Rethink Real Estate. For Good.

Zoning

The Great Real Estate Reset.

Dr. Tracy Hadden Loh is a Fellow with the Anne T. and Robert M. Bass Center for Transformative Placemaking at Brookings Metro. Her research focuses on commercial real estate and how place-level assets interact and affect the prospects and resilience of the people and enterprises that call a place home in urban, suburban, and rural settings.

Tracy has recently written about the need for reform of the real estate sector, including who benefits from new development, and the governance challenges that exacerbate the extreme and growing spatialization of inequality in U.S. metropolitan regions.

Prior to joining Brookings, Tracy was senior data scientist at the Center for Real Estate & Urban Analysis at the George Washington University School of Business where she was the lead author of “Foot Traffic Ahead 2019.” This study ranked the 30 largest US metros based on percentage of office, retail, and rental multi-family space each area had in their walkable urban space. She also worked on the creation of a strategic plan to bring inclusive and equitable economic development to the area around the former Charity Hospital in New Orleans. In 2022, Tulane University announced plans to redevelop the building into a mixed use complex including research and educational facilities. Prior to her role at GWU, Tracy was the director of research at the Rails-to-Trails Conservancy.

Tracy is a graduate of DC public schools and holds a Ph.D. in city and regional planning from the University of North Carolina at Chapel Hill. In addition to her research interest in placemaking, Dr. Loh served two years representing Ward 1 on the Mount Rainier City Council in Prince George’s County, Md. She is currently a member of the board of directors of Greater Greater Washington.

Read the podcast transcript here

Eve Picker: [00:00:03] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich, or poor, beautiful, or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone.

Eve: [00:00:38] As we embark on a new year, we’re all thinking about fixing things.  I bumped this podcast up on my list, because Tracy Hadden Loh has a much bigger and more inspiring fix list than most of us do. Tracy is bi-racial and has experienced inequity first hand.  Even as a young child she knew something was wrong.  Her career has been a purposeful exploration of how to fix things. As a Fellow with the Center for Transformative Placemaking at Brookings Metro, a branch within the Brookings institution, Tracy focuses on cities, downtown metropolitan areas, placemaking, diversity in cities and reinventing cities post-pandemic. And of course, fixing things. You’ll want to listen in to learn more!

Eve: [00:01:39] Hello Tracy, it’s really great to have you on my show.

Tracy Hadden Loh: [00:01:42] Hi Eve. Thank you so much. I’m thrilled to be here.

Eve: [00:01:45] So you’ve researched and written on so much that interests me. Like what’s next for downtowns? The devaluation of assets in black neighborhoods, diverse neighborhoods, the office re-imagined lots of stuff around cities that I think is really important. But can you tell me a little bit about your background and how you came to be researching these issues at the Brookings Institute?

Tracy: [00:02:08] Sure. Well, I was born and raised in Washington, D.C. I grew up in the city in the eighties, which was a time when the city’s population was still declining, and it was very segregated. I am biracial myself and I was raised by two working parents and my mom is an immigrant to the United States. So, when I was growing up in the eighties, I felt, even just as a child, I could sense how segregated everything was and that it wasn’t right. But I didn’t know why or what to do about it. And now, DC’s population is growing again, and the trajectory of the city is really different. But that raises a different set of questions about who is winning and losing when there’s change. So, that is that kind of big question about who’s winning and losing and who decides the rules by which that happens. That’s really sort of the motivating question of my life. And I went from being a D.C. public school student and living it as a child to wanting to work on it and help solve it as an adult.

Eve: [00:03:37] That’s a great goal. I love what you said, winning and losing. Who’s winning and losing? Because I think that’s a really big question. So, I’m really interested. You’ve done a lot of different things, but I’m really interested in your work around what you call the great real estate reset initiative. Can you tell me what that is, what that means?

Tracy: [00:03:59] Sure. So, during 2020, after COVID had arrived in the United States and then that summer, after George Floyd was murdered, I was really kind of feeling the moment and feeling like it was a good time to try to say something big and systemic about the way things work. And I was talking to a friend, his name’s Christopher Coes, and at that time, he ran an organization called Locus that is a group of smart growth real estate developers. He was like full time staff on that at Smart Growth America. And so Christopher and I were just kind of talking about the big picture and how to frame what’s going on and who’s needed to be part of the solution. And we really wanted to explain to a broad audience why government alone is not going to be able to address the way things work in the United States and the big trends that are shaping our society. It’s going to take every sector. But we wanted to write a piece that really kind of specifically highlighted the role of the private sector in driving how things work through the lens of real estate. So that’s what motivated us, this project was really a collaboration between myself and Christopher Coes and my colleague at Brookings, Jennifer Vey.

Eve: [00:05:49] So, but why is real estate so important?

Tracy: [00:05:52] Well, you know, the built environment determines so much of our lives. I think we hear people say all the time this phrase: place matters. So, digging in, what does that kind of little shortcut mean exactly? The physical condition and location of our neighborhoods is something that determines a lot of a child’s access to health, opportunity, their odds of being incarcerated, their earning potential. You know, the conditions of your neighborhood determine a lot about your life. It’s not just the conditions of your family and you as an individual. And so, we have to ask these questions about real estate and then just kind of looking at real estate as a sector. It’s a huge piece of the American economy. If we understand real estate as an asset class, these are not small potatoes. It’s not as big as the stock market. But it is, this is a huge asset class and it’s the second most common asset class that touches people’s lives. And, you know, the only thing more common than real estate is cash.

Eve: [00:07:09] How big is it?

Tracy: [00:07:25] Let’s see. I have an exact estimate for you. So, if you combine commercial and residential real estate, you’re going to be looking at about 45% of assets in the United States. And that makes it the single biggest asset class. If you separate commercial and residential, then of course it’s smaller, but on its own real estate is the single biggest investment asset class in the United States by far.

Eve: [00:07:40] I think I read in another article, and this is how I found you, that no one will be surprised by this, but a very small percentage of minorities actually own the commercial assets in this larger group of real estate assets, right?

Tracy: [00:07:57] Yeah, that’s right. With my collaborator Jonathan Rothwell and my colleague Andre Perry, we did an analysis of consumer finances and what the most recent version of that survey found is that only 3% of black households own any commercial real estate, and that’s compared to over 8% of white households. So, these are small percentages. Most people don’t own commercial real estate, but we can see that even within this sector, there’s tremendous inequity.

Eve: [00:08:27] A very big difference. Yeah. So, what else did you notice in your research?

Tracy: [00:08:32] With my most recent research project, what I was digging into is what’s going on with retail real estate right now, because I spent the first couple of years of the pandemic seeing these huge impacts to the leisure and hospitality sector and a really rapid evolution of retail business models and kind of the scale of the crisis and then the speed of adaptation. It’s been fascinating to watch, but the built environment itself doesn’t change like that. So, these are new retail business models that are still trying to locate themselves in the same old retail landscape. And I wanted to just kind of take a look at how that was playing out in terms of operating income and tax assessments for different jurisdictions. Because I know from my own service and local government in the past that commercial real estate is such an important part of a jurisdiction’s tax base. And so, the health of commercial real estate is something that we all have to be very concerned about.

Eve: [00:09:39] I’m fascinated by how it’s playing out physically, because recently I was somewhere in the suburbs, which is unusual for me, but still. I landed in this little medium sized strip mall, and I noticed there were many, many storefronts vacant. And at one end of it, I noticed that a storage facility was starting to occupy the storefronts. I mean, I’ve really never seen a storage facility like that. They had pods in the parking area and one storefront after the other was being converted into storage, which is at least a use, but it’s kind of a sad use.

Tracy: [00:10:16] It’s extremely marginal.

Eve: [00:10:34] Yes.

Tracy: [00:10:21] So, what I found in my most recent research project is that what’s happening with commercial real estate in the retail subsector of it is that even after controlling for every single variable that we could think of that is related to real estate valuation, we found that commercial real estate in zip codes that are majority black in terms of their residential population, we found that race explains an across the board 7% devaluation of that property. And so, and previous research found extensive, much bigger, like three times as big levels of devaluation of residential real estate in black neighborhoods. So, we had reason to suspect that we would find this on the commercial side, too, but I wanted to just estimate a parameter around it, try to get a sense of what the size of the devaluation effect was so that I could start exploring the implications to tax basis to neighborhoods and think through the dynamics of what devaluation on the commercial side means and what it does.

Eve: [00:11:33] Okay so, I’m going to go back to something that you said which caught my attention and that the American real estate industry can create communities of opportunity or face a future, both figuratively and literally underwater. What do you mean by that?

Tracy: [00:11:49] So, climate change is another one of these really big generational trends that is going to totally reshape real estate in the United States. But we are really only just at the beginning of the days of seeing how and where that’s going to be priced in and how we’re going to respond. And so, for an industry that is hyper interested in trends, I think that real estate as a sector has been very, very slow to understand the implications of climate change and to figure out how to approach it. There should literally be a fire under the entire sectors butt about it. And so, I wanted to sound the alarm on the fact that right now the bulk of the real estate industry is still very busily building the wrong stuff in the wrong places.

Eve: [00:12:51] Yeah, I think you’re right. The world is moving very fast and real estate doesn’t. And much of the real estate that we have now will be 80% of the real estate that we have in 2040. So.

Tracy: [00:13:04] That’s right.

Eve: [00:13:04] It’s also about reconfiguring it, right?

Tracy: [00:12:54] Yeah.

Eve: [00:13:09] In that great real estate reset initiative, you focused on five key trends, which I found really interesting. The first was separate and unequal. The second was modernizing family. The third was risky housing business. The fourth was the office reimagined. And the fifth, as you’ve mentioned, the retail revolution. I’d really like to talk about each of them. Like, I suppose we’ve talked about the persistent segregation in the country. What about modernizing family? What does that mean?

Tracy: [00:13:41] So, this is another one of these big macro trends that’s going to change everything about real estate that it seems like we haven’t woken up to yet, which is that the types of households that young people in the US are forming today are radically different than what they were one generation ago. So, in that piece I present just a very simple analysis of the census. And what we found is that if you look at young adults, so Americans age 23 to 38. Right now, we would call those people millennials. But if we look at that same age bracket, but back in 1968, so this is my parents, at that time, almost 70% of young adults in that age bracket were married with at least one child. So, that’s pretty much just the vast bulk of people. We’re forming one type of household and there’s one type of housing that is highly desirable to accommodate that type of household. So, as far as housing goes, real estate was pretty simple back then in terms of what the demand was. But today, less than 30% of young adults are married with at least one child.

Eve: [00:15:03] That would be two of my children.

Tracy: [00:15:05] There we go.

Eve: [00:15:06] They fit right into that group.

Tracy: [00:15:08] And so, it’s less than 30%. And every other kind of household has increased in terms of how common it is. So that’s living alone, living with roommates, being a single parent. So having a child but no spouse or having a spouse but no child or still living with your parents. Right. Like all these things are more common now. And so, the issue is that we’ve gone from one kind of household that needs one kind of housing to many kinds of households that need many kinds of housing. And we don’t have that kind of flexibility in our housing inventory. If we look at housing inventory change since 1980, the only type of inventory that has grown in terms of its share of US housing inventory is houses with four or more bedrooms.

Eve: [00:16:00] Oh.

Tracy: [00:16:03] Which is literally the opposite of what’s happening demographically.

Eve: [00:16:09] So the rise of the ADU hasn’t been fast enough.

Tracy: [00:16:14] Not nearly fast enough.

Eve: [00:16:16] And that is because probably if zoning laws and…

Tracy: [00:16:19] That’s right.

Eve: [00:16:19] …financial restrictions, banks don’t really want to lend, all of those.

Tracy: [00:16:23] And builders don’t know how to build them and ADUs require subordinate electricity from a main house. Pretty much like most American houses would need a heavy up to support an ADU. There’s a billion barriers to ADU production.

Eve: [00:16:38] You know, we talked about retail and there’s also the office.

Tracy: [00:16:43] Yeah.

Eve: [00:16:44] The nature of office work is really shifting.

Tracy: [00:16:47] Yeah, that’s right.

Eve: [00:16:48] And I don’t know where the percentages lie right now, but I love the freedom of remote working. I mean, I’ve always worked that way, but the pandemic I think normalized.

Tracy: [00:16:58] Yeah. So, the big picture is that a majority of Americans don’t work in offices. So just slightly more than half of the United States is, they’re working in schools or hospitals or on the road or in a kitchen. They’re working somewhere that’s not an office. But in cities, in metro areas, it’s a majority of the workforce that does work in offices. And where we are right now is that at the beginning of the pandemic, the vast majority of office workers immediately pivoted to full time remote work. That has gradually decreased. And so, at this point, it’s only 25% of the office workforce that is fully remote. But that means that a lot of people are back, but back less than they were before. So, hybrid work is becoming the new normal for office workers. So, this has a bigger impact in cities because it’s in cities where a majority of the workforce is in office using occupations and it’s also in cities where you find central business districts that are heavily dominated by office real estate. And so, those labor markets and then these particular neighborhoods within those labor markets feel very different now than they did prior to the pandemic, because they’ve experienced a massive structural shift that’s now looking pretty sticky.

Eve: [00:18:34] Right. Yes, I live in downtown. It feels very different. It’s very emptied out. And there’s lots of adaptive reuse going on in office buildings.

Tracy: [00:18:46] Yeah, I think the right thing is for the owners of office real estate to conclude that this shift is permanent and to stop waiting for a time machine to take them back to February of 2019 and to instead adopt forward looking strategies that will lead to productive adaptation.

Eve: [00:19:11] I’m going to go back to something you said about the real estate industry moving very, very slowly, which is true. Part of that is because when you want to build a building, you have to design it and you have to get entitlements and permitting and a budget and build it. And by the time you’re done, if you’re in a market that’s shifting, if it’s a larger building, it’s three years later and it may no longer be completely relevant. How do we tackle all of this? How do we incentivize the right sort of practices?

Tracy: [00:19:40] The problem that real estate has right now is that, given how huge the sector is and how it touches all of us and is so important to everyone’s life and entire communities, there’s just a really astounding lack of dynamism in the sector. There’s a lack of innovation. There’s a lack of growth and productivity, a lack of change. And that is, I think, because of a complicated and toxic set of factors, but that we have the ability to do something about. So, first is that the sector is overregulated. And a really complex regulatory environment makes it higher, it slows things down and makes it more complex so, that favors established and big firms. This sort of classic like giant evil developer that seems to live rent free in a lot of people’s heads. So, I think there’s a lot that communities can do with the way that they regulate both zoning and building codes in order to streamline the kinds of development that they want to see. So, you mentioned ADUs earlier. There are multiple communities in the United States that have made it incredibly easy to build an ADU. Pre-approved floor plans and permits.

Eve: [00:21:09] Yeah, I know. Portland, Oregon.

Tracy: [00:21:11] Apply one day, have permission to build an ADU the next day. So, streamline and make super easy the kinds of buildings that you want to see. Which requires that first initial consensus building about what we want and what we need. But do that work, and then enact the necessary reforms. This is something that communities have been very slow to do. It is incredibly stimulating to the economy and to communities to promote the right kinds of dynamism in real estate, and ADUs is an example of that on the residential side. But the same thing applies on the commercial side, that we know that retail business models are rapidly evolving. And yet, we are expecting this retail vibrancy to figure out how to locate itself in yesterday’s retail building stock. So, I think it’s even more complicated on the commercial side than just the regulatory environment. I think what’s going on the commercial side is also that it’s very difficult to obtain financing and access capital to do commercial real estate projects. And banks want projects that feel familiar, that they understand. And the problem is that what’s familiar is obsolete.

Eve: [00:22:38] I’m so with you on that.

Tracy: [00:22:41] So, there is a huge opportunity to make a ton of money in commercial real estate by leaning in even just a little bit more to innovation and inclusion, because it’s a sector that’s desperately in need of new ideas. And so, that means that we need to see new faces.

Eve: [00:23:01] If you were a developer, what would you focus on first?

Tracy: [00:23:04] To be honest with you, I think that the lowest hanging fruit is still housing, just because there is so much pent up demand, we have under built for so long. It’s just not rocket science to make money building housing if you can find your submarket niche and if you have access to capital. So, I think that the low hanging fruit is in ADU and missing middle housing production in US cities of all sizes at this point.

Eve: [00:23:34] But that goes back to something you said before about the racial divide. So, who has access to capital, and will that capital be deployed in disinvested neighborhoods that need the housing the most? I mean, you know, we’re back into this whole cycle of what sort of housing gets built and who does it serve and who does it make money for.

Tracy: [00:23:55] Yeah, and the money to build real estate largely comes from banks. People typically don’t have huge amounts of personal wealth. The people who do have that kind of money aren’t doing neighborhood real estate. So, I think that there is a systematic problem with the kinds of projects that it’s easy to get a loan for and with who can get them. And, I wrote the great real estate reset, wanting to connect with lenders and with lending institutions. It’s been a tough row to hoe. It’s an insular world, and I am not an economist. And so, I think that there’s a need right now for thought leaders with a lot of credibility in the sector to start talking about these ideas. I earlier this year did a fireside chat with the folks at Capital One. It was so wonderful to be invited to do that and to be able to share these ideas in that kind of space. And I think that I plan to just keep knocking on every door and window and trying to have these conversations, because I think it’s clear that capital flows, that’s something that has to change. If we want to start responding in a way that’s smarter, that’s more dynamic to things like these demographic trends, to climate change, to the persistence of white supremacy in the United States.

Eve: [00:25:27] You could also talk about incentivizing innovative projects through city government. I mean, if, as you said, if you take the pain out of building ADUS or you take the pain out of taking an empty strip mall and converting it to housing, that’s a way to provide a very powerful incentive to make things happen.

Tracy: [00:25:49] Yes, I definitely think that there’s a huge role for government in streamlining, making the right thing easy, legal and easy. And then there’s also a role for philanthropy, right? Philanthropy is a huge sector in the United States that in addition to the dollars that they’re legally obligated to spend, there is a huge opportunity for impact investing with their seed corn. Philanthropy has been very hesitant to embrace the opportunity that American real estate presents for impact investing. I don’t know why. This is another one of these conversations I want to have, like, why not? And what would it take to make it happen?

Eve: [00:26:35] Oh, can I join you on that one? So, do you have any examples of people doing some things that you think are great and moving in the right direction?

Tracy: [00:26:45] Oh, sure there are. So first off, Eve, you are an incredibly inspirational innovator in real estate, and you embody the exact opposite of the problems that I’m talking about. You are real. And I just want to validate the incredible work that you do. And Small Change as a platform also is lifting up so many other innovators in real estate. I mean, if someone wants to just like browse, what are the fresh ideas in real estate right now? They can just go to your website and look at so many projects that have been made possible through your platform. So, I think that you are a repository for those examples. But yes, there’s also I think that.

Eve: [00:27:32] But let me tell you where the problem lies for me. Okay. We’ll go back to the systemic problem. So, VCs have on average invested 2 to 3% of their funds in women. So, I am a woman founder of a company, which makes it incredibly difficult for me to raise money and grow. And as well as that, those holders of money are looking for rapid growth and an exit. And when you build something that’s really going to build change over a long time, you have to expect it to take a long time. So, now we’re talking about a whole system of making money on companies that expects immediate gratification. And I know as a developer working in disinvested neighborhoods, that’s not how it works. It’s not Sesame Street. It’s a long hold. You’ve got to be patient and building towards something. We don’t seem to have enough people that understand that.

Tracy: [00:28:38] Yeah. And I think that you will not find that from institutional capital and that we should save our breath from trying to find it. I think that the most innovative projects that I’ve seen that that have been able to do big things, they have a source of patient capital, whether that is like a single extraordinary high net worth individual or whether it’s a foundation or whether it’s a public institution. So, you start with a source of patient capital like that, and then you build a capital stack on top of that. That does include, frankly, it could be majority conventional debt. But you need that patient, you need that big fat patient slice at the bottom to be the foundation of your stack. So, you’re right that the types of projects that we’re talking about, especially at scale, they’re not going to happen without this patient capital piece. And so, that is the piece that I am most focused on motivating, educating, finding and turning out.

Eve: [00:29:49] Sorry I stopped your other train of thought. What were the other great things you’ve seen happen? You said you had other.

Tracy: [00:29:57] Yeah. So, I did a set of six case studies a couple of years ago. This is right before the pandemic on what myself and my collaborator Chris Leinberger call catalytic development projects.

Eve: [00:30:10] Chris, well, he’s the patient capital man.

Tracy: [00:30:13] A lot of what I know about real estate, I learned from that guy.

Eve: [00:30:17] I’ve watched him for years, yes.

Tracy: [00:30:19] I read “The Option of Urbanism” years ago. It’s a life changing kind of book. And then I was incredibly lucky and privileged to have the opportunity to work for Chris for a few years. And we did a paper together where we looked at six case studies from across the US, each with a different source of patient capital and a different source of fairly large parcel assemblies, something between 20 and 100 acres. And in all six of these case studies, we found that they were able to build really enormous at scale transformative neighborhoods that were also, by the way, like extremely financially successful. Very, very financial, very lucrative for their investors. The keys were not just access to patient capital, but that employers were a part, were either the source of the patient capital or part of it from the get-go. These are actually residentially driven projects, although they include a lot of residential. It has to start with something that’s tenant driven in terms of commercial real estate.

Tracy: [00:31:32] And then the final key being that all of these places, the impetus to assemble the capital, to assemble the parcels, it all comes from some kind of crisis. This kind of innovation and real estate doesn’t happen when things feel okay and and things are going well. And that sense of crisis has to be felt outside of the disinvested neighborhoods that are held in an artificial state of crisis all the time. It has to become something that’s felt more citywide, and then these kinds of transformations start to be possible.

Eve: [00:32:07] So, like Pittsburgh losing more than half of its population, that was a crisis.

Tracy: [00:32:11] Yes.

Eve: [00:32:26] And I think the Urban Redevelopment Authority in Pittsburgh really kind of found a whole, I mean, I really admire what they did. They found a whole range of tools to deal with it, as did Mayor Tom Murphy. He really kind of stepped up to fill that patient money gap, right?

Tracy: [00:32:29] Yes. So, I think Pittsburgh is the OG like citywide case study of this. And then Steve Leeper left Pittsburgh and went to Cincinnati and did it again. And that, it’s another incredible story, but this is the model.

Eve: [00:32:48] Yes.

Tracy: [00:32:51] That’s 3CDC in Cincinnati. And I think that the crisis in Cincinnati was multiple days of riots that happened in 2001 after a black teenager was shot and killed by Cincinnati police. And people understood that things needed to change after that tragedy. And, you know, from that moment of crisis, 3CDC was born. And that’s what motivated the private sector in Cincinnati to capitalize 3CDC to the tune of $50 million.

Eve: [00:33:28] Okay. So, I’m sort of speechless. It’s a really big hairy problem, isn’t it?

Tracy: [00:33:39] It’s a big, hairy problem, but it is solvable. To me, the biggest challenge is getting all of the sectoral players to agree that there is a problem and to agree and co-invest in a solution. In places where whatever crisis has provided the extra motivation for that to happen, I have seen extraordinary transformations. The question is just, how can we learn how to do this without the crisis? Because climate change is more like the frog in a bucket of water that’s gradually getting warmer and warmer. It doesn’t create that day-to-day sense of crisis in the same way.

Eve: [00:34:33] No. Yeah. But the pandemic did.

Tracy: [00:34:39] Yeah.

Eve: [00:34:40] The Black Lives Matter.

Tracy: [00:34:42] That’s right. And so, I hope that we can learn the lesson of the pandemic. And it is hard after a time of isolation and great division to emerge and come together, around solutions, but that’s what we need to do right now.

Eve: [00:35:04] So, what excites you most about the work you’re doing?

Tracy: [00:35:10] You know, real estate is fascinating because it affects all our lives. And what excites me most about it is the transformative potential for the fruits of growth to benefit everybody. I envision a world where there are just more great places that work for more people, and I’ve seen it happen many times, so I know that it’s possible and I just wish it at scale for everyone.

Eve: [00:35:42] Yes. And what keeps you up at night?

Tracy: [00:35:48] Segregation. Right. The same thing, and I don’t just mean racial segregation. I mean that kind of these same, like silos between sectors, between jurisdictions. We are right now in our country at every spatial scale, like nationally and in each of our neighborhoods, we are more divided than ever. But we have to build unity in order to confront these big problems like demographic change, climate change, the structural changes that are happening to our economy. It can’t just be everyone for themselves. You know, I am a fundamentally prosocial person that wants to get all hands on deck. I’m not in a particularly extraordinary position of power, but I hope that if I speak this truth that some powerful people might hear.

Eve: [00:36:47] Well, I’ve really enjoyed talking to you, and I would love to stay in touch and learn more about what you’re researching, because it’s fascinating and incredibly important, I think. I’ve learned a lot. So, thank you very much.

Tracy: [00:37:00] Eve I’d love to stay in touch. You’re a personal hero. And you’ve had so many people on your podcast that have, like, greatly shaped my thinking around these things.

Eve: [00:37:10] Well, that’s great. That’s really great to hear. We really, I try to pull together people who I consider, I suppose, instigators. People are thinking a little bit out of the box and pushing the edges of that very traditional.

Eve: [00:37:23] That’s exactly what you do.

Eve: [00:37:25] Yeah. Thank you very much.

Tracy: [00:37:29] Let’s stay in touch.

Eve: [00:37:36] I hope you enjoyed today’s guest and our deep dive. You can find out more about this episode or others you might have missed on the show notes page at RethinkRealEstateforGood.co. There’s lots to listen to there. Please support this podcast and all the great work my guests do by sharing it with others, posting about it on social media, or leaving a rating and a review. To catch all the latest from me, you can follow me on LinkedIn. Even better, if you’re ready to dabble in some impact investing, head on over to smallchange.co where I spend most of my time. A special thanks to David Allardice for his excellent editing of this podcast and original music. And a big thanks to you for spending your time with me today. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Tracy Hadden Loh

I finally found my tribe.

Jim is an infill developer and sustainable development advisor based in Sonoma County, California. Known for his aspirational but practical approach, he works with a range of tools and best practices to communicate the value of inspired design and sustainability within the realities of local market norms. With over forty years experience as an urban designer, land planner, sustainability strategist and now infill developer, he brings a broad range of perspectives and skills to the discussion about how communities grow. Trained as a landscape architect, he received a Master’s in Real Estate Development from Massachusetts Institute of Technology (MIT) as way to more effectively integrate economics, development and design thinking.

An active member of the Urban Land Institute (ULI), Jim was at the forefront of defining the tenets of sustainable community design, serving as co-instructor for ULI’s pioneering program in Sustainable Community Design. He continues his leadership as founder and lead instructor for ULI’s program focused on small scale incremental development. He has organized and led fifteen national tours where participants explore the impact and benefits of non-institutional approaches to real estate development, and how it creates stronger local economies and more authentic places. Drawing on his own experience and the work of others seen during these tours, he authored Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders and Great Communities. Published in April by ULI, the book has quickly gained a national following from all professions engaged in shaping the built environment.

To Jim, small does not mean insignificant. His work emphasizes the idea that Small is oftentimes Big, and his ULI forums have brought together developers with this same value system, giving them a place in real estate and encouraging them to create change.

Read the podcast transcript here

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

Eve: [00:01:00] Early in his career, Jim Heid worked on humongous real estate projects all over the world as a management consultant. Over time, the diversity of places he lived and worked in shaped his appreciation of small, community-centric places with soul. He moved his head and heart from a loft in downtown San Francisco to the tiny 12,000-person town of Healdsburg in California, where he is building his thesis that small is big. There are some big things that Jim is working on. They include his small-scale developer forums, which are growing bigger. A recently published book called “Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders and Great Communities” and real estate projects that are small and meaningful. Jim Heid has a big story to tell, so listen in.

Eve: [00:02:04] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do share this podcast and go to rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:29] So welcome to the show, Jim. I’m really excited to talk to you.

Jim Heid: [00:02:33] Yeah, I’m happy to be here. It’s long overdue, right?

Eve: [00:02:36] It is. I met you a while back. I don’t even know how long back, through the ULI Small Scale Developer forum. So, my first question to you is, like how did the theme Small Scale, which will emerge as we talk, come to take center stage in your professional life? And actually, what does that even mean in your professional life?

Jim: [00:03:01] Those are two loaded questions. So, I’m going to start with the first of all, how did I get there? Why am I so passionate about it? And then I can talk a little bit about at least how I’m defining it. There’s those moments in your life that you remember pretty clearly, and I do remember the kind of, the aha moment for me with Small Scale, which was coming out of a ULI meeting. It was a spring meeting in 2011. I was talking to a colleague of mine. I don’t know if you know Howard Kozloff a great guy.

Eve: [00:03:28] I do know that name. Yeah.

Jim: [00:03:30] Yeah. Southern California, developer. And we were talking about we’ve spent a good part of our careers attending, participating, teaching for ULI, really loved the organization and its mission, but felt that a lot of the content was increasingly focused on really big stuff and it kind of was like, Hey, if I’m not $1,000,000,000 rete or a multimillion dollar six block project, like where do I go anymore? Where do I get content? Where to get inspiration, where to get tips? So, we came up with this idea that there needed to be some place where people, like ourselves, that wanted to. We weren’t doing small deals to get to big deals, we wanted to do small deals because we felt they were important. And I can talk a little bit about why, but I felt they are really important and personally very fulfilling. So, it became a passion, took the form through support of ULI into the small-scale forums. We’ll talk about how the forums fed the book and all that kind of stuff. But the definition of small scale.

Eve: [00:04:36] Well, you know, let me add something, because right when you were figuring out a solution, I decided to quit ULI for exactly the same reason I thought, I don’t belong here. These are not the sorts of projects that really interest me as a developer, and I don’t see how I fit. So, I think you were looking to address exactly what I was feeling.

Jim: [00:04:59] Yeah. And I think the hope was to create a safe place within the organization that could embrace this idea and bring people together. And now, with this incredible focus on DEI, the comment is that’s where the emerging developers, the people of color, the people who want to reinvest in their neighborhoods and make a difference in the built environment where they’re from or where they live or where their neighborhoods and their families are. They’re starting at the small scale and so.

Eve: [00:05:30] So small is now big, right?

Jim: [00:05:31] Yeah, small is well, that’s my other venture now called the Initiative to Make Small Big, so yes.

Eve: [00:05:38] Okay.

Jim: [00:05:39] But so, the other question you had was how am I defining small or how do we define small? And, you know, it’s a great question that’s hard to answer because this is an industry that’s extremely quantitative. It’s all about square feet. It’s all about returns. It’s all about dollar value of a project. And after ten years and working on the book and trying to come up with that singular definition of small really came to the idea that it defies a a quantitative definition and it’s much more qualitative. And so, small is the way that we’re defining it. And in the book, there’s the ten hallmarks of small. It’s typically coming from sponsors that have a very clear core set of values. It’s people who are investing in their neighborhoods and care about their neighborhoods.

Jim: [00:06:29] It’s really the attitude and perspective of the developer. It’s developers that have skin in the game and are typically long term holds. It’s not about fix and flip and move on opportunistically. And the biggest thing that I say about small is it’s people that are involved in this and are working in the small genre. See real estate as the means to the end as opposed to the end itself. And what I mean by that is they’re focused on creating human connections, community uplift, creating great places, bringing economic value to their communities, but also building wealth. This is not philanthropy. This is using disciplined capital and execution to create real estate. But they’re doing it in pursuit of something bigger, which is creating great places, as opposed to simply just building real estate as an asset class.

Eve: [00:07:20] So basically, I always say, you know, I could never build a building as a commodity, right? You know, just as a way to make money. It’s way more than that because people experience buildings in the city and they live, the buildings make the places they live in. So much more.

Jim: [00:07:37] Yeah. So, my shorthand that’s evolved after a lot of these kind of presentations is it’s about building community, not commodity, to your extent, and it’s about doing transformations, not transactions. And so, yeah.

Eve: [00:07:49] So what are the ten hallmarks then in your book?

Jim: [00:07:53] Well. So, it’s a clear sense of purpose, commitment to positive evolution of neighborhoods, understanding and building on the assets of fine-grained street character and neighborhoods. So, instead of building amenities, it actually sees the neighborhoods and what is in the neighborhoods as the amenity and how they add to it. It’s entrepreneur individuals and organizations seeking a contextual and best use for the neighborhoods so very much about what I call context and connections. And those connections are both physical as well as social. Long term agility and flexibility. So, kind of future proofing, thinking about assets, these are not one offs that can never be adaptively reuse, and obviously a lot of the stuff that we see in small is adaptive reuse because there’s a story there, there’s a soul and character and it has an impact on the neighborhood, transforms buildings, and it’s kind of a commitment to transform building sites into economic assets.

Jim: [00:08:52] Again, this idea that this is not philanthropy, this is not unreplicable, the idea is this is disciplined use of capital and good development skills to create a model and an approach both at the enterprise level and the project level that many people can scale up and do. And then, the contextually responsive community responsive and market differentiated. So, what I often say is a lot of these projects are very experientially based and they’re focusing on creating the experience which feeds the sales as opposed to just focusing on what’s my lease rate. It’s like, what am I going to create in? What we see in most of these is if you get the experience right, you create something unique, the rates and the revenues follow pretty handsomely.

Eve: [00:09:36] Interesting. But all of this came after many years of these forums, right? Which you developed, and I’ve been to a couple and really, really love them because I do feel like I fit in there. So, how do they work and how many have you had and where’s the next one?

Jim: [00:09:54] Glad you asked because this is kind of like the best thing I get to do in my world. And so, the epilogue to the aha moment that I had with Howard about, hey, how do we create a place for this conversation? And what I like to say, we’re not trying to disparage big, but we’re trying to elevate small so that civic leaders, people that are interested in the built environment, capital sources, can start to consider it as another alternative approach to real estate as opposed to binary, it’s either big or small. But anyway, so when we were talking about this, and at the time I had been teaching a number of programs for ULI, first the Sustainable Community Development, then the advanced residential, then mixed use projects. They asked for some new content, and I said, Well, maybe there’s a place where we could create a forum for people that are interested in this, small scale developers. And we thought it would be a collection of people that were interested in getting into real estate that maybe had just graduated or leaving some other profession, design, brokerage or whatever else, and wanted to kind of learn the basics of real estate, but again, apply it in a small kind of workmanlike way.

Jim: [00:11:04] So, we did the first one in San Francisco in 2012, so a decade ago, and we’re blown away that what we got was not people coming into the profession, but a lot of people like you and I, people who passionately and deeply believed in this, who had a lot of experience and were desperately seeking what has become, the short end is I finally found my tribe. It’s a group of people who share the same values are dealing with the same challenges. There is one woman said, I’m an investment committee of one. I’ve got to make these decisions myself, which is, leads to incredible agility but also is very nerve racking. So, we did the first one in San Francisco that was good, went on, did one in D.C., went to Seattle, Miami, and every time it grew and we were getting people not one time but every time.

Eve: [00:11:56] A real tribe, right?

Jim: [00:11:58] Yeah. Yeah, real tribe. So fast forward, we just did our 17th one, just completed our first decade. It was in San Antonio. We had 80 people. It’s a two-and-a-half-day program where we do panels and case studies and tours, and a lot of it is networking where people are now sharing pro formas. I’m constantly calling up some of my colleagues and say, hey, I’ve got this contract. I need this kind of a clause. Have you ever done that? So, it’s become this…

Eve: [00:12:30] It’s become a big board, right? A big board for your project.

Jim: [00:12:34] Yeah, it’s an open-sourced approach to small scale development as well as I mean, the feedback that I got from the last one is like, you know, I just always leave so inspired. I’m ready to move forward with my projects. It’s so nice to find people who feel the way I do. I thought I was like living out here on my own. And so, it’s become a great thing. And we go to a different city every time. So, as I said, we just did our 17th one or 18th one will be in Nashville in November.

Eve: [00:13:01] I think I’m going to come to that, hold a spot for me.

Jim: [00:13:04] We have people now that have been to 15 or more. So, it’s become, like I said, a real thing. It’s kind of for people in the small-scale space, it’s their annual or twice a year conference where they really love to get together.

Eve: [00:13:20] That’s awesome.

Jim: [00:13:21] Just as a quick sidebar, one of the super fun things that we do and we tried this about, I don’t know, I guess it’s been about eight years ago, but we called it the small petracca slam or Cochon char or how we say it.

Eve: [00:13:33] Pachuco, I think it’s called.

Jim: [00:13:35] Yeah, we were trying to figure out a way that people could introduce themselves without the mind-numbing things that typically happen when you go to conferences. Hi, I’m Jim Heid from Healdsburg, California, I’m an infield developer. So, about eight years ago I asked people to send me three slides and they get 15 seconds for each slide to talk about a project they’re doing a value or hold or a trend they’re watching. And I put it all together into one slide deck. We do about an hour-long cocktail hour, and then after the hour, after everybody’s been appropriately lubricated, we just turn it on and people go and pass the mic. And it’s this like firehose of amazing projects and people’s values and what they’re doing. And then it creates this bond where people like, oh, I saw this thing you were doing in Minneapolis, I’ve got something similar. How you doing this? So, it really opens up the door for conversations, but it’s also super fun and amazing to see the diversity of stuff that is going on in this space around the country. That’s the other thing I should say is of this 70-80 people that typically come, we’re probably getting somewhere around 30 different states represented.

Eve: [00:14:44] That’s amazing.

Jim: [00:14:45] So this is not a local audience. It’s a national audience.

Eve: [00:14:46] You know, it sounds a little bit like Small Change. 30 states represented, an amazing variety of stuff. Yeah, really interesting. So, yeah, hold a space for me in Nashville.

Jim: [00:14:59] Okay. I will do.

Eve: [00:15:00] Okay. And when is that?

Jim: [00:15:03] We’re still trying to pin down the dates. It’s a Sunday, Monday or Tuesday, so it’s either six, seven and eight or 13, 14 and 15.

Eve: [00:15:11] Of which month?

Jim: [00:15:12] November.

Eve: [00:15:14] Okay, so the forums grew into the book, which you described, and who should read the book and why?

Jim: [00:15:25] So, in the genesis of the book was, so let’s see, it was it was Denver, so it was our 2016. So, it would have been probably our ninth one that we had done. And I remember flying back and I’m like, every time we go to one of these, I am so inspired by what people are doing. I’m so frustrated at the stories they’re telling about the barriers that are thrown at them and how hard we are making this to do when in fact so many people want it. Because while I was doing that, I had my consulting business, Urban Green, and I was doing a lot of community outreach and facilitation work for projects. And I would go into towns and people would say, you know, we want stuff that fits better. We don’t like these big formula projects that come in from out of state. We want small scale. We want this, hey, I read this thing and strong towns or incremental development. That’s what we want.

Jim: [00:16:14] And so, and then I would go to the forums, and I’d listen to these people who have done these beautifully crafted projects and listen to the pain and suffering and years of struggles from a capital standpoint, a regulatory standpoint. And it was like, this is a really important story, and somebody needs to tell the story both about the projects and how valuable they are to the community, but also the barriers that most places have put up to make this harder rather than easier than big development. And so, started whittling away at this idea of the book. And it originally was going to be kind of this journalistic opinion about small scale development and then quickly grew into this life’s work that is basically three parts. It’s the what and why of small. So, the definition that we talked about and then why it’s important not only urbanistically, but as a critical part of a resilient local economy and the value of the inextricable link between locally owned businesses and small real estate, and how important that is in economic cycles to have people that are really invested in their community as opposed to just a bunch of out of town lessees that will mail back the keys the first time they run into trouble.

Jim: [00:17:28] And then there’s a whole how-to toolkit, which is about a third of the book or two thirds of the book that was really meant to explain not real estate 101, but what is different about working in this small space than what they would teach you in grad school? And so, I say this is what they don’t teach you at real estate school section. And then the last one is classic Urban Land Institute case studies. And you’re profiled in this because we thought it was more than just talking about projects. It was really important to talk about the people, the agencies, the non-profits that were at the vanguard of this and how they were accomplishing it. Because we wanted people to pick up the book and say, oh, we could do that. This person did this, and I share those values as opposed to, oh, that’s a cool project. What’s the numbers look like on that? So, who should read it falls into two camps and it was written very specifically to two audiences. The first one is the real estate entrepreneur. The people who want to pursue this as a career path or are already in it. And we’ve had a lot of universities now that are using it as a textbook for their design schools.

Jim: [00:18:39] We have some non-profit housing providers that are actually using it as part of their emerging developers curriculum program. And you ULI, a number of the district councils are using it as part of their real estate diversity initiative. But then the other audience was meant to be civic leaders, planning staff and even citizens who are going around all the time saying This is what we want but don’t realize how hard they’ve made it.

Jim: [00:19:04] So, it’s part inspiration and call to action of what’s possible, then it also breaks down in a pretty common sense way of when you make it more difficult to get approvals, you increase the risk, which means the capital costs more, if you can even get the capital and therefore a lot of the community benefits that you think the developers should pay for can no longer pay that because he’s had to pay for it as entitlements or the project doesn’t work. So, there’s a pretty broad audience, and my favorite thing is when people are buying this and giving it to their council members or they’re planning commissions or there are a lot of people who buy like ten or 20 and have me sign them and give them to their whole town council staff. When I get city managers that call me up and say, you know, come talk to me about this, I’ve got this site and we’re trying to figure out what to do and maybe we should try a small approach. So, you know, I think we’ve reached the broad, and then obviously there’s a lot of real estate entrepreneurs. People come in and they’re like, oh, I love this. I’ve been waiting so long for this. It’s just, you know, the other quick thing that I’ll say about the book is this, I was two years late delivering it and actually finished it during COVID. But I say it’s a much better book because during those two years I did two projects of my own and that personal journey and what I learned and the nuances beyond the academia, what the real details and just the personal introspection of what you’ve got to go through to really succeed, found its way into the book, I think as more than just a how to it’s how to do this and how to survive the rollercoaster as a small developer when you’ve got everything hanging out on the line and not sure.

Eve: [00:20:47] Right, it is a roller coaster. Sounds like the book took longer than a real estate project.

Jim: [00:20:51] No, the book was four years. The projects were, well, one was three and one was five. So yeah.

Eve: [00:20:57] So right in the middle.

Jim: [00:20:59] Right in the middle. And they all finished about the same time. So, last year was pretty big.

Eve: [00:21:06] So let’s talk about your projects. So, I’m fascinated by first of the fact that you live and work in Healdsburg, California, which is a small town, and the two projects I know about really exemplify sort of entire community life. One is directed at small businesses and the other is directed at small residences. And the first is craft work, which is a co-working space, which I think you opened right when the pandemic began.

Jim: [00:21:35] 63 days before the shelter in place. But who’s counting?

Eve: [00:21:40] And the second is one that it looks like it was, I don’t know when it was completed, but River House, which is 12 residences also in that town. So, tell me about craftwork first, why did you decide to develop a co-working space? That’s another business again, you know.

Jim: [00:21:57] Yeah, well, back up first, I’ll just gives some quick context for Healdsburg. So, Healdsburg is a town of about 12,000 people an hour north, door to door north of San Francisco, right at the center of kind of the wine and food culture in Sonoma County and has an incredible kind of historic walkable urbanism DNA and it was discovered, really discovered and kind of current trajectory about 2000 we bought a place here in 2003, it was a weekend place. We would come up from the city we were living like right downtown San Francisco in the warehouse district and a loft. So, it was our perfect little town and country lifestyle. And then in 2013 sold our place in the city and moved up here full time. It’s one of those things where every Sunday was a.

Eve: [00:22:43] That’s a Really big move. That’s a big move.

Jim: [00:22:45] It’s a big move. And it was one of those things where every Sunday where you’re packing up the car to go back to the city and your job and then you’re say, oh, it’d be so nice to live here. Really would hate to go. And so, finally we reached the point and said, well, you know, there’s nothing keeping us in the city. We were both independent, you know, mobile. So, it’s like, okay, let’s move up here and do that. So, when I moved here, you know, it’s a small enough town and parochial in some ways that until you really live here, you don’t have as much credibility as when you do. And so, I moved here and then I had all this experience through my consulting and my work with Urban Land Institute and a lot of the projects I’ve worked with around the globe. So suddenly I had this opportunity to bring and test what I’d learned other places to a small town with great DNA that was experiencing, I wouldn’t call it rapid growth, and I’ll tell you about that in a minute, but it was experiencing certainly increased visibility and desirability. Smithsonian ranked it the number two town in the country to visit one year. It’s got one of the one of the top five town squares. So, it gets a lot of press and visibility.

Jim: [00:23:51] So, I had come back from our Detroit forum and each of our forums are themed around something and that particular one was themed around co-working, urban manufacturing and makerspace. And so, we toured a number of co-working spaces in Detroit, and they were really phenomenal. First of all, I just love the aesthetic, I love the concept, I love the kind of community and the flexibility of that. This is so, you know, I can do this. This is what I want to do. So, I came back to Healdsburg, and I live one block from my co-working space and which at the time was an empty, vacant 5000 square foot bank in a sixties strip center between my house and the coffee shop that I went to every morning. And I would walk by it, and I would fantasize about, wouldn’t it be cool to do that? You know, I could do that. And this is a town that even though it’s only 12,000 people, it’s fairly well-to-do. You’ve got a lot of people who I call tech emigres that have left the city and are now living their life up here, but they’re working remotely. Got a lot of people to come through, stay a weekend and want to connect into the town. They want an authentic experience. They just don’t want to do the stuff that’s on the Three Perfect Days in Healdsburg kind of thing. So, I naively said, well, yeah, I can do this. And I talked to a couple of friends and they’re like, yeah, I know this makes total sense. So, this was this was about 2017, we started the discussion. So, WeWork was still in its heyday and rapidly growing. I don’t think even industrious, I don’t think industrious was around. But anyways.

Eve: [00:25:30] No, industrious is later, I think.

Jim: [00:25:32] Yeah, yeah. But the whole co-working phenomena and leading edge and all that was going on. And again, I loved it. I wanted to get my hands dirty, not just write about something, not just go to forums. I want to get my hands dirty. So, it seemed like a perfect opportunity. So, really funny story. So, I go to the landlord. So, this is built in 60 by a gentleman who has now passed away. So, I am dealing with his son and the son’s daughter. The son is 90 and the daughter is 67. And I walk in with my beautiful flipbook, you know, cribbing pictures from WeWork and all the really cool, sexy co-working spaces. And I say, I’d like to lease the space and I’m going to build this coworking space. And they look at me for a minute and they say, well, my dad said, you never should put office in your retail centers. And I’m like, well, don’t think of it as office. Think of it like a gym. Think of all the people moving through here. And, you know, it’s 5000 square feet. It’s been vacant for a while. And with Amazon and everything else is not going to be a lot of takers for the space. So, within a span of about an hour, a gentleman who is 90 years old kind of put the piece in. He’s just like, so if I was young and I came to town and I wanted to start a business, I could just get a desk and I wouldn’t have to, like, sign a lease and I wouldn’t have to, like, get internet and pay for cleaning. And I’m like, yeah, he’s like, wow, that’s a really cool idea. We should do that.

Jim: [00:26:57] So, we struck a deal and then I embarked on the design and planning, and I spent a lot of time talking to people I know I spoke to you about, like, how do you build a performer? What are the metrics? What’s the industry trends? There was a woman in Petaluma who had done one, and she was enormously helpful in terms of thinking through how people in these markets use co-working versus how they do in an urban center. And again, being a fairly upscale community, I knew this couldn’t be shag carpet and beanbag chairs for people with flip flops and hoodies. Our demographic is probably mid-forties professional. So, I immediately created this kind of verbal image of Hotel Healdsburg, which was our upscale hotel, beautifully done by David Baker, Banshee Tasting Room, which was eclectic, cool little hip tasting room meets flying goat coffee, which was the beloved coffee shop where everybody went and worked. And when I would explain that to people, they immediately got it. And so then embarked on the, the design, the construction turned out beautifully. People love it, had a lot of really interesting.

Eve: [00:28:10] And you got through COVID, how did you do that? What did that?

Jim: [00:28:13] So yeah, that’s a great story. And I think it’s, I’ve had these conversations with some other people in co-working. I mean, part of it is the town, but a big part of it is, I think the premarketing and our pitch was, and the business thesis was these small lifestyle towns. This is going to be an incredibly important community asset. It’s not just a business, it’s a community asset, a hub, a place to connect, a place to have informed conversations that talk about the future. And so, I spent a lot of time telling that story. I was telling Jamie Russo when we were doing this podcast on this. So, one of the first things I did was I put a survey out via the chamber that said like, would you be interested in a co-working space? We’re going to open this up, yadda, yadda, yadda. What would you like an office dedicated to? Just to see if there was any market depth. Got a lot of response right away. And then I called up and contacted everybody that said they wanted an office. And I started to talk about, well, what is it that you want? What are you going to need? What do you do? All this kind of stuff. So about two years of creating the story, building the trust. I think marketing and this isn’t just coworking, this is a community asset.

Jim: [00:29:27] So, to answer your question, when we finally got open, which is about a year after we promised we would, people were a very excited about it and B really believed that we were doing something important for the community. This wasn’t just another retail front; this was an important community asset. So, when COVID hit. People said, look, no, no, no, you’re too important to go away. Keep billing me. You know, I’m not going to come in, but I want you to maintain my membership. And so, that lasted for probably 90 to 120 days. And then people said, whoa, this could take a lot longer than I thought. But we immediately were able to backfill because a lot of people had left San Francisco, took an airbnb out in the country. They worked in tech. They didn’t have good Internet out there. So, we kind of backfill with that. And then by September, a lot of people are like, hey, I can’t work at home. The kids are there, we’re home schooling, no bandwidth or whatever else. So, we limped along. The PPP was enormously helpful. It was maddening at the time, but.

Eve: [00:30:31] It was helpful, wasn’t it? It was helpful.

Jim: [00:30:32] Hugely, hugely helpful. And then we just kept staying visible. One of the things I was really most proud of, so when shelter in place hit and it was really ugly, we did a thing called small joys for sheltering in place, and every Friday we picked a local vendor in town and we would curate for 20 bucks some kind of an offering bag of coffee and a jar of granola flowers for Mother’s Day, whatever else. And we would, we’d put it on our site and we’d send it out to our mail list, and then you would come pick them up on Friday. So, people came in and they were like, hey, can we participate? Hey, you know, we love what you’re doing. It wasn’t a lot, but we raised like $10,000 for the all the individual business owners and we ran that for about 12 weeks. So those kinds of things.

Eve: [00:31:20] So you’re a strong marketer.

Jim: [00:31:22] Yeah.

Eve: [00:31:24] Yeah, that’s really fascinating. So, you got through that. And then the second project, which is maybe even more challenging, I think the town has a minimum lot area ordinance of 6000 square feet, is that right?

Jim: [00:31:39] Well, it has all kinds of things. This is a case of where people want what they want and what the codes say are two different things.

Eve: [00:31:46] Codes can be enormously challenging. But you designed and developed an infill project that is very much in keeping with the town and I have a feeling took a lot to get to that point because of the way that zoning codes are. Just talk about that. This is 12 residential living units with ADUs and a whole variety of features that I think are probably unusual for the zoning board to see, right?

Jim: [00:32:16] Well, yeah. It was. So, quick stats just for people that are into this stuff. 12 units, 1.2 acres. So, ten units per acre, all single family detached. We did it all with as of right zoning, which is kind of unheard of. And in California we have very onerous environmental processes, and we got an exemption because we met all of the criteria as infill. But I said a little while ago that we’re not a high growth town because two decades ago, in the town’s infinite wisdom, we passed a growth ordinance that limits the town to 30 permits per year. So, I’ll say that again, 30 permits per year. So now everybody’s screaming about how expensive housing is because it’s high demand and we’re only building so many new ones here. So, we had to deal with that. How do we get enough allocations to build that? How do we do with these minimum lot sizes, which had to be 6000 square feet?

Eve: [00:33:09] That’s insane.

Jim: [00:33:10] Had some prescriptive dimensions of 60 by 90, and then we had some environmental considerations. But it’s a classic cottage court where the 12 units are pretty much organized around a central green space. Cars are subordinated to the rear, kind of a neo traditional, where there’s two alleys that flank it. It’s kind of a square site, the site lent itself to it very well. And big front porches facing onto the green and fairly good private space, and all done in a contemporary farmhouse style. So, a lot of references to kind of home, I think in people visually but also updated for contemporary living. And the big thing with this project and I just came back from a builders’ conference where we won a bunch of awards for it and I was explaining to a panel I was on is so many developments design, especially in these land, more land lot, developments. They lay out the lots and then they just plop the houses into it that will fit on the lot. And in this case, working with Dan Parolek from Opticos Design, we designed the urban form. So how do we want the homes to mass? How do we want them to shape the green? And then once we did that, we lotted them. And so, the lotting plan is highly gerrymandered. And to the town’s credit, once they saw the urban form and what we were trying to do, they understood that the very confusing lotting plan was the only way we were going to get there without having to go through a rezoning and all this kind of stuff that would drag it out way too long.

Eve: [00:34:43] Interesting.

Jim: [00:34:44] You know, the end result when you’re in the space is is actually quite magical. And super successful. We came to market July 4th last year, sold it out in five months.

Eve: [00:34:58] That’s amazing. Because some of the features are things that people say will never work. Detached garages, the units face a little sidewalk, right. A little pedestrian area. And there’s shared green space.

Jim: [00:35:12] And this is a classic case of where the processes and sometimes the people. So, I’m at planning commission and I’m showing this in one of the commissioners says I’m not going to carry my groceries in the rain. You know, you’ve got to attach the garage. And I’m like, look I’m the developer. I’m taking that market risk. That’s not for you to decide. Does it meet code or doesn’t it? But they’re opining on stuff. And then the other thing we did was we painted them all white, and we used different. So, we use shingles and some lap on some board. So, there’s a very subtle kind of textural shade and shadow difference, but there’s a continuity and a harmony between them and, oh my God, you know, I mean just.

Eve: [00:35:51] The they opined about the color.

Jim: [00:35:53] Oh, yeah, white. Oh, I hate white houses. You know, I have one in my neighborhood and they’re too bright. So, no, you can’t do that. And fortunately, the other commissioners are like, you know, I think that’s going to be pretty elegant. So, there’s these personal biases that people bring to these conversations, and they’re not even trained as designers, so they don’t get it. But they’re in this position of power.

Eve: [00:36:11] And then I think some of the other big moves you talk about, I’m a trained urban designer myself, and I think people don’t understand why they love spaces. But that’s what urban designers are trained think about. You know, how to make good spaces. So, you talked about using the existing trees as amenities and framing views. So, there’s a lot that went into the public space design of these 12 houses. Little in the houses themselves. Right. For a little project. You had quite a list of consultants.

Jim: [00:36:43] Yeah, we did. We did. You know, it’s interesting you say that, but the space is so again, at the PCBC last week, one of the jurors was glowingly talking about that and saying, you know, the layering of semi-private to private spaces, the size of the space and the scale of the space. And it’s my background’s landscape architecture, so it’s probably a little less concerned about the buildings and more concerned about how to in the world. She said, a lot of great trees on the site. So how do you use those too? As one of the other, one of my favorite lines last week for the juror was the trees allowed you to cheat history. So, it felt like this thing had been there. I mean, you go out there, you feel like it’s been there for probably 30 years. It looks like the Presidio.

Eve: [00:37:23] Versus the trees kind of make my car dirty, right?

Jim: [00:37:27] Yeah, exactly. And so, to your question, so the people that have bought there, there was a conscious pivot. It was a very interesting study in human psychology. So, buyers came in, I think almost universally loved the project. They were inspired by it. They loved the way it looked. It was beautiful. They loved the trees. They loved everything about it. But then they very quickly came to a fork in the road, and they said, but I’m not really that social and I really don’t want people seeing me on my porch. I’m a little more private. Or they said, I love this idea and I love the fact that spontaneously I’m going to go out to the green and have a drink with some friends or I’m sitting on the porch and people stop by. So, there was a natural selection that occurred by people who wanted that lifestyle, and so they’ve actually made it happen. So, it’s fascinating to me how much the group has gelled very quickly, do things together, spontaneously, gather in the green for happy hour and all that.

Eve: [00:38:29] It’s almost like co-housing, but not quite.

Jim: [00:38:31] It is, yeah. Without the kind of somewhat cultish idea that at least co-housing makes people think of. I know it’s not that there is a thing, but it is. Or we call it intentional.

Eve: [00:38:46] Yeah. So, is it too early to tell what has worked well and what hasn’t?

Jim: [00:38:53] I mean, definitely some good lessons. I mean, the thing that I missed on that was I call it barbecues, trash and dogs. So, one of the things was keeping things very open and kind of granular. But in the end, we had to add a lot more fencing than I originally would have thought, because at the end of the day, people have small dogs, they don’t want their dogs running away. So there had to be fences around that. What do you do with the trash when this is a layout where every square inch mattered and we kind of missed that. And then the other thing is like, what do people do with their barbecues? You know, it’s like, don’t really want to put them on the porch and risk, you know, creating a fire under the roof. So anyways, there are a couple of little things like that. I think the green, the scale of the spaces is really good. We spend a lot of time like how big is too big? How small is too small? And I really feel like we nailed that really, really well. The subordinated cars, I think people again that don’t really fret over having to carry the groceries love the fact that the cars are out of you.

Jim: [00:39:58] My marketing line was you sit on your front porch, and you look at the green, not your neighbor’s driveway. And, you know, so it’s a very different kind of visual experience. So, the other thing that we kind of, we were trying to be very egalitarian, so the green faces the street, and it faces the river across the way, which had been neglected for years. And so, we spent a lot of money to clean up the river and make it part of the amenity. And now one of the challenges we had was everybody in the neighborhood thinking it was their park. So, coming in and having picnics or bringing their dogs in, but not being responsible for them and stuff like that. So, we had to figure out some fairly low key ways to say this is a private, this is people’s private front yards. You wouldn’t walk. You don’t want people walking in your front yard, you know, be respectful.

Eve: [00:40:45] It’s a wonderful story. So, let me ask you, what was your life before small scale? What did you do?

Jim: [00:40:53] You know, it was almost the antithesis of it. It was big. And when I, I don’t know if you saw my TED talk, but the TED talk was I spent my life doing big projects. I mean, literally around the globe, 25,000 acres in the desert of Nevada, Australia, 3000 acres, 10,000 homes. And I was into community design. Two things were happening. I noticed in every one of those projects, after hours, wherever I was, I went to the cool little nitty gritty alleys and spaces and kind of emerging areas, and that’s where I wanted to hang out was probably the most inspired. And then I would come back to these big master planned projects, and I’d say, how do we get that kind of level of what’s now called tactical urbanism, but place and grit and you know, often talk about we’ve gone from greenfield to grit as kind of the cool thing now, and it’s like, how do you create that? And I would work with these big developers, but they, yeah, they couldn’t rationalize it. Their funders didn’t get it, it never met. And so, I finally got to the point where it’s like, I believe in this. I’ve seen it, I need to try and do it. And my sister once said to me, like, why are you doing this now at your age? And I’m like, well, because if I get to your age and I haven’t done it, I’m going to be really mad at myself. So, I kind of went all in and you know, I mean, it’s the classic entrepreneur story. Second mortgage on the house, couldn’t find financing so went in all myself and you know the story, jury’s still out, but it’s been enormously fulfilling personally and to see the reaction and all the things as you said people tell you that won’t work and then you do it and they’re like, oh my god, why don’t we have more of this? This is so great.

Eve: [00:42:42] I can see you having a lot of fun, it’s inspiring for me. But I have to ask you a question now. This is like loaded. So, in amongst all of that you do, all these community projects, you know about equity crowdfunding, you know that it’s gradually taking its place in the capital stack, although most people still don’t know it. Do you think there’s a role in building communities using that tool?

Jim: [00:43:10] Oh, absolutely. I had no doubt. I think it has not found its stride yet. But I think we’re getting to, there’s enough consistency, coalescing in the conversation that people want something different. They realize, you know, California, the state legislature, there’s been a lot of pretty significant changes to help facilitate different and break through the NIMBYism and the barriers. And I think people are starting to recognize that unless they put their money where their mouth is, they’re not going to get different. And, you know, that’s not going to be everywhere. But I mean, where we are, again, we’re a fairly well-to-do community. I have a couple of partners who’ve invested in River House and yes, they wanted a return. Yes, they wanted to make sure they weren’t going to lose their money, but they were equally interested in doing something to demonstrate another way to do what we were getting and be a part of that change. And I think people want to do that and they’d like to be able to access that in a way that it’s not a $200,000 commitment. It’s Yeah, I’ll put 1000 and I’ll put in 2000. And we hear those stories a lot through the forums, the people who’ve done well, a lot of the times, entrepreneurs, they’re at a point in their life where they’ve done well, they’re well off, and they’re like, you know, I want to I want to help somebody else have the ride that I did. I want to support somebody. I like their energy. I like what they’re doing. I want to help. So, we need vehicles to do that. And I think, yeah, actually you were in Seattle when we did that panel with Kevin Cavenaugh, Lorenzo. And I don’t if you remember the guy who…

Eve: [00:44:51] Oh, yeah, I’ll never forget because Kevin, no one knew if he was going to actually show up.

Jim: [00:44:55] Yeah, yeah. Well, and then he had 80 slides and I said, you only have 10 minutes, don’t worry. And he was like, awesome. But at the, after that panel, the guy that stood up and said, raise his hand and gets up, and he said, look, I am from the institutional capital markets. I absolutely love what you’re doing. I believe so much in this. You do not want to talk to me because we will never get this. And so, there’s a lot of people saying, oh, we need to get the institutional capital. They’re never going to get it. And so, we need another vehicle and the crowdfunding and the people that care. But we do need to get along with giving people the vehicle to invest in their communities and take part in this. They also need to just become more educated about the relationship between the risks they create in the difficulties of approvals, of getting things done, and then how secure their investment is.

Eve: [00:45:44] Yeah, I mean, I think that’s the most difficult thing about this is with crowdfunding, you’re letting in a sea, 97% of the adult population who never had the ability to invest before. So, you have to educate them on the risks of investing, what it means to invest, the role they’ll play, and also real estate. How do you invest in real estate? It’s not a widget. It’s a different form of investment. I think the educational piece is definitely lagging. Okay, one more question for you, and that is you must have something else up your sleeve. What’s next for you?

Jim: [00:46:20] Oh yeah. Well really trying to say formalize the forums, they’ve been a work in progress. But I really want to see those continue to grow because they built so much momentum. And my dream is a really big kind of national seminal conference on small scale development. That’s 200 people in the coolest city that’s all around small you know, toying around with the idea Savannah, and really brings together, because there’s a lot of people working in this space and what’s already a fragmented business is further fragmented by everybody having their own little megaphone and not coming together.

Jim: [00:46:58] So that’s one thing. The other thing that I’m working on is a program called Small Coach. And a big part of my journey over the last six years has been participating in an entrepreneur’s coaching program called Strategic Coach. And it’s been really, really helpful in terms of not only tools around business and realizing your goals, but also balancing your life. But the one thing that I miss is it’s kind of industry agnostic. So, I’m trying to develop a curriculum for real estate entrepreneurs that is not just like raising money and getting through construction and entitlements and all that kind of stuff. But also, how do you manage your life? How do you set your goals? How do you embrace the fact that you’re an entrepreneur and make the most of it and really celebrate that? So, that’s hopefully we’ll launch here in the next the next couple of months. I’m hoping to get it off the ground in September.

Eve: [00:47:52] Well, this has been delightful. We should have really done two podcasts. I’m sure there’s a lot more to talk about.

Jim: [00:47:58] I told you I talk a lot.

Eve: [00:47:59] But we’re going to talk more offline. And thank you very, very much for joining me.

Jim: [00:48:04] Yeah, thanks for the opportunity. I hope to see you in Nashville in November.

Eve: [00:48:08] Definitely will. I’m going to make it happen.

Jim: [00:48:10] Very good.

Eve: [00:48:17] Jim Heid has found his tribe. Slowly but surely, he is bringing together like-minded thinkers with his forums, his book and his real estate projects. His path from big to small is inspirational.

Eve: [00:48:39] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Jim Heid

More housing, less parking (in Toronto).

“Sending a clear message that cars are finally taking a backseat in Toronto planning, City Council has just changed regulations for parking spots” writes Erin Nicole Davis for STOREYS. “Late yesterday, the City announced it has adopted zoning bylaw amendments that will remove most requirements for new developments to provide a minimum number of parking spaces. At the same time, limits on the number of spaces that can be built will be added. This will permit developers to build spaces based on market demand.”

With a population of almost 3 million, Toronto is Canada’s largest city. Its climate action plan, TransformTO Net Zero Strategy, has an ambitious goal with 75 percent of school/work trips under 5km made by walking, biking or using public transit by 2030. It is hoped that new zoning bylaw amendments will align with this action plan by discouraging car use and encouraging alternative transport methods.

The zoning bylaw amendments are also expected to help to make housing more affordable. Parking spaces are expensive to build, especially underground, and removing the required minimum will reduce both the costs and the time to construct ground up housing developments, which costs are inevitably passed on to the consumer. Data from the Residential Construction Council of Ontario (RESCON) shows a significant rise in parking stall prices over the last few years with an average of one third of parking stalls remaining unsold in new condo developments. “Forcing developers to provide parking that might not be used just didn’t make any sense” says RESCON president Richard Lyall.

And with less cars, Toronto will be able to transform more parking lots into green spaces.

Read the original article here.

Image courtesy of J. D. Norton, modified

52,500 clients served.

Tom De Simone came right out of graduate school on the East Coast with an urban planning degree, and dove right into the wonderful world of housing policy on the West Coast. He first worked for the Deputy Mayor’s office in Los Angeles and then in the City’s Housing Department. He did research and analysis on pretty much … everything: zoning, marketing, downtown housing, economic development, homelessness, housing and development funds, land trust models and outreach to lending institutions. After four years, he joined Genesis LA as project manager, becoming VP of Real Estate, and since 2013, President and CEO.

Genesis LA is a community investment loan fund, a CDFI. They direct loans and investments from their fund, which is capitalized at about 60 million. They finance acquisitions, predevelopment, construction, and community and economic development projects. Their focus is on nonprofits, small businesses, and women and minority owned enterprises, and they primarily work in underserved communities. Founded in 1998 out of Mayor Richard Riordan’s office, Genesis LA works in the heart of Los Angeles County, but they have funded projects as far out as San Bernadino, Long Beach and San Fernando. Projects include LA Prep (Mott Smith) and Star Apartments (Skid Row Housing Trust), My Home Mi Casa (affordable housing) and the Sheenway School (charter school). Drawn to small, unused lots of land that often go untouched by large developers, Tom’s organization likes innovative housing projects which can transform underused spaces.

Read the podcast transcript here

Eve Picker: [00:00:06] Hi there. Thanks for joining me on Rethink Real Estate. For Good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad, rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo, in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website RethinkRealEstateForGood.co, or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:01:00] Tom DeSimone is totally into community finance. He runs an $80 million community loan fund called Genesis LA. It’s a community development financial institution which looks and feels like a bank because they make loans, but with special superpowers reserved for triple bottom line projects and customers. Community Development Financial Institutions emerged in the 1990s specifically to build capacity and projects in places that banks don’t want to be. So CDFIs like Genesis LA filled that niche, investing in economic development, community services, housing and providing working capital for small businesses. Genesis LA boasts a lot of impact. For a start, 90 percent of their investments are made in distressed census tracts. Sixty five percent of borrowers are women and/or minority businesses. Fifty five percent of projects promote environmental and community sustainability. So, if you’ve always wanted to understand community finance, then listen in.

Eve: [00:02:15] If you’d like to join me in my quest to rethink real estate there are two simple things you can do. Share this podcast and go to RethinkRealEstateForGood.co where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:41] Hi, Tom, I’m really excited to have you on my show today.

Tom De Simone: [00:02:45] Thank you, glad to be here.

Eve: [00:02:47] You run a CDFI, a Community Development Financial Institution, and what are CDFIs?

Tom: [00:02:55] Yeah, good question. Many would say CDFIs were the original social impact investors. We evolved out of the federal government in a formal way. But even before that, CDFIs were the venue that folks who wanted to change the systems of capital really got together. Activists, civil rights folks, jaded bankers, and they created a variety of different funds. LISC is a popular CDFI folks might have heard of, Enterprise. So some of these predated the formalization of CDFIs, which really happened under the Bill Clinton administration, where the U.S. Treasury Department created the CDFI fund. And what that did was sort of give a stamp of approval to these funds that they had accountability; they were actually creating social impact in lower income communities across the country. And it also created government subsidies to them to help put equity into these funds so that they could then leverage debt. And so that’s what we do as CDFIs. There’s over a thousand CDFIs across the country. The majority of us are unregulated loan funds, so we have social accountability, regulatory accountability to the government but we don’t have the same banking rules so we can become much more flexible with things like loan to value for a loan, or the underwriting of a borrower, or debt service coverage, or a lot of these different terms that you hear bankers, you just can’t provide a loan. And we as CDFIs can be just much more flexible. And so we do that by aggregating grants from the government, debt from banks, grants and other sorts of social loans from foundations, and just a variety of different places. And we aggregate all that capital on our own balance sheets, and we re-lend it out through a fund model. And CDFIs do everything from consumer lending to home mortgages to small business to real estate. It really runs the gamut across the country, both small and large.

Eve: [00:05:00] Yeah, I was going to ask, how are they different from banks? I’m interested to hear it’s really a loan to value, that banks are really constrained about what they can do and you are not.

Tom: [00:05:09] Yeah. And you know, many of our borrowers, for example, will have years with losses, especially non-profits. You know, one year they make a surplus, the next year they have a deficit, and a lot of banks can’t lend to a borrower who in the last three years has had losses in any year. And so, we can really just look bigger picture at a lot of these folks and help drive capital to the kinds of unbanked borrowers out there.

Eve: [00:05:34] So the original impact bank, basically.

Tom: [00:05:37] Mm hmm. We’d like to think that.

Eve: [00:05:40] Okay! So, they’ve been around now for almost 30 years. Has anything changed during that time?

Tom: [00:05:46] Yeah. The field has grown tremendously in that time, and probably even more so in just the last 10. CDFIs have become much more recognized. So we’ve become an important partner with banks in their Community Reinvestment Act or CRA requirements, which is a great endorsement from traditional capital sources that they are willing to capitalize CDFIs. So that’s really changed. The federal government’s become a consistent investor through grants. Again, if you were thinking similar to a bank, you know you have investors, shareholders who put equity into the bank. That’s what the government is doing to us. We don’t have shareholders, so the government is giving grants that we can then leverage debt with and blend it together to provide capital. So, the government’s become much more of a consistent and ongoing partner in that work. And then many more CDFIs have sprouted up. You know it’s hundreds over the past few years that have really been getting into those micro markets that have been underserved for decades.

Eve: [00:06:47] So because of the grant influx, you can blend that with other more expensive funds and lend it out at more reasonable rate for higher risk of project.

Tom: [00:06:55] Exactly. And we buffer losses, right? The grant dollars will experience the loss before the debtors will, and so they’re willing to invest.

Eve: [00:07:04] You know, I live in Pittsburgh, and I learnt that community development corporations, I think, had their start here, and they were probably the precursor for CDFIs that whole activist grassroot movement in the 60s and 70s, right?

Tom: [00:07:18] Yeah. Yeah, well, in many ways, you know, CDCs, Community Development Corporations, where the developers, the boots on the ground trying to do things, and they’re our borrowers. That’s most of our borrowers are CDCs. And so, you know, I think what was missing from that formula was, who will finance them outside of local government, federal government grantors. And that’s where the CDFIs have come along to blend traditional finance with the kinds of things CDCs are doing on the ground,

Eve: [00:07:46] So they really grew out of the original hipsters. I suppose that’s the way to look at it. Okay, so you run Genesis LA, a CDFI, and how big is Genesis LA and where are you located?

Tom: [00:07:58] Yeah, we’re in Los Angeles. We serve L.A. County, which is just one county, but would be the 10th or 11th largest state in the country if it were its own state. So it’s a huge place, 10 million people here, and we serve many low income communities here in L.A. We do that with direct loans we make. We have about an $80- $90-million balance sheet, which we make loans off of, to different community development projects. And we also participate in the New Markets tax credit program, which is sort of an incentive program that the federal government, new markets allocation to groups like us, we compete for that annually, and it provides about a 25 to 30 percent subsidy to development projects. So, we have to leverage the rest with other types of leveraged finance.

Eve: [00:08:45] That’s typically what’s needed in underserved neighborhoods that are not a hot market, right? In Pittsburgh it always used to be 40 percent. It just is pretty standard no matter where you are, there’s this financing gap.

Tom: [00:08:56] That’s exactly right. And so, we use that as well. And we’ve had almost $400 million of those resources over the years that we’ve deployed.

Eve: [00:09:04] Yeah, that’s interesting. Tell me a little bit about how businesses find you and what they look like.

Tom: [00:09:09] Yeah. Really, it’s a lot of word of mouth. We don’t advertise. We don’t have billboards around town. We really try to serve a niche in the market. We’ve really said, what are larger CDFIs not able to do? Because maybe these projects are to nuance, these borrowers are too small, they’re inexperienced. And so what are the things sort of falling through the cracks, not just of traditional finance banking, but also other CDFIs that have a larger national footprint? And so we’ve tried to gather those crumbs that fall through those cracks here in Los Angeles and really try to provide almost a boutique service to them. So, we get a lot of word of mouth referrals. Because of that, people realize that we’re a place to go when sort of no one else will lend to you. And part of how we get really comfortable with that is we provide a lot of what we call capacity building services with our borrowers. So most of our borrowers are nonprofits. Many of them, though not all of those nonprofits are first-time developers or they’re just trying to build a facility for their operations, trying to do something different, maybe create housing differently than we’ve done it before. And so, we work really closely with them to help structure their budgets, their performers, raise other capital with them, bring in other technical advisors on the real estate side, you know, contractors, architects, engineers, that sort of stuff. And so, we’re really trying to help resource not just capital, but some of the other components that are critical to making a development happen. And so after you go through a process like that with many of these borrowers, you know them so intimately and you’ve been a part of bolstering the viability of their project, that it’s a huge risk mitigator for us to then be able to deploy capital. And so, you know, that kind of experience that our borrowers go through often becomes a really great referral source, basically for others who are in a similar position, and we get a lot of our borrowers that way through just friendly networks.

Eve: [00:11:10] Yeah, it doesn’t sound dissimilar to what we do at Small Change because, you know, it’s that very large group of people who are working on innovative projects that banks can’t really appraise, or first of their kind, or unfortunately, still, if they don’t look like the rest of the development world, they may get turned down. So, yeah, those are really an enormous number of people that are left out of the system. It’s actually a number I’ve been trying to get at. If you have any ideas, I’d love to know, you know, how many people are left out of the system, this sort of very homogeneous white real estate industry?

Tom: [00:11:45] Yeah, that’s exactly right.

Eve: [00:11:47] That really caters towards people making money on buildings that are commodities. It’s not about making better place. It’s really interesting. Tell us about some of your favorite projects.

Tom: [00:11:59] Yeah, we’ve got a lot. I know you’ve spoken with Mott Smith on one of your other podcasts.

Eve: [00:12:05] Oh yeah, that sounded like a fabulous project. That’s amped kitchens, right?

[00:12:09] That’s right.

[00:12:10] That sounded like a brain damage sort of project.

Tom: [00:12:13] Mott’s up for the brain damage. He’s hardened that brain over the years. Yeah, I mean, it’s a, it’s just one example. But you know, this is a borrower that didn’t have a ton of liquidity, had a big project with a big budget and was leasing to small kitchens.

Eve: [00:12:29] And a really brand new idea, right? That wasn’t really a proven concept. So like for our listeners, if they haven’t listened to the Amped Kitchen podcast, it’s really kind of co-working for kitchens, right?

Tom: [00:12:42] That’s exactly right, yeah. So, it made tons of sense, but you know, he needed to close financing with no leases because these are little small businesses that are not going to sign a lease for 18, 24 months down the road. They can’t do that. So you just take that. Forget all the other constraints of lending to a project like this. No bank is going to lend to a project with zero lease-up. And then certainly something that has no comparables to look at, either. So those are the kinds of things that come our way. We did another project a couple of years ago. It’s now open, really younger Hispanic guy in the city of Montebello, which is an inner ring suburb here in Los Angeles. He was an entrepreneur. He’d done a lot of food, entrepreneurialism with start-ups and taco trucks and carts and things like that, and he wanted to create a sort of an outdoor food hall that would help revitalize the main street of Montebello. Same story, you know, first project, very little liquidity, scrapping up some dollars with friends and family, that sort of a thing. And so we work with him for over a year and helped him to get this built. It started right before the pandemic, and then he had to suffer through the pandemic. But he’s up and going and fully leased, and he’s got eight effectively start-up or newer, all minority-owned food businesses in this food hall. So, you know, the kind of borrower really struggles because they don’t have the balance sheet, they don’t have the track record and again, they’re leasing to non-credit, what banks would say non-credit tenants. And so those are all the sorts of things that we just find ways to get comfortable with it.

Eve: [00:14:16] It sounds a lot, it sounds pretty fun. And these are the things that really make a difference to those neighborhoods, which is the most gratifying thing, right?

Tom: [00:14:24] Yes, absolutely.

Eve: [00:14:26] Ok, so what’s your background? How did you get here? And did you imagine you would be here? Was this your goal in life?

Tom: [00:14:34] Yeah, I thought I wanted to be a developer. I think I might have more fun on this side now. But I started working in government after college. I worked in the mayor’s office here in Los Angeles, and then I did a year at the Housing Department. And during those two years, I realized, gosh, all of these projects and these social goals we’re trying to achieve on the government side still all depend on financing, and I got to go figure out how that works. And so I went back to graduate school and studied regional planning with a focus on real estate, and came out of graduate school, thought I wanted to go work for an affordable housing developer, but had the opportunity to come to Genesis LA as sort of a loan officer role. And it’s just been a blast because the diversity of things that I’ve been able to be exposed to has been so much broader than just, you know, doing affordable housing, which is brain damage in and of itself. But you know, being able to do commercial and nonprofit and some operating businesses and affordable housing has just been such a great laboratory for me. It just personally, to have satisfaction, but also to unwrap some of these challenges as an organization at Genesis and really try to make capital flow better to these sorts of underserved borrowers.

Eve: [00:15:56] I have to say this, from the outside it feels like the banking system is broken. If you have to create a completely different one to make this happen. Like, does anyone talk about that, like, are there moves to make banking friendlier to projects like this?

Tom: [00:16:18] Yeah, it’s a great question. There’s a lot of criticism in our field of banks, and interestingly enough, there’s criticism outside of our sector from people who feel some CDFIs at least have become too much like banks. I think it’s a factor of scale, to be honest. I think if you think about scale, the bigger the scale something gets generally, the more standardized it has to become. You’re doing things at volume, it’s sort of press and repeat. And I don’t want to, you know, make little the nuance to it but that’s sort of scale, right? Like you think of the mortgage market. It’s sort of you fit in the parameters of Fannie and Freddie, and you can sell the loan to the secondary market. So it’s a very, it’s a sort of a narrow box. And I think that’s, that defines the lending sector and certainly banks. And to me, what we have to do on our side, as CDFIs and as a finance industry, is think of it as a holistic system and have the deployment of capital happening at a variety of scales. So, there’s the things that fit in the big box. I think we want those systems so we can move as much capital to as many people as we can, but not forget those folks who don’t fit within that box because that’s where the work of CDFIs have really been set up, is to make sure that we can service those folks that just don’t fit in the standard process. And we can’t lose sight of that as we as CDFIs scale up ourselves.

Eve: [00:17:51] Yeah, no, I think that’s right. So then given that this exists, how does community capital look today, compared to 25 or 30 years ago? Does it look wildly different? Is there more happening? Like, how, what sort of impact has this had?

Tom: [00:18:06] Yeah, I think there’s a ton more CDFI capital going out there. I don’t remember the numbers offhand, but billions and billions are moving every year in the CDFI sector. It’s tremendous. Many CDFIs now are bigger than a lot of your community banks. You know, 500 million, a billion-dollar balance sheets, some of them. But I think you know, what’s a little bit lost in that is not every problem can be solved with debt. In fact, many problems can’t be solved with debt. Unfortunately, there’s still a lot of disadvantage in the United States, and people don’t have the income to pay the kinds of rents, whether it’s a resident in an apartment building or a small business, and it does take subsidy or patient money, whatever you want to call it, and I think that’s where the CDFI system just, it can only go so far. We really do need to come up with other programs, whether that’s government subsidy or philanthropy, to kind of close some of those gaps. Those gaps exist because there’s inequality in this country and, you know, capital seeking a return is just not going to solve all of those problems.

Eve: [00:19:14] Do you think we’re there yet? Like very patient capital, small returns?

Tom: [00:19:22] You know, in some ways, we’re getting there in other ways. I don’t think so. I think more people have opened up their investments to smaller returns and sort of social impact investing. I think one of the problems is most of that money is short term. You know, they kind of want to get repaid quick and where deals become not viable.

Eve: [00:19:43] This is really all about patience.

Tom: [00:19:45] It is patience. You need that low return or no return for the long run, right? You can borrow cheap money for construction, but who’s going to be your permanent lender on that apartment building that can only support half the debt that it cost to build it? Where do you get that other half of the capital? And that’s where I don’t think social impact investing has has been willing to take that position, and that’s where government or somebody else really has to step in.

Eve: [00:20:13] Interesting. So that’s really the missing piece. Is anyone thinking about it, building it, addressing it?

Tom: [00:20:19] Yeah, that’s a good question. Not from the traditional capital markets. You know, there’s talk, you know, in Washington and in places like that about more government roles for some of this. But I have not seen it from kind of the funds and the investor markets. You know, I see a lot of these tech companies have opened up, you know, the Googles, the Apples, but even they want to be the last dollar in. They want to revolve the money multiple times. So again, it’s a short-term cycle that they’re trying to revolve their money in, and that’s not really where the gap is. The gap is on the long-term patient piece. That’s what’s missing. And I think as the federal government sort of retreated from the sixties and seventies to be a little less of an investor in these kinds of things, it’s made it more challenging to make these kinds of projects work.

Eve: [00:21:11] Yeah. I want to go back to redlining, which is supposed to have been eradicated. What’s your experience with that in L.A. and the people you serve? Are they turned down often by banks for no other reason than the way they look or where they live?

Tom: [00:21:29] Yes, it’s been a few years since I had this experience, but we were trying to refinance a loan in South Los Angeles, which is an underserved community, minority community and an interesting story to this very point. We were talking to a bank. They’d looked at the financials. They looked at the business model. They loved it and they wanted to go to the next level. And I got a call that their supervisor went out and drove past the site and decided it wasn’t the right fit for them, which was absolute code for redlining, or not even so coded. So, I definitely think it exists. This was a few years back now, but these kinds of patterns very much do exist and continue to be barriers to getting traditional capital into the neighborhoods.

Eve: [00:22:16] Very depressing, I don’t know how you change that unless a whole generation of people dies.

Tom: [00:22:23] Yeah, it is entrenched.

Eve: [00:22:24] We’re working with a developer right now, a white developer who’s helping provide technical support to black men who are trying to buy a building and renovate it. And it’s really a pretty fabulous project, and they’re pretty fabulous people. And he said they went to several banks and put a whole portfolio together, including photographs of these two men, and were turned down and were turned down and were turned down. So, they submitted it without photos, and that’s when they got interest. And, you know, I even wonder, I don’t know if people are doing it purposefully anymore. I think it’s just; I don’t even know what it is. I don’t know what to say about it, but I hear stories like that all the time. And it’s

Tom: [00:23:07] Discouraging, very.

Eve: [00:23:07] Yeah, very discouraging. So, if a developer has access to your sort of capital, which is really hard to assemble by the sounds of it, should they have some sort of reciprocal responsibilities?

Tom: [00:23:21] Yes, that is a condition of a lot of our financing. So, we’re looking to have our borrowers support small businesses or minority businesses or to rent more affordable housing or to populate their buildings with some nonprofit that’s providing services.

Eve: [00:23:39] So there is an impact goal, it’s not just about, you know, building a building in a place where no one’s built it before, it’s about building a building with a purpose.

Tom: [00:23:48] Absolutely. We basically say we need to see how our investment is supporting some low-income end user. Are they a consumer, are they a resident, are they a recipient of some services? But we need to see how you’re interacting with low-income people, not just that you’re in their neighborhood and ignoring them. You have to be improving their life. Otherwise, we’re not the right fit.

Eve: [00:24:10] And how do you prove that? What proof do they give you? What evidence?

Tom: [00:24:14] Yeah. You know, some of it is, have they done stuff like this before that we can look at? We look at projections and kind of what they’re planning to do, and then we do a lot of follow up after the project is done. We do annual or semi-annual reporting. We go out to the sites. As a local investor we can get to these projects very easily. We have them report on their sort of impacts. We talk to other people who might know them, who can sort of speak to the impact that they’re having. So there’s a lot of oversight that goes way beyond the checking their covenants and their financial ratios.

Eve: [00:24:47] Right, right, right. So this is really intense work, Tom, for small loans.

Tom: [00:24:52] Yes, it is.

Eve: [00:24:53] Do you limit how small a loan will be because of this? Or do you look at all comers, no matter the size?

Tom: [00:25:00] Yeah, we don’t do microloans as they call it, which is sort of 50,000 and less, but we have some loans that are around the hundred, two hundred thousand dollars.

Eve: [00:25:09] That’s really small.

Tom: [00:25:10] It is small, but we also go up to, I think, six million is our loan limit now from our CDFI loan fund. So, it’s a balance for us. You know, I think a lot of investors look at the return on every single investment. Is it worth my time to do this one deal? And we look at it as a portfolio, we realize that we might make some big loans that turn a nice interest payoff to us and we might do some small loans that, if we were really tracking our time on it, we’re probably losing money. But we look at it as an ecosystem, a portfolio approach. And that lets us, what it actually pays dividends both socially and economically to us is that a lot of those smaller things we’re investing in are giving us information and ideas that can be replicated or scaled up later. And they’re the seeds for something new and that can become a whole new product line or a business line for us to make the kinds of investment returns we need to stay afloat.

Eve: [00:26:11] Interesting. I want to ask one other question about this. So, you provide debt. How much equity do you require of these businesses?

Tom: [00:26:21] It varies. We have lent unsecured loans, for example, to a lot of affordable housing developers. They don’t own the land. Maybe they’re going to do a ground lease. So, we have given them a couple million dollars unsecured. It’s really based on their reputation. So, they have no equity, we’re their equity at that point, at least. We’ve done construction and permanent loans where our borrowers have had, you know, five or 10 percent equity in because they just don’t have enough capital. So we try to be flexible.

Eve: [00:26:52] Well, that’s wildly different than banks, right?

Tom: [00:26:56] Very much so.

Eve: [00:26:57] Which are really at 35 percent, which makes it almost impossible for someone who’s trying to build a business for themselves in real estate for the first time to even find a bank to talk to.

Tom: [00:27:09] That’s exactly right. Our standard policy is 85 percent loan to value, but we make exceptions, we really do. And we work with folks on how to bridge that gap if everything else is checking out.

Eve: [00:27:22] So I’m going to ask you one more question because we met before this virtually, sort of, do you think that investment crowdfunding can play a role in building community capital?

Tom: [00:27:34] I do.

Eve: [00:27:35] And I ask you this question because we raised money for a project that I believe Genesis LA loaned the funds for. And actually, often banks we work with don’t like the idea of crowdfunding. So I’m wondering if CDFIs on the whole are a little more entrepreneurial? See the possibilities?

Tom: [00:27:58] Yes, we do. We absolutely do. We were involved in an eight-unit bungalow court that Small Change raised equity of $100,000. It was a great pairing, I think, because it helped bring the traditional equity capital into these projects and sort of de-risks the loan for us. We don’t have to be thinking of that going to above that policy limit. And it really helps make deals look more traditional, but through the grassroots, and I think it’s a tremendous opportunity going forward.

Eve: [00:28:28] And what I love for that project on our side is the speed with which they raised the money because people really, they want to help. And it was it’s a little, it’s a project for formerly homeless people and people invested small amounts quickly. And so, you know, there’s this crowd of people out that want to participate, which is pretty fabulous, too. I think.

Tom: [00:28:51] It is.

Eve: [00:28:52] Big picture question. So, there’s this enormous disparity between the wealthy, the haves and the have nots, not only in what they own, but in how they go about banking and building a business. How do you think we need to think about our cities and neighborhoods and these types of business to make our country more equitable for everyone?

Tom: [00:29:17] Yeah, it’s a weighty question. I think we have a lot of soul-searching to do about the inequality that we still face. And really, what kind of investment is needed to give every person and every neighborhood in America the right opportunity to move forward. I have a board member who sort of said this once and I’ll paraphrase, but you really, you can’t have a meritocracy if people can’t have an education, have health care and have a roof over their head. And I think we can’t expect that some investment programs or a loan guarantee program or something of that sort is going to solve these issues if we haven’t taken care of those baseline things in communities. And I’m not saying that the government has to pay for all that sort of stuff, but I think we have to look at this as a public and a private partnership to get those baseline conditions sorted out so that, you know, lending and investing can work and can work more equitably than it does. But we have a deficit on just the basic conditions for a segment of our population and our geography in this country that we’ve never really, I think, taken a serious effort to resolve.

Eve: [00:30:41] No, and I think it’s becoming more and more visible and obvious every day. As you were describing the CDFI system, I’m thinking, well, it’s two different systems for two different groups of people in one country, because you know, the one system, the big one, the banking system just doesn’t service everyone for whatever reason, so that’s a little disturbing. Ok, final question, what’s next for you?

Tom: [00:31:13] We are getting more programmatic. We’re trying, to some of the points that you just mentioned, we’re trying to get on the front end of some of these challenges and not just be a lender who’s investing in some good ideas that come our way, but how do we start to change some of these systems? How do we close the the homeownership gap in this country, which is a major wealth generator for those who can get in, for example? How do we reform some of the ways we go about building affordable housing? It’s sort of a singular system now, it’s terribly inefficient, it’s very expensive, and it leaves a lot of good ideas on the sidelines. So, we’re really trying to figure out how can we get in to some of these things much earlier, not just as a traditional lender, but as sort of a someone at the development table with our partners. There’s another peer CDFI leader who once said something along these lines, and I love it because we basically are trying to do the same thing, which is, when the kinds of projects we want to see don’t exist, sometimes we just have to go out there even as CDFIs and create them ourselves. And so, we really see our role increasingly being, how do we get in on the incubation side than just on when the projects ready for financing. And I think that is part certainly not all, but part of how we begin to address some of those issues that you said about the great inequalities in the United States.

Eve: [00:32:39] Well, thank you very much, Tom. I’ve really enjoyed it. I learned a lot more about CDFIs than I knew. A little more depressed now, but I think we’re going in the right direction.

Tom: [00:32:49] Yeah, it’s an imperfect system. I think we as CDFIs see it as how do we get big enough that we’re like a true peer to the banking system or a subset of the banking system? And I think, like I said, it’s great to get scaled up, but we also can’t lose the other things that don’t fit in the big box, right? And that’s where there’s always nuance. There’s always a niche we have to make sure we address.

Eve: [00:33:15] Well, thank you.

Tom: [00:33:16] Thank you.

Eve: [00:33:28] With 52,500 clients served and 1734 housing units funded, Tom is happily chugging away on making impact where it matters.

Eve: [00:33:47] You can find out more about this episode or others you might have missed on the show notes page at our website RethinkRealEstateForGood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music. And thanks to you for spending your time with me today. We’ll talk again soon but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Tom De Simone

It’s the data, stupid.

Joseph Minicozzi is an urban designer who wants to help communities understand the economic impact of development. Like demystifying tax codes, government jargon and municipal finance data.

In 2012, Joe created a data-focused consulting company called Urban3. Based in Western North Carolina, Urban3 was spun out of Public Interest Projects, a non-profit focused on reinvigorating downtown Asheville. For over a decade Joe had worked there as New Projects Director, including a two-year stint as executive director of the Asheville Downtown Association.

Urban3 embraces data and GIS mapping to highlight land value economics, property and retail tax analysis while wedding that to community design. While they have a vested interest in Asheville, Urban3 has consulted for cities both in the U.S. and abroad.

Previous to U3 and Public Interest Projects, Joe was a founding member of the Asheville Design Center, a non-profit community design center. He also worked as independent consultant on urban design and planning issues for many years, before which he was the primary administrator of the Form-Based Code for downtown West Palm Beach.

Joe holds a Bachelor of Architecture from the University of Miami and a Master of Architecture and Urban Design from Harvard University. In 2017, Joe was recognized as one of the 100 Most Influential Urbanists of all time.

Read the podcast transcript here

Eve Picker: [00:00:08] Hi there. Thanks for joining me on Re-Think Real Estate for good. I’m Eve Picker and I’m on a mission to make real estate work for everyone. I love real estate. Real estate makes places good or bad. Rich or poor, beautiful or not. In this show, I’m interviewing the disruptors, those creative thinkers and doers that are shrugging off the status quo in order to build better for everyone. If you haven’t already, check out all of my podcasts at our website. Rethinkrealestateforgood.co. Or you can find them at your favorite podcast station. You’ll find lots worth listening to, I’m sure.

Eve: [00:00:58] Joe Minicozzi has been recognized as one of the 100 most influential urbanists of all time. Although he trained as an architect and urban designer, that honour was not bestowed for designing buildings or places. Joe’s influence comes through data. Joe helps communities understand the economic impact of development. He does this by tracking data in the built environment. Demystifying tax codes, government jargon and municipal finance. Stuff that most developers and governmental entities don’t think about when planning their next development project. Joe’s deep dives have uncovered some astounding and important truths about the cities we live in. I’m fascinated by his work and findings, and I’m sure you will be too.

Eve: [00:01:50] If you’d like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast and go to Rethinkrealestateforgood.co, where you can subscribe to be the first to hear about my podcasts, blog posts and other goodies.

Eve: [00:02:12] Good morning, Joe. I’m really delighted to have you on my show today.

Joe Minicozzi: [00:02:15] Thank you for having me. I’m glad to be here.

Eve: [00:02:18] So,I trolled your website a little and I found a really, which is actually a really interesting name. Your business Urban3. I found a really interesting quote that I want to understand. Don’t fly blind. Visualize and reshape your economic reality with Urban3. What does that mean?

Joe: [00:02:39] Well, the visualizations and visualizing your reality is, basically we use Esri software. GIS software to make maps of cities to reflect their economic position. What’s going on from a cash flow standpoint and what you find in that, is different building types actually produce more wealth than other building types. Or once you see the picture, it helps people realize that there’s policies that are actually affecting cash flow. And the name Urban3 is kind of a funny thing that we did that originally was supposed to be Urban Cubed because the three-dimensional environment is cubic. It’s the 3D world. You and I are both urban designers. So, I wanted to kind of play on urban design in the name. But the IRS wouldn’t accept the cube is a part of our name, and they dropped it to the 3 after the name, So,they were stuck with it. So,that’s where we’re at.

Eve: [00:03:40] They don’t accept the at the beginning too, you know? Yeah. Very strict rules.

Joe: [00:03:45] Very big rules. Yeah.

Eve: [00:03:47] Yeah. So, OK, So,you’re visualizing the three-dimensional shape of cities to determine the economic reality of the cities?

Joe: [00:04:01] Sure. Or to think of it is, you know, for the real estate developer folks on this podcast, you’re playing with the cash flow, right? Things cost money and you have to pay for them. You have to make money on rent to pay for the building. And it’s really simple cash flow and you need to make more money than it costs or else you’d be out of business. You wouldn’t be a real estate developer or even in business as a person, you know, I can’t sell donuts at a loss, you know? So,cities are the same thing. Cities are really big real estate development projects and counties more so. Counties are are fixed. You can’t annex the next county over. So,when you have a city, it’s got a cost of roads, the cost of pipes, the cost of infrastructure, infrastructure that real estate wouldn’t be worth anything until somebody ran a pipe and a road to it. So, the question I ask is, are you paying enough taxes to cover the cost of that expense? And what we demonstrate with these models is we show it. We show how financially subsidized certain development patterns are.

Eve: [00:05:03] And So,and how do you create these models?

Joe: [00:05:07] That’s math and fancy software. It’s a geographic software, So,it’s got networks within it. You know and cities already have the data. That’s the thing that’s kind of crazy. They alSo,have the software. We’re just we’re just innovating the use of the software.

Eve: [00:05:25] So,for people listening, I’m sure they’ve seen spiky charts which show huge spikes of activity in urban areas. And so, it’s kind of like 3D charting of data.

Joe: [00:05:38] Exactly.

Eve: [00:05:39] Okay.

Joe: [00:05:40] Or do you think, there’s for more people who are into, I guess you call it BIM in the architecture world, or they are doing feedback systems of HVAC and all this stuff, and you’re starting to see way more sophistication on running your thermostat differently and particularly in green technologies. This is taking that same type of technology but applying it at a macro level across the city.

Eve: [00:06:03] So,we’re living in a data driven world and you’re applying data to helping cities become healthier economically.

Joe: [00:06:13] That and getting people to realize the consequences and costs of sprawl. So, we’re not going to change sprawl habits until people are aware of the true destruction that it causes and the defense of people that live in that, who wouldn’t take the deal when a house is a single family detached house in Eugene, Oregon, is subsidized to the tune of 1,400 dollars an acre. You know, it’s like…

Eve: [00:06:35] Right.

Joe: [00:06:35] You’d be stupid not to take that deal. So, if we want to see it, if we want to see…

Eve: [00:06:39] Call me stupid.

Joe: [00:06:42] Well, me too. I live, I bicycle to work.

Eve: [00:06:48] I walk down two steps. I’m in downtown.

Joe: [00:06:50] Ok, that’s even better. So,anyway, it’s and this isn’t to say that we shouldn’t have suburbia. It’s just, allow people to see the real consequences and people will make different choices. I know that if I, I’m Italian, my family has a history of heart disease. I like to eat pizza. I know because of my family history I can’t eat pizza every day. I would love to eat pizza every day. But because of the saturated fat content, I know that eating one slice is my caloric intake for like a week, So,I’ll still eat pizza, but I’ll exercise the whole rest of the week, you know, it’s just keeping things in balance.

Eve: [00:07:26] So,who? Who comes to you for help?

Joe: [00:07:29] Initially, it was activists that were doing conservation and community planning at large. The Sonoran Institute in Rockies. And over in California, the local governments commission. Now it’s we get finance officers, city managers, planning directors, mayors, politicians. Our clients are all over the place. And it’s because our work is more well known.

Eve: [00:07:55] And when did that shift, do you think?

Joe: [00:07:58] Well, initially, here’s what’s funny, I used to work in a real estate development for a company called Public Interest Projects and we were a for-profit real estate development company in downtown Asheville. It’s like basically think of it as a $15 million revolving fund. 75 percent of the money went into sticks and bricks, the buildings, and we reserved 25 percent of that fund to seed businesses and get businesses going on the ground floor. Our time is the direct opposite. We spent more time with the entrepreneurs than the buildings because businesses need help. And then this thing called the recession happened. I don’t know if you remember that, but and what happens in real estate development? We were dead in the water, So,I was actually going to conferences and explaining to people how to articulate the benefits of urban development in downtown stuff and actually started a presentation in Seattle Smart Growth Conference with a quote from Mark Twain that says a person who won’t read has no advantage over one who can’t read. Right? So,that’s a quote about literacy. If you choose not to read, you’re just as illiterate as somebody that can’t read. And I had my hand in the air and I said, OK, who in this room understands the tax assessment system and how property valuation happens in the United States? And I’m standing in front of a bunch of my peers, urban designers, landscape architects, planners. Not a single person raised their hand, and I was dumbfounded. I’m like, look, I’m trained as an architect. I like to look at pictures, but I read the tax system. It’s not hard and it basically is an incentive to crappy buildings. That’s simple. And people came to me like, we just hire you to do that, and that’s how Urban3 got started.

Eve: [00:09:35] That’s really interesting.

Joe: [00:09:36] Probably five years in. It changed.

Eve: [00:09:40] To what?

Joe: [00:09:41] Then it was seen as like, this is some sort of gimmick that this is just, you know, Joe being cute to, OK, we need to do this stuff. When I when I started doing the value per acre analysis…

Eve: [00:09:52] It took five years.

Joe: [00:09:53] People are slow. Good.

Eve: [00:09:55] Good things take a long time. People are slow.

Joe: [00:09:58] Well, it’s all right. It’s good to be skeptical. The irony about all of our work, this is really simple. When you do a per acre analysis, it normalizes all real estate into a metric unit. Like think of miles per gallon. We don’t see miles per tank. So,we all know the gasoline is what drives the car. So, all tanks are different sizes. Well, the same is true with real estate. The irony is like what we’re seen as like just a cute little trick of doing value per acre analysis. And seriously, economists would tell me that they’re like, Oh, that’s a gimmick. I’m like, Are you high? Like, Is there more land on this planet? And so, if you look at literature from the 1930s and 1920s, the development, I’ve got books, historic books from the 1920s about building small neighborhoods. The whole thing revolves around value per acre analysis. That was commonplace back then. Somehow, in the intervening like thirty interesting year gap, we somehow lost this idea.

Eve: [00:10:54] Interesting.

Joe: [00:10:54] Australia, they do it on a per hectare basis. Like they understand the value of land in Australia, but not here.

Eve: [00:11:00] Interesting.  Thats’ because most of Australia is desert. Probably. Seriously.

Joe: [00:11:05] You’re alSo,reasonable people. Interestingly, we’re cousins, right? Like, we both came from the same parents. Like we like poke mom in the eye. We were the first ones and then the United States were, like, we don’t need to be British anymore. We left with the same damn tax policies. You in Australia, us in the United States and Canadians. In the intervening two hundred and something years, the Canadians, the Australians and New Zealanders all adapted their tax policies. In the United States we didn’t. Ours is the most crude, blunt instrument.

Eve: [00:11:38] Yes.

Joe: [00:11:38] If you tax on value, there’s a perverse incentive to build crappy buildings, period. That’s it.

Eve: [00:11:44] Right, right. Ok, So,I’m going to break this down a little because maybe I’m one of those stupid people. But I mean, I do understand this, but still. I live in downtown Pittsburgh, and the value of residential is pretty high in downtown Pittsburgh. And I take up a very small portion of land because I live in a unit that is in a building that is four stories tall. Many people live in units that are much taller than that, So,they take up an even smaller portion of land. But the city gets substantial taxes from my unit. If I took my unit and I bought something equivalent in an outlying suburb of Pittsburgh, they had the same value, let’s say, to $500,000 value, OK, $500,000 in a building which has a whole bunch of other things going on it that are alSo,taxed.

Joe: [00:12:37] In taxes.

Eve: [00:12:38] Versus $500,000 on a one-acre piece of land in an outlying suburb. The city gets the same return, right?

Joe: [00:12:49] No, they’re getting well. Let’s just say you’ve got, we’ll go with a coffee shop on the ground floor and three stories of condos, right, for your building?

Eve: [00:12:58] Oh, no, no, that’s what I meant. Yeah, no. They get way more return for the little sliver of land downtown than the one acre on the outlying in the outlying neighborhood.

Joe: [00:13:09] And on top of that, keep going.

Eve: [00:13:09] Yes, let’s see if I get this right. It’s a test. On top of that, you know, the infrastructure is already there downtown. The pipes that bring water into the building and Comcast cable and whatever else you need are there. Whereas if it’s an outlying piece of land that’s never been developed before, someone’s got to pay to get that stuff there, right?

Joe: [00:13:32] And…

Eve: [00:13:34] You can finish.

Joe: [00:13:35] Think of the frontage on that one-acre parcel versus the frontage on your parcel. So, the consumption of cost is 12 times for the frontage versus your frontage, So,in addition to the fact that yours is already amortized its way out and paid for itself, probably in two cycles already, their stuff is like you’ve got to run it out there, you’ve got all the infrastructure that gets you to that point that’s not being paid for because of the existing. There’s a lot of suburbs that you’ve got to go through to get to that end of the line, and all of those suburbs still don’t pay for themselves. So, it’s essentially, we do a lot of work with strong towns. There’s a guy Chuck Marohn, who’s a civil engineer, and Chuck calls it the Ponzi growth scheme, and he’s totally right. The only way that we look, we look solid on paper, the more we grow in suburbia because we’re getting new cash flow. And everybody should have caught this when the recession hit. When the recession hit, all of a sudden, cities were broke. It’s like, well yeah, you should be able to cover your cost if nobody comes in the door and buys a commodity, right? I should still be able to pay rent if nobody hires me. I have a reserve account and we should be able to get through, in our case, our business, we can handle about six months of working without new clients coming in the door. With cities, if they don’t have new permits, all of a sudden, they’re broke. Like that should tell you something. We should tax our system to be able to cover the costs of what we’ve got. In the case of Pittsburgh. When you lost your population, you’re essentially carrying all of this extra infrastructure for a city much larger than you, So,you should not be adding more to it. You’ve got to like, find ways to compact a little bit.

Eve: [00:15:19] Yeah. Now in the Urban Redevelopment Authority’s favor in the city of Pittsburgh, they’ve always really stressed trying to fill out the existing neighborhoods in the support they provide. So, and way back, we had a mayor, Tom Murphy, who, you know, probably familiar with, who really went out on a limb and took operating funds and created a development fund, the Pittsburgh Development Fund, to support projects right in the city because I think he got this, right?

Joe: [00:15:51] Yeah, he did. Like in the case of South Bend, Indiana. Now, the Rust Belt, the big expense of an infrastructure, the big, expensive stuff is lift stations and force means. Everything else gravity feed, you just put a pipe in water goes downhill, but the force means we have to push it uphill or something like that and then lift it. That’s the expensive stuff. So,in 1960, they had 130,000 people, and today they have 103,000 people, So,they lost 22 percent of their population.

Eve: [00:16:22] Which is quite a lot.

Joe: [00:16:22] Yeah, So,but in 1960, they had three lift stations and a third of a mile of force main. Today they have 43 lift stations and 19 miles. So, a 1,000 percent growth in lift stations and a 6,000 percent growth in force mains even though their population was going minus 22. That is a recipe for disaster. When you’re, and cities do this, they’re just like, well, people want new houses out at the edge. So, we’re going to build pipes out there for the builder to build housing. It’s like you were basically building yourself off a cliff. Somebody’s got to pay for this stuff and the developers pay for it. But then they fold it into the mortgage and then the city shows up and like, whoa, new infrastructure. Thanks. Thanks. Thanks, developer. They’ve just taken on this huge liability in maintenance and stuff that doesn’t fix itself.

Eve: [00:17:12] Right. Interesting. So, what’s been the best turnaround story for you? Like, you know, can you describe a client you’ve worked with that perhaps was unbelieving and really kind of transformed their city or at least the processes to?

Joe: [00:17:30] It’s yeah, that’s not an easy question to answer because it’s all been different. And you know, one of the things that you’ll see in our work, and this is something you and I probably have a lot in common in this, that we’re both visual people. I’m a visual learner and a visual thinker. And that’s a lot of people that go into design education get that way. And then we then we get indoctrinated full bore into the design world. So, for me, it’s all about pictures and visuals, and in our work, we make it extremely visual, but some highly nerdy stuff like lift stations and tax flow and stuff like that. But if I can make a picture of it, it communicates to regular people. And what I find with politicians, I mean, think about politicians. I don’t mean this in a demeaning way,

Eve: [00:18:19] But they’re not trained in any civic design.

Joe: [00:18:23] No.

Eve: [00:18:24] Or any of this. They’re politicians, you know, this is a career.

Joe: [00:18:28] You win a popularity contest and you’re like, I’m going to help fix the city and then you show up and you’re like, oh my God, this is a disaster. Where do I start? And then you meet, you meet the technicians that run the city and they’re like planners talking about form-based code or whatever. And you meet the engineer and they’re talking about these, you know, whatever TDM models. You have no idea what they’re talking about, they’re talking in this kind of gibberish. And so, it’s actually a professional problem, not a political problem that the politicians really have no idea what’s going on. So, they just basically just go with the flow, and we take the tack in argument that is the professional that needs to visually communicate, so that people understand it. So, what we’ll do is, we’ll take in South Bend case, Mayor Pete was the mayor when they hired us. We put all the pipes on a map and showed them that they had enough pipe that would go from South Bend, Indiana, to Asheville, North Carolina. And I said, like that, you get to fix that every 40 years. Good luck with that. And once you do that, people are just like, oh my God, we don’t need to add more to this. You know, it should. But like, my mom could understand that.

Eve: [00:19:31] I should not be laughing, but it’s just it’s ludicrous. I’m sorry.

Joe: [00:19:36] Well, it’s systems.

Eve: [00:19:37] Right.

Joe: [00:19:37] You know, it’s you know, you and I talked before the recording. For me, like a very influential author for me is Michael Lewis, and the book Moneyball is brilliant. And so, you know, I worked in real estate development. We’re actually still in the developer’s office. But our company was $15 million. Our city is worth, at that time, $12 billion. Ok, that’s Asheville. 90,000 people taxable value of $12 billion. I know our politicians, some of them are friends of mine. I can’t imagine them running a $12 billion company. And then it’s just like, what do people want? Let’s have more trees. It’s like, I got that. But can we think a little bit more sophisticated than this? And in the beginning of Moneyball, Michael Lewis is talking about the Oakland Athletics being in the playoffs all the time, and they’re the cheapest team in baseball. And and then he meets Billy Beane and they talk about Bill James statistics and the data that Bill James was talking about that was an anathema to baseball. So, the Oakland Athletics were basically following this guy who was asking these really crazy questions like why is an error and error? You know, I fail to close my hand on the ball, but at least I stopped the ball. Shouldn’t we be measuring where the ball lands and where the person is that isn’t catching the ball. So, that distance is really what the problem is because somebody could just never be where the ball lands and they’re never going to commit an error like that makes perfect sense. But in baseball, they’re like, you can’t question the error. We’ve had the error forever. And so, the quote that nailed me in that book, baseball is a is a 7-billion-dollar industry operating without mathematics.

Eve: [00:21:21] Oh, wow.

Joe: [00:21:22] Let that wash over you for a second. I just told you my city is twice the value of all baseball.

Eve: [00:21:28] Wow.

Joe: [00:21:28] And it’s just like Pittsburgh is worth maybe 45 billion.

Eve: [00:21:34] Is anyone using math in Pittsburgh?

Joe: [00:21:39] Some people. I’ve done a couple of presentations there. We actually did a valuation of, took all municipal park property and said, OK, what’s how could you cash flow this? So, there’s the HH Richardson jail that’s at the backside of the county building.

Eve: [00:21:55] That’s a beautiful building. Gorgeous building.

Joe: [00:21:57] Incredible. Modeled after the Bullfinch Jail in Boston, a similar kind of like star shaped plan, although the Richardsons one’s kind of like a half star.

Eve: [00:22:07] Beautiful building.

Joe: [00:22:07] Phenomenal. It’s two-foot-thick walls. But anyway, in Boston, they converted that jail into a lobby for a hotel and stuck a hotel on the back side of it. So,it went from a non-taxable building and it’s actually a really cool lobby. And now it’s kicking out about $3 million a year in taxes. So, went from zero value to $3 million of cash flow to the community. You didn’t lose the building. You know, it’s not a jail anymore, it’s a lobby, but people can go into it. So, we just said, Well  let’s just do the same thing with the Richardson jail. The Richardson jail right now, it’s been renovated, but it’s being used for like county offices. It’s like those could be…

Eve: [00:22:49] Family courts, I think. Yeah.

Joe: [00:22:51] Does it need to be in that building?

Eve: [00:22:54] Such a shame.

Joe: [00:22:56] Yeah.

Eve: [00:22:56] So, I just interviewed Jonathan Cohen, who’s the founder of the Society Hotels in Portland, Oregon. And you know, I’ve always thought the riches in jail, like if you had if you had travelers who wanted to stay cheap, you know, what he’s done is he’s created these bunk beds in this old historic maritime building. So, people can stay there for as little as 35 to 50 dollars, pre-pandemic, obviously, and share a bathroom. You know, people who really don’t want to spend $200 on a hotel room. And wouldn’t it be great to stay in a cell like it would be really fun? Maybe not So fun for some people who originally stayed there. But yeah, I’m totally with you. It’s a very weird re-use.

Joe: [00:23:43] And there’s also, there’s a little corner. There’s like a little tiny, little triangular, oddball lot behind it. That’s just this abandoned, weird site where there’s like a memorial out there for something.

Eve: [00:23:57] Interesting.

Joe: [00:23:59] Seriously, you live in Pittsburgh. Go walk behind this, there’s like this…

Eve: [00:24:01] I will. I will.

Joe: [00:24:02] This weird little triangular piece of dirt that’s there. It’s like, really, this thing is abandoned. There’s like a street that is unnecessary. So, what if we just threw the street in in that little triangular lot? And maybe that’s where you put the hotel and you just build a little hotel tower back there and tap it into the jail? Call it a day. The real simple is the quarter acre, which is a huge piece of land in the downtown. We estimated the taxable value of that would be about seventy-five million dollars and that was 2017. So, it’s like, OK, So, you currently have zero on this thing. You can pump that thing up to 75 million. And let’s say you hold it as a ground lease, you say, look, we’re not going to give this to the developer. We’re going to let them lease it for 75 to 100 years. And then we’re going to as the city of Pittsburgh pull that revenue and fund things like Eve. Eve’s doing cool things. We’re going to create a cash flow to fund Eve in equity projects, and she’s going to go off in neighborhoods and help build wealth. We now have a cash flow off this thing. Anyway, we did that citywide. We’re like, we’re not saying get rid of the University of Pittsburgh, but seriously, there’s land all over the city. The current Pittsburgh GDP is $17 billion. We estimated off public assets doing projects like what I just said, or there’s a four-acre police impound lot on the damn river. It’s like seriously.

Eve: [00:25:28] I know I know it. I know it. It’s such a waste of the space.

Joe: [00:25:31] So, yeah, I mean, you could hit it out of the park on a site like that. And it’s like, seriously, this is the best place to put stored cars in Pittsburgh. Anyway, So, your GDP is 17 billion. We estimated you could get about 15.6 billion off existing assets in a way that’s mutually beneficial. Like, that’s a hell of a value game for Pittsburgh. And cities all across the country have that. Yeah, 15 billion is a pretty big deal. I wouldn’t, you know, I would take half that. If you want to give me half that, I’ll be happy

Eve: [00:25:59] And no one would, no one would listen to you.

Joe: [00:26:02] Well, I think they were a little stunned, you know, because it’s just a different way of thinking. And the thing that’s crazy is this is commonplace in Europe. This is commonplace in Boston. This is what you know, Boston. They’re just like, Yeah, we got to use that jail for something.

Eve: [00:26:14] You could basically double the income for the city.

Joe: [00:26:17] It’s double the GDP, the gross domestic product, which is that’s your cash flow of your place. So, yeah.

Eve: [00:26:26] Pretty, pretty significant. And is that what you find in most cities? That you do studies for. Is it a similar? Does it vary greatly depending on the the land available or the history of the city?

Joe: [00:26:40] Yeah. In that and that aspect, yes. Pittsburgh, obviously, you have tremendous riches of these buildings that you can’t reproduce at cost the way that they exist today. So, it’s like you’re in a better position. Places like Phoenix, Arizona, you know, you don’t have buildings like that, but you still have massive tracts of land and surface parking lots and downtown that the city owns. It’s a complete waste of real estate, and they’ll be like, well, Joe, people need parking. It’s like, all right, we’ll build a parking deck and wrap it with a different building that’s producing taxes. You don’t need to. You know, there’s plenty of developers that would kill for that location if you gave it access and you’re actually predictable with the developer. Developer doesn’t want to go through a process of a community design thing where it’s like they have no idea what’s going to happen by the end of it. You know, things cost money, architects, attorneys, all of that. If you drag somebody through a three-year process, they need to make that money back. You know, it’s that simple. And it’s just people just aren’t even thinking that simply about it.

Eve: [00:27:42] Interesting. So, how long have you been in business now with Urban3?

Joe: [00:27:48] 10 years.

Eve: [00:27:50] And how many clients have you had?

Joe: [00:27:53] We’ve worked in four different countries, 40 different states. I don’t, like 150 different cities. We’re slowly becoming like the international tax experts, So, as a by-product of all of this. And there’s really weird things out there like finance departments in government. So, we were sitting down. We were working with Chuck Marohn from Strong Towns in Louisiana. And Chuck and I were interviewing all of the department directors and we sat down with the finance officer. And finance departments keep a depreciation schedule of their roads and pipes and all this stuff. They know what it costs. Yet it’s in a third set of books called the called the Asset Ledger. And Chuck was like, how is a pipe an asset? And they’re like, well, it’s got money, you know, it’s worth money, and so, it’s an asset. And I said, Laurie, can you pick your roads and pipes up? Can you pick them up out of Lafayette, Louisiana, and sell them to Baton Rouge? And she goes, well, no, and I said, that doesn’t sound like an asset to me. I said my computer is an asset to my business, I can sell it, it depreciates. If I had delivery vehicles in my business, those are assets. How is a road an asset? And she’s like, well, that’s just our finance standards and the gap documents that we have to follow. I’m like, who the hell made those? And she’s like, well, I don’t know. So, now you’re the mayor of Pittsburgh and you’re given the books. And your books have costs, expenses and revenues. And then there’s this third set of books called The Assets. You don’t look at the assets, you’re just like, OK, we’ve got a lot of money over, sitting over here. These gifts of gold called roads. It’s like they’re not assets. It’s like this big anchor you’re dragging.

Eve: [00:29:39] A huge liability. Yeah, they’re a liability.

Joe: [00:29:43] So, cities can’t see this because of something as simple as we follow these gap standards. Well, who created the gap standards? The gap standards are created by bond companies. So, bond companies want to know  how much stuff cities have so that they know how to turn you into a piggy bank. Because they want to give you more money. It’s like payday loan scandal or something like that. It’s like, oh, here’s another bond. And so, cities are like, we’ve got a AAA rating. It’s like, are you crazy?

Eve: [00:30:13] Are you telling me the bond ratings are based on roads and pipes?

Joe: [00:30:17] Yeah.

Eve: [00:30:18] Oh. That’s a shocker.

Joe: [00:30:21] Mm hmm. No one ever told you that, did they?

Eve: [00:30:25] No. No.

Joe: [00:30:25] That’s the thing is like, you and I go through urban design school, we maybe learn a little bit about a real estate development pro forma. Taxation, maybe like a half day class or half a class on that and one session about municipal finance.

Eve: [00:30:39] I don’t think I had any when I went through school.

Joe: [00:30:42] Yeah.

Eve: [00:30:42] And what’s more, I don’t think architects get any.

Joe: [00:30:45] Oh God.

Eve: [00:30:46] I mean, architects are woefully undereducated when it comes to both real estate development and finance.

Joe: [00:30:53] I would say wilfully ignorant. I wouldn’t say woefully undereducated because we, and I’m saying putting myself into that bucket, it’s like, Oh, that’s finance. I am a designer. I am above that. It’s like, Oh, really, OK?

Eve: [00:31:08] As a developer, we sit at the table with an architect thinking, please don’t draw that line. It’s going to cost me too much money.

Joe: [00:31:14] Yeah. And it’s and it’s sad because I love architecture and I love the profession. I think the best education you could have is an architectural education because you’re basically given a blank piece of paper and they’re like, OK, now be creative.

Eve: [00:31:27] Oh, I so completely agree with you. I think architects are trained to be problem solvers, to turn nothing into something. It’s an amazing education.

Joe: [00:31:36] And be critical thinkers. And so, it’s like, All right, take that same critical thinking skill and just be a little curious over about finance. And in defense of architects, the language that people use in finance is deliberately opaque. And I think that’s the best thing about that movie, The Big Short, where they make fun of the opacity of financial language. Well, the same is true inside real estate development. We’re going to get some mezzanine financing. I used to sit in meetings with people. I’m like, What’s the mezzanine? And I would just do that just to be an idiot. But I was mostly making fun of the fact that this has created fictitious language, and I’m explain it to me, I’m just a dummy. I only went to Harvard. What do I know?

Eve: [00:32:16] You know? Yes. And what’s a sponsor? There is a lot of secret language in the real estate world.

Joe: [00:32:24] Yeah.

Eve: [00:32:24] And I have to say this about the SEC in the regulation crowdfunding rule, they created one of the regulations, one of the things that you have to do is explain things in plain English. So everyone can understand. And I kind of love that because what is the sponsor? What’s a capital stack? What’s the mezzanine? What’s like, you know, all of this stuff is like for very special people, but everyone should have access. Yeah.

Joe: [00:32:49] And it’s funny when people, you watch people and you’ve been hanging out with people like this, there’s like, oh, I got my capital stack and it’s like, I just picture people with like a big pile of money that they’re walking around with and they’re like, look at me with my pile of money. Like, you’re just like, come off as the biggest fool when people talk that way. But it’s like, I don’t know, I’m suspicious of that because it’s like, what do you really, did you really work at this or do you just know somebody that’s a banker? They gave you access to money, and you’re proud that you succeeded because you have access and availability that John and Jane Doe off the street don’t have that access. Or somebody that, God forbid, is a different color skin doesn’t have access to the same power and wealth that you’ve got. So, let’s talk about that and there’s matters of inequity baked into the system through the whole thing.

Eve: [00:33:36] Yes, I think the real estate industry is probably one of the most inequitable industries.

Joe: [00:33:42] We’ve done analysis of redlining in Kansas City, and we showed them that even today, when you drop the Red Line map onto the model, you see this staircase step down from green to red, So, you know the gradients of redlining.

Eve: [00:33:59] No, I don’t know the gradients.

Joe: [00:34:01] Oh, OK. So, in 1934, the Federal Housing Administration changed mortgages from seven years in the United States to 30 years. Think of that. That’s a huge change to the mortgage industry. And they said, you know, basically the dirty little secret here is these are Democrats doing this and they were doing it because we were afraid of socialism. So, our country was looking at Europe in the depression going, OK, this is a little freaky. They’re becoming socialists. We need to do something to make people homeowners so that when they own something, they’ll be less apt to want to be socialist. So, let’s find a way to make more homeowners in the country. And this is in the middle of the depression. And so, they created this system of we don’t know what Pittsburgh is like. We don’t understand Pittsburgh, but you have to come up with a map in Pittsburgh to map what’s good real estate, what’s desirable real estate, what’s declining real estate and what is hazardous. So, those are the four grades, the hazardous areas were the red areas. And so, arbitrarily you mapped your hazardous real estate, by like if it was next to a train yard or if it had an infiltration of immigrants. Or if it had Negroes.

Eve: [00:35:16] So, who did that mapping?

Joe: [00:35:19] Our local people. So, it was Pittsburgh did it to themselves. Asheville did it to themselves, cities 50,000 and higher did it to themselves. They did it in Kansas City. Incidentally, my favorite one is in Denver, where they took an Italian neighborhood,  because coincidentally Italians were the driving immigrant class of the 1930s and coming in at number two, where Germans. Well, what kind of Germans were coming in in the nineteen 1930s? That would be Jewish people. So, you find Italian neighborhoods and Jewish neighborhoods were redlined as much as is black neighborhoods.

Eve: [00:35:56] That’s interesting.

Joe: [00:35:56] Now what’s interesting about Italians is I can change my name to Smith, you know, or there were Italian neighborhoods in Denver. There was this one neighborhood that wasn’t redlined that was Italian, 50 percent Italians. And they wrote, right in the document, these Italians peddled liquor during the prohibition era. It’s like those are the mafia Italians. We’re not going to redline them. So, but as a black person, you can’t change your skin.

Eve: [00:36:20] No.

Joe: [00:36:22] So, your family wakes up that day that the map is adopted, and they can’t sell the house, right? Because no one can get a mortgage in that neighborhood. That went on for 30 years from 1934 to 1968. And so, for three generations, you don’t get, you can’t get a home rehab loan. You’re basically just disconnected from the financial system of our country.

Eve: [00:36:45] I realized that I just didn’t know how the initial mapping happened, I suppose.

Joe: [00:36:52] Well, we ran the number in one neighborhood in Kansas City, Kansas. Is like a half square mile where there’s just all vacant houses in it. Well, not all, but 700 vacant lots. And we just real simply went back in time, pulled the old values from 1930, glued the houses back on the map and ran a cash flow of if those houses just stayed low value but paid their taxes over time, how much taxes would they matriculate over 30 years? And it’s insane. It’s $30 million. So, when I was presenting to the community, I said, Look you need to realize your great grandparents were racist, period. There’s no way around it. They adopted racist policies. This neighborhood was redlined because it was black, and you basically wrote a check for 30 million dollars and flushed it down the toilet. That’s the cost and consequences of being racist. Now that was just one neighborhood. What did you what did you blow in the entire city?

Eve: [00:37:43] Wow.

Joe: [00:37:43] And that’s the thing that we need to. I think I would argue that that’s part of being anti-racist, is you have to point out the racism that happened and make it a way that people can understand it. It wasn’t at all comfortable to say that on stage in Kansas City, but that’s the truth.

Eve: [00:38:00] Interesting. So, I have to ask you, also, what does your team look like? How do you hire people in your office? Do you hire architects?

Joe: [00:38:12] God, it’s funny. We have one urban designer other than me, several planners. Most folks are GIS based. It actually, really, we don’t fully get into design the way that an architect or designer would. We’re information curious and a technically proficient with GIS software. The design side we can train internally, but we’re mostly looking for creative thinkers that understand this technology but are also ridiculously curious about systems in cities and have a sense of humor. We do a lot of joking in our presentations, in our data, is a method of delivering information because it’s pretty depressing to just drop a bunch of redlining stuff on people.

Eve: [00:39:05] Anyway, someone who has a sense of humor has probably a higher IQ, right?

Joe: [00:39:12] Well, it’s also, I don’t know, if you’ve read Daniel Kahneman’s Thinking, Fast and Slow.

Eve: [00:39:16] No.

Joe: [00:39:19] The guy is a psychologist at one. He won a Nobel Prize on behavioral economics or in economics. He and Amos are the godfathers of behavioral economics. And there’s a third one. His name is Richard Thaler, who also won a Nobel Prize in economics. And the three of them did all of these studies about how do people make the wrong decisions economically? And it’s there’s human flaws in the way that our brains operate. But there’s also ways that you could take advantage of those. One is where we’re as a species, we’re oral communicators. We tell stories. So, people need a narrative of understanding the economic data. We just don’t drop like a spreadsheet on somebody. We actually tell stories with the data. The other thing is like simple things like they would put pencils in people’s mouths. And you can see my camera and nobody else can, but. And they put one cohort of students through these tests with pencils in their mouths. In another cohort of students through the same test without pencils. And the students with the pencils in their mouths learn more than the students without. And what they figured out is that So, you watch my face? I’m smiling. You know, if you put a pencil in your mouth, you’re forced to smile, and when you smile, the back of your neck opens up. Your brain operates differently than if I’m sitting in the class with my arms folded and I’m like, looking at you like this, you know, it’s just there’s ways of learning that we have survived with and that we just basically use that. So, I highly recommend actually one of my favorite books is Misbehaving by Richard Thaler. And he’s one of the three Nobel Prize winners. Daniel Kahneman is awesome. His book, Thinking, Fast and Slow is incredible. I find it really hard to read. I much prefer Daniel Ariely’s, Predictably Irrational.

Eve: [00:41:12] These are all great titles, you know?

Joe: [00:41:15] Yeah. Well it’s, look, we deal with humans, you know. And we don’t, we go to design school. Even planners. Planners of all people should have degrees like some subset of psychology, you know, because they have to deal with groups of people. But it’s funny that we go into these professions, and we don’t learn how humans operate.

Eve: [00:41:34] So, I’m fascinated and I’ve lost my train of thought here completely.

Joe: [00:41:39] I’ve taken you off course. We’re supposed to be talking about real estate, aren’t we?

Eve: [00:41:42] No, but this is good. So, if cities adopted, you know, sort of this data exploration, what would cities, what would cities look like in the best of best of all worlds if they really paid attention and adopted, you know, this information that you’ve uncovered to their advantage? And what would we have to stop doing now that we’re doing?

Joe: [00:42:15] Well, it is. That’s a hard question. You know, there’s ultimately, I think we need to change our tax system. And right now, the majority of cities in the United States counties to operate off property tax. And So, think of it this way your building is probably worth what a square foot? Like maybe like 500 bucks a square foot?

Eve: [00:42:42] Oh, I’d be so lucky. Maybe 300.

Joe: [00:42:46] Ok, even 300. Like, what would it, you’d pay $300 a square foot to reproduce your building?

Eve: [00:42:52] No, but I couldn’t probably sell it for more than that.

Joe: [00:42:57] Ok, let’s call it 300. What’s a Walmart worth per square foot?

Eve: [00:43:01] Boy, I don’t know.

Joe: [00:43:02] Fifty. So, per square foot, you’re paying six times the production of a Walmart.

Eve: [00:43:11] Yes.

Joe: [00:43:13] That’s simple math, right?

Eve: [00:43:14] Right.

Joe: [00:43:15] That’s our tax system.

Eve: [00:43:17] Interesting.

Joe: [00:43:19] And it’s just like, what, so architects, of all people, we should be at the front line saying get rid of property tax as a valuation of property value is the indicator of taxation because there’s a perverse incentive to build crap. Wal-mart doesn’t make any bones about it. I actually went to, I presented at the International Association of Tax Assessing Officers Conference. I don’t know if you hang out…

Eve: [00:43:41] That must have been a blast.

Joe: [00:43:43] Oh, it makes it makes an AIA convention feel like Burning Man. It was the squarest thing ever. And but, you know, they’re cool people. I like, I love assessors. And the thing is like, there’s no other designers there. And I’m like wandering around with all of these nerds. I’m like, How the hell does this system work? Trying to learn from them? And the more I learn from them, I’m like, wow, that’s amazing, the way that they think. They like, go into a forest and they’re just like, is, is this a Norwegian spruce or is this a Douglas fir? I don’t quite understand what tree this is. It’s like, do you see the forest that’s around you? And they don’t. And so, they have their biases just like any other profession, and they are completely obsessed with figuring out what kind of tree this one tree is. And they will have an entire week’s long conference about that and not see the forest. And the head of Walmart’s real estate got up there and was the keynote speaker one morning. And I remember this, 3,000 assessors in the room. This guy did this amazing presentation on how cheap Walmarts are. He showed spreadsheet after spreadsheet on how crappy is buildings are. And I’m like in the audience drinking my coffee and I’m like, oh my god, this is brilliant. This guy is the bomb. This is the smartest thing I’ve ever seen anybody do. You’ve got 3,000 assessors in one meeting. You can get all of your property taxes lowered in one meeting, right? And then I’m like having a coronary because as a designer, I’m like, Holy cow, how is he getting away with this? Now, assessors in their defense, they’re agnostic. If it’s crap, it’s crap.

Eve: [00:45:15] It’s not about design. It’s not about, yeah.

Joe: [00:45:18] They’re like, thanks for making our jobs easier. So, I go up to the microphone and I was trembling. I was so, pissed off and I was like, Mr. Tyrrell, what’s the useful life of one of your buildings? And he goes, 15, maybe 20 years. We designed the building to depreciate it as fast as possible. We don’t care about the buildings. They’re throwaway. We’ll design another building, build another building, move into it and start the depreciation cycle down again. We don’t care about the buildings; we care about the transportation system. And once we set up a transportation system of goods and services, the buildings are thrown away for us. And I was like, damn. Like, that’s the life cycle of a cat. 15 years, you know, and so, when I present to people, I actually make fun of that experience and I actually show a big picture of a cat and I tell the mayor I’m like, is that what you want in your corporation? Is the CEO of a corporation that’s worth whatever, $15-billion, do you want a cat? And as long as you’re making that choice, that this is what you need. Awesome. The average Walmart consumes more in police services than it pays in property taxes. So, I tell people…

Eve: [00:46:17] Wow.

Joe: [00:46:18] Don’t hate the player. This isn’t about Walmart. Hate the game. Understand the game is in your control. And until you control it, you’re at the mercy of the game. So, cities that don’t look at their cash flow situation, they have these biases that roads and pipes are assets and not even look at them as liabilities. That’s their own stupid fault.

Eve: [00:46:37] Right.

Joe: [00:46:38] I’d like I wish we could all live in a version of Paris or something or Milan or, you know, I think you go to Europe, and you see these incredible cities and you’re like, what kind of what kind of Martians left these places for these people to live and happily? And then you come to American cities, and we live in such rubbish.

Eve: [00:46:58] Well, it’s partly the culture of the country. Like, you know, I lived in Australia, and I’ve lived in the states. And so, there’s a real cultural divide when it comes to ownership rights. You know, and property rights, and you should have complete control here over whether you can park your car in your front yard. Whether you can cut a tree down because it’s going to make your car dirty. It’s really not about the neighborhood as a whole or even the environment as a whole. You get to cut your tree down. It doesn’t matter if it looks bad like, or it doesn’t matter if it devalues the neighborhood. You can’t do that in Australia. In Australia, if you want to cut a limb off your tree, you have to go to City Council and get approval. Like it is, and people accept that. You know, they kind of accept that as the status quo. So, I think, you know, I don’t know what it’s like in New Zealand or in Canada, but that’s definitely, I think the dividing point I see. Does that make sense?

Joe: [00:48:04] You know, back to the point I made earlier that the interesting thing is culturally, we’re really not that far from you. We’re both basically British descent as countries go. Both about the same size. You had as much land as we did or more. Australia is a big country, but most of it’s desert. In our country, we kind of how do I put this? We have these narratives, and this is where the psychology comes in. So, we talk about freedom and all this stuff. But think about our country. Our country was formed on a tax revolt, right? We were taxed differently about our tea. We weren’t in control of it. So, we got pissed off at mom and dad and started a little fight and separated our country from their country. So, there’s a great old colonial barb in our country that people used to say as colonists, Don’t tax me, don’t tax thee, tax the fellow behind the tree. I love that saying. We’re a country of tax evaders. That’s it. And it’s like, and we’re fiercely independent, which is cool. And you know, there’s I live in Appalachia. You’re part of Appalachia. I was like in a meeting one time I got into this argument with this guy and you know, we went to breakfast the next day and he gave me his political philosophy and he’s like, Look, Joe, I run out in the woods with my gun. I go out with my gun and get out in the woods, and I run around, and he was doing this kind of like sitting in his chair, like he’s Chubby Checker doing the twist or something. He’s like, I run with my gun and I’m so happy. And like, you know, Steve, I don’t care. Do whatever you want with your gun. I don’t care if you sit in your yard and get naked and rub yourself on the belly with a chipmunk if that makes you happy. Knock yourself out. Would I have a problem with is that road to your house? You get to drive on that road every single day and you’re not paying for it? I think there needs to be a toll gate at the end of your driveway and you pay to use that road. And then when I go to drive past your house to go out mountain biking, I’ll pay to use that road too. And everybody should pay their own fair share. And he just looked at me and he goes. You know, that makes a hell of a lot of sense.

Eve: [00:50:16] Interesting.

Joe: [00:50:17] You know, So, rather than, what I find with people is we’re really good at this in our country. More so, now, is we will take our own little tribe and stay in our bucket and blame the other tribe without going across to understand their mindset. So, I understand Steve’s mindset. I understand the freedom because he’s been led down the primrose path that that’s some sort of American mythology until he’s confronted with the cost of that road. He doesn’t know that the road cost money. You know, he doesn’t pay for it. So, what I’d like to do is I’d like to see Steve get a tax bill that shows him his subsidy So, he doesn’t run around thinking he’s thinks he’s paying for himself. So, when we show that model, the reason why we do it county wide is in, particularly in my county, I’ve got two voters out in the county for every one voter in the city. Those folks out there control the place politically. They’re subsidized, So, they hate my city. In fact, they got my state legislator to call us a cesspool of sin.

Eve: [00:51:17] Oh.

Joe: [00:51:17] And that was on the downtown. Seriously and we’re out on the downtown association. And we’re just like, really? How about a thank you card for all the money we’re shelling out? We showed the model showing how much more taxes is coming out of downtown. Remember everybody in the county pays the same millage rate. So, we’re paying. I pay six mills in county taxes. People out there pay six mills. Their value, you can see it in the model is like one 20th what my value is. So, on a per square foot basis, I’m kicking out 20 times the taxes that they are. When you show it to them on the map, you’re just like, OK, so, what you’re saying about that subsidy that you guys have? You know, then they can see it. So, it’s really, it’s all of our responsibilities to try to find a way to communicate. And make a common ground, and that’s kind of why that’s our practice.

Eve: [00:52:06] Well, it sounds like you’re doing an amazing job and I have thoroughly enjoyed this conversation. I could go on forever. I’m such a nerd. I love this stuff. You showed me a pretty fabulous PowerPoint, which I would love to at least point to on our blog post for our listeners. Maybe you can give me a link, or I can post it there.

Joe: [00:52:28] Yeah. We’ll send you a link. We have a YouTube channel with a bunch of videos.

Eve: [00:52:32] Oh, that’s perfect.

Joe: [00:52:33] Some of them are super long. So, just for the audience, just be aware. But, but really, it’s their narratives. They’re all three act plays as far as I’m concerned, So, we do work real hard to make them fun to watch because it’s highly nerdy stuff, but you’ll see the visuals and the presentations.

Eve: [00:52:52] Well, thank you so much. I’ve really enjoyed the conversation and I hope we can continue it.

Joe: [00:52:57] Definitely. Thanks for having me. And anytime you want me back, just let me know.

Eve: [00:53:16] Joe brings energy, passion and a brand-new perspective to the built environment. If you look at the data, good stuff will follow. You can find out more about this episode or others you might have missed on the show notes page at our website, Rethinkrealestateforgood.co. There’s lots to listen to there. A special thanks to David Allardice for his excellent editing of this podcast and original music, and thanks to you for spending your time with me today. We’ll talk again soon, but for now, this is Eve Picker signing off to go make some change.

Image courtesy of Joseph Minicozzi, Urban3