Jul 24, 2019
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Eve Picker: Hey, everyone, this is Eve Picker.If you listen to this podcast series, you're going to learn how tomake some change.
Eve Picker: Hi, there. Thanks so much forjoining me today for the latest episode of Impact Real EstateInvesting. My guests today were John Perfitt and Jason Neville,who've come together in Los Angeles to disrupt the homeless housingmarket. Their award-winning first homeless project, BungalowGardens, not only will house homeless tenants for at least the next15 years, but also is crowdfunding equity from everyday investorson SmallChange.com.
Eve Picker: These boys are innovating where itis hardest to innovate, so take the time and listen in. Be sure togo to EvePicker.com to find out more about John and Jason on theshow notes page for this episode and be sure to sign up for mynewsletter, so you can access information about impact real estateinvesting and get the latest news about the exciting projects on mycrowdfunding platform, Small Change.
Eve Picker: Hello, Jason and John. Thank you somuch for joining me today. I am really thrilled to have you here. Iwould love you to start by just telling our audience a little bitabout your background. I know a lot about you guys, but they don'tknow anything at all.
John Perfitt: Great. Thanks, Eve. It's apleasure to be part of this. I'm really excited about the prospectsof crowdfunding for real estate. My name is John Perfitt, and Iwork with Restore Neighborhoods LA, primarily - RNLA, as it'scalled. We're a smaller-scale infill developer specializing inaffordable housing as well as homeless housing. I've got 25 yearsplus of community development experience in both the public sector,as well as the private sector, as well as with nonprofitorganizations. I've also worked internationally in the formerSoviet Union. I've been around all parts of community development,commercial redevelopment, and affordable housing projects, both onthe financing side, really all the way through the whole projectlifecycle.
Eve Picker: Well, now I have to interrupt andask what on earth you were doing in the Soviet Union?
John Perfitt: Well, I was a Peace Corpsvolunteer. It was right after the Soviet Union was- basically thegovernment collapsed over there, and they "transitioned" tocapitalism. I was working in a very grassroots capacity, doingsmall micro lending in a rural agricultural area and mostlyimmersing myself in local culture, which I like to do. That was inthe early '90s and had an indelible mark on my paradigm,oftentimes, on community development and so forth.
Eve Picker: Cool, and what about you,Jason?
Jason Neville: My name's Jason Neville. I'm anurban planner by training, originally from New Orleans, Louisiana.My first seven years of my career were spent on the public sectorside and the redevelopment agency at City of Los Angeles until itwas dissolved in 2012. Then at the New Orleans RedevelopmentAgency, in my hometown, for a couple of years afterwards.
Jason Neville: It was about that time that Istarted getting frustrated with and also aware of the opportunityto make an impact in cities outside of the public sector, sort ofcall it accidentally, founding a company with two buddies of minein New Orleans to do some historic renovations and got the tastefor doing real estate development and also increasing appreciationfor the role that entrepreneurial, private-sector, impact-mindedreal estate developers can have a positive transformation incities.
Jason Neville: I spent a couple of years in themayor's office here in Los Angeles and worked on some of thepolicies and research related to accessory dwelling units. Left themayor's office and founded a design-permit-build ADU company calledBuilding Blocks with my business partner, John Perfitt. It wasthrough that collaboration that we partnered up a little bit on theBungalow Courts project, which we've been working on for the pastyear and a half.
Eve Picker: That's why I had invited both ofyou onto this podcast show, because you were working on a prettyextraordinary little project called Bungalow Courts, or BungalowGardens in L.A., and I wanted you to tell us a little bit aboutthat? I'm sure you're working on other things, as well, but that'sa pretty interesting project.
John Perfitt: Yeah. We have a variety ofsmaller scale, and when I say smaller scale, kind of up to 20-unit,kind of micro-unit, homeless housing projects in our pipeline. Oneof our favorites that we're working on right now is the BungalowGardens, as you mentioned. Jason will probably talk more aboutthis, but Bungalow Gardens represents one of the first bungalowcourts projects permitted and built in the city of Los Angeles,especially South Los Angeles, in a long time. It was a very commonhousing typology for a long time, 50-60 years ago, but it's reallykind of ... Modern zoning code has zoned it out, if you will, ofbeing a practical way to build housing.
John Perfitt: This is a really great project.We're highly influenced in the approach and design by Irving Gill,who I think was just a master of fusing together a very modernsensibility with a great precedent that there is for a Spanishrevival in Los Angeles. What all that thinking, and wrangling,and so forth produced was the Bungalow Gardens project, whichis a really four duplexes or eight units on a kind of long andnarrow sight, adjacent to a very busy street called Vermont in LosAngeles.
John Perfitt: We think it's beautiful. It'sgoing to house, for at least 15 years, individuals experiencinghomelessness. We like to refer to it as compact and dignifiedliving. In many ways, it's a throwback, we think, verycomplimentary of the neighborhood; very contextual. It's a projectthat we just love and turned into a labor of love. To furtherextend it, we're attempting to raise some capital, viacrowdfunding, to really make the project even that much more of anexample of what can be done in the marketplace here in LosAngeles.
Eve Picker: Full disclosure, everyone, theyactually have listed the project on SmallChange.com to accomplishthe crowdfunding. I'm sort of fascinated ... I'm sure everyone elseis, as well. If you're going to house homeless, how do you generaterevenue to cover the operating expenses for a project likethat?
John Perfitt: It's a great question, and I'lllet Jason jump in here in a second to add to what I'm going to say,because he's actually been really the engine behind this andactually a lot of the direction that we had in going the bungalowcourts direction was his idea and vision.
John Perfitt: Really, the thing that makes thispossible in a lot of ways is we, unfortunately, have a housingcrisis, as well as a homeless crisis in Los Angeles. Residents ofLos Angeles, and of the county- both the city and county have votedto tax themselves to make capital available for building homelesshousing. We were able to go in one of the programs that exists inLos Angeles; just able to go in and secure a rental subsidy from acredit tenant - namely, the County of Los Angeles - and get thatcommitment for up to 15 years. That really provides to thebloodline for the project, from an operations standpoint.
John Perfitt: Then there's a local, what'scalled a Community Development Finance Institution, or CDFI; reallya community loan fund in Los Angeles that's super-aggressive, andsmart, and will see these smaller projects, and see that they'vesecured a rental subsidy, and will land on these projects prettyaggressively. The name of that CDFI is Genesis L.A., and they'vejust been a tremendous partner and lender in the marketplace formany of the projects that we've worked on. I can't say enough aboutthose folks at Genesis L.A. seeing this problem and helping tocraft a solution, because it's really the rental subsidy and thenthe availability of this loan capital that really makes theseprojects possible. I don't know if you want to add anything,Jason?
Jason Neville: Yeah, I think that Johnexplained it well, in terms of what makes it possible financially,but there's a couple other pieces to this, too, about what makes itpossible, including policies. One of the new policies in the Cityof Los Angeles we're taking advantage of is called the TransitOriented Communities Affordable Housing Program, which allows forparking waivers and other incentives for affordable housingprojects that are built near transit, as our project is.
Jason Neville: As John was mentioning before,some of the background and history of bungalow courts is that itwas a predominant form of housing in Los Angeles from the 1900s toabout the 1930s, until modern zoning codes in Los Angeles beganrequiring parking on site, which made this particular housingtypology infeasible. Now, because of the housing crisis we'reexperiencing and the efforts from our city planning department toaddress the housing crisis through innovative policies, such as TFCordinance, we are able to build this bungalow court, which will bethe first bungalow court project in Los Angeles in 70 years. So,there's a policy piece of this, as well.
Eve Picker: Be sure to go to EvePicker.com andsign up for my free educational newsletter about impact real estateinvesting. You'll be among the first to hear about new projects youcan invest in. That's EvePicker.com. Thanks so much.
Eve Picker: Essentially, you're stepping backin time to address a very modern problem.
John Perfitt: Yeah, I always say, when we'vetalked about this, when you want to talk about innovation, and alot of times, innovation is go back and look at what has worked,and then sort of synthesize that and come out with something that'sunique. Yeah, we're going back to what worked a long time ago.
Eve Picker: Yes. Interesting. My secondthought, first thought, I don't know, but I think about, like,eight units is not very much for a crisis, right? How do you beginto scale an idea like this, so that it really has a much largerimpact?
John Perfitt: It's a great question and onethat we grapple with, because the question of scale comes up allthe time. We, admittedly, on this project - which we were trying toaccomplish a variety of different things, including innovativefinancing on this - we probably left some density on the table. Wecould have built more. That being said, we are building otherprojects and have them in our pipeline that are three-four storiesand 20 units on small infill sites.
John Perfitt: When we talk about scale, it'snot the traditional way that developments looked at scale - large100- to 150-unit projects, and so forth. We believe those are outthere and should be done. What we're trying to facilitate, and showcan be financed, and operated, and can work, and be feasible is therepetition. That would be the scale of a lot of infill sites thatare either underdeveloped, or not developed at all, or obsoleteuses, and so forth, throughout a county. There are many of these.What type of mechanisms can you use, and incentives can you use todo that, and then repeat it?
John Perfitt: We fully understand, and weexperience that age-old sort of paradigm that lenders anddevelopers have that the blood, sweat, and tears on a 50-unitproject is the same as 10, and so forth. We fully believe that amultifaceted approach to creating more units is going topotentially mitigate the crisis that we have going on. We are veryactive in sharing our information about how we do this, because wethink there's a multitude of opportunities.
John Perfitt: We'd like to see other privatenonprofit ... Especially the folks that are not necessarilynot-for-profit ... If there is an incentive, a financial incentive,for folks and developers to build housing that we need, i.e.homeless housing, that's great, but that hasn't ... But thathasn't- that's novel. That's different than has been done in thepast. Our scale is that we want to be smarter and be able tooptimize or maximize on these small sites, but be able to do itrepetitively and have other people do it repetitively [crosstalk]
Eve Picker: Yeah, so I'm going to put myurban-designer hat on, because the added bonus of creating aproduct that is an infill product is that it is a great,sustainable way to build in cities to fill small vacant sites,instead of letting them become what is oftentimes the highest andbest-used parking lots, is another thing that's being solved here.Really large projects tend to take away the fabric of our cities,because they will raise a number of buildings and amalgamate lotsfor that efficiency and scale and, in the process, destroy thecharming little neighborhoods and communities that we actually alllike.
Jason Neville: Urban design is very, veryimportant to us. We've been working with a great young architect,Studio 15, who's worked with RNLA on a couple of projects and withour ADU company, Building Blocks, on a few projects. We're reallypassionate about design and knew that good design would be a reallyimportant part of this project's success.
Jason Neville: When we won the Los AngelesCounty Housing Innovation Challenge, earlier this year, we wereable to present to the county supervisors and some other VIPs,along with a couple of other winners of this grant challenge ...Those other folks were doing great work. However, their particulardesigns were reusing storage containers. There was a lot of sort ofarchitectural innovation that was happening there.
Jason Neville: When we showed the renderings ofour project, we got great response from everyone who was gatheredthere, including a supervisor, because when they saw that style, itreally fit with Los Angeles's architectural trajectory and is alsothe scale that really fits in a lot of neighborhoods in LosAngeles; notwithstanding John's good point about leaving a littlebit of density on the table in this round-
Eve Picker: Yeah, it's really lovely. I can'twait to see your next project in this little product line. I alsowant to know a little bit about Building Blocks and the ADU projectthat you're working on. Tell us a little bit about why L.A. wentdown the ADU path; what that means for L.A.
Jason Neville: Happy to answer that; Also, inanswering this question about ADUs, I think it will also answer,Eve, your question about how you to get to scale. In Los Angeles,there's about 500,000 single-family-zoned properties. Up untilabout two years ago, the City of Los Angeles allowed ADUs, but dueto restrictive policies, they were only producing about 150 ayear.
Jason Neville: Two years ago, the statelegislature adopted a statewide development standard for ADUs andcompelled cities to either use those standards or create standardsof their own. In doing so, that reform happened at the state leveland made it easier for homeowners to build ADUs, which areaccessory dwelling units; legal second units you can build onotherwise single-family-zoned properties.
Jason Neville: Production went, in just twoyears, from about 150 a year to about 5,000 a year, and I would notbe surprised ... That was as of last year. I would not be surprisedat all if, in 2019, we hit the 8,000-, or 9,000-, or 10,000-unitmark, because a) there's lots of single-family-zoned properties inLos Angeles; many of which, by the way, already have unpermittedADUs, which are in operation. Many of the permits that are coming-part of that 5,000 number that I just mentioned is legalizations ofexisting ADUs and don't really constitute net new units.
Jason Neville: What happened- the trigger wasthe state law that allowed it. There's been, as you may have beenfollowing, in California, a lot of attention to the housing crisisand increasing attention towards solving the policy related issuesat the state level, rather than at the local level, where NIMBYismand other issues can get in the way of housing production. Seeingthat there was an opportunity, I approached John about starting asmall company called Building Blocks, which was adesign-permit-build project- excuse me, company. We just wrappedour first project about two weeks ago, and we've got two or threemore in the pipeline right now.
Jason Neville: The services we provide, or wehave been paid to provide ... The goal is to be an all-in-one ADUdevelopment company on behalf of other homeowners, where we provideall of the design, permitting, and construction services. John's alicensed contractor. The value-add to homeowners is that we canprovide every step of the process, from A to Z, right withinBuilding Blocks.
Eve Picker: That's pretty great. That's tworeally innovative products out of the two of you. Are you thinkingabout another one that you should tell us about?
John Perfitt: We would, but we can't. We'restill too early in the determination process.
Eve Picker: Okay. Obviously, you think sociallyresponsible real estate is necessary in today's developmentlandscape, because that's what you're really focusing on. Are thereany current trends in real estate development that interest youbesides the ones that you're focused on?
John Perfitt: We're constantly thinking about acouple things. At least I am, in RNLA. This may seem small ...There's a real deficit of shade in Los Angeles, and there's a lotof literature out there, recently, about how that's a real negativething for quality of life, believe it or not. We've figured out, orbudgeted for, and are planning for more shade. We need to createshade. It doesn't have to be trees all the time, but we've sort ofchanged our approach on that.
John Perfitt: We also are constantly thinkingabout different modes of transportation because that is changing. Iguess it would be- one of the trends is that building withoutparking is ... I've never done that before, and we're doing thatroutinely. That's sort of the paradigm we go in on these projects.I will say, too, the thing that I'm bullish on, and I've alwayssaid, if we can, as practitioners, come up with the right modelsand the right approaches, we can find the capital.
John Perfitt: That's why we're so excited aboutnot exploring, but diving in with crowdfunding, because I thinkthis represents an opportunity. I think there's a pent-up desire,just amongst my network and talking to folks, with people wantingto ... Especially with the problems of homelessness here in theCity of Los Angeles, and other cities, and all over the country,for that matter, seeing those, I think there's just- there's a lotof potential there, and it's just a matter of connecting the dots.I don't think anything we do is just absolutely like, "Oh, that'sincredible ..." We're just figuring things out and connectingthe dots.
John Perfitt: As you probably know, there are alot of people that don't believe that this will ever amount toanything. That's the same thing with the trend that we're embracingof a building small, thinking, small - small ball, as I call it.There's a lot of people saying that's just small time. I don't wantto be overly critical, but if you look at the affordable housingreal estate delivery mechanism, it's largely failed, if you look atit on a macro basis, in terms of its ability to deliver units tothe marketplace.
John Perfitt: We have huge crises all over inlarge cities. And I've been working at this for 20-25 years. It'sbeen the same tune. Let's blow some things up. I'm hungry for, andI think Jason shares this, too, for disruption. I don't seeit- Construction's not famous for a lot of disruption. Real estatesometimes is. Affordable housing? I don't see it that often. To me,there's some room for disruption out there, and I think that's kindof one of the trends I'm seeing. I'm seeing the trends on thingslike crowdfunding, and otherwise, and it gets my blood flowing,because I think it's ripe for disruption.
Jason Neville: Yeah, I would echo that and justadd that the partnership with a Small Change has allowed us toexpose the thinking that we're doing on these projects to a wideraudience and to give them some actual skin in the game, bothneighbors that might be interested or folks that want to invest.That's a really exciting part, and answers ... It's part of theanswer to your question about scale is prototyping this model anddemonstrating that it's viable, so that it can be taken to scale byus and other developers.
Eve Picker: Yeah, I think what's happeningabout that listing is that the pace with which people are investingreally early on, clearly a lot of people care about this crisis.The question is how can they pitch in and help? I think peoplereally want to pitch in and help. It's really interesting. We'llsee what will happen. Are you aware of any other innovation ordisruption in affordable housing or homeless housing that you'veseen that is of interest to you?
John Perfitt: Everybody always migrates towardsdifferent fabrication technologies, and so forth. I know there arepeople out there doing hard work on that. I have built, with RNLA,five or six modular projects. I'm hopeful that there is going to bea- that will be the killer app, if you will - infill environments -and in that context. I haven't seen it, and I run these thingsdown.
John Perfitt: When people started talking aboutcontainer, there was a local manufacturer in Los Angeles that Ispent a lot of time with. I thought that was hopeful, because Ithought the cost basis would be low, but ... There are a lotof folks that are spending a lot of time. It's definitely, with theamount of, especially, public capital that's been put out in themarketplace for people to figure out some solutions, which I think...
John Perfitt: Another thing I'll step back andsay is one of the things I think, as a former government employeein community development, and so forth, is if you can come up withprograms, especially rental subsidy programs - and that's thebeauty of the one that we're using in Bungalow Gardens, is thatit's basically said, okay, when you get this thing built, howeveryou get it built, within certain parameters, the money isthere.
John Perfitt: It relies on the private market,developers, funders, and so forth to figure it out and then getthere. I think that's where the innovation can take place. I knowthere are people that are working on a lot of things. What we areconcerned about, and I'm going to be real frank, is that, again,building departments, as someone that's ran a building departmentin the past, it's not the dominion of creative thought. It'softentimes, and for good reasons, many times, it takes a while forinnovative products to be accepted there. There's a whole process,at least in a large city like Los Angeles.
John Perfitt: We've tried to keep thetechnology, on terms of the building stuff, to be prettytraditional, making improvements and learning lessons about how todo it faster, and cheaper each time. But I know there's a lot ofother folks, and a lot of my colleagues and friends in cities andotherwise are saying, "Why aren't you going down the modular path?"I would love to sign up ... I've spent a lot of time at thefactories kind of preaching the gospel about this sort of infillmarket being big.
John Perfitt: I just have not seen enough proofpositive to compel me, and us, to go in that direction, but I knowthere's a lot of thinking, and a lot of working. I'm sure you coulddo a whole episode, and I'm sure you will, with people that aremodular builders that will refute what I'm saying. I'm speakingfrom empirical experience, or empirical evidence of my own personalexperience in building these - I don't find them, in a compellingway, to be faster or cheaper.
Eve Picker: No, I actually have found the samething. I have tried to go modular for a couple of projects and keepthinking about it. In the end, stick-built is cheaper. When you'rereally trying to get something built that is going to serve a moremoderate audience, then you just really have to think about that. Ithink we're seeing a lot of modular products that are looking likeluxury products now, because of that, and that's not really solvinga problem [cross talk]
Jason Neville: -ADU example, just to validatewhat you're both saying ... An ADU market was created overnightthroughout California without any innovation in constructiontechnology, or finance, for that matter. It was merely allowingpeople to do it was the big innovation, because there was so muchpent-up demand. Capital is flowing to it.
Jason Neville: There's a industry of ADUbuilders in Los Angeles, including some that are going tofabrication route, and there's some tech companies that are in thegame; people experimenting with leasing out a home ... Companiesthat will lease out your garage, or master lease your garage fromyou, convert it to an ADU, handle the property management on behalfof the homeowner, and give the homeowner a cut of the money. Afterfive years or so, the company walks away.
Jason Neville: There's lots of innovationhappening, but the part of the problem in California, and otherhigh growth areas of the country is housing just isn't allowed;even the housing that was allowed 10, 20, 30, 40 years ago. Forexample, in Los Angeles in the 1970s, we down-zoned vast portionsof our city from sites that would allow four to eight units down toone unit.
Jason Neville: Ordinances like the one we'retaking advantage of, the TOC ordinance, which provide a buy-rightpermissionless path for housing, along with the subsidies- theoperating subsidies John was mentioning, along with parkingreductions, along with financial innovations, like the partnershipof Small Change, those are all the dots. We aren't seeing, as faras I can tell ... I think we're doing a really good job ofconnecting all those dots, as John said; that big-pictureperspective that comes from our background in broader communitydevelopment rather than narrow finance, or narrow policy-making, isallowing us to do something really innovative here as ademonstration project.
Eve Picker: Yeah, that brings to mind, I wasworking on projects in the early 2000s in Pittsburgh, and what ...These buildings are called flipper buildings. They're kind of theinterstitial buildings in downtown Pittsburgh that are only 20-feetwide, and over 100-feet deep, and only have windows at the front,and really don't fit into any modern-day zoning or building codes.The City of Pittsburgh, eventually, as we sort of pushed forwardwith developing these, they did eventually come up with aover-the-counter sort of checklist for developers who wanted towork on these buildings to save them, which was a lot better thanwhat we originally had.
Eve Picker: I think building code departmentsare capable of innovating; it's just it always takes someone, someinitial leader in a community, pushing the envelope and saying,"We've got to do this. We've got to be able to figure out how torenovate our warehouses into lofts. We've got to build smallerbuildings that are on smaller lots that are not necessarilypermitted in the code." It always takes someone kicking that off,right? It's not going to happen in a vacuum.
John Perfitt: Right. I always thought when thisADU, the changes made, that it might be valuable for ... There's alot of attention being directed at ADUs by the policymakers andlocal electeds, and so forth. I thought, why not come up with apre-approved 20 x 20 garage conversion-esque model that peoplecould ... It'd be a fast pathway; the way that, like that kind of acar port at the building department, that if you just follow this,you get it. It's really fast and easy.
Eve Picker: I think that's a great idea,yeah.
John Perfitt: I do, too, but the countervailingargument that I've experienced, as someone that is in therepermitting these things and doing these things, is that just reallywhat we've found, as much as we think our neighborhoods aresimilar, the conditions, when you go to these backyards are ... Wetoured 20 backyards, and the prototype that we use only worked inone or two scenarios-
Eve Picker: Wow.
John Perfitt: -so different because [crosstalk] of the time, incrementally and organically, things havechanged and created new conditions that wouldn't allow theprototypes [cross talk]
Eve Picker: Yeah, yeah, yeah-
John Perfitt: -the thinking on the prototypesis very helpful. You can leverage that into a great solution, butbeing able to plug and play has been a loose ...
Eve Picker: We have a listener who was dying toknow what you think about community engagement tools and which youhave seen that have worked. We know you're using crowdfunding as akind of community engagement tool, but as a non-profit, I'm sureyou've thought about this a lot.
John Perfitt: It's interesting. I came frommeeting with a organization that works with churches that haveunderutilized buildings, and so forth, and wants to throw in tohelp with creating homeless housing. It's a very interesting thingand an interesting question. You're going to get a schizophrenicanswer from me, as someone that's worked on all sides of thesethings.
John Perfitt: Generally, when we pursuehomeless housing projects, we try to do them as completely, asJason said, permissionless. Meaning, we're [hemming] to the zoningcode; we're using the incentives. There's a very vocal and,probably with a legitimate point - needing information and goodinformation - but a vocal minority in Los Angeles that could beagitated very easily during the course of an approval process onhomeless housing, so we try to avoid public hearings, whenever wecan, because this has happened. This is someone that has been onthe sponsor side with a project and someone that's been on aneighborhood council.
John Perfitt: We are absolutely willing to talkto anybody and show them probably too much in terms of what theproject- under the hood. When we can hem to the code, and not haveto do and have public hearings, we won't do it. I don't do that totry to be deceptive in any way. We believe in our product; webelieve- we've all voted on this, not only with the zoning code,but we voted in terms- to tax ourselves to fund this. We've alreadykind of voted, and we're going to move forward on theseprojects.
John Perfitt: That being said, we are going togo door to door near the Bungalow Gardens project talking toneighbors about the opportunities that this project represents. Wehave no problem doing that, but we generally avoid - and this isthe dirty little secret ... It's really, really, really painstakingin many large cities, especially in California, to entitle aproject, even if it's a good project that people want. If you wantto go through a protracted zone change or an environmental impactreport, and so forth, you're looking at hundreds of thousands ofdollars and potential vocal minority killing the project.
John Perfitt: My long-winded sort ofschizophrenic answer is were strategic about this, but when we canavoid the retread, if you will - this re-discussing these projectsthat we've all voted on already - we're going to go forth, becausethe problem here is production. It's disappointing for me, as aresident of the city, that works here, and lives here, and has dugin here ... When the first few larger-scale homeless housingprojects got funding and got- were up for their [inaudible]decisions, and they've got shot down because of a vocalminority.
John Perfitt: There's probably never a goodplace for a homeless housing project in the eyes of some people,but we like to engage, when we can, when it's appropriate, andstrategic, and otherwise, and provide tons of information that isauthentic. We don't spin. We know lie. We tell it ... We'reprobably too honest on a lot of these projects, but when we canavoid that vocal [cross talk]
Eve Picker: Yeah, yeah, yeah-
Jason Neville: -agitating, we will.
Eve Picker: I think Deborah will appreciatethat answer, and I do, too, because not many people will actuallybe honest about that. I've worked in community development myself,and it's extremely difficult. Part of the problem, I think, is thatwhen you're working in an underserved neighborhood, or for anunderserved group of people that are often working three jobs toput food on the table, they can't show up to community meetings.They don't have the time to show up at the community meetings, nordo they necessarily have access to the internet or anything elsethat we expect of everyone to stay informed. You end up with alopsided group of people.
John Perfitt: Let me add one thing, Eve, if Ican, too ... I've talked a lot on this, sorry-
Eve Picker: No, that's okay.
John Perfitt: -there's a straight-up economicreason. It costs money to do outreach. You have to pay people to goout there and do it, oftentimes. The large tax credit projects orother projects that developers do, they've got a team ofprofessionals that go out there and do it. If you're trying tobuild for $175,000 - $200,000 per unit, which is half the cost oftraditional affordable housing, you can't afford it. You don't havethe luxury of hiring a public relations firm.
John Perfitt: You can do meetings, but it'sgoing to be me or Jason, on a Saturday, going out there telling youthe way it is. That's how we do it. Everybody wants to throw around- my advocate friends and otherwise - that community outreach,community outreach ... I'm down with it. I think it's great, butthere's a cost to it. There's a cost to that to the project thathas to be borne by the project, and that's another thing thatpeople don't talk about.
Eve Picker: But I think the difference is thatyou two have the community in mind with what you're doing. Othersmall developers may not. I think that developers are a reallydirty word in this country at the moment, because they are the wordthat's linked to gentrification.
John Perfitt: Right.
Eve Picker: I think that's why there's so muchemphasis on community engagement, but it's so difficult to get itto work, as you shared. Anyway, that's a really tough subject, soI'm going to move away from that [cross talk]
Jason Neville: Eve, you reminded me ofsomething that Andrés Duany said at the Congress for New UrbanismConference that I went to in Detroit, where I met you and heardfrom Small Change for the first time, which is that one of thethings he said in his keynote was part of the reason people don'twant to see development is because development has been so bad inthe past-
Eve Picker: Yes.
Jason Neville: -and part of changing the storyis to do good development. I think I speak for John here, too; theproject that we're delivering is going to be beautiful. It's goingto have rooftop solar. It's going to have- it's completely100-percent accessible for folks with disabilities, so people whohave wheelchairs will have full mobility in the units. There willbe fire retention gardens in the front to address the city'sstormwater management goals, while providing beautiful landscaping.There's rooftop solar.
Jason Neville: It's going to be something thatI- this is going to be probably the proudest project I've worked onto date, and I can't wait to show anyone from the community, orelected officials, or anybody else this project. I think that kindof sets- I think that tells people something about the quality ofdesign that we are achieving.
Eve Picker: Yes, that's really great. I have awrap-up question, and that is: where do you think the future ofreal estate impact investing lies?
John Perfitt: It's a really good question, andI'm bullish on the ability of smaller-scale projects to be able toraise good sums of money. I'm not an expert on where it's come overthe last three or four years, and I know there are a lot of startupthings that had to be sorted out, with the cost and otherwise.
John Perfitt: But I've always believed in itthe same way that I believe in ... This is what's different, andit's hard to convince people in the marketplace. You go toconferences on affordable housing, and other wise, and, in additionto talking about innovation, people always say, "Oh, there's gottabe more money. Just throw more money at stuff ..." My thing isthere's other sources of money out there other than the traditionalshrinking ones that are out there, and this represents one.
John Perfitt: If we can prove this equationworks ... When I talk about equation, I've been saying this for along time, that there's got to be a way to reduce costs, streamlinethe capital stack, and deliver this in a different way. There's anequation that works, and this represents, to me, a way. It doesn'thave to be traditional affordable housing. It could be people thatare building units in lower-income areas, or straight affordable,and naturally occurring affordable. I think there's a lot ofapplications. We've got one narrow application of it right here,but to me, it's unbelievable.
John Perfitt: Also, it kind of connects ...What's beautiful about these offerings is that you can justimmediately refer someone over, and they can look at it for fiveminutes and go, "Oh! I get what you're doing! Oh, by the way, I canget involved! By the way [cross talk] this is great. I know someonethat's interested."
John Perfitt: That, I'm bullish on. I've beenwanting to do this for a while, as I mentioned earlier. I'm bullishbecause I think there are people out there that once they see thatsomeone has proven that this can work, and it can be ... This iscliché in my world to say, 'double bottom line,' but on ourproject, if people are making a return and we're achieving a socialobjective, social policy [cross talk]
Eve Picker: Yeah, that's pretty good.
John Perfitt: That's one of those things, ingrad school, they throw around - the double bottom line, and allthat stuff - or in annual reports. Well, this ... We're doing itnow on a small scale. That begs the question of scale and otherwisethat you asked earlier. I'm bullish, Eve; I'm bullish because it'sreally- it's micro, but the reach is ... The thing that's amazing.It goes down to 81st and Vermont, this project, but the reach isendless. My relatives [cross talk] the world, or their friends offriends of friends of friends of friends could invest in this.
Eve Picker: Yeah.
Jason Neville: John and I both had ... John andI both worked - although we didn't know each other at the time - atthe Los Angeles Redevelopment Agency until it dissolved in 2012.When it went away, California lost a really big source ofaffordable housing funding that was funding this mainstream,somewhat sclerotic affordable housing industry that John wasdescribing earlier.
Jason Neville: I, too, am bullish and thinkthat, as those sources of- traditional sources go away, and aspublic budgets shrink, and as people realize that the cost todeliver affordable housing is way higher than it ought to be ... Imean, $400,000 to $700,000 per unit to build an affordable housingunit in California is insane. We're doing it for-
John Perfitt: A lot less.
Jason Neville: A lot, a lot less. We'reproviding value to [cross talk]
Eve Picker: Yes.
Jason Neville: -investing, including the publicsector. John, and I, I think part of what makes us goodcollaborators is ... Well, I'll speak for myself, here. I sort ofsee myself, first, as a city making intellectual or thinker aroundthese issues. The way that I go about trying to prove some of mythoughts around it is by doing projects. Bungalow Gardens and theADU projects are definitely me reverse engineering what I thinkneeds to happen in cities and deciding that execution of theseprojects is how we get there.
Jason Neville: One anecdote to quickly share isthat I was talking with the with Chris Redfearn, who runs the USCreal estate program or used to. We were talking about how you couldcreate new models in rapidly gentrifying neighborhoods where pricesare increasing to give neighbors a stake in the project, a literalstake in the project, so that, a) they are more likely to supportnew projects in their neighborhood, and b) they can benefit fromthe economic upside of real estate development in theirneighborhood. We talked about that about three years ago, and atthe time, it just seemed like two people wondering about how thingsmight work. Small Change is giving us that opportunity to doit.
Eve Picker: Well, you know, the way you'veverbalized your projects is exactly the way I think about SmallChange. I'm reverse engineering a solution around those fundsdrying up, because my projects, although non-profit when I builtthem, relied on funds that the Urban Redevelopment Authority had atthe time. Those funds gradually dried up, and loan-to-values gotlower.
Eve Picker: All of those things kind of madethe business of building projects that are impactful and not justfinancially driven really difficult. My ultimate dream for SmallChange is that we can fund projects like yours, or we can help youfind- connect you with people who want to help you. That would be afantastic solution, wouldn't it?
Jason Neville: Absolutely.
Eve Picker: We're just starting, so ... Well, Ihave three sign-off questions I ask everyone, because I want to seewhat everyone ... Everyone thinks differently about this. The firstis what's the key factor that makes a real estate project impactfulfor you?
John Perfitt: To me, if people can view it as... It's really a positive externality, if it really is viewed asan asset to the neighborhood, irrespective of its use or otherwise.It can have staying power and can have positive externality. Ithink that's what's really, really ...
Eve Picker: How about you, Jason?
Jason Neville: I agree with that. There's aconversation that one of my favorite voices in urbanism, AlissaWalker, here in Los Angeles, was posing a question recently online.What's a project in Los Angeles that people are excited about afterit got built that they were welcomed and thought this really madethe neighborhood better? I thought that was a great question toask. I feel like, to answer your question, a project is impactful,if you can point to it and other people will look at it and say, "Iwant that in my neighborhood." [cross talk]
Eve Picker: So, it's something that makes aplace better. Yep. Yeah.
Jason Neville: -real estate ... We have aproblem in the real estate industry; even saying 'the real estateindustry' sounds bad to a lot of people. I'm interested in changingthe game, because every house that anyone lives in, any office thatsomeone works in, any place you go to was built by developers atsome point ... I like to think of real estate as you get a littlepiece of the city to build. It's our responsibility to build itwell and build it enduring as a piece of this broader city.
Jason Neville: Also, one other thing that withour particular project is we are hopefully making a ... Althoughit's only eight units, we're helping put a dent in a very, veryserious problem/crisis here around homelessness. I'm veryinterested, and I don't know what's going to happen, but I'mlooking forward to meeting some of the folks that are living thereand finding out how their lives were changed and, if it works,share those stories to other folks in the city - residents andofficials - to demonstrate how these smaller-scale projects aremaking an impact, in the positive impact on the neighborhood and inthe lives of the people who are living there.
Eve Picker: That actually segues right into thesecond question, which is what's the one thing in real estatedevelopment that you would change to improve buildings and physicalplaces in the country?
John Perfitt: I think flexibility, and this hasto do with building code, zoning code, and lenders. One of thethings that has been liberating of working on the small-scale andotherwise is that we're able to find a place where there isflexibility, so we can think about different ways of solvingproblems. The zoning code ... When I've worked on the city side andwe put in place what, here in California, we call specific plans, Iwas always arguing for how can we set forth code that is smart andwill yield what we want to build, but gets flexibility, because wejust cannot predict the future, in terms of the way things aregoing to go and the technologies that are going to emerge.Flexibility is something I think that is really helpful. That getsback to what I said about rental subsidies. People say, "Here'syour rental subsidy. You have the flexibility now to figure outwhat's the best way to get from here to there."
Eve Picker: Yeah, that's an interesting answer.What about you, Jason?
Jason Neville: Well, my answer to that questionhas evolved over time, and has tracked my migration from differentfacets of urban planning and development. Five, or six, or seven,or 10 years ago, I would've said what we need is really robusturban design guidelines to ensure that these horrible developerseverywhere are contributing to our neighborhood.
Jason Neville: Being on the side of enforcingdesign guidelines, I found myself in awkward situations, where wehad folks who were trying to do- developers and their architectstrying to do a really beautiful, interesting projects that weren'tallowed [cross talk] weren't foreseen by the developers of thosedesign guidelines.
Jason Neville: Today, my answer is we need alevel of public-minded, public-spirited developers in the realestate industry who are modeling good behavior for everybody elseand that are passionate about it. I would like to think that Johnand I are two of those people. If we can make it work financially,then that is something that will make it ... I think a lot ofdevelopers don't particularly care about the design, per se.They're looking at other aspects of it, and that's fine. If we canmodel a particular typology that makes financial sense, that helpsscale it, that helps bring capital to it, and that helps make thecity better.
Eve Picker: The final question is that you'reusing crowdfunding for this project, and other than raising money,how do you think crowdfunding might benefit you as real estatedevelopers?
John Perfitt: I think actually it's going toadd an element of exposure, which is not just spin. This is a realproject. The reach of that, it could help with people seeing a newmodel, new methodology. It's also going to inject a certain elementof discipline. We want to show this, and it's very public, if thisworks, and we want to make sure that all of our objectives fordevelopment, as well as profitability and otherwise, are metbecause we're pledging this.
John Perfitt: We know crowdfunding is an equityor an investment that people could lose, but we're not going toallow that to happen. Two things. There's a there's a new exposure,a heightened level of a different way of approaching it and doingthings. Then there's a discipline injected into this that I thinkis really energizing for me [cross talk]
Jason Neville: I agree with everything Johnsaid and would just add that one of my lessons learned from the ADUexperience over the past couple of years is that one of the bigopponents of ADUs, initially, when the city was trying to pass [itsown] ordinance was homeowners who had fears, amorphous fears, aboutdensity, and parking, and everything else.
Jason Neville: When the law was passed thatallowed homeowners to do it, homeowners became- are now some of thestrongest advocates for ADUs, because they are, in a sense, thedevelopers. The miracle, in my opinion, about the ADU legislationas it turned one of the biggest opponents of a particular form ofhousing into some of its strongest advocates. It wastransformational in that regard. I think crowdfunding can dosomething along the same lines.
Jason Neville: I know people that would neverhave the means to invest in regular traditional real estatedevelopment, or they would be scared, but this project- like theones that we're doing, they can put in low amounts, and have alittle piece of it, and get exposure to it, and be bought into thisidea that great architecture and great real estate development canmake cities better and be a part of it. I see it as a as kind ofmarketing, so to speak, for good real estate development [crosstalk] upside, yeah.
Eve Picker: Yeah. Well, thank you, guys. I'vereally enjoyed the conversation, and I am really excited about thecurrent project that's live on Small Change. Also, I'm excited tohear about the next thing that you're working on. I'm going to bethe first to know, right?
John Perfitt: Of course, we're very bullish.You're doing great work. Small Change is doing great work, which isbadly needed and has the potential to be very disruptive. I thinkthat's just fantastic [cross talk]
Eve Picker: That was the other thing I wantedto add to your comment. Disruption and change is really hard, andit takes a long time. It takes early adopters or early disruptorslike you and perhaps me to kick something off and then be patient,while people get used to the idea. It takes a while. Most peopledon't like that sort of change and come to it slowly. I'm marriedto one of them, so I appreciate it. Okay, well, thank youvery much.
John Perfitt: Thank you, Eve.
Jason Neville: Thank you, Eve.
Eve Picker: Thank you.
John Perfitt: All the best.
Eve Picker: What a great conversation that waswith John Perfitt, and Jason Neville. John and Jason are tacklingmany problems with just one little project. Not only will thatproject serve homeless persons by providing them with compact anddignified living, but they are stepping back in time to a housingtypology that died in the 1950s - the bungalow court - to solve amodern-day problem.
You can find out more about impact real estate investing andaccess the show notes for today's episode at my website,EvePicker.com. While you're there, sign up to my newsletter to findout more about how to make money in real estate while buildingbetter cities. Thank you so much for spending your time with metoday, and thanks to Jason and John. We'll talk again soon, but fornow, this is Eve Picker signing off to go make some change.
