Latest / Icons of DC Area Real Estate / A.J. Jackson- Divining Private Capital for Affordable Housing (#116)

Transcript

A.J. Jackson- Divining Private Capital for Affordable Housing (#116) · Icons of DC Area Real Estate

• 0:09
  Speaker A: Hi, I'm John Koh and welcome to Icons of DC Area Real Estate, a one on one interview show highlighting the backgrounds and career trajectory of leading luminaries in the Washington, DC area real estate market. The purpose of the show is to highlight their backgrounds and their experiences in some interesting stories about their current business as well as their past, and to cite some things that you might take away both from educational standpoint as well as lessons learned in the industry and some amusing and sometimes interesting background stories. So I'm hoping that you will enjoy the show. Before I introduce my guest, I'd like to share that both this podcast and the community I started in 2021, called the Iconic Journey in CRE, is now part of a new nonprofit organization with that same name. The new company will offer opportunities for sponsorship to grow the community both in membership and in programs. It also allows you as listeners to show your appreciation for this podcast, which has delivered episodes twice monthly since August 2019 with a charitable contribution. Transitioning the community and podcast into the nonprofit organization is underway. The community, which is open to commercial real estate professionals between the ages of 25 and 40 years old, is currently up to 65 members and growing. If you would like to learn more about either joining the community or contributing to the podcast, please reach out directly to me at johnterprises coenterprises.com separately, my private company co enterprises. Now we'll focus only on advisory work for early stage real estate firms and career counseling. If you have interest in learning more about its services, please please review my website@coenterprises.com. dot thank you for listening. Welcome to another episode of Icons of DC Area real estate. For this episode, I'm so pleased to introduce my guest, AJ Jackson, who is a founding president of Leo Impact Capital, a new wholly owned subsidiary of JBG Smith Companies, the public REIT in Washington, DC. AJ is actually the third person I've interviewed from JBG Smith. Earlier I interviewed Matt Kelly, the CEO, and Wayne Banerjee, the CFO, about their careers and backgrounds there. But I decided to interview AJ because of his interesting initiative in affordable housing, which he started earlier before starting Leo impact capital, and which was formed primarily because they started the Washington Housing Initiative and had grown now to over 3000 units in their portfolio and needed to consolidate some of their activities. AJ grew up in Columbus, Ohio as a child of two parents who are educators. When brought the value of education early in life, he had a fascination also in working in Washington DC and politics, which interested him so he began his career working in Congress after attending University of Alabama on a full ride. Subsequently, he transitioned from Congress over to GSA and that's where he learned about the real estate industry. He became the chief of staff at GSA and subsequently went on to Harvard Business School and sharpened his interest in real estate there. And while there, he met my other podcast guest, Bob Youngtaub, who recruited him to join Eya, Bob's firm to manage the affordable housing public private initiative that they set up there. He discusses some of the projects he had in the interview. He also met the people at JBG companies, which were the major investors in Eya while there. And then after JBG Smith was formed, he eventually joined them to lead the affordable housing initiative that we talked about. So that's a high, kind of a high level overview of his career and his background, and we get into a lot more detail. So without further ado, please enjoy this high level conversation with AJ Jackson. Welcome AJ. Ivan. I overviewed your background in the introduction. You recently formed Leo Impact Capital, which is a wholly owned subsidiary of the JBG Smith Company with the mission of investing in workforce housing. Prior to forming the subsidiary, you manage the impact pool, which is a fund of capital allocated to invest in the Washington Housing Initiative. Perhaps discuss at a high level why the subsidiary was formed and how it differentiates from the prior mission of the impact pool. If it does.
• 5:39
  Speaker B: Sure. Thanks John. It's great to be here. Leo is different in a couple of ways, but I'll get to the why first. I think that's a good question. When we launched the housing initiative, we had an idea and maybe a half baked PowerPoint. So we've taken that and grown it to a portfolio. Now that's over 3000 units. We've done investments in DC, Maryland and Virginia and we frankly got into a scale that it made sense to consolidate our asset management portfolio management investment, the impact measurement and reporting all the functions around impact investing under a single platform. Whereas as we had grown, we had taken, we'd been working with other parts of the JBG Smith organization and using resources from different teams as we needed them. We got to a scale where it made sense to consolidate that. Talking about the growth of the strategy based on what we've been able to do in the impact pool, we've seen that there is a real need for additional investment in workforce housing. And I know we'll talk about this a little bit later, but there's some different ways in which we want to do that. And as we think about raising new capital to make further investments in workforce housing. One of the things that became clear to us was we needed to have a consolidated entity that was responsible for executing on the strategy that we were asking people to invest in. And so for those reasons, we, we consolidated all of our existing operations under the new wholly owned subsidiary, Leo Impact Capital, which is really exclusively focused on the impact investing work that JPG does.
• 7:19
  Speaker A: Is that a for profit enterprise or is that a nonprofit?
• 7:21
  Speaker B: It is a for profit enterprise. I mean, our fundamental belief around impact investing and around housing affordability is that you've got to move private capital at scale in order to really have solutions that are equal to the scale of the issues that we're trying to address. And moving private capital at scale means that capital has got to generate. We've got challenges that are bigger than philanthropy alone or government alone can address. So we got to figure out how to turn private capital towards them. So we've been in the for profit business, if you will, since the very beginning. Having said that, we've also been, and we talked about this with the Washington Housing Initiative, but been very focused on the role that nonprofits and philanthropy can play in helping to address some of those issues. We think about it kind of as a three way partnership, a public private philanthropic partnership. And so we do a lot with nonprofit affordable housing investors in the operators, in the impact pool. We work closely with nonprofits. We help to create the Washington housing Conservancy. But Leo is a for profit entity.
• 8:26
  Speaker A: Okay, great. So before we dig further, let's go back into your origins, youth and parental influences. JJ, if we could, where did you grow up and what influences did your parents have and family?
• 8:37
  Speaker B: On YouTube. So I grew up in Columbus, Ohio, while I was in 8th grade, in which I went down to Alabama for school and rights out of Birmingham, a little town that's now called Indian Springs. It was called Helena, spelled like Helena, Montana, but called Halena at the time. But so between Ohio and Alabama. And my parents are both retired educators and did that essentially for their, for most of their careers. My father was, was briefly in the corporate world at Westinghouse, but he did a junior achievement program and got the teaching bug out of being a junior achievement mentor. And so left Westinghouse, got into teaching, and they both did that. They're both now retired, you know, retired teachers. And so obviously the value of education was something that was just everywhere. I won't even say drilled in, because it was never really drilled in, it was just in the air, always, you know, from when I was, from when I was growing up, you know, and the importance of contributing to the community, giving back, being a part of the change. You want to see in the communities that your parents from Columbus are? No, they're actually from Cleveland. They met at Ohio State. So my mother actually did her undergraduate at Kent State, but she was at Ohio State for a summer program and met my dad, who did both his undergraduate and got a master's from Ohio State as well.
• 10:01
  Speaker A: Did he teach at the high school.
• 10:03
  Speaker B: Level or what he taught? No, he taught primarily at the community college level.
• 10:07
  Speaker A: Oh, interesting.
• 10:08
  Speaker B: He did teach at Ohio State a little, but he taught primarily at a school that used to be called the Columbus Institute for Technology and is now called Columbus State, but very similar to Montgomery College. And I think he really, that really resonated with him. I think because, you know, he was the first in his family to go to college. He had gone to a community college in Cleveland before he went to Ohio State. And I think he always felt like he could really see in the students the impact that he was having, the transformational nature of education. And so as he used to always say, I would do this for free.
• 10:47
  Speaker A: He just really loved it. That's awesome. So you grew up in the shadow of Ohio state, and you go to Alabama.
• 10:55
  Speaker B: So tell me how that happened. I'd been in Alabama, like I said, to Indian Springs, and I actually had no intention of going to Alabama. When I was thinking about college, I wanted to go either to the east coast or to the west coast, and I was going to go to USC or NYU. And there was a recruiter from Alabama who just sort of kept at me and kept at me and kept at me. But ultimately, what made it an easy and easier decision was they offered me a four year full ride and a year of housing and some other benefits. And so the thought of going to NYU and working and coming out of school after working all the way through school with a significant amount of debt or similar at USC or going to school and coming out completely debt free was just really appealing. How did they find sports? No, it was, I had been a national merit scholar, so they get the list and they just kind of stay on you. And it ended up actually being a remarkable experience because I've been, I was at a small, private high school that was very much kind of an amazing place, but very much not the real world. And so the University of Alabama is a large public university. And so it just really, the exposure to sort of a broad breadth of people, experiences, ideas was just really, you know, I think something that I didn't expect that going in. It was probably one of the biggest benefits of the university. That and the fact that, you know, it's a big enough school that you can find a critical mass around whatever you're interested in, which is one of the, I think one of the benefits of larger public universities. You know, if you're into your one thing and you know it and your small school has it, then that's. That's great. But in a big university, you can kind of bounce around, find different things, do different things. Sure. It was a lot of fun.
• 12:53
  Speaker A: Well, Columbus. I mean, Ohio State's one of the three largest universities in the country, physically.
• 12:58
  Speaker B: Ohio State's very big, and I. Huge. Yeah, it's very big. You know, I didn't want to go back to Columbus at the time. Columbus was much sleepier than it is. It is now. Yeah.
• 13:11
  Speaker A: Okay, so, Alabama, what did you study down there?
• 13:15
  Speaker B: I studied economics and finance.
• 13:18
  Speaker A: Interesting.
• 13:20
  Speaker B: And Alabama was interesting because you could take economics either in the business school or through the College of Arts and Sciences, and all of the core classes are exactly the same. The difference is the electives. Right. And so, in the business school, the electives at the time were things like using database software, and, I don't know, things like that that were not particularly interesting to me. The college of Arts and Sciences, you could basically take whatever you wanted. And so I did econ and finance, but then I took everything I could take. Sort of beyond that. I took a lot of Latin, did some Swahili to some interesting women's studies, history.
• 13:58
  Speaker A: So your parents really threw education at you from the get go.
• 14:02
  Speaker B: They did. They really did throw it at me. And I did mention this earlier, but one of the other benefits of Alabama in high school, I'd taken a lot of AP, so I had 20. I'm gonna get that number wrong. 25, 20. I basically had a freshman year, and so you could go straight to the interesting classes.
• 14:19
  Speaker A: There you go.
• 14:20
  Speaker B: Right. And so it was really just, you know, the epiphany I had in college, I realized after my freshman year, I said, you know, I've got enough credits from the AP's. I could graduate in three years and be out of here. And I said, but they're gonna pay for four, so why would I do that?
• 14:38
  Speaker A: Why not have fun?
• 14:39
  Speaker B: So why would you do that? And so it was really just this opportunity, academically, to just take all kind of stuff and explore and do interesting things. And it was really, you know, I was really fortunate to have that kind of experience.
• 14:52
  Speaker A: So when the fourth year came.
• 14:54
  Speaker B: What were you thinking about when the fourth year came? I was actually thinking about investment banking. Actually, I was thinking about investment banking. I like kind of the deal finance, finance aspect seemed interesting to me. You know, economics, it interests me. Finance is basically applied economics. And so that was interesting. But I had spent all through high school and college. I'd been involved in politics and state and local level doing various things. And so as I was graduating, I reached out just to a couple of my political contacts, because the other thing that was interesting to me was coming to DC. My father had worked in DC before he went to college or for the post office, actually, what's now the museum there where they actually used to unload and sort mail there. And so we'd come to DC a lot when I was, when I was growing up, and it all always liked the city. And so that was kind of, that was calling to me, on the one hand, where the finance was calling on the other hand. Ultimately, I got an offer from a guy that I had known I'd worked with before, who at the time, who had become a chief of staff to a member of Congress to come and work on Capitol hall. And I thought, well, you know, I'll go and do that and see what happens. In typical post college fashion, this is an Ohio, this was an Ohio guy. This was a guy. The congressman was a guy from southern Ohio down along the west Virginia border, this guy named Frank Karmines. He since passed away. So I got the chance to come to Capitol Hill and work for Frank Karmeens. And so I did that. And I came and he was up for reelection. He lost. So I worked for him for kind of six or nine months, and I was like, okay, thats over. And then im going to go back into finance, right? So Paul sent off my resume and sending it out, and I got a call from a guy who was the chief of staff to what would have been my hometown congressman in Columbus, a guy named John Kasich, who went on to become the governor of Ohio. And he was chair of the budget committee at the time in the House. And they said, hey, we'd like you to come over and do his, it's called, be his budget associate, which is basically do his committee work on the budget. And so I went over to Kasich and did that and was there for almost five years. It was really just a fantastic experience because John Kasich was, you know, I've had this real fortune of working for great people throughout my career, and it's really kind of been the secret of my success, such as it's been, has really just been working for great people. And so John Kasich was a terrific member of Congress, smart, hardworking, sort of a problem solver. Wanted to fix things, get things done, and incredibly bipartisan. His best friend was a guy from California named Ron Dellums, who's a liberal Democrat from Oakland and the sharpest dressed member of Congress you've ever seen. But John would work. He'd work with anybody to try to solve a problem, and he was open to compromise, and he wanted to get things done. And so it was just a phenomenal.
• 17:51
  Speaker A: Experience that would be needed today.
• 17:55
  Speaker B: It was a different. It was a different Capitol Hill. I don't think I would ever want to go back, and, you know, I don't know. I don't think I'd ever want to go back. But. But it was nice. It was a really. It was a kind of a really special time, and I learned a lot. But we got to do also, I mean, we balanced the budget, so.
• 18:14
  Speaker A: So when he left and he ran for governor after that, then. Right.
• 18:19
  Speaker B: He ran for president twice, but he left in 2000. He ran for president 2000 very, very briefly. He was out before the New Hampshire primaries, but he was retiring in 2000. Anyway. He'd been there 18 years and basically said, I've done all I can do. So he left, and I'd known that he was gonna leave. So I'd applied to business school, and I was gonna go to business school. I actually. This is. This is one of the serendipitous things. I don't know how I got in this list, because I hadn't taken the GMAT. I hadn't done anything. I got a card about an NBA event here in DC, and there's a woman there, all a bunch of folks who've gone to the Harvard Business school talking about their experience there. I was like, that sounds interesting. That sounds like something that would be fun to do. And it was interesting because none of it was actually about business. Harvard's motto is, we educate leaders who make a difference in the world. I said, well, that's appealing. So I'd applied to business school. I had been admitted, but business school started in the. In June, July, ended in January. And so I was trying to figure out what I was going to do for six months. Capitol Hill is not. It's not investment banking. So I wasn't going to travel the world like I found that all my other housemates did before they showed up at HBS. So a guy that I knew was working on the transition team at the General Services Administration. This was after the presidential election in 2000, before the inauguration in 2001, said, I need someone to come over to the GSA who knows something about Capitol Hill and help on what they call these parachutes teams, which it's basically a short term job to help with the transition. So I did that fully expecting I was going to leave in June and go to business.
• 20:00
  Speaker A: This between Clinton and Bush?
• 20:01
  Speaker B: This was between Clinton and Bush. This was in 2000. And so, as you recall, it started late. There's a little. Yeah, there's some controversy around the transition. But I went to GSA. I was in the congressional affairs shop and helping with the transition. And I basically, my primary task was putting together briefing materials for the incoming administrator who hadn't been named or nominated yet. But what I got to do in putting out those briefing materials is basically go all around the agency and talk to all the senior leadership and all the different groups to find out what was important to them, what they were working on, what they wanted to see done, what hadn't worked. And we put together these binders. Right? These giant, giant binders back in the day. Is that how you look at real estate? And so it was my first exposure. GSA was my first real exposure to real estate. I thought when I applied to business school, when I was still on the hill, I thought I was going to be a management consultant. I had no real thought about real estate. But GSA does a lot of things beyond real estate, so you got to kind of learn the whole agency. So when the administrator was finally nominated in April, I managed his confirmation process and then managed his kind of onboarding. But again, all this time thinking, I'm leaving unexpectedly, the GSA inspector general retired. This guy had been there forever. He was an Eisenhower's secret service detail, been there forever. He retired. The person who was chief of staff was nominated to be the inspector general. And the administrator said, I think you should be the chief of staff. I said, well, I'm leaving. I think you really should reconsider. I think you should really reconsider. And so I did. I said, this is just too great of an opportunity. Can't pass it up. And so I was the chief of staff at the General Services Administration, put off Harvard and then ultimately went, went later. And that was really my first exposure to real estate and working on some sort of, you know, complex, large, high level real estate issues with the federal government, in addition to all the other stuff that, that GSA does. So it was a phenomenal, it was a phenomenal experience being at the GSA.
• 22:09
  Speaker A: Yeah. Well, what did you learn? I mean, you learned about obviously, how government interacts with the private sector.
• 22:16
  Speaker B: Right.
• 22:17
  Speaker A: As far as the taxes and the structure, the interface with Congress, which is important, the GAO and the executive branch. Now I've interviewed Dan Matthews, so I got a sense of that role. He was in Congress himself probably 15 years or so, understanding and working in the, in the committees.
• 22:38
  Speaker B: Yeah.
• 22:38
  Speaker A: So he knew how the funding process worked and all the different. It's a complex entity.
• 22:45
  Speaker B: It is a complex entity. I mean, the great thing about the GSA, there are a couple. One, there aren't a lot of political appointees. There's the administrator, who's confirmed by the Senate, and there's the inspector general, who's confirmed by the Senate. And then there are, you know, a couple dozen, including all the regional administrators, actual political appointees who are politically appointed but not confirmed by the Senate, including the chief of staff. So it's relatively small. At the time, it was about a 15,000 person agency. It's a little bit bigger now, but a relatively small political cadre. So a lot of interface independence with the career, with the career staff. One, two, most of its money is not appropriate. It collects rent. It charges fees for the things it sells. Kind of like an Amazon. Right. And so a lot of the money is not appropriate, appropriated, which keeps Congress less involved than in other agencies. And three, it's a sub cabinet agency, which keeps the White House less involved than a lot of other agencies. So it was really a great place to have people, again, like John Kasich with that model, who wanted to do something and get something done, who had less political interference than, you know, my friends had, who were either in the White House or in cabinet level agencies. You could actually kind of do a lot. And as long as you don't embarrass the administration or break the law, generally, you're going to be left alone. And that was a real gift in the GSA. I think the thing that initially most surprised me, which is an embarrassment, but it most surprised me, was the incredible dedication, professionalism of the career staff in the GSA. I mean, I think there are really some remarkable people in that agency who are committed to public service and who have made a career out of, out of, out of doing really kind of back office and behind the scenes work on behalf of the american people. And that was really not what I expected going in and sort of not what the stereotypes may be about bureaucrats but I found none of that. Certainly at the senior level, found none of that. But then the politics, where the politics really get involved is in the real estate projects. And the skill, sort of the thing that has been most valuable out of all this was GSA builds courthouses, right? And so courthouses. Each courthouse is in a district. The district has a chief judge, as you may have learned from. I'm just a bill. Judges are appointed for life. And so you have someone who is essentially the prince or princess of a fiefdom, who cannot be replaced, who will be there until their heart stops beating. These are federal judges or federal judges who may or may not be on board with what, you know, where the courthouse is going to be built, how the courthouse is going to be designed, what, the size of what they have their own desires about what they want, essentially as the palace out of which they're going to operate, as the Duke Euchre, duchess of their little fiefdom. And so the skill of working with, learning how to work with and build relationships with these judges, chief judges, so that you could actually advance courthouse projects consistent with sort of broader administration policy, broader objectives, that's really been, I think, the most transferable, relatable kind of negotiation and relationship building building skill, because nothing in the administrator's office, the head of the agency, the chief of staff level, it's just like any other sort of senior job. Nothing is coming there unless it's a real issue. Right. And so it was always seemingly intractable situations that you were trying to get resolved. And so that skill. And then similarly working with the Office of Management and Budget, trying to get major federal buildings built, one of the projects I worked on was the department, Department of Transportation headquarters, which, ironically, JBG Bilton recently sold. But getting that lease approved through OMB was a real masterclass for me in negotiation and in really understanding how to take the perspective of someone else and then bring the argument to bear in a way that would resonate with that perspective so that we could get the lease approved. And in the case of OMB, it wasn't recalcitrants. It was that there were very specific rules in the federal government. The government can't sign capital leases, right. You can only sign an operating lease if you're the government. However, the government wants build to suit buildings that only it's going to occupy.
• 27:15
  Speaker A: Can you explain the difference between a capital and operating lease?
• 27:18
  Speaker B: So a capital lease in the government speak is essentially, you're buying a building over time. Right. You're paying 100% of the value of building, you're just gonna. It's basically a financing mechanism for something that you essentially own, although you don't actually own it. Right. But you're essentially taking value. They're almost like a sale lease back, right. Whereas an operating lease is like what a commercial tenant would sign in a building where I'm gonna come in, I'm gonna take 20,000, I'll be here for seven or seven or ten years or whatever. The government wants to build headquarters buildings for its agencies. It wants to occupy them exclusively. It wants to have control them for 20 plus years, but it's legally forbidden from signing capital leases. This would present a problem. So to figure out how to think about, like in the case of dot, how to think about the fact that because of our design guidelines, that building would be open to the public. We were going to put a Starbucks into the ground floor. We were going to allow, we were going to allow third party commercial parking. What cost in the building of this building and what revenues could we pull out that were not really related to the Department of Transportation's occupancy so that we could meet the threshold for the lease to be operating in capital?
• 28:34
  Speaker A: Ridiculous.
• 28:35
  Speaker B: It's a lot of calculus, but we're not pulling the wool over anyone. We're doing it in collaboration with OMB. But it is really about understanding their perspective and then trying to present data and evidence in a way that works within their perspective to get them to say, okay, yeah, we want to do this. Because the reality was Congress, the reason that the government doesn't sign capital lease is because if you sign a capital lease, from a budgetary perspective, you pay for the whole thing when you sign it, an operating lease, you pay a lease payment every year. So from a budgeting perspective, the government doesn't want to take the hit of building a new building up front.
• 29:13
  Speaker A: I mean, if the government would take a private sector approach to finance, it would be a whole different government.
• 29:19
  Speaker B: Well, yeah, I mean, it was one of the great frustrations. That was one of the great frustrations, yes. I mean, we should. In my view, the government ought to be either building and owning or selling and leasing back assets that it's going to occupy, like headquarters for long periods of time. It would be cheaper. I think it'd be a better deal for the taxpayer. You know, that was a frustration. The other real frustration we had is on the real estate side, is that the government. The government does. Not Congress, I will say not the government. Congress does not like to appropriate money for cab x they like to build new buildings, but they don't like to do capex. And so you have a lot of buildings that are in really, really rough shape. And so one of the things that we had to do was figure out how like with the courthouse and I, how we could build an additional into a courthouse that would create a ribbon cutting opportunity and also get the money then to do the capex on the rest of the building. I think Congress likes to build new buildings. They like to cut ribbons.
• 30:18
  Speaker A: I know you've been out of GSA for a while, but looking at it today, what would you do if you were leading the agency today? How would you manage their challenges of decreased use of facilities and reduction and requirements?
• 30:31
  Speaker B: You know, I think from my perspective on the outside I don't have all the, I'm not in it, so it's hard to say. From my perspective on the outside there's a real opportunity in this moment given the dislocation in the commercial office space to materially both right size but also upgrade the quality of the government's real estate portfolio just like every other private operator. Let's trade out of the seas and trade into the asian B's and let's buy some of these assets that are selling at significant discounts. Right. I think there's a real opportunity to do some of that in the real estate portfolio. It's just hard to do and it likely requires some congressional assistance. But I think that's the real opportunity. I think that the government has in addition to collaborating with OPM, which is essentially the personnel side of the government, to understand what space utilization really needs to look like for the federal workforce, how many federal jobs could be fully remote, which I actually think is an opportunity for the federal government. Right. Because it's often not the most competitive employer with regard to compensation. Right. But if you can be very competitive with regard to flexibility, I think that can be an advantage, particularly as the DC market has become more and more expensive and there's more and more private sector, high paid private sector jobs. There's just more competition for kind of talent at the federal level. Those are the areas I think where.
• 31:58
  Speaker A: I would, there's probably between, I don't know, maybe 10 million sqft right now downtown that could be repurposed.
• 32:06
  Speaker B: Yeah.
• 32:06
  Speaker A: That's owned by the federal government.
• 32:08
  Speaker B: Yeah. Yeah.
• 32:09
  Speaker A: So if you, if you were the head of GSA, how would you try to implement that?
• 32:14
  Speaker B: I think you've got to get Congress on board with you. Right. Start delegate Norton in the district and then going to to the public building committees, but you've got to get Congress on board with you in the disposition of assets. I think ironically or not ironically, but I think there's a moment because we've gotten into such a mess on the deficit side that I think there's going to be a real push for. Where do we raise money from? Any source. And so I think that may create that deficit pressure, may create the opportunity. You say, hey, look, guys, there's billions and billions of dollars, tens of billions of dollars of assets here that we could dispose of, that could be repurposed that we don't need. That would be a win for the district in terms of vibrancy and revitalization and different types of activity in the core of the district and be a win for the federal government as well.
• 33:08
  Speaker A: Even if it was a lease, sold sale, they could hold the land.
• 33:11
  Speaker B: Yeah.
• 33:12
  Speaker A: You know.
• 33:12
  Speaker B: Yeah, yeah. There's a lot of. I think there's a lot of opportunity. I do think it will require ultimate legislation. You know, Tom Davis, who was a great member from northern Virginia, was really instrumental with Lorton in trying to get the federal government to be able to do leasehold, stolen leaseback interest there. So, yeah, I think it requires legislation, but that's kind of the direction I would push it.
• 33:35
  Speaker A: So then you went on to Harvard Business School, and so talk about why, and, you know, why Harvard and why business school? And what were your, what were your goals?
• 33:46
  Speaker B: Why business school? I went to business school basically to transition out of politics. I'd been on Capitol Hill with Kasich, and at the end of five years, I basically looked around and said, I don't want to be a lobbyist. I don't want to be a congressional chief of staff, because that's primarily about fundraising. Until you get, unless you're working for a really senior member. It's a lot about fundraising, which is just not that interesting to me. And I don't want to be a committee staffer because I don't want to be that narrowly focused and be the expert on this one very narrow thing. And so what job exactly is there left for me to do here? And so I think I should try to go to the private sector, that interest that I've had since undergrad. But having spent five years in the public sector, I felt that the MBA was kind of the fastest way to make a hard pivot and really signal to, to future employers my move to the private sector. So that was the motivation for business school.
• 34:46
  Speaker A: What about the Kennedy school?
• 34:48
  Speaker B: It's, you know, I'm not a policy guy. I'm a doer. And I think that's why the GSA was also so appealing to me. And I did think about the joint degree thing for a while, but I just, you know, I don't know. I would be very frustrated if I spent all my time generating policy and not implementing. Sure. So that was probably the main.
• 35:16
  Speaker A: That's a way to bridge the public and private. It is what you do now.
• 35:20
  Speaker B: It is, you know, and it all comes full circle. You never get that far away from the tree. Right. You know, it is. But I didn't feel that I had a. That I had essentially the right branding around things outside of the government. So I thought, MBA will, that's as clear of a signal as you can send. Sure. And the case method was really the appealing thing to me at Harvard because it was actual, actual stuff. What have people done? What worked, what didn't work. So, yeah.
• 35:59
  Speaker A: What was the most exciting case that you saw that you remember? Do you remember any of them that was one that was anything related to the government at all or not?
• 36:07
  Speaker B: You know, we actually did have a couple of cases related to the Iraq war that were kind of fresh off the press. Interesting while I was. But the most interesting, actually. So I won't say the most interesting case, the most interesting course, and probably the most valuable course that I took there was a business history course called creating modern capitalism. A guy who's now retired named Richard Tedlow, but he's a great biographer, a businessman. But the key takeaway from that course is how history rhymes over and over again and how you look at things. And really the question is, when is something like this happened in the past that I can go back and learn about in reference, not what the hell's going on. Right. And so I just remember reading all these cases, for example, about the expansion of the railroad industry, right, during the gilded age, and thinking, wow, this is a.com bubble. Right. Just in a different form, just over and over those kind of examples where you just see the themes are consistent. Right. The circumstances vary, but the themes are.
• 37:18
  Speaker A: Volatility in the american economy.
• 37:20
  Speaker B: And so just. Yeah. Even beyond the us reading about Wedgwood and his essentially influencer marketing strategies to sell China, which is not that different than TikTok, really. So that was the most valuable course that I took there.
• 37:40
  Speaker A: So you had a real estate experience at GSA. So you were at Harvard Business School. Did real estate really kind of stay in the front?
• 37:48
  Speaker B: Yeah. So once I had left GSA, I knew I wanted to be in real estate. And so I went to Harvard Business School with the intention, one, of coming back to DC and two, of working in real estate. That was my intention the day I entered. And this is where you can start to question my judgment. Because of all of this sort of business schools, Harvard probably has the least well developed real estate program. And so, literally, from the first day of school, I would do what we call then a networked job search, which is basically Harvard's way of saying you're on your own. You take the alumni directory, you find everyone who works in real estate, you divide it into blocks of ten, and you call, email, ten people a day, every day. And so that's what I did. And not just in DC, all over the country. And that's what I did. And in the beginning, I wasn't even marketing, I wasn't looking for a job. I was looking for knowledge, I was looking for information, because I didn't know. I knew what I knew from GSA, and I knew that that was a tiny little fragment of the industry. So I would talk to guys doing retail investment sales. Somebody's doing.
• 38:59
  Speaker A: Whatever struck you in that conversation.
• 39:04
  Speaker B: There were a couple of guys out on the west coast who were really. Well, I'll come back to the one who really struck me, but a couple on the west coast who were really interesting. One was an investment sales retail broker who had been a home builder in North Carolina, then moved to California and started doing investment sales and talked a lot about the stress and anxiety, why he left the entrepreneurial side of development, and how lucrative he could sleep at night, personally guaranteeing all these loans, etcetera. But then what he hated about the brokerage industry and the fact that he started basically, as he said, I start from zero every January 1, and I've got to go back and sort of rebuild it. That was just. I learned a lot in that conversation. But the guy who really struck me was Bob Young and cop. So I met. This is how I met Bob. One of the things that I did to sort of improve my job search was help organize a trek to DC with the real estate club. And we did a series of panels, and one of the panelists was Bob, and we did a tour of some of the property. And so that's how I got to know Bob. And we stayed in touch through HBS. And ultimately I went to work at Eya after graduation.
• 40:12
  Speaker A: So he's the one. Just meeting him and getting to know him just felt good. And so did he kind of convince you that the for sale residential business was what you wanted to do?
• 40:24
  Speaker B: No, I worked my business school. Between my first and second year, I worked for Tishman Spire, which I think was one of three real estate companies that recruited. There's not a lot of. I worked for Tishman Speyer, and I realized that I liked the sort of b two c aspect of the residential, you know, kind of multifamily and residential space more than the office. Than the office business.
• 40:47
  Speaker A: Interesting.
• 40:48
  Speaker B: The office business wasn't as exciting to me, for whatever reason. And then when I met Bob, you know, they eyh was just doing really creative stuff.
• 40:58
  Speaker A: Yes.
• 40:58
  Speaker B: And kind of, kind of, at the time, pushing the edge and also really, I thought, impactful stuff. And it just kind of resonated with me in a way that, wow, this is really. This is different. So I want to learn more. I want to see what this is about. But, you know, this, you know, you can kind of tell them something special. And that was. That was special.
• 41:15
  Speaker A: It's quite a contrast from GSA.
• 41:17
  Speaker B: It's a very big contrast from GSA. So it was a very big contrast from GSA. Yeah, it was. It is. But, you know, that, that again, you know, I guess this is where Kasich and the guy who's the administrator, Steve Perry at GSA, this legacy of having great bosses, I knew I wanted to learn from Bob and Terry. So that was, you know, like, that was, that kind of sold it.
• 41:43
  Speaker A: So talk about your career there.
• 41:45
  Speaker B: So I started out actually the same day as Akash Dakar. I don't know if you. Oh, sure, you know, Akash, because everybody, everybody listen to this podcast as a cosh, but I started out the same day as Akash. We started basically doing the same thing, which was junior folks doing development work. And as my. So I was. I was learning a lot about the industry, but really a lot about a philosophy and approach to business and how you deal with people from Bob and Terry, that was just really special. So I grew as I was that at EYA, I grew to spend more and more of my time working on mixed income housing projects, public private partnerships that we call them, where we work with a housing authority or church or someone who is usually land rich, cash poor, and wanted something beyond just money from the development of their real estate. So money and affordable housing money and jobs money and whatever it may be, and really gravitated to that work because I think I was based on my political background and my government experience. I was just comfortable dealing with housing authorities and comfortable with all the kind of sort of extra mental gymnastics. That kind of work. That kind of work requires. And so spent a lot of time doing that work. That was most of what I did.
• 43:07
  Speaker A: Whose idea was it to do this? Goes a little bit away from what.
• 43:12
  Speaker B: They typically, you know, right before I came, Eya had taken on a project in Alexandria, Virginia, called Chatham Square, which was the redevelopment of a public housing market. Eya had done several projects in Alexandria. Oh, sure. And the city essentially wanted.
• 43:28
  Speaker A: That's where they cut their teeth.
• 43:29
  Speaker B: A high quality developer they could trust to help with this redevelopment. And so they did Chatham Square, and I think they realized what a good business it was from a financial perspective, and also that there were many more opportunities to do similar stuff.
• 43:49
  Speaker A: Interesting.
• 43:49
  Speaker B: And so I think that was kind of, that had laid the groundwork. I think it got me, as Bob will say, the first time, the challenge where opportunity came around, they passed on it because they didn't think they were mature enough as an organization. This is all before my time. But that was really kind of the start of the foray into public private partnership. And then it just kind of grew. It grew from there, but it grew to really be a significant portion of the business because it was a way to develop really great real estate that you couldn't otherwise find. If you were committed to urban infill and you were committed to this sort of low to moderate density version of urban infill, the sites were becoming harder and harder to find. But there was a lot of publicly controlled land that was exactly right for this type of thing. It also, the building form was one in which it was easier to integrate significant amounts of low income housing into that townhouse stacked flat building form than into a high rise, than into a high rise building. And so it actually worked well for the. For the housing authorities. It was also the for sale component allowed you to generate a significant near term cash flow that you could use through paying for the land that you could use to subsidize the development of the affordable housing. And so it really turned out to be, like, the right in the right time and the right like, you know, everything just kind of came together.
• 45:15
  Speaker A: That's a complex legal structure. When you.
• 45:17
  Speaker B: It was a very complex, publicly owned.
• 45:20
  Speaker A: Land, and you're doing for sale housing on it.
• 45:22
  Speaker B: It was very. It was very complex. That's an interesting structure. Tell you about, we did the deal on Capitol Hill. One of the deals on Capitol Hill, we had 323 unit deal. So it's roughly a third of that, or two thirds of that are for sale. Third market, a third workforce. So let's just say we had 200 individual lot releases from ground lease that we had to get. Now, acting HUD Secretary Adrian Hodman, then housing director, to sign and put into escrow because we wanted to, you know, we were going to sell these houses. We couldn't go back to the housing authority and wait for something to work its way through the bureaucracy to get signed when a home buyer wants to come to the settlement table. But they weren't going to release all the ground to us because what if we didn't build? What if we didn't perform? The reason they wanted the ground? This is because it's easier to take back the land than to do some sort of foreclosure. So the solution that we agreed to was they would execute all these releases and put them in. Put them in escrow. That's just one aspect of the complex structure.
• 46:21
  Speaker A: You paid a high legal bill on that one.
• 46:24
  Speaker B: You have no idea. You have no idea.
• 46:28
  Speaker A: I can only imagine.
• 46:30
  Speaker B: I mean, there was that there's a homeowners association that actually involves rental housing that's occupied by low income residents, but actually owned by the housing authority. Tax credit financing, which needs to be pulled apart into separate lots, payment in lieu of taxes, a workforce housing program that had, in one instance, second mortgages and the others covenants that had to be. Anyway, it was a lot. It was a lot, but it was a great project.
• 46:56
  Speaker A: And it all sold out.
• 46:58
  Speaker B: It all sold out. I mean, it was successful for EOA, successful for the housing authority, successful for the residents. So, you know, it's a win win win, as we like to say. But they do require a lot of mental gymnastics.
• 47:12
  Speaker A: So Eya and I did. I obviously interviewed Bob. So we talked a lot about the evolution of this company. And they went into the. Eventually got into the rental side.
• 47:21
  Speaker B: Yeah.
• 47:22
  Speaker A: Were you still there when that happened?
• 47:23
  Speaker B: When we were just starting. So one of the last public private deals I worked on was Shady Grove, where they built, now built two apartment bunch. But that was a large sort of county Montgomery county owned facility where we did a master plan that included a significant number of apartments.
• 47:41
  Speaker A: Hospital there?
• 47:42
  Speaker B: No, it's near the Met. Near the, just north of it, there was a piece of land used to be called the county service park because they had the liquor warehouse there, the central kitchen for the food services, the bus depot for ride on, all this kind of industrial use that's sitting on top of a metro. And so we said, well, hey, wait a minute. What if we could move this stuff? And we could build this new community here. And so eventually we got the county on board with that. The state then threw a wrench in the plans because they decided they were going to build the ICC. And we, UIA had gotten control of two pieces of land north of the service park. We were going to move some of these industrial uses. The state decided they were going to put not even a permanent facility, essentially a construction shed for the ICC, on one of our properties. We had to get them to move that north to another property, which required amending an environmental impact statement.
• 48:34
  Speaker A: Oh, my goodness.
• 48:35
  Speaker B: It's the same stories, all these. It's a lot of legal complexity, a lot of sort of breaking news ground from a policy perspective, but we ultimately pulled that off. You know, I think we had a lot of. We had a lot of those kind of innovative firsts. We worked on a deal. Well, actually, one of my first projects, the first entitlement, I was actually really a part of in Montgomery county at a site called National Park Seminary, which is Silver Spring, which was near there. It was a finishing school. Then it was taken over by the army at Fauman. This repair, it's a giant historic site that we actually purchased from the county through the GSA because the county didn't want to own it, but the GSA can only dispose of it to a government entity. So we did the simultaneous transfer thing, and then in the middle of development, we found contamination. We had to go back to the army to get them to clean it up. We were able to use a brand new law that had never been used before to allow us to do the cleanup on the army's behalf, because otherwise we would have been waiting around for a year to them to get around to clean this thing up. So a lot of projects like that where there was just, again, a lot of mental flexibility required.
• 49:40
  Speaker A: That's cool. That's cool. So, obviously, Eya has a long time relationship with JBG companies at the time. So I assume you had some interface with the JBG company when you were at EYA.
• 49:54
  Speaker B: I did. So after, you know, after 2009 or ten or so, JBG became the primary equity partner for UIA for most of our. Most of our work. So, you know, Matt and I are classmates who had known Matt before, and obviously a lot of other folks over here as well. But, yeah, we were working directly together, you know, starting whenever that was, nine or ten.
• 50:18
  Speaker A: And then you came over.
• 50:19
  Speaker B: Yeah, and then I came over many years, many years later. But, yeah, to launch our social impact investing work and start the Washington housing initiative. I came over to do that about six years ago now. I guess it was 2018.
• 50:33
  Speaker A: So why. And so why didn't you stay at Eya and continue there?
• 50:38
  Speaker B: You know, it's a good question. I was not thinking about, I mean, the Washington housing initiative wasn't a thing. I wasn't thinking really about leaving. I said I'd known Matt for a long time, and Matt approached me and said, hey, I've got something I want to run by you. Can you come by my house and we'll talk about it? So I went over, this was right before thanksgiving, I remember very well. I went over and he basically had this PowerPoint thing, ten slides or something. So we've got this idea, we want to try to do something different around housing affordability. And so I flipped through the slide. So this is actually a pretty good idea. There's some creative things in here. Different approach. You guys are putting your own money behind it. You're bought into it. This is pretty cool. Good luck. And he goes, well, I want you to run it. This is not something we do, and it's a complicated space. And I've seen what you've been doing anyway, and a lot of it deals with really complicated stuff, and a lot of it's around housing affordability. Would you do it? And, you know, this is, this is, despite everything I learned at GSA earlier about dealing with judgemental, this is probably like, you know, the worst negotiation I've ever been through, because immediately I was going to do it. I mean, it was. It was such a clear opportunity, I thought, to do something that could really be impactful and move the needle and have the buy in, you know, of this. Of this organization. It was. It's kind of like somebody shows you something you can't say no to. It was kind of one of those moments. And so that part. That was the easy part, right. The hard part was leaving UIA, because I really not, you know, that was not. And so I ultimately went and told Bob, I said, look, I've got this opportunity. I want to do this. And so we, you know, he was. Gave me a support and I left and came over to. Came over to start it. But it was, you know, it was one of these kind of just amazing left field opportunities that really couldn't not do.
• 52:40
  Speaker A: As I recall, first time I heard about it was when I had coffee with Rob Stewart.
• 52:45
  Speaker B: Yeah.
• 52:46
  Speaker A: And I think it was his. It was pretty much his ideas.
• 52:49
  Speaker B: Yeah, I think so. Rob was really frustrated at the inefficiency in conventional, affordable housing, and I think saw from a real estate perspective and from a finance perspective, that there was opportunity to take a different approach that he thought would be faster and less expensive way to achieve. To achieve a lot of what folks are trying to achieve around housing affordability, and could bring in private capital, which could be scaled and be net additive from a resource, from a resource perspective. So he had been noodling around with this idea, working with some folks here at JBG as well as at the federal city council, and had started to kind of get it going. And so that was the basis of what Matt showed me, what the initial sort of plan was.
• 53:44
  Speaker A: Talk about the philosophy behind it a little more, particularly with what was happening about 20 years ago in Washington. You know, what we saw, of course.
• 53:54
  Speaker B: Is the move east housing. Yeah, I mean, I think, you know, people may not know Washington, DC proper had the highest, what they call intensity of gentrification in the United States, of any city in the United States. So significant influx of new residents into neighborhoods in that were historically black neighborhoods in Washington, DC, and significantly, displacement of long term residents as a result of that gentrification. That was kind of the context around a lot of what was going on in the district. And the notion behind the housing initiative was really, how do we take institutional capital at scale and use it to preserve affordability and prevent displacement, and also, as we say, unlock access to opportunities, so create opportunities for people to live in resource rich communities, put the affordability into these resource rich communities so that it can be of a benefit to the folks who are living in the properties. So that was really the animating idea behind the Washington Housing initiative, in addition to a focus on what we call the missing middle, which is basically the person in DC, you think about them as kind of the $50 to $100,000 household income. Right? Exactly. Policemen, fireman, teacher, restaurant manager, specialist, someone who's making too much money to get subsidized housing, but too little money to be financially stable in most of the rental communities in this region, and certainly in the ones that are better in resource rich neighborhoods. And so that was really kind of the animating idea. How do we preserve affordability, prevent displacement, unlock that access to opportunity?
• 55:53
  Speaker A: So you started this impact pool. So how did that money get sourced?
• 55:58
  Speaker B: So we said from the beginning, we wanted private capital at scale. And we thought about who are the groups of people who are likely to invest in this? And we thought, okay, well, local high net worth investors who are motivated by community spirit and also by financial return, they're a likely group of investors. Foundations ought to be investors because it's mission aligned, but it also drives some returns. They can make mission related investments. And then we said, oh, yeah, there's this thing called the Community Reinvestment act, and banks should be excited about doing this because we can structure this in a way that it will qualify as an investment of the Community Reinvestment act. So we created the pool, we created a structure to appeal to those three groups of investors. And so we created certain tax benefits, certain CRA qualification for the banks, a mission related investment structure for the foundations, and really went after all three of those groups of investors not knowing where we would have success or who would invest with us. What we learned pretty quickly was we were much more successful with banks from a CRA perspective than we anticipated that we could be. This was a new area in Cra. They're used to buying low income housing tax credits or making direct loans. And so it did take some work to educate banks about what we were trying to do and assure them that it would be CRA qualified. But we got a few of our largest banking relationships on board, and that really helped to bring that a lot more. We were much less successful than we thought with foundations. They basically said, you're not a nonprofit, so I can't give you money. I understand it's a mission related investment, but all my real estate investments are in opportunity funds and you're not promising me 20 IRR, so I can't make an investment from the corpus. I don't know what to do with you. And then on the high net worth side, we were very fortunate to have some local real estate and non real estate investors who came in early, and that had strong signaling for us. But ultimately, we had so much success on the bank side that we decided not to. We talked about trying to create a feeder or do something like that. We decided not to do that because the bank side of the equation really worked out well for us. That's how the pool, you know, that's how we organized the pool initially. But we had, starting out, we didn't know. We didn't know where the capital was going to come from.
• 58:24
  Speaker A: Honestly, I sat down with you very early on, as I recall, and I was in the deal business at that time. So I was thinking, how can I make this money here doing, placing data in this space? And you can talk a little more about the deal structure. But as I recall, with mezzanine type or I preferred equity, depending on how you structure the deal that you would invest and you had certain restraints with regard to the income level of the tenants and all that. So maybe you can go.
• 58:57
  Speaker B: Yeah, I mean, our basic approach, our basic, our basic idea is actually pretty simple. Starts with invest where people want to live. So we spend a lot of time figuring out where we're, where we want to buy property, right? Where do we want to be? And we call those high impact neighborhoods. We look at a lot of data around educational levels, around employment levels, around access to transportation, a whole bunch of data, basically to try to pick the best locations. That's where people want to live. Part two of the strategy, very simple strategy, let's charge rents that they can afford. And for us that means that in every property we're going to restrict the majority of the units to people who earn 80% of AMI or less. And that is essentially somewhere between 65 and $95,000, depending on the size of your household. So we're looking for properties where we're not going to have to write down rents significantly, but where what we're doing is competing essentially with value add investors to flatten the rent curve going forward, right? Because it becomes very expensive to try to buy down a $3,000 apartment into an ATM. Hundred dollars apartment. But if you could take a 16 or $1,800 apartment and basically say, I'm not going to do the value add strategy and try to press the rents, but I'm going to grow the curve essentially in line with CPI, that's essentially what we were doing. And so identifying where we wanted to be, finding the properties in those neighborhoods that met those criteria. And the third piece of the strategy, very simple, is operate these properties so that our residents never want to leave. And that means lower turnover, higher retention, more on time rent payment, all the operating performance, because if you're not juicing the top line, we're really trying to control the variability of the revenue and then control expenses. And then we found that there are little things that we can do to enhance the returns sufficient enough to keep the investors interested in what we're doing. So for example, when we make those affordability commitments, if we make them binding, we can structure our senior debt in ways that reduce the rates. So we get a lower spread from the gses, we might get better DSCR, we might get a longer period of IO, which is important because since we're not getting subsidies, we use cash flow for capex, right? And so little things like that, at the jurisdictional level, we can get either property tax reductions or in some cases abatements, depending on the level and length of affordability that we're willing to provide. And then we can also jv with other, essentially impact or mission capital that has even lower costs, lower cost than ours. And so all of that is designed to really get us into, call it a kind of a core plus level of return for our investors in these investments, in the impact pool. We structured them as primarily mezzanine debt. And we did that so that we could have nonprofit partners who would be the owners of the real estate to maintain the affordability for the long term. Because the biggest challenge that we were, the biggest sort of circle that we were trying to square was the impact pool is a closed end vehicle has a ten year life. So how do you create long term affordability in a closed end vehicle where you ultimately need to exit and return capital, plus, hopefully return to your, to your investors? What we concluded is that if we structured our investments as mezzanine debt that had a fixed maturity and a fixed payoff amount, we had no squabbles about the exit. We had no, oh, are we going to bust covenants to get out? Pay me what you owe me, and you're done with it. And then our owner, subordinate borrower, was a mission owner then that was as close as we could get to ensuring long term affordability with short term capital. That was the basis of that structure. So it looks like mezzanine debt, but effectively from a sort of risk and position than capital stack. It's equity. We're going up to call it 95% of the capital stack. We're providing asset management, property management, capital project management, for all of the assets that we're almost investing in. So our investments are generally seven to ten year investments.
• 1:03:17
  Speaker A: Okay, so at the end of eight, nine years, who's taking you out there?
• 1:03:22
  Speaker B: So the way that we underwrite our investments is by refinancing the first mortgage. So we're using essentially inflationary rent growth, two and a half to 3% sort of top line growth, plus some amortization on the first mortgage to create the space to retire our loan at maturity. But the key is that it's not our base. Underwriting going in assumes the maintenance of affordability into perpetuity and assumes rent growth in line with the long term historical average, which is, again, around two and a half to 3%. And so you're not really banking on, you don't have to knock the COVID off the ball, right? You have to kind of not operate it in a way where your expenses get away from you. You have to be a little bit lucky and not have a crazy capital event occur.
• 1:04:08
  Speaker A: Also accounts receivable too.
• 1:04:10
  Speaker B: But yeah, yeah, that's part of the, yeah, that's part of the expensive, that's part of keeping, keeping the residents happy, keeping the occupancies high, keeping the on time payment. Keeping the on time payment.
• 1:04:20
  Speaker A: The pandemic had to hit you pretty hard though, didn't it?
• 1:04:23
  Speaker B: You know, the, the interesting thing with the pandemic is I wouldn't say the pandemic hit us hard. The policy response hit us hard, meaning that in Washington DC proper, we've had more issues coming out of the pandemic because of the policy response around eviction moratorium, around really a broken process in the courts, frankly, with getting out tenants who don't pay rent a, with some of the other operating challenges in the district. So overall, across the portfolio? No, I mean, not really. Generally our residents were employed, continue to be employed, and are paying their rent on time. We had a couple of challenges with assets in the district proper, but I really chalk those up to the district's Covid response more than to Covid itself.
• 1:05:17
  Speaker A: So talk about what Leo does that you didn't do before when you were in the impact pool.
• 1:05:23
  Speaker B: So what we do, well, Leo is a platform for management. It manages the impact pool. We're in the process right now of talking to investors about a new vehicle. And so Leo will manage that vehicle. It does the asset management function, portfolio management function, in addition to the addition to the investment. And it makes direct, we make direct investments through Leo. So we've got a little bit of that in the impact pool. But the primary strategy was really this mezzanine strategy. Working with nonprofits, we do direct equity investments. What we realized, one of the learnings from the housing initiative as weve crossed over 3000 units, which was our initial target, and weve got more to go there. But one of the learnings from the housing initiative around the mezzanine strategy was that the gate around the ability to deploy capital was really the equity that's required from the nonprofit owner borrower, senior mortgage lenders. Generally, no matter what we're willing to provide, want 5% true GP sponsor equity from the nonprofit borrowers. And all of that is donations they've raised. That is actually the most expensive, most difficult capital to get because you're asking someone to take a complete write off. Right. And so what we saw was need and opportunity that exceeded the ability to raise philanthropic capital. And so that was one reason that we made that we're making the shift to doing more direct, more direct equity investment. We'll continue to do the nonprofit mezzanine structure. We think there's a strong place for that and a, for that. But we can do even more if we're also doing, if we're also doing equity investments. The other thing that we saw is that in Washington DC proper and in parts of Maryland, there are significant advantages to being a non profit owner in terms of tax relief, in terms of access to right of first refusal processes that give you a little bit more flexibility in the purchase price, etcetera. In a lot of other markets in northern Virginia, those advantages don't really exist. And so the benefit of being, of using a nonprofit structure, even if it might be gating from a capital perspective, isn't really there in a lot of other jurisdictions because they don't have the same preferential treatment for nonprofits. And so we thought, okay, we can still be committed to affordability, we can still make these investments and we won't be disadvantaging ourselves, and we can actually do more if we're making direct investment. So that's the only thing Leo does that's different.
• 1:08:00
  Speaker A: So what's your next goal, as far.
• 1:08:02
  Speaker B: As you know, we don't have a unit goal per se. Our next goal, what we're working on right now is raising capital to be able to do more direct investment in workforce housing. And I think we see multiple, sort of multiple strategies in the workforce housing space, if you will, around housing affordability in these high opportunity neighborhoods that we can pursue. And so we're trying to raise capital around those, around those strategies right now.
• 1:08:38
  Speaker A: Good. Amazon's hq two was and is a huge shot in the arm for this region. As you know, I interviewed your boss, Matt Kelly, and he described some of that impact. Curious if the collaboration, collaborative effort with Amazon was instrumental in the formation of your impact pool and consequently Leo Capital, I mean, they obviously helped.
• 1:09:02
  Speaker B: Well, actually the impact pool predates the Amazon selection. So the impact pool was actually a significant part of the formation of the Amazon housing equity. That model is very similar to the impact pool model in terms of providing subordinate debt to allow sponsors to acquire existing assets and place long term affordability restrictions on them. I think one of the things that was significant in the Amazon selection was the fact that JBG had already started the housing initiative, that it was not something we dreamt up as a part of the pitch to Amazon, but something we were doing previously that we could then talk to them about in the pitch and say, hey, we're thinking about housing affordability in this market. And here's what we're doing around it. Here's what we think a reasonable strategy is because housing affordability was a big issue for them in their search because of the experience they'd had in Seattle. And I think it lent a lot of credibility to be able to say, oh, we didn't hear that, and think about this. We were doing this, and would you like to be a part of it? And here's how we would. Here's how we think we can come at it. So I think that was really significant. Having said all that, in the impact pool, we've done three deals that also include Amazon, including their very first deal at Crystal House. And so they basically supersized, you know, what we were, what we were doing? We had $150 million fund. They said, how about we do a $2 billion commitment with capital that's half the cost of yours because we can borrow cheaper than the federal government. And so they really super sized the effort. And I think Drew have drawn tremendous focus to preservation of existing assets as an important component of an affordable housing strategy in a way that I think we couldn't have done on our own. And I think has been really important because they're so big that they've gotten the public sector in this market, but also in Nashville, obviously in Seattle, and I think even in other places in the country to realize, oh, preservation is part of our housing affordability strategy. It's not something off to the side or it's not unimportant. I think it's been really kind of transformational for the space.
• 1:11:23
  Speaker A: Another piece you haven't talked about yet, which I'd be interested in your flavor on, is the environmental impact of not doing ground up as opposed to.
• 1:11:32
  Speaker B: Yes, yeah, yeah. It is. Preserving it is. Yes, yes. The greatest building is the one that's already built, as they say. As they say. Yeah, no, it is. It's an environmental, it's an environmental savings. It's a time savings. It's a cost savings. It's accessed generally to better locations because a lot of the best neighborhoods are, are highly built out, and it's less expensive on a per door basis than the new construction. There's a lot, I think, that commends preservation. We need new construction because we're net short of units, and so we need more units. But we also need to maintain the affordability that we have, particularly when it's well located, because that is greener, faster, cheaper. It also drives long term great outcomes for people to be able to live in those neighborhoods. That's pretty clear.
• 1:12:26
  Speaker A: Well, I learned about the Amazon housing equity fund when I interviewed Katherine Buell, who started it and actually wrote a six page memo to Jeff Bezos, which she wouldn't share with me, unfortunately, which I asked her for, but she wouldn't.
• 1:12:39
  Speaker B: Share it with me.
• 1:12:42
  Speaker A: I said, I wonder if you called up AJ to help you with that memo because as you just said, the.
• 1:12:50
  Speaker B: Fund was already in place.
• 1:12:52
  Speaker A: The ideas were very similar. So of course she worked here. Yeah, she was at St. Elizabeth, you know, and she's a native Washingtonian. You know, she grew up in Montgomery county, but she lives in Anacostia. So.
• 1:13:06
  Speaker B: Yeah, yeah. And, you know, she'd run the housing authority. She came at it right a lot of, a lot of the right experience and had been at the greater Washington partnership, you know, really leading them on housing, but also seeing that regional perspective and seeing what corporations could, you know, could do to try to, try to move the, try to move the needle.
• 1:13:27
  Speaker A: So, yeah, so I, you know, I asked her. So, and she was. So at that point when I met her, she had already invested. She'd already committed 2 billion. So she'd already had it out there. And I said, this is amazing. And I did ask her the question, what about other corporate entities? You know, your competition, maybe the Microsoft's of the world, the apples, the Googles, why aren't they doing the same thing? Because they're making a footprint. Certainly all of them have huge real estate impact in their markets. They're in. But I understand Amazon because you have AWS, which is now the largest, I think the largest cloud provider in the world, if I'm not mistaken. So they're in that and then all the warehouses and all the distribution that the company has. Phenomenal.
• 1:14:21
  Speaker B: It is interesting the different responses. I mean, some of the tech companies, particularly back in the Bay Area, have, you know, have, have tried to get involved in housing supply or housing affordability. Google's doing it through land that they, that they've acquired where they're actually trying to essentially be a master developer. You know, Facebook and others have made contributions to other, to other funds to try to sort of try to spur. But I don't know that anyone has had the level of impact in terms of, I think Amazon has funded more than 20,000 units at this point. Point, the level of impact that Amazon has had. And I think the risk that they were willing to take of putting themselves out there and saying this is what we're going to try to do. And we're going to make these direct investments and we're going to run it ourselves is a risk that most of the other players have not been willing to take and that most businesses writ large have not been willing to take. I mean, one of the great failures that we've had with the Washington Housing Initiative is the inability to get other corporate leaders, particularly outside of the real estate industry, to engage on housing in the same way that they engage on education or transportation or public safety or workforce. And to us, housing affordability is just as critical as all those other, what I'd call infrastructure issues to having a functioning, dynamic local economy, to having the type of employees that you want to have, to having the robust environment that they want to live in, etcetera. But business has generally been very skittish about engaging on housing, I think in part because they can't get their head around the problem. They don't want to take ownership of more than they can reasonably address. They don't want to be accused of not, you know, of not solving it. So I think Amazon should really showed a lot of credit to get out there and encouraged to get out there publicly and say this is what we're going to do, and then do it them and then do it themselves. And my hope is that it would be an inspiration to other businesses to do it hasn't worked out. There haven't been as many coattails as I think even they would have wanted, or certainly as we would have wanted. Sinful, who runs the housing equity fund now, is very fine of saying we can't solve this on Iran. We're trying to basically shine our light and make a path, but we're not going to solve it. And I think we feel the same way with what we're doing at Leo, that the best thing that would happen is if somebody else would compete with us or three or four people would compete with us because more capital committed to balancing the housing market is, I think, a net positive for that, for the region.
• 1:17:09
  Speaker A: The question I have, and because you're a for profit. The other one, the other question I wanted. So you're additive to the bottom line of JBG Smith, hopefully. And, but, you know, there was a purpose behind that. And how do you see Leo fit into the overall corporate mission, right. Of JBG Smith?
• 1:17:31
  Speaker B: Yeah, it's funny. I mean, we're so our, Leo's owned by our taxable REIT subsidiary, which is all of our non sort of core real estate businesses because it's doing a lot of management work. I mean you know, we are rounding on the bottom, on the bottom line to be, to be, to be fair about it. But what we do is a couple of things. You know, this workforce housing business is, you could call it countercyclical. It's really acyclical because of the fundamental supply demand imbalances. So it is a way to utilize the platform essentially across cycles. Right. So there is that. It is an opportunity for people in the organization to use their core skills and talents in a way that is community benefiting. Right. So we're very, we're very big on, you know, days of service. We have something called JBG Smith cares. We do a lot in the community. But I have to say the response that you see, the reaction that you see from people who are in accounting or in marketing or whatever it may be, who can do what they do every day, but spend a little bit of time doing something that benefits the community using their core skills, really the level of buy in engagement, excitement that people get from that. And I think even folks who don't work on it directly, there is, and I think not to toot our horns, but justifiably, a little sense of pride about being a part of an organization that's doing these things in the community in which it has such a large footprint. So I think that sort of internal return, if you will, is not insignificant. There's also the simple fact that we are a publicly traded company. We do have both ESG and CSR measures, and what we do in the housing initiative and what we do in Leo is a part of our social impact. Right. We are a social impact investment platform. It's a part of what we do, what we do there. And then I think it would be, in all fairness, we have to say, too, it is only helpful if we are building relationships with communities around addressing housing affordability, which is the number one or number two issue from every local politician I've talked to, in every market that I've talked to a local politician in this country. If we're having those types of interactions, it's only beneficial to all the other interactions we want to have and all the other parts of the business with those same elected officials. Right. It lets them see sort of the full spectrum of the organization and the fact that, yes, we are a business, yes, we are trying to make return for our shareholders and trying to make profit, but we are also trying to invest in a real significant way with the meat, the muscle of the organization back into the communities. That's a helpful position to have so.
• 1:20:40
  Speaker A: My next question is about the Urban Land Institute. But before I get into that question, I want to talk about or ask if you are involved in a product council that relates to affordable housing. And if you are, have you advocated on a national basis what you're doing here? And also brought Amazon in to say, okay guys, and let's go to Los Angeles, San Francisco, Miami, Florida, all these other markets where there's obviously affordable housing issues.
• 1:21:09
  Speaker B: Right? Yeah, I am involved. I've been on a product council for a long time. I was chair of the public private partnership council for a number of years. I'm now on the affordable workforce Housing Council. Yeah, we have advocated around preservation. I mean, it's been interesting to see and I think Amazon gets a lot of credit and I think we get some credit for what we've been able to do in the Washington market. It's been interesting to see the evolution of the conventional affordable housing community thinking around preservation and around this workforce housing or missing middle space. I think there was a lot of skepticism about it in the beginning about whether it was really additive, about whether it was impactful. And now, you know, we've done deals with Montgomery Housing Partnership, MHP, we've done deals with Apple, we've done deals with NHT, with other nonprofit affordable housing providers in this area and Amazon has done the same. I think that our actions and their actions and others in other parts of the country are starting to move the conversation so that folks really see that there's a spectrum of housing needed from the deepest level of affordability and permanent supportive housing all the way up to market. And we actually need interventions and activity all up and down that spectrum. And that you can, that this is additive activity and not competitive activity to, you know, low income housing tax credit development or to permanent supportive housing or those kind of things. So we have been advocating and I think that the views are starting to, views are starting to, but I also, I'm really encouraged. We talk every, I'd say at this point it's fair to say every week we talk to someone in a city or county, someplace in the country who wants to do something like what we're doing or at least learn what we did and figure out if they can tweak it for their market. Sometimes it's a fit and sometimes it's not a fit, but it's encouraging to see that. And it's, and it's all, I mean, you know, it's the midwest, it's the Sunbelt where you would expect it to be, but it's also small, small towns, it's big cities on the coast. It's literally everywhere. Like I said, it's the number one or number two issue. Pretty much every, every market.
• 1:23:24
  Speaker A: What's interesting is the pandemic has actually accelerated that. It has dramatically.
• 1:23:28
  Speaker B: It has.
• 1:23:29
  Speaker A: I mean, the housing increase in values, I just saw a statistic. It's just like 20% increase since, you know, 2020.
• 1:23:38
  Speaker B: It's, you know, nationally, it's. Harvard just put out there two reports, actually. State of the rental housing market. Of the housing market. But at any rate, one of them, they were showing that since 2001, actually not even between 2001 and 2022, housing rents grew ten times as fast as wages. Median rent to median wage. Wow. Right. Ten x expansion ten times. Right. And so there's just no, it's acute everywhere. Right? It's acute. And even if rent growth has slowed or softened in some of those markets, the fact is it's nowhere near in line. You still got the same affordability gap. Maybe the gap is not widening quite as much, but the gap is huge. And I think, frankly, any of the sort of rent relief that you see in some of those markets is going to be short lived because supply is turned off. And so as you work through the immediate delivery issue back into the same sort of supply demand balance. So, yeah, it is, it's, it is an important, it's an important issue.
• 1:24:42
  Speaker A: It's one of the confluencing issues that just creates, you know, the increasing social tension.
• 1:24:51
  Speaker B: Well, yeah, I mean, I think in particular, where we focus in the workforce, there's deep need at lower incomes, but there's also need in the, in the middle. And I think, yeah, it, it resonates because it is the most evident manifestation of the decline in sort of opportunity, upward mobility in the country. There's this statistic that, I wouldn't say I'm fond of it, but that stays in my mind that the chance of out earning your parents has basically gone from, you know, 70% plus in 1940 to a 50 50 shot at best. And it's actually declined the most for middle income people. Right. High income people probably wasn't that great, but there's a lot of wealth there and low income people, the math almost pulls you, just from an inflation perspective, above your parents, even in real terms. But in the middle, there's really this lack of mobility, and the housing affordability is a very visible manifestation of that. And that, I think, is really the underlying angst that people have, which is why we are so focused on creating affordability in these neighborhoods that have been proven to unlock opportunity for people. Because if you can create this foundation of essentially affordability and stability, and then there are things that we do on the operating side to try to build community. But if you can create that in places that are opportunity rich, then that is what unlocks, gets that sort of flywheel of upward mobility restarted.
• 1:26:30
  Speaker A: So now I will go to my question about that. I was going to ask you in 2022, you participated in a UlI workshop that produced, quote, the ten principles for embedding racial equity in real estate development, which I will share in the show notes of the episode. Perhaps at a high level, share these principles and cite examples of where they come into play in real estate development, investment finance and other disciplines in our industry.
• 1:26:57
  Speaker B: Yeah, I mean, at a high level, I won't go through all ten principles, but there, because you're going to link them. But at a high level, it's really about a few things. One is having an equity lens to everything that you're doing. So in every decision that you're making, in every, every investment that you're making, and every choice of team member that you're making, you're taking this equity lens. And the equity lens is really simply who's impacted by this decision that's not in the room or at the table. Am I okay with that? Am I not okay with that? What I need to do to get that perspective in if I'm not okay with that, because as we talked about in the report, the equity really to us means just in fairness, fair inclusion, or everybody having sort of a shot. So that's sort of one piece having the equity lens. Two, what's the business case? You've got to make the business case for racial equity. This is probably the most controversial of the principles. There's a lot of debate in the workgroup around this, which was a group of people who are practitioners from all aspects. This was not sort of an academic thing or a think tank piece. It was really people who are doing the work every day at different types of institutions and communities all across the country. And ultimately, the business case discussion was so tense because for some people, it is a moral issue. Right? Racial equity is a moral issue, and the idea of putting it in terms of dollars and cents is offensive to them. But for others, their point was, if you're going to move the needle, you've got to move the needle among the nonbelievers, the people who are not already in the boat. This is business. And so in business, you've got to have a business case. And so what is the business case around racial equity? We think it's pretty clear in terms of better decisions, in terms of identifying different markets, in terms of access to capital that you might not otherwise have. It all depends on the situation, but the business case is actually not as difficult to articulate in most situations as you might think. But it's important to make that business case, to get everybody on board with moving forward. And then the last two pieces I think that are really important are you've got to build your knowledge and then you've got to use your power. And everyone has power, whether it's positional power, individual power, organizational power, but you've got to build your knowledge and use your power in the application of that equity lens. And so that's really the core of what it's about. The ten principles are designed to be. It's not, you know, it's not a roadmap or it's not a prescription. It's a toolkit. And it's designed so that people from all different aspects, if you're a developer, a community planner, an architect, a banker, whatever, that you can take out of it and whatever stage of projects you touch, wherever you are in the cycle, you can take that toolkit and pull out things that work for you to try to improve racial equity, include racial equity in your real estate development practice. Again, because we do believe there's a real business case behind it in terms of return, in terms of access to capital, in terms of access to different markets, and in some instances in terms of securing entitlement, where it's becoming increasingly an issue at the local level, in the entitlement process.
• 1:30:23
  Speaker A: We talked about gentrification already a little bit. So is there an equitable way to improve the housing stock in urban areas without social impacts of gentrification? What examples can you cite?
• 1:30:37
  Speaker B: Yeah, I think gentrification gets conflated with displacement. And I think, you know what we talked about originally, this whole idea of preventing displacement. We wanted to prevent displacement, but we've been pro gentrification. Gentrification means bringing new resources into communities, right? So if you're making physical improvements, if you're bringing in new residents who have more social capital, economic capital and political capital, if there's not displacement, that can be net beneficial. But when it comes to displacement, I also think it's important to think about that from two perspectives. There's the physical displacement of someone new has come in and bought my property and pushed me out, or someone new has come in and so property values have gone up and now I can no longer afford to live here because the rent is risen. My property tax, physical displacement, there's also the cultural displacement, right? Someone new has come in on a vacant lot where there was no housing and built housing. And in the bottom of it, they put all these stores that don't seem like they're for me, where I don't feel welcome, where they're not the kind of place where I want to shop, where they don't have the products that I want to have, or they've raised the commercial rents to the point that the businesses that have been here, that I've been frequenting are gone. And so my neighborhood, even though I'm still there and I'm in my rent controlled apartment, my neighborhood doesn't feel like. Like my home anymore. Right. And so those are really kind of the two aspects of gentrification, I think the cultural piece, and we talk about this in the ten principles of racial equity. The cultural piece is really, really important to focus on in the context of new development, because one, most of the physical displacement has already occurred in DC, for better or for worse, in a lot of the neighborhoods, certainly in northeast DC. So it's really what are the cultural elements that are important to people? What is the history and context into which I'm stepping and how do I preserve that as I'm additive with what I'm doing and not replacing with what I'm doing? I do think that there are opportunities. I look at some of the projects that have been done, know, with the DC Housing Authority, where there's been one for one replacement of public housing, but the addition of market rate and workforce housing and community amenities into those projects in ways, and then very intentional programming and activity by the housing authority and their managers to make residents feel welcome and try to build community. We did some of this in EYa at Capital quarter. We did some of this in Alexandria with the Alexandria Redevelopment and Housing Authority. Or I think one of the key sort of innovations that we hit on there, it's not really an innovation, was just the idea of phasing development so that we could move existing residents around among the blocks, as opposed to scraping five city blocks at once and trying to build back, which is probably a little bit cheaper. And the historic way of doing things, moving folks around and doing the development in phases leads to much higher retention of the incumbent lower income residents than pushing people off and then trying to get everyone to come back. I mean, you think about it in your own life, if you move somewhere for four or five years, you've established a new community. Do you really want to come back? Is it, you know, is that, and so the idea of again, doing that, doing that phase development, but then operating the properties in ways where we were delivering, deliberately trying to build community across the lines of difference of the residents at different income levels, that level of intentionality so that people don't feel culturally displaced, even if they're not. If they're not, if they're not, you know, physically, physically displaced. I think things, I don't know, there's a lot that can be, that has been done, that can be done that I think, you know, gets at the displacement component of gentrification.
• 1:34:37
  Speaker A: Well, historically, the government in Washington, in the city itself, has done several things that I'm not sure are exactly long term. Great. I'll talk about a couple of them. One is topa, which is a law that requires you to wait one year to close on a purchase of a property. So that's one law. And the other one is the rent control law, the way it's written now. And so it just seems to me that they want to preserve affordable housing, but they're shooting themselves in the foot to some extent.
• 1:35:14
  Speaker B: I completely, you know, I give the mayor, Mayor Bowser a lot of credit. She identified housing as a priority. She took an equity lens of that approach and said, we want to have it in all seven wards. We want to have it in neighborhoods of opportunity. We want to increase affordability. We want to target low income families and moderate income families. She did a lot. I think that is really good. I think, though, to your point, if housing affordability is a critical issue, then you've got to look at every policy that you have and say, is this helping or hurting? And stop the ones that are hurting both of those cases, I would agree with you. I think they're hurting. Rent control is not an affordable housing policy because it's not mean tested. Affordability is a function of price and income, not just price. Right. And so I think there are ways to better provide affordability in high opportunity neighborhoods and not just rent control in high opportunity neighborhoods, which I really think can be a giveaway to people that could, frankly, pay more. Similarly with COPA, which was a policy originally created to protect low income households from condominium and co op conversion of their buildings has now become something of a cottage industry where there's community organized to try to extract value through the threat of delaying project or delaying sales of assets. And what that's having is a chilling effect the market in DC, where there's underground, it's very unpredictable, particularly in this rate environment. How can you be under contract for a year and not know if you're going to close and what price you're going to close? I understand the intent of trying to preserve affordability on asset sales, and I think that if we look at what Maryland does with its right or first refusal law, there is a process that is much more efficient, much more predictable, and also linked to affordability because TOPA really has no link to any public policy objective as it's currently being implemented. Where is the public benefit in a purchaser giving a million dollars to a group of tenants for them to divide up among themselves in a high income building? Right. As a purchaser of buildings, I would much rather put that money in the housing production trust fund or even put it into the general fund of the district government. I just don't see a lot of policy.
• 1:37:55
  Speaker A: How hard would it be to change those laws in the district?
• 1:37:59
  Speaker B: I think it'd be very hard. I think it'd be very hard.
• 1:38:01
  Speaker A: And so what's the political pushback? These groups that are.
• 1:38:05
  Speaker B: I think it's about perspective. Honestly, I'm not going to impugn anybody because I think it's about perspective. I think there are a lot of folks that are very committed to Topa, and the topa that they know is one in which they work with low income residents who have bad landlords in bad buildings. And when those landlords try to sell those buildings, they can drive physical improvements, deferred capital investments, they can drive preservation of affordability, they can prevent their displacement, or they're in high opportunity neighborhoods. And when people buy, people want to buy them out and renovate the buildings and raise the rent, or they want to renovate the buildings and condo convert them. That's not in this rate environment so much anymore. And in those cases, the buyout amounts can be truly life changing for the low income families who live in those units. And so that's the universe of topa that they see. That to me, is a small subset of what's going on in the market, but that's what they see. And so I think people that are ardent defenders of the process, who are well intentioned and I think trying to be advocates for low income households, renters in the district, that's their role. What they're not seeing is a group of tenants organizing in a building with $5 rents to shake down an owner because they know they can delay a process for a year if they want to. And so they're asking for a seven figure cash payout in order to not delay the sale of a high end apartment building which the tenants could never buy, which has no inherent affordability, as it were. I think to my mind, there's a way to focus in on the buildings that are either of a scale for tenants to actually buy them or contain, or could contain a meaningful amount of affordability. And everything else is either a payment in lieu or it's tax or basically.
• 1:40:04
  Speaker A: A line item restructuring of that act.
• 1:40:07
  Speaker B: I think so. I mean, again, similar to the right of first refusal process in Maryland, but yeah, a line item restructuring where if a book, pick your number, if a building is more than 250 units or something, the tenants aren't really going to buy it. Right. So let's pay a fee, and if a building is selling for more than $100 million, let's pay a fee. And then in smaller buildings, okay, let's help tenants buy 20 unit buildings if they want to buy 20 unit buildings. And let's have a mechanism to preserve affordability in buildings where the average rent is $1,400. But in buildings where the average rent is 3000. I'm not sure that preserving affordability is.
• 1:40:40
  Speaker A: Really the biggest challenge is how do you, why do you, what incentive is it to maintain your building, you know, so buildings get deteriorated?
• 1:40:50
  Speaker B: Very well. I mean, I think the rent control piece, you know, and there's the DC policy center and others have tried to, tried to do some work around this, but the rent control piece is really challenging where it is. It is. It's frustrating because I would argue that it's been objectively proven in jurisdiction after jurisdiction that it does not work. But politically, you are doing something. And I understand that if you can vote for doing something people are concerned about, you know, the rent is too damn high. Okay, I voted for record, but you're doing something.
• 1:41:27
  Speaker A: That's my point. That's why I wouldn't bring it up with anybody else. You're the one.
• 1:41:32
  Speaker B: The problem is, ours is harder to explain. I'm going to freeze the rent. That's the problem.
• 1:41:37
  Speaker A: But I wouldn't bring it up to anybody else.
• 1:41:40
  Speaker B: I completely agree. I find it very frustrating and probably topo, more so than rent control, because there's just, I don't see any public benefit in a lot of these class a transactions that's being achieved by these delays in these payments.
• 1:41:57
  Speaker A: And what it does is it really puts an artificial constraint on the capital markets and the property valuation creation. I mean, you can, it's cascading. It's a cascading issue.
• 1:42:09
  Speaker B: It is a cascading issue.
• 1:42:10
  Speaker A: And it creates this negative impression of the District of Columbia that really shouldn't be there.
• 1:42:15
  Speaker B: Yeah, it definitely dampens investor appetite. Yes, there are fewer, fewer bids for DC assets.
• 1:42:24
  Speaker A: It's frustrating. So, addressing social impact, talk further about your mission there. Other than capital, how are you sharing the message of diversity and inclusion?
• 1:42:33
  Speaker B: So we talk a lot about this with the LEO team, with investors, with the public sector, with everybody. This notion of unlocking access to opportunity, that's really what it means for us on the impact side is, again, let's find these high impact neighborhoods, let's preserve the affordability there, and then let's operate these properties to build social connection, to empower economic mobility. Right. Because that's really what we see. We think that there is a tremendous opportunity from a real estate investment standpoint, but we also think there's a tremendous opportunity to improve upward mobility by doing this in these high impact neighborhoods. And so that's really the sort of essence of. Of what we're.
• 1:43:21
  Speaker A: Can you define what a high impact neighborhood.
• 1:43:24
  Speaker B: So, to us, a high impact neighborhood is a neighborhood that has high educational attainment, low poverty, good transportation and retail access, the other amenities of life, and relatively high incomes. I mean, that's what it is, right? It's the kind of place where you'd want to live. And unfortunately, historically, with a lot of affordable housing, because of the cost pressure, it's not been located in high impact neighborhoods. It's been located in low opportunity neighborhoods. And the social science is very clear around this, that high impact neighborhoods promote upward mobility, that growing up living in those locations produce both physical and mental health benefits, but also long term earnings, socioeconomic benefits for the people that, for the people that live there. And so that's why we're so laser focused on. That's where we're going to invest. And those are the only places we're going to invest because that is the impact portion of what we're trying to do.
• 1:44:27
  Speaker A: So you've been certainly inside the Beltway in northern Virginia, you're in the district. In some areas, you're not in Anacostia, I'm guessing.
• 1:44:37
  Speaker B: We're not.
• 1:44:38
  Speaker A: Okay. You're in Prince George's county. In a few places, we're in Prince.
• 1:44:41
  Speaker B: George's county and Montgomery county. Yeah.
• 1:44:43
  Speaker A: Okay.
• 1:44:44
  Speaker B: Yeah.
• 1:44:44
  Speaker A: So let's take Prince George's county. Where would a high impact area be?
• 1:44:49
  Speaker B: You know, we look at this, we will get as granular as the block level when we're, when we're, when we're looking, but we generally look at the census track and zip code levels when we're doing our initial screening. But, for example, we have a project in Hyattsville in Prince George's county. In Prince George's County, Maryland. Right. That's, that's a high impact, you know.
• 1:45:08
  Speaker A: Location on east west highway.
• 1:45:09
  Speaker B: It's not, it's not, it's off of, it's not on east west, but it's off of east west. Yeah, but not far from the, not far from the major, from the metro there. But again, transportation access, educational attainment. Got it. Incomes, access to opportunity. Right. Again, it's, it's, it's, does the neighborhood provide college park? Would be, would, would be one. You know, Dean Wood in northeast DC is not an Acosta, Carole, I think it will. I mean, again, we, I'd have to call up the map, but yeah, I think there, I think new Carrollton would be. We haven't, we don't have anything there. We only have, we have, well, we have an investment in Tacoma park and we have an investment in Hyattsville. We've looked at a couple of others along the route one corridor in Prince George's county. Again, Silver Spring and Bethesda in Montgomery county. What about Montgomery county? Yeah. Germany. Yeah, we've certainly looked in Germantown and Gaithersburg. I mean, it really is, that's a unit of analysis that's bigger than what we would look at. I mean, we really, the furthest out we're going to go is the zip code and then we're going to go in from, we're going to go in from there because it really is. What's that environment, if you think about, it's kind of a flip on that take of the 15 minutes city. But what is that immediate environment that you're in in that's affecting your day to day life and how much opportunity is in that environment? That's really what we're also trying to see.
• 1:46:31
  Speaker A: Columbia pike corridor in Montgomery county.
• 1:46:35
  Speaker B: Yeah, that is, yeah. I mean, we have an investment in Wheaton, you know, for example, in Montgomery county. It doesn't necessarily mean, you know, the highest income, most exclusive. Oftentimes those, those lack of other resources that are important, particularly for low and moderate income households because a lot of those, the wealthiest areas are kind of transportation deserts and maybe employment deserts. And so that access, it also becomes an important factor. So it doesn't have to be the most, the highest income, the most exclusive neighborhood but it has to be a neighborhood that's not in decline, a neighborhood that has residents, other residents who have the social capital that can help to lift all boats. That's really the key.
• 1:47:25
  Speaker A: We talked a little bit about this, but, you know, why, why do you think that other large real estate organizations haven't followed suit and taken the steps that JBG Smith has done with your initiative? The need is clearly there. And you said you've been looking for competition.
• 1:47:40
  Speaker B: Yeah. You know, I think for the real estate folks, it's because, you know, there's easier ways to make money, there's easier businesses to be in. You know, we talked about the complexity of the public private partnerships that we were doing at EYA. You know, there's complexity in this, in this business too. There's significant operational complexity. There's complexity in organizing the capital around it. And I think the folks who are in the traditional affordable housing space are primarily in a different business. A lot of that is tax credits, which is a fee and formula business that's kind of different than real estate investing. And a lot of the folks who are in conventional real estate don't really understand the affordable side of it. So I think that's really been the challenge. But hopefully we're demonstrating that it's doable, that there is opportunity and that will bring more people. And we're starting to see that. You're starting to see some really big players organize capital around different types of housing affordability strategies. Folks like AEW, Nuveen, federal capital partners here locally. So I think you are starting to see some of that. But we're early innings.
• 1:48:52
  Speaker A: What about property management? I mean, you, obviously, that's a very critical element. Keeping your tenants retention, keeping the property physically nice looking, you know.
• 1:49:06
  Speaker B: Yeah.
• 1:49:06
  Speaker A: Serving the tenants needs, all that stuff. I mean, how do you oversee that process? I mean, you're a finance vehicle.
• 1:49:14
  Speaker B: So, so we, we do provide management for most of the properties that we invest in. And primarily because that, to your point, that management piece, keeping the tenants happy. Yes. Is critical to a strategy where you're not, where you're not pushing rents and you're relying on stability and not turnover, but also that building of community at the property is essential for the impact strategy that I talked about. This idea of upward mobility comes through economic connectedness, which is relationship with people at different, a different strata. And so the operation of the property is a critical part of what we consider to be our value added. So we have an asset management team focused within Leo that does the asset management for these assets. And it's a very hands on. It's very hands on.
• 1:50:12
  Speaker A: How do you train people for this?
• 1:50:14
  Speaker B: That's a good question. We're actually thinking through a change to that right now. So previously, working with the Washington housing conservancy, we would do a big all hands educational thing that actually the conservancy would lead once or twice a year with all of the staff. We're now essentially thinking through what is the right model as we try to grow, hopefully more rapidly. We don't think we can do that same. We don't think we can do that same thing as effectively. So we're thinking through a couple of different models for both smaller on site trainings on a property specific basis, as well as kind of a virtual learning library as to what is the right model for that. Right now, a lot of it relies on the senior leadership on the property management side, the regional managers and the managing directors over the areas to really be steeped and immersed in the objectives, in the culture of what we're trying to do and pushing that down to staff at the property level, particularly because, as you know, property management is a turnover industry. Right. And so if you're bringing on new people, even if you're doing all hands training, you're not doing one every day. And so you're bringing on new people, hopefully not every day, but certainly every month. And so a lot of it right now does rely on those regional managers, those area managers, to really be steeped and then pushing out as a part of the new hire orientation. But like I said, we're trying to, trying to determine what is the best model for scaling that essentially culture as we. As we.
• 1:52:00
  Speaker A: And it's different in the affordable space than it is.
• 1:52:04
  Speaker B: It is. Although, and I'd say the workforce housing space, this missing middle space, is different from both affordable and for market rate, the residents. There is still a sales and marketing and heavy customer service component to workforce housing that's more akin to market rate, but there's also a compliance and there's sometimes a resident services component that's more akin to affordable. It really straddles both. And so that's why we're so hands on with it, because there's not a lot of folks that sort of third parties that are really steeped in this space. There are a lot that are steeped in the affordable love. They're steeped in the market to get folks to do both. It's going to be a hands on business. Right.
• 1:52:53
  Speaker A: So you're pioneering.
• 1:52:54
  Speaker B: So we are definitely definitely pioneering. Maybe another reason folks aren't. Aren't in it. We're going to work it out, and when we're on two and a half .0 or 3.0, then we'll get a flood of competition and that'll be a good thing. But there are groups starting to form in the industry, like the multifamily impact collaborative that are pioneering with us. If it's there, that we're partnering with them, however you want to say it. So I think there's a growing recognition that this is a distinct lane and that there are distinct needs. Needs in this lane differ from the deeply affordable or the market.
• 1:53:33
  Speaker A: That's good. So how do we change the mindsets to accentuate differences among people, highlighting their strengths as contributing people, both business and society?
• 1:53:46
  Speaker B: You know, I'm going to go back to the equity lens. That's really what that, to me, what that question is about is the equity lens and the notion of who am I not hearing from? Right? Who am I not hearing from? And then how do I proactively go out and get them? But I'll tie it back again to the business case. Why is that important to me? What am I missing? Am I missing a market that I don't see? Am I missing a customer want that I don't see? Am I missing a risk in the entitlement process that I don't, that I'm not aware of because I've only got one kind of, you know, one point of view. I think that's when people started to internalize the benefit of getting more perspectives because you're getting more knowledge. That's really, I think, the value proposition that drives people, you know, to incorporate a broader set of voices, because, again, they can see it's in their own self interest. And at the end of the day, most things that people do are in their own self interest. And so that articulation of, oh, I understand why this is good for my business, good for my project, good for my, for my client pitching. I think all of that is really good.
• 1:55:07
  Speaker A: As a black leader, what challenges have you faced in your career? How have you been able to make your voice heard and achieve the success you've had?
• 1:55:15
  Speaker B: You know, I've been fortunate in most of my career to have, like I said before, really good, really good bosses, really good leaders who encouraged me to speak up, encouraged me to get engaged, kind of pushed me to do things. And to me, that has made all the difference. Right? Because that provides the confidence and over time, the experience to speak your mind to get engaged, to not be afraid of raising your hand or sticking out a little bit. And I think that's what holds a lot of folks back, is that fear of how am I going to be accepted, or am I going to be heard, or am I going to be looked at differently. So that's been the real benefit that I've gotten, is having people who pushed me to speak out to get engaged.
• 1:56:10
  Speaker A: What advice would you give the young black leaders today?
• 1:56:16
  Speaker B: I think that mentorship and mentorship is very important. Finding mentors that you can learn from and who will push you is very important. But I think you've got to develop the confidence to put your toe in the water, right, to get in the arena. I mean, I would tell you to join Uli, to join the real estate group, to whatever, NMHC, whatever it is, whatever sector of the industry you're in, but to get engaged, be present, be seen, that is how you, I think, ultimately identify the mentors. A professor in business school who told me to join Uli, which made all the difference in terms of just opening, you know, tons of. Tons of doors. I would. I think that there are. There are a lot of people in the industry who just recognize talent and who want to be associated with talent, who want to higher talent, who want to help talent, help talent succeed. But you've got to get out there to find. To identify who those people are. And the only way that I know to do that is you got to join these groups or do the cold. I mean, that's what I was doing with the cold calling. I was calling ten people every day. Right? You got to be comfortable with rejection. It's just like sales, and you can find the ones who actually will teach you something and we'll take your call. Who are we trying to do with that?
• 1:57:53
  Speaker A: So I'm going to make a little advertisement for my own efforts as well. So for listeners, I have a community, and I've talked about it, called the iconic journey in Cre. As of today, JBG Smith has invested $1,000 in that community, which I really appreciate from Moyna's Panerjee. The CFO just notified me that, and we are advocating, and we have minority members, and we're encouraging people to join. I'm trying to develop a relationship with Project Destin, Cedric Bobo's group. So I'm encouraging that. So that's one of the reasons I asked the question, of course. And, you know, mentorship is key. And I'll also point to one other episode, another podcast episode. I had with two gentlemen, John Green and Joe Carroll, whom I interviewed, both Harvard Business School graduates. And Joe actually had a formula that he built for his career and his advocation for minority growth in what he suggested on a year by year basis in your career, which I thought was phenomenal. I encourage people to listen to that. So I stop with that advertisement.
• 1:59:05
  Speaker B: Now I move on to the next question here.
• 1:59:08
  Speaker A: What were your biggest wins, losses and most surprising events in your career?
• 1:59:13
  Speaker B: That's a good question, John. You know, biggest win? I don't know. We don't. You know, I'm really pleased with what we've been able to do with the housing initiative, getting to the 3000 unit goal, really proving out this model, which I think can be really impactful and transformative. So I'm really excited about that. But I'm also, you know, equally proud of a lot of the work we did at EyA in really creating some, some public private partnerships that the projects had real impact. But also, I think, building out models and proofs of concept around ways to do business that were really impactful. The biggest surprise in my career and one of the biggest learning opportunities came when I was at the GSA. I was there, as I mentioned, I went in at the beginning of the Bush administration and so I was there during 911. And, you know, obviously that was a surprise. We did not. We did not. It was not in the playbook at all. And I spent the better part of the second half of my time there working on essentially the reconstruction reestablishment of the federal presence in lower Manhattan. Folks, a lot of folks don't know, but, you know, World Trade center six was a GSA building, actually a custom house, but that building collapsed as well later in the day. So it took. Burned down. The federal presence is all concentrated down there at 290 Broadway and 26 federal plaza, basically in sort of the no go zone. The phone service that the Verizon switched down there was damaged. Phone service was knocked out. And so anyway, we spent a lot of time working on their federal people that were. There were. There were some. Yeah, there was. That they're not. Not out of. Not out of GSA. Yeah, not out of GSA. But that was, I mean, we were. I was on the ground there, I don't know, the 13th or probably the 13th or 14th or something or something like that. I mean, it was fresh. It was very fresh. It was very fresh. And so that, you know, that was the biggest surprise, obviously, but also a real learning opportunity and just mindset shift for me because obviously we were not prepared for that and not something that we had trained up on or thought about. All of a sudden there were all these needs coming in from these different federal agencies, all these decisions to be made, all sorts of actors to either take or not take.
• 2:01:47
  Speaker A: Were you in your office at this time?
• 2:01:49
  Speaker B: No, actually the administrator and I were in Philadelphia for a meeting and got a call from the deputy administrator after the first plane went in and then got a call back after the second one. So started to make our way back to DC. We got as far as. So we were going to go jump on an airplane, a commercial airplane, and obviously all the flights started getting canceled. We jump on the train, made it as far as Wilmington, Delaware, at which point a national emergency was declared and train service was stopped. So we got in touch with the administrator and sent the federal Protective Service, or I'm sorry, the deputy administrator sent the federal Protective Service up to Wilmington to get us. But you can imagine, we get off the train in Wilmington, there's nobody on the platform, there's no one downtown. The Federal Protective Service is coming directly from DC up to Wilmington. We walk, I don't know how many blocks we walk from the train. This is pre iPhone, pre gps, walking around downtown. No one's there. Started knocking on the door of the police station. So the administrator and I show up and talk about your racial equity question. Two black men show up banging on the door of the police station and the cops are after. In the midst of a terrorist attack. And these cops are kind of like, what the hell? Finally convinced them that we were actually with the federal government, that the federal police were coming to take us back to Washington and could we shelter in the police station until they got there. But anyway, got back to Washington, turned around, went back to New York a couple days later. But it just, wow, the confidence in decision making that I developed out of that experience. Because you had to keep making decisions and because there was no one else to ask. Right? There was no. And no one had. No one had a playbook. You know, that was, that was, that's been really, that's really stuck. Stuck with me, you know, be nice if there's another way to learn that lesson. Yeah, it's really stuck with me.
• 2:03:51
  Speaker A: Wow. So what are your life priorities among family, work and giving?
• 2:03:56
  Speaker B: I'd say it like this. I'm a big believer in purpose, thinking about what your purpose is and then orienting your life and your behaviors kind of towards that purpose. And I think that allows you to let priorities shift. Right. Because everything can't be number one all the time. And one of the things someone said to me in business school, which is another valuable life lessons, is there is no both. And it's all trade offs. Right? There's no balance. There's. Someone's talking about work life balance. There's no balance. It's just trade offs. What do you want to do more of? What do you want to do less of? And those trade offs shift at different. Different points in time. Right. And so sometimes family is the number one priority. Sometimes it's not the number one priority. It's always important. But sometimes you're doing something else. Sometimes your kids or your spouse really needs you, and you've got to. You got to drop everything and do that. And so I really think about, you know, I would like to do some real permanent good. And so where do I have opportunities to do that? On the work side, on the family side, on the personal side, and which opportunities are most time sensitive or the ripest at a given point in time. And then, you know, candle, the priorities shift depending on, you know, where those. Where those fall. But I'm fortunate, and I should say fortunate that because my wife has a similar kind of mindset. And so we can. We can balance off because it doesn't work. If everyone's not bought into shifting priorities.
• 2:05:32
  Speaker A: Well, you know, sometimes you have more energy than she does and vice versa. What do you need? You know, I need your help today.
• 2:05:43
  Speaker B: Exactly. Exactly. It's like our. You know, it's our parenting. It's our parenting joke, you know, as long as we're both not irrational at the same time, then it's fine. Right?
• 2:05:59
  Speaker A: Yes. What advice would you give your 25 year old self today?
• 2:06:04
  Speaker B: You know, you gave me that question, but I still didn't. I've thought about it, and I still. I think I would. I would network more. I would network more. I don't think I did enough of it when I was. When I was younger. And I think. I think that's probably the main advice. I mean, I would say maybe you gotta try a lot of. You gotta try a lot of stuff to figure out what, you know, kind of what your lane is. You know, it may be fail, so maybe fail a little bit faster, but yeah.
• 2:06:33
  Speaker A: Okay, so if you could post a statement on a billboard on the capital Beltway for millions to see, what would it say?
• 2:06:42
  Speaker B: AJ, you know, I've been thinking about this all weekend. This is, like, the hardest. This is the hardest question, you know, and you want to make an impact, you know? Well, so I yeah, I've been thinking about this, and I think that. I think I keep coming back to the same conclusion, which is, I think my billboard is already posted because I don't. I walk to work. I'm a public transit guy most of the time, so I don't drive a lot. But I have been on the Beltway, and the state of Maryland has put up these new signs. When you enter Maryland, which I guess every governor gets to put a phrase on the sign. And so Wes Morris put this phrase on the sign that says stronger together. And I think that's probably, you know, I can't think of a more articulate way to, you know, to say it. But, you know, in my mind, there's a couple of things. Right. One is we have. We live in a state of abundance, and if we take that mindset of abundance, we could really do a lot more than we think we can do, because we come in a lot with a mindset of scarcity. And I think that stronger together statement really kind of gets to that. To that point. And the other point is, actually, that's a. It's a point. It's a stoic sort of philosophy point, which is what's bad for the hive, can't be good for the bees. And I think that's something that we seem to have forgotten in some instances. And again, I think that kind of stronger together is a very simple and eloquent way of getting at that point of, look, we have the opportunity to do so much, and if we're pulling the Orlando in the same direction together, we can make, you know, real, real permanent. Good. So that's. That's my billboard. It's already up.
• 2:08:30
  Speaker A: I appreciate it. AJ, thank you very much for your time. I really appreciate it. I thought it was an excellent.
• 2:08:37
  Speaker B: Well, I hope you can edit it down to make me sound good. I really appreciate it.
• 2:08:41
  Speaker A: Thank you very much.