Latest / ChangeMakers with Katie Goar / Episode 130: Lauren Taylor Dreher, Founder, Bear Impact Fund

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Episode 130: Lauren Taylor Dreher, Founder, Bear Impact Fund · ChangeMakers with Katie Goar

0:05
Speaker 1: This is change Makers with Katie Gore finding the right
0:09
Speaker 1: solutions for the affordable housing community.
0:13
Speaker 2: Today's Forbes quadel change Maker is Lauren Taylor Dreer. You
0:19
Speaker 2: are the founder and managing director of Bare Impact Fund,
0:23
Speaker 2: where you are reimagining affordable housing through a bold investor
0:29
Speaker 2: backed model. And I'm actually very excited to have you
0:33
Speaker 2: here because you're going to bring such a unique perspective.
0:36
Speaker 2: You are a strategist, you have gone through several reiterations
0:41
Speaker 2: of resiliency, and you're what I like to say, a
0:46
Speaker 2: unique icon in what you've done and what you're doing.
0:51
Speaker 2: So welcome to the podcast.
0:54
Speaker 3: Thank you so much. I'm so excited to be here.
0:56
Speaker 3: It's like, you know, uh, I'm new to the affordable
0:59
Speaker 3: health space and I've had such a warm welcome and
1:03
Speaker 3: this is just more evidence of that.
1:05
Speaker 2: We have talked many, many times, and I think it
1:10
Speaker 2: is a great segue. But what I appreciated when I
1:14
Speaker 2: was talking to you over these last several months is
1:18
Speaker 2: how your career has pretty much ebbed and flowed to
1:24
Speaker 2: where you are now.
1:25
Speaker 3: Yeah. So I had a very glamorous start to real estate.
1:30
Speaker 3: My husband and I have been together for eighteen years
1:33
Speaker 3: and His background initially was in construction and he was
1:37
Speaker 3: doing property preservation, which for anyone out there that doesn't
1:40
Speaker 3: know what that is, that's just a fancy way of
1:42
Speaker 3: saying cleaning out foreclosed houses for banks. And so this
1:47
Speaker 3: is a right around the housing crisis. I was twenty
1:49
Speaker 3: twenty one at the time, and we got some contracts
1:53
Speaker 3: with banks and started cleaning out foreclosures. As I was
1:57
Speaker 3: doing that, I decided, you know, I wanted to get
1:59
Speaker 3: my real estate license because this is peak foreclosure time.
2:03
Speaker 3: So this is when the house in crisis was happening.
2:06
Speaker 3: And I got my real estate license and started doing rios,
2:10
Speaker 3: which I found no shade to ario agents out there,
2:14
Speaker 3: like it was just very boring filling out paperwork and
2:18
Speaker 3: you know, putting out signs. And I read a Forbes
2:23
Speaker 3: or Wall Street Journal article. I can't remember the exact source,
2:26
Speaker 3: but the article was on how institutional capital was moving
2:31
Speaker 3: into single family rentals and I was just like, oh,
2:35
Speaker 3: I think I would really like to do this. And
2:38
Speaker 3: so I spent a fair amount of time researching and
2:42
Speaker 3: trying to figure out who the players in the space
2:44
Speaker 3: were going to be. And then a conference popped up.
2:48
Speaker 3: There was the first annual conference for a conference circuit
2:51
Speaker 3: called I am In. Now they are I believe, the
2:55
Speaker 3: biggest single family rental conference in the country, but at
2:58
Speaker 3: the time it was a very small group of kind
3:01
Speaker 3: of reminds me of of affortable housing now, a very intimate,
3:05
Speaker 3: kind of like tight knit group of people. And I
3:11
Speaker 3: took a loan out of my car to go to
3:14
Speaker 3: Miami for the first year and started trying to meet people,
3:18
Speaker 3: and that kind of progressed into doing some acquisition work
3:24
Speaker 3: where I was helping you know, an investor that was
3:27
Speaker 3: operating out of a shoebox in New York somewhere and
3:32
Speaker 3: had raised capital, came out of private equity, raised some capital,
3:36
Speaker 3: wanted to buy housing but wasn't quite sure what to do.
3:40
Speaker 3: Really sharpened my teeth as an analyst first. So that
3:44
Speaker 3: was I say, my core roots are an operator and
3:48
Speaker 3: an analyst. I love that portion of the industry because
3:51
Speaker 3: it's really where all the magic happens. You have to
3:55
Speaker 3: source the property. These are physical assets, and so you
3:58
Speaker 3: need that ground so board. Through the years, I was
4:02
Speaker 3: able to develop different relationships. They started small, and then
4:07
Speaker 3: I was able to attract kind of larger clients that
4:10
Speaker 3: needed more operational help. And as that happened, it naturally
4:14
Speaker 3: progressed into operations companies. And so my husband, who was
4:20
Speaker 3: working for a fund at the time he came over,
4:24
Speaker 3: we joined forces again. He ran the construction division, I
4:28
Speaker 3: ran acquisitions and property management. And we went on a
4:33
Speaker 3: I would say seven year cycle of recycling clients because
4:38
Speaker 3: in our space, if we did well, then we would
4:41
Speaker 3: lose the client. Eventually we would get them to a
4:44
Speaker 3: scalable point, then they would pull in their operation and
4:47
Speaker 3: go vertical, or they would sell their portfolio, and then
4:51
Speaker 3: we would have to go find another client and do
4:53
Speaker 3: it all over it right, And so as we got
4:56
Speaker 3: into that we I learned a lot. We had some
5:01
Speaker 3: faster scaling clients, which was stretched us in all possible directions.
5:07
Speaker 3: The last one that we had we moved like fourteen
5:11
Speaker 3: different markets or sixteen markets in fourteen months, and we
5:16
Speaker 3: were buying one hundred to one hundred and fifty single
5:18
Speaker 3: family homes a month wow between those markets, and so
5:22
Speaker 3: that was a full pass through. We would buy and
5:24
Speaker 3: renovate and rent out about the same burn rate. And
5:30
Speaker 3: so yeah, I'll kind of pause my story there and
5:32
Speaker 3: then we can get into the affordable housing side. I
5:34
Speaker 3: feel like I'm just like but I wanted to get
5:37
Speaker 3: you see the backstory as quickly as I could.
5:39
Speaker 2: Well. A good transition here is I believe in an
5:43
Speaker 2: Instagram post that your team and you were come I like,
5:52
Speaker 2: going from the real estate world or your eyes were
5:55
Speaker 2: opened into the affordable housing world. So let me tee
5:58
Speaker 2: that up and wanted to you transition on that thread there.
6:03
Speaker 3: Yeah. I think a couple of times in life, timing
6:06
Speaker 3: just lines up in a way that's what it's meant
6:09
Speaker 3: to be. And for me, that was twenty twenty, and
6:15
Speaker 3: which was a I think a pivotal year for a
6:17
Speaker 3: lot of people for a lot of different reasons. And
6:21
Speaker 3: it just so happened that my last client that I
6:24
Speaker 3: was talking about let us know in February of twenty
6:28
Speaker 3: twenty that they were going to start internalizing their operation.
6:33
Speaker 3: And so I went from one hundred and twenty hours
6:35
Speaker 3: a week with forty something employees across two states and
6:42
Speaker 3: you know, hundreds of contractors to kind of like breaks.
6:47
Speaker 3: And then COVID happened and I went even harder breaks.
6:50
Speaker 3: So we were sitting at home, you know, not really
6:54
Speaker 3: knowing to do, and so I went into research because
6:57
Speaker 3: I knew I think the biggart was. I knew that
7:01
Speaker 3: I wanted to escalate to the next level after I
7:04
Speaker 3: was done with that client. So I was anticipating wanting
7:07
Speaker 3: to raise capital in some regard. But when I started
7:12
Speaker 3: to look at I went back to my analyst roots
7:14
Speaker 3: and started to look at the industry as a whole.
7:17
Speaker 3: And the industry itself is very stable, so sofar as
7:23
Speaker 3: an asset class is a very stable asset class. The
7:26
Speaker 3: issue for someone who has operated in the space and
7:30
Speaker 3: then wants to go into raising capital is that the
7:33
Speaker 3: timing now in the market is not what it was.
7:37
Speaker 3: So if you're not an established player, this is just
7:41
Speaker 3: my opinion, I don't think now is a good time
7:43
Speaker 3: to raise capital. But more importantly, I got obsessed with
7:49
Speaker 3: trying to figure out how to pencil. Initially it was
7:53
Speaker 3: workforce housing, and I started looking at workforce housing and
7:58
Speaker 3: how do you maintain healthier rental inflation over the course
8:03
Speaker 3: of time. Because when I first started in the industry
8:07
Speaker 3: fifteen years ago, a property that I would underwrite in
8:10
Speaker 3: one of my neighborhoods would be, you know, was seven
8:13
Speaker 3: fifty and now it's fourteen fifty. So we've seen massive
8:19
Speaker 3: increases in rental inflation over time, and that's the whole
8:24
Speaker 3: different bag to get into two. Yes, episode two. But
8:32
Speaker 3: I really was interested in, like, how do you build
8:36
Speaker 3: a new model? And I was very very sure at
8:41
Speaker 3: that point in time that it needed to be a
8:43
Speaker 3: different financial model that didn't currently exist. I think that
8:48
Speaker 3: the institutional space gets a lot of pressure and heat
8:53
Speaker 3: to provide affordable housing, and they do for these segments
8:58
Speaker 3: that they serve, right, but they can't solve low income
9:04
Speaker 3: or especially extremely low income with the current models that
9:08
Speaker 3: exist for a variety of reasons. They're financing their commitment
9:14
Speaker 3: to their investors, the equity component, there's a lot of
9:18
Speaker 3: things that make it difficult, taxes especially, and so those
9:23
Speaker 3: models don't work. And so I started looking at the
9:26
Speaker 3: space at large. And the first thing that I did
9:30
Speaker 3: was go after a local Housing authority contract. I wanted
9:35
Speaker 3: to see all affordable housing was working in that space,
9:39
Speaker 3: kind of get into the space to get more intimately
9:42
Speaker 3: familiar with it. And so we did win an RFP
9:46
Speaker 3: to manage about seven hundred units, and I learned a
9:50
Speaker 3: lot during that period of time. And I had a
9:54
Speaker 3: prior client that came back and we went into some
9:57
Speaker 3: lie tech projects and a ton in that space over the
10:03
Speaker 3: last five years, and my main takeaways were that the
10:08
Speaker 3: existing financial models that are in place, whether that's ly
10:12
Speaker 3: tech rad or any bond type product, is very slow moving,
10:20
Speaker 3: and especially from what I was used to, you know,
10:23
Speaker 3: I'm relatively spoiled in the private equity space that we
10:27
Speaker 3: can deploy capital so quickly, we can create units so quickly,
10:33
Speaker 3: and so it taking twenty four to thirty six months
10:37
Speaker 3: to create one hundred units was just like, what what
10:41
Speaker 3: is going on?
10:43
Speaker 2: And so we went from like warp speed to baby steps,
10:47
Speaker 2: didn't you Yeah, but it's not. But you know, your
10:50
Speaker 2: point is like you shouldn't have to happen like that,
10:52
Speaker 2: Like why can't there be the same mobilization that you're
10:56
Speaker 2: seen on the private side. Why is what's missing here
11:00
Speaker 2: on the affordable side?
11:01
Speaker 3: Right? Yes, And these two industries have stayed in silos
11:06
Speaker 3: on their own. We just came back from the Narrow
11:11
Speaker 3: conference and one of the keynotes there he was talking
11:15
Speaker 3: about like everyone stays in their lane, and I found
11:18
Speaker 3: that to be very true in private equity as well
11:22
Speaker 3: or in the institutional capital space. There's a kind of
11:27
Speaker 3: an overall lack of understanding of the affordable housing sector
11:31
Speaker 3: in that sector, especially in private debt, and the affordable
11:36
Speaker 3: housing sector doesn't have much crossover to especially like if
11:41
Speaker 3: you look at individual nonprofits and how they're trying to
11:44
Speaker 3: figure out how to scale housing. So I was really interested, like,
11:48
Speaker 3: how do you create get creative with financing structures to
11:53
Speaker 3: build a model that could scale at the same rate.
11:56
Speaker 3: And that's how we kind of came up with with
12:00
Speaker 3: the model that we're currently doing, which we can get into.
12:03
Speaker 2: So let's describe this from the first foundation step. So
12:08
Speaker 2: you've got a private investment component, you've got a nonprofit component,
12:15
Speaker 2: and you have an operating arm. So I guess that
12:20
Speaker 2: is that the right formula for the model that you're using,
12:25
Speaker 2: and expand on why that model is created like that
12:31
Speaker 2: because it's very unique to have the blending of those
12:35
Speaker 2: three arms. Did we cover those or expand on those?
12:39
Speaker 3: Yeah? So the idea here one you do have to
12:43
Speaker 3: get creative because there's not a whole lot of existing product.
12:49
Speaker 3: The goal here is to create a baseline that then
12:53
Speaker 3: can be replicated at large scale. And this fits perfectly
12:58
Speaker 3: into the large institute space and so our long term
13:03
Speaker 3: goal is to find a impact aligned institutional partner that
13:12
Speaker 3: has potentially already has existing operations in SFR or something
13:18
Speaker 3: of that sort. But how I came up with it
13:21
Speaker 3: was a lot of process of elimination. So when I
13:24
Speaker 3: started building out models, I tried I can't even go
13:30
Speaker 3: through all of the different variations, but I had about
13:33
Speaker 3: three years of R and D, so I tried penciling models.
13:39
Speaker 3: I tried looking, you know, what would what would that
13:42
Speaker 3: look like from a capital raising perspective, what would the
13:45
Speaker 3: investor interest have to look like? And as I went through,
13:50
Speaker 3: I was inspired by companies and other sectors, so B corporations,
13:56
Speaker 3: We're a big inspiration. Uh Chad GPT open A was
14:00
Speaker 3: a big inspiration people that we're using hybrid nonprofit for
14:05
Speaker 3: profit models in order to solve bigger problems. And that
14:10
Speaker 3: is really what we're trying to do here, because you
14:13
Speaker 3: have to do I think that the interest has to
14:16
Speaker 3: be lined in two big ways. One is it has
14:19
Speaker 3: to be scalable. You have to be able to acquire
14:22
Speaker 3: and attract a large amount of capital, and so that
14:25
Speaker 3: means you have to be a safe and viable investable vehicle.
14:30
Speaker 3: And you have to have something that protects the integrity
14:34
Speaker 3: of the affordable housing component in the long term. So
14:38
Speaker 3: the nonprofit aspect is what protects that. It does a
14:42
Speaker 3: few different things. It protects that, and it also gives
14:47
Speaker 3: you the tax rebate or incentive that you need to
14:52
Speaker 3: make the model work. Really, if if the properties are
14:57
Speaker 3: owned by the nonprofit, then you get a tax abatement
15:00
Speaker 3: on your property taxes. Those work differently in different states,
15:04
Speaker 3: but for the most part and all or you know,
15:08
Speaker 3: substantial tax abatement that is really functioning almost similarly to
15:14
Speaker 3: bonds that you would find in other markets. But it
15:19
Speaker 3: creates way more flexibility, which is what I was looking for.
15:23
Speaker 3: I felt constrained by the existing models and existing financing
15:29
Speaker 3: because it doesn't give you a whole lot of flexibility.
15:31
Speaker 3: For example, if I have a lie tech property and
15:35
Speaker 3: we're talking about we want to look at resident health
15:38
Speaker 3: and resident stability over time, these existing systems have to
15:43
Speaker 3: be structured that way for a reason, so it's not
15:46
Speaker 3: really nothing, but they also constrain the resident pretty substantially.
15:51
Speaker 3: So I like to picture it as stairs and our
15:55
Speaker 3: first step is like hut housing what used to be
15:59
Speaker 3: public housing that's transitioning now and then you have like
16:02
Speaker 3: lie tech projects where their income restricted and so every
16:08
Speaker 3: year the resident has to show their income and they
16:12
Speaker 3: have to stay below a certain threshold or they are
16:15
Speaker 3: at risk of losing housing, losing voucher or otherwise. The
16:20
Speaker 3: issue is then that there is no stairs between that
16:24
Speaker 3: and market rate. So moving from a controlled rent environment
16:30
Speaker 3: to the market is very difficult because there's nothing in between.
16:35
Speaker 3: And so we see ourselves as functioning as middle market
16:40
Speaker 3: in low income housing. So it's kind of people like, oh,
16:45
Speaker 3: middle market housing, well kind of, but we're just steps
16:49
Speaker 3: to get to true market rate, and this is vitally
16:56
Speaker 3: important for the health of real estate long term. So
16:59
Speaker 3: this is a a big conversation that we're having in
17:01
Speaker 3: the institutional space. I am very fortunate to be a
17:05
Speaker 3: board member of National Rental Home Council, which is the
17:10
Speaker 3: functioning kind of lobby and advocacy body of single family rentals,
17:16
Speaker 3: and that group is very interested in how to proactively
17:21
Speaker 3: solve this problem because it creates more stability in the
17:25
Speaker 3: market long term. They want for housing to be stable
17:29
Speaker 3: and for them to fill the need in the clientele
17:35
Speaker 3: that they're currently serving, but also have a way to
17:39
Speaker 3: fulfill a need in a completely different market segment. So
17:42
Speaker 3: there's a lot of interests that are aligning, and I
17:44
Speaker 3: think timing is very good because the need has never
17:49
Speaker 3: been bigger than what it is currently in affordable housing.
17:53
Speaker 3: But there's also a huge, huge long term concern with
18:00
Speaker 3: if we don't provide more stable, scalable models, that the
18:06
Speaker 3: supply is going to be a which we can talk
18:09
Speaker 3: about supplying it, it's one of my favorite things to
18:11
Speaker 3: talk about. It's going to be a long term uh
18:14
Speaker 3: issue that's going to only get exacerbated and larger as
18:20
Speaker 3: as the market grows and continues to develop. So the other.
18:24
Speaker 2: Piece of this too is that you know, when you
18:26
Speaker 2: mentioned that there's no real step to be to go
18:29
Speaker 2: from those income restricted income managed to market, you know
18:35
Speaker 2: it gets very punitive too as your income is increasing
18:40
Speaker 2: but you're not really able to do much the way
18:44
Speaker 2: the recalculations are due. So you're almost I mean I
18:49
Speaker 2: say punitive in some regards, you know, unless you're enrolled
18:53
Speaker 2: in like maybe a family self sufficiency model or something
18:55
Speaker 2: like that. But you know where you having like an
18:57
Speaker 2: income disregard component, but what you're doing here is also
19:03
Speaker 2: not having that punitive component. If I'm understanding you correctly, right, So, yes,
19:10
Speaker 2: you know you're kind of saying, hold on, I can
19:12
Speaker 2: have some economic improvement, some rent stability, and prepare myself
19:20
Speaker 2: for that next leap to the market.
19:22
Speaker 3: Is that right right? The biggest component here is that
19:26
Speaker 3: you don't have regulated government restrictions on income, which is
19:35
Speaker 3: very helpful and it provides a great partnership between I
19:42
Speaker 3: think we're kind of standing arm in arm with like
19:45
Speaker 3: I'm trying to reach out to the narrow side of
19:47
Speaker 3: the world and say, you know, as your clients progress
19:51
Speaker 3: out of and are having new opportunities, and the programs
19:55
Speaker 3: that you have them in are successful, which is ultimately
19:58
Speaker 3: the goal to move them further down the line that
20:02
Speaker 3: they would pass them to us, and then hopefully, long
20:06
Speaker 3: term we pass them on to the other side of
20:08
Speaker 3: the industry, whether that be home ownership or long term rentorship.
20:14
Speaker 3: And I think that you know, that's a whole I
20:16
Speaker 3: think you and I talked about this, but there's a
20:18
Speaker 3: whole other conversation of we are in a position now
20:23
Speaker 3: where we have to look at legislation and other things
20:28
Speaker 3: as being against renters to a certain extent, right, and
20:34
Speaker 3: there is a world that exists currently where it is
20:38
Speaker 3: okay if someone never wants to buy a home. They
20:41
Speaker 3: may want to, and if that's their goal, then we
20:44
Speaker 3: want to work with them to get them to a
20:46
Speaker 3: point where they can or they may learn that they
20:51
Speaker 3: want to have different types of flexibility and stay in rentorship.
20:57
Speaker 3: So there's a lot of different components there. I won't
21:00
Speaker 3: get down that rabbit hole.
21:01
Speaker 2: And there's even some studies that are starting to come
21:04
Speaker 2: out that talk about how the rent caps, how those
21:09
Speaker 2: are actually reducing production in certain areas. So we still
21:13
Speaker 2: don't have quite that social policy or we don't have
21:16
Speaker 2: that product yet to be able to recognize the income
21:22
Speaker 2: goals or income improvement of individuals at the same time.
21:28
Speaker 2: But I think that's what you're trying to do here,
21:31
Speaker 2: and what you're doing is that you're introducing a new
21:35
Speaker 2: model to both hit the personal pocket hick that achievement
21:40
Speaker 2: goal for them, recognize the rent dynamics that private developers
21:47
Speaker 2: and owners are up against. So let's talk about supply then,
21:50
Speaker 2: because that's the other piece of this here, is that
21:53
Speaker 2: how you're wanting to create that investment opportunity to put
21:58
Speaker 2: units into the market and address some of that supply
22:00
Speaker 2: so why don't you go ahead and take us down
22:02
Speaker 2: that rabbit hole about supply that we like to talk
22:05
Speaker 2: about so much.
22:06
Speaker 3: So excited about this part because this is where if
22:09
Speaker 3: I go to narrow or if I go to n
22:13
Speaker 3: right to see or I am in whether I'm on
22:15
Speaker 3: the institutional side or I'm on the nonprofit side, the
22:18
Speaker 3: conversations that these conferences are the same, which is supply
22:22
Speaker 3: supply supply. Where is it going to come from? The
22:25
Speaker 3: issue with development is we deal with nimbeism, we deal
22:30
Speaker 3: with I ran into all of these things on the
22:33
Speaker 3: LYE tech side when I, you know, venture down that
22:36
Speaker 3: pathway for a little bit. And because all of a sudden,
22:41
Speaker 3: if I'm going to put a bunch of housing in
22:44
Speaker 3: one place, is going to come out of the ground,
22:45
Speaker 3: It's going to affect traffic, It's going to affect you know,
22:49
Speaker 3: people in all of these perceived ways. But more importantly,
22:53
Speaker 3: I'll touch on this really quickly there. This is a
22:57
Speaker 3: form of separation that I think is we could do
23:02
Speaker 3: a better job at right because in a lot of markets,
23:06
Speaker 3: and I know any of my LA tech developers affordable
23:10
Speaker 3: housing people out there will agree there are areas that
23:14
Speaker 3: they're like yes, and then there's areas that they're.
23:16
Speaker 2: Like no, So they're like saying yes they'll go into
23:22
Speaker 2: and know they won't go into because they know the
23:24
Speaker 2: battles or the zoning or whatever the things are.
23:27
Speaker 3: Okay, okay, yeah. And the difference with single family rentals
23:32
Speaker 3: is that there is an over abundance of supply in
23:36
Speaker 3: the lower segment of the market and this has resulted
23:40
Speaker 3: in for a lot of different reasons, and in most
23:43
Speaker 3: cases it's because of the condition of the property. So
23:47
Speaker 3: for example, if I'm representing a institutional client, that institutional
23:52
Speaker 3: client has a bybops that they have kind of committed
23:56
Speaker 3: to their investors, right, so they're saying, we are going
24:00
Speaker 3: to buy properties that are valued at a certain level
24:04
Speaker 3: and that our certain bedroom and bathroom counts. So it's
24:07
Speaker 3: very specific, right. And they also need a certain margin
24:12
Speaker 3: because the way that they're financing works is to re
24:16
Speaker 3: up their supply over time. So the equity component means
24:19
Speaker 3: that I have to buy the property a level that
24:21
Speaker 3: I have enough equity to then get financing against it
24:24
Speaker 3: so that I can go buy more property. And if
24:28
Speaker 3: they can't do that, then it just doesn't work for
24:29
Speaker 3: their buybox. So about thirty percent of the inventory in
24:33
Speaker 3: the country gets eliminated from their buy box for that reason,
24:38
Speaker 3: the lower segment of the inventory. And then there's another,
24:42
Speaker 3: you know, thirty percent of the top end of a
24:44
Speaker 3: segment that doesn't fit their buybox either. And then we
24:48
Speaker 3: go into the general market just home buyers or flippers,
24:52
Speaker 3: local investors, local landlords, and they also can't buy it
24:57
Speaker 3: because the margins aren't right. They also can't get financing.
25:01
Speaker 3: If I want to live in an area where I
25:05
Speaker 3: grew up and the inventory in that area is depressed
25:10
Speaker 3: and in bad condition, then if I go try to
25:13
Speaker 3: get an FAH loan or USDA loan or any of
25:17
Speaker 3: the first time buyer type loan programs, if the home
25:22
Speaker 3: is in disrepair, I can't qualify for the loan. So
25:27
Speaker 3: all of that housing stock that's sitting in disrepair. You
25:29
Speaker 3: have entire neighborhoods and areas, and anyone that's listening to
25:34
Speaker 3: the show can think of an area in whatever city
25:38
Speaker 3: or town they may be in that fits into this
25:41
Speaker 3: category of there has not been long term viable purchasing
25:48
Speaker 3: and investment. We tried to fix this in the commercial
25:52
Speaker 3: sector with opportunity zones to incentivize your more commercial investors
26:00
Speaker 3: to enter areas that need a capital investment. There's not
26:03
Speaker 3: anything that exists in single family rentals to do the same,
26:07
Speaker 3: and this opens up an entire segment of inventory which
26:13
Speaker 3: encompasses about thirty percent of the overall homes in the country.
26:17
Speaker 3: That's a lot of property, and that is not even
26:21
Speaker 3: taking into account individual land, so infill building, which is
26:27
Speaker 3: a huge opportunity in the space for land that is
26:31
Speaker 3: still within margins that will work to buy and build
26:36
Speaker 3: individual properties or do modular or infill modular building as well,
26:42
Speaker 3: so you kind of unlock This is the keys. I
26:46
Speaker 3: see it as the key is to unlock a segment
26:49
Speaker 3: of inventory where you can go in purchase a property,
26:53
Speaker 3: renovate it to a really high standard, and then you
26:57
Speaker 3: improve areas without the gentrification process, without the rental without
27:03
Speaker 3: this huge inflation that typically comes from an insert of
27:08
Speaker 3: capital investment over time. So this is if you can
27:14
Speaker 3: attract enough capital to the segment of the market. My
27:17
Speaker 3: dream in this scenario is that we show the world
27:23
Speaker 3: what can be done with this type of creative model,
27:26
Speaker 3: and then people copy it and it becomes a viable
27:31
Speaker 3: way to add supply to the market in a way
27:34
Speaker 3: that remains stable for the residents. Like I said that
27:38
Speaker 3: nonprofit ownership maintains affordability for the cancer term and also
27:45
Speaker 3: can improve areas that are and used to be vibrant
27:50
Speaker 3: communities that are just in need of capital investment.
27:54
Speaker 2: So is it a capital investment they've had some historical
27:58
Speaker 2: disinvestment they if I can kind of like just categorize
28:02
Speaker 2: this and then they still have space to build. So
28:07
Speaker 2: whether that is you know, however you're coming up with
28:11
Speaker 2: that gis mapping to say, Hey, I've got tracts of
28:15
Speaker 2: land or I've got underutilized land. However that's it's going to.
28:22
Speaker 2: Is there a specific like market that you're saying you
28:29
Speaker 2: you want to be in, maybe either through investors like
28:33
Speaker 2: you've you've brought in certain investors, or whether you're just saying,
28:36
Speaker 2: I know this market is you know fast track permits
28:41
Speaker 2: or you know, whatever your criteria is, like, how are
28:44
Speaker 2: how are you looking at trying to go into those
28:48
Speaker 2: markets and what are those markets look like for you?
28:51
Speaker 3: Yeah, My my background is I would consider myself a
28:55
Speaker 3: tertiary market expert. I love tertiary. I built my career
28:59
Speaker 3: and third tier markets like Columbia, South Carolina, Greenville, South Carolina, Augusta, Georgia, Macon, Columbus, Alabama,
29:10
Speaker 3: parts of North Carolina. So I like those markets, and
29:16
Speaker 3: if we end up the route of our own capital
29:20
Speaker 3: in bear Impact and we start investing, we'll start in
29:23
Speaker 3: our core market. The beauty of the model is that
29:27
Speaker 3: it works everywhere. And the reason it does is because
29:31
Speaker 3: you're dealing with single family rentols, which are exponentially easier
29:36
Speaker 3: because I'm just dealing with construction permits on individual houses,
29:41
Speaker 3: which are extremely faster to get regardless of the of
29:46
Speaker 3: the market, historic areas and things. With those types of restrictions,
29:52
Speaker 3: we would, you know, for the most part avoid unless
29:57
Speaker 3: we have like insight or intimate knowledge of those markets.
30:01
Speaker 3: But the whether it is tertiary or primary markets like
30:07
Speaker 3: you know, Atlanta, Phoenix, Dallas, Houston, you know your big market,
30:13
Speaker 3: all of those have the same opportunity as tertiary or
30:19
Speaker 3: individual markets because the gravity of our situation with affordable
30:25
Speaker 3: housing is that the supply is down everywhere and the
30:31
Speaker 3: inventory is readily available everywhere. So it greatly simplifies when
30:39
Speaker 3: we get into which is the long term goal, more
30:42
Speaker 3: infield building. We would have to be more strategic about
30:45
Speaker 3: you know, land use restrictions and things of that nature.
30:49
Speaker 3: But purchasing existing SFR is much more streamlined and actually
30:58
Speaker 3: exponentially less complicated then development is. And so we definitely
31:03
Speaker 3: plan to use that to the advantage to scale faster.
31:07
Speaker 3: It gives us a lot of opportunity to scale at
31:10
Speaker 3: a faster rate.
31:12
Speaker 2: Let's talk about the capital intensive piece of this, and
31:18
Speaker 2: because that is also what is so unique about what
31:22
Speaker 2: you're bringing to the table here and what Bare Impact
31:24
Speaker 2: Fund is doing. So what are your goals related to
31:30
Speaker 2: impact driven housing paired with investing and bringing up that
31:37
Speaker 2: capital piece of this? Like, those are two unique things
31:40
Speaker 2: that are different than other models, So explain some of
31:45
Speaker 2: that for us.
31:46
Speaker 3: So the goal was to be attractive to individual investors,
31:52
Speaker 3: and so the reason we have the three arms and
31:54
Speaker 3: kind of bring these two things back together. The reason
31:59
Speaker 3: we have the three arms is for investability and for accountability.
32:03
Speaker 3: So two major components that are important. The fund itself
32:09
Speaker 3: is lending money to the nonprofit, so it's a structured
32:12
Speaker 3: debt back to the nonprofit. The nonprofit buys the home
32:17
Speaker 3: and then the operating arms do the renovations and then
32:22
Speaker 3: they manage the property, they do the asset management so
32:25
Speaker 3: that you have professional third party management. These components are
32:30
Speaker 3: important for a variety of reasons, but if we're looking
32:34
Speaker 3: at it solely from a financial perspective, the first round
32:37
Speaker 3: of capital that we're raising into Bear Impact will also
32:41
Speaker 3: have a twenty percent equity stake in the operation. This
32:45
Speaker 3: incentivizing investors and aligns all of the interest appropriately. It
32:50
Speaker 3: gives them the ability to know that as the operation
32:54
Speaker 3: scales and the model gets larger, that their returns will
32:58
Speaker 3: also improve, and it functions as a quansi equity component.
33:05
Speaker 3: Because that was the initial knee jerk in the market
33:11
Speaker 3: is that I initially kind of Selft pitched this to
33:16
Speaker 3: single family rental investors and they are very accustomed to
33:21
Speaker 3: an equity component, and so they're like, well, what about
33:23
Speaker 3: the equity And my explanation to them was, you can't
33:28
Speaker 3: have an equity component with the homes themselves, because it
33:32
Speaker 3: is counterintuitive to the preservation of affordability long term. But
33:40
Speaker 3: you can have an investment in the operation which allows
33:45
Speaker 3: for as income grows in that sector that also provides
33:50
Speaker 3: more of a basis return. It gives you really good
33:54
Speaker 3: stable debt that is reliable and kind of bulletproof in
34:01
Speaker 3: a lot of ways in that direction, because that leaves
34:05
Speaker 3: the opportunity for the nonprofit to then also capital stack
34:11
Speaker 3: within the nonprofit, so we can go get securitization debt,
34:16
Speaker 3: which for the audience is just alone against the property's portfolio,
34:22
Speaker 3: are the company's portfolio, and we're not going to do
34:26
Speaker 3: it as aggressively as or with the same types of
34:31
Speaker 3: margins that you would see in the traditional institutional space.
34:35
Speaker 3: But it still allows us to recapitalize a portion of
34:39
Speaker 3: the investment by more housing, which creates more stability for
34:43
Speaker 3: the initial investors, so that that kind of joining of
34:48
Speaker 3: arms of different models is really beneficial. And then but
34:53
Speaker 3: the long term vision here then will show a larger
34:58
Speaker 3: institutional partner, for example, how this would work within their
35:02
Speaker 3: current infrastructure. We would like to be at a point
35:06
Speaker 3: where we are just running the nonprofit operation and we
35:11
Speaker 3: have a capital partner and operations partner that are invested in,
35:17
Speaker 3: you know, scaling this to a much larger level long term.
35:21
Speaker 3: So this is showing the viability of that and then
35:25
Speaker 3: allowing for a transition period or if the cart comes
35:29
Speaker 3: before the horse, I'm okay with that too.
35:33
Speaker 2: You talk a lot about affordable housing and financing and
35:37
Speaker 2: models and just kind of really real estate in several
35:42
Speaker 2: of your platforms. Why is that crucial given that your
35:47
Speaker 2: audience it may or may not be on those platforms, what.
35:53
Speaker 3: Do you view that to be doing.
35:56
Speaker 2: For what you're trying to do with the capital fund
35:59
Speaker 2: and the investment pieces of this, it's it's kind of
36:03
Speaker 2: like like inverse universes that are happening here. But so
36:09
Speaker 2: you must have a value set of why that's needed.
36:12
Speaker 2: So my personality is uh is very driven by.
36:19
Speaker 3: Long term legacy, and I want to I get bored
36:24
Speaker 3: relatively easily and like challenges, but I also like to
36:32
Speaker 3: approach situations as why not me? Because when you look
36:38
Speaker 3: at the problem, and that's what I initially did was
36:40
Speaker 3: I just looked at the problem. I was like, this
36:42
Speaker 3: is a big problem. And then I started talking to
36:45
Speaker 3: people and they're like, it's a big problem. Like I know,
36:47
Speaker 3: I see that.
36:49
Speaker 2: And a lot of people talk about the problem, not
36:51
Speaker 2: the solution. And that's what you've been able to create
36:55
Speaker 2: is a model and an impact fund that goes to
36:58
Speaker 2: the solution. So that's the difference here. To give give
37:01
Speaker 2: yourself credit, right.
37:03
Speaker 3: Yes, so I really just want to spread awareness because
37:08
Speaker 3: I think that there's a lot of misconceptions, and there's
37:11
Speaker 3: misconceptions on both sides of the field. I've been trying
37:16
Speaker 3: to do work to connect industries together and help them
37:21
Speaker 3: understand how each other operates and how they are beneficial
37:26
Speaker 3: to each other. For example, if you're looking at I
37:29
Speaker 3: mentioned to organizations in our APC and narrow right, they
37:36
Speaker 3: are both trying to do the same thing, which is
37:38
Speaker 3: protect their residents, and they both represent a large number
37:43
Speaker 3: of residents. Fifty one percent of our country are renting properties.
37:49
Speaker 3: The issue is, you know, if we're going on a
37:52
Speaker 3: legislation pathway, which I'm always happy to do, this is
37:58
Speaker 3: a conversation of a lot of times residents are not
38:03
Speaker 3: viewed as vocal constituents, and because they're not being vocal
38:07
Speaker 3: constituents in a lot of cases, and so the a
38:11
Speaker 3: lot of legislation gets formed around our old adage of
38:17
Speaker 3: home ownership being the American dream right, and which is
38:21
Speaker 3: still the case for a lot of people in the country.
38:24
Speaker 3: A lot of people want to own a home, and
38:26
Speaker 3: some people don't, and some people, you know, are are
38:31
Speaker 3: in a position where that will that would hinder them
38:36
Speaker 3: in some way. They want to travel more or have
38:40
Speaker 3: disposable income to do different things. But we we are
38:44
Speaker 3: in a position where we need for there to be
38:47
Speaker 3: better education and better kind of aligning of interest so
38:53
Speaker 3: that people don't have demonized sides of industries. The affordable
38:59
Speaker 3: housing industry gets demonized a lot. Housing authorities at large
39:04
Speaker 3: are misunderstood, and like any organization or industry, we're all
39:10
Speaker 3: fighting some type of barrier or we're trying to improve
39:15
Speaker 3: or iterate or make things better while having to deal
39:18
Speaker 3: with red tape and issues that a lot of people
39:21
Speaker 3: don't understand. And then the institutional side of the industry
39:25
Speaker 3: gets demonized because they are looked to as the you know,
39:30
Speaker 3: it's easy to throw a stone at Goliath, right like
39:33
Speaker 3: it's the easiest thing to do.
39:35
Speaker 2: Or somehow along the way, you know, profit and investors
39:39
Speaker 2: it became the dirty word or something like it. It
39:41
Speaker 2: seems bad to try to reduce risk for people who
39:45
Speaker 2: are invested in their private money to make this work. Yeah.
39:49
Speaker 3: Yeah, but the truth of the matter, you need you
39:54
Speaker 3: have to have capital to scale and solve problems. If
39:58
Speaker 3: you can't get capital to understand and get interested in
40:03
Speaker 3: an industry, which just comes with de risking, explanation, having
40:10
Speaker 3: very intentional and specific investment criteria and goals and all
40:18
Speaker 3: of the things that speak their language and put them
40:22
Speaker 3: in a position where they can make a safe and
40:25
Speaker 3: viable investment for the people that have trusted them with
40:29
Speaker 3: their money. And so you have to have this like
40:32
Speaker 3: aligning of interest that includes those industries, but it also
40:36
Speaker 3: includes my friend I went to high school with, right, like,
40:40
Speaker 3: or someone that's in a completely different industry, because they
40:44
Speaker 3: there's not enough good education on why we have the
40:50
Speaker 3: issues that we have in housing, and it's such a
40:54
Speaker 3: complex issue that people want to assign blame and for
40:59
Speaker 3: good reason and right because it's such a big problem
41:02
Speaker 3: that they're like, well, the government should fix it, or uh,
41:05
Speaker 3: these investors are causing the problem, or you know, we
41:09
Speaker 3: can go down the rabbit hole of taxes and zoning
41:12
Speaker 3: laws and regulation being the problem, or redlining from you know,
41:19
Speaker 3: when we had redlining before being being an issue, income growth,
41:24
Speaker 3: which is a huge concern and a viable thing to
41:29
Speaker 3: bring up in the conversation. All of those are components
41:33
Speaker 3: of what's happening. But if we just keep talking about
41:38
Speaker 3: all the problems, uh, and not trying to say, Okay, well,
41:41
Speaker 3: how do we how do we maneuver around those how
41:44
Speaker 3: do I try to make legislators happy and private capital
41:50
Speaker 3: happy and nonprofits included in the conversation and get everybody
41:55
Speaker 3: in the room together to like really look at how
41:58
Speaker 3: do we join forces just all of the problem. Then
42:02
Speaker 3: we're never going to get anywhere. So that that's probably
42:05
Speaker 3: my my biggest passion long term is hopefully being a
42:10
Speaker 3: change maker in that regard.
42:13
Speaker 2: Yeah, well, the platforms you're on are surely a conduit
42:17
Speaker 2: to help you get that message out too. But it's
42:21
Speaker 2: a complex world when you're when you're trying to address
42:26
Speaker 2: multiple dynamics, multiple cities, and then it's just I think
42:33
Speaker 2: when you gave the example of renters not necessarily all
42:38
Speaker 2: them being mobilized into a group of people that like
42:43
Speaker 2: when you said that, it was a moment that said, okay,
42:46
Speaker 2: that is part of the problem here too, is that
42:49
Speaker 2: you have you know, workforce housing, you have senior housing,
42:55
Speaker 2: you have veteran housing, you have extremely low inc like there,
43:01
Speaker 2: and so because it's such an interesting group of people
43:05
Speaker 2: who need affordable housing, there hasn't emerged one voice necessarily
43:12
Speaker 2: to be able to say, hey, you know, as a collective,
43:16
Speaker 2: we need something to happen because rents at thirty five
43:20
Speaker 2: hundred dollars, you know, how much longer can this go on?
43:24
Speaker 2: And I you know, and maybe it's more that the
43:27
Speaker 2: housing policy has been housing policy, but it hasn't been
43:31
Speaker 2: economic policy.
43:33
Speaker 3: Yes, exactly. And that's a wonderful point because there is
43:39
Speaker 3: also if we're looking at our residents, like the resident
43:42
Speaker 3: issue and rental price inflation over time, I can look
43:48
Speaker 3: at both sides of the industry. Let's take li tech firstly,
43:51
Speaker 3: tech developers have struggled in recent years. When I went
43:56
Speaker 3: to one, like women Affordable Housing Networks conference, a lot
44:01
Speaker 3: of conversation was being had around, oh, my lord, like
44:04
Speaker 3: our pricing is just getting out of hand, Like we're
44:07
Speaker 3: up to hundreds of thousand dollars per unit because you've
44:10
Speaker 3: got all of these things, you know, construction's gone up,
44:13
Speaker 3: and permitting's gone up, and all these things are adding
44:16
Speaker 3: to cost. And so they're struggling to pencil deals and
44:21
Speaker 3: to keep institutional investors interested in the space because costs
44:25
Speaker 3: are getting out of hand. And then if we're looking
44:28
Speaker 3: at the market rate housing in SFR or apartments or otherwise,
44:36
Speaker 3: I can tell you as an analyst, what the majority
44:39
Speaker 3: of the market doesn't realize is that over the course
44:42
Speaker 3: of my career, let's say fifteen years, the overall expenses
44:49
Speaker 3: attached to managing and operating a single family property or
44:54
Speaker 3: a rental property in general have increased upwards of forty percent.
44:58
Speaker 3: So you know, our taxes gone up, permitting has gone up,
45:02
Speaker 3: cost of material has gone up, everything has gone up,
45:05
Speaker 3: so while wages have stayed relatively stagnant, and so there
45:11
Speaker 3: is it's an easy thing to say, you know, we're
45:15
Speaker 3: not building enough affordable housing, right, we need to build
45:19
Speaker 3: more without understanding the complexities of how those loans work,
45:23
Speaker 3: and how to pencil a deal and what you have
45:26
Speaker 3: to get your dirt for and you know, all how
45:28
Speaker 3: to get through permitting and find somewhere that they'll let
45:31
Speaker 3: you actually build it, and all of those things. And
45:34
Speaker 3: then in the opposite sector, it's easy to say investors
45:38
Speaker 3: are being greedy and they just you know, they want
45:40
Speaker 3: more and more and more, right when the if you
45:43
Speaker 3: look at the actual deal dynamics, the deal dynamics are
45:48
Speaker 3: about the same, and they've just adjusted themselves over time
45:52
Speaker 3: to try to keep up with the increased cost. So
45:56
Speaker 3: you've got to have a healthy medium that helps bad
46:00
Speaker 3: balance this out. And the only way to do that
46:02
Speaker 3: is with a hybrid model, because it will empower both
46:07
Speaker 3: sides of the industry and most importantly, will empower the
46:10
Speaker 3: residents to have more flexibility in the way that they
46:13
Speaker 3: move through the market. I don't want a resident who's
46:16
Speaker 3: living in an income restricted property to be afraid to
46:20
Speaker 3: take opportunity, which a lot of times is what happens.
46:24
Speaker 3: Because if I'm going to get a raise, but it's
46:27
Speaker 3: only a two dollar raise, and that two dollar raise
46:29
Speaker 3: could lose me my housing, then do I really want
46:32
Speaker 3: the two dollar rais I can't find anything affordable. So
46:35
Speaker 3: there's there's a lot of complexity there.
46:38
Speaker 2: And and when you even layer in the punitive aspect
46:43
Speaker 2: of savings having to make it have a savings account.
46:48
Speaker 2: Pay down debt, right, you know car repair, you pay it,
46:52
Speaker 2: you know you do it with a credit card, and
46:54
Speaker 2: then you pay off the credit card. Well, you know
46:56
Speaker 2: you want to have the income increase to be able
46:59
Speaker 2: to pay off your debt. But now, wait a minute,
47:02
Speaker 2: I'm actually not paying off my debt because my rent
47:05
Speaker 2: went up. Like there's pieces of this that are not
47:08
Speaker 2: making sense, and nowhere in that model does it really
47:12
Speaker 2: account for that. I mean medical debt aside things like that,
47:16
Speaker 2: but I mean, like car repair, a really dynamic of
47:22
Speaker 2: having to make ends meet. So and the current model
47:27
Speaker 2: just doesn't doesn't really provide for the person to get
47:33
Speaker 2: to that next level of economic attainment. Yeah, and that's
47:37
Speaker 2: what that's what you're doing here, is that you're saying,
47:40
Speaker 2: hold on, We've got a model here that can still
47:43
Speaker 2: address affordability, still bring in private capital, still be accountable
47:49
Speaker 2: through the nonprofit and all of the dynamics of that,
47:52
Speaker 2: and yet doesn't doesn't boomerang against the person who this
47:58
Speaker 2: was intended to benefit. Did I summarize that correctly?
48:03
Speaker 4: It was beautiful better than I could say. Well, I mean, like,
48:07
Speaker 4: you know, the policy is what the policy is. The
48:10
Speaker 4: regulations are what they are, and that is fine for
48:15
Speaker 4: the day to day.
48:16
Speaker 2: I mean, we're in the business, you know, we're in
48:18
Speaker 2: the business of making sure those regulations are compliant and
48:21
Speaker 2: they're doing what they're supposed to do. But it clearly
48:24
Speaker 2: is not enough. I mean, we have like twenty and
48:26
Speaker 2: forty thousand people on waiting lists, so it's not enough.
48:31
Speaker 2: So what you're bringing to the table with their Impact
48:34
Speaker 2: Fund is bringing a whole new menu here to the table,
48:40
Speaker 2: and that's what I believe you as founding a managing
48:43
Speaker 2: partner here. I'm happy to have had you on the
48:47
Speaker 2: change Makers podcast. Is there something we did not cover
48:52
Speaker 2: that you really want.
48:53
Speaker 3: To say here?
48:54
Speaker 2: Because we could go on talking about this unique menu
48:58
Speaker 2: on the table here for a while, But anything else
49:02
Speaker 2: you want to mention before we close out here.
49:05
Speaker 3: I'll just leave people with the You know, I think
49:08
Speaker 3: we all have to collaborate more, and so I would
49:13
Speaker 3: welcome anyone to uh to add me on LinkedIn Lauren
49:17
Speaker 3: Taylor Dreer and if you want to talk about things
49:22
Speaker 3: that you're working on. I'm excited to do that. Every
49:26
Speaker 3: segment and all of the people that I'm meeting since
49:29
Speaker 3: I've been in the affordable housing sector has been very
49:33
Speaker 3: invigorating and just bringing new energy to me. I was,
49:37
Speaker 3: you know, I very good at a segment of business
49:40
Speaker 3: that I did for a long period of time, and
49:42
Speaker 3: so this is humbling in a lot of ways. I've
49:45
Speaker 3: get to learn so many new things and I'm just
49:48
Speaker 3: excited to try to be here to help be a
49:52
Speaker 3: part of a solution and a group of people that
49:55
Speaker 3: are that are all working towards that.
49:58
Speaker 2: Well, Lauren, thank you so much for the time. I
50:01
Speaker 2: know our listeners are going to be eager to hear
50:05
Speaker 2: this creative model that you are working in, and we'll
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Speaker 2: keep spreading the spread the information so you can have
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Speaker 2: plenty of tools, investors and markets to make all this work.
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Speaker 2: So we uh, we want to magnify that and make
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Speaker 2: sure that you keep moving that forward. So thank you
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Speaker 2: so much, Lauren.
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Speaker 1: Thank you, thanks for listening to change Makers with Katie Gore.
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Speaker 1: To find out more about Katie, go to quad L
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Speaker 1: dot com. That's qu a d e l dot com.
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Speaker 1: This has been a production of Forbes Books Radio