The Housing Solution Hidden in Plain Sight
Transcript
Atif Z. Qadir 00:10
Welcome to American Building. I'm your host Atif Qadir. Join me as we explore the skylines and strip malls, the crosswalks and rail crossings, the balconies, the buildings and the boroughs shaping the next generation of real estate. Let's build common ground.
Atif Qadir 00:32
Today. Our guest is Cecily King of Kipling Development. Kipling development is a real estate firm dedicated to building inclusive, community-centered projects that promote economic opportunity and housing equity. With a strong focus on Detroit, the company works across public, private and nonprofit sectors to deliver developments that not only revitalize neighborhoods, but also create long term value for residents, and by blending design policy expertise and a deep understanding of urban dynamics, Kipling Development is shaping the future of equitable development for the city.
Atif Qadir 01:14
Cecily is the founder of Kipling development and a driving force in urban revitalization. With a background spanning government, nonprofit leadership and private development, she has played a role in reshaping Detroit's housing landscape. Previously, she served as the Development Director for Detroit's Housing and Revitalization Department and as executive director of the Live6 Alliance. So she brings a holistic approach to development, and as a Princeton and Columbia grad, she gives back in teaching real estate at Columbia GSAPP, mentoring the next generation of industry leaders.
Atif Qadir 01:52
Today, we will be talking about Trumbull Terrace, a mid size, multi family building in downtown Detroit. Cecily acquired this property just last week. And bigger picture, we'll discuss how to find naturally occurring affordable housing opportunities like this one. We'll talk about accessing public financing like from Fannie and Freddie, and we'll talk about raising private capital. So thank you so much for being here with us today, Cecily.
Cecily King 02:21
Thank you so much for having me. I'm excited to be here.
Atif Qadir 02:23
So taking a step back, tell us about your experience as an engineer, an entrepreneur and a nonprofit leader early on in your career.
Cecily King 02:34
Yeah, absolutely. I'm lucky to have spent most of my career in real estate, really, my entire career in real estate, just on different sides of the table. So I started out as a structural engineer, and I loved it, but I realized I wanted to understand the bigger picture, and I did that through, you know, sitting at project tables where you're sitting there with an owner's rep. I, as a structural engineer, I am a subcontractor to the architect who's making decisions with the owner, who has a representative that's representing the decisions and the outcome and the strategy that they're trying to pursue. And that was really fascinating to me, and I'm being brought on to design a beam within a really cool building. But how did we get to the point where we decided that this should be the building that goes here and has these functions and serves this particular set of people. And that really is what drew me into wanting to understand more about the bigger industry that I was designing as a part of.
Cecily King 03:32
I think I always kind of had a fascination with real estate, really around housing. Housing, I think, is the one thing we can all understand. We either, you know, either positively or negatively, into where we are supposed to live or where we do live. And remember driving around as a kid, and, you know, my parents owned a home, but there were always these apartment buildings that we would drive by, and I wanted to know who owned them. And it wasn't until I was older that I put together the fact that my grandmother had a triplex in Newark, New Jersey from, I think maybe the 50s or 60s. And so she was, in essence, a landlord from the time that she was raising her family all the way up until she passed away a few years ago, she would live in the bottom unit and rented out the upper two. And so this idea of of someone owning or stewarding over housing was something that I was exploring without really understanding what the question I was asking for actually quite a long time.
Atif Qadir 04:24
So as you were driving with your parents in the suburbs of New Jersey and making these observations, or starting to ask these questions of who owns properties, so you went on to become an engineer, and then start your career off in real estate. What were some of the observations that you started making about housing in terms of who gets to make decisions, for example?
Cecily King 04:47
It's no secret that I am a woman and I'm a black woman sitting here, I will offer that information. But even as an engineer, I was often, you know, the only one that looked like me in a design room. And then I think even today, in the real estate industry, I find myself being one of the only that looks like me, especially in a role of property owner, property investor, you know, the one who's meeting the seller. They're not usually expecting to see someone like me walk up to be at the other side of the closing table from them. And yet, housing, which is really the focus of Kipling, everyone lives in housing. And so I think that's one of the things that has struck me over and over again, is inclusion in people making choices about housing that is being built and for whom and how does it serve a range of people.
Atif Qadir 05:38
And when you're talking about who owns housing, how it serves different people. I think implicitly, there's a problem with how housing is built and how housing is accessed. So you've had the opportunity to live in different cities and have experience at different places. What were some of those problems that were the ones that really were the push to get you to want to start Kipling Development?
Cecily King 06:01
Yeah, I think access to stability of housing has such a impact on how you get to experience life. You probably want to live near where you work, because it cuts down your commute, right? And so even as I think about where I live in, in various cities, I've always tried to live close to where I work, or where I want to, you know, spend time. I want to live in a nice community where it's safe, where, you know, I love architecture, so maybe some interesting architecture, great streetscape, all of this, where it's safe, it's a fun place to live. And so I think being able to access that has been a privilege for me, but I don't think it should be a privilege. I think it should be something that is accessible to a range of people, not just based on how much money you make.
Atif Qadir 06:50
And I think specifically, we talked earlier about the urban experience in different cities. So for example, you had mentioned cities like Richmond, Virginia, and then we talked about Durham, North Carolina. Tell us about the through line in cities in the south and how different types of people experience housing.
Cecily King 07:11
Yeah, I think it's in almost every city. You can even just by the physical makeup of buildings or streetscape or the surrounding environment, you can tell the difference between wealthier communities and maybe communities that are missing investment or have been neglected or overlooked, whether overtly or accidentally. But I think what was really interesting about Richmond is my family is from down south. I was born and raised in New Jersey. Richmond was the first place that I lived where it also had the American racial overtone of black and white, especially in terms of the historical legacy of slavery in this country. And so you could even see, in addition to the economic divide, either a lot of racial overlays to that divide as well in Richmond, contrasting that with a city like Detroit, which is majority black. It is a really interesting observation too, because some of those same challenges, a lot of those same challenges even exist in a city that has a majority minority, if you will, a population too.
Atif Qadir 08:14
And I think one of those tools that end up resulting in the different experiences for housing and challenges to housing access is infrastructure. So could you talk about what some of those observations were and how the access and the quality of housing is impacted by infrastructure?
Cecily King 08:31
Yeah, absolutely. So one of the things that was really obvious in Richmond, again, majority US city with, you know, strong highway infrastructure. But with that strong highway infrastructure, it was obvious where the historical, there was a historical black neighborhood in Richmond that was you can visibly see the scar of the highway in this particular community. And it's one of those places where you know it happened decades ago. But the reality of that is, even if time has passed, the fact that you can't cross this highway to get from, you know, warehousing is to downtown jobs in a way that makes any type of sense is structurally embedded in that community. Detroit, similarly, there are stadiums and casinos and highways that were built over historical black neighborhoods of Detroit. There's actually a really interesting documentary that a few friends of mine have been promoting that they're completing. I think it's a seven part series. I'll share the link with you.
Atif Qadir 09:34
Amazing we'll include in the show notes.
Cecily King 09:36
Yeah, that they're rolling out specifically around how infrastructure erased black neighborhoods and how they're trying to rebuild them today, decades later.
Atif Qadir 09:46
So these observations and understandings that you came through across your time as a student and then as a professional inspired you to start Kipling Development. What's your company's mission or vision?
Cecily King 10:00
We're focused on housing. And you're gonna hear me say housing a lot during this show, but for me, like real estate is something that touches everyone. It's the physical environment that we live in. And I think a lot of people go through the world without thinking about real estate, but they intersect with it, whether it's where you go to school, where you live, housing, where you go to work, grocery stores, all of those things. And so for me, Kipling was really important to form because I love and understand real estate, and I'm interested in being in it, being used in service to people in a way that is necessary for them. And so for us, we're really focused on housing, and we're focused at housing, on housing that's accessible to a range of incomes. There is a lot of funding sources that focus on low income housing. You may have heard of low income housing tax credit.
Atif Qadir 10:51
Sure.
Cecily King 10:51
It's necessary as obviously the luxury market, if you have enough money, you're on the open market, you can buy whatever you want. Or there's a lot of America that falls in the middle. You don't make enough money to afford luxury, you make too much money to be supported, and yet, that's where a lot of our housing sits. We discussed earlier today about the fact that the majority of rental housing in United States is actually owned by mom and pops, and we call mom and pop, but it could be, you know, more sophisticated or less sophisticated. They're not owned by corporations. They're not owned by businesses, quote, unquote, if you will. They're owned by people like my grandmother, who, you know, own property, and they're going to price the rent based on what they either think the community can afford or what they need to charge in order to be able to pay things like their mortgage or property taxes or whatnot. And so that housing that is accessible to most of us as Americans, especially for renters, is going to move with the market. And if someone is willing to pay more, that landlord will probably accept more. And so then that makes that housing unit automatically unaffordable to the people who may have lived there before. And so it starts to create this - it doesn't create, it just means competition spreads within the market. And so for us, being able to provide housing that is affordable to a range of people is a pillar of our mission.
Atif Qadir 12:13
Excellent. And to give our listeners some context to those important issues that Cecily just described, LIHTC is the, as she describe, the Low Income Housing Tax Credit Program. It's been around since the Tax Reform Act of 1986 and it's created about three and a half million housing units in that time. And the budget allocation is typically around $10 billion a year. And then in terms of the amount of housing units that are rental housing units there are in the United States, there's about 50 million of those, and mom and pop landlords form around 41% of them. Mom and pop owners own about 41% of the 50 million. But when you start slicing and dicing that you realize that there's some really interesting realities, which is that when you focus just on one to four unit properties, that's a subset of which 70% are owned by mom and pop investors and owners. And when you focus just on single family units, single family rental homes, those about 80% are owned by mom and pops. And what ends up happening is that that creates huge differences in the housing quality, the ability to access it, the ability to finance it, and results in huge differences in the way that people experience their housing. And one additional note is there are jurisdictions that say, for example, both of us develop and invest in New Jersey. There's jurisdictions that carve out one to four family units as exempt from housing rent controls, which means that those types of landlords, which form a voter base for elected officials are not tied to the same types of controls that more institutional owners that typically own larger buildings are. So I'm curious, from your experience, do any of those realities ring true for you, Cecily?
Cecily King 14:00
Yeah, they do. And I think in that observation, even in people that own one to four unit properties or single family properties, those were some of the owners that faced a lot of challenges, even during COVID, when we had the rent moratorium or the eviction moratorium, right, but they still owed their mortgage to their lender. So I mean me sitting on the other side of watching someone like my grand like my grandmother, who would have said, well, I can't accept rent, but I still own my bank. I have to pay property taxes. There's this no man's land that we don't necessarily talk about. We definitely talk about developers. We definitely talk about, you know, the federal government funding. We talk about large apartment complexes. And, you know, we have NIMBYism with, you know, large multifamily development when it comes to affordability, but most of the rental housing that we're talking about is actually not these big apartment complexes with a pool and a community center and, you know, parking lots around them. So it is a really interesting conversation to understand the spectrum of housing in the United States. Just again, why Kipling is really interested in hazard.
Atif Qadir 15:03
Yeah, I think there's definitely an avenue for the demonization of developers and investors when the reality you can just see these numbers bear it out is that the vast majority of those owners aren't the ones that you can draw like cartoon horns onto their pictures. Oh, yeah, that's really important to know. So we talked about the why of your company at Kipling Development. Tell us about the how. So how's your company structured, and who all is involved from like GP, LP, et cetera?
Cecily King 15:32
Yeah. So I am the sole owner of my company. I own 100% of it. I hired my first full time employee last year. I've had people who work as contractors, and you know, you know, 1099 contractors and whatnot, but in terms of the commitment to pay someone every two weeks and benefit, yep, I made that decision last year in the name of scale. We have opportunities and partnerships that have presented themselves to us. And to be able to do that, I needed to bring on someone else to, you know, help steward a lot of that. And so it's been a wonderful opportunity for us to grow. We looked at a few thousand units last year with the help of another, you know, with the help of this additional person, and we were able to either keep under contract with a goal for closing, or we walked away. We were able to, you know, cycle through and decide, you know, this isn't the right fit for the company. Let's look for something else. So in terms of the how, Kipling has been focused on acquisition of naturally occurring affordable, but we look for opportunities where we can either improve housing experience, so where we can do some rehab for existing tenants that live there, existing residents. And we look for opportunities where maybe there's vacancy, there's vacant units within that particular property that can be rehabbed, and we can add additional households.
Cecily King 16:50
And so for us, that has been the, you know, the North Star that we've defined. We want existing residents. We would like to add new residents, and we want room to be able to improve the housing experience through rehab. And so we've looked at that in a couple of different ways. There are, probably, I would call it two buckets of projects that we look at. Call it under 50 units. Let's call it maybe half of the units are renovated and leased up, and maybe the other half need to be completed. And so we have room to be able to add additional residents. We typically raise that to what I call a friends and family plus round. It's the check size. The equity check size makes it so I can have truly friends from college or even my parents have invested in real estate for the first time with me. So it really is friends and family plus. And then there's another bucket of more apartment complex type acquisitions. Call it 250 to 450 units. It's not really a friends check size. It is where we're looking for institutional partners, and we're lucky to have had conversations with people, institutions, partners, CDFIs, that have funds that our focus on this preservation of naturally occurring affordable housing. And I think for us, the last 18 months or so, there have been a lot of policy intersection with the work that we want to do and the work that cities or municipalities or partners want to see done. And so being able to figure out how those things overlay within our project pipeline has been a real focus of ours.
Atif Qadir 18:23
So that's a great segue into the project that we're going to focus on the interview, which is Trumbull Terrace, and that's a property in Detroit. So tell us about it in terms of height units, cost, all the good stuff.
Cecily King 18:37
So Trumbull Terrace is one of the first bucket was smaller size, friends and family plus. It's 28 units. This property actually was built originally as a LIHTC project, a low income housing tax credit project. It was affordable to people making, let's call it 30% of area median income, 50% of area median income, depending on the actual commitment for the last, for 30 years. At the end of 30 years, that affordability restriction can come off, and it seems like there was a sale that happened from someone committed to affordability to someone not committed to affordability. The building, unfortunately had fallen into disrepair. It was emptied out. The tenants were emptied out, and the current person that I bought it from had purchased it from that intermediate owner and started the renovation. They got to renovating half of the units, leased them up and left the remainder. I don't know the story. I'm not part of that ownership team, but I could imagine there was probably not enough capital. Maybe partnerships dissolve, or, you know, frictions arise or whatnot. But either way, it was interesting to me to walk to this property because it's in a fantastic location.
Cecily King 19:47
It's two and three bedroom units. It's a really well built building, really homey floor plans. And some of the units that weren't where the rehab wasn't finished were like, 95% complete. And I'm like, if you just spend a week, you could have more cash flow, you know. And so I obviously am okay with you leaving it like that, because then I can come in and reap the benefit of your almost finished work. But when I say the property was a blessing for Kipling, to use that word, we're a mile from Ford's new headquarters at the Michigan train station. We're just outside of downtown. We're located in one of the premier historic neighborhoods of Detroit, and we're near Wayne State University. We're near the medical centers, so a few different hospital systems in Detroit. So in terms of location, access to jobs, access to transit, connectivity, it is a really important property, and I think from a design perspective, again, serving families, especially families with children. When you're talking two and three bedroom units, you can rent to a family versus a studio in a one bedroom. And so I could imagine a family renting this place. There's outdoor space, it's a safe area, there's a school on the next block. And so I think in terms of what Kipling is trying to provide in terms of housing, this is one of those perfect opportunities where it used to be affordable, it's no longer affordable. What does it look like to make it fit in the commitment to affordability that Kipling wants to have for properties like this?
Atif Qadir 21:15
So as you mentioned in your response, there might have been some strife or some issues that prior owners.
Cecily King 21:22
I can only speculate.
Atif Qadir 21:23
We can we can only speculate. But what I thought of right away is Arrested Development. And given the stat that we said earlier about the majority of rental properties being owned by family businesses, there's a lot more arrested developments than just the Bluth family.
Cecily King 21:39
There definitely are.
Atif Qadir 21:43
So it sounds like a great building. Tell us about the state of the renovations that are currently done, what your plan is, and once it's all finished up, and our listeners come through the building, if they were to see it like, what would that experience be like walking through? What do they be seeing? What would they be experiencing?
Cecily King 22:02
Yeah, so I will commend the previous owner. They did a fantastic job on the renovations that they did complete. So we really do intend to carry that forward. From a design perspective, we like the choices that they made. They are simple and clean and homey. I think one of the most important things for us about this property, again, two and three bedroom units, we see ourselves renting to professionals, young families. I think for me, I'm a parent, so when I walked through this property, especially a three bedroom unit, I could see where my children's bedrooms would be. It was a really accessible floor plan. There's laundry in the unit. The kitchen is nice. And so even some of the choices that we make are really geared toward making these homey, functional units. And so if you were to walk through you know this property, run a four month construction timeline to finish the remainder of the units. So say you walk through in six months after construction desk is cleared out and a few families have moved in, one of the things I love is the outdoor space. It's a fenced complex with outdoor space. So I would like to see kids playing outside. There's a sense of community here that I think we want to continue to foster. Inside the units, we make choices like, it seems a little silly, but sometimes my, you know, DC might bring to me this amazing like white countertop, and I'm like, I have children like the marker and the seasoning alone makes that not practical. So I'm always looking for things that have design or veining in it, pattern in the countertop I pick, or, you know, door handles that are durable to little hands, you know, yanking and pulling on them. So there's choices that we've made with the eye toward this being somewhere a young family can start to build their lives, and so that's what I'm hoping you'll be able to see when you come visit in a few months.
Atif Qadir 23:48
Amazing. And a big portion of being able to take on a project and do a renovation versus a new construction is risk management. That's super important and tell me about during the due diligence process, during acquisitions and during ownership, how you assess and then mitigate risk for yourself?
Cecily King 24:10
That's a great question. One of the things I always caution my students, my real estate students, about is thinking that you're the exception. Like, I think the developer ego is very real of like, well, they couldn't do it, but surely I can. And so I think it's important lesson for people to learn, and I'm always cautious about I'm buying something that someone else, for all intents and purposes, failed at, what makes my approach different? Or why do I think I can be successful? And for me, it's a hard question to ask. I tend to be conservative. Even as an entrepreneur, I'm pretty risk averse, and so I probably don't even take as many shots as I should, because I'm being conservative. And so I think with this property, one of the things that was reassuring for us is I know this neighborhood really well. I own other property in this neighborhood. Neighborhood. I know I have a great relationship with the neighborhood development organization here. And so in terms of this market, I know it really well, and so that's why I was surprised that this property hadn't been completed, because I think it's a really key opportunity in this particular neighborhood. And so that gave me a level of comfort at the beginning.
Cecily King 25:19
In terms of de-risking, we were really fortunate to put this under contract around the time that the city of Detroit passed a specific type of tax reform that opened up a new tax treatment to naturally occurring affordable properties. Historically, the payment in lieu of tax structure has been limited to those who have committed to maybe low income housing tax credit or taking other public money. This project we bought with private capital, private lending, no city subsidy. And so this new pilot ordinance allows us to willingly commit to a level of affordability, an average level of affordability, and they give us a reduced tax bill in exchange for that. And that tax bill is built on a sliding scale based on the depth of affordability that you commit to. And so from a risk perspective, we were able to immediately control our operating expenses by removing the unknown of real estate tax assessment. And so that, again, gave us another level of comfort. And then we have a the last piece of that is, again, comfort with this particular market, we have a fantastic broker who has great relationships here and with some of the institutions around. So I think there's even a world where we're able to prioritize some of these units for professionals and families that work at some of the hospitals or local schools or whatnot in order to be able to build our resident pool.
Atif Qadir 26:48
One other piece of risk management that's become more front of mind the last couple of weeks is construction costs. Tariffs are now in place for all imported steel from around the world, and then wood was also an important consideration for small to mid size construction for wood framing and Canada is one of the significant importers of wood into the United States. Also, I believe, tariffed as well. Tell us about how you are looking at projecting and adding contingencies to projects to make sure that you're able to complete the things you need to complete.
Cecily King 27:27
Very good question and like, uncanny timing in some sense. I've had a project in the past where it was new construction,and this cured me of my like, pursuit of new construction, by the way. When construction costs spiked during the pandemic, so call it '21 '22, I had a new construction project ready to break ground, and costs escalated. Since then, part of the shaping of Kipling development in the pursuit of acquisition with cash flow, is a risk mitigation strategy. I'm not building something from scratch where you have to plow money into the ground first to create value that you hope exceeds your construction costs. I'm buying a quality product already that has cash flow, and we're trying to add to it. So the real focus on value add through acquisition was a tactical decision by Kipling in order to be able to mitigate some of that risk.
Cecily King 28:20
Now it doesn't absolve us of everything, because, to your point, carpentry is wood. We try to stay away from deep structural revisions, which then allows us to stay away from steel. But at the end of the day, you know there are component parts of anything, whether it's a furnace or otherwise, that are going to be tariffed or taxed, or the cost is going up on those pieces, and so we do see construction costs increase. So we're holding, you know, healthy contingencies on this project for that reason. But a lot of the improvements that we're making are, yes, you make some infrastructure improvements, like roof et cetera, but we're not building anything that's ground up. And we're not making, we're not gut rehabbing, if you will. These are mostly, they're infrastructure improvements in terms of HVAC and electrical and things like that, but then also cosmetic improvements. But we look for there's kind of a band of things we're not looking at right now, simply because we can't control that risk.
Atif Qadir 29:19
Amazing, and it's basically the MO, or the modus operandi, for developers is expect every like thing thrown, every knife thrown at you, and you just have to basically dodge it as it's coming. And for folks that want a little more context on that, the wood framing that I mentioned, that Cecily just talked about, so 80 to 90% of soft wood imports into the United States, lumber imports come from Canada, and based on the increased tariffs, the effective tariff rates now 40% on that imported lumber. So if you're doing things like single family home, new construction, if you're doing major extensions or renovations of small sized buildings, holy smokes, is that going to be an issue for you.
Cecily King 30:03
Yeah, it really is. I mean, ground a lot of projects to a halt before. We're still in some markets are still coming out of that halt to construction. And this additional, like concern of what the implication of tariffs is specifically on the construction and real estate industries, I think is going to be something that will be playing out. I'll be keeping my eye on for sure over the next couple of months, and hopefully not years.
Atif Qadir 30:26
And so will everyone else in the construction industry. So, Trumbull Terraces in Detroit. Where are the rest of your past projects, current projects and future projects?
Cecily King 30:36
Kipling also has been a consultant and continues to be a consultant. We consult around the United States. Again, on multifamily, some of our clients have included public housing authorities, but from an investment perspective, I mentioned at the beginning, I'm born and raised in New Jersey, and so even though I've been working in Detroit for the last 10 years, I still have a soft spot for my home state. It's definitely a different setup in that there's a lot of tiny, you know, there's a lot of small municipalities everywhere. So it's not necessarily like there is a one Detroit that I'm focused on. My grandmother lived in Newark until she passed away a few years ago. My father was raised there, and so I do have a specific connection to Newark. And I look at projects there. I'm supporting some projects there. I'm co-investing in some projects there. But I think broadly, when I think about housing access, one of the important infrastructure pieces in New Jersey is the rail line and the commute to New York City. So that's why it's not just Newark for me, but it is what is accessibly priced housing or attainable housing look like along the rail line to improve people's opportunity, to improve people's access to jobs that allows them to stabilize their family experience.
Atif Qadir 31:54
I think that that's going to be a good segue for us into some of the areas I wanted to focus in as we zoom out and go more bigger picture for some of the takeaways for our listeners. We've talked about naturally occurring affordable housing, both from your past portfolio and your existing portfolio and things you want to focus in on, and that naturally occurring affordable housing is the link between affordable and luxury. So how do people find these types of housing? So if there are other developers and investors, or aspiring developers and investors, how do you find these properties? Where do they come from?
Cecily King 32:33
To the point that we talked about earlier, honestly, a lot of them are owned by non-corporations. So mom and pop. And I use that term loosely, just to categorize, you know, it could be a group of friends that own a property. It could be, it could truly be a mom and pop, husband and wife, couple that have owned this property for a long time, like in the case of my grandmother and grandfather. But I found it's not necessarily repeatable or scalable, but relationships. I've had a number of properties. The last few closings I've had have been personal referrals through a network, because they know I'm a developer. They've said, you know, there's a man who's owned this property for 30, 40 years, maybe 20 to 30, years, I won't say 40, 20 to 30 years, and he wants to retire. And so he's looking to sell the property and retire. And so it has involved me, you know, going to the property, walking around the property with him, while he tells me proudly about the work he's done with his own hands to manage and maintain. It's a sense of pride of ownership of this property. And he wants to retire. And so in order to do that, you have to hand the property over when you're that involved in, you know, managing the day to day of a property. And so that has been a repeat source of potential deals. Yes, there's, you know, the typical CoStar and whatnot, where you can, you know, reach out and, you know, try to make phone calls. That's another route that we've gone as well that has meant some success. But I found a lot of the one on one relationship, whether it be through the phone call with no introduction, or the personal introduction, both of those have been a way for finding those properties.
Atif Qadir 34:13
What I've done for deals in a Hoboken is use Property Shark to identify buildings that are not institutionally owned, or that have been owned for potentially a really long time by the same owner, and just basically knock on doors. And it's a fun way to A/B test different messaging. And I found that saying that, hey, I'm an architect, I purchased a building down the road from you, and I'm interested in your property and seeing if you're interested or have thought about selling. And as you tweak certain things, because you end up having a high volume of those types of conversations, if you're in like a dense urban area like Hoboken, you realize there's certain things that people latch on to and are empathetic to, and that's a fun kind of social experiment to do. What's been some of your experiences in door knocking.
Cecily King 35:03
It has been a fun social experiment. That's a good way to put it. I think I'm still figuring out. I'm definitely A/B testing and continuing to do that. I think what's really interesting for me is I'm never the person that they expect to say, I want to buy your building. So I've even tested the like, it's not me buying your building, but I'm, you know, representing a partnership that wants to buy your building. And so then I'm almost like, the broker or the real estate agent, and then there's a little bit of a softer introduction than like, hey, I want to buy your building. Because I found it doesn't compute for people. So it's really interesting that you say the A/B testing, because I try different things with different audiences, honestly.
Atif Qadir 35:43
Yeah, and I think it's a really good corollary, is, if you have a friend that's running for political office, knocking on doors. So I started doing that in 2017 when the current mayor, who's now the outgoing mayor, Ravi Bhalla of Hoboken, was running for office. I was like, You know what? I'm gonna knock on doors. And it actually was great, because it's like two birds one stone. You end up getting, like, a good perspective into people's homes. So they're literally opening their door to you. And sometimes I've been invited in. Actually, once somebody asked if I was interested in joining them for dinner, because they just enjoyed our conversation so much, but I feel like there's so many corollaries between local politics and being a small to mid scale developer, and one of those where they two really overlap is the deal sourcing slash door knocking.
Cecily King 36:32
Yeah, that's a great point. It's definitely something that I would consider, I think especially in like New Jersey, such a politically active state too. I think that could be a really interesting, I may borrow some of that tactic and try, you know, experiment with that in certain municipalities around the state, especially ones where I have relationships like that.
Atif Qadir 36:52
Totally, and then the role of the government, so the federal and state government, in housing finance. So huge topic, hugely changing topic. So what type of public financing have you used, or are you interested in using, assuming it still exists next week?
Cecily King 37:15
Next week or tomorrow.
Atif Qadir 37:17
Or next hour.
Cecily King 37:18
When we get off this podcast? Yeah, you know, so I am interested in all of it. I think one of the things that I've prided myself on in the evolution of my career is my ability to stack complicated capital stacks, to create complicated capital stacks, understanding what is the motivation or incentive a particular type of capital, and see where it overlaps or aligns with another capital and how it fits within a project, and so that, for me, is a really specific niche that I pride myself on. So I'm always interested in understanding the politics. So I think that hasn't changed, even in, you know, these recent weeks and months where there's been a lot of uncertainty in what federal subsidy or federal funds might exist coming from HUD or elsewhere. In terms of what I've been able to access, a little bit of everything from traditional HUD funds like HOME or CDBG or ARPA that came out of the pandemic.
Cecily King 37:21
I have experience with, you know, be it, you know, tax abatements to Low Income Housing Tax Credits. But even in the smaller projects, we've had great partners like the city of Detroit, who have been focused on preservation of naturally occurring affordable housing, and may have helped to fund reinvestment in existing, you know, residence units. Or the Michigan State Housing Authority had a grant that was focused on missing middle, 60% AMI to 120% AMI providing for creating and it was for sale or for rent homes for those households that fall into that band. That's typically not the focus of funding. We've had a great partner in the CDFI LISC, who was a national organization this two projects in a row they've financed for me with the focus on preservation of affordable. So even as HUD is shifting, and you know, the money from HUD trickles down to municipalities, to state governments, and even into other organizations as you see through some of the you know, the grant freeze conversations, understanding where people still want to deploy capital, they still are driven by mission. And so I think we're all working as an industry trying to figure out how to understand what will be coming down from HUD in terms of financing and resources, and how then can it be shaped and programmed in a way that still meets these objectives that we have as part of our mission.
Atif Qadir 39:39
So you mentioned LISC as one of those organizations. So for folks listening that want to engage with these types of opportunities, what is like the first thing they should do? Like, who should they reach out to to start off?
Cecily King 39:53
I always recommend reaching out to regional banks and credit unions. Those are the ones that really have a pulse on the projects that are happening at a local level, especially these mom and pop projects that we're talking about, the smaller scale projects, those are the lenders that I've had the most success with on those smaller projects. Yes, there are the larger organizations, like the LISCs and the enterprises, but they tend to work with developers that have experience, or they're focused on a particular missional outcome, or maybe a particular geography. But every geography has a regional bank, every geography has a, you know, a credit union, and most geographies do have a CDFI. So if you can look up who that CDFI is that is focused in that particular area where you might want to buy property or invest, I recommend picking their brain, because they really do understand the dynamics of the real estate industry that's local to where you're exploring.
Atif Qadir 40:46
I think that's a really great point that you bring up about the small to regional banks, because they form a major portion of commercial real estate loan providers. So local regional banks typically account for 70% of all commercial real estate loans, and by their nature, they are local with small footprints, so they likely have underwritten buildings in your neighborhood or even your own building if it's transacted before too. So for my development projects, I get my loans from Magyar Bank, so they're great regional bank here, and I've also gotten commercial real estate loans from Provident Bank, which is a regional, now it's become a super regional bank, so that's a really great, great tip for folks. And then also, Cecily talk to us about accessing private capital. So you were featured in a 2023 New York Times article by Colette Coleman, who's a wonderful writer, and she focused in the article on the difficulty that black and brown developers face in accessing private capital. So unpack that beautiful package for us.
Cecily King 41:47
Absolutely. So even what I said earlier about knocking on the door and saying to someone, I want to buy your building, and not usually the face that they expect to see on the other side of that door. Similarly, when I say, Hey, I'm a real estate developer. I have this particular project under contract, and I'm looking to raise equity for it, or I'm interested in having a joint venture partner. I'm not the typical face of real estate development, and so I have been able to focus, andI'm going to use the word blessed again, I've been blessed by the network that I have that has been supportive of me as a company that understands the effort and the skillset that I do have, and so even that friends and family set of people are repeat investors. And so when it comes to raising capital, it has been relationship based, but I recognize that relationships might be new for other people, but building relationships is a big part of capital raising.
Cecily King 42:42
But even in order to be able to raise capital, you have to be prepared. When the opportunity walks in the door, you need to be able to demonstrate what your vision is. You need to be able to show that you have a business plan. You need to have yourself ready to go, because even as you're building those relationships, you never know what that next conversation might be that is the yes that you're looking for. I think for me, there's been a big growth moment in raising capital from friends and family to institutional. I think we talked about Trumbull Terrace, which is 28 units, but in my pipeline, I have 480 under contract. And so that's a different equity check. That's a different capital raising experience. And so rising to that new threshold for me has been a growth moment, but I come to it prepared with experience, with relationships, with a demonstration of capacity. And, you know, as I, you know, make that step change, it's an ability for me to scale my company. So as we continue to fundraise for those types of projects that has been my new learning experience.
Atif Qadir 43:44
And then for folks that are looking to do their first set of family and friends checks or make that transition from family friends to institutional, talk to us about some of the tips that you will share to help people in those transitions.
Cecily King 44:01
I'm going to use the word relationships again. For me, one of the most important things is embracing from family and friends, especially if they're not seasoned real estate investors, is being able to educate about the risk. We talked about risk earlier on this call. But if I'm asking someone to take that risk with me, I wanna make sure they understand what it is. I think that conversation is a little different when I'm thinking about institutional because they're doing their own assessment of risk, right? That's the underwriting process that they're doing to participate in this project. But for me as a developer, I have to understand what my role will be, what the asks will be that are made of me and assess my ability to perform based on how an institutional equity provider is asking me to do. The idea of being able to really understand and scenario run for your own project, of if this happens, what then, whether it's for friends that you have a relationship with, and you know you're going to take their capital and be a good steward of it, or a larger institutional partner, you're gonna take their capital and be a good steward of it. Your ability to perform an understanding how to navigate uncertainty and risk is a big piece of preparing yourself for that.
Atif Qadir 45:16
Amazing. So in this interview, we've talked about relationships, we've talked about risk, we've talked about opportunity. We've talked about being able to really hone in on a mission and a focus, in this case, housing and naturally occurring affordable housing, primarily in Detroit for Kipling. So thank you so much for taking the time to be here with us, Cecily. This was a fantastic interview.
Cecily King 45:39
I enjoyed it. Thank you so much for having me. I appreciate it.
Atif Qadir 45:45
I'm Atif Qadir, and thanks for joining me on American Building. If you enjoyed this episode, be sure to subscribe on your favorite listing app and leave a rating and review. America's housing crisis is one of our greatest challenges. But what are the real solutions? Hear from the developers and other industry experts driving meaningful change. Get our exclusive guide: Housing in America: Eight Ways We Can Solve Our Way Out of a Crisis at americanbuildingpodcast.com.