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Rethink Real Estate. For Good.
16 minutes | Jul 28, 2021
One year. 41 more conversations.
Two years ago, I didn’t know that our audience would grow as it has. In fact, two years ago I wasn’t sure we would have an audience at all. Now 10,000 people download episodes every month. That’s 10,000 people who care about thoughtful and impactful real estate solutions. Wow! I am humbled that all of you want to listen in. This second year has been an opportunity to learn from yet another class of extraordinary leaders and innovators in real estate. My guests are working on housing solutions, policy issues, manufacturing, in fintech, on preservation, on developing new technologies and on providing real estate metrics, on mobility issues, as architects, on sustainable development, on community capital, on equity for women and equity for minorities and in many other niches, pushing the boundaries of the built environment to be better for everyone. The range of work that is being accomplished is quite awe-inspiring. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
39 minutes | Jul 21, 2021
Dr. Shannon Mudd is an economist and educator with a University of Chicago pedigree, specializing in microfinance and impact investment. He currently runs the Microfinance and Impact Investing Initiative program (Mi3 for short), which he founded about 8 years ago. One of his hottest classes teaches students how to invest $50,000 of real money for maximum social impact. This might seem trivial in the investment world, but it’s powerful ‘homework’ for students testing the waters of impact investing for the first time. Shannon has turned teaching economics into a meaningful and hands-on exercise. His students gain real world experience learning how to invest for more than a financial return. And they are taking that knowledge with them into the job market and passing it on. Impactful classes for impact investing. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
44 minutes | Jul 14, 2021
The zoning whisperer. (Redux)
This episode was very popular in our first season. And since zoning issues continue to be recognized as one of the primary issues in the housing shortage, I thought we should revisit this insightful episode with Eric Kronberg. Eric is a principal at Kronberg Wall, an architecture and urban design firm based in Atlanta. They describe their work as conscious urban placemaking and they describe Eric as the firm’s zoning whisperer. In this episode we unpack the impact of zoning along with Eric’s belief that the revitalization of a neighborhood is perhaps the best way to advance the “triple bottom line”. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
49 minutes | Jun 30, 2021
Filling the “crazy gap.”
Jonny Price has spent most of his working life in the world of microfinance, first at the nonprofit, Kiva, and now with the crowdfunding platform, Wefunder. He started his journey from management consultant to crowdfunding guru in 2009, as a volunteer with Kiva, on an externship from his consulting job. He made the full leap over in 2011, to lead the Kiva Zip pilot project, which later became Kiva U.S. And a couple of years ago, he transitioned to Wefunder, a crowdfunding platform where everyone over the age of 18 can invest as little as $100. Kiva and Wefunder have a common theme for Jonny – they are aimed at “financially excluded and socially impactful businesses.” He talks about the “crazy gap” between bank loans for established businesses, and venture capital for a select few. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
34 minutes | Jun 23, 2021
Yes! In my backyard. (Redux)
Our episode, "Yes! In my Backyard," made it to the top of the charts. More of you downloaded this episode than any other to date. And since my guest, Patrick Quinton, is currently offering an opportunity to invest in his ADU’s on SmallChange.co, we thought you might be interested in listening to Patrick’s vision again. Dweller is Patrick’s startup company. They create turnkey accessory dwelling units with a goal of addressing the very pressing housing needs of his city – Portland, OR. Patrick started Dweller because he knew that Portland has “the most ADU-friendly code of just about anywhere.” A 32x14 foot ADU can be set into a typical 50-by-100-foot lot without hitting the setback limits and without requiring city design review. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
38 minutes | Jun 16, 2021
It takes a village.
Charles Durrett is an architect often credited with introducing the concept of cohousing to the United States through his co-authored book, Cohousing: A Contemporary Approach to Housing Ourselves. Over a number of years, he has built a career around this idea - one he was introduced to as a student in Copenhagen. These Danish housing projects captured his imagination enough that he set about bringing this novel idea to the U.S. Today, Charles oversees The Cohousing Company, which designs cohousing projects for many kinds of clients. A typical design includes densely packed cottages of 30 or so homes that form a 'village,' with a liberal sprinkling of communal areas and amenities, occupied by people who want to live co-operatively. The historical idea of planned communal ‘villages’ in the U.S. is not totally new – you have everything from worker housing to the freeform communes of the 1960s and 70s. But Charles has taken it further, inspired by the Danish model and adding in a dash of the principles of New Urbanism. Most interestingly, Charles describes himself as more of an anthropologist than an architect because every design begins with a deep dive into the psyche of the 30 families that plan to live together. Only once he understands how they want to live their lives, does he embark on the process of designing the physical place. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
40 minutes | Jun 9, 2021
Stewarding the future of farming.
After a decade of building a career in real estate finance, from a pre-college stint as an analyst for an established D.C. development firm all the way to co-founding (with his brother, Ben) the first real estate crowdfunding platform, Fundrise, Dan Miller changed lanes....Sort of. In 2016, he founded Steward, an online platform which enables people to invest directly in sustainable farms. In a way, it wasn’t such a shift from Fundrise, which used an online funding platform to connect developers and investors. Think farmers instead of real estate developers. “I always saw finance as a way to open up access to new groups of people” says Dan, and true to his word, you can invest for as little as $100. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
41 minutes | May 26, 2021
Radical in its simplicity.
Beth Silverman is Executive Director of the Lotus Campaign, a nimble nonprofit startup focused on reducing homelessness. What makes the Lotus Campaign especially interesting is its approach to putting a roof over a homeless family’s head. Instead of building ground up affordable homes, employing a bevy of subsidy financing, the Lotus Campaign is instead focusing on existing Class B apartment buildings, and on building partnership with Landlords. By offering a networked support system to ensure that each tenant succeeds the Lotus Campaign has been able to house 300 families to date. Only 1 has been evicted - a resounding success and a testament to the program. Even better, each placement has only cost an average of $800. This seems such a small price to pay to put a roof over someone’s head… If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
44 minutes | May 19, 2021
Livable and Delightful.
An enquiring and eclectic background led A-P Hurd to where she is today - an in demand consultant solving very large real estate challenges, all focused on sustainability. Born and raised in Ottawa, journalism, finance, software startup, and novelist are all part of her career path. Not a straight path, but a very rewarding one. Then she decided to go to graduate school to further her engineering skills, and found her way to sustainable and transit-oriented real estate development. Today she has SkipStone, where she works with clients like Sound Transit, the City of San Jose, Community Roots Housing and private developers bringing projects to market, sustainably. Her mantra these days is “livable and delightful”. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
37 minutes | May 12, 2021
Know your price.
Today, I'm talking with Andre Perry, a senior fellow at Brookings in Washington, D.C. Andre is also a scholar in residence at American University, a columnist for The Hechinger Report, and he writes for the Nation. But what really drives Andre is the seemingless impossible divide between blacks and whites in this country. He is focused in his recent work on the multiple issues impacting minority communities in urban metro areas. And he has authored a book, published in 2020, called Know Your Price, Valuing Black Lives and Property in America's Black Cities. In his work at gathering data for the book in black majority cities across the country, Andre found that homes in black neighborhoods where the share of population was 50 percent or higher were valued at about half as much as white neighborhoods. Andre further refined the data by taking into account education, crime, walkability and other key neighborhood factors. And still, he found that homes in black majority neighborhoods were underpriced by 23 percent, or about 48,000 dollars per home. That's 156 billion in lost equity. And Andre knows we have to fix that. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
59 minutes | May 5, 2021
I've been working on the railroad.
Today I'm talking with David Peter Alan, journalist, intellectual property lawyer and all-around public transit advocate. David has worked for decades as an advocate for rail transportation, serving on boards, councils and committees. For two decades, he chaired the Lackawanna Coalition, an independent non-profit organization that advocates for better service for New Jersey riders. His expertise is widely recognized. He has spoken and testified at hearings, moderated panels and written extensively on transit issues for much of the last decade and a half and currently for Railway Age. Not one to stop at writing and talking, David has ridden the entire Amtrak system and about 300 transit providers in the U.S. and in Canada. Overall pre-pandemic, he thinks he has probably ridden every single system in the contiguous 48 and then some. This is a passionate conversation. Listen in to learn about the current state of transit in the U.S. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can.
33 minutes | Apr 28, 2021
3D-printing, robotics and automation, oh my!
If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Today, I'm talking with Sam Ruben, who is passionate with a capital P, about sustainability. Sustainability is not just a moral principle for Sam. He believes that as a core value, it can improve the bottom line and increase the brand value of any company. And Sam is living this belief. Today he is Chief Sustainability Officer and Co-Founder of Mighty Buildings, a company that offers 100 percent digital prefabrication of its modern ADUs and kits. In the first three years of their existence, Mighty Buildings developed a breakthrough material that can be printed into any shape, a series of ADUs with a growing order list and a house kit of parts. Now deploying a Series B round of funding, the goal is to manufacture thousands of houses through the 3D printing material, in thousands of locations globally within the next 10 years, reducing waste and energy and helping to house people quickly, affordably and beautifully.
30 minutes | Apr 21, 2021
Andrew loves real estate.
If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Andrew Luong,CEO and co-founder of Doorvest loves real estate. Growing up in a lower middle-class family, he decided early on that real estate would be his path to financial security. So he started buying and fixing up single family homes in his spare time. While he honed his skills as an entrepreneur in a variety of start-ups, his portfolio grew into the double digits. He had honed his skills as a real estate investor as well. It dawned on Andrew and his co-founder, Justin, that the long laundry list of items that comes with purchasing a property could be deconstructed and rebuilt into a frictionless process to bring real estate investing to everyone. And so Doorvest was launched to provide a turnkey real estate investment service online. You'll want to listen in to learn more.
52 minutes | Apr 14, 2021
Women building collective muscle.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:15] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers. Eve: [00:01:29] Today, I'm talking with Libby Seifel. Libby's life is built around big causes. She has spent much of it professionally focused on affordable housing and much of it personally focused on women. Libby's interest in housing came about when she lived through gentrification in her own neighborhood in Boston. There she saw her own godmother pushed out of her apartment into distressed public housing, and that convinced her that mixed income housing was a far better solution. She went on to get degrees at MIT in Planning and Urban Studies and became the founding Executive Director of Tent City Corporation, a non-profit developer of a ULI, award winning, mixed income housing development in downtown Boston. At that time, mixed income housing and sustainable development were considered somewhat of an oddball concept, says Libby. Now they're widely accepted as good planning. And then she founded her own firm. She was the only woman in the room when she started her career. Today, that has changed a little, but not nearly enough for Libby, who has founded a quickly growing women's development collaborative to support women developers. I'm a member of the Women's Development Collaborative, so I've seen firsthand the strength of Libby's focus. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe, if you can. Eve: [00:03:32] Libby, I'm really happy to talk with you today. Thanks for joining me. Libby Seifel: [00:03:38] Thank you. Eve: [00:03:39] So I've known you for quite some time. I was trying to remember how long that was, but I just couldn't. It's been a long time. But still, I was really surprised when I read your resume and you've done so much and there's probably more that you haven't talked about, which I'm hoping we're going to talk about today. But I wanted to start with a quote I read that you were going to be a doctor and and I'm wondering what happened. Libby: [00:04:07] That's interesting story. So, I think what happened was that I got really, really interested in urban planning and I was actually talking with somebody about this recently that I had the great fortune of having Lewis Mumford as one of my professors, my freshman year in college. And I was coincidentally reading The City and History, which is his famous book. And he was such a wonderful storyteller and really conveyor of what was going on in the earlier part of the 20th century with respect to thinking about what cities could be and how they could be. And so he looked at it both historically and as a visionary, and he was very dedicated to sustainable development. About having development that was holistic, where people could walk to, walk in their communities to the grocery store where they could live together. Eve: [00:05:16] And that was before this was the thing, right? Libby: [00:05:18] This was before it was a thing. This was, yeah, it was. I mean, there's, we can talk about the criticism and there are pieces about the movement that he was part of that was very white focused. So I want to just say that up front. And I understand and and that but this sort of it was kind of the city beautiful, but it was really more country beautiful movement. He lived for it pretty much his whole life after he moved out of New York City, in Amenia, New York, which is an absolutely beautiful part of New York. And if you've never driven up the Hudson Valley, it is absolutely exquisite. And Amenia is off the Hudson Valley inland. And it's a beautiful farming community near the border of Connecticut and on, coincidentally, a rail line that goes into New York City. Eve: [00:06:11] I've been on that train. It's fabulous. Libby: [00:06:13] You've been on that train. So you know what I'm what I'm talking about. So, and my uncle's an architect, so my mother never wanted me to be an architect or an urban planner, which is what I am now. She wanted me to be a doctor and specifically she wanted me to be an ophthalmologist. So I was like, no, but I love visual arts and I love visual science. And I actually studied that. So alongside of studying urban planning, I studied neurophysiology and urban, just a lot of urban studies. And and I prepared to be a doctor. And I finally convinced my mom that if I got a master's in urban planning alongside of my undergraduate degree, I'd be so much more competitive to be a doctor. So, so that's the funny story. But on a more serious note, I was able to study with Dr. Land at Polaroid on visual art and visual science. And I have a very deep appreciation for the arts and colors in particular. And I like the idea of creating a colorful world where we all can participate and be part of this. You know, it's the utopic view, but my life is really dedicated to making the world a better place. That's what I try to do. Eve: [00:07:41] That's wonderful. Libby: [00:07:41] And I think Lewis Mumford and people like him are just very inspirational to us in this field. Eve: [00:07:50] You were lucky. Libby: [00:07:50] And I wouldn't really be here without him. And then actually the other clincher to all of this was that - it's a story that kind of leads into my career - is that I moved to Boston, I went to school in Cambridge at MIT, and I moved to Boston with my college roommate, who's now still a very good friend of mine and a real estate developer and investor. And we moved into the South End neighborhood of Boston, which is a really incredible neighborhood now. And then when we moved in there, it was a neighborhood very much in transition and it was a neighborhood very affected by urban renewal. And these were the times when wholesale displacement of people occurred, where they were moved out of their homes. Where a vibrant neighborhood that had been very colorful and dynamic, was changed through urban renewal, and the community had been promised development as part of their protests against urban renewal. They had formed a tent city in protest to say we did not want to be moved. And a group of folks reenacted this tent city event, this demonstration, and I was coincidentally in college at the time and was at a studio that was dedicated to working on studying this site called Tent City, which was the site where this protest had occurred. And so I took the studio and I was forever transformed. I got very involved with the community. I was living there. We really wanted to make this housing happen. We wanted it as mixed income housing. We wanted it to be a resource for the people who have been displaced in the community. And we wanted it to be a place where people of all income levels could live together in a great, absolutely great site in Boston, right next to that Back Bay Station, which ultimately got built. I mean, that's part of my whole history, but ultimately got built with that vision and that dedication of that group of people totally transformed my life. Eve: [00:10:14] And that also got a ULI award, right? Libby: [00:10:17] It did. It did. It got a ULI award. And it is great to visit. It's right next to Copley Place. There's a whole story about Copley Place. We could talk about later if you wanted, but it's next door to Copley Place. It's next door to Back Bay Station, which is where the Amtrak station is and the light rail. And it's also next door to the moved underground railway that used to be an elevated railway, a streetcar through Boston, through the South End in a southern part of the South End which was then put into an underground tunnel. And on top of it is the most amazing set of community gardens. Eve: [00:10:57] Yes, I've been in them. They're stunning. Libby: [00:10:58] You've been in them. And the walkway... Eve: [00:11:01] That was the Big Dig, right? Libby: [00:11:02] Yeah, well, it's not the Big Dig, but the Big Dig is amazing. The Big Dig is over by the waterfront of Boston. This is actually in the Back Bay, South End, part of Boston. It's the orange line. And you wouldn't know because you're going underneath it if you're riding it. But it is on top of it. There are these amazing community gardens. Eve: [00:11:25] The gardens are gorgeous. Libby: [00:11:27] Yeah. Eve: [00:11:27] Including, you know, community vegetable gardens. Libby: [00:11:31] Exactly and each neighborhood block actually participated in the design of each garden and walkway at the end of their block. Another mentor and person that got me into this was Ken Kirkmeyer, who lived in the South End, who was the President of Tent City Task Force. And he was actually the project manager that spearheaded this project and worked with the neighbors to create this marvelous place to walk the South End corridor. Eve: [00:12:04] So Boston and all that really formed your professional path. And where did that lead you? Where are you now? Libby: [00:12:12] So I now live in San Francisco, across the country. Eve: [00:12:18] Very different. Libby: [00:12:20] Yes. But I think sister cities. We're on the water. We have a long history of progressive politics. Though, it's quite different out here than it is in Boston and a very, very strong set of values when it comes to preserving history, to recognize the importance of neighborhoods and community and thoughtfulness about design. A lot of architects and designers. In fact, when I when I was making the decision to leave Boston and come out here, I can't tell you how many people told me not to come because there's way too many planners out here, urban planners and architects and real estate economists. And it was going to be very hard to move, unfortunately, chose the time to move, which was one of the recessionary times we had across the industry. But it all worked out and I love it here. It's a beautiful city and the Bay Area is an absolutely lovely place to be. And there are so many challenges and I thrive on challenges. So there are so many urban challenges in the Bay Area to work on. Eve: [00:13:34] What sort of challenges? What do you work on? Libby: [00:13:36] Well, first, you know, like in Boston, but even worse, the cost of housing is just phenomenal out here and out of reach of so many people. And it exacerbates the haves and the have nots. So that's a big challenge that I work on a lot, both as a volunteer and in my profession. It's also that we have we have to be very conscious of sea level rise, much of the Bay area is on water, as it makes sense, we're on the bay. We're on the ocean, San Francisco straddles the Pacific Ocean and the San Francisco Bay. And so, we're virtually surrounded by water on three sides. And we have the possibility of our downtown in San Francisco being underwater in the not-too-distant future. The history of San Francisco, like Boston, there's a lot of the city is on fill. We have natural hills that we took down, many of them to build fill, and we filled in a lot of the areas that when you come to visit San Francisco and you're walking around that land used to be either marshland or ocean, very deep ocean or bay. So actually bay, not ocean, but through the ocean, water intrudes. So that's a big challenge. We also have earthquakes. Just to keep things interesting. So that shakes us up every once in a while. And we're at risk of an earthquake, particularly in the East Bay, happening again. So we have to be very conscious of resilience in so many ways. So that makes our our life challenging. And we have we have it's an absolute blessing and a curse. As many people say, we have the most amazing set of folks in technology. I mean, many of whom are M.I.T. alums and Stanford alums who have formed this tech corridor and biotech corridor that we have all through the through the Bay Area Peninsula and Silicon Valley, which is absolutely amazing and makes our economy incredibly strong and robust. And California's incredibly strong and robust. But alongside of that, it ends up pushing up the price of land and the price of development so it can make it very hard for small businesses to be successful. Sometimes small retail businesses, the rents can get very expensive. That can make it more difficult for them. So, we have a lot of challenges. Eve: [00:16:18] So how does that like, how does that color the work that you do? You now have your own company, right? And you do consulting work? And is it mostly around affordable housing or what challenges do you confront in that work? Libby: [00:16:33] Great question. So, I do a lot more than affordable housing work, but my passion and heart is around affordable housing. I just want to say on one of my volunteer efforts, because I want people to know about this, I'm the co-chair of the Utilized San Francisco Housing the Bay Steering Committee, and we are dedicated to promoting and producing more housing in the Bay Area through our work. And we have an upcoming summit that's happening June 2nd, 3rd and 4th. This will be our fourth summit that we've had where we bring together a very diverse group of speakers from around the world and the United States to talk about the Bay Area's housing situation, but also more generally, the housing situation across the United States and what are great strategies and tools and best practices that we can use to improve our housing situation. Which includes building all types of housing for all types of people. It's very invigorating to be part of the housing the Bay effort. And this summit always inspires me every year to do more. And in my practice, I work with a lot of cities and developers that are dedicated to building affordable housing and mixed income housing, which is even tougher to do. Tent City was able to hit the timing right with the funding and the commitment by the city to make that mixed income housing development happen. And it had a unique location, but it's been it's very difficult to get the funding together and the financing that is necessary to do mixed income housing at scale. We do have a strong inclusionary housing set of regulations, but here in many cities in the Bay Area, so we do a lot of work and inclusionary housing, which means that a portion of housing is restricted for occupancy or dedicated to occupancy by persons of usually very low, low and moderate income, which is HUD speak is federal housing agency speak for people that earn typically less than the rest of us or about the same. Eve: [00:19:05] Critical for the function of the city, right? Libby: [00:19:08] Right. Eve: [00:19:09] Often service workers and ... Libby: [00:19:11] Essential workers, yep. Eve: [00:19:12] And people who keep places going. Libby: [00:19:15] Yep, exactly. Eve: [00:19:17] If they live too far out, then those places are not going to work anymore. Libby: [00:19:20] Exactly. Exactly. And trying to figure out how to do this with the private market. So I work a lot on the private market side. I'm the number cruncher behind the scenes and the strategist trying to work on these projects. And so, we're constantly trying to thread the needle to figure out how can we keep the private market still building housing while including housing for more people of a greater and more diverse set of backgrounds and incomes? Eve: [00:19:54] Yeah, it's a really big challenge. Libby: [00:19:58] It's really big. Eve: [00:20:00] Well, I want to shift gears a little bit, because I also know about another one of your passions, which is also very close to my heart. And that is how to increase the visibility of women in the real estate industry, in particular real estate developers. And so I've kind of watched you over the years put together a little group that's become the Women's Development Collaborative, and it isn't so little anymore. And I wanted to talk about that. Where did this come from? Why did you start it? Libby: [00:20:35] That's a great question. I guess I mentioned the Urban Land Institute or ULI earlier, and I've been a member of ULI now for, realizing it's been three decades or more. It's an organization that's dedicated to advancing development across the world, globally, and since I've been involved for so many years. When I first got involved, I was often the youngest person in the room and many of these national conferences, and I was often the only woman or one of the few women. And it was very important to me to find, I guess, soul sisters or wise women in this industry. It had been a struggle in my career at different I know, right, to be the only woman. And it was definitely... Eve: [00:21:31] I was the only woman developer in Pittsburgh for quite a while. So, I ... Libby: [00:21:35] Yeah. You were? Well, and Eve, I don't know if you remember this, but how we met was we were at a conference for the Women Presidents Organization in San Francisco. Eve: [00:21:47] Yes. Libby: [00:21:47] Many, many years ago, and you and I both were involved in that. And that's an organization that's dedicated to women entrepreneurs and building capacity. It's a peer-based group. It actually also inspired the Women's Development Collaborative. So it's worth talking about for a minute in case anybody on the line, a woman entrepreneur, it's a great group. Eve: [00:22:09] It's a great group. Libby: [00:22:09] But what was incredibly funny was there's this entire ballroom, one of San Francisco's largest ballrooms, with tables all across it on a Saturday morning with signs on it of like, you know, are you in consumer affairs? Are you in you know? I don't know. Do you do retail product, apparel, whatever? But all across the room, everything. There was one table in real estate, and it was at the table. You and I, we were the only ones at the table. Eve: [00:22:40] And it's really not a whole lot different today, Libby. What really scares me. Libby: [00:22:49] It's true. It's true. So, I mean, it's better, we're working very hard at ULI. So the origin story of the Women's Development Collaborative goes back to these times. And ULI, which still often continue but have gotten better because a number of women that were part of this informal network of wise women, soul sisters that came together to meet on a regular basis at the spring and fall meetings of ULI, which are national meetings when we get together across the country. And we would meet, whether it was for dinner or breakfast or whatever, and we would share ideas about development and best practices and what we were doing. And one of my mentors, she said to me, well, you need to we need to do something more than this. Like these women's receptions in these gatherings are fine, but we need to actually make a difference. We need to improve leadership. And so a number of us got together and helped form what's now called the Women's Leadership Initiative, or WLI within ULI, which is dedicated to advancing women's leadership in the entire real estate industry. And that's been phenomenal and that's gone on since 2012. And again, anyone in the real estate industry should follow that because WLI is wonderful. But at the same time, there we had this niche group that was really focused on development and we recognize that development itself, which is part of the entire landscape of real estate, that you needed support and nurturing and showcasing. And so we started to alongside of the WLI activities, I continue to organize with a lot of other women, events around this spring and fall meetings where we would showcase women developers. We'd go tour their projects, we hear from them, we learn from them. And it's just been so inspiring to see these projects. Eve: [00:25:02] It really has been. Libby: [00:25:03] And then we had to go virtual because there was no Toronto meeting. And so now we're online. So, you can find us at the Women's Development Collaborative online. And we are really trying to build our presence across the United States and Canada. We have a number of women involved from Canada to really promote and advance women's success, leadership, innovation and collaboration and building transformative developments. Eve: [00:25:35] I need to tell you, like I I was also a member of ULI for many years, and then I stopped my membership because I really didn't feel like I belonged there, for a couple of reasons. One was the whole woman thing. But also, I was working on quirky, small interstitial urban projects. And when I was a member of ULI just there was there was nothing there was no one talking about that. So I stopped attending. And actually, when you started inviting me to the Women's Development Collaborative meetings was when I decided to join again because I finally felt like there was sort of a space emerging for developers like myself. That and the small-scale development group, which has been also pretty wonderful to see emerge. But I think... Libby: [00:26:28] Yes, yes. Eve: [00:26:29] Times are very different, but it is incredibly inspiring what you're doing and you have a lot of stick-to-it-ness. And it's also very frustrating to see how slowly things have changed. I mean, what do you think about that, for women? It's very slow. Libby: [00:26:43] Yeah, it is really slow, but it is it is getting better bit by bit. You know, it is, I was looking at some data and it is it is improving, but it is very, very hard. And it's I think that, you know, I, I think that a couple of things that we have to think about and think about deeply, which is that in addition particularly to the history of African-Americans in the United States and their inability to first secure and hold property or even keep property right after the civil war. Property was actually stolen away from them, it was often stolen away back from Native Americans as well. So, we have had a history in our country of not respecting and honoring property for persons of color. But at the same time, when we think about the history and it's not just of the United States it's of the world, women were not allowed to own property. And it also varied state by state. And I believe it still does. And a lot of states that there are different rules that make it very hard for women to hold property or to transact. So it's not just discrimination in the sense of how you show up. Like if you're a woman, you're obviously different as you enter a room, but it's also the rules by which we play. So getting through the those rules... Eve: [00:28:21] Not just the rules, but the culture that those rules perpetuate, Libby: [00:28:25] Yeah, and the culture. Eve: [00:28:25] Because even if there are no rules there, you know, I have to say I, I own a small portfolio of buildings and I have two female bankers to thank for it. Without them, I would not own that portfolio of buildings, which is really an extraordinary thing to say, right? Libby: [00:28:44] It is. It is. And, you know, that's part of what WDC is trying to work on. I mean, we have we have a lot of ambitions and it's and it's hard to even figure out what to prioritize because there's so many challenges. But alongside of really promoting women developers, we want to expand women in the workforce and the development supply chain for developments because of exactly what you said, that we need more women bankers. We need more women equity investors. I mean, that's something we want to talk about, right? That that women just aren't investing as much as men. Eve: [00:29:24] Oh yeah, women investors. Why do women not invest? I don't understand. Libby: [00:29:32] Well, and I think it's I think there's a history of this. Like I think there's an education process. I mean, that's partly what WDC is a big part of our mission is to educate. But I'm now recognizing it's not just educating and building up women developers like educating ourselves about each other or, you know, the service providers, introducing them to women developers. It's also about educating the broader community. I was listening to your podcast with Stephanie Gripne and I absolutely loved the conversation that you had about the fact that in essence, you know, part of this is a perception issue that if we think about it, everyone is an investor, as Stephanie said. She said when we make a choice to buy, she used buy milk. That was her analogy. When we buy milk, we make a conscious choice whether we're realizing that it's conscious or not, that we're using milk. We're choosing a type of milk that's sold by a certain company. And we may be choosing it based on price, but we may be choosing it based on the fact that we recognize the farms or the farms where it came from. Or in these days, we might be making a choice not to buy cow milk. We might be buying almond milk or soy milk, and we may be looking at how that was grown. So we have to, I think women are the biggest consumers in our country. So struck by this, after I listened to that podcast, that we are the ones that we lead the buying. If you look at all the consumer surveys, women are the buyers in our society. We are the retail shoppers. We love to shop. We do comparison shopping, et cetera, et cetera. We need to learn as women how to do the same thing with real estate investment. We need to get educated about it, it's it's a much different world than buying milk, but at the same time it is it is how the milk is, where the milk sits right in our society, these buildings. Eve: [00:31:49] What's interesting to me, if I think about researching where milk comes from, so I can make an informed decision, that makes my brain hurt compared to understanding a real estate project and what I might invest in. So I think it's partly what you're trained in, what you learn, how you're educated. It's not I don't think it's harder to do. It's just different. Libby: [00:32:12] Yeah, yeah, yeah. No, you're absolutely right. It's it's not harder to do. It's just different. But we're not educated in it. I mean, I don't know how you feel about this, but I never learned really what I do today. Like when I was in school, they didn't teach me what I what I practice right now. I learned real estate by reading books, honestly. Eve: [00:32:39] Oh. How did I learn Securities Law? Yes, yeah. Libby: [00:32:46] Yeah, exactly. Like reading books so and getting educated in it. And now I mean I'm grateful. I'm able to teach, I'm teaching now at UC Berkeley. I'm a lecturer part time, but I just absolutely love being able to teach. And what I recognize is I teach public private partnerships, which is a lot of my work is how to get the public in the private sector to work together, whether it's on a deal that the public sector is sponsoring or whether it's just a deal a private developer wants to do. And they need the support of the public sector, which is pretty much every project ever. Eve: [00:33:24] Yes, that's right. Libby: [00:33:26] Especially in the Bay Area. If you don't have public support, you're not going to get your project. And what I recognize is there are so there are so few classes that actually teach people how to do this and how to do it well or how to do real estate development and how to do it well. Luckily, ULI has offers a lot. And as you said, the you know, the small scale development council, that they focus on that and have some great trainings through ULI. But it is not something that is taught to the average person. It's not like we go to school and we learn about how buildings are built. Eve: [00:34:03] Right. Libby: [00:34:03] And so I think we have to start to educate the general population and in our case with the women's development, collaborative women in particular, and including women in our field, because what I'm even finding out is through the WDC, I've been asking women like, do you invest in real estate? And the answer is often is pretty much no, we don't we don't know. We don't know how to do it. We don't understand it. So that's a mission for someone in our and where... Eve: [00:34:39] I can sense a class coming along that you and I can conduct. Libby: [00:34:43] Exactly. I'm so excited about this. I really want to do this, Eve this spring or summer. I want to do a class in how to invest in real estate and why. It's like how to invest in real estate and why should we care and why should we do it. And I think it's critical. Eve: [00:35:01] Yeah, it's also something else about real estate, you know, that I think over the last few decades, everyone's been trained to think about quick returns. And real estate isn't that. You just have to think about the long haul. Libby: [00:35:19] Right. Eve: [00:35:20] And I'm always stunned when I hear from people saying I invested there and they're going to give me my money back in six months. Can I do that in real estate? And I'm like, no, what can you do in six months in real estate? It's, it's a different thought process. Libby: [00:35:38] It's absolutely a different thought process. And I also think that the real estate is much more long term in the investment horizon that many capital providers, meaning institutional and private investment capital, which is what fuels a lot of real estate development in the United States and across the world. It is usually focused on five-to-seven-year time horizons. And in terms of equity investment, a lot of the money that is coming in. So, their preference is that they can make their money back, they can get their money back and a return within a five-to-seven-year horizon. And that puts you on the one hand, it puts a certain discipline in the market, but it also means that it goes at counter purposes for, you know, the idea of patient capital, because buildings are they're going to I mean, if we build them well, they should last for a very long time, if not forever, like they do in Europe. And some buildings have a lifetime. Kind of you think at a minimum of 50 years, if we're doing a good job, that should be the minimum life and hopefully it's much longer than that. So the time horizons have to be much longer. But as you said, you know, in many consumer markets, it's a much shorter time horizon, six months or a year. It is just not it's not realistic in real estate. Eve: [00:37:15] Tell me, how much has WDC grown since you started it? How many members how many of your meetings and what do you do now that it's covid-19. Libby: [00:37:28] Right. Right. So so first of all, we are very much still a start-up organization. We're reaching out to anyone that's interested in joining, please Google Women's Development Collaborative and reach out. Our organization has about I guess we have 400 to 500 women on our email list and our LinkedIn group now I think it's around 300 people. So it's still very much a growing group. Our meetings are intentionally intimate and small, usually 30 to 40, maybe 50 people, 50 women. We are intentionally keeping this focused on women. We are trying to think about how do we bring in men as allies, because that's critical, particularly as we start to think about some of our next goals of what we want to do as an organization. But the goal of WDC is to really build our capacity and to create a safe space for us to as women, to be able to provide advice and guidance to other women and to be open about our deals and what we're what we're experiencing and to provide advice. So that's the scale we're at. And I think to myself, how big do we really want to be? Do we want to be another ULI? What is the scale that we really want to be at, and I and I think it's a, it's a question that we have to ponder as the group of us, because I think we cherish having the ability to know one another and to get to know one another. So, we want to keep that part of WDC alive because it's so important to all of us. Eve: [00:39:22] So this year, programming is changed because of the, at least last year, because of the pandemic. Libby: [00:39:27] Yes. Eve: [00:39:28] And I thought as I watched it, it was sort of an amazing opportunity. To move this group along a bit fast and not be reliant on ULI meetings twice a year and the people who can afford to show up there. Libby: [00:39:42] Yes, yes, that's true. It is. That is one thing about being online that we can provide better access to, just across the country and people can access it. We will definitely keep an online program, even if we could hopefully go back to meeting in person, maybe even as early as this fall in Chicago at ULI. But what we what we have right now are a series of programs that we've been evolving. You do such an amazing job at Small Change in branding. I've learned so much from you about this. Eve: [00:40:23] Thank you. Libby: [00:40:24] And really, it's incredible. And one of the programs that we have very much inspired by you and this podcast, though I didn't even know when I when I was first thinking about it, I didn't even realize you were on this podcast quest. And then when I started talking with you, you actually agreed to be the first person to participate. And it's called In Conversation with Developer. So, it was in conversation with the developer, Eve Picker. And we've done a series of these. And each conversation is just so fascinating like this. Your podcast about how did the women make the decisions they did to be developers, who has provided them support along their way, etc. So those have been really, really inspiring. We also have these project forums that are dedicated to helping women developer and emerging developer present the challenges that she's facing regarding her development project and receive advice from a panel of seasoned professionals to help her overcome these challenges. And thankfully, Eve, you also participated on one of those project forums as well, were you able to be part of a panel to provide advice? We call it kind of instead of a shark tank. It's a guppy tank. It's a place it's a safe space where people can feel comfortable and really get honest advice about how to move forward. So, we've had several of those. We've we're doing three this year. We've had three already last year in the year before. So, we're building our program there. So, if anyone out there is an emerging developer, that's an option for you to consider. And then I'm just going to do one other program. We have a number of others. But the other one I want to talk about is the investment forum, because this is where tying to our discussion earlier, we are really trying to build our collective muscle to invest in and advance successful development partnerships. And that investment forum is featuring conversations with women developers and investors about how deals are done. And it's actually a learning experience for developers and potential investors. So that's what we're dedicated on. And that's the program where I really want us to collaborate on thinking about how. How can we get more women in the investment world? Eve: [00:43:03] Yes, that's critical. So what are some potential strategies you're thinking about for promoting investment or encouraging women to invest? Libby: [00:43:16] So we've been working on an investment framework that's a gender lens framework for how we could evaluate investments in women led developments. And that's been a process. We've been very informed by the Small Change metrics and thinking about how crowdfunding could be a potential tool to encourage investment in women led developments. But we also realized that we needed to define what we meant by women led development, and we needed to think about the whole ecosystem, like I talked about earlier, about all the women that could contribute to it. So we're focusing right now on WDC taking on four dimensions of activities to empower women developers to expand economic opportunity, which means expanding women in the workforce and the development supply chain, as we talked about earlier, expanding access to capital. So building on the same theme. So, both getting women, individual women investors to invest in real estate, but also just to promote investment more broadly from men and women and institutional corporations in development. And then we want to make sure that these developments benefit women and communities, and so we've come up with a set of principles and you and I speak. There's a lot of 10 principles books. So, we have 10 principles of transformative development that benefit women and communities. And we're using these four criteria, these four activities, as a way to measure women developers and their development to provide recommendations. So the screening process to provide recommendations to women and to men about developments that they may invest in. So, four lenses are women in leadership in development, women in the supply chain and workforce, women capital providers and benefiting women and communities. And out of these criteria, we developed 10 questions. We spent a long time actually refining these 10 questions that really it was more like 15. We refined it went through a number of rounds. And what's really been great is we had this whole community of women developers who've beta tested this scoring process a lot. And you were one of them. So, thank you so much, Eve. Eve: [00:45:53] It's great. Libby: [00:45:54] Women from around the country and we learned a lot through this beta testing. And we think we have an investment framework that can work alongside of the Small Change index and other crowdfunding platform. Eve: [00:46:09] And other ESG indices, right? Like... Libby: [00:46:13] Yes. Eve: [00:46:13] It's a very particular woman-centric real estate lens. It's great. Libby: [00:46:20] Yeah. And so what we're hoping to do, our next step is that we are really trying to work on the strategies that are going to enable us as a small organization, you know, where can we make impact first and how can we make impact first? But our hope is to actually encourage some individual investment and crowdfunding investment in specific real estate developments that will be placed through this investment framework lens. That's our first goal. Eve: [00:46:52] It's pretty big. Libby: [00:46:54] It's a big goal. It's a really big goal. Eve: [00:46:56] It's a very big goal. So, I have to wrap up and I just have one final question for you, and that is, what are you most excited about right now? Libby: [00:47:08] It's so many things that I'm working on, but I think what I'm most excited about with WDC and my work generally is just the number of wonderful young and emerging women developers and and women who want to be developers. There is this community of women that are both really younger and older. It's women who've been in their careers in real estate for a number of years. For example, a woman architect who's decided that she wants to be a developer after having been leading her practice for a number of years and is actually her first project, is going to be building a building for herself and her community of professionals that she works with. So the building will be bigger than just her architectural practice. It will include others in it as well. And then younger women developers who are starting out, who are really interested in changing the world and in leading development companies. And it's very exciting to talk to them and hear what they're doing and how they're going about it and trying to support them. We have another colleague that you and I know who is developing is working on a mixed use project in her community that is going to be transformative for that community, be a place where people can gather. And whereas she says one plus one can equal much more than that. And that's Molly McCabe, who you've also interviewed here in your podcast. Eve: [00:48:50] Yes. Libby: [00:48:51] So I just thought that constantly inspires me to have to just have that sense that there is this community and this future of women in development that we can encourage and build upon, which is fabulous. Eve: [00:49:06] Well, thank you so much for your time, Libby. I have really enjoyed our conversation and I'm going to be seeing a lot more of you. Libby: [00:49:14] Yes, I'm looking forward to it. Thank you so much, Eve. Eve: [00:49:32] That was Libby Seifel, Libby's career has been one built from her heart. First, she worked on affordable housing concepts that were ground-breaking at the time, having witnessed firsthand how crushing gentrification and displacement can be. And now she is focused on the small number of women in the room. She has puzzled over the years, as have many of us, why there are so few women who take the leap into real estate investment and development. She intends for the Women's Development Collaborative to be a safe place for women who are testing the waters to land. A place where they will be supported by their peers as they emerge as women developers. Please share this podcast so that more women learn about Libby and the Women's Development Collaborative. You can find out more about this episode on the show notes page at EvePicker.com or you can find other episodes you might have missed or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. 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.
51 minutes | Apr 7, 2021
Mass timber for the masses.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:14] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers. Eve: [00:01:18] Today I'm talking with Scott Ehlert, co-founder of Fabric Workshop, a company focused on low carbon, mass timber building technologies for California's livable future. Scott is designing a proprietary hollow core mass timber plate column and wall system that uses 50 percent less wood fiber and will cost ten to 35 percent less overall than for a CLT structure. His system will also provide installation benefits like integrated MEP, acoustic and fire performance. And as if that is not enough, Scott is also designing a robotic fabrication facility to anchor a new wood product innovation campus in California to help in the state's wildfire efforts. Scott's background is an unlikely one for an entrepreneur in mass timber. He spent years in the production and logistics management of concerts, private and corporate events, and national experiential marketing campaigns before pivoting to system design strategies that leveraged research, data and design to meet high level business objectives. While consulting for some of the largest companies in the real estate and construction space, Scott recognized a massive need for desirable middle-income housing that wasn't being met by the market. So, he left his agency and started on the journey of what would become Fabric Workshop. This is a story of sheer stick-to-it-ness. Eve: [00:03:04] If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Eve: [00:03:33] Hello Scott, I'm so pleased to have you on my show. Scott Ehlert: [00:03:37] Thank you. Yeah, good to be here. Eve: [00:03:39] So you've had a fascinating and pretty astounding career, from concert and event management to design and strategic consulting, to property technology. So, I wanted to start with what you're doing right now. What are you doing right now? Scott: [00:03:57] Yeah, great question. Yeah. So we are, I've created a company called Fabric Workshop and we are pioneering a new next generation mass timber manufacturer. We manufacture in California and a fabrication, a digital and robotic fabrication facility to bring those next generation Messmer panels to life. Eve: [00:04:20] So what does the next generation mass timber panel mean? Scott: [00:04:26] Yeah, so, you know, we kind of started our journey looking at the cost of housing. And, you know, as you mentioned, I worked as a design strategy consultant for many years and I kind of had run my course in that in that career and was looking for something new and something for, you know, a bit more impactful. And really started looking at housing, which was the most kinda pressing thing in my life as I was starting a family and seeing how so many of my friends and peers in California were leaving the state because of the cost of housing or were in a constant state of financial and mental pressure due to housing. And I also consulted with quite a few really large companies, just by chance in my design consulting days, worked with some of the largest companies in the housing and real estate space in the United States and just saw this, you know, kind of looming existential crisis around housing affordability. And, you know, when the housing affordability comes up, we love to kind of cut out the perennial teachers and firefighters, as you know, our benchmarks for who can afford housing. But what we were seeing was that housing was really kind of impacting bankers and doctors. We were you were talking to doctors who were having to have roommates in the Bay Area because they couldn't afford the housing. Eve: [00:05:54] Wow. Scott: [00:05:54] And so there was this kind of big, big question of like, how do we make housing? How do we create housing in California that's affordable to middle income folks we traditionally call the middle-class. And so that started us down a really long journey and looking at just a year long process of just listening and asking questions and sitting in the back of rooms and talking with as many folks in the in the industry as possible. And it became really clear that how we build and the type of projects we build were really kind of fundamental to, this seems kind of obvious, the kind of fundamental to the cost of housing. And so, you know, we really started to look at how we can build things differently and what with the technologies available out there to help them offset these costs. Eve: [00:06:53] So let's back up a bit. Like for some people listening, they may not know what mass timber is, which is kind of all the rage in the architecture building industry, but perhaps not something that most people know about. Scott: [00:07:06] Yes, so mass timber is kind of the catchall phrase for what is a range of engineered wood products similar to glulam beams. The most prominent is cross-laminated timber or CLT. And that's, the that's the type that you'll see turning up most often. And what CLT is, is just that, it's cross-thatched, and kind of cross-threaded dimensional lumber, 2x6s and 2x4s, laid out in a giant press with glue. And then that press puts extreme pressure on those panels and that glue and turns it into essentially a giant butcher block. It turns it into a more or less a solid piece of wood. And those panels can be 12 feet tall and 12 inches wide and 40 feet long or larger, in some cases. Eve: [00:08:00] Smaller, non-structural pieces of wood, glued together and engineered in such a way that they become much larger structural elements. Scott: [00:08:09] Yes. And then they take on some really incredible structural properties. So, you know, they are stronger and lighter than steel. Stronger and lighter than concrete. You know, it's an incredible product. It has been widely adopted in Europe and into East Asia and Japan. And it's just starting to kind of trickle up in the United States. And as you said, it's kind of all the rage right now. Everybody's talking about CLT and there's a lot of hopes and prayers being put on CLT as the, you know, the silver bullet that's going to save us from our cost of housing. Eve: [00:08:46] So it's cheaper than steel and other structural elements. Is that what you're saying? Scott: [00:08:52] Um, no, that's kind of the problem, that's the that's the challenge with it, is that while it does have these incredible attributes, you know, speed of construction is one of them. You know, these are essentially printed building panels. You know, you can get an entire wall or, you know, five, half a dozen panels to make an entire floor plate of a large building. And so you're seeing buildings, you know, eight story buildings go up in two weeks. Right. It's all crammed in. It's all kind of flat packed like, an IKEA footer. Pre-cut, pre-manufactured, there's no saws on site, no hammers. You know, nobody's doing anything manual on site. They're just essentially cramming these giant plates into place and a small crew catching the plates and then screwing them into place with some really advanced metal connectors to hold this together. Eve: [00:09:51] But the materials themselves are expensive... Scott: [00:09:54] Right. Eve: [00:09:55] But you're saving, you're saving time on the site. You're saving uncertainties like weather. Because they are factory built. Scott: [00:10:03] Yes, exactly. Eve: [00:10:05] Insurance you're saving. Scott: [00:10:09] Yeah. Insurance is still kind of a question mark. It's still very new in the US. So, the insurance has not quite caught up yet, but it is completely a completely safe product that has to go through a very rigorous testing process called PRG 320. And that is the fire certification process. And it's also been the new international building codes updates around mass timber and CLT. So they're able to build much larger buildings now. So, you know, 18 plus stories, large warehouse facilities, distribution centers, you know, these very large type two, type four type structures can now be built with mass timber. Eve: [00:10:47] So, in balance then, if you can save all of these site costs, will it provide a less expensive solution? And especially for, you know, what you're focused on, which is what I understand, the missing middle housing, those smaller infill lots that maybe are not as efficient as a huge 800-unit building, but certainly helped to kind of just stitch cities together, right? Scott: [00:11:17] Yeah, exactly. So, when we were looking at CLT, we want to have all of the benefits of CLT, but without the biggest drawback and the biggest drawback of CLT, or there's a couple of other variants like DLT, which is dowel laminated timber, which is they use wooden dowels to connect the boards together, or NLT, which is nail laminated timber, which is just that the boards are stuck together with nails. The biggest drawback with them is, with those technologies, is they just use a lot of wood. There's just no way around it. It's a giant butcher block and so, you know, and it uses dimensional lumber, the same lumber that stick frame builders use and modular builders use. You know, when you go to Home Depot and buy, you know, Doug fir for your deck, that's the same stuff that goes into CLT. And so, you know, it's a commodity product and they're using a lot of commodity product. It's susceptible to high prices and that there's just no way around that. And so, you know, I don't know how anybody that started a CLT project a year ago is going to make those projects pencil today. What, the cost of dimensional lumber up to, what, two hundred percent or something like that over year over year. Right? Eve: [00:12:34] Why is it up so high? Scott: [00:12:36] Yeah, so... Eve: [00:12:37] I'm sorry. I'm completely new to this so I'm learning. Scott: [00:12:40] Absolutely. Yeah. Yeah. No, this is you know, we are we are incredibly focused on the forestry and supply side. You know, we are kind of a hybrid between a housing prefab re-manufacturer and a forestry company, in particular the wildfire side, so I can definitely share more on that. And so, yes, you know, the implications on the lumber costs are, have a big, big impact. And lumber prices were already going up, right, there was just limited supply. There's limited companies involved in the forestry space. And everybody's going out to the same suppliers, like, you know, in the US. Dimensional lumber on the West Coast comes primarily from British Columbia, Washington and Oregon. And Idaho and Montana to a lesser extent. But those are the three kind of major producing markets and everybody's buying it. Right. And even if you're on the East Coast, a lot of people want that, like the aesthetic and material qualities of West Coast feedstock. And it's primarily Doug fir. That's what everybody wants. And so there's just high demand, it's just a supply and demand, and then Covid came and just threw a giant wrench into all of that. The mills shut down, the logging shut down, and everybody thought the housing and construction industry would collapse with Covid. But just the opposite happened. There was a huge remodel boom, a huge push for new homes in the suburbs. People were trying to get more space. And so the macron effects of that are that an industry that was already under high demand pressures is now under extreme demand pressures. And then they took their capacity offline for a period of time with Covid. And now they're just trying to play catch up. And the industry in 2019 is already at record highs. And now we are just, it's just through the roof, you know, OSB board, plywood of all that down the stack is all impacted by this. And so, when prices are just really high so CLT or DLT, NLT that's just going to be less price competitive now than they were before. Eve: [00:15:00] Interesting. So let's go back to what you're trying to solve and what your solution looks like. And then we can talk about how the last year has impacted that. Scott: [00:15:11] Yeah, absolutely. Yeah. So, you know, that use of material is kind of fundamental to our approach. And, you know, we were really pursuing a CLT based product initially. But when we, when that reality of the the material cost, the fiber cost, just was the 100 pound gorilla in the room, there's no way around it. It's going to just do more research. Kind of went back to the table and some to look at those more mature markets in Europe and Japan and started to see this kind of, as I was saying, the next generation of mass timber products coming out where they've already kind of gone through that and recognize that, you know, a CFT panel is not necessarily the ideal product for a lot of building types, particularly smaller and faster buildings. And so what they're using now is what are kind of known as cassette systems. They, these are a panelized approach, just like CLT, but they're taking the fiber out. And so, what they're doing is, they'll be more or less there's like two kind of sandwich layers, a top and a bottom and then a structure on the inside of those two sandwich pieces that give it the structural integrity. So you get a box-like panel with a hollow core and that removes a substantial amount you know 50, 60 percent of the fiber, from those panels, driving the cost down while still maintaining the structural integrity of a full kind of solid wood panel. Eve: [00:16:47] Like a hollow core door, but not as flimsy? Scott: [00:16:53] Exactly. A hollow core door that you could build an eight-story building out of. Eve: [00:16:58] Yeah, yeah. Scott: [00:16:58] There's a membrane, a structure on the inside of that hollow core that gives it its strength. Ingenuity at play here. Companies are now taking advantage of that cavity to include things that would normally be exposed in a CLT building. So, CLT with the solid wood in place, all of your MEP systems, your electrical, your plumbing, your lighting, all of that can't run in the middle of the plate. It's solid wood. Right. And so it has to be hung underneath or run in interior walls or both in most cases. But with these hollow core cassette systems, you can actually run those MEP systems inside the cavity of the floor plate. So, it gives it a much cleaner and tight aesthetic. Eve: [00:17:46] Yeah, yeah. Scott: [00:17:48] And then you can also add additional elements to those cavities. So you can add acoustic materials, you can add insulating materials to increase the R value. You can add seismic and fire safety materials in there. And so you can actually get a much thinner for floor plate overall than CLT, where you have to then just have any piece stuff hanging beneath it. With CLT, a lot of that insulating and acoustic and dampening performance has to be laid on top. And it's generally a really thick concrete layer that's poured on top of the wood panel. So, a lot of people with CLT they think that you get to see all the wood, but in most cases you don't. Actually, on the floor plate it's kind of covered in five inches of concrete and gypsum and all that stuff. So, the cassette systems are a really genius kind of approach to a lot of those challenges with CLT. Eve: [00:18:44] And it means less time on site, by the sounds of it. Scott: [00:18:48] It does, yes. But the flip side of all of this is that it does add complexity and you do have to be in much deeper coordination with your trades very early in the process to coordinate where all of those runs are going through those plates so that the connection points on site are all, you know, when you when you're doing a small prefabricated, a lot of it's going to be automated. And so, the tolerances are down to the millimeter. So things have to be tight. There's no change orders, I guess. So there's no saws, there's no handsaws or circular saws on site to fix problems. Everything has to be really, really tight. So that really, kind of, front loads the design and the engineering process. And all of the trades have to be at the table very early. And so, it's a very different process than a standard site build construction. You know, that's the trade-off. Is that the process that has to adapt to the material. Eve: [00:19:47] Just listening to you speak of it sounds to me like you might be enjoying that process. Scott: [00:19:53] Yes, very much so. Yes. As somebody that that worked in design and system design and customer experience design, you know, all of that thinking is really, you know, and you can see the outcomes, right? Eve: [00:20:07] Yes. Scott: [00:20:08] You know, you can go and tour these sites in in Europe and parts of Australia, where they're being, you know the sophisticated approaches, is happening in Japan and particularly Central Europe, where this market is very mature. I mean, you're seeing build costs in major urban markets, you know, down to 140-150 dollars a square foot. Eve: [00:20:29] Oh, that's extraordinary. Scott: [00:20:31] Whereas in San Francisco, you're at, what, 750-850 a square foot for a poor-quality building. Eve: [00:20:39] Yeah. Scott: [00:20:39] That's what we're kind of chasing. Right. Like that's the that's the end goal is to build out the system that can drive towards those better pricing outcomes and make housing more affordable. Eve: [00:20:50] Where are you in your process right now? You've been at this for how long? Scott: [00:20:56] We're now officially into year three, so it's a long and winding road. As I mentioned, with our company, with Fabric Workshop, there's this really big wildfire and forestry component to it. So, we are focused very much on the California market. We're based in California. We by no means will turn clients away, that's in a neighboring state. But the challenge in California is so enormous that we feel like that so many other housing starts to take on like a national approach. And we feel that we just need to be very specific to California and the codes and the and the challenges and the crisis that that's at hand here and that it's a big enough opportunity that it can justify that. The new housing element numbers are coming in across the state. And, you know, we're going to need two million units of housing in the next, within the next 10 years. You know, it's just a staggering number of housing. And so that that volume actually presents a really powerful opportunity to impact another, maybe bigger crisis at hand in the state of California. And that's the wildfire situation here. And so, I don't know, I'm sure you've seen that on the news. Eve: [00:22:21] Oh, yeah. I mean, I'm Australian, I don't know if you realize from my accent, so I've lived with it. Scott: [00:22:27] Yes, that's right. Right. So, yeah, in California, you know, five of California's six largest fires in modern history were all, all happened last year. And they were all burning at the same time. Right. When four million acres of forest burned across the state last year, which was double the previous record, which was just in the previous couple of years. You know, it's just really staggering, right? There was nearly ten thousand separate fires across California last year. And the fire season is growing, right? Climate change, drought is driving more extreme fire seasons. And so, we're now seeing fire season in 2020 is 75 days longer than it was 20 years ago, just 20 years ago. And that's two months longer, two and a half months longer. And so there's this overarching kind of pressing need to fix that. And one of the best things that we can do is to get this excess unnatural growth out of our forests and turn it into wood products. So our forests in California are completely overgrown, grossly overgrown, naturally overgrown. We have, for the last hundred years, we've taken a policy of complete fire suppression. Eve: [00:23:52] That's really interesting. Yeah, because fire is an actual regeneration of forests and that's what was brought up on me. Scott: [00:24:02] Exactly. Scott: [00:24:02] They happen for a reason. So, you have to just control them. Scott: [00:24:07] Yes. Yes. And so we actually have to go back to a natural fire cycle where we're not stopping fires. We're actually letting fires happen. But in order for that to take place without being so destructive, like they are now, is we have to get all of that overgrowth that was the result of stopping fires in the forests. Eve: [00:24:26] That's really interesting, though. Scott: [00:24:28] Yeah. Eve: [00:24:29] But my question is, is why were they stopped? I've always thought that the push of, you know, the spread of cities into forests. I mean, I've seen it in Australia, you know, as housing popped up in amongst the forests. Of course, you want to stop fires there. And that also exacerbated the problem because, you know, you have this push and pull between people who want to live in those places and the natural the natural forest. It's a mess. Scott: [00:24:58] Yeah, right it is. Yeah. That's a huge, huge driver to it that that growth is called the WUI. It's the WUI and that's the wilderness urban interface. And that that growth, particularly since the 90s, has just been exponential as we've continued to sprawl ever farther outward in California. We've pushed our towns and cities, the perimeter, more and more into that WUI. And so that's been a big, big driver as well as the, you know, the agricultural, livestock and forestry industries in the 20th century. They didn't want fires. And you combine that with just a... Eve: [00:25:44] Yeah Scott: [00:25:44] Very. What's the term? I mean, what's the word? How do you describe it? Eve: [00:25:48] It's a manmade problem. Scott: [00:25:51] Yeah, yeah. And just a desire to control nature, you know, is man's desire , the man emphasis there to control nature and dictate, basically saying fires are evil and treating them as a as an enemy that needed to be defeated. Eve: [00:26:07] When I was young in Sydney, Australia. I mean, I remember bush fires. Like Sydney's a huge…. Scott: [00:26:12] Bush fires. Yeah. Eve: [00:26:12] I remember in the middle of the city, seeing just red and grey sky all around me. But there wasn't the pain and misery of today because not, there was not nearly as much suburban housing - it pushed into the wilderness. Scott: [00:26:31] Yeah. Yep. Yep. And that's the same here. That's just an overarching problem that needs to be solved. And there's really no easy solution to it. The state now has about 33 million acres of forest, which is bigger than Oregon, and 13 million of them are considered very high risk. These are drought affected, beetle infected, because of lots of dead trees, and they have just this extreme level of overgrowth and that overgrowth are small and medium diameter trees. Those are the trees that normally would have been cleaned out by natural wildfires. And because there was no natural wildfires, they just exploded. And what they do, the small and medium diameter trees, they're much more susceptible to fire, but they're also tall enough to carry the fire into the canopies of the healthy, strong trees. And that's where we get these infernos that then get the wind picks up in the canopy and carries it from tree to tree. And it just creates these, this tinder box. So, we have to get those small and medium diameter trees out of the forest. And right now, they have no value. They're used for livestock, mulch, woodchips in your yard. And that's not a valuable enough product to justify the cost of thinning, mechanical thinning. And mechanical thinning is a laborious, hard job. You have to, you know, carry chainsaws and particularly if we want to take a much more ecological approach to forestry thinning and not clear cut and carve up all of these fire roads that cause horrible erosion. The state's trying to avoid the forestry problems of the past. So, it's all done, a lot of that has to be done by hand, much more mechanical. Eve: [00:28:20] 32 million acres, manually cleared. Scott: [00:28:24] It's staggering. Eve: [00:28:25] It's really staggering. How long does it take? Scott: [00:28:28] Yeah, the goal of the California Forest Management Task Force, which is kind of the broad extra agency group that's trying to address this challenge, their goal is a million acres per year by 2025. And right now - in 2019, we had 114 thousand acres - so we're off by a factor of ten. Eve: [00:28:47] Wow. That's like one hundred years we're looking at and more. Scott: [00:28:52] That's right. And what's going to be left in California in 100 years of we're burning four million acres a year. And it's not just, this is not an abstract any more. Our water, for all of those cities comes from these forests and with these forest fires that you can grossly impact our water supply. The carbon impact of this. Right, 2020, there was 112 million metric tons of carbon were released by the 2020 wildfires. Which is 30 percent more than all the power plants that generated power that year. So, the health and that's how you get into the asthma and respiratory issues of all that wildfire smoke. I mean, the implications of our society are bleak. And so, we have to figure out ways to get those small and medium diameter trees out of the forests. And that's why we really kind of looked at, you know, not only these cassette systems, but getting away from dimensional lumber and really kind of focusing on veneer-based products. So, there's another sub product of mass timber known as laminated veneer lumber or mass plywood panels, mass plywood. MPP is a brand from an Oregon company called Freres Brothers. And what they do is instead of cutting the log into 2x4s and having a bunch of scraps left over, is they put the log on a peeler and they peel the log and turn it into a big, long sheet. And then they glue those sheets together versus gluing 2x4s together. And that's something that you can do, that's, a that's a vehicle for these small and medium diameter trees, whereas 2x4 dimensional lumber is not really feasible. And so they can peel logs, you know, down to six to eight inches and turn them into veneers. And so that's what we're really focused on, is these veneer-based structural products. Both floor plates, floor and ceiling plates and wall plates as well. That's where we see our role in the forestry and the wildfire piece is creating market side demand for these small and medium diameter trees and putting them into really advanced, these really advanced cassette-based plate systems. Eve: [00:31:14] Interesting. So I'm going to back up one more time. I sense a two-parter is coming on here. This is fascinating because... Scott: [00:31:24] Yeah. Eve: [00:31:24] I heard somewhere in amongst all the impact finance center information that there is a company out focusing on small diameter timber products. I can't remember the name of the company, in California. Scott: [00:31:38] So, we pitched at that event. So you might have, is that our pitch that you're referring to? Eve: [00:31:44] No, I think there's another company I talked to so, we can come back to that. Scott: [00:31:50] Yeah, yeah. Eve: [00:31:51] But I've heard of people focusing on specifically that product and now it's all falling into place for me. Personally, I didn't know all of this. It's really fascinating. But the importance of using that small diameter timber is becoming pretty clear. Scott: [00:32:07] Uh huh. The great thing is that it could actually go into a very valuable product for the construction industry, the building industry. Incredibly green product, right? Very, very high embedded carbon in the veneer-based products, much lower travel times if we're sourcing our wood from our local forest and putting it into buildings in Los Angeles and Sacramento and San Jose. Think of all the truckloads from British Columbia and northern British Columbia that we're saving, right. And all that diesel fuel that gets burned. So, this really big upstream and downstream and benefits to sourcing this wood from California. Eve: [00:32:51] Sounds like a whole new industry can emerge. Scott: [00:32:54] That's the goal, right. And that's what the state is trying to incentivize is a re-ignition. I hate to use fire related terminology when talking about this stuff, but like, we kind of rekindling, that's another one, restarting a forestry industry in California, which is really kind of on its last breath. Like, in the last 45 years, 70 percent of wood processing facilities in California closed. So, there's really no eco system to actually process this. There's no LBL manufacturers in California. There's no plywood manufacturers in California. There's very few mills left in California. There's very few loggers left in California. And so we're kind of having to start from scratch. And what the state is working on is incentivizing and creating these wood products, wood innovation campuses, across the state to bring this industry back. And to bring it back with a much greater kind of technological focus and an environmental and ecological focus. And so that things are done right. And so we're at very early days of that. You know, we are not going to try to get into the manufacturing side of the LBL panels. It's a very capital heavy side and there's a reason why most of the companies that get into that, you know, they have three or four family generations that have been in the logging industry or they've been around for 150 years. You know, there are companies that just know how to do that and to manage those supply chains and to manage that production. And so we're focused on it being a remanufacture of those products. And so, if we can help, you know, kind of show that there's demand for this for this LBL and MPP type panels in California, hopefully we can then lure a manufacturer to the state, with our some of our demand, and get them active in the state and thinning our forests. Eve: [00:34:58] So, Scott, you've bitten off a huge project, like where are you? You said you're in the third year. Scott: [00:35:04] Yes. Eve: [00:35:06] I mean, where are you in the process of building a company? Scott: [00:35:09] Yeah, yep. So, it is a very meaty challenge and myself and everybody that's on our team is up for that challenge. That's why we're all here. We all understand the enormity of it and the, and the urgency of it. And that's what motivates us every day. And the fact is, there's not a lot of other companies doing this is yes, it's an opportunity, but it's also drives us to lead and to show that it can be done. And so, you know, we have to take advantage of the resources that we have. This is all bootstrapped at this point and self-funded, as you said, this is a big, meaty challenge. So, it's really hard for investors to kind of wrap their head around it or see an exit to liquidity event in the near term. So fundraising has been a challenge, but that's really not a deterrent to us in the slightest bit. And so, we have to focus on what we can sell for. Eve: [00:36:08] Well, you have to eat. It's going to be a little bit of a deterrent, right? Scott: [00:36:13] Well, you know, the spouses of entrepreneurs do a lot of the heavy lifting. Right? And so, I have a really, my wife is an incredible partner and she's also an entrepreneur, though a much more successful one. And she's able to carry us through this kind of start-up period. But what's great is that our story and our kind of mission is bringing a lot of really amazing people to the table. We are working with a company, for example, called Hacker Architects up in Portland, and they are an incredibly experienced, one of the most experienced architecture firms in North America working with mass timber. And they are becoming friends. Right. Like they they've really been a key supporter of our mission. And it really kind of backed us up and provided a lot of design assist and are really helping the design of our building system, because we have to think of this as a holistic building where we can put these different wood materials throughout the building. And so that's just one example. We've got a whole network, whole ecosystem of companies that all share our same values and recognize the enormity of the problems that we're solving. And so, we've built this great network of aligned allies that are helping us drive this forward. So, like I said, we're a small kind of bootstrap team, but we've got some really great friends. And, you know, we are in the R&D phase and getting closer to a first prototypes. We originally had our first building construction project penciled as supposed to break ground this year, as a single-family home in the Tahoe region. Unfortunately, that project kind of fell through, just wasn't the right application. And so, we decided to kind of shift focus. But ideally, we'd like to get a project off the ground here sometime this year with our investor pool that we do have and get a proof of concept project on paper this year and breaking ground next year. So that's really what we're what we're driving for at this point. Eve: [00:38:22] What is good proof of concept look like at this point? Scott: [00:38:25] Yes. So, we're looking at a small multi-family project and that's the market that we're going after is a unique market in the industry. Most of the construction industry and the prefab industry is really kind of set up to focus on how we build in the United States today, which is sprawl or tall. Right? Like it's single-family homes on the peripheral cities, or it's a big giant two hundred unit podium structures or towers in the urban core. And Fabric, we see the opportunity, especially considering the sheer scale of the housing need and how fast that housing needs to be produced and brought to market. We really see the opportunity in that missing middle upper missing middle range, small to medium lot, three to eight story buildings. So that's really our key focus and really kind of unique, a bit more unique in the marketplace. And so we want to, we want to get a proof of concept project of at least four units. It doesn't have to be huge. It just needs to show how the systems kind of work together and kind of bring that to life in an infill type application. Eve: [00:39:42] I'm excited to see it. Scott: [00:39:44] Yeah. Eve: [00:39:44] Are you going to act as your own developer or are you looking for a developer who will use your system? Scott: [00:39:51] Yeah, it's kind of like yes and... Eve: [00:39:55] Yes, I know. Scott: [00:39:56] If we yes, either, you know, we are talking to more and more developers. We are finding that network of of young kind of independent developers, baby developers, I've heard that kind of term kind of thrown around, you know, the folks that are producing like the 20-unit buildings and the odd 16-plex. Right. Like those small buildings. And we're building that network. And hopefully we can bring a developer partner to the table sooner rather than later. But we're also kind of setting ourselves up for self-developing our first project. And that's what we were going to do on that single family home. We were going to develop that through our, through one of our investors, but we kind of shifted and would like to ideally bring on a development partner that knows that process better than we do. You know, we're not developers. Eve: [00:40:47] And so you might stretch yourself very thin during trying to do both. Scott: [00:40:52] Yes, exactly. And we have to kind of kind of focus on what our value add is. And the development side is not it today, who knows down the road where this goes. But as of now, ideally, we have a partner that can, that can really kind of drive this through that to the development process. Eve: [00:41:11] So you've talked about these materials looking very sleek. What does that first project going to look like? Scott: [00:41:18] Yeah, I wish I could show you some of the renderings, the absolutely beautiful renderings that Hacker put together for us. One of the advantages of focusing on this smaller type three, type five building typology is that the fire code and the fire ratings aren't as strict with the CLT. So we can leave a lot more of that with the mass timber, we can leave a lot more of that exposed. So, you'll see a lot of exposed natural wood elements. So wooden ceilings, heavy timber beams, well it will have the aesthetic about heavy timber beams, but it's actually LDM. A lot of the columns in the beams will be exposed and even wall panels can be of exposed wood to them. So, a very natural and a minimal, what's the term a soft minimal kind of aesthetics to them and and very high precision tolerances on that minimalism, right, like that's kind of what separates good minimalism from bad minimalism is the execution and the precision of it. And because everything is cut in a factory, the aesthetic is just really tight and really clean. And so we're really looking forward to bringing that to life. Eve: [00:42:37] Do you have the renderings on the website you'd like to share? Scott: [00:42:40] Yeah, on our website we have a few renderings on there. So you can kind of get a sense out of the real aesthetic and that that would be our proof of concept project. Each developer will have that choice that they want to drywall over those exposed wood elements they can. But our preference would be to leave them exposed. And there's a lot of really interesting data back to that benefits of mass timber. There's a lot of really interesting data around the biophilia benefits of mass timber, where people get that sense of serenity and calm. Like being in a forest. Eve: [00:43:16] Yes. Scott: [00:43:17] In a mass timber house, they are really cool buildings. I don't know if you've had a chance to spend time in one. But they do have a a dampness to them, not not wet, damp, but just materially damp. And so sound travels differently. And you do get the sense that you're in the forest. It's really, it's a really cool experience. Eve: [00:43:37] So I'm going to go back. You're in Truckee. Right. And I'm wondering... Scott: [00:43:41] That's correct. Yes. Eve: [00:43:42] Why are you in Truckee? Scott: [00:43:44] I asked myself that question sometimes, too. I love Truckee, but I'm definitely a city kid. So, Truckee is more or less a one road town. And so, I do feel a little stir crazy here sometimes, but it is a great place. And I have two young kids, four and six years old, and just this is a big playground for them. So, we ended up in Truckee a long time, a decade and a half in San Francisco, three years down in Los Angeles, and then had to get out of L.A. and Truckee was supposed to be a one year stopover on the way back to the bay. But, shocker, the cost of housing was so high in the bay that we couldn't afford anything there so we could afford something in Truckee, Truckee at the time. So we were able to… Eve: [00:44:34] You're living the Californian dream. Scott: [00:44:36] Yeah. More or less trying to. Eve: [00:44:40] Okay. So tell me, I'm going to move to shift gears a little bit and just ask you, are there any other current trends out there or innovations in real estate development or construction that you believe are really important for our future? Scott: [00:44:54] Yeah, and so a couple, yeah, so one thing that we are bringing in house we have, this is a capability that we are, as we speak, kind of building out a facility is the fabrication side of construction and particularly automated and robotic fabrication. That is the piece that's going to have prefab construction kind of realize the benefits that it kind of promised the world when it came out a few decades ago. You know, from pricing to quality control, robotic fabrication is going to be a huge piece of this. And we are actively building that capacity out in California, will be a leader in that space here in the state. And particularly as more and more construction will go towards wood-based construction to offset the carbon and environmental impacts of concrete and steel. You know, we firmly believe that wood construction is the future of construction. And so, to make that a reality, you have to have a much more advanced fabrication capabilities like you see across Switzerland and Austria and Germany and Sweden, for example. Eve: [00:46:10] Right. Right. Scott: [00:46:11] And so that's going to be a big piece. Right. And then, you know, I do believe fundamentally that we are seeing the cracks in the dam when it comes to planning and zoning in particular. I think that the sea change and our laws and regulations on what gets built and where is going to happen very quickly, much faster than I think a lot of people give it credit for. You know, we are slowly starting to see the end of single family only zoning. When I first really started thinking about creating the housing company in 2014, most of them really talk about like, oh, yeah, houses are expensive in nice parts of the city. But that was kind of the attitude. And now fast forward seven years and it's a topic in our presidential campaigns. It's just becoming a fundamental issue in this country. And I think that the 20th century experiment of highly segregated neighborhoods, housing over here, business over there, commerce over here. Single family based, car based, an entirely car-based society, car exclusive society. I really fundamentally believe that that is coming to an end in California and that those changes are going to happen. It's going to build and then is going to happen really rapidly. Eve: [00:47:36] Wow. I have one final question for you, and that is, what is your big, hairy, audacious goal? Scott: [00:47:43] Yeah, I and I would say, you know, not as ambitious to say we want to build a new city out of wood, but definitely, you know, a neighborhood out of wood. That's kind of our big goal is to build a five 600-unit community, all sustainably sourced, locally sourced, sustainably sourced timber neighborhood. And we're seeing those neighborhoods pop up in Europe and Japan and they are incredibly inspiring. They are walkable, human scaled, car free, no carbon passive house technology. And I would love to just get my hands on a decrepit shopping mall in central Sacramento and convert that into the neighborhood. A vibrant, diverse, mixed income neighborhood in in Sacramento, for example. And that's our big, big goal that we're driving towards. Eve: [00:48:41] Oh, I'm really excited for you. It sounds amazing. And I hope sometime in the future we'll get to host one of your projects on Small Change. Scott: [00:48:51] Would absolutely love that. Yes. Eve: [00:48:53] Thank you so much, Scott. Scott: [00:48:55] Yes, thank you, Eve. Really appreciate the time. And I'm honored to be on your podcast and be part of this group. So thank you. Eve: [00:49:11] That was Scott Ehlert of Fabric Workshop. Scott pivoted his life and career in a way that most people do not dare. He is making all bets on an industry that doesn't quite exist yet and technology that he needs to design. While other housing developers try to crack the construction affordability code using the same old building systems, Scott has spent years planning how to become a housing developer using a brand new building system, one that he has designed and one that he will manufacture. We'll be hearing more about Scott. I'm sure. Eve: [00:49:58] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed, or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. 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.
30 minutes | Mar 24, 2021
Veterans Buy America.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:11] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So, I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers. Eve: [00:01:10] Today, I'm talking with Andy Williams, the founder of Recon Realty, amongst other things. Andy was a Marine determined to better his life through real estate. In a fairly short period of time, he built a substantial portfolio of homes, a real estate development business focused on larger projects, and a program that seeks to turn veterans into entrepreneurs just like Andy. While Recon Realty is focused on making a profit, Andy's heart is in the impact. The question for him is, how can he use real estate to turn transitioning veterans into entrepreneurs so that they too can turn a profit? Patriots need to start buying up America, he says. I'm going to learn a lot from Andy and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Eve: [00:02:42] Hello, Andy, thanks so much for joining me today. Andy Williams: [00:02:46] Oh, it's a pleasure to be here. Thanks for having me. Eve: [00:02:49] So you've gone from being a U.S. Marine to a real estate developer to impact entrepreneur, in a pretty short period of time. And I wanted to start by asking you how you got involved in real estate. Andy: [00:03:03] Real estate really was a transition from private security contracting to civilian life. I was trying to build a bridge back home, so I bought my first rental property in 2006. And it was a safe investment, an easy investment and made sense. And I just kept doing it for about six years, buying rental properties in my hometown with the intent to build enough cash flow to replace my income that I was making overseas. Eve: [00:03:38] And where is your hometown? Andy: [00:03:41] It's in central Texas. Eve: [00:03:42] Okay. Andy: [00:03:42] So I'm 5th generation Texan. So... Eve: [00:03:45] Okay. Andy: [00:03:46] After getting back from the Marines, I made Texas my home. Eve: [00:03:50] What did it take to purchase your first time? I mean, that's a pretty big leap from Marine to buying a house. Andy: [00:03:58] Yeah, actually, my first house was around 50,000-dollar rental property. So it took me, I think I put 20 percent down, so it was about 8,000 dollars. And after I got out of the Marines, I'd actually save some money while I was in. And then I was making, you know, very good pay, working with the State Department, under private security contract. So, I I'd basically reinvest my my monthly salary into rental properties for about six years. Eve: [00:04:33] Wow. So. And did you need to make these properties tenant ready? Like, I suppose I'm wondering what skills you had to learn in that transition and how you identified the right sort of properties to buy. And you know, what your plan was. What was your big strategy? Andy: [00:04:50] I didn't have one of that time. I grew up in in this in this community that was segregated. It was there was good houses, bad houses, you know, people that were rich and there was people that was poor. There was really not a middle class. And so when I started making money, I wanted to buy properties for the underserved and provide sustainable housing. So, my dad was a concrete foreman when I was growing up. And around that time, he was he was aging out, wasn't able to do the do the work that that he had in his trade. And he was kind of out of work. So, he was kind of my eyes on the ground, and I would buy properties and he would be my project manager and he would make them ready and then we would lease them out. It was very mom and pop. Eve: [00:05:45] That's fabulous. Yeah. Were your first houses a success or did you have any failures, any moments where you regretted what you were doing? Andy: [00:05:57] No. I'm very conservative and I was always I've always been an investor for the long haul. So, you know, I think I just sold last year a property that was in my portfolio for 15 years. I think some of the the fifth house I ever bought was a duplex. It's still in my portfolio. I've always looked at real estate as a as a way to kind of build wealth, but also solve a problem. And I think that's what attracted me to the affordable housing market. Because I grew up understanding that real estate and safe housing, quality housing was really a privilege that was afforded to few. Eve: [00:06:43] Yes. Andy: [00:06:43] And when I was in a position to, you know, do well, I wanted to do good. And so it became a safe return. It wasn't until I started trying to build an operation around it, was there risk really being assessed because I was buying really cheap properties in a market that I felt that I understood. I actually felt that it was misaligned and I wanted to play on the long haul and being well traveled as a as a veteran and seeing kind of the simplicity of being able to buy a home, you know, fix it up and rent it out and looked at the rate in the rents and the cash flow, it just made sense. But when you started to, it was it wasn't until 2012 when I came back from Iraq. At that point, I had about 50 rentals and I wanted to kind of start a business. And so I started looking at trying to integrate construction component and I started flipping houses. And that's when I started realizing that there was a different dynamic. Most of that had to do with the characters. When I started investing in the in the city, the Dallas Fort Worth area. I ran into some bad actors and not everyone did what they said. And you had to kind of have protocols in place. And so, I spent a better part of three years building some infrastructure. But I was able to kind of make some mistakes and build through those those challenges because I always held a decent sized rental portfolio, that in my mind was kind of a baseline. It was a cushion, in case you ever ran into some problems you could dump a rental and if you needed to leverage, you had cash flow coming from your rental portfolio. So, you never really was too overexposed. Eve: [00:08:56] So how big is that portfolio? I mean, what do you think the baseline should be for people who are listening? Andy: [00:09:03] That really depends on your goals. I mean, mine was, you know, about a five-million-dollar portfolio. And, you know, I was thinking I got it up to about 100 houses. I've scaled it down over the last three years because I hit that threshold where I didn't want to deal in that housing stock. And then also I didn't want to reinvest in the communities where I had properties. I ran into some some infrastructure challenges. My dad passed away in 2014. My mom started managing the properties and that that original portfolio really was just kind of a mom-and-pop operation and meant to be mom and pop. And once, you know, it kind of served its purpose, I divested it. And then I moved my operation to the major market and then I started building teams. And the projects I'm doing now, they're more, you know, leveraged on teams. I'm good at I'm good at certain things, certain things. You know, I'm not as strong at or passionate about. And so I leveraged my my military background to kind of build teams and into medium to large size projects that are basically what I've learned over the last five years is that, you know, good projects are are really executed with good teams and a solid project is is really effective if you can assemble the right team around it. And so I focus on team building around projects at this point. And entrepreneurially, I have a focus on, you know, capacity building and training that I actually do what I've already done. And that's more more where I'm headed in the future. We're actually rebuilding our portfolio now, but we're doing build to rent and we're we're playing in and into areas and we're focused on distressed communities that have been redlined or segregated or socially deprived of capital because of its demographic. And we're trying to get ahead of gentrification and build capacity... Eve: [00:11:15] Right, right. Andy: [00:11:15] And then trying to hold some properties there as we we have an input. Eve: [00:11:19] But what a great story. Those small properties really helped you build a much, much bigger career. And that's, that's pretty valuable, right? Andy: [00:11:31] Yeah, I think the sense is, is, you know, you make your mistakes and you learn. But I think the biggest thing that I've learned over the last three years, maybe five, is that, you know, I got started early and I was lucky because I was you know, I was advised to invest for the long haul and I wasn't looking for, you know, a quick buck. And once I figured out something that made sense and it made money and kept doing the same thing. Eve: [00:12:01] Yeah. Andy: [00:12:02] It's like in the military, you know, in the Special Forces community, you don't you don't really add a magic style or systems. You just kind of focus on mastering the basics. And that's that's what I did. So when I look at, you know, buying, you know, single family homes to to do renovate to rent, it's very simple. You do it once you figure out what your kind of your cost is, you know, you take a wood frame home 1950s. You got to figure out what it's going to be to get that renovated and get it turn what it's going to rent for, what your leverage is going to be. And you just rinse and repeat once you figure out how to get in there. Right. You you get it gutted. You put it back together and you throw a tenant in there. It's really should be, you know, an operation, a management issue. And you just scale up to what your capacity is. And, you know, there's a lot of liquidity in the market now, too. And so, you know, the finance vehicles that are present today weren't present 10, 15 years ago. So it's a lot easier to to really execute the scale. You know, an operation and you just got to find the right markets and the right product. Eve: [00:13:18] Right, right, right. Andy: [00:13:18] So you can go that down. Eve: [00:13:20] But I've also read that you want to use real estate to turn transitioning vets into entrepreneurs. And so, you know, to help people like you do the same thing in some way. And how do you do that? Andy: [00:13:37] A couple of years ago, I got to a point where, you know, I had some national exposure and I was able to create a conversation with the right people. So, I've always thought that and believed in the idea that America runs on capitalism and veterans were not necessarily being positioned to build sustainable businesses. We were kind of being, you know, reintegrated into corporate America. And, you know, a lot of veterans just aren't cut out, nor that they need to just go right to work. They need to figure out a passion that they can pour their energy into. And it can be project based. Eve: [00:14:22] You know, my son is a vet, so I witnessed that firsthand. Takes away the transition. Yeah. Andy: [00:14:29] Yeah, so funny story. There's a Marine that got me in the real estate. He was a World War II Bronze Star recipient. He fought at the Battle of Iwo Jima. And I still have some of the properties that he sold to me. But when I when I was in Iraq, I was on leave and I have seen this old frail man pulling some carpet out of this duplex. And I stopped and I asked him what he was doing and if it was his property and if he'd be willing to sell it. And, you know, gave me his number. When I got back overseas, I called, and we talked for about a month and a half and end up selling me the property. I didn't know him until he sold me actually about 30 properties, which helped me scale, but I never got to know him. He came back from World War II and he started a fencing company, and he was moving houses from Fort Stockton down to central Texas. And he he kind of had a retirement built on free and clear properties. And so I kind of followed his blueprint. But when I when I seen myself, you know, fast forward 2012, 2013, 2014. And then I get some national exposure. I just was frustrated that my peers, my friends, my fellow veterans weren't positioned right. And I just always felt America needed to do better, but I just didn't think they understood. So, I went to the Department of Labor and I sat down with them and I worked with them to create a programatic that, you know, I believe was a transition platform. And we tested it and we brought it to market. And we're now in the process of expanding that that mission. Rehab Warriors does exactly that. We teach veterans to be the average home builders and developers. The big difference is we're not telling them to come work for me or they're not vertically integrated and we're a construction company. We actually don't have them picking up tools and hammers and we don't teach them trades to work for DR Horton or Lennar. We we actually give them the principles. We show them how to model financial projects and we give them access to capital and we have them go access properties in their market. Andy: [00:16:42] And we've got a lot of success. And that's more my passion. You know, I could flip 1000 homes in the next ten years. I could, you know, build a large rental portfolio, but that's not success for me. Success is if I can train 10,000 veterans to do what I've already done and find peace at home. Because I think the war fighter really does deserve to own part of the country by which it served. And the other way, I think that we're going to be able to to be able to do that, you know, truthfully is to buy at a discount, create the value and rebuild the infrastructure. And that's why we have a huge emphasis on affordable housing in distress zones. We teach these veterans, and we redirect their energies and efforts into their communities. And they're finding properties and they're having a lot of success. And naturally, they're building teams. But more importantly, they're local to their community and they're solving problems in their local community and they're finding their passion. And America's better for it, you know, I'm better for it. And and America is getting a new breed of developer that I believe it deserves. Eve: [00:17:53] So tell me about some of these success stories. Like it sounds like you're sort of starting out on this journey. How many vets have you trained? How many have been successful? What does it look like so far? Andy: [00:18:05] So we have 100 percent success rate. And, you know, we we probably supported about 100 veterans. So far through the training, we have about 50 on the platform we're going to roll out, which we're still early stage because I focused on making sure that we had 100 percent success and then tooling it down to where the veterans wanted to be. But we had a military veteran perfect case study. Female veteran, you know, started a minority owned business right inside the community that she was discharged from. And you know, she she got into, you know, our community back in June 2020. We helped source and identify the right property by August, matched her up with a local banker. She was able to access, you know, very competitive financing. We try not to play in the hard money space. We don't play in the private money space. We really have a position. We want proper capital to execute these projects. And so access to capital was something that I emphasized the last year and a half, two years. But she just finished her project, took her 90 days, bought a working home, took it apart, put it together. And, you know, she she ran into some some contractor issues, which is mostly... Eve: [00:19:24] Pretty normal. Andy: [00:19:26] Yeah. And that's where we really emphasize the support is we, anyone can show you how to find a property, anyone can show you how to model, and anyone can show you where the money is. What we do is we build a community where we help walk you through it. Because we want you to be successful, because if you get you get through one property, you're going to continue on the journey. So, we help navigate the contractor issues. And she ended up completing a beautiful rehab and set on the market. She got a full price offer and she closed and she made, she made money. She made a lot of money. Eve: [00:20:04] Good for her. Andy: [00:20:06] It wasn't the money, though, that that was motivating. It was the fact that she she got through it and she was able to, you know, less than one mile from the gate that she left and discharged. She was able to reintegrate successfully. And she chose our program over any of the any of the programs that the military had. And so we have a waiting list. So, you know, there's a lot of veterans that that are on the waiting list. We're building out the infrastructure. But right now, as a founder, I'm kind of putting the culture in place. Eve: [00:20:36] Yeah, yeah. Andy: [00:20:37] The market, it's really, it's really hot right now. And I don't want to send a bunch of veterans into the communities right now to go buy, because really, you shouldn't be flipping houses in markets that are kind of peaking. And most of the market shifted to new construction. We do teach home building. And then as for myself, I shifted to developments. And I think, you know, we're being disciplined right, and we're trying to, we're waiting for the dip and then we're going to assemble and deploy. But in the meantime, we're putting the training wheels on and we're putting them, the people through the program so that they can execute. And more importantly, we we're building the culture where we want to we want to put the community first, yield second and we want to serve. Eve: [00:21:22] Right. So, like, just generally, what are some of the challenges you've been confronted with? Because you've come a long way from your roots. There must have been financing challenges and, you know, neighborhood complaints. And I don't know what else. You know, aside from the contractor challenges which are always there. Andy: [00:21:44] Yeah. I mean, I think, you know, let's take it down because, you know, my my smallest project we just put on the market, you know, 150,000-dollar rehab that we threw up. We bought it for 60, put 70 into it and you know, turned the market to a little affordable house that we could have tore down and rebuilt. But we wanted to connect with the community. But in that same neighborhood, we got 13 acres and a contract where we're going to throw up a tax credit investment. Low-income housing tax credit, portable housing, you know, three story corner unit, garden style apartment. And really, it's the challenges we've navigated, you know, so far has been just understanding what, while we're there and what we're doing. I don't really see real estate as complex as some people. I mean, the financing is is very intricate to the project. And I've been very, you know, focused on going downstream. You know, there's a lot of private capital out there, financial institutions, you know, there's crowdfunding platforms. But my focus has been really I want the federal allocation. You know, there's trillions of dollars spent on affordable housing. So, you know, I'm going to go get the money that, you know, is best suited and effective at modeling out. Eve: [00:23:09] Um hmm. Andy: [00:23:09] I'm on the State Board of Affordable Housing. And so, I have some some initiatives and I'm pushing at the state level here in Texas. And we're executing beautifully the model and we're navigating the challenges. But what's happened with the approach for the overall mission is that I'm allowing organizations to align, that they really see the big picture, going to help me move the needle forward. And that's how we're creating progress. Because it's, we're solving the real problem. Eve: [00:23:45] Um hmm. So one final question. What's what's next for you? It doesn't sound like you stay in one place too long. Andy: [00:23:53] Yeah, I think what's next is just keep doing what I'm doing. I'm really focused on Rehab Warriors. We just got done redeveloping and rezoning a large tract that we're going to we're going. To have a seven-year commitment to the city where we're going to end up building 500 single family homes. Eve: [00:24:16] Wow. Andy: [00:24:16] Over 100 build to rent single family homes and town homes. And we got a multi-family affordable housing project, a single-family affordable housing project and some retail. So that was kind of my case study. We picked up some land, brought it to an RP from HUD and my development team and I'm a I'm a I'm a small part of the development team, but a big part of the mission. We're able to work with the city and this small community that didn't really have the right developers supporting them. And we came in and we put together this master plan. Eve: [00:24:54] Um hmm. Andy: [00:24:54] And, you know, the by-product of it is we're going to continue to serve the community. And my goal is to just close the loop between the size of projects I'm doing in the in the single-family homes that actually have a passion for capacity building for the veterans. Because I really believe that the veterans have, in my mind, the ability to not just reintegrate, but safely land inside America's housing market and solve a real critical problem. Because we have an affordable housing crisis across the country. We have a lot of skilled trades and unskilled trades gap, but everyone sees that as the problem. Right. But it's the opportunity for me because I see the problem is I got 250,000 more fighters coming home every year and they're trying to figure out what's next. And I'm just going to give them a very focused target. That just go and do this and you'll find not just peace of mind but purpose. And if you do it right, you execute and you end up economically mobile, which is the end state. Because if we can, you know, help our war fighters come back home and have economic mobility in America, we're better off. And so that's my mission to improve America's housing stock by, you know, reintegrating veterans, but doing it in a way where we're winning and we're ushering them into a conscious capitalist community. Eve: [00:26:27] It's an honorable goal and a really big one. And I really hope you'll be incredibly successful at it and I thank you very much for taking the time to talk to me today. Andy: [00:26:38] Yeah, it's a pleasure. And you've done some great work. And, you know, I think your platform is also, you know, an option. And I think I love what you're doing because, you know, you're democratizing access to great projects with great operators. Eve: [00:26:55] Yeah. Andy: [00:26:56] It's needed. I think everyone wants to be a part of, you know, the change. And I think that this is just one area. You know, my goal is just to capacity build, build operators so they see this is a focus. So, it was a pleasure. And I keep doing the good work. Eve: [00:27:14] Yeah. Yeah. No, Andy, I want to say I think I mean, I think, you know, I've always been horrified at how vets have been treated when they leave the military and having seen the sort of support that they get inside before they leave. It's it's not it doesn't seem to be the right sort of support. So, I think what you're doing is fantastic. Just keep going. Andy: [00:27:38] Yes. I appreciate it and you as well. Thank you for having me. Eve: [00:27:42] Okay, bye. Andy: [00:27:50] Bye, bye. Eve: [00:27:50] That was Andy Williams. He's a self-made real estate mogul with a heart. He's passing on what he's learned to other vets just like him, so that they, too, can participate in the wealth this country has to offer. It doesn't matter how much money you have, it's whether you're solving a problem. Andy says, I want to show the world that entrepreneurs like me can exist. You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed. Or you can show your support at Patreon.com/RethinkRealEstate, where you can learn about special opportunities for my friends and followers. 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.
40 minutes | Mar 17, 2021
I do a bunch of weird stuff.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:13] Hi there, thanks for joining me on Rethink Real Estate, I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co. A real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate, where there are special opportunities for my friends and followers. Eve: [00:01:17] Today, I'm talking with Kevin Cavenaugh, who may very well be my favorite developer. Kevin has carved out a special place for himself in the Portland real estate world. His buildings are memorable escapes from the mocha colored vinyl covered buildings he so disdains. Forgotten buildings in forgotten neighborhoods, buildings that you and I would not look twice at, are transformed into little creative hubs and bright spots in streetscapes in Kevin's hands. And now he's bringing heart into his practice as well, setting himself the challenge of incorporating homeless housing or anti-gentrification into his projects. All with no subsidy and all providing a return to his investors. I'm going to learn a lot from Kevin and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Eve: [00:02:45] Hello, Kevin, I'm just really thrilled to have you on my show. Kevin Cavenaugh: [00:02:49] Howdy, Eve. Thanks for having me. Eve: [00:02:52] You are one bad ass developer. I'm really not sure where to start with this interview. I've seen so many tantalizing quotes by you, so I figured I'd start with those. Is that Okay? Kevin: [00:03:05] Okay. Yeah, of course. Eve: [00:03:07] The one I probably love the most is, "I do a bunch of weird stuff." So what is it you do? Kevin: [00:03:14] Oh. Boy, that's a big essay question. So I guess for your audience, I'm educated as an architect and I became a developer only because I knew nobody would hire me to do that weird stuff. Well, and when I was working for an architecture firm, I was doing really boring stuff. And I realized early on that I was being hired at phase one as the architect, and the interesting thing is phase zero. Like I wasn't deciding what the 'it' was supposed to be, what the program is. Here's a piece of land, who gets to decide whether it's going to be an apartment building or retail or mixed use. I wanted to decide that. That's why I became a developer. Once that I realized that the developers weren't necessarily smarter than me. They just control the money. And once I realized that it wasn't their money, they just grabbed the important seat at the table. They asked around. I took some of the developers to coffee. I'm like, hey, is there any reason I can't grab that seat myself? And they all said, no, you know, go for it. So that allows me to build my weird stuff. So I design and then develop and own and manage projects that I always wished somebody would hire me to do. If that makes sense. Eve: [00:04:30] Yeah, it does. So there's another quote which probably comes right off that. "I'm tired of mocha colored vinyl window boring. I can't change the fact that the streets are gray and the sky is gray, but the buildings?" So is this your mission statement? How does this play out in your world? Kevin: [00:04:48] Well, I've got like a dozen mission statements. It's an ever evolving mission statement. But Portland, Oregon, the skies are gray and the city's gray and it's that's great. I can't change that. But I rail against institutional money. I never, I run away from institutional money. I run away from national franchise tenants. I want to be quirky and local. And actually, I want to prove that being quirky and local and colorful and not doing copy and paste buildings is just as profitable, if not more profitable than the mocha colored vinyl windows buildings. I don't put vinyl in anything. As a trained architect, the design comes first. Eve: [00:05:29] Vinyl is pretty offensive. Kevin: [00:05:31] It's so bad, it's so bad. And it's cheap and it makes sense in a pro forma if I'm going to sell the building. But because I don't sell anything, I can do deeper dives on what I put in the building. I can paint The Fair-haired Dumbbell. That paint job on that building... Eve: [00:05:47] Is insane. Kevin: [00:05:47] Cost a half a million dollars. It's the most expensive paint in the world. And I'm never going to sell the building, so I can make different decisions and I can add to the city skyline in a way that institutional money would never consider. Eve: [00:06:02] Yes, and that is impactful, isn't it? Kevin: [00:06:04] I think so. I hope so. Eve: [00:06:06] So there's a final quote I'm going to read to you. "I just realized that I don't have to play by the rules. It's that simple." How does that play out? Kevin: [00:06:17] Real estate development is so easy and straightforward and simple. It's almost, I'm never the brightest person in the room. The only thing I am is the person with the largest risk appetite, in the room. So once I took Francesca Gambetti to coffee and she was a client of ours when I was in the, at the architecture firm and I said, hey, how do you, what is a pro forma, how do you do what you do. And she laughs. She's like, you're already doing it, Kevin. You just bought a house in my neighborhood and I saw that you're fixing it up and you're selling. That's development. That's real estate development. You just have to shift the decimal point over. And instead of doing your house, do a little mixed use building. Or it could be an adaptive reuse. It could be new construction, but A plus B equals C, um, you know, hard cost plus soft cost plus land cost, you know, that's that's your total all in cost. And as long as when you're done, throw a cap rate on it, it's worth more than what it costs. You're a successful real estate developer. So then my first question is like, that's great, Francesca, what the hell's a cap rate? So like, I was starting at zero. And after twenty minutes, I knew I knew everything. And then she emailed me her pro forma, which is the pro forma that I still use today, and all of my pro forma are up on my website open source. So people are downloading my pro forma from my products every day because if she gave it to me, I can pay it forward. It's not complicated. It's simple. And when people try to make it complicated, they mystify it in a way that keeps the layperson out of real estate development. Eve: [00:07:51] Absolutely. Kevin: [00:07:52] Which makes American cities dumber and uglier and more mocha colored. Eve: [00:07:56] And doesn't spread the wealth around. That's what I deal with every day in crowdfunding. The fact that people don't understand the special language that's been developed for the developing incrowd, that just doesn't have to be that complicated. Kevin: [00:08:07] It's not necessary. Eve: [00:08:08] Yeah. Kevin: [00:08:09] It's so dumb. It's just it's you buying the neighbor house across the street that's dilapidated and fixing it up and selling it. That's real estate development. What you and I do, Eve, is no different. It just takes a little longer and it's C for commercial instead of R for residential. But... Eve: [00:08:25] That's right, right. Kevin: [00:08:26] Everything else is the same. Eve: [00:08:27] Yeah. I can't wait to download one of the pro formas. I'll probably use it. Kevin: [00:08:32] You're welcome to it. Eve: [00:08:33] There's nothing worse than getting a pro forma that's like 20 pages, 20 tabs, an Excel spreadsheet and you've got to work your way for every number, trying to figure out where it came from. That's just too complicated for me. Kevin: [00:08:43] Not necessarily. Mine's one page. And the funny thing is, I go to a bank, with that pro forma that that you're about to download, and it's one page and I show it to a bank and I can get a 10 million dollar loan. So complex isn't required. Banks aren't demanding it. It's just part of that language that we feel we have to create to keep the outsider out, which is just not helpful. Eve: [00:09:07] Not at all. So going back to your quote about the mocha colored vinyl window boring, many of your projects have really both striking facades and pretty far out names like Atomic Orchard Experiment, Burnside Rocket, or Dr. Jim's Still Really Nice, which I admit is my very favorite building. Kevin: [00:09:29] That's where I live. That's that's what I'm talking to you from, right now. Eve: [00:09:31] Oh, that's a beautiful building. Kevin: [00:09:32] There are stories behind all the names. I don't know that I want to tell you the stories, though. Eve: [00:09:35] Oh, well, what are you trying to accomplish with your buildings? Let's talk about that. Kevin: [00:09:41] They are all experiments. They're all just things that I want to do and I'm curious about professionally and sadly probably like you, it all is interesting. It all like when someone brings an opportunity to me, I look at it. I have such a hard time saying, no, I'm an actual addict. Like I, I can see fun in almost any project. And I go to my coworkers, like should we do this and they're just as bad as me. They've never said no, no boss, don't buy that property, don't do that building. We are all in all the time. The names are funny. It's just that if I told you that the names are so deeply personal to me and I found in the past that when I explain to somebody what a name means, they're almost disappointed because the story that's in their head or what they've kind of thought of is much more compelling than what I just told them. Eve: [00:10:32] I have no preconceptions about who Dr. Jim is. Kevin: [00:10:36] Dr. Jim Saunders is an eye doctor. Eve: [00:10:39] Oh. Kevin: [00:10:40] And he sold me a warehouse over on Southeast Ankeny Street. And I got really creative financing and I borrowed hard money for hit the down payment. He carried a contract so I bought his building without any money of mine. And as soon as I closed on it, a hard money guy reached out to Dr. Jim Saunders and said, hey, Cavenaugh has no skin in the game. I want to replace him. I want, the buildings worth more than you sold it for. I'll pay you more. Eve: [00:11:06] Oh. Eww. Kevin: [00:11:07] A just as little end around. And I had bounced a check, my first payment to Dr. Jim bounced. So like, I was in a really vulnerable place. And Dr. Jim called me up and he's like, Hey Kevin, like what are you doing. Like I like you. You've been, we've been talking for a year. We're like, you put this together and like I believe in your vision. Don't like, I don't want to get calls like this. So he could have made more money. And he said he had other offers for more than than what I was paying him as well. And he kept honoring his handshake to me. Eve: [00:11:41] He is really nice. Kevin: [00:11:44] Yeah, he's really nice. So ,that building, that project was called Dr. Jim's Really Nice. Now, in the recession, I had to sell that warehouse because the bank put a gun to my head and I lost everything in the recession. Eve: [00:11:57] Awww. Kevin: [00:11:57] But lo and behold, eight years later, I bought another warehouse, a hundred year old warehouse, one more neighborhood over. The exact same program, that exact same phase zero that I talked about, I was doing. And when thinking of a name, I just I wanted to still honor Jim Saunders. So I named it Dr. Jim's Still Really Nice. That's the LLC of the building and it's a single asset, LLC. Dr. Jim doesn't know this building is named after him. I haven't I haven't talked to him in a while, probably should mention to him that I've given him props. Eve: [00:12:31] Well, I think that's a great story behind the name. So what are you trying to like, they're all experiments, but I know I've been to some of these and I love your buildings. Kevin: [00:12:43] Thank you. Eve: [00:12:43] And I can see that they are, you know, experiments with a clear purpose. There's got to be more than just I'm going to experiment with this building. Kevin: [00:12:52] Yeah. Yeah. So there's a couple different layers to that. When I first started, it was about left brain, right brain. Even before that, I think most buildings have too many cooks in the kitchen. I think buildings that we're all drawn to and we all see have one dominant voice, one dominant vision who is in charge. And and it's not a committee of designers or a community. Eve: [00:13:18] Not a democracy, right. Kevin: [00:13:19] It not a democracy. No. And I say that to my investors and I say that to other folks. I don't collaborate. I don't have any interest in collaborating. If you want to if you want to hop into my 15 passenger van, that's great. Just you got to sit in the back. I'm going to I'm driving this van. I'm not sharing the steering wheel with anybody. And you end up getting these hopefully iconic, singular, visionary buildings that I don't need to explain them to you. You as the observer or participant or tenant. You just get it. And you don't know how I got there. You don't care. You're just really happy to be in the building. That's the goal. Eve: [00:13:52] Right. Kevin: [00:13:52] When I started, the first layer was left brain, right brain. So a product always starts with the design. And then I instantly toggle over and do a pro forma. And if the numbers don't work, then I crumple up the paper and start with a new design. So it has to be design first and then the numbers. But the numbers can't be ignored because there's a lot of architects who become developers and just done one project and it's an ode to their ego and then they can't do it again because all of their money is sunk in the building. It's not really a successful financial deal in the bank. The bank says next time, like, nah, I'm not that interested in giving you the million dollars because that wasn't very pretty the first time. So the numbers have to work. But the vast majority of our peers, Eve, it's only the numbers. So I view those mocha colored vinyl windowed buildings. I call them either Greavy buildings or I call them pro formas with windows. And I look at them. I think I know exactly what the numbers look like in that, because it's just a pro forma that the developer is only tasking the architect to do the bare minimum to reach this ROI, to reach this return, to reach to reach this number. Eve: [00:15:04] Right. Kevin: [00:15:05] And the funny thing is. None of our buildings are maxed out. So if a developer says, hey, I know I can put 100 apartments on this site, so they hire the architect and the architect has no option of building designing 90 units. When a 90 unit building might be significantly better to the city skyline, to the streetscape. Eve: [00:15:23] Right. Kevin: [00:15:23] There are no dog units with their 90 units, but if there's 100, there's going to be some dog units. But the developer doesn't care. He or she just wants the 100 units. So toggling back and forth between my left and right brain is all about making sure the design is always front and center and it just has to make enough money. And then I pull the trigger, then I go for it. The tricky thing is that the last layer to that equation, what makes a building compelling or not, is about social repair. So now it's more about head and heart instead of just staying left brain, right brain all on my head. Now I look around the city and I see homelessness or I'm doing a project that supports social workers. I'm doing a project that supports 18 year olds aging out of foster care, which have a higher proclivity to become homeless. I tried to do a reverse gentrification project, which isn't actually a thing, but in the office we call it gentlefication. So how do I how do I develop in a neighborhood that's turning without displacing anyone who's already there? So these are the more social repair elements that I'm trying to lean into, which is super fun, but hard. Eve: [00:16:33] Very difficult. Yeah. Oh, that's really interesting. So these projects I mean, I've seen you do some pretty remarkable projects, which includes homeless housing and in neighborhoods that no one else have looked at really before. Are they making you money? Are they making your investors money? Kevin: [00:16:53] They are. Jolene's First Cousin is my first attempt to tackle homelessness, and it's up and running. It opened last summer and we cut Q4 distribution checks last month. Eve: [00:17:10] That's amazing. Kevin: [00:17:10] And it made five percent from the crowdfunded equity. It made, I think seven percent for the long term tranche of investors. I raised three hundred grand of crowdfunding and three hundred grand of accredited investors. And there's not one dollar of public money in that project. And I'm super proud of that. Eve: [00:17:29] Amazing. That's amazing. Kevin: [00:17:31] It's fun. Eve: [00:17:32] Congratulations. Kevin: [00:17:33] Thanks. And the performance online, go ahead and take it. And I'm I'm breaking ground on Jolene's Second Cousin and I'm buying the land for Jolene's Third Cousin. So I'm just going to pepper, these nestle into neighborhoods. I don't like Pruitt-Igoe or Cabrini-Green. I don't like when thousands of poor folk are crammed into a building. That's a great way to not break the cycle of poverty from generation to generation. So each Jolene's Cousin only has like a roughly a 12 bed SRO plugged into it, like a 12 bedroom apartment, like a flophouse, and the tenants pay rent. It's just that it's super, super, super cheap rent. And there's usually a subsidy for that rent. That's not my, I'm not involved in that. I just provide the ... Eve: [00:18:22] What's the what's the rest of the building. How do you make that pro forma work? Kevin: [00:18:26] It's internally subsidized. So, Jolene's First Cousin has three retail spaces. It has a hair salon, a coffee shop and a bakery. It has two market rate apartments that are very expensive and it has the SRO, the homeless housing unit. So when all six rents are added together, it's enough to spin off a profit. And the other fun thing is, it's allowed by a right. So I didn't have to do any special entitlements to get it. In Portland, you have to go and present to the neighborhood association on any project. Because it's a law by right, you don't have to do what they ask, but you just have to be a good neighbor and be transparent. This is the first neighborhood association I thought I was going to go in front of where I was going to get rotten tomatoes thrown at me. Because here I am, I'm bringing homeless in. I mean, there's a single family house right next door and I presented it and I kind of stood back and waited and there were no questions and there were no tomatoes. And then I asked a question, how do you guys, what's your take on this? Like, how do you feel about bringing homeless into your neighborhood? And then a woman in front said, well, once they lived there, they're not homeless anymore. Eve: [00:19:34] And they're probably already in the neighborhood, so giving them a home... Kevin: [00:19:38] Exactly. And then another neighbor said, with 11 bedrooms, like, we're going to know their names. It's going to be like Suzy and Jim and Frank. And if it was 100 units, we probably would be pushing back Kevin. But there's 11. So they were in total support. And they're it's been wonderful. Eve: [00:19:56] That is wonderful. And, you know, I think it's vastly different than it might have been five years ago. I think homelessness and affordable housing is now on everyone's mind. And it's a real shift. But, you know, what about the two market rate units? How do they feel about the SRO unit right next to them? Kevin: [00:20:13] That's a great question, because there was so much speculation in the papers, on blogs, like like Cavenaugh's an idiot. Like no one's going to rent those. Nobody's going to want to, like, be paying 1,800 bucks a month living like next to guys who used to be living in sleeping bags out in front on the sidewalk. And my response was like, well we'll see, you know, like all of my products are all experiments. It's a question. There's only two units. My guess is there are two people who will love being part of this. And lo and behold, they rented out in about 20 minutes. Eve: [00:20:51] Oh, that's fantastic, Kevin. Kevin: [00:20:52] There's a huge backup. Yeah. Backup for people who want them when they become vacant again. Eve: [00:20:57] Are you sure you won't partner with anyone? Because I want to do a project with you. Kevin: [00:21:03] Just take it... Eve: [00:21:03] I would like to be in the passenger seat, not the back seat. Kevin: [00:21:07] You're welcome to be in the passenger seat. I do. I do talk about that. I said it's not a pretty ride. It's usually scary, but I always arrives safely at the destination. Eve: [00:21:17] Oh, it really sounds wonderful, sounds wonderful. Okay. Kevin: [00:21:21] But you know exactly how to do this, Eve. You should just take my plans and my pro forma and build it in Pittsburgh. Eve: [00:21:27] Yeah, I should. I've been thinking about it for a long time, actually. I have one in mind, but it's a lot of fun what you're doing and really impactful. So, you did mention crowdfunding. So, you know, I first became aware of your work when I started to build Small Change, my crowdfunding platform. And you had launched a Regulation A offering, which, if I'm remembering properly, may have been the first of its kind for one of your buildings in Portland. Kevin: [00:21:53] Yes. Eve: [00:21:53] The Fair-Haired Dumbbell. And what was that about? Why did you do that? Kevin: [00:21:58] Good question. I don't, I didn't realize it was the first until we were done and then my lawyer, I chose this lawyer who was recommended to me because he was an expert in crowdfunding, all the hoops that he had to jump through. And when we were done, it took me a year and a half to to get through the SEC regulatory framework. He, on the phone is like, oh, my God, congratulations. We're so excited. This is our first one. Wait, what? Like you're the expert? What do you mean? Like this is your first one. He's like, no, this is everybody's first one. So, Eve: [00:22:31] Wow. Kevin: [00:22:32] It was a big deal. It was the the first new construction. I think there was one prior to me, construction that the Fundrise brothers put together. Eve: [00:22:40] Yes. I remember seeing a photograph of the paperwork they had to submit, which was about three feet high. Kevin: [00:22:47] Yeah. Yeah. Eve: [00:22:48] And just, um, just for listeners who are not aware, Regulation A is an offering that lets anyone over the age of 18 invest. It requires really writing almost like a mini IPO and submitting it to the SEC and getting their approval before you can launch and raise money. Right? Kevin: [00:23:05] Exactly right. Yeah. And it's it's a lot it's a it's a heavy lift. Eve: [00:23:10] It's really not worth it for, you know, anything much under five or ten million dollar raise. It's too much work. Right? Kevin: [00:23:16] I raised one and a half million dollars. Eve: [00:23:18] Oh! Kevin: [00:23:19] I don't know that I would do it again for that amount, but I want to do it again because the idea of it is so profound to me and I know to you too, Eve. So, I'm legally not allowed to talk to my mailman or my kid's teacher about a very lucrative development deal that I'm working on. They're not accredited investors. They're not already wealthy. Eve: [00:23:44] Right. Kevin: [00:23:45] And part of the social repair that I'm working on is the wealth gap in America. It's broken, it's distorted. It's not sustainable in the long term. It's not sustainable today. So when I decided to dip my toe into the crowd investing pool, it was purely to allow mechanics and school teachers and librarians to own a 17, 18, 20 percent, 10 year IRR building with me. Right. Internal rate of return, a really lucrative investment. Like my wife has a 401k and she puts her money in a mutual fund. And that's all she, the options to her are different than the options to somebody who's on the 17th fairway of a country club golf course talking to his buddy about deals. Eve: [00:24:32] And many people don't have a 401K at all. They've just got the bank with less than zero percent interest. Kevin: [00:24:38] Exactly. So it was important to me, just ethically and profoundly to do this, even though it was, it would have been so much easier to just tap some rich guy's shoulder and say, hey, I need 1.5 million, that's the gap to get this product off the ground. Instead, I took a year and a half and people for as little as 3,000 dollars now own the Dumbbell with me. And they've been getting paid from day one, eight percent. Eve: [00:25:01] That's fantastic. So, yes, since then, regulation crowdfunding has come into play, which is, would be much easier for you. But I have yet to convince you, yet. Kevin: [00:25:11] Well, I've done two other crowdfunding vehicles on the homeless housing project. I did raise 300,000 dollars that way... Eve: [00:25:19] Through a state vehicle, right? Kevin: [00:25:21] Yeah. State only. And that was unaccredited. And then on my Tree Farm Building. I like that one for your listeners... Eve: [00:25:29] What is a Tree Farm Building? Kevin: [00:25:32] You got to go my website and see it, but it's like it's self-explanatory. Eve: [00:25:36] Okay. Kevin: [00:25:38] But I raised two million dollars that way, but they're more accredited and I don't want to holler from the rooftops about that. But it is legally, it's another form of crowdfunding. Eve: [00:25:48] Well, we just had a breakthrough on our site. We raised almost 900,000 dollars through Reg CF. Kevin: [00:25:54] Wow. Eve: [00:25:55] For a project in the Berkshires. And the issuer was the most pleased when the local librarian made an investment. Kevin: [00:26:04] Yeah. Eve: [00:26:05] He was just delighted. And I mean, that's really the point, right? That's why I do it. Kevin: [00:26:11] It democratizes real estate investing. Eve: [00:26:13] Yeah. Kevin: [00:26:14] I understand why there are fences up that keep the shitty developers from bilking Mrs. McGillicuddy from her retirement. Like there should be there should be rules and laws against that from happening. So so lowering the bar for me to talk to Mrs. McGillicuddy can be scary, but it's still a pretty damn high bar. I just like that I can jump through some hoops and you can jump through some hoops and Mrs. McGillicuddy can invest in a building. Eve: [00:26:43] Well, you can actually, under Reg CF talk to her, but you can't tell her the terms of the offering. That's got to be on a registered funding platform. But you can say to her, we're doing a project and it's around the corner from you and you can invest. If you go to this funding portal, right? Kevin: [00:27:00] Yeah, yeah, I love it. Eve: [00:27:02] Yes, I love it, too. Okay, so so you've gone from getting your architecture degree, to joining the Peace Corps, to far out real estate developer. And told us a little bit about how you did that. And what's the biggest challenge you've had? Kevin: [00:27:22] Mmm, well I lost everything in the 2008-10 recession. That was difficult, but, it I mean, on paper, that should be the most challenging. I lost everything. On a Thursday, I had a net worth of four million dollars. And then a month later on this day, on a Thursday, I was a million dollars underwater. And that should be bad. That should be difficult. My buddy claims that I have HSP, which stands for hyper serotonin production, which isn't a thing, but I didn't even know at the time that I was getting punched in the face by the economy. Every day I would wake up like, Okay, I guess this is the puzzle and I like puzzles and I know you like puzzles and just everything. Eve: [00:28:14] Yes. Kevin: [00:28:14] All of our products are puzzles and it's just another puzzle. And I got to figure this one out. So I should have probably been more devastated by it, but I was too dumb to know that I was, you know, in a hole. Eve: [00:28:24] Oh, I don't know that that's forward looking, right? Kevin: [00:28:28] Yeah, I think that my internal wiring is probably such that I, like my wife calls me dangerously optimistic. So there are probably things where I should have been more concerned or realized that I was on the ground, but I just didn't even realize it. Eve: [00:28:45] Wow. So, you allowed to talk about your next project. What are you working on now? Kevin: [00:28:50] Sure. This is a fun one, so I never want to sell anything. Eve: [00:28:55] Why is that? Is it because you love your buildings too much? Kevin: [00:28:58] Yeah, it's like selling my progeny. Like, I spent so many, like I lie in bed for I go to sleep and I'm like building. I close my eyes. I'm building the building in my head and by the time it's drawn, I've already built it 100 times in my head. It's my baby. Like in the 2008 recession, now a lawyer owns the Burnside Rocket. And I did, it's LEED Platinum. There's a geothermal open loop heat pump under the under the building, although all the water is, you know, I have tapped into a 10,000 year old aquifer for all the potable water. It's it's a crazy fun experiment. And now some like, you know, kind of a knuckleheaded lawyer who doesn't care about that, owns that. It's just an asset. And he views it differently than I view it. So I don't want to sell. Was it Monday, my most recent project? I'm buying a house on a big lot out in what's called The Numbers of Portland. It's a pretty trashy area. It's no sidewalks, deeper poverty, houses without foundations, double wide trailers. It's it's it's rough, but it's also where all the young families are moving because they can buy there. Because the house prices have just gone through the roof here. So we all understand that in five, 10, 20 years, it's going to be a place you want to be. It just not a place, now. You're on the bleeding edge of gentrification. So, I'm actually going to buy this house for 265,000 dollars. And on Zillow is worth 100,000 more than that. It wasn't on the market. Someone just called me up and I'm going to split the house off and probably give it to someone else to fix up and keep that. I don't need the profit from that. Someone else can go get the profit, but all they want is the land and the rest of the land, the, a guy named Eli Spevak is a developer in town. And he does forward thinking policy. And Portland has some wonderful density promoting policy and Eli's work to change all the zoning for every single family house you can now build fourplex on. You're allowed by right to build a fourplex on it, in the entire, everywhere in the city. And this lot is such that I could build 12 houses if I wanted to. I don't want to own rentals out in The Numbers. So what I'm going to do is I'll fit seven. There will be seven two bedroom cottages, two story, two bedroom. Little front porches, you'll walk down a path and they'll spin off to the left and right. And these will cost 200,000 dollars each but be worth 300,000 dollars each. And I will sell them off for two hundred thousand dollars to first time homebuyers who qualify. You have to be poor, whether it's a perfect partner with Habitat for Humanity or some agency to identify who the buyers are. But held against the deed of the house, if you buy this for 200 and that's worth 300, that's great, but has to always be owner occupied. And if and when you sell it, you have to sell it at two thirds of the appraised value. So it has to always be affordable. So if you sell it for, if it's worth 600,000 grand in a decade... Eve: [00:32:03] How are you going to track them? Kevin: [00:32:06] Just put a covenant against the deed on everything. Eve: [00:32:08] Wow, and are you going to break even on this? Kevin: [00:32:12] I'll probably make 10 grand per house, so I'll make 60 grand and it's not enough to, you know... Yeah, I'll break even. It's it's a deep experiment. The other projects, I've got 21 other projects and since I keep them ,they all spin off a little bit of money to me. But you know, it's been a decade since the last recession and now I've got those 21 projects, 14 of them are spinning off money and I now make enough passably that I don't need each project to work. Eve: [00:32:48] Yeah, yeah. Kevin: [00:32:48] If it breaking even is is a fine. Not everyone do I want to do that with, but... Eve: [00:32:54] Interesting. Kevin: [00:32:55] This feels fun. I'm also this week I'm putting an offer in on Jolene's Third Cousin, so I'm keeping that going. So there's, there's no lack of fun stuff. I'm breaking ground on an apartment building where 20 percent of the lofts are being held aside at 60 percent of median family income for I mentioned before, 18 year old aging out of the foster care system in a really great neighborhood. Most see their options for living are way out in The Numbers, not near jobs, not in your transit, not near opportunities. So that'll be fun. Eve: [00:33:30] It all sounds fun. And I'm really jealous. Kevin: [00:33:33] I just I'm just I virtue signal like nobody else, you know, that's all I'm doing. Eve: [00:33:39] So I'm going to ask you one wrap up question and that's what's your big, hairy, audacious goal? Eve: [00:33:46] Oh, that's a that's a great question, because I just spent the month of January vacationing and usually the big, hairy, audacious goals happen when you're not in your 9:00 to 5:00. You have to step outside of your life to to have them kind of allow your your brain to accept them. So, my youngest of three is a junior in high school, and in a year and a half, I'll be an empty nester. And I have been courted by lots of other cities. Cincinnati, Honolulu, Denver. And I've always said no because I can't do what I do it unless I am embedded in that city. I do a lot of micro restaurants. I find that food is a great inroad into a neighborhood. It's a great, micro restaurants are like a a variation of the food cart. I understand the business model. I need to live in Pittsburgh to know who the sous chefs are, looking for a space that can afford 25 or 30 grand if they call their uncle and their neighbor and they can cobble together some money and open up a restaurant. I'll never know that person without living in Pittsburgh. Eve: [00:34:54] Mm hmm. Kevin: [00:34:55] So in a year and a half, I know that I'm start taking the show on the road. And to kind of continue the the virtue signaling theme. I am a fifty three year old white man. And the vast, you know, this Eve, good God, the vast majority of developers look like me. Maybe 10 years older, maybe 50 pounds fatter, and it's just it's a caricature. Eve: [00:35:21] Mm hmm. Kevin: [00:35:21] But it's true. And there's no license you need to be a developer. There's no special credentials or, you just need to have knowledge and you need to be invited into the room. You need to have access to the 17th fairway, the country club, and that's a broken system. So, as I go into cities like Honolulu or Tucson, I'm thinking of Detroit as well. And I create branches of Guerrilla, and I go and I drop myself in for three months at a time. I want everyone that I hire to eventually run the show. To be native Hawaiian or Latino or African-American, and when I leave, I'm gonna drop the keys off to the company, to the next generation, a developer that looks nothing like me because that doesn't happen to them. When I lost it all, it took me about a minute with my 505 credit score to get a loan for a million dollars for my next project. Eve: [00:36:20] Mm hmm. Kevin: [00:36:20] That's not OK. There are people who are much more deserving and I didn't question it at the time. I was just so happy that I can merge back into traffic and start developing again. Now, we all realize that there are people at that same bank getting rejections that were much more deserving of the money. They just didn't look like, I look like I'm good at tennis and golf. I look like, I have the gift of gab. That helped me get that million dollars and my face more than anything else. I had a 505 credit score. That's offensive. That's really, really bad. And only now am I realizing that other people need to just be handed opportunities and they need to have hutzpah and they need to have tenacity, the way that I know you have, Eve. I mean, it's more about personalities than skill. I can teach you skill. I can teach you how to do certain tasks, like just the way that Francesca Gambetti taught me. Eve: [00:37:15] It's about sticktoitness, too, isn't it? Kevin: [00:37:18] Oh, my God, yes. If you don't have a risk appetite and when I'm interviewing the next generation in Detroit, I want to know all about you as a person. I don't care about whether you know Excel. I don't care about where you went to school. I need to know what happens when you get punched in the face. Eve: [00:37:32] Yeah. Kevin: [00:37:34] And I can't wait ten years from now, to walk away from these branch companies and hand the keys off to the next generation and change the face of what development looks like. Eve: [00:37:43] That's an amazing goal. And I really appreciate you taking the time to talk with me. I'm totally in love with what you do, Kevin, thank you so much. Kevin: [00:37:54] Thank you. It's fun. Eve: [00:38:10] That was Kevin Cavenaugh. Eve: [00:38:13] Kevin is a rare developer. Left brain, right brain, head and heart all come to bear on his wildly creative buildings, his personal solutions to the physical world. Each building must make an occupant or visit a happy one. Each building must drown out the gray of Portland streets. Each building has a tantalizing name with a back story. And now each building needs to serve impact goals as well. Homeless or affordable housing for a start. All while making a return for investors. Wow. Eve: [00:39:02] You can find out more about this episode on the show notes page at EvePicker.com, or you can find other episodes you might have missed. Or you can show your support at Patreon.com/rethinkrealestate, where you can learn about special opportunities for my friends and followers. 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.
36 minutes | Mar 10, 2021
Get in on the Ground Floor.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:16] Hi there, thanks for joining me on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at EvePicker.com or you can find me at SmallChange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at Patreon.com/rethinkrealestate where there are special opportunities for my friends and followers. Eve: [00:01:24] Today, I'm talking with Brian Dally of Groundfloor. Groundfloor started with the seed of an idea born out of the Jobs Act of 2012. From humble beginnings, funding their first 50,000 dollar loan with just 50 investors, Brian and his partner have built Groundfloor into the go to funding platform if you want to fix and flip property. And now they've added in accessory dwelling units as well. Last year, with the pandemic looming over their heads, 90,000 investors invested 145 million dollars into 'fix-n-flips' through Groundfloor. You might learn how to fund your next ADU. It's an unusual model and worth listening in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon.com/rethinkrealestate to learn about special opportunities for my friends and followers and subscribe if you can. Eve: [00:02:44] Hi, Brian, it's a real pleasure to have you on my show today. Brian Dally: [00:02:48] Great to be with you, Eve. Eve: [00:02:50] Yes, so you and I are kind of in the same business, we both founded companies based on the 2012 Jobs Act and we both care about democratizing investment in real estate. So I want to just start talking about what you do first today and that is Groundfloor. Why don't you just explain what Groundfloor is. Brian: [00:03:13] Well, as you said, we realized back in 2012-2013, you and I didn't know each other back then, but you were tracking the same trend. You know, the world of investment and capital formation was undergoing some very early change back then, and it continues to go through change, even today. But what started back then is Congress and the SEC put rules in place that for the first time allowed everybody, regardless of your income or wealth, to participate in a whole class of securities offerings that haven't been open to people who don't meet the definition of an accredited investor. Eve: [00:04:00] Let me jump in. Brian: [00:04:01] Sure. Eve: [00:04:01] Because people don't know what an accredited investor is. It's probably about three percent of the adult population in the state, which in itself is pretty shocking and it's anyone who has income of 200,000 dollars a year and has had for three years. Or has net worth of a million dollars, at least a million dollars without their primary residence. That's right. Right? Brian: [00:04:26] Yeah, exactly. And that's a very small slice of the American population. And if you meet that definition, if you're in that club for a long time, you have had access to investments that the other 97 percent of us haven't had. And which started to change in 2012 is Congress and the SEC put forward rules that would start to open that up. Now, since then, they've continued to improve those rules, spell them out a little bit more. Companies like Small Change and Groundfloor have been built. Republic is another one that allows you to invest in startups, for example, or StartEngine or SeedInvest, there are a bunch of portals now where you can go invest in a wide variety of securities offerings that weren't open to us all before. We saw that coming, we started a company to help open up that market and we're still going. Now, we've got about 90,000 investors who are investing. Last year put in about 150 million in aggregate into our investments. We're funding 70 or 80 different real estate projects per month now using this model. And I mean, we're really just getting started. I think you would agree, right, with Small Change we're just in the early innings even still. Eve: [00:05:43] So what is your model? Because we both have real estate platforms, but they're pretty wildly different, right? Brian: [00:05:49] Yeah, we looked at the market for investments and we said, look, what's missing out there is sort of a short term high yield secured investment that people could get their hands around. You know, so many times you invest in real estate or you invest in a startup or something, and your capital is locked up for a very long period of time. Typically, the terms of those investments don't give you a lot of control over it. Like, for example, if you put money in any of the eREITs like Fundrise or RealtyMogul, any of these new kind of funds that have launched, you weren't able to access your capital when you probably wanted it. And you're in Covid. Because they shut down redemptions out of those funds. And we looked at the landscape of investments and realized what was really missing was for all of us to invest the same way that hedge funds and banks do, which is on a per deal basis, on a short term, a short term loan that that has a high yield. So where we started with Groundfloor was with value added renovation to single family houses that were being basically built by independent entrepreneurs. Right, so you have somebody who had a real estate project that they wanted to fix and flip, for example, or fix up and rent out and create rental housing out of it. We make a loan to them and then we turn around and allow individual investors to participate in that loan, ten dollars at a time. So, most people invest about an average of two or three hundred dollars. But you can start with a minimum of just ten. And what that means is if you have 1,000 dollars to invest, you can invest in 100 loans, which is a very nicely diversified portfolio. You're as diversified as a lot of small private equity funds or hedge funds. So you get the same benefits of diversification and the loans repay on an average of about nine to ten months. And the average rate that people are earning ranged between 10 and 11 percent. So it's a very high rate of return on short holding period in an asset that if you watch any house flipping show, you can understand what's going on there. Eve: [00:08:01] Sure. Brian: [00:08:01] And I think that's why it's been so popular, is those factors. Eve: [00:08:04] So, a couple of things. One is I get what you're offering investors. Opportunity to invest in a way they've never had before. What does this do for developers who do 'fix-n-flips?' ? Brian: [00:08:17] So developers who do 'fix-n-flips' or who are trading rental housing or we also finance independent builders who are doing new construction. There are a couple of problems with the capital markets, the way that they've been built, so far, on the legacy infrastructure. The legacy infrastructure is financed by some kind, what used to be banks. But when banks stopped funding this category of real estate development or or this type of small business, if you will, these types of projects, really who stepped in were sort of wealthy people with checkbooks. In any town, there are probably a couple dozen people who will finance these types of real estate projects. The problem is that the form of lending was not very professional. It was hard to find these lenders. The terms were all over the map, sometimes very lopsided terms for these agreements. Eve: [00:09:12] Yeah. Brian: [00:09:12] And I think the problem is if you're just getting started out as real estate investor, a house flipper, a builder, it's pretty hard to find your way in those capital markets. And I think the other problem is that a lot of the real estate development that's getting done in residential real estate, in places where housing stock is aging, for example, when Wall Street steps in, they just buy up blocks of a neighborhood and they bulldoze everything and they build up mcmansions or they build up some kind of mass market product. And that doesn't leave a lot of room for the independent builder or the independent real estate investor. So they've been playing at a disadvantage over the last 10 or 15 years. And Groundfloor's approach solves that problem because we're not lending out tens of millions of dollars at a time to one company that's going to go bulldoze a neighborhood. We're working with independent real estate developers who know these neighborhoods. They probably live in the neighborhoods. They care about the neighborhoods. And I think that's a good counterweight to gentrification. Right. I think it's a way to to renovate the residential real estate stock in a way that is more community friendly. Right. It also allows people in the community to participate in the financing of it, which I think is a novel idea. Eve: [00:10:32] And so where are you lending now? Brian: [00:10:35] We lend in about 30 states. Our lending is heavily concentrated in the southeastern U.S. We dabbled quite a bit in the mid-Atlantic and the midwest and we're starting to expand out west now. We started to finance projects in Colorado. We've done a couple in Washington state. We're not in California, but we're in about 30 states for lending and then investors nationwide. Eve: [00:10:59] Yeah, yeah, obviously. And then how do you vet the the developers and the deals. Brian: [00:11:05] We're frankly looking at developers on these deals the same way that anybody who's lending money or investing money in an entrepreneur would look at an entrepreneur. We're asking ourselves, can this entrepreneur with this plan create the result that they're hoping to create? And a lot of times we use this expertise to help entrepreneurs realize maybe the deal wasn't as good as they thought it was going to be. Right. Maybe their plan, they didn't have a big enough budget. Right. We really look very closely at the budgets for the projects and we look a lot at the valuation at the end. Do we believe I mean, every entrepreneur, myself included, we always believe what we're doing is super valuable. Right. So Groundfloor will serve as a little bit of a reality check for those situations where maybe their expectations are a little inflated. We need to make sure that the properties can sell for enough in the end... Eve: [00:12:00] That investors get their money back, right? Brian: [00:12:02] Yeah, I mean that and they get it back in a timely manner. Right? I mean, that's that's really important to the model that investors can trust the projects that we put up. It's not that things don't go wrong. Things do go wrong. You know, when you're renovating something, you know this well. You've dealt with so many interesting projects in Pittsburgh and beyond that, you know, you've seen it firsthand. I mean, you can't plan for every contingency, right? Eve: [00:12:27] For sure. Brian: [00:12:27] Things take longer, things cost more money. And so in our vetting, we make sure that the plan covers those major contingencies. And that's why we've had such a low loss ratio. Over time, we've lost less than one percent of the money that we've loaned out. And the returns of 10.5 percent are net of those losses. So, it's a pretty low volatility and investment where you really know what to expect. Eve: [00:12:54] Right. Brian: [00:12:54] That's why it works for the investor. Why it works for the borrower, for the entrepreneurs, they get a professional outfit that's actually looking at the merits of what they're trying to do. And we're providing some advice to them and a perspective. And if everything lines up, we're happy to fund it. We're doing like I said, we're doing about 70 to 80 fundings a month right now. Eve: [00:13:14] Wow. A few years back when I met you, we talked about how hard it was to find your crowd of investors. Brian: [00:13:23] Yes. Eve: [00:13:23] And what you have to go through at the beginning. And I'd love to talk about what that was like and how that compares to today and what you think made a difference. Brian: [00:13:33] Well, I realized early on that, and I think you felt this too, you and I are creating, you know, an unknown product in an unknown category from an unknown company. Right? So it kind of just amazed me in the early days that anybody would, you know... Eve: [00:13:52] That's absolutely true. Brian: [00:13:54] Isn't that the feeling, though? It's kind of just amazing. Eve: [00:13:57] Yeah. And by the way, we just closed an offering today for 890,000 dollars. Brian: [00:14:02] I saw that. Congratulations. That's huge! Eve: [00:14:06] Yeah. Brian: [00:14:06] That's huge! Congratulations. That's got to be one of the bigger ones, I would think. Eve: [00:14:11] Yes. Brian: [00:14:12] Yeah, I would think so. That's that's a huge success. And that's a testament to just continuing to persist because I think what I was about to say is, I think you're probably feeling this too, is that people now are more comfortable with the idea that this exists, you know, this category exists, that they, too, can get access to these deals. And there's a little less of what I used to call the Groucho Marx problem, which is like I wouldn't want to invest in any investment that would allow me to. Right? It's a problem of investor psychology. And I think the category has advanced now enough that people are interested. I also think we're seeing the rise of the retail investor more generally. I mean, look no further than what happened last month with Robinhood and GameStop. Eve: [00:14:59] Yep. Brian: [00:15:00] The retail investor is waking up and as they wake up, they're also realizing that public markets for a lot of people feel like it's a rigged casino. And they're now open to the idea that they can invest, that they should invest, that they can band together to put their capital to work and cause a change. And I think some of these traders are going to become investors. And that's part of what's happening, too. And then the third factor that has started to change the game and bring in a lot more growth. And we had a record Q2 and record Q3 last year because of some of those other factors, you know, the retail investor waking up and opting out of public markets. But I think the future growth that's to come and that we're starting to see lift off from now is the track record that we've all built. Right. Eve: [00:15:49] Yes. Brian: [00:15:49] Now that we're repaying, you know, we have over 1,500 loans that we've repaid. Eve: [00:15:54] Yes. Brian: [00:15:55] You know, and people now can see what the empirical data tells them about what they can expect. You can go on our website and see a scatterplot of, I think 9,000 portfolios that have returned capital on at least one loan over the years and you can see what returns that portfolio has earned on average based on how many loans they've invested in. What you learn is the more you invest, the more you can predict the return. And I think that's giving people more confidence in the category, in the companies and in the products, right, that we're building here. Eve: [00:16:29] Right right right. So along with all of this, but I want to go back to what I originally asked. Sorry. And that was like I remember you telling me a story about what it took to get one person to invest in the beginning. And how many did you have last year? Brian: [00:16:45] Gosh, we now have 80,000 investors. Eve: [00:16:47] That's amazing and really what is a fairly short time to kind of scratching your head over why you can't even find one investor to... Brian: [00:16:56] Well, the first loan we funded was a 50,000 dollar loan for a house flip in Adair Park in Atlanta, which is a neighborhood, transitional neighborhood near the beltline. I think we put, it was a 40,000 dollar loan. We put 39 investors in it, you know, a thousand dollars each. And it was a lot of work. Eve: [00:17:16] A lot of work. Brian: [00:17:18] A loan that small won't last a day or two on the platform. Eve: [00:17:22] Yes. Brian: [00:17:22] And, you know, people are investing smaller amounts in many more loans. So there might be 500 people in that loan. Three or four... Eve: [00:17:31] It's pretty amazing that you can invest just ten dollars. Brian: [00:17:33] I think just yesterday we hit a new record for I think 1.2 million dollars was invested on the platform just yesterday alone. Eve: [00:17:41] Oh, wow. That's that's amazing. Congratulations. Brian: [00:17:44] We've come a long way. But I'll tell you one thing that's exciting to me about that is that now that we have those basics in place is we recently started piloting an ADU financing program. Eve: [00:17:57] That was my next... Brian: [00:17:59] Oh, oh good. Eve: [00:18:00] Question. Yeah. I want to know about your ADU program because that's a little bit different for you. And I wanted to ask why you are piloting that. Brian: [00:18:09] I'm psyched to talk about that, because when we started off, yes, we wanted to build a financial product, but more than that, we wanted to build a platform that could be used for good. You know, we wanted to open up this asset class. We wanted to make a great investment product. But we also hoped that people would come to the platform as borrowers or sponsors and investors in order to have a positive impact on the world as well. I feel very strongly that the source of capital really matters to the result that we actually see in the world. And I think real estate plays an important role in shaping our communities. I mean, it's where people live and shop and work. And I think that who is financing that work really matters. And I think this ADU program is exciting to me because as an entrepreneur, when you build a platform, you have ideas about how people will use the platform. You can't predict it. If it goes well, people use your platform to create even more value for themselves in the world around you. Then you even get. Right. I mean, that's the whole idea of a platform. And still with this ADU pilot, we were actually approached by some people in that community who are having trouble finding financing because of the particular borrower situation that sometimes exists where you have somebody who doesn't want to move out of their house, out of their neighborhood. Home values are changing over. They like to participate in the growth of the neighborhood and they see ADUs as a way to do that because we're increasing density. I mean, there are two ways of dealing with increasing lot values and housing stock values. Right. One is you can knock everything down and just rebuild it all with mcmansions and more valuable real estate. I think most of us in the impact community would agree that sucks. Right? The other way is to increase density by changing the zoning rules and you change the zoning rules, but then you still need financing. Eve: [00:20:11] Right. Brian: [00:20:11] So to support that increased density. And I know you've talked with PadSplit, for example. That's one way to increase density. This ADU sort of approach is another way... Eve: [00:20:21] PadSplit doesn't really increase density. They find unused spaces. Brian: [00:20:26] Right. Eve: [00:20:27] A little bit different. And by the way, I feel bad, because we we haven't told everyone what ADU stands for. It's accessory dwelling unit. And it's also what we know as a granny flat. It's just an additional unit on your property, on your piece of land. Brian: [00:20:44] I think the reason we were excited about it is we saw it right away as a valuable approach to urban development in certain situations, especially with gentrifying neighborhoods where homeowners don't need to be displaced, but they can participate in what's happening around them as owners and grow their equity value without having to be displaced. Eve: [00:21:06] Yeah. Brian: [00:21:07] Right. So, selling their property and taking that money and moving elsewhere, we think is a suboptimal outcome for many people who would rather stay right where they are. You know, stay in their neighborhood, retain the character of the neighborhood, but open up some more housing opportunity in that neighborhood, too. Eve: [00:21:24] Yeah. Brian: [00:21:26] We've got excited about it, mostly because we saw a place where, you know, the traditional financing sources weren't going to step in. We thought that investors on our platform would like it. And we were right. The first two ADU deals that we've put out there have sold very quickly. Had a really enthusiastic reaction. And so, you know, we we have a little ways to go to kind of build up the pilot. But I'll tell you, we piloted new construction two years ago, and it's already, I think it's on track to be about a third or maybe even 40 percent of our volume this year. And I mean, the same thing could happen with ADUs. Eve: [00:22:01] The most difficult thing might be that the person who wants to build an ADU, accessory dwelling unit, the homeowner may have absolutely no experience building anything. Brian: [00:22:13] Right. Eve: [00:22:13] What do they do? And this is probably one of the most difficult things to crack about accessory dwelling units. How do people who have no development, no real estate experience, go about adding that value to that property? Brian: [00:22:28] Happily, there's an ecosystem of builders, contractors, architects who are ready to meet the needs of the people who want to do that. The problem is that those people cost money. The projects cost money. Eve: [00:22:44] Yes. Brian: [00:22:44] And a lot of people don't have the money. So even if you know about the idea, you know, first of all, you have to get connected into the ecosystem of people who work on these things and do them right. Right. Do them within the zoning standards, you know, do them in a way that will be good for long term value. People who are inexperienced that I think have to tap into that network. But then even if they tap into that network, what's been missing is the money. Where do you get the money to do it? Eve: [00:23:12] Right. And, you know, the whole business of financing something as complicated as well. Brian: [00:23:19] Agreed. Eve: [00:23:19] You know, provide something consistent and easy to understand, that would be really helpful. Brian: [00:23:25] And that's the goal, right. So we're we're looking to partner with contractors and architects who know how to get these projects off the ground. And so, when someone has an interest, there's already a network of providers that know how to plan it out, design it, and, of course, finance it, because we're we're out there offering that fund. Eve: [00:23:51] That's fabulous. Yeah, yeah, yeah. You know, I was on a panel with a CDFI a few months ago and was horrified when they explained with great pride how they had spent the last three or four years developing a program which looked like it would, you know, finance a couple ADUs, maybe four a year. And I was just like, how do we even get this to work if there's no financing out there? Brian: [00:24:14] Right. Eve: [00:24:15] Yeah. Brian: [00:24:16] Yeah. I think people on our platform, investors on our platform have a lot of appetite for it. I think it's a it's a really attractive investment. I think it's a really attractive initiative for homeowners in certain situations where they want to stay put and they want to grow their equity value in concert with the neighborhood around them. And I like it because we think that one of the benefits of crowdfunding for financing as a way to finance real estate is that people should be involved, directly involved in deciding what gets financed and how. This is a way that that can happen. Right? Eve: [00:24:56] I like ADUs because I think they build on infrastructure and community that's already there, which is a great thing. You know, the bus stop that's right out there on the street or grocery shop or a school or anything like that is already there in that community. And we're adding density around those really important pieces. So it's a fabulous idea. So I want to go to your background now. Your background is very diverse. Communication technology, gaming, political theory, business and law, but not real estate. So I wonder how you came to this real estate platform from your background? Brian: [00:25:36] Well, I have been an investor since about age 15. And one category that I had never really invested in was real estate. You know, you always hear it's it's almost like a trope in American life, right? Like, well, the way to build cash flow is through owning real estate. Right. And so there's there are no shortage of real estate investing seminars and whatever out there. So I feel like real estate investing is kind of in the air, you know, in America, more or less. I mean, it's amazing to me that we still have house flipping shows that are watched. You know, people people are interested in it. And I think that drove me as an entrepreneur because what I was looking for after leaving the wireless industry in my previous startup, by agreement, I could no longer work in the wireless industry. But we had built this wireless company that was structured in a way that allowed people to route around, you know, the cell phone network, except when they absolutely had to have it. And then they could, you know, the calls would switch from the Wi-Fi network to the cell phone network. And the company that we built, it's called the Republic Wireless it's still around today. One of the things I noticed and I think this is true in politics, in philanthropy, I know it's true in finance, people when you give them a platform where they can band together, I mean, this happened on Reddit, right? You give them a platform where they can band together and cause some change by voting with their dollars, by buying differently, by investing differently. They will do it because we can all debate whether people are smart enough to make their own decisions or whether they know what they're doing or not. The truth is, regardless of whether they are or not, they're going to behave as though they are. And that's what can drive a lot of change in the world. And I think we start to get a closed loop feedback system where people do get a lot smarter. And so, you know, as an entrepreneur, I was very attracted to that. I didn't quite know what sort of financial product we could build and what would be underneath it. But pretty quickly, Nick and I realized that if you're building this new type of product and you're trying to open up this type of investing, you should probably do it in a space like residential real estate that's tangible, that people can understand, that people are excited about. And I think that's what really led us there. Now, once we got there, you know, also as an entrepreneur, you need to have something as a beachhead that, you know, makes up for the perceived risk, like, for example, at Republic Wireless, we're launching phones, we said, look, this is an unlimited plan that's going to cost you 20 bucks a month instead of 150 bucks a month. And you're not going to be locked into a contract. Well, people really like that. They saw some advantage in that. So they were willing to try the technology. With Groundfloor, we said, look, you know, you're not going to lock up your money, you know, for years. You're going to lock it up for months. You're going to get a really high rate of return. If this thing works, over ten percent and you're going to get to control it, you're not turning your money over to a fund manager. Eve: [00:28:46] Um-hm. Brian: [00:28:46] You get to make the decision. And I think because it was residential real estate, they believed it. Right? It was tangible and they could buy into it. If we had done it in some exotic category that nobody understood, like financing receivables or something, I don't think it would have been as successful. So I had to learn about real estate. I've spent a lot of time with people with many decades of experience in real estate. And now very shortly as an operator will have made a billion dollars worth of loans in this category. Eve: [00:29:16] I think that's fantastic. Brian: [00:29:16] You know, which is not an insignificant number. So I had to climb the learning curve. We have a lot of advisors and executives around the company with deep experience in this. And as an entrepreneur, you know, a lot of us want to learn something. This was an exciting area for me to to learn. And now I guess I don't get to claim that I'm not experienced in real estate anymore. Eve: [00:29:36] I think that would be true. What do you love doing the most about this? Brian: [00:29:41] I love working with people who are putting themselves out there and taking a chance. So the people who I've most enjoyed interacting with are the entrepreneurs who are financing projects on our platform. I can really identify with them and equally the investors who are venturing off into this unknown. I really identify with those people. You know, we started raising money from our customer base to finance the growth of the company. So we have a crowdfunded equity offering that's still live today on SeedInvest. I love talking to people about getting involved in angel investing. So I really like engaging with the people who are drawn to these platforms because I admire them for being intrepid enough to take the risk and vote with their dollars to change the way that we finance, in this case, real estate. And we're startup. I think that's that's what I love about it. Eve: [00:30:41] I think that's great. And actually, there's still a relatively small number, because one of the reasons this is hard is there's still a pretty big group of people out there who don't trust online investing and... Brian: [00:30:54] It's still the early innings, it really is. Eve: [00:30:56] Early innings. Yeah. So what is your big, hairy, audacious goal for Groundfloor? Brian: [00:31:04] The big, hairy, audacious goal is to take the model that we've pioneered for these private capital markets and to show that what we've done in these first couple of sub asset classes in real estate can be done at a bigger scale across a broader scope. You know, the big, hairy, audacious goal would be to infect other asset classes with this model. You know, it's a very disruptive model. It's easy for people to look down on it and say, oh, it's underpowered, but that always happens with disruptive technology. So my big, hairy, audacious goal for this is to see how many asset classes at what level of scale this model can produce, the kind of results that it's producing in this market. And I don't know where the endpoint for that is. I think it can go very, very far. So I don't have a specific quantification of that. But that's the idea, is I'd like to take what I think we've proven in this one market and see how many more markets we can extend it into. Eve: [00:32:08] And I have another question for you that may be a little bit difficult, but is there anything else that you're noticing out there that really excites you about the way we might do things differently, live a lot differently, what we what we can change? Brian: [00:32:22] I look at our own market and I think it's true in digital assets, I think it's true in the securities that we're offering online, I think it's true and how we transact in real estate. I see a lot of opportunity to remove friction from the system. I mean, you look at something like title and how much time and money. Eve: [00:32:44] Oh yeah. Brian: [00:32:45] Is put into clearing title and then battling the insurance company when there's a defect in title that comes up later. I think this is the bane of real estate investors everywhere. And I think it's true in private market transactions with illiquid assets generally. And I think it's something I'm excited to see change because I feel like it's a very difficult change to effectuate. But I think as a community, we're going to keep chipping away at it and eventually we're going to have to knock down the barriers to I mean, title is a great example. But I would just say in general, these kind of transactions in illiquid securities need to, the friction needs to come down. Eve: [00:33:28] Yeah, I totally agree with you. Well, thank you really so much for talking with me. I really enjoyed it. And I'm really wondering what's going to happen this year if you did so well last year as well, too. Right. Brian: [00:33:42] I think things are looking up, you know, in 2021. And and I hope we get to work together. Eve: [00:33:48] Yes. Brian: [00:33:49] Eve, I really admire the work that you've been doing and been persistent enough to keep doing over the years. And I hope we get to join forces someday and do some work together. Eve: [00:33:59] That would be fantastic. Thank you so much, Brian. Bye. Brian: [00:34:02] Yeah, you too. Eve: [00:34:06] That was Brian Dally. Brian isn't planning to stop at 'fix-n-flips' or accessory dwelling units. He thinks the Groundfloor model can be used on a much bigger scale. And on a much more varied asset class with 145 million raised in 2020, I can't wait to see where he takes the company in 2021. You can find out more about this episode on the show notes page at EvePicker.com. Or you can find other episodes you might have missed. Or you can show your support at Patreon.com/RethinkRealEstate, where you can learn about special opportunities for my friends and followers. 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.
39 minutes | Mar 3, 2021
The impact accelerator.
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:14] Hi there. Thanks so much for joining me today on Rethink Real Estate. I'm on a mission to make real estate work for everyone. Real estate can help to solve climate change, can house people affordably, can create beautiful streetscapes, unify neighborhoods and enliven cities. So I'm on a journey to find the most creative thinkers and doers out there. I'm not the only one who wants to rethink real estate. You can learn more about me at Evepicker.com, where you can sign up for my newsletter, join an Impact Real Estate Club or find a transcript of this podcast. You'll also find me at Smallchange.co, a real estate crowdfunding platform with impact real estate investment opportunities open for investment right now. And if you want to support this podcast, join me at patreon.com/rethink real estate where there are special opportunities for my friends and followers. Eve: [00:01:09] Today, I'm talking with Dr. Stephanie Gripne. In what seems to be an improbable amount of time, Stephanie has gone from ecologist to impact investment guru. Her big, hairy, audacious goal is to move a trillion dollars into impact investing. Ten years ago, about four years after getting her doctorate, she became director of the Initiative for Sustainable Development at the University of Colorado's Real Estate Center. There she was immersed in issues surrounding the built environment and socially responsible investing. In 2012, she took the leap and founded the Impact Finance Center as a nonprofit academic center with a mission to identify, train and activate philanthropists and investors to become impact investors. I've already learned a lot from Stephanie, but I'm going to learn more and so might you. So listen in. If you'd like to join me in my quest to rethink real estate, there are two simple things you can do. Share this podcast or go to Patreon/rethinkrealestate.com to learn about special opportunities for my friends and followers and subscribe if you can. Eve: [00:02:40] Stephanie, I'm so happy to talk to you today. Stephanie Gripne: [00:02:44] Eve, I am so happy to talk with you today. Eve: [00:02:47] So you have a supremely cool resume and it's pretty clear how driven you are. There's a lot to talk about, but I wanted to start by talking about what you're working on today. You lead the Impact Finance Center. What is that? Stephanie: [00:03:01] That's a great question, Eve. For those of you in the audience who have heard of an accelerator, you might have heard of TechStars or 500 startups or Y Combinator. Those accelerators are essentially boot camps for people who want to start a startup or a small business. So they identify, educate and invest in entrepreneurs. When I was a professor at 2010-12 at University of Colorado at the Lead School of Business, I was actually the director of the Initiative for Sustainable Real Estate Development. I just kept wondering why isn't there more money flowing into good things? And I finally kept unpeeling the onion and realizing there are not entities out there providing investor education that is non conflicted or trustworthy in that most of the investor education is actually trying to get your business. So it comes from Wall Street and they're trying to become your investment adviser or raise a fund. And so my hypothesis was that if we started providing non conflicted investor education from the inside of a nonprofit where we weren't going to try to raise a fund or become your investment advisor, we could actually educate and activate these investors. So going back to the accelerator analogy, Impact Finance Center is essentially an accelerator for impact investors. Instead of identifying, educating and investing in entrepreneurs, we identify and educate individuals and organizations who want to become impact investors. And those typically are private foundations, community foundations, high net worth individuals, companies and family offices. Eve: [00:04:51] So that's really how you and I started talking way back on the plane ramp where we met, right? Stephanie: [00:04:58] That is true. We did mean at a plane ramp in California. And yes, we are. I had been following the crowdfunding movement for some time and figuring out what my role in it was going to be. Eve: [00:05:10] How do you accomplish investor education and accelerate those impact investors? What is it you actually do? Stephanie: [00:05:17] That's a great question. We really offer five ways for people to get education. One, and this is the the holy grail of it all is we can evaluate your investment advisor portfolio, and that is pretty brutal. We evaluated a hundred million dollar foundation in Seattle and found out their investment advisor had charged them in excess of fees of one million dollars over five years to underperform by 5 million dollars. Eve: [00:05:49] Ohhh. Stephanie: [00:05:49] We have a 15 million dollar foundation in Denver, a JL foundation where we evaluated their investment advisor and found out they had been charged in excess of fees of $240,000 over seven years to underperform by 1.4 million dollars. So we have that, is number one. We can evaluate your portfolio at investment advisor for governance and fees and evidence based decision evaluation and impact. And then the next phase are just education. We're putting our two hundred classes online. We have forty seven recorded webinars up there. So if you're a do-it-yourselfer, join me and sign on on our Impact Investing Institute and train yourself. We also offer one on one training, small group training and large group training. Eve: [00:06:39] Wow. That's a lot of work, Stephanie. When did you launch the center? Stephanie: [00:06:43] I was a professor at University of Colorado in 2010 to 12. And I realized then once I had essentially collected evidence and accidentally discovered that the financial return of a grant is negative one hundred percent loss. I determined that this impact investing was legal and determined that also that people were interested, but there wasn't a place for them to go learn, and then the other piece I realized is asking somebody to do a first investment, cutting a twenty five thousand dollar check, even if you have a lot of money, is scary. And so the key was, that's in my, I use a baseball analogy, that's a major league investment. And so how do you create a T-ball opportunity for people to learn by doing. And so that's either using simulations like business case competitions or kind of monopoly. We do some simulation type activities where you get to pretend you're an investor or you actually do a small dollar amount. And we often have people take money they would have donated and pull it together in a giving circle model and then they learn how to invest together. Eve: [00:07:55] Interesting. Interesting. Who are you trying to reach? Like, who do you think your audience is? How big is it? Stephanie: [00:08:04] Our audience is gigantic. If you just Google the number of millionaires in states like Colorado or Georgia or Massachusetts and you'll see a range from one hundred and fifty thousand millionaires to over a million millionaires, that's a great question, Eve. People often ask me, oh, would you rather not work with a foundation or versus a high net worth individual? And there's two criteria that we look to partner with people. One, they have to be motivated and willing to take action. If you're going to be on the rowboat will still help you, but you don't get to be first in line. So you have to be willing to move and take action. And the second thing is you have to be an independent thinker. If you're somebody who likes to have the crowd go first and you join the crowd, you're probably not the right individual organization to come find us. And so those are difficult to go find. But it's great. We're really nice about it. When people get stuck, we're like, hey, it's OK. Go back and do this homework. And when you're ready to get back into it, move forward. But what that means, Eve, is that I have worked with foundations where 20 trustees, oftentimes family members are in unison and I've worked with a grumpy high net worth individual that's difficult to move. So it doesn't have to be an individual or a foundation or a family office or a corporation. It just has to be a willingness to take action. Eve: [00:09:29] And beyond the gigantic audience of accredited investors, as you know, they are only about three percent of the population. There is now a growing audience of people who've never invested before and sit in the non accredited group. So it's a huge run. Stephanie: [00:09:45] It's endless. And it's interesting because I was trying to think the other day about how I got started. And I know my dad when I was 12 or 13 years old, we invested in Micron Together Technology Company. I'm forty seven years old. I don't know how I found, it had to have been at the library, found a book on Motley Fool that taught direct investing. So drip investing was public companies. And I still have some of those stocks I first invested in. But I actually did an investment in Enron because it was a renewable energy company. So I kind of like to think of myself as an early adopter in the modern day crowdfunding. Eve: [00:10:25] Since you started seeing a shift towards impact investing? Stephanie: [00:10:30] Oh, absolutely. In Colorado, for example, we started the Center in 2012, and I'll go back and answer your your last question in a little bit. When we started the Center, I realized when I was at University of Colorado when I had that aha moment that, wow, people do need education and I thought every entrepreneurship center needs an innovative finance center. And then I took a step back and I'm like, wait, every university that's going to struggle financially needs innovative finance center to stay financially viable. And then I took a step back and I thought, wait, every association of, I call them Clubs of Money, a community foundation association, a YPO, family office association. They need this curriculum too. And there was at the time only 15 centers and really only two of us that actually do transactions. And so that was my idea to leave in 2012 and then start a non-profit, multi-university academic center where we could essentially provide a curriculum in a box. And just to give you a sense of how long it takes to get going, at least in Colorado, um. Eve: [00:11:46] Are you telling me how long it takes to get going? Stephanie: [00:11:48] Well, just to just have a sense, in 2010 to 12, our first two transactions we supported where the Museum of Contemporary Art and the Alliance Center and those both were real estate transactions and one was a foundation and a couple of board members. So they got one hundred and one percent return. And we financed the Museum of Contemporary Art and saved them five hundred and fifty thousand a year. The other one was a project I led with the Alliance Center in partnership with the Denver Foundation, and we used a donor advised fund to do a loan at zero and one percent that essentially said that nonprofit six million dollars and gave the donor one hundred and one percent return. I worked on those two transactions for three years and they all moved when the bills were due. They tried everything else for years and years and years. And then when the adjustable rate mortgage was going to be due or the building renovation cop bill was going to be due, that's when they were finally willing to move, so that there was a negative like desperation as the birthplace of innovation. It took three years for two transactions. And I do believe Colorado's probably done one hundred impact investment transactions in the last three months. Eve: [00:13:02] Wow. The story you're telling is much like mine. I think if you build something new and I suppose on the cutting edge, it takes a really long time and you have to have stick-to-it-ness. Right. Just have to keep going. Stephanie: [00:13:15] You do. You have to have the Stockdale paradox. You have to have this eternal knowledge you will prevail in the end. And I had great advice from a friend, Dan, whose dad said, you need to stick past three and a half years and go to five years. Most people give up at three and a half years. And there's a great metaphor. It's like paddling an iceberg with flippers on. It takes a long time to get that iceberg going. Eve: [00:13:38] Yeah, it really does. It can be a little depressing but there it is. Stephanie: [00:13:42] Um-Hmm. Eve: [00:13:42] This is a pretty unusual place for a Ph.D. in forestry to end up. That's what you have, right? Stephanie: [00:13:49] Yes. Eve: [00:13:49] So I have read about Fish and Wildlife and Spotted Owls on your resume. Tell me about the journey that took you from wild life to impact investment. Stephanie: [00:14:01] It was great. I was watching an interview this morning with Heather McGhee and she's approaching this conversation from a race issue. I grew up in an environmental issue and she's framing it using a zero sum game. And I grew up in central Idaho and in Sun Valley, Idaho. And there was a zero sum framing where it was either we either could save the endangered species of the wolves and the salmon, or we could have jobs. And I just remember knowing deeply in my heart that there was enough resources for both of them and my friends would literally threaten the lives of my other friends with guns. And there was a river guide I used to work for that, a bunch of the river guides made a sticker that said Happiness is the fisheries' biologists' face on a milk carton. And it was a very tumultuous and some ways violent way to grow up. And I just I didn't know. I thought it was about the wildlife at that point. And now I'm really clear it was a resource allocation issue. And I deeply believe there's enough money for communities and the environment and jobs. And so that just has motivated me since I was 16 and I'll never forget. I do like woodworking. And I announced when I was 16 or 17 that I was going to become a carpenter and make furniture. And my dad, who was incredibly supportive, my late dad, of whatever I would choose, said Stephanie, What about architect? I said, I said no. I said, What about wildlife biologist? And my dad said, You have a mind for business, Stephanie. Why don't you go make a lot of money and then you can have influence on the environment. And my dad, actually, he was a workout guy that would take companies through bankruptcy, but the last 10 years of his career, he took a company out of bankruptcy, a precast concrete company. So for 10 years, my family made every precast concrete box in the state of Idaho, electrical box, etc., and air conditioner pad. And and I said, Dad, I just don't have the constitution to do it the way you did it. I'm not willing to go make money in whatever way I can and then do what I want to do. I'm going to do what I want to do along the way. Eve: [00:16:22] Yeah, I think this must be part of being a parent, not really understanding what your kids are doing. Right. What would be good outcomes, do you think, if more people invest in important change making projects, what are the outcomes you hope for? Stephanie: [00:16:41] I'll actually, answer that question and continue my last answer a little bit. My dad would end up being quite wealthy, becoming homeless for two years, and then at twenty four years of age, he would come back to live with me. And so the roles were reversed for those of you who cared for your parents, except my roles were reversed for me when I was twenty four. And I remember I was doing my PhD in seven states with ranchers and a socioeconomic analysis, a conservation project. And I got to study with my hero, the chief of the Forest Service, Dr. Jack Ward Thomas. I was also working for the Forest Service in multiple roles all around the country based out of Lander, Wyoming. And my mom came down with pancreatic cancer and my dad was living with us in a home in Lander, Wyoming. And I remember coming home one day and I said, I don't care if you walk dogs or volunteer or you get a job, but you can't just stay in this basement apartment. You have to do something. And he would get a real estate license and a mortgage broker license. And he didn't cost a lot of money to support him at that time because he was living in a basement apartment of our house. And so, essentially what we did is we were used to being poor graduate students. And so instead of taking all the excess money of having two salaries and a grad's stipend, we would buy a house. You could buy a house in Lander, Wyoming, for six to eight thousand dollars from down payment, one hundred twenty thousand dollars house from 2000-2005. Eve: [00:18:17] Wow. Stephanie: [00:18:18] And the reason I'm saying this is my mom passed in 2003 and I wasn't emotionally ready to sell the house. My sister was. So I bought the house from my sister. And I think most of us, our road to becoming an investor in a meaningful way, is that second house. The first house is, I made it. I'm an adult. I'm building wealth. But that's a it's a very different experience to to get your second house. And I don't know that I would have offensively purchased my second house. It kind of came to me because my mom passed. But once that second one happened, I talked to several people who've had this experience. You're like, wait a minute, I can do this. I can own an asset and make money. And so we bought a third house and then on the fourth or fifth house, my dad came home and he said, Stephers, he's like, there's these families coming into our mortgage business. A lot of them have bad credit, but there are some that have bad credit that actually used to have good credit. They just had a medical situation and they didn't have the right medical insurance. And now they're in this bankruptcy called a medical bankruptcy. So they're not allowed to buy a house or car, even though they are people who paid their bills. And so we ended up doing a lease option with these families and we had a family meeting and agreed that we wanted a 10 percent return. And so we would set aside 10 percent of their rent as a partial equity. And if the house appreciated above 10 percent return during their medical bankruptcy, essentially get the upside of that. And the houses during that time period appreciated fifteen to twenty five percent. So we got the joy of philanthropy, a job for my dad, an amazing tenant, a solid 10 percent return, and they got dignity. Got to move into their home three to five years early and get partial equity upside. And so I think that all of us are on this quest of connection and meaning. And when you realize, like I did then at twenty four, twenty five years of age, that you can do well by doing good. I don't think most of us can go back from that. Eve: [00:20:27] I think you're a rock star. You probably made some friends for life as well in that process, right. Stephanie: [00:20:34] Absolutely. That was about three hundred transactions ago and I'm I have lots of friends along the way. Three to four hundred. I've lost count. I kind of stopped keeping count after two hundred. As as my colleague Todd James says, 60 percent of what we do has been visible and behind the scenes. So there's a lot of lovely, incredible, awesome people out there that don't even know that we were helping push and pull to make their dreams happen. And, you know, it's it's it's an incredible role to play in people's lives. Eve: [00:21:03] You really did shift from fish and wildlife to real estate, and then you dragged me into it recently, which I'm really enjoying. But we're working together on one of your many projects, which you didn't mention before when you talked about the five ways to educate people. You're also creating impact investing clubs, which are really fascinating, they're themed clubs where potential impact investors gather and you're educating them with a particular focus. And we're on the journey of building a real estate impact investing club. Stephanie: [00:21:38] We are, Eve. I didn't mention this at the beginning. So Impact Finance Center does two things. We identify, educate and activate individuals and organizations to become impact investors and we also build what we call community infrastructure, which can be replicated, scaled and customized. And in that bucket of community infrastructure, you just mentioned investor clubs, which is one piece of it. We also stood up the first statewide marketplace for impact investing, which is the second time I met you when you came out to Impact Days. Eve: [00:22:11] That's right. Yeah. Stephanie: [00:22:11] Our Impact Days, and that's, you can think of it is, imagine everybody who needed money in the state, doing good, shows up and they create a farmer's market booth and we activate new investors and organize existing investors and we bring the investors to go shopping in the farmer's market. We call that Impactings. A Bodega is a subset of that marketplace. And that's what we're branding as our Investor Clubs. And then we also have two hundred classes, which we refer to as our Impact Investing Institute. And one of the most exciting pieces of infrastructure that we created was, are you familiar with The Who's Who Under 40 that business journals do? Eve: [00:22:49] Yes, yep. Stephanie: [00:22:50] Yeah. We reached out to our business journal and we said we're going to do Who's Who in impact investing for the Rocky Mountain region. Do you want to be our media partner? And that was exciting because the first year we did it, we had three hundred people apply. Eve: [00:23:03] Oh, wow, that's great. Stephanie: [00:23:05] The second year that we had thirteen hundred and so that builds the book. And then the last piece, which is really the key, is our impact investing, giving circle or investor accelerator, and that's in partnership with civil society organizations like Community Foundations. So, right now we have thirty four women ,that could be middle income or high net worth or connected to a company or family office or foundation, who are Major League when it comes to intelligence and Major League when it comes to alignment and Major League when it comes to admission and Major League when it comes to access to money. But they've never actually written a check to support a sutainable real estate project or a small business or a startup. And so in this case, we make it low cost, easy and fun. We say, let's participate in a giving circle, donate two thousand dollars in and we end up getting a kitty of seventy five thousand to one hundred and fifty thousand and we say, who needs money? And this year we had a one hundred eleven women apply. One hundred and twelve women apply for over fifty million dollars of need. And then we go through a selection process and they do due diligence and they invest in a couple investments for their first investments because it's a pooled donor advised fund that the Women's Foundation of Colorado, if they don't get the money back, it's essentially a learned by doing fund experience where hopefully they walk in is that as a donor, they walk out as an investor and then they say, I want to join the investor club. So, yes, Eve, the investor clubs are... Eve: [00:24:38] This is especially important, this educational piece, because because women don't invest. And I can tell you that with certainty on Small Change, women, just a tiny minority of investors. It really kind of puzzles me. Stephanie: [00:24:53] You know, it's interesting because I am counting on my fingers right now and hopefully going to my toes. I have several women who will be investing in Lyneir's project who have been spreading the good news on Lyneir and some of the other great offerings you have on Small Change right now. And I'll be completely honest with you, we we started the Investor Club as a response to Colorado's CDFIs, Community Financial Development Institutions and nonprofit lenders, who basically said Steph, that's been great. The three year pilot, we had a goal to move one hundred million. We're up to three hundred million. Success. But we need to still keep helping raise capital for the CDFI's and non-profit lenders. And so the first Investor Club was a Main Street Lender Club. The second one was our Indigenous Investor Club. And then the third one was with the federal government's Sustainable Forestry Mass Timber CLT Investor Club that connects with real estate. And now we're starting clubs in California and Massachusetts and with the New York City's. But I have to say Eve Picker, the most popular one, has been the Real Estate Investor Club. Eve: [00:26:02] This was unexpected, wasn't it? We have to keep up. Stephanie: [00:26:06] Yeah, I was only mildly surprised. I saw there's a quest to need. Nobody gets paid to do the work we're doing. I think that's the difficult part. If Wall Street had figured out how to get paid to educate investors we would have money flowing like hotcakes to Main Street investments. Eve: [00:26:23] And, you know, it's been pretty stunning because some on our club meeting announcements for mid-March, there's something like eighteen hundred people signed up on LinkedIn and I have no idea where they're coming from. It's pretty big. It's pretty astounding, so we better put on a really good show, right. Stephanie: [00:26:43] Yeah, it's well it's easy to do. I mean, people who are either investing or working in community real estate, creating real estate, affordable housing, mass timber CLT, all of the all the good stuff. Is there some of the most inspiring people you've ever met. Eve: [00:26:58] Yes, I agree. Stephanie: [00:26:58] So so it's pretty much you just have to set the stage and let them shine. Eve: [00:27:04] Let me ask you, so what happens to the club meeting and how it happened? What's your formula? Stephanie: [00:27:10] Yeah. And and for those of you who are familiar and who've gone to like a pitch competition or an expo, that's what I think about it. I think it is essentially a virtual farmer's market. And our goal is investor education specifically and also some social venture education. But what we want to do is we do an investor panel and we want to showcase different types of investors so people can see themselves in the crowd and go, wait, they're just like me. I could do that, too. And so really, that's about getting diverse, interesting investors up there so we can make it seem more accessible to people sitting in the crowd that they can go from not identifying as an investor to becoming an investor. And then the same is true for the social ventures like community real estate projects. It's a way to educate people about what's possible. Most people I mean, Eve, you know better than anybody, but if you and I walked out of our front door right now and and just talk to the next hundred people that walked by and said, are you an investor? All of them are investors, but most of them would probably we'd probably get five to ten of them who would say that they identify as an investor? Eve: [00:28:24] Yeah, maybe less, actually. Stephanie: [00:28:27] Maybe less. And that is the challenge. Like I remember when Mitt Romney was running for president, the Mormon Church put up signs, they had a campaign and put up billboards and they put up everyday faces and they called I'm a Mormon campaign. And I feel like we need to put up do a similar campaign, that I'm an Investor campaign. Eve: [00:28:46] Yeah, that's right. I think that's a great idea because an investor could be someone who invests ten bucks in their friend's startup or an investor can be someone who invests a million dollars into something big. Stephanie: [00:28:59] I would even argue a mom who goes to the grocery store and decides which milk she's going to buy for her child as an investor. She's invested in the supply chain of... Eve: [00:29:08] Oh, yeah. Stephanie: [00:29:09] Are you buying organic or not organic or how are the companies trading? Eve: [00:29:13] Or if they decide to go purchase at a farmer's market instead of the grocery store. Stephanie: [00:29:18] Every time a dollar changes hands, you're an investor. Eve: [00:29:24] Yes. I think you have a broader description of investor than I think of. But you're right. So the club meetings are like a mixture of panels with investors, large and small, talking about their experiences and what it means to them and social ventures. And then a little pitch round right. Of deals that are looking for money. Stephanie: [00:29:43] Yeah. So we we essentially, because we're in Covid, we can't do this in person. And so I think that's to the benefit of this, Eve. Eve: [00:29:50] I agree. Stephanie: [00:29:52] And because in Colorado, when you came out to Colorado, Impact Days, we physically have a farmer's market, you know, where... Eve: [00:29:59] I don't want to travel that much. I kind of like this Zoom thing. Stephanie: [00:30:02] Absolutely. So we're essentially putting the farmer's market online. And so we created an investor catalog. And it's really the social venture panel is to give five to 12 minutes casually for people to learn about a couple of the investment opportunities. And then we do a speed round of two minutes. And it's shocking to me sometimes that people actually shine better in the two minutes than they do when they're given seven to ten minutes. Eve: [00:30:29] Yeah, it's pretty fun. And people get an opportunity to ask questions, too. I think it's exciting for me. I mean, what's your ultimate goal with these clubs? What would be a fantastic outcome in five years for you? Stephanie: [00:30:41] I'll put my geeky academic entrepreneur hat on for a second. We actually wrote a paper called Laying the Groundwork for the National Impact Investing Marketplace. So we published in the Foundation Review. And we're pretty confident now that if you take our infrastructure and combine it with some other infrastructure, such as Lenny Lavis up in Seattle, he has realized impact investor flow, a Fleg regenerative accelerator. If you take some of our joint infrastructure together, we can actually completely fix the capital markets and move a trillion dollars into impact. I can do it two ways. I can go fundraise 20 million dollars and take what we did in Colorado and expand it to all 50 states. Or we can earn money from some of our social ventures, such as our Impact Investing Institute, and use it to self-fund our expansion to all 50 states. So what's exciting about the Investor Clubs is most of our Investor Clubs are actually being purchased or supported by foundations who want to do economic development and Covid recovery. Federal government, USDA, Forest Service. And we've had interest in state governments, too. So I think if I was in state government or foundation interested or family office interest in Covid recovery or a corporation, I would be basically investing in as many Impact Investing Giving Circles and Investor Clubs as I could afford to support. I think that getting one percent of our wealth to invest in Main Street as an example in Colorado, that would be five billion dollars that could be leveraged through CDFI's and banks for a 15 billion to 50 billion dollar year investment. It wouldn't take much, just one percent of the wealth. Eve: [00:32:27] Um-hmm. Fantastic. I'm going to change gears again. Just ask a few more questions to wrap up and they're about you. And what do you love doing the most and why? Stephanie: [00:32:39] I love most partner dancing. Ballroom dancing is my favorite joy in the whole world. Which I feel like it's going to be the last activity that comes back to us after Covid. So I'm sort of isolated. I'm single in Denver, Colorado, and I Waltz and Cha-Cha and Two-step and learning the Latin dances and I Swing and I just can't wait to get back to partner dancing. Eve: [00:33:04] So I have to ask, have you watched my very favorite Australian movie called Strictly Ballroom? Stephanie: [00:33:09] I have seen Strictly Ballroom. Yes. Eve: [00:33:13] So, the Star of Strictly Ballroom used to live next to me in Sydney. Stephanie: [00:33:17] Well, I can't wait to be traveling with you to Sydney. Eve: [00:33:20] I don't think he lives there any more. Stephanie: [00:33:24] We can go have lunch. Eve: [00:33:24] And what are you excited about the most? Stephanie: [00:33:27] I am excited, two things. Is, as I used to feel like that from 2012-20, I felt like I know there's an answer and we just have to develop the answer. And now I feel like the answers there. All the puzzle pieces are on the table. Now, we just have to put the puzzle pieces together. And so I'm excited about all of the amazing impact investors and all the amazing social ventures out there. There is so much goodness and love and light and inspiring people who are showing up in the impossible ways to make the world a better place. And so I'm very fortunate in that I get to hear from people with resources and people needing resources, doing amazing things and have the the joy of being able to connect them together. And our phone has just been ringing off the hook. Especially a lot of middle aged white women, just between the combination of the global pandemic and our civil rights crisis have just called. And many of them have got a text once that says, what can I do to help my sisters of color immediately? And she made an investment quickly. I had another woman call. We do a fellowship of ten sessions. And on her first session, she's like, I'm ready to make a first hundred thousand dollar investment today. I'm like, OK, there we go. And so, yeah. So it's just great to see how many people are showing up and going, now's the time. I can't wait any longer. Eve: [00:34:59] It's been really wonderful talking to you and I really can't wait to see what becomes of the Impact Finance Center and our club and what's next for you. Stephanie: [00:35:09] Oh, well, and likewise, Eve. I just want to give a gratitude and compliment to you, because I don't know that we've discussed this, but when this movement was getting off the ground, I was very aware there's a role to activate new investors, educate and organize existing investors and build the financial fintech solution. And I chose to be on the education of investor side, and I couldn't be more happy to be collaborating with you. You're just somebody who is a visionary and a joy and has incredible integrity. And I think, Eve: [00:35:44] I'm blushing now. Stephanie: [00:35:45] Oh, I think that what you do and what I do are two pieces... Eve: [00:35:51] Perfect match. Stephanie: [00:35:51] Of a puzzle that literally will democratize and provide that pathway to solve the problems that I had as a 15 year old, 16 year old watching. Eve: [00:36:01] You know, you're right. I mean, I think investor education is the most difficult part of what I do, and I can't do that and investor education. So I'm extremely grateful to have you around. Stephanie: [00:36:14] Well, let's go find what should our goal be in the next five years. Eve: [00:36:18] We should build humongous impact investor club and just showcase thousands of projects. And, you know, I'd have to quantify that goal clearly. Stephanie: [00:36:30] Well, I'm going put a goal out for us. It's February 18, 2021. How about a year from now, our goal will be able to have a list of twenty thousand investors that are actively investing in and community real estate. Eve: [00:36:43] I think that's a fantastic goal. I'm happy to add to it. Stephanie: [00:36:48] Fantastic. It's a true honor and joy to be in partnership with you. Eve: [00:36:51] Thank you. Stephanie: [00:36:52] Thank you. Eve: [00:37:04] That was Dr. Stephanie Gripne. Stephanie believes that impact investing is all about educating people. Trustworthy, non conflicted investor education. The Impact Financial Center is quickly becoming the go-to place for just this type of education and for every level of investor, from foundations to individuals who have never invested before. You'll be hearing more about the Impact Finance Center, I'm sure. Please share this podcast so that more people learn about Stephanie. You can find out more about this episode on the show notes page at Evepicker.com, or you can find other episodes you might have missed there. You can also show your support at Patreon/RethinkRealEstate.com, where you can learn about special opportunities for my friends and followers. A special thanks to David Allardice for his excellent editing of this podcast and original music. Thank you so much for spending your time with me today. And thank you, Stephanie, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.
44 minutes | Feb 24, 2021
BE SURE TO SEE THE SHOWNOTES AND LISTEN TO THIS EPISODE HERE Eve Picker: [00:00:09] Hi there. Thanks so much for joining me today for the latest episode of Impact Real Estate Investing. Today, I'm talking with Michael Shuman, an economist, attorney, author, entrepreneur and a go-to person on local and community economics. Michael has been credited with being one of the architects of the 2012 Jobs Act. He's one of the fathers of investment crowdfunding. Without him, I wouldn't have my crowdfunding platform, Small Change. Michael's given an average of more than one invited talk per week, mostly to local governments and universities for the past 30 years, in nearly every U.S. state and more than a dozen countries. He says, "I love public speaking because it gives me an opportunity to explain difficult, arcane topics in simple, hopefully entertaining terms to people who care about their communities." Not being busy enough, Michael has also authored, co-authored and edited quite a few books, most recently 'Put Your Money Where Your Life Is: How to Invest Locally Using Solo 401ks and Self-Directed IRAs.' I'm going to learn a lot from Michael and so might you, so listen in. Be sure to go to EvePicker.com, to find out more on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change. Eve Picker: [00:01:58] Hello, Michael, I'm really delighted to have you on my show today. Michael Shuman: [00:02:02] Great to be here. Eve: [00:02:04] Put your money where your life is. That's the title of your latest book. And it seemed like a really obvious statement. Why do you need to write a book about this? Michael: [00:02:15] Well, maybe I'm just book-o-philic, that I tend to write a lot of books and that's the way I express myself. But I did feel like there were two bodies of knowledge I was trying to bring together. One was a whole emerging body of knowledge around why local businesses and local economies are so important. And the other is this body of knowledge about how to use these somewhat obscure tax tools, the self-directed IRA and the solo 401k, For local investing. And so, bringing these two things together in a readable form, that was really the objective and I couldn't see a way of doing that just as a pamphlet. Eve: [00:03:05] But I suppose more than that, like why local? Who are you trying to reach with this book and why? Why do you think it's important? Michael: [00:03:12] Well, I would say for about 30 years, I have been on a campaign to remake economic development, and the reason is, is that I think there is a very impressive body of evidence that locally owned businesses are the key to community prosperity. They comprise 60 to 80 percent of the private marketplace in the average American community. They are highly profitable. They are highly competitive. They have done great despite the ways in which economic developers and subsidies have overlooked them. And yet, when it comes to economic development, when you talk with an economic developer for any length of time, they will tell you that their mission is to attract and retain business. And when you unpack that term, attract and retain, it's really all about global companies. So a tiny fraction of what constitutes a community's economy is what in fact is driving economic development. And it's totally backwards. So, what I've been arguing is that we have to figure out ways of nurturing and strengthening and getting capital into local business. And if we do that and, we can really enhance jobs, income, wealth and tax receipts. Eve: [00:04:49] We've got that backwards. Do we have it backwards at the local level, at the state level? What about the federal level? Michael: [00:04:55] Every level conceivable has it backwards. At the state and local level, it's estimated that something near 100 billion dollars per year is spent on attraction, corporate attraction. At the federal level, it's not really corporate attraction, but what you see is all of these subsidies, which are largely going to larger businesses, big Ag, big cattle, big water, big coal, big oil and gas. I mean, you name it. And small businesses in the end are getting the crumbs. So, yeah, I think this is a systematic problem and requires some systematic solutions. Eve: [00:05:43] How did you get interested in this? Michael: [00:05:46] I became interested in this in a circuitous way, so I was graduated from law school in 1982 and really detested the idea of becoming a lawyer. So, I started a nonprofit in the field of peace and justice. It was called the Center for Innovative Diplomacy. And one of the things that we did in the ten or so years that this organization lasted, is we organized several thousand mayors and city council members across the United States to get involved in what we called municipal foreign policy. So, the involvement of cities and say in nuclear free zones or anti-apartheid campaigns or human rights initiatives. And I got very excited about this way of influencing international policy. But I started to think about how to get involved in economic development through these tools. And I had a partnership with an organization based in Europe that was then called Towns and Development. And you can think of Towns and Development as sort of sister cities with attitude. So, they had thousands of links between northern and southern cities built around economic development, and Towns and Development asked me to write a critique, a sort of retrospective of what at that point was more than a decade of work. And at the end of that critique, I said, you guys are doing marvelous work. You have great principles for economic development. The problem is, is that your practice of economic development has no relationship to the principles. That is, if the northern city sends a big company to the southern partner, you celebrate that as a big success. But in fact, success needed to be measured in greater self-reliance. And it was that moment that I realized I needed to pivot and start working on a whole different field. So, I wrote a book in the mid 90's called 'Going Local,' and I thought it would be a one-off book. I would, you know, write it, be done. But it opened so many interesting doors that that's really what I've been doing ever since. Eve: [00:08:19] What would be good outcomes if we move towards more localized economies? Michael: [00:08:26] If you look at the evidence out there of lots of different studies, we know that communities with a higher density of locally-owned business have higher per capita job growth rate. They have less poverty. They have more civic engagement, higher voting participation, higher rates of volunteership. We know from an EPA study that locally-owned smokestack businesses pollute about one tenth as much as their absentee-owned counterparts. We know that locally-owned businesses are the dynamism of what promotes entrepreneurship and what promotes people really being committed and excited about a stable city. So, I feel like the list is very long and compelling. And so, I really feel like if we had a world of more localized economies, we would be wealthier, we would be more equitable and we would be less likely to go to war with one another. Eve: [00:09:37] I have to ask. Is there a gold standard city or community out there that you would point to for localized economies? Michael: [00:09:45] I have become familiar through studies that I do with many local governments. I've become familiar with several hundred local governments. And honestly, there's none that I would give better than a B or B minus to. Eve: [00:10:03] Oh, OK. Michael: [00:10:05] And I think part of the problem is the pernicious impact of these outdated ideas about economic development. And so what a typical city you look at, say, a Portland or a Seattle, which nominally seems like a very green kind of city. And they have all of these departments working on recycling and storm water management and energy efficiency. And by those criteria, these cities are looking really good. And then they have economic development departments that are filled with dinosaurs that all they want to do is spend vast amounts of public money to attract global companies. Eve: [00:10:52] Yeah. Michael: [00:10:53] And they systematically ignore their local businesses. Eve: [00:10:56] Yeah, I live in a place like that. Michael: [00:10:58] Pittsburgh. Yes. And, you know, in Pittsburgh has despite that, I think, become a more self reliant community. I mean, they turned, but ... Eve: [00:11:11] But you know, Michael, I think that's because, isn't Pittsburgh, the birthplace of community development corporations? Michael: [00:11:18] Yes. Eve: [00:11:20] Community development activity is very, very big here. And that's almost like their own little localized economy. So, that may be part of the difference. Does that make sense? Michael: [00:11:31] I think it does. And I think the other thing, I mean, I'm not intimately familiar with Pittsburgh, but one of the things as a visitor that I have noted about it is that it's really a city of amazing neighborhoods. Eve: [00:11:46] Yes, it is. Yep. Michael: [00:11:47] And the definition of those neighborhoods. Eve: [00:11:50] Physically quite distinct. Michael: [00:11:52] Yes. I think that makes a difference, too, because people then self organize around that sense of neighborhood well-being. Eve: [00:12:01] I think that's right. It's one of the things I've always thought about, like in when I go visit San Francisco, which is a beautiful city, one neighborhood bleeds into the other. And I've come to really love the very distinct neighborhood personalities here and the character, the buildings, and it's really interesting. Yeah. Michael: [00:12:20] I lived in San Francisco for about 10 years and I used to say to people, it's a terrible place to visit because the only way you can enjoy San Francisco is by slowly taking it in, walking the streets, going from neighborhood to neighborhood. And there's no way you can do justice to that as a tourist going to Alcatraz. Eve: [00:12:47] Right. Yeah, well, that's how I prefer to visit cities anyway. Would there be any bad outcomes if we move towards localized economies? Like what would we be missing? Michael: [00:12:57] So, there are different conceptions of localization. And I believe that critics of localization have in their head what I would call a theory of 'dumb localization.' And what it is, is it, looks at, say, what Brazil did in the 1960s with the idea that, oh, we need to build up our internal economy, we'll put up trade barriers, we'll put up technology transfer limits, we'll punish people for coming into the country with long visa processes. And by that process, we will build up more internal self-reliance. That's the way globalization fanatics think about localization. And if we do that, we will become poorer, and countries will become backward, and we will miss out. So, I really think that localization has to be defined in more market terms, that localization means consumers freely finding great local deals and goods and services and freely choosing those. It means businesses expanding to meet local needs. It means governments getting rid of subsidies that are currently favoring global businesses. Eve: [00:14:27] So, if you were the mayor of a city that was a D on your scale, what would you do to make it an A, an A local economy? Michael: [00:14:38] The first thing I would do is I would announce that we were not giving a penny of subsidy to any business, so that automatically would save me a good deal of money that I could spend on other things. I would create a procurement system that really looked objectively at the impacts of local business when they were potential bidders versus non-local business. And I would realize that the local businesses pay more in taxes and therefore they deserve a boost in the procurement process that objectively reflects that. I would change my city's investment policies so that rather than putting money out in the global economy, I would, like the cities of Tucson or Phoenix, put my money in local banks so it could be re-lent to support various economic development projects. I would think about how to use municipal bonds and municipal powers of creating investment funds in order to foster various kinds of economic development projects like affordable housing or local food projects. So, there's a long list of things that cities could do that really is hard to find any city that's doing that right now. Eve: [00:16:03] I mean, honestly, one of my pet peeves is most cities look outside their borders for the best consultants, whereas they often have a lot of talent inside. And that's also one way to increase the economy of a city. And it's a very weird dynamic, but I think you're probably right. There are tons of things you could do. Michael: [00:16:23] I've experienced that here. I live in Montgomery County, Maryland, and I can't tell you the number of times I have bid on Montgomery County contracts. And they go for some ... Eve: [00:16:35] Oh, yeah, I can imagine. Michael: [00:16:37] ... competitive person a hundred miles away, and they lose out on the tax benefits. Eve: [00:16:42] Yeah, I may as well be invisible in Pittsburgh, I think. Michael: [00:16:45] Well, you're not invisible to me and to the rest of the country, so that's the good news. Eve: [00:16:49] That's the problem, right? That we want to shift to local. So, OK. And how do you think the pandemic, I have to talk about this, might impact this trajectory? Because I have a feeling in some ways it might actually help. Michael: [00:17:05] I think it has helped. And what I've noticed is that most of the cities that I'm working with have at least put the word resilience into their vocabulary and are thinking about how they can make their communities more resilient. What they haven't realized yet is that resilience is the opposite of what David Ricardo advocated in 'comparative advantage,' and which is, it's a subtlety, but at some point they're going to realize, oh, yeah, resilience means more diversity of business. It means greater self-reliance. It means greater localization. It means what we're doing in economic development is a little bit outdated. So, that's going to take some time to work its way through the system. But ultimately, it will be a very good thing because we'll be resilient not just against the next pandemic, but will be resilient on the next capital flight and the next climate catastrophe and so forth. Eve: [00:18:11] Yeah, one of the things that's been fascinating me about the pandemic, which I think feeds into this, is there's definitely people moving out of cities. Not that I believe the cities will die. There's always going to be room in Tokyo and Paris, okay, but there's definitely a shift back to smaller places. And that means that there'll be money in those places. And often there are main streets which are very underutilized. And I'm hopeful that those small local economies will be revitalized. That would be a good outcome in amongst this misery, right? Michael: [00:18:44] Absolutely. I was in North Carolina. I shouldn't have traveled there in the pandemic, but... Eve: [00:18:51] No, that's for sure. Michael: [00:18:53] ... I made the decision to go there when one of the curves was on the down slope. But it was a was a discussion with economic developers in the Charlotte area about how to heal the urban-rural divide. So, I did a lot of reading and thinking about this. And I actually agree with you that, I mean, if you look at the literature out there, there is an assumption that rural is dead and people are moving to the cities. And to some extent that has been true. But I think what you're observing is really happening. That there is a turning point that has happened in rural America that a lot of people don't appreciate. That Internet connectivity has come to much of rural America, not all of it, but much of it, that people of color, particularly immigrants are beginning to move there because it's a cheaper place to live. And that's diversifying rural America. We're also seeing a lot of retirees going there and they bring Social Security and their pension savings, and that money drives the economy in different ways. So, yeah, and if you add resilience to the mix, you really see why for, not all Americans, and you're right, you know, the great cities are still going to be great cities. But for some Americans, some fraction of millions of Americans, they will move into rural America. Eve: [00:20:25] Yeah, we still have financing issues for investing in rural America. We have an offering on our platform right now that could not find a loan, and were told over and over again by banks that we don't lend in rural areas. And so I think, you know, the whole financing system behind everything is also part of this story. Right? Michael: [00:20:47] It's another form of redlining, isn't it? Michael: [00:20:50] Yeah, it is. OK, well, I want to move on to regulation crowdfunding, which is the love of my life. And I know that you've been involved in it since day one, before I was. And I'd love you to tell us about that journey. Michael: [00:21:04] Yeah. So. As I said earlier, one of the things that I have found fascinating in the whole discourse about local economy is that every answer to a question opens up new questions. And as I, in the 1990s and early 2000s was sort of thinking about how do we change economic development policy, I started to pay attention to the capital system and started to see how difficult it was for a small business to raise grassroots capital. And my very specific experience with this is, for about two years, and I think this was maybe 2001 to 2003, I tried to start a chicken company in the Eastern Shore of Maryland and it was going to be called Bay Friendly Chicken. It was to offer a greener alternative to what the bionic chicken that Tyson and Perdue were offering. And I started to think about ways of raising money. And I'd have meetings with securities attorneys and learn just how extraordinarily difficult ... Eve: [00:22:32] Ridiculous. Michael: [00:22:32] And expensive it was to even get a penny of money from a grassroots investor. Eve: [00:22:38] Yeh. Michael: [00:22:38] And I started to think about what the rationale of this was. And they would say, well, you know, we don't want grandma to be buying swampland in Florida. It's always grandma. It's always Florida. It's always swampland. And look, I have a mother who is 97, 98 now. I don't want her buying swampland in Florida. But what does my mother do with her money? My mother goes to the local casino. She lives in St. Louis. And when she goes to the casino, do they say to her, Mrs. Shuman, excuse me, but are you an accredited gambler? No. I mean, and she is not an accredited gambler. She is, you know, she is one of tens of millions of Americans who enter into thousands of casinos and they can lose everything independent of their income. Eve: [00:23:40] Yes. Michael: [00:23:41] And yet we never regulate that. And so that contradiction was like a chicken bone in my throat. And 2008 crisis came and I said, you know, I'm going to start writing about this. So, I wrote a piece for the Federal Reserve. They have a community journal. Eve: [00:24:00] Okay. Michael: [00:24:01] And basically made the suggestion that there should be a 100 dollar exemption in securities law, that any human being should be able to put 100 hundred dollars into a business with absolutely no legal work whatsoever. Lawyer Free Zone. And some friends of mine kind of got wind of this. They wrote a rule-making petition to the SEC, Securities and Exchange Commission, and hundreds of people wrote letters in support. So, that was sort of the beginning of a lot of conversations and there were other people who were simultaneously doing similar conversations. And then, I remember there was a hearing on Capitol Hill about a proposed crowdfunding bill introduced by Patrick McHenry, conservative of North Carolina. And I remember the head of the SEC was being grilled by Tea Party Republicans. And I was sitting in the room watching this. And they asked her, they said, you know, you've got a proposal in front of you for a one hundred dollar exemption. What have you done with it? And at this point, unemployment in the country was running at about 10 percent because of the Great Recession. And she responded with such condescension and contempt and said, look, we get these kinds of proposals all the time. And, yeah, you know, we'll get around to them ... [00:25:47] Oooh. [00:25:47] ... and the Congresspeople left and right, were, like, outraged. We have unprecedented unemployment. We know that local businesses can help fix this. And yet you in the SEC are systematically ignoring the simplest of reforms. That committee voted unanimously in favor of McHenry's proposal and the House supermajority passed it. Now, where McHenry went with crowdfunding was not where I suggested. He actually originally suggested a ten thousand dollar exemption for people. And then it got whittled back to two thousand dollars. And all of these additional regulatory things got put on it. So, it was half a loaf, but it was something. And I think crowdfunding has been a qualified success. The bill was passed in 2012. It took four unnecessary years of haggling for the SEC and FINRA to put forward rules for implementation. But in the four years since, the data show 700,000 people putting in almost half a billion dollars into several thousand companies and projects, and that the beneficiaries have been overwhelmingly, disproportionately companies led by women and people of color. I think it's doing some good things out there. Eve: [00:27:26] Yeah, no, I agree. Well, this is what we use on our platform. And I think it also helps for us, those real estate developers who are doing really innovative and necessary projects, sometimes small, that most banks don't want to deal with. And so, that also propels the economy forward. When you have someone thinking about how to deal with the affordable housing crisis and they can't get a loan for their project idea, that's a problem. So, there's lots of ways that this has helped. It's a fantastic rule, but it's got a long way to go. What's the silliest thing, do you think about this rule? I can probably give you a lot of those, but I'd like to know what you think. Michael: [00:28:12] What's the silliest thing about the rule? Well, the silliest thing is something they just fixed. And it wasn't so much that it was implicit in this rule. It was a long standing piece of securities law. But they finally, in their discretion, got rid of it. And that was prohibiting businesses and grassroots investors, from having conversations before the formality of the issue was done. And this idea in securities law that communication will somehow pollute the marketplace has got it fundamentally backwards. Communication is what lays the foundation for a marketplace. And when there is a conversation between a real estate project and a grassroots investor before there is any formal transaction, it should be a moment of celebration, not a moment of repression. And when the SEC finally, finally, finally put in some rule changes in the first week of November, which most people overlooked because there was an election happening. Eve: [00:29:25] Oh, I didn't overlook it. Michael: [00:29:27] Of course, what election? Eve: [00:29:33] But I'm you know, I'm on the federal register every day looking for the thing to be posted. Michael: [00:29:38] Right. Right. We're still waiting, aren't we? Eve: [00:29:40] Yes. So, for people listening, you know, the rules are not implemented until 60 days after they're posted on the federal register. And so while there was a vote, it's still not moving along. Right, Michael? Michael: [00:29:53] Right. Right. I think $2,200 per person is too low a number. I think it should be higher. I do think it's getting the number that a company or a project can raise, from a little over a million dollars to five million is a very big step forward. Eve: [00:30:13] I should probably, like, take a break and just explain to listeners who don't know about regulation crowdfunding that this is really the first step towards democratizing investment. It's a rule that permits everyday people, everyone, not just accredited investors, to invest in businesses or real estate projects that developers bring to them, and business owners bring to them. And they do that by requiring platforms, called funding portals, to be registered with the SEC and to be members of FINRA, the Financial Regulatory Agency, to sort of manage this business of putting everyday investors together with businesses. And the rule really started out as having a cap of 1.07 million that businesses could raise every year, and permitting everyone to invest 2,200 a year, not per project, a year. If they want to invest more than that there is a calculation around income and net worth, and it even capped what accredited investors could invest in. Even Warren Buffett is not currently permitted to invest more than 107,000 a year. Eve: [00:31:24] So, these upgrades raise the cap that you can raise through an offering to five million dollars. And while they do not raise that $2,200 cap, they do raise what unaccredited investors can invest by changing the way the net worth and income calculation is made, which is a good thing. And they also permit accredited investors to invest as much as they want. So, these are pretty big steps forward, right, Michael? And then the thing that you care a lot about is the 'test the water' piece, which I agree with you on. Michael: [00:31:57] Yeah, that's a very good explanation. And one other thing I would just add for your listeners is that sometimes there's confusion about donation crowdfunding with investment crowdfunding. And donation crowdfunding on sites like Kickstarter, Indiegogo, that has been always permitted because donations are not securities, and securities are what are heavily regulated and that's, those regulations are what we are talking about. Eve: [00:32:27] Right. If you go to Small Change or you go to Wefunder or any of those sites and you invest, you really become an investor in the capital stack of that business or that development project. And there's an offering made, an offering of what the business owner might return to you because you invest in their projects. Michael: [00:32:49] Yeah, and I think it's worth saying to your listeners why this is so revolutionary. And for the last 10 years, at least when I was able to talk to audiences in person, which you can't do now, still, I would I would ask them three questions. And the first question was, by show of hands, how many of you have mindfully bought something locally, maybe at a farmers market over the last week and almost all the hands go up. People love their local businesses and they love the things in their economy. And then I ask, well, OK, how many of you have a show of hands do your banking at a locally-owned bank or credit union. Half the hands go down. And then I say, those of you with pension funds, how many of you put at least one percent of your pension funds in these local businesses that are 60 to 80 percent of your economy, and all the hands go down. And suddenly people realize, oh, my god, why is that? Why is all of my money going to the global minority of businesses in the economy rather than supporting the projects and the businesses that I love? And it's all about securities law. So, what this law represents is the beginning of a transformation, so that we are putting our money into the things that matter in our life. Eve: [00:34:24] Yes, so you know the way I think that the SEC and FINRA missed the mark with this rule is, the amount of due diligence the platforms have to do is really burdensome. And you have to remember that these platforms are startup businesses. They're small businesses trying to support other small businesses. And a small business can't afford a full-time compliance officer. And essentially, that's really what you need to be able to run one of these platforms. So, I think you're right. If someone is going to invest $2,000 dollars, do you really need to have all of the burden of, I mean, the rule, that if I told you everything we have to do, it's nuts. We do it because we have to, but it is a lot. So, that's my pet peeve. Michael: [00:35:13] Yeah, I think it's a very important one. And I worry that your platform and many of the other platforms are going to have challenges long-term because the regulatory burdens are so high and that limits your ability to just pay the basic bills and keep the lights on. Eve: [00:35:36] Oh, yeah. I mean, insurance for our platform is over $40,000 a year. Michael: [00:35:41] Wow. Eve: [00:35:42] That in itself is huge. I mean, the compliance piece of it, figured that out in the first few years and we have, come to a simplified and efficient system. So, that's less of a problem for us now. It was excruciating in the early years, but there are expenses that just never go away and it's hard to catch up with those. Insurance is a really big one because the insurance industry doesn't understand this. This is a nascent industry that's emerging and they are going to charge top dollar until there's thousands of platforms like this. Michael: [00:36:20] It's outrageous. But let me just say, I love your platform. I love its personality. I love the things that you are putting on there. I think it's unique and it's mission-driven. And I think over time you will enjoy success that many of your competitors do not because they are not mission-driven or they are not distinguishable from one another in the same way yours is. And yours is after mission-oriented real estate. And I think now that the ceiling has been raised from one million to five million, I think a lot more projects are going to be coming on to your site. And that augurs well for your future. Eve: [00:37:05] Yeah, I hope so. I think the missing piece still, and I'm going to keep that in mind in my dark moments when things are difficult as only they can be in a small business, I think still investor education is the most difficult piece. And there's a lot for people to learn who've never been able to invest like this before. No matter what, they invest in, it's a leap. And that's really, I think, probably the hardest part of this. But what would the ultimate end goal be for this ruling in your mind? What should it be? Michael: [00:37:41] I think currently Americans have about 56 trillion dollars invested in stocks, bonds, mutual funds, pension funds and insurance funds. So, those are all the long-term securities. And right now, about 99 percent of them are in global companies. I would like to see, say, 80 percent of that money in the locally owned businesses and real estate projects that they belong in. And when that happens, I will think we have achieved real success. Eve: [00:38:20] Wow, that would be amazing. Michael: [00:38:22] And, you know, it works out per capita. You know, earlier I said that the range, depending on how you define local business, is 60 to 80 percent of the private economy is local. So let's take 60 percent. So 60 percent of 56 trillion dollars, you know, works out to 30 plus trillion dollars and dividing that by the number of Americans out there, 330 million. It's about $100,000 per capita. So, I encourage listeners to think about your community, say you live in a 10,000 person community, multiply that number by 100,000 per capita. And that's what the benefits of local investment could be for your community. It is hard to imagine a more significant stimulus that you could bring to your economy than bringing local investment in. Eve: [00:39:21] Yeah, you're right. So, you are a very busy guy. You're a prolific author, prolific speaker. I think I read somewhere that you speak once a week. Professor, consultant. What do you love doing the most and why? Michael: [00:39:38] Well, more and more, I love teaching. I mean, I've always loved teaching. I taught as a way of paying my bills at law school at Stanford. I taught a writing class. And I still teach now, and I have the privilege for the last four years of teaching at Bard Business School, which is a sustainability-oriented program. And the school is expanding and my course load is expanding. And I'm really, I'm liking that a lot because I think young people now are so much smarter than ... Eve: [00:40:15] Than we were? Michael: [00:40:16] ... the people I remember. I don't want, Eve, you were very smart person, so I don't want to say "we." I'm going to only take this route myself. But when I was, when I was younger, the way that you changed the world was, And this is, again, from the law school perspective, that I would take a job for about $5,000 a year working for Ralph Nader as a Nader's Raider. And that was doing good. And then, as I understood that world better, I realized, oh, what that world is all about is spending all of your time begging for money from rich people or rich foundations. And that's how they made ends meet. And I did that for about 20 years and I was pretty good at that, but today's young people have a different view of the world. They see the way to change the world is through mission-oriented business, and that by having great businesses out there doing great things, they can change the planet faster. And I think they're right. And so, I love my role as a teacher to support them in that work. Eve: [00:41:32] And so, like, my final big question is, this is the wrap up question. What's next for you? Michael: [00:41:39] So, what's next for me is I am going to try to start soon a very simple newsletter that lists all of the local investment-oriented blogs, and all the local investment-oriented sites, and all the local investment-oriented people to try to get some glue, to hold all these various pieces together. Because I feel like there's a proliferation of organizations, a proliferation of sites. But the big picture is still not quite there. So, I see a kind of a swan song act as I get into my mid-60s, a swan song act of really being a networker and bringing of people together for this larger cause. So, that's that's my next act. Eve: [00:42:38] Well, I can't wait to see the list, and I really enjoyed the conversation. Michael: [00:42:43] I did as well. Thanks so much, Eve. Eve: [00:42:45] Thank you. Eve: [00:42:56] That was Michael Shuman. In everything he does, Michael is focused on the little guy or girl. He firmly believes that our robust economy would not be so robust without all of those little Main Street businesses and startups. And so he follows through on that belief every day, in his support of investment crowdfunding, in the lectures he gives, in his teachings, in the books he writes and in his consulting engagements with local governments. You can find out more about impact real estate investing and access to the show notes for today's episode at my website, EvePicker.com. While you're there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Michael, for sharing your thoughts. We'll talk again soon. But for now, this is Eve Picker signing off to go make some change.
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