The Magic of Places

[Originally published as part of the Good Neighbors Newsletter]

Real estate is an underwhelming phrase. Most people have just accepted that it means land and the buildings attached to that land. Or they think of it as a class of assets that usually go up in value over time. But this old English term fails to capture the magic of the places we spend our time, and how much these places define our experience as humans on this planet.

This mess of a year has shined a light on our places. We are sick of some, grateful to spend more time in others, and we long for those we’ve never seen before. But none of this is new. The COVID-era has simply pressure-washed away a couple generations of grime and expectations of where we should spend our time. We are left with a view that is raw, like new skin forming in the wake of a wound, accompanied by both fear and excitement for what lies ahead.

You may be in the “things will get back to normal after the vaccine” camp. You’ll commute back into the office everyday, and this will all be a year-long blip. You may be in the “office is dead” camp, never to return to your former world of meetings to plan for other meetings. The true answer of what will happen is less satisfying: it depends.

Yes, many companies have already moved to “remote-first” policies where employees can choose where they’ll work. Many more will follow. The rest are not set up for digital collaboration in the same way. They feel the fatigue of endless Zoom meetings and are counting the days until everyone is back in the office so they can do real, innovative work again. But the future of real estate is not a winner-take-all game. It will be segmented, depending on which game you’re playing. (Read this issue of Not Boring for a very good deep dive on this topic)

The game I’m playing is this: With this massive reset of expectations, I want to be among the first to meet the needs of a new market. Without the oppressive weight of corporate norms, there is an opening to introduce some new magic into our places. We need this magic.

What Is This Magic You Speak Of?

Magic is how you feel when you when you walk through the doors. It’s the opposite of the claustrophobia of your bedroom office. It’s the combination of people, ideas, and design of the place. The little details that quietly add up to something special.

Magic is the challenge to the status quo. It’s the rethinking of business models for a new era. It is building for people and neighborhoods first, rather than financial returns. And magically, this will reduce risk and boost returns moving forward.

Magic is a walkable neighborhood with access to real food and childcare and rents that don’t take up the majority of our income. It’s opening up access to jobs and job training and loans to start new businesses. And its access to beautiful places with grass and trees and basketball courts to relax and exercise and have fun. 

In short, the magic of a place bridges the gap of our digital, mental, and physical lives. We need more than four walls and a roof, and we need more than fun backgrounds on our video calls. We need experiences, and our places play a massive role. 

Someone Creating Magic:

Brian Murray of SHIFT Capital

Brian Murray, CEO of Shift Capital in Philadelphia, is an example of someone creating magic. I’ve admired his work for the last few years, and was able to catch up with Brian a few weeks ago to dive in and learn more. Here’s one example of how all of this can look in real life.

MaKen South, Philadelphia space for small batch manufacturers, office, and industrial studios

With over 2 million square feet of real estate in the Shift Neighborhood Fund, they are “re-energizing shuttered industrial buildings, refurbishing vacated residences to provide affordable homes for the community,” and sparking new life into Philadelphia neighborhoods many had long written-off as dead.

While the buildings and spaces themselves are well done, the magic of Shift is in their approach. They look at the needs of their tenants & residents and aim to support them through job creation, affordability, and improved health outcomes. 

For example, Shift has created a partnership called Health+ that combines free telehealth services through Teladoc and discount prescriptions through CleverRX for all of their residents. There is a clear link between housing and health, as illustrated by Diana Lind’s recent book that I find myself talking about a lot lately, Brave New Home. When you spend a few minutes thinking about it, it’s not at all surprising that a safe, affordable place to live can drastically improve a myriad of additional areas of life, from employment to suicide rates to education outcomes. 

Shift’s commitment to improving the lives of the people in their community is a rare and magical thing indeed. There are people who simply talk about making an impact. Brian Murray is someone who has not only set an example in the real estate world, but is making it a priority to help pave the way for others who have not yet been invited to the table. 

Here’s a deeper dive into what I mean, in Brian’s own words since they’re hard to improve upon:

On why creating these places is an uphill battle, especially for those with less privilege:

“There’s a reason why there are not a lot of black and brown developers, similar to the reason why a lot of real estate groups are generational. I went naively into real estate thinking it was an entrepreneurial world, but ten years later I feel like I’m still in startup mode because the capital intensity of the space is beyond anything I expected. There are so many barriers to getting deals done, whether because banks won’t talk to you unless you’ve done previous deals, or banks won’t touch the neighborhood we’re working in. I’m a white guy with a lot of gray hair, with a lot privilege to walk into a lot of spaces - and have advantages in those spaces. I think a lot about the people of color that have had to do everything I’ve had to do, but without the friends and family I’ve had and even greater banking and financial barriers than I’ve faced. The question for us is can we help those people take the leap from first project to real players in this space.”

He goes on to talk about both the barriers he sees in the real estate finance world, and what needs to change:

“We see ourselves playing a role in a few areas, from creating impact metrics, to inclusive programming, to the actual capital sourcing that will move the ball forward. We don’t want to focus on deals, we want to focus on operators. I want to find the operators who want to do it the right way, drive impact in communities, and I want to stick with them as opposed to trying to do one-off deals with folks across the board.”

One of the biggest challenges is pre-development and operating capital for smaller developers. These deals take a long time, and there are very few sources of pre-development capital outside of non-profit or affordable housing. Additionally, I think so many creative developers would benefit from being able to hire a team earlier. Everyone is chasing the LP capital, but there aren’t enough dollars going to the these stages of development.

Another challenge is our definition of risk. The impact investors who are saying “we want market rate returns + impact” need to adjust their thinking if they really want to make an impact. Most impactful projects that communities actually want can’t actually be underwritten by our financial system. We’re left with the Dollar Store as the only “credit tenant“ that allows deals to get done in certain neighborhoods. So I think an adjustment of how we view risk across the board is necessary. The truth is that small business entrepreneurs should be considered credit tenants as the largest group of tenants in the world. We built our brand and our business at Shift on maker spaces that no bank would touch. We got lucky working with Goldman Sachs Urban Investment Group, who had seen this happen in Brooklyn over the years. The reality is that the strength is not in one single tenant, but the market as whole and the value/experience of the place. Through COVID we lost 15-20 businesses in our spaces, but we filled those spaces right away. In a downturn we see more and more people trying new things, starting new businesses, and they will need affordable, accessible places to go. So we desperately need to take a very close look at how we treat small businesses in the real estate financing world.”

On Gentrification:

"Cities and foundations need to bring real estate people into their organizations. They don’t get it, because that’s not their world or expertise. They only want to talk about gentrification, instead of the cost of doing nothing. There is gray area here, and I get frustrated because the real issues for our neighborhoods get obscured by the fear of a politically-charged issue. Yes, displacement is real and to be avoided where possible, but often the alternatives to thoughtful development are either dilapidation or “parasitic” development. That is the real conversation we should be having.”

We Need More

Not sure about you, but this is very encouraging to me. I want to continue highlighting the work of people like Brian Murray and groups like Shift Capital. We need more of them in order to change how deals get done. We need more people challenging the system, changing the definition of risk, and supporting, educating, and investing in new developers. 

Magic only occurs in our places when we allow it to shine, when we don’t actively block it from happening. Our neighborhoods deserve better, so let’s open up the floodgates and strive for creative, profitable, vibrant, magical communities as our impact.