bit.

Josh McManus: On commercial real estate, we’ve existed off of a owner-broker model that was predicated on square feet, and years. If I wanted to lease office space for my commercial offices, then I went and met with a broker who represented a property owner, and we had a debate and discussion about how many years and how many square feet I needed for my offices.

Josh McManus: Due to the demands of the property owner and also to the inertia of the whole situation, we typically had a very long-term discussion. The property owner, and the broker really wanted to get me into five years, and they wanted to get me into as much square footage as possible, at as high a leasehold rate as they could get their hands on [cross talk]-

Eve Picker: Both for different reasons, right? One, because the broker is incentivized to do the biggest deal possible, because the way the broker gets paid is on a percentage-commission basis, right?

Josh McManus: Yes.

Eve Picker: Which is also a really broken piece of this all.

Josh McManus: Yeah. What I see happening right now – again, with technology democratization, and ability to understand real-time supply and demand – is almost this continuously variable financing of real estate. You see it manifest the best in things like WeWork, because whereas the CBREs of the world are still out there going, “Well, how many how many square feet and how many years do you want this for?” WeWork is saying, “How many desks do you want, and how many days do you want them for?”

Josh McManus: That’s the transformation of the pro forma, because at CB Richard Ellis, they wanted me to rent that space, and they wanted me to put one person per every 300 square feet, or 350 square feet – as much room as I would sign up for, that’s what they wanted to get me to. By changing the pro forma around and by aligning the interests of the broker-owner – now that’s kind of collapsing into the same thing, sometimes – WeWork says desk and days, and what they don’t talk about as much is square feet, because now, if you go into a WeWork office, there’s one desk per every 75 square feet.

Josh McManus: What’s fascinating about that is that it’s a healthier performing pro forma; it’s also more environmentally sustainable, because you’re conditioning less space. It has a higher energy level to it, so people who work in those spaces feel a different level of energy. You can also shift the pro forma to have more amenities, because you’re spending less money on just bare space and conditioning of that bare space [cross talk].

Eve Picker: -it really supports startup, and small businesses who can’t really find the time to put all the necessary utilities, and the managers together for themselves, so there’s an added bonus, right?

Josh McManus: Well, it also allows them … It’s continuously variable, if it’s priced based upon risk. I may price your desk rate higher, if you’re a more risky client, or if you want more flexibility. Essentially, what you’re paying for is optionality. It also allows you, if you’re a startup, to be like, “Well, this month, I have 12 employees, and next month, I have 17. Then we went through a down cycle, and I’m at 11.”

Josh McManus: It’s more pay-to-play than this encumbrance that so many companies have been so scared of, which is this five-year lease with these ridiculous guarantees, and [cross talk] I think it actually accelerates the economy, because it gives people more options to play the way they want to, when they want to [cross talk] for the landlord and the broker, because they’re pricing risk into it. Their margin is still there-

Eve Picker: Josh, early on in my real estate career, I was known as the only developer in Pittsburgh who would actually lease out space for a year at a time. I have some buildings that have smaller office spaces, and I would find these startup tenants, and I would take a risk. They’d stay for a year, and then, they’d stay for another. Some of them ended up staying for 20, maybe because I understood who they were, because I was like that myself. I couldn’t find anyone to help me find tenants, because it wasn’t worth their while. I love that the internet is producing new models and helping make that happen [cross talk]

Josh McManus: That’s commercial, and then what you’ve got happening on retail-

Eve Picker: Oh, that’s huge.

Josh McManus: -is similar. I mean retail, both in the displacement of some retail to online, but the retail that’s persisting is highly experiential. I think that you’re seeing a lot more revenue-share rents at the ground level. It’s aligning the interest of the landlord and the lessee.

Josh McManus: You’re also seeing a lot of things like food halls. The way those are working out is the landlord, the broker, and the lessee are sharing costs differently. If I’m in a food hall, the property owner, or the property manager may be the one who’s buying some of that back-of-house equipment and carrying the debt, or the cost of that equipment. What that does is create lower barrier to entry for more localized, more authentic offerings to going to place. Then, when that those offerings perform very well, both the landlord and the lessee are sharing in those outcomes [inaudible]

Eve Picker: -co-working for food, right?

Josh McManus: Yeah, totally. The final transformation that I’m watching in real estate is the residential side of it. If you look backwards, if I need to stay a night – I’m in a Marriott, right now. If I needed to stay a night, I would go to a hotel. If I needed to stay for a week, I’d stay for an extended stay. If I needed to stay for three months, then I would go to some corporate housing that had furniture in it. If I needed to stay for longer than that, I could stay for 12 months, or 24 months, but it had to be a fixed increment.

Josh McManus: Now, that’s all collapsing. I moved my family down to New Orleans over the winter, and we actually went on Airbnb, and did a long-term rental … Longer-term rental, so it was more like a 90-day. The algorithm there brokered some adjustments to say, “Hey, you’re staying for a longer time. That’s good for you; that’s good for the landlord. Let’s get the economics of this right.”.

Josh McManus: This foreshadows, for me, that you’re going to have this optionality in the future on a small number of platforms – whether I need to stay one night, one week, or six months – that I’ll be able to do that, and the data will help you understand what the right pricing is for both parties. It’s democratizing that, and de-risking it. I’m extremely excited, because I think what you’re seeing is this melt into something where supply and demand can meet each other in much greater fashion, faster fashion, with more transparency and more benefit in both directions.

Eve Picker: That plays into financing these things, which are all new, and innovative, and financial institutions often don’t understand. I have a building that is now a co-working building. I moved from traditional office spaces to getting rent, as the building owner, from desks. I have an operator who manages the building, much like a hotel operator.

Eve Picker: I’ve been paying my mortgage on time on that building at least 13 years, never missing a payment, and went to them for a credit line to make some improvements, and couldn’t get it financed, because they just didn’t understand where the income was coming from. We’re back to the first issue we talked about, which is the financial institutions really, for whatever reason … It may not be their fault. They have all their regulations to deal with … They’re squashing the innovation out of the cities. These innovations are happening regardless, and there’s going to have to be different financing tools [cross talk] banker is listening here.

Josh McManus: I couldn’t agree more, but I don’t- I think that wishing for bankers to figure it out … Bankers always follow the lowest common denominator [inaudible] path. I did have some insight in working for Rock Ventures. That’s the holding company that sits next to Quicken Loans. Quicken Loans, in some ways, is in that traditional banking category, but in most ways is not. What I learned in that world is that a lot of people look at that as fin-tech rather than finance-

Eve Picker: That’s true.

Josh McManus: I think that there is a major opportunity in the way that this is likely going to get handled at scale, as you’re going to see the development of a capital class that’s called REfin-tech, real estate fin-tech. I think that’s the exact money that is financing things like WeWork, right now. If you look at WeWork, it’s not your traditional- it’s more your soft banks. It’s your folks that understand that data has value; that technology has inherent value, but that you also need to finance large amounts of physical property. It’s a blended- it’s not just tech. It’s physical property and tech living together side by side.

Josh McManus: I think this is going to come off of a completely new capital class, and that, as you start to see exits, it’s going to be really interesting to see what happens with the IPO of WeWork. If that goes well, that probably forms the foundation of this REfin-tech capital class that will subvert the banks. Once, it subverts the banks, then the banks will try to figure out how to get in that game.

Eve Picker: Yeah, I think that’s right. I’m going to shift gears a little bit, because we’ve been talking a long time, but I want to know the answer to this. You started your- well, I don’t know if it was the beginning, but when I first met you, you were doing quite a lot of community engagement work. I’m wondering what community-engagement tools that you’ve seen or used that you really believe work?

Josh McManus: Around the time- well, probably around the time that we met was the time that I got involved in conceiving and driving what we thought, and what we still think is the world’s largest community visioning process. We got over 26,000 people to participate in Ideas for the Future of Chattanooga Tennessee.

Josh McManus: That was fascinating for me, because all the assumptions were totally wrong. We thought it would happen mostly online. It happened 80 percent on paper. We thought that folks would be single-issue voters, and they turned out to be very dynamic in what their interests were in the community. We thought that when you were faced with the issue of vision that people would have really, really wild ideas, and really, en masse, the community had incremental ideas. If you’re looking for breakthrough ideas, I learned that big survey processes were not the way to go for it [cross talk]

Josh McManus: After all this time of doing it … I did that, and then I’ve done a lot of other approaches. I believe in what I call humanity-centered design. I’ve got a process that I’ve developed for it. What it says is don’t build nor design things for what you believe is a community, build and design things for what you know is a community.

Josh McManus: Any intervention you build should be with the deep observation of the issues that you’re trying to understand and intervene on. What I mean by that is if you want to intervene on affordable housing and you don’t have a lot of people involved, who have lived in, are living in, and are currently pursuing affordable housing, then it’s going to be really hard to get it right..

Josh McManus: Just as human-centered design has put people in hospital beds, when you’re trying to innovate in hospitals, this humanity-centered design says I’ve got to take it more than just innovation on behalf of the patient. I’ve got to find innovation on behalf of the entire patient base. I believe in this humanity-centered design. I believe in feedback from the people. I believe in that in two different ways. I think if you need to understand what consensus is, then you mass survey, and representative sample. If you need to look for innovation, you actually have to do constrained dreaming.

Josh McManus: What I mean by that is we did the world’s largest community-visioning process, and people wanted a little cleaner, a little less traffic, a little better amenities. Then we did this other process that was called City R&D, where we said, “We’ve got downtown, we’ve got the mall area, and we’ve got the new giant auto factory – we need to connect these three together. What are your wildest ideas for connecting these things together?”.

Josh McManus: When you constrain the problem like that, the imagination became really much more bold. People had public art ribbons, and rubber-tired trolleys, and all these different ways that you could connect these assets together that they didn’t come up with, when they were just asked to imagine a better community and describe it. I think that community process has to be selective around are you trying to figure out what consensus is, or are you trying to figure out what innovation is?

Josh McManus: The last thing I want to mention is my friend, Mark Wallace, who runs the Detroit River Conservancy, I feel like he really stumbled into, or intentionally drove into new territory from a community-input standpoint with the new park that they just announced on the Detroit riverfront.

Josh McManus: What he did was actually go get a representative sampling. I think it was 21 folks, real people from neighborhoods – mom and her kid, a set of retirees – and these are people that were not your usual suspects in public participation. Then what he did is put them on a plane, and they went to the best parks in the country-

Eve Picker: Oh, that’s really cool.

Josh McManus: Yeah. They experienced those parks, and then they came back and worked with the designers to say what they wanted in their park. Instead of [cross talk]

Eve Picker: That’s really cool.

Josh McManus: -surveying, he found his representative sampling of the community; made sure that they were unbiased, because they weren’t the usual suspects and participants, like people that are in the know. Used their input to come up with a plan that I’m super-super-excited about. I think that may be a next practice, too.

Eve Picker: That’s pretty cool. I’m gonna have to interview Mark-

Josh McManus: Oh, yeah, he’s great.

Eve Picker: One last question – where do you think the future of real estate impact investing lies, in summary?

Josh McManus: In summary, I think that all of us that care about real estate impact investing have to continue to drive for policies, tools, and patrons, for that matter, who are committed to the democratization of finance. When the controls are in the hands of the commons, instead of in the hands of a small few who may make choices that were based on that unbridled greed that is this Achilles heel of capitalism, that is problematic. Anything that we can build, that we can do, that we can advocate for, that allows finance to further democratize to allow all people to participate in it, and to participate in ways that are fair and just, I think that’s what the future looks like.

Eve Picker: Okay, that’s great. I do have three sign-off questions that I’m asking everyone because I’d like to tabulate the answers in the end. The first question is what’s the key factor that makes a real estate project impactful to you?

Josh McManus: I’ll tell you a quick story. There was a time when everybody was talking about Denver. They’re like, “Denver’s changing. Denver’s changing. You gotta go see Denver! Denver is changing!” Then you went to Denver, and it was three blocks-.

Eve Picker: Yes, I remember that.

Josh McManus: Yeah, yeah [cross talk]

Eve Picker: -you could say the same about Corktown. You know that, right?

Josh McManus: Yeah, yeah, totally, totally. Absolutely.

Eve Picker: Where is Corktown? Oh, it’s this block …

Josh McManus: Yeah, that’s … my friends, the Cooleys, and they started with the BBQ shop. That does get to how I measure these things. A project that is so impactful that people start to talk about a place, because that one project … It’s happened with a place called The Flying Squirrel in Chattanooga; incredibly designed; really smart bar that really accelerated the south side of the city. That’s what I’m looking for in transforming real estate.

Josh McManus: Does the project have the ability to play above its fighting weight, because it becomes contagious? Does it cause adjacent development? Does it get written up because it has particular aspects of it, like Jonathan Tate’s odd-lot work that he’s done down in New Orleans? Does it set precedent? Does it challenge people? Does it change the status quo? Do you come back to it in 10, 15, 20 years and all sorts of other stuff has happened around it, because it was that compelling unto itself?

Eve Picker: Yes, okay. Then, other than by raising money, how do you think involving investors through crowdfunding could benefit the impact real estate developer?

Josh McManus: When I speak of the democratization of finance, the disassociation of capital and community that happened since the 1950s is very problematic. What has the potential to happen now … Before we got on the line, I was working through a small investment in a place-based development out of my IRA- a self-directed IRA investment that’s in my neighborhood in New Orleans. What that does is reconnect me, my capital, and my community together. I think that’s what’s to come for the investor is to no longer be a spreadsheet jockey who is just sitting there looking for returns, but to actually participate in the true active community, by the utilization of your capital, to deliver things that include returns for you, but include a lot more.

Eve Picker: Right. Okay, if you could think of one thing that would improve real estate development in the US, what would it be?

Josh McManus: One thing that would improve real estate development in the US would be a rapid evolution of understanding of zoning, because I feel like this is … The municipal boundaries of most communities were formed at a time of horse and carriage. Most of our zoning requirements still date back to times when heavy industry and light industry were really different from each other. Heavy industry had machines that could suck people into them, and cause major problems, and had major health concerns.

Josh McManus: I look at additive manufacturing, experiential retail, multi-family affordable residential, and I know, in the future, we’re going to have to have all of those on the same block with each other. Accelerating to standards that allow for that to happen seems really important to me.

Eve Picker: Yeah? Okay. Josh, it’s been really lovely talking to you. I thoroughly enjoyed it. I can’t wait to hear about what you’re next working on. Thank you so much for your time.

Josh McManus: Thank you. I enjoyed the conversation, Eve.

Eve Picker: That was Josh McManus. I hope you enjoyed listening to him as much as I enjoyed talking to him. Josh gave me three great takeaways. First, he believes we are on the precipice of the democratization of finance. Second, all segments of the real estate market are innovating and transforming rapidly right before our eyes. Third, just as we lived through a wave of green-washing, we are now in a wave of good-washing. We need to be patient for investors to catch up. What did you learn?

Eve Picker: You can read more about Josh on the show notes page for this podcast at EvePicker.com. While you’re there, please consider signing up for my newsletter to find out more about how to make money in real estate while making some change. Thank you so much for spending your time with Josh, and I, today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Detroit, image by Eve Picker

Capital is just a tool.

In this podcast Molly McCabe and I explore housing the homeless, real estate projects that make community, and the future of impact investing. Her Lotus Campaign is yielding astonishing results quite early on, having placed 150 homeless people in its first year of existence, so listen in to learn more.

Molly is a veteran of the Real Estate Industry, Molly describes herself as a Scout, MapMaker and BridgeBuilder. She founded HaydenTanner after spending many years in commercial real estate finance, capital markets and development. She has spent her career cultivating practical solutions and strategies to accelerate the emergence of resilient buildings and vibrant, sustainable cities. Now she works with clients to channel investment capital to optimize asset and portfolio level returns, enhance resiliency, community vibrancy and livability while meeting economic objectives.

Molly is the immediate past Chair of the Urban Land Institute’s (ULI) Responsible Property Investment Council and sits on the Board of The Freshwater Trust. She is also the author of the book: Practical Greening: The Bottom Line On Sustainable Property Development, Investment and Financing and “Driving value: Responsible and Resilient Property Investing in the New Millennium” for Institutional Real Estate Investor. She has taught at the Boston Architectural College and has lectured at Pinchot University. Previously she founded VC funded, commercial mortgage backed securities firm, Bridger Commercial Funding, ran Bank of America’s Real Estate Capital Markets group and was a commercial construction lender with Wells Fargo Bank. She is a trained mediator, professional business coach and LEED AP.

Insights and Inspirations

  • We need to think of capital as just a tool. That’s all it is. It can be used beneficially, or not.
  • Molly’s Lotus Campaign has housed over 150 homeless people in it’s first year at the extraordinarily low cost of $1,000 per person.
  • ESG (Environmental, Social and Governance) plays a factor in investors decisions every day now.
  • Equity crowdfunding is the pebble that creates the ripples.
  • Molly is exploring building techniques that might help to lower the cost of housing for those who really need it.

Information and Links

  • Molly’s inspired by women who make her giddy, make her laugh and call her forth to do more, do better and to stand tall in my own strength and authenticity. Like Brene’ Brown and her most recent book Dare to Lead,  Emma McIlroy and her team at WildFang, Georgia Lee Hussey of Modernist Financial and so many more.
  • This year Molly is most proud of all she’s accomplished with The Lotus Campaign to help get people into housing.  
  • Who knows what will her inspire next week! 
Read the podcast transcript here

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

Eve Picker: Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Molly McCabe. I met Molly in her role as chair of the Urban Land Institute’s Responsible Property Investment Council.

Eve Picker: After many years spent in commercial real estate, Molly founded in HaydenTanner. There she works on cultivating practical solutions and strategies to accelerate the emergence of resilient buildings and vibrant sustainable cities. Molly has shown her true colors with her latest astounding project, The Lotus Campaign.

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

Eve Picker: Molly, it’s really nice to have you here today. Would you just tell us a little bit about yourself, and what you do?

Molly McCabe: Oh, sure. Thanks, Eve. Appreciate it. I run a firm called HaydenTanner, which is a strategic real-estate-advisory firm focused on increasing or bringing social equity and sustainability into the built environment. I work with developers and investors on their projects to create healthy, vibrant communities. I also have recently co-founded a non-profit with some colleagues called The Lotus Campaign, which is focused on increasing the availability of housing for people experiencing homelessness.

Eve Picker: That last one is a really big lift. Can you tell us a little bit more about that, The Lotus Campaign? I know a little bit about it, but I’d love to know more.

Molly McCabe: I’m delighted to do that. We started The Lotus Campaign- we’re coming up on our one-year birthday mid-July. What we realized maybe about 18 months ago in looking at a number of things is that the private sector really has not been engaged directly in to how do you solve some of these challenges around homelessness. Really got to thinking about how can we bring the private sector, the private real-estate development, and landlords, and investors into the mix and really start to solve the problem?

Molly McCabe: The Lotus Campaign looks at it from a continuum. We have a program called the Landlord Participation Program, which is really focused on increasing housing availability today for people experiencing homelessness by taking away all the impediments that a current landlord might have in bringing someone into housing, such as credit history, rental history, things like that; making sure that they have some immediate support. Then we also incentivize those landlords to open up the units.

Molly McCabe: Then, on the continuum, we also recognize that just increasing housing today with existing units is not enough, because we just don’t have enough housing units available period. The second piece is we are buying and rehabbing existing naturally occurring affordable housing. Doing major rehabs and putting aside about 20 percent of those units for people experiencing homelessness. The balance, about 80 percent, is primarily workforce housing.

Molly McCabe: The third piece on the continuum is actually increasing the total number of housing. We are piloting- or we’ll be piloting this year, hopefully, some new construction technologies which will reduce the total cost per unit of housing. Through that, we’ll be partnering with cities and other communities to increase the actual total housing stock. It’s a continuum, and it’s, again, been pretty successful. So far, we’ve helped facilitate in the first year about 155 people into housing at an average cost of about $1,000 per person.

Eve Picker: Wow, that’s a lot that you have on your plate. That’s a really lot to manage. I want to go back to something you said about removing impediments for formerly homeless people to be able to rent a space. What exactly do you mean by that? How do you help remove those impediments?

Molly McCabe: Well The Lotus Campaign, if you take a quick step back, and we look at the clients that we- our people that we’re currently looking at serving, we’re looking at serving sort of highly functioning, chronically homeless all the way up to people who are on the verge of experiencing homelessness.

Molly McCabe: Because what you find today is that, in comparison to what we thought were the people who are experiencing homelessness – typically people who were drug users and things like that –  really, it’s so many people who are falling into poverty . Right now, housing prices across the country are just dramatically rising, and there’s …  People who are wealthy can certainly go into housing, but then there’s that point where you lose a job, you have a health problem, something happens, and you can’t make the rent the next month. We sort of serve that whole sector, that whole segment of the population.

Molly McCabe: What we’re finding is that landlords have consistently been concerned about things like, as I said, rental history, credit history. Then there’s a whole stigma attached to being homeless. The reality is, as I said, many of it’s economic in nature. When we talk to the landlords, what we’re doing is we’re providing … We, Lotus, come in and we provide a rent guarantee.

Molly McCabe: We provide tenant insurance. We work with social-services organizations who have an ongoing responsibility to 1) identify a resident who is able to go into scattered-site housing and then provide ongoing services to them during the entire period of time that they are in that housing; including, for example … They come in once a month, and they walk the unit; check in with the tenant, but they make sure it’s- from the landlord’s perspective, it gets somebody in the unit to make sure that things are still going okay, and if there’s any problems, it gets you ahead of that.

Molly McCabe: We will provide …. We’ve asked the landlord to postpone eviction processing for a month – 30 days – and we ask them to partner with us to see if we can work out whatever the problem is. If, at the end of that month, we are unable to do that, we will go with the landlord to court. We will pay their court costs, their attorney’s fees to help process that eviction, if necessary. Hopefully- that hasn’t happened so far with any of the tenants that we’ve had, but we have offered that.

Molly McCabe: The last piece is we provide the landlord with an incentive payment to open up units. What we’re finding is that it’s about, again, $1,000 per person.

Eve Picker: That’s not a lot of money.

Molly McCabe: No, it’s a great way to … If you think about leveraging your capital, it’s not a lot of money. We’ve been really, really successful with that. So far, as I said, we have 155 people in housing.

Molly McCabe: We’ve had one person leave; lose their housing. That wasn’t because they were doing anything wrong at the building, at the apartments. It was because they weren’t actually following through on what the social-services organization had expected them to do. They weren’t making meetings. The social- services organization actually came in, and said, “You need to leave.”

Molly McCabe: That person’s gotten back on the waiting list because they’ve shown back up, but it’s really a matter of bridging that gap between what the landlords are- their expectations [inaudible] making them feel comfortable that they have support, and that they have a reason to open up those units and feel confident.

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

Eve Picker: What locations are you in, so far?

Molly McCabe: We’re currently piloting in Charlotte, North Carolina. In Charlotte, again, we have four landlords; four different landlord organizations that we’re working with, and we have four different social-services organizations that we’re working with who have identified people.

Molly McCabe: We hadn’t expected to do this, but the opportunity came along in November to actually purchase- acquire a building. We acquired the building in November. It’s 144 units; 30 of which have been set aside for Lotus clients, and the balance are workforce housing – tenants, residents.

Molly McCabe: In that case, we brought in an impact investor as a partner. Our returns are very strong as compared to anything else in the market.

Eve Picker: What are the returns? Can you share?

Molly McCabe: Sure, I’d be happy to share on that. On that particular project- again, we’re targeting market-rate returns, so we’re looking at a current of about six percent on that deal, and we’re looking at, over a seven-year period, a 12-percent IRR.

Eve Picker: That’s pretty good.

Molly McCabe: Yep, and [cross talk] It’s a very traditional … Of course, any real-estate deal is different-  all real-estate deals are different. You go into any one; you figure out what works. But it’s a very traditional model. There’s no tax credits. It’s a 65-percent loan to value. We’re doing some rehab on it.

Eve Picker: You have guaranteed clients-

Molly McCabe: Exactly, guaranteed clients.

Eve Picker: It’s a pretty low-risk project by the sounds of it.

Molly McCabe: Yes, exactly.  What we think- our goal over the course of the next three years is to be in 10 different cities and-

Eve Picker: That was going to be my next question. What’s your goal?

Molly McCabe: Perfect segue-

Eve Picker: 10 cities. That’s a pretty- that’s pretty fast.

Molly McCabe: Yeah, so 10 cities in 36 months, that’s our objective. Again, it really- people ask us, “Where are you going to be? Have you identified the cities?” We do certainly have criteria. Number one, I think we’re going to  …

Molly McCabe: The two most important criteria are who do we know in that city from a landlord-development perspective? Who controls the real-estate side? Then, are there solid social-services organizations who can 1) identify clients who can go into scattered-site housing, and 2) have the capacity to provide that ongoing support to those tenants?

Eve Picker: Interesting.

Molly McCabe: I suspect it’ll probably be secondary cities. We’re probably not going to go into major-major cities, just because the cost of housing is so expensive in places like New York, or Los Angeles, San Francisco.

Eve Picker: Well, let me know if you need any help in Pittsburgh, because, as you know, I’m connected here.

Molly McCabe: You are, very connected. I would love to get into Pittsburgh. There’s some really interesting cities. I think we can have some good impact.

Eve Picker: We need to talk more about that. It sounds like this project takes up a fair amount of your time, but you were also talking about another more local one. Do you want to tell us a little bit more about your involvement in that?

Molly McCabe: One of the things that, as I said, I’ve been really involved with in the last 18 months is this roll-out of Opportunity Zones. Originally, I got involved in it from more of a national perspective in looking at how the real-estate sector might … It’s funny looking at it now, of course, because real estate is the easiest piece to apply Opportunity Zones, but, when it first started, we really didn’t know how it would play out.

Molly McCabe: I got involved more on a national basis and looking at how real estate might utilize it for distressed communities. It turns out I have … There’s an Opportunity Zone in my local small community, where I’ve not done any development or investment at all.

Molly McCabe: The project that I’m particularly looking at now is one where the library is looking at moving into a particular location on a new trail that’s being built. Rail lines are coming out, and the trail is going through the center of town. It’s a great place to create a community hub. There’s such a need for creating that vibrant place where people come together – that third place.

Molly McCabe: We’re looking at the library; some mixed-income housing. It’s akin to what we were talking about earlier for The Lotus Campaign. We’ll have some sort of workforce housing, some higher-end housing, as well as some lower-income housing. Maker space, retail, coffee shops, all added in this one location.

Eve Picker: It sounds like fun. That sounds like a really fun project. You’re working on some really great things. I’ve been personally a little bit disappointed at what has emerged around real-estate opportunities in Opportunity Zones. I’m just wondering, because I know you’ve been a bit- on the speaker circuit, you’ve been pretty heavily immersed in this. I’m just wondering what you think about what’s going on. I’d love to hear your thoughts.

Molly McCabe: I think it’s a great point, Eve. The reality is the projects that are coming first out of the gate are the ones that were already shovel-ready, and, in many cases, already penciled. I had a question on a webinar I did not that long ago from somebody who said, “Well, how is that hotel project really supporting that community, and did they go about involving the community in discussions about what the community actually wanted?”

Molly McCabe: It’s not my project, so I can’t say whether or not they did in order to get it approved, but I think we have to recognize that the early projects that are coming out of the gate are ones that were already vetted; already ready to go.  Water under the bridge. That’s already done.

Molly McCabe: Let’s figure out how do we move forward today, and identify how do we bring the communities in? What kind of impact do we want to have? How do we make sure that gentrification does not displace people? How do we make sure that what we’re doing in these communities actually benefits the people who are currently living there, and what kind of impacts do we want to have?

Molly McCabe: I think many, many cities are finally getting their hands around, and their head around what that actually means. What do we want to have here? What does that look like? I think community members are starting to recognize that.

Molly McCabe: One of the things I think you’re doing, which is so awesome, is this concept of using crowdfunding as part of an Opportunity Zone. How do you take the people who live there, who maybe have small investments and only can do small investments into it, but if they invest in their own community, they have … They are able to help design and create what they really want.

Eve Picker: Yeah.

Molly McCabe: There’s potential, I recognize, because I know you’re doing this, and I haven’t even attempted crowdfunding. Huge complexity to it, so, I don’t say that it’s easy.

Eve Picker: Well, I actually think that’s not the most difficult part. I think, for me, the most difficult part is – when you layer impact on to Opportunity Zones – finding a project that can stand on its own two feet [cross talk] that is investor-ready, that has some experienced developer behind it.

Eve Picker: It’s very rare, because now you have a project that the developer is going to have to track carefully for 10 years to ensure that the investors get their tax benefit, so they can’t just be trying this for the first time. It’s a really difficult formula. I think it’s a really difficult formula to find a project that sort of checks all the boxes. Very difficult.

Molly McCabe: Yep. I think the good news is that … The recent regs that came out in April, one of the things that it did allow is it allows you to sell an asset in the middle of that 10 years and reinvest it, as long as you keep the money in the Opportunity Fund.

Molly McCabe: Theoretically, we will see new capital coming in over time, so I think you’ll see some recycling of capital and see the ability, too, so maybe it doesn’t have to be a 10-year project. I also like the potential to take real estate and layer it with businesses in the Opportunity Fund-

Eve Picker: I agree. I think it has great potential.

Molly McCabe: I think it remains to be seen and-

Eve Picker: It’s really not a long enough ramp-up time, is it?

Molly McCabe: No, no.

Eve Picker: The 10 years is ticking away fast, and people are really only getting themselves organized in thinking about it. Yeah, there are a few projects that were ready to go that just happened to be in Opportunity Zones, or, perhaps they were there because they petitioned for them politically. I don’t know, but it’s really only just coming together now, I think. How far into it are we?

Molly McCabe: Yeah, what are we at? Well, we’re more than a year … We’re basically 18 months into it, and I think that has been … I have a client that bought a project in April of last year. Huge project. Opportunity Zone. They are definitely putting in enough money to make it work, but they bought it, and they had no idea that it was in an Opportunity Zone. It was just too new. That backward looking, going, “Oh, well, we should have done it this way …” [cross talk]

Eve Picker: -that’s tough, too.

Molly McCabe: Right. We’ll see. I think it has great potential. There is no doubt it also has potential for abuse. I think we just have to, for those of us who are really focused on impact and really looking at how can we develop communities in ways that make a difference for the people that live there, both on a social perspective, as well as an environmental perspective.

Molly McCabe: I think we just have to keep pushing for those impact measurements and making sure that we are tracking those in a way that are meaningful, whether that’s on an Opportunity Zone project, or really any project. Really, that’s, to me, how do we create thriving, healthy communities that are- we reduce our carbon footprint. We are focusing on going as close to net zero as we can, but also providing jobs and equity and all of those things [cross talk]

Eve Picker: Molly, I love talking to you because you answered my next question before I asked it. My next question was going to be do you think socially responsible real estate is necessary in today’s development landscape? I think I know the answer to that.

Molly McCabe: Oh, yes. Oh, my gosh, absolutely. I’m so fascinated by people … When I look back and I think about developments that I did, oh, my goodness, 25 years ago, I go, “What was I thinking? That was so bad!” We’re in a place where the planet- we have so many people on the planet. You look at … It’s just increasing. Climate change is an issue; water resources are an issue;  energy is an issue; social equity … We have this increasing economic divide of the haves and have-nots.

Molly McCabe: If you don’t think that responsible property investing or responsible investing, in general, is crucial, I don’t know [cross talk]

Eve Picker: Where have you been?

Molly McCabe: Right. The other piece that I think is so important is recognizing … Some people think that capital money is bad. If you recognize that capital is just a tool – it’s just a tool … Money is just a tool; it’s just something that we’ve created to trade energy, and goods, and services. If you recognize that it’s a tool, then you can use it in any way that is beneficial.

Molly McCabe: You have a choice. You can say, “Well, I’m going to make an investment, and it’s going to make money and do something good and positive for the community,” which makes it a more sustainable community, which means it’s thriving, which means it’s healthy, which gives it a long-term value, as opposed to, “I’m just gonna do something and get out in two years,” why wouldn’t you do something that actually benefits the community that you live in; benefits the people that are around you, because you can … I do believe in the goodness of people, so I always have hope for that.

Eve Picker: Yeah, I’m not sure about the goodness of all of them yet.

Molly McCabe: Well, you and my husband would be in the same category. He feels the same way. He always says that I’m disappointed because I expect people to do the right thing, and they’re going to be good, and they’re going to do their best work. When it doesn’t happen, I’m disappointed. He says he doesn’t believe that, so he’s never disappointed.

Eve Picker: I want to believe it, but I’m not sure. I think there’s still a lot of greed, and that may be the primary reason, or the thoughtless reason for not picking one project that does something good, over another that does nothing good – an extra-percent return or whatever it … I’m not yet completely convinced. I wish I were.

Molly McCabe: Right, right. Well, I’m not saying everybody’s there, and we certainly have plenty of examples of people who are not and who are very much out just for their own benefit, but-

Eve Picker: I feel like investing for impact is this tidal wave heading towards us, and we’re early adopters. Eventually … Eventually,  if you think about a graph with Walmart at the top, eventually that crowd will follow, because it’s the thing to do, right? I don’t think we’re there yet. We’re all battling against a crowd that doesn’t know it’s the right thing to do. That’s the way I think about it.

Molly McCabe: It’s always hard to be an early adopter, right?

Eve Picker: It’s also fun.

Molly McCabe: You’re always on the edge … Now, I think about this, and I go, “I said that 10 years ago, and it’s finally coming to fruition.”

Eve Picker: I know, and then … Yeah, if we did it now, we’d be making money. But look, I didn’t know what an early adopter was until a few years ago. Apparently, that’s what I am, but [cross talk]

Molly McCabe: All these years, you’ve been an-

Eve Picker: Yes.

Molly McCabe: I know.

Eve Picker: This is the way we’re wired. We can’t think differently, right, Molly?

Molly McCabe: Exactly. Really, if you think about what does it take to be not just an early adopter, but really somebody who is a leader … I mean, people who are leaders are those that kind of are always … You don’t always- you don’t have the answers. You don’t pretend you have the answers, but you’re always curious, and you’re always looking at what’s next, and how can you solve that problem, and, “Wow, that’s interesting!”

Molly McCabe: I think what I appreciate about spending time with you, Eve, is that you’re always asking questions, and you’re always going, “Huh, well, how might that work? What about this? If we try it this way …” and sometimes it doesn’t work, right?

Eve Picker: Yes, usually it doesn’t work.

Molly McCabe: But then, one time in 10, or one time in a hundred, it does work, and you go, “Wow, that is  cool!”

Eve Picker: Yeah, actually, that’s a really interesting point, because in the tech world, failure is a little bit glorified, right?

Molly McCabe: Mm-hmm. Yeah.

Eve Picker: You’ve tried three companies, and they’ve failed, and finally, you have a winner. In the rest of the world, not so much. Failure is pointed at, and derided, and yet, I think failure is kind of an indication that you were willing to try something. Anyway, that’s my little speech for today.

Molly McCabe: Well, I agree, and I think anytime we’re … I think we are in a culture that’s wired around avoiding any sort of looking foolish, or any sort of uncertainty. We always want to have some sort of certainty around things and some guarantee that it’s going to work out.

Molly McCabe: Tech is a really interesting anomaly to that, and I think being able to take that same mindset and apply it elsewhere in our lives and stepping into that fear, and uncertainty and stepping into the risk is an important component to moving things forward. Going back to our conversation just around impact, sometimes you just have to try stuff and go, “Wow, how might this work?” and “Wow, this is better!”

Eve Picker: I agree. We strayed a little bit there, but I’m also wondering if there are any current trends in real estate that you’ve noticed that are of particular interest to you or that might be important for the future of cities?

Molly McCabe: One thing I do want to- well, two things I’ll comment on. 1) Absolutely, I think this concept of responsible property investing, environmental/social-governance factors … What we are absolutely seeing is a rise of that. It shows up, and admittedly, it might be self-determining, based on what I follow, but it shows up every single day in my inbox. There’s always something on ESG, and how investors are looking at that, and how investors are looking at that risk profile.

Molly McCabe: I think there is a clear recognition on the horizon … Understanding the risk and the opportunities that go along with climate change, social equity, transparency, and things like that. Whether or not you have stranded assets because you didn’t notice that this tidal wave was coming, or that whatever … I think that’s a huge issue.

Molly McCabe: I think we’re seeing … On the sustainability side, we’re seeing some really interesting regulation coming down. You look at what just happened in New York City, what’s happening in California, Washington D.C.; what’s happening in the UK and elsewhere in Europe around net-zero and carbon emissions. I think that’s going to [add to] the built environment, something we need to get ahead of. We need to be looking at what does that mean for our portfolios; what does it mean for our investments, and how do you reduce the risk? Because, if you don’t figure it out until the regulations hit, you’re screwed.

Molly McCabe: The last piece that I think is really interesting, particularly in our cities, is some of the new building techniques. We’ve had some, particularly through our Lotus work, in trying to figure out how do we reduce the total cost of building. Looking at componentized-building projects, which are different than necessarily modular, but just componentized.

Molly McCabe: How do you do a plug-and-play system? What does that look like? How can you make it simple and easy so that it’s kind of off-the-shelf, fully designed, and you can pop it in anywhere? I think that’s interesting. I think zoning issues – what happened in Minneapolis around getting rid of single-family zoning, very interesting; around density and how that’s going to impact cities. There’s a lot out there right now.

Eve Picker: There’s a lot , that’s right. What community engagement tools have you seen that you think have worked?

Molly McCabe: That’s a great question. I think communities are different, so that’s one thing that I am really getting to understand more skillfully, I guess, now that I’m working on this local project, and, because I live in a rural area. That’s different than in a city.

Molly McCabe: Then you, of course, have all your social-media platforms. Obviously, social media is one platform, but I think, in many ways, on the ground- your typical canvassing and going out and meeting people where they’re at still continues to be, in many ways, the best way for people to understand what’s going on [cross talk] engagement.

Eve Picker: I think some of the communities I’ve worked in, they really don’t have access to the internet, and they’re working two jobs, and it’s unlikely that they’re going to show up at a meeting. You have to find a way to [cross talk]

Molly McCabe: Yeah, you have to go- you go to the coffee shop, or you go to the soccer game, or you go to the … One thing, going back to the comment I made earlier about a third place, and creating a place where people can meet, I think creating those sort of hands-on experiences, so people can show up, whether it’s just at a social event; an ice cream social or something where people come together. Again, it’s kind of old-fashioned, but in many ways, in many communities, that’s really the best way to get people out and get them engaged in what the vision for the community looks like.

Eve Picker: Yeah, I think that’s right. Then there’s equity crowdfunding, which I think can play a role in building communities, but what do you think of that?

Molly McCabe: Well, I love equity … I do. I love the concept of equity crowdfunding. I love being able to look at the neighborhood and say, “Well, who are the people here who really care?” I look at-  if you look at your own investment dollars, and you make a choice … I can put them with some large investment firm, and they would go put them in a mutual fund somewhere and invest in some thing that I have no connection to; or I can invest in my community; spend my dollars in my community to support those local businesses. That, to me, feels good, and it feels very connected and engaged.

Eve Picker: Yes. Where do you think the future of real-estate impact investing lies globally? Locally? Anywhere?

Molly McCabe: Oh, wow … I think it lies in both, certainly. I think impact- Local is exciting to me, and probably that’s because I’m working on this project locally, because I see the opportunities there, and the opportunity to engage the community in a positive way.

Molly McCabe: But I think larger things on impact will happen at the institutional-global level. If you look at- institutional investors are definitely going to push different building techniques, technologies, energy efficiency, carbon reduction, net-zero water resources. I think that will probably push from the more global side.

Eve Picker: I think you’re probably right. Okay, I have three sign-off questions I’m going to ask, Molly. The first is what’s the key factor that makes a real-estate project impactful to you?

Molly McCabe: To me, if it creates a place where people can engage and connect. If I look at my core values, connection and relationship is one of my core values. Creating that space in a way that is healthy and vibrant … It’s that connection in a way that is not looking down at your screen; it’s a connection of people, bringing people together where they actually … One and one doesn’t make two, one and one makes something n one doesn’t make to one and one makes something multiple.

Eve Picker: It’s a community, yeah [cross talk] then, other than by raising money, in what ways do you think involving investors through crowdfunding could benefit and impact real-estate development?

Molly McCabe: To your point on engagement, I think that once you bring them in on a crowdfunding platform, they get … You’re continually communicating with them. “Here’s what’s going on; here’s where we’re at. Here’s what we see down in the future; here are the challenges that we have.” I think what it does, in that sort of crowdfunding way, it gives them the ability to say, “I’m part of this, and it’s meaningful to me, and I’m going to engage further.”

Molly McCabe: Yes, the crowdfunding is important to bring in money, but I also think it actually engages people in a proactive way. It actually pulls them in, in a way that they want to be engaged, and they want to participate. They want to, whether it’s showing up at the city council meeting, or writing a letter to the editor, or-.

Eve Picker: It becomes their project, as well as the developer, right?

Molly McCabe: Exactly. I also think it helps them think about how they can impact their communities in different ways. If you think of that, if you just look at it like you drop a pebble in the pond, and you see the ripples go out. If that crowdfunding is just the pebble that’s dropped, it’s all the ripples that go out. Not just that project, but in other projects, and in other … Whether it’s working in a nonprofit, or it’s working in so many different ways in a community. I think it makes [cross talk]

Eve Picker: I like that analogy. This last question is completely unfair, but I’m going to ask it.

Molly McCabe: Okay.

Eve Picker: How do you think real-estate development in the US can be improved?

Molly McCabe: You mean how can real estate in the US be improved? Our industry has, for so long, done the same thing over, and over, and over again, the same way. We really are not an industry that is too focused on innovation, so I think … How can it be improved on the development side?

Eve Picker: Maybe that’s unfair. I’ve traveled a lot, and I see what other countries do. I know it’s wrapped up in zoning laws, and legal issues, and property rights issues. Then I see a McDonald’s on the edge of a historic market district, where they-

Molly McCabe: That makes you want to cry?

Eve Picker: -they’re not being permitted to put the M, the arches up, that are any bigger than 12-inches tall, and they’ve gone with it,  because they really want to be there. That’s just a little thought, but I …

Molly McCabe: It’s an interesting question, because I do think … I was just reading this morning, one of my colleagues … Sydney, Australia had put out an international competition to increase- to get proposals to increase housing, and affordability, and such. They had over 200 submissions, and they’ve narrowed the shortlist down to seven.

Molly McCabe: Some of the ideas are really interesting, whether it’s micro homes, or some of it is micro homes and some of it is community land trusts, and different types of ownership models. It’s not really development, but I’m curious to this- to your point about how do we bring in different concepts from different parts of the world into what’s happening here?

Molly McCabe: I think I would expand that to not merely development, but how do we learn from technology, for example? How do we learn from different industries? One of the things I’ve always done, when I was chairman of the Responsible Property Investment Council for the Urban Land Institute is every meeting, we’d bring in …

Molly McCabe: We’d have a session called Conversations with Great Minds, and my goal was to always bring in somebody from another industry,  whether that’s the banking industry, who is looking at how they – for their human resources – how they really make people who are LGBTQ feel comfortable, and how they go out of their way to make an expansive and culturally supportive environment, to the chief storyteller from Patagonia coming in and talking about how Patagonia has created a whole culture and brand around sustainability, and connection, and the environment. Understanding how can we use what retail is doing, what tech is doing that we aren’t currently doing.

Eve Picker: Yeah, or actually, Sydney Australia is a really good example. That’s where I grew up. I’ve been watching Australia for years become one of the most expensive housing markets in the world, by far, and wondering how anyone can possibly buy a starter home there. It’s so expensive.

Eve Picker: Now, they’re all of a sudden hit with the problem of affordable housing. I don’t think there is government assistance at all. We’ve done that actually much better here. While they’ve done some things well, we’ve done other things better, and I think there’s a lot to learn from everyone.

Molly McCabe: Yeah.

Eve Picker: That was a little bit unfair, so, I’m sorry.

Molly McCabe: Well, I think your plan zoning is really crucial, and what you’re finding is, even in many of these progressive cities, if you look at how … Right now, I’m  focused on housing with Lotus, but you look at housing, and, to your point, Vancouver, for example, is also hugely expensive.

Molly McCabe: We need to look at zoning laws. In these progressive cities, we’re finding, even in those locations, that we don’t want people to move into our backyard. If we are doing that, we are naturally just causing a shift in population, and we’re not providing the kind of housing we need to provide. We have NIMBYism.

Molly McCabe: We have to- people who are progressive have to look themselves in the eye, and go, “Am I really, really marching … Am I actually espousing one thing and doing something else?” Because I think, in many ways, we are. We say one thing, but we’re doing something else.

Eve Picker:  I think that’s right. I think that’s right. Well, I think that was a really wonderful chat, and I thank you very much for joining me. I’m going to be talking to you soon about Pittsburgh and other ideas for sure.

Molly McCabe: I’m excited about that. Thank you so much, Eve, [cross talk] it was really, as always, a delight.

Eve Picker: Okay, thank you. That was Molly McCabe of HaydenTanner, and The Lotus Campaign. Here are some of the takeaways that Molly shared with us today. First that we need to think of capital as just a tool; it can be used beneficially or not. Second that her Lotus Campaign has housed over 150 homeless people in its first year at the extraordinarily low cost of just $1,000 per person. Third that, along with everything else she does, Molly is exploring building techniques in order to lower the cost of housing for those who really need it.

Eve Picker: You can find out more about impact real-estate investing and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities.

Eve Picker: Thank you so much for spending your time with me today and thank you Molly for sharing your thoughts. We’ll talk again soon, but for now, this Eve Picker signing off to go make some change.

Image courtesy of Molly McCabe, The Lotus Campaign