Atif Z. Qadir 00:03
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 Z. Qadir 00:25
Today’s guests are builders Jesse Russell and Ryan Andrews, CEO and CFO of Hiatus Homes. Jesse began his career in television production before pivoting to homebuilding in 2014, focusing on high-quality, small-footprint homes in the Pacific Northwest. Ryan started at PIMCO, was an early employee at proptech startup CrowdStreet, and later specialized in capital markets and development finance. Hiatus Homes is based in Bend, Oregon and designs and builds small-scale homes—from ADUs to cottage communities. Since 2020 they’ve raised $8M and deployed capital across four projects, focused on creating durable, energy-efficient, and community-oriented housing. Today we’ll discuss Hiatus Ninth, a for-sale project of twin homes, 1-bed cottages, and ADUs in Bend. Thanks for being here, Jesse and Ryan.
Ryan Andrews 01:32
Yeah, it's great to be here. Thanks for having us.
Atif Z. Qadir 01:35
Absolutely Okay, so let's start off in a place that's not a small scale development. We're going to talk about television production. Jesse, you started in television production. How did storytelling and the production process shape your approach to design and place making later on?
Jesse Russell 01:55
Yeah, sure. So I was a journalism major and thought I was going to become a documentary filmmaker, and was living in New York, and my first job was a reality TV show. It seemed like it was like documentary. You know, there was storytelling elements. You interviewed people. There was B roll. And that's just where my career went. I just became a reality TV producer. Got pretty fed up with the content that I was making. I was living in LA at the end of that, and I just wanted to get back to home to Bend Oregon, and we were having a real housing crisis. I was pitching some shows to a network that had a show called Tiny House nation, and that was the first time I'd seen tiny houses. And I went, you know, back to my office and looked, looked up tiny houses on wheels, and just got really enamored with it. And was like, I think this will work in Bend. So sold all my stuff and moved back to bend and built the first tiny house on wheels in a friend's backyard. And that house was called hiatus, and that's what we would go on to call the company.
Atif Z. Qadir 02:51
So Hiatus means a break from something. So was this a break from New York, a break from real life, or a break from what housing production had been before, perhaps all of these,
Jesse Russell 03:03
Yeah, maybe a little bit of all of those. At the time, for me, it was a hiatus from my life and my career that I had created and that chapter of life, you know, before I came back to bend I went to Europe for a few months, just to kind of like I was doing a lot of like, you know, self help, book reading and journaling and like, what am I going to do with my life? And for whatever reason, the tiny house thing was the thing that came up, yeah, and when I did the first house, and then went on to do the first development, a lot of the skills that I had learned as a producer in television applied to home building. You know, there was working with a budget, there was a timeline, there was cruise and so I think that's why I was able to kind of muddle through the beginnings of this.
Atif Z. Qadir 03:48
Ryan, you've worked across institutional investing, prop tech debt funds. So what did those experiences teach you about raising capital for this type of housing construction?
Ryan Andrews 03:59
Yeah, we really took a different approach to raising capital that I pulled from my background. So in 2012 the Jobs Act was passed, and that changed the way private capital was raised. Have been raised since the 30s. So, you know, 80 years, capital had to be raised for private projects, especially like private equity real estate projects you think of like smoke filled rooms in the back of the bar or something with like people that are in the know and people that you knew. Well, a lot of that was because the SEC rules were you could only market to people that you already had an existing relationship with. They had to be accredited investors. You could not publicly talk about your investment. And these laws were originally put in place in the 30s after the Great Depression, in order to protect the little guy, protect the investor. As 80 years and a couple generations go by, what these laws ended up doing was locking out a whole bunch of smaller investors that were classified as like unsophisticated. It. And so the Jobs Act changed the rules and allowed private equity type offerings to go out to everybody, publicly.
Ryan Andrews 05:09
And then there's a couple different classifications. Some of them you can still only bring in accredited investors. Some of them you can bring in just anybody. And there's some different rules that are still in place to protect investors, but that totally changed the game. I got exposed to that early on as an early employee at crowd street, so I'd moved to Bend I was working in institutional finance at the time for PIMCO, but I'd always wanted to get into real estate development, so I was working doing like investor marketing and investor management with bonds, which is so esoteric, like, what is a bond? It's like, it's like paper or Bloomberg obligation to pay. Yeah, exactly. It's not tangible the way real estate is. And I just, you know, that tangibility connected to me. I'd worked for a startup, raised venture capital that was like a tech company. And around the same time, crowd Street was getting formed here in Bend. It was still in its infancy, and ended up opening its office in Portland. And they've now moved a couple times since then, but I knew the owner, and so came on to do their early investor relations and investor management on that portal.
Ryan Andrews 06:18
And so that was when the whole JOBS Act stuff, and, you know, Reg D, 506 C offerings were just getting created, and you could raise money on the internet from people you didn't know for the first time. And, you know, ever, because the internet didn't exist 80 years ago. And so that gave me exposure to a total, you know, new type of capital raising. Then a few years later, when we formed the hiatus Capital Fund, instead of following the traditional path of like, well, we want to do a real estate development. Let's go find institutional private equity to back us. We said, Hey, good real estate projects, especially small scale real estate projects should be funded by the community. And if these projects really want to get done in the community, the community should fund them.
Ryan Andrews 07:07
And so we put a fund together in 2020 on the heels of a couple of successful, smaller, syndicated projects, and I raised capital from local investors. Raised about 8 million from 60 local investors to say, let's go to four projects. And so it was really successful in the sense that, like the community, responded super well to the offering. Our investors, we meet them on site, I don't know all the time. They want to drive by our stuff. They want to come to open houses. They want to see what they're building. They trust us. You know, we also live in this post Bernie Madoff world, but they can actually go drive by lots in their local community, like hiatus ninth, and see that it's there, and go to an open house and know that like you know, as investment managers, we didn't grab the money and go. That's been kind of my thread from institutional finance to more grassroots local investor raising, and it was that early exposure through crowd street that totally opened my eyes to this new style of capital raising.
Atif Z. Qadir 08:12
Okay, so we talked about raising capital on the small scale, which is coming from a lot of people smaller check sizes, and people driving by and hanging out on your construction site, which may not be happening if you're getting capital from PIMCO for your projects. Okay, got it. So these are a lot of differences. We have not directly talked about what small scale development is. So tiny homes, et cetera. Tell us the words that are being used so we understand the language. And then I want to hear from you why you think that's a solution to the housing crisis that we have in the United States.
Jesse Russell 08:52
Yeah, I mean small scale development. We specifically build houses that are between 500 and 1200 square feet, and we do, it's an infill development. And most small scale stuff is infill. So within the city limits, we take lots that you know, or older houses that are on large lots, and we put a lot more houses on those lots. And that was something that wasn't actually legal. When I came back to bend. And I tried to put four small, tiny houses on a 5000 square foot lot.
Atif Z. Qadir 09:24
And when you say legal is that through the zoning code, the building code, or both?
Jesse Russell 09:31
Both, yeah, mostly the land use code. So a residential standard zone, which is a zone, most of the lots in Bend are residential standard. The density was the first problem is that you could only have basically one house on a 5000 square foot lot. Now there's been a lot of legislation from the state, from Oregon State, and then adopted by the cities and adopted by the City of Bend that now allows us we have a whole building code called 3.8 building alternative. Is. And now there's a bunch of different building types that you can do on residential standard lots, including micro apartments, courtyard, shared court, small scale, small scale, small scale, small unit, small unit, default circle yield dwelling, yeah, which was what we used on Ninth, where we could actually make the lots a lot smaller than what was previously allowed. So that's the part of small scale development that we do.
Jesse Russell 10:24
But there's adaptive reuse. You know, that's when people go in and they find an old building and they make offices out of it. And some commercial and most small scale developers that I've dealt with, you know, they usually are from that community. They care about seeing something and making their community better through the building types that are there. We do kind of one part of that, but there's a whole array of it. But I would say the things that make a small scale developer are, you care about what the end product does, probably more than profit. You know, the first thing is, what is this thing we're going to put into the world? We know that it has to be profitable, but we are not just going and leveling 30 acres and putting in town homes.
Atif Z. Qadir 11:07
That makes a lot of sense. That's about a response to a need. It's about a way of rethinking the legal underpinnings of how things are built, zoning code, building code, and it's about serving what people need, slash can actually pay for does that sound like a accurate kind of summary?
Ryan Andrews 11:28
Yeah, I think so. Another way to look at it is kind of juxtapose infill development as compared to greenfield development. Okay, greenfield development is what takes place. That's like giant subdivisions outside of town, or giant office parks or big box retail on the edges of town, because you need massive 10, 2050, acre parcels that get bulldozed, flattened, and then roads, utilities are brought in, and then a master plan goes On top of it that's called, generally greenfield development, as opposed to infill development. And small scale developments are often like a type of infill development where you're working within a city, within density, with existing utilities, maybe an existing structure that gets demolished or adapted and reused or renovated, and additional density used, and it often has to do with the scale of the project. And so where green field development might be large phases of 50 homes each, or, you know, multiple big box retail stores and everything, small scale development is a different scale in the sense of, like, it's a small project.
Ryan Andrews 12:41
It's maybe it might be on a half acre, might be on two or three acres, but it's definitely in fill. And it tends to in Jesse's point of like somebody caring about the neighborhood, or having a connection to, like this thing existing in the world. It tends to be in the scale of the neighborhood. And so rather than trying to build, kind of like a monstrosity that sticks that, you know, a seven story building amidst a bunch of 100 year old cottage homes, or to mill town. So we have, like, old mill homes from, you know, 80 years ago. Instead of building a giant seven story building in the middle of that, maybe you build two or three stories, and it has some, you know, wood siding and some elements that kind of tie it into the neighborhood, so it doesn't look so different. And so those are some of the kind of objective and subjective elements of small scale development.
Atif Z. Qadir 13:34
Let's talk about a example of small scale development. So that's Hiatus North. So give me an overview in terms of the program related to that project, the timeline and where you are in that whole process.
Jesse Russell 13:49
Yeah, that's hiatus ninth. So that was a half acre residential lot. It had one house on it. When we got the property, because of some of that zoning and building code changes that I spoke of earlier, we were able to subdivide the residential lot into nine lots. So there's nine lots in the subdivision. And then what we built on there is also a building type that's been accepted by the city, and now we can build, which is a main house with ADU. In this building type, it's actually attached. So if you were to look at the building, it's got a butterfly roof, and you see you have on the first floor, you have a garage, a kitchen, living room, and then you go upstairs, and there's one bedroom, that's one unit, and then attached over the garage, accessed by the outside of the building is an additional unit, which is a lofted ADU. So we call it a twin home. That's just what we call it, but by code, it's actually an attached ADU.
Atif Z. Qadir 14:43
Talk to me about who you would or who actually is the customer segment for the main building, as well as the ADU.
Ryan Andrews 14:54
Yeah, I think we're so our chart customer there is a small household, so small. Households, which is one to two person households, is the both the largest and the fastest growing segment of households nationally and certainly in Bend Oregon. It's also the least served type of household, certainly here and generally nationally and so so much of what gets built is like that, green field subdivision style development, which tend to be larger homes on larger lots and are often just more expensive because it's more land, longer commute, larger home, as opposed to a small household. So what we've seen, especially with the millennial generation, and even going into Gen Z as their they've kind of grown up as well and are moving out. Is people have two options. Their preference would be if they're a one person household or a one or two person household, to have their own place, but maybe they're forced by the housing stock to go buy something more expensive in the suburbs, that's three or four bedrooms, but then put adult, unrelated roommates in in order to help subsidize the mortgage.
Ryan Andrews 16:05
And so if we can create a home that is designed for them, that's the right size for them that we try to call, or like to call, attainable by design, it's a small home for a small household. So these are not for families. There's lots of housing stock for families and people with children and two dogs and everything like that. This is a one to two person household, and the adu in the main home. It's the same target market. The units are almost the same size. One is a little bit larger and has the garage. One is a little bit smaller, but a really good layout. And so this is, you know, your young professional, millennial or Gen Z young professional. This is your downsizing Boomer. This is your multi generational household. We've had several people, potential buyers, walk through ninth that it's like an aging baby boomer parent, an adult child that's single and parent might need, you know, is still totally living independently. Might need some help a few years from now, wants to age in place. They each want their own space. You know, adult child wants to be able to go out on a date and come home and not have mom there.
Ryan Andrews 17:18
And so they've got separate entrances, separate walls, but they're close also, because Millennials and Gen Z ers really struggle to have the down payment to be able to buy a place, the multi generational household can work really well, because you might have a boomer that liquidated out of a larger property with a lot of equity and can come in on the down payment, and then they work out an arrangement to live together. And so, you know, it's a really flexible space, separate enough where you can have two totally unrelated parties and it feels like two separate homes, or you can have kind of related parties. So we think, you know, our buyers here could certainly be investors that are buying these and renting them out, two different parties, multi generational people, small households that love that what's starting to become known as a lock and leave lifestyle. So this might be like part time van lifers that work remotely. So think of a couple that has their Sprinter van, and they want to be on the road six months a year, but they also want to have a base camp to crash at. Well, this is great. It's very lock and leave, and it can generate income off the other unit while they're, you know, maybe away and just kind of leaving their unit. Somebody's on the problem, watching over it. You know, it's a really kind of new style of housing that caters to a new lifestyle that's emerged with these small households.
Atif Z. Qadir 18:45
I find it really fascinating, because you're talking about family units, or households that are far different than the traditional for past generations. So I want to dive into the nuts and bolts of the acquisition. So how did you source the site, and what made it attractive to you guys, despite being small and potentially not allowable originally, that type of construction you were thinking of doing?
Jesse Russell 19:12
Well, it came to a relationship. The two guys that are kind of, they're kind of, like many developers, you know, they work together, and they might flip, you know, find a house and flip it and do that sort of thing. They had purchased the lot and the land and came to us, and, you know, they saw what we were doing with cottages and, you know, this kind of denser infill and these smaller homes, and just asked us if we thought it could be a hiatus project. And so they became partners on the project. And I'll let Ryan kind of describe how it worked financially. But it worked, you know, really well, because we were able to do the entitlements without having to go and raise the money for the land. That was really useful, because these new housing types. And, you know, anytime a city adopts new code, there's some clunkiness to it, and it takes a while for the city. Staff to kind of figure it out if you're doing it for the first time, so that entitlement phase can sometimes be longer than we want it to be.
Atif Z. Qadir 20:07
And what were the key points when you were pitching this to the local zoning board for a variance like I would assume, because of being a city planning commissioner myself, is the automatic answer is, often, wait what? And then you have to go through the whole entire story.
Jesse Russell 20:24
Well, we've been really fortunate and to build to code and not have to ask for variances for any of this, because the the state has, you know, handed down some legislation that the city of Bend has been really, really proactive on adopting and like letting us as developers use that code. So yeah, we didn't have to actually do any variances. We used the small unit development code that was in the code books to do this project.
Atif Z. Qadir 20:48
Then in terms of the building process. So you guys do the design, because this is a relatively unique, interesting style of construction, and then you partner with builder to actually get it executed. So talk to me about that process of the design and construction.
Jesse Russell 21:06
You know, we were originally a general contractor, and we built our own homes. We did that for tiny we did tiny houses. We did tiny taverns. We, you know, did food trucks for a while, and then we did the first development. We were the general contractors on that. I was really the general contractor, the bookkeeper, the everything. And, you know, almost lost my mind completely doing those 22 cottages at first, and then, yeah, then we expanded. And now, you know, we have a design director who's an architect. We have a marketing and sales person that sells our homes. And then Ryan and I. So that process looks like us designing it. Sean is our design director, who's an architect. We designed the building. You know, we get the land. Ryan and I work to get the land use through the city. We create the lots. We work with a large horizontal contractor that comes in and does the roads and does all the utilities.
Jesse Russell 21:58
And then we've now partnered with a general contractor that's a really large Northwest general contractor that has great processes, gives us a guaranteed price, builds on time, and that was a long process to find a really good partner in that we've had a lot of bad partners as general contractors that don't build on time and don't build for the cost we originally had, and that can really screw a project up. So that process with simplicity is the name of the company, is great one. And they build, they build everything that we do now, yeah, we'll fit. We'll get the permits. We do all the permits, and get the lots ready, and then work with them on the first home with a bunch of construction touch points, where, when the foundation's done, we go down. I mean, we have a ton of touch points where, really, every week we're down there figuring the first house out.
Jesse Russell 22:42
But once the first house is figured out, all the rest of the houses are the same home. So now that we've gotten through the model home, we're basically every lot in the nine lots you could look at it, it'd be a good it'd be a good way to see how house gets built, because the first one isn't is just a foundation. Then you've got the sub floor, and then there's the framing, and then this one has dry wall, and then this one's finished. So you can just see across the development how a house gets built. Once we get that thing locked in, there's a lot less management that we have to do. And then once the home is finished, and we have co we're the sales. We do the sales.
Atif Z. Qadir 23:18
I see. Okay, so you guys are doing the sales in house. You have a licensed broker, I presume that's right. Yeah, got it. Okay, so what's your approach to the pricing of the units and the sales process overall? I'm guessing narrative is a big part of small scale development, and I'm thinking is also a part of selling small scale development.
Ryan Andrews 23:44
Absolutely, yeah. I mean, I think number one is getting people in the space. When people look at square footages on paper. So our main unit here is like 675 square feet, when you look at that, that number, that feels incredibly small. And so it's getting people physically in the space, because as soon as you step into the space, you're like, Oh, this is totally livable. It's big. There's high ceilings, there's tons of natural light, everything. There's lots of storage, lots of built in storage, because that's so important. When you have a small space, everything's been thoughtfully laid out. And so that's is just get people in the home. Then once they're in the home, kind of like talking to them, or they get it, most people that are attracted to it get it. And get the lifestyle of like, okay, I don't have a giant piece of property, a giant yard, a lot of maintenance. So I can bring things into my life that bring value to me. In other ways, I can, you know, spend my weekends mountain biking instead of taking care of a yard, it's easy to lock and leave and be gone for a month if I travel or take my Sprinter van or whatever it is.
Ryan Andrews 24:50
And so it's getting people in the space and then talking to them about the amenities that make that home a really good fit for a more minimalist lifestyle. Style of somebody that is like, you know, I want to bring things into my life externally, to bring value. I don't want to just be be doing maintenance on my large home. So helping people understand that, that's a big part of the narrative. The other part of the narrative that's kind of like the soft side, there's the financial side, where helping people understand, hey, with this. If you're buying this to be your primary, you're getting a primary and a rental property at once combined. And there's some real advantage that for a couple reasons. Number one, your tenant is helping to pay your mortgage, and you're earning appreciation on two units at the same time, instead of just one. Number two, it's easier to manage that tenant on site than it is to have a tenant on the other side of town or in a different city, because they're right there. They see you, you can take care of issues. Tenants, we've just found tenants tend to be more respectful when they're living in an adu on the same property as the owner. They're more respectful of the property and taking care of things or reporting issues, and also they're helping people understand of like, Hey, you're getting, potentially a rental home and a primary all at once.
Ryan Andrews 26:11
Right now you're going to appreciate the whole thing. There's new financial tools, even agency oriented financial tools like Freddie Mac that allow you to use the income from the adu to offset your mortgage, you can qualify for a larger mortgage for the whole thing, whereas even just a couple of years ago, that financial tool wasn't out there. So like, Freddie Mac would look at financing a property and be like, Oh, you gotta have enough income to cover both units. And as the buyer, you're like, Well, I'm gonna rent that one out, and Freddie Mac's like, well, we don't care what if you can't rent it out, we're not going to count that income that's all changed in just the last couple of years. And so helping potential buyers understand that as well. And then, of course, the multi generational buyer, as they walk through, they almost get it right away. They're like, awesome. We've got separate space, but we're close, you know? And so it's just kind of getting them to understand how the house is laid out. So they come and get a tour.
Atif Z. Qadir 27:10
Okay, so basically, getting people through the door,
Ryan Andrews 27:14
getting people through the door, is super key, yep.
Atif Z. Qadir 27:16
Okay, so you talked about, you touched on Fannie Mae, so they're a large government mortgage insurance provider and the buyer of packaged mortgages, or rather, they set the standards for packaged mortgages. Talk to me about the financing that you took for this project, given the relatively unusual construction and what that process was like, and give us a little bit more insight into the mortgages that buyers are able to get, and if they need any special dispensations like you were mentioning.
Ryan Andrews 27:50
Yeah. So we capitalize this project in three different stages, and it's kind of unique, but it's something that we like to do, and we try and spread the word of like, kind of this style of capitalizing, because we think it fits really well with these infill projects. So we work with a lot of landowners that care about what gets built on their property, and so it's not just like a ranch on the outskirts of town, again, to that greenfield development they want to sell to a national home builder and move on. Instead, a lot of these people care about what gets built on their property. So when our partners on this project bought the land, they bought it with their own capital and purchased it and held the land for us for about a year and a half while we worked through entitlement. So that was stage one.
Atif Z. Qadir 28:41
If you appreciate thoughtful design forward jewelry, you'll love the Mira shoppe. It is an ethical fine jewelry brand that offers artisan crafted pieces from developing countries. From its sales, it supports educational opportunities for girls worldwide. I shop there myself, and can personally recommend their unique, beautifully made products. Check them out at www.themirashoppe.com and that's spelled T, H, E, M, I R, A, S, H, O, P, P, e.com, American building podcast listeners get a complimentary gift with their first purchase. Just email info@themirashoppe.com to receive your exclusive code and treat yourself to a piece you'll cherish while supporting a brand that gives back.
Ryan Andrews 29:40
Then we'd agreed on a purchase price ahead of time with them, and so then when it came time to actually purchase that property, that's what started stage two. And they contributed that property into a partnership, and were issued units. That was all a non cash transaction. They were issued LLC units. In a partnership of the value, the fair market value that we negotiated of that property, and then we had agreed to put all the additional equity capital that was needed in that project in and they basically wanted to be like, Hey, we can put the land in the deal, but we don't want to put another 700,000 into the project. We said, no problem. They contributed the land, we then brought in equity from other investors, a pool of other investors, part of that fund that we had created to bring in all the rest of the equity. And so the additional equity paid for the rest of the civil engineering and the horizontal construction we paid for out of cash. And so the road building, the utility hookups, and the dirt moving and all that.
Ryan Andrews 30:43
So we did all that, covered all the design city fees and everything. And then once the lots were ready to be recorded, we brought in a third party, private construction loan. So that was from a portfolio lender in Seattle. Ton of these companies for us, we used on that one builder's capital. They're a private lender. They specialize in construction, and they wrote a loan for the whole project, for basically the hard costs of construction. Then there was like a contingency along each unit, where, as we built through, they're almost like reimbursing us back a little bit for the horizontal construction that we paid for out of pocket. So that gets drawn down slowly. Then as the homes sell and leave the portfolio, there's a partial construction loan payoff on that construction loan, and that's where that end user mortgage comes in. So of course, that buyer can be a cash buyer, or they can, if they're getting a mortgage, they can go use any traditional mortgage. All of our homes as like stick, built on foundation, on their own lots, they're all qualified for traditional financing. So you can go get a regular mortgage, 30 year fixed, or whatever.
Ryan Andrews 32:01
Now for this project, because there's the second unit that can be used as a rental that's where, for example, like Freddie Mac that you know, the agency debt will look at that and allow a buyer to use 75% of the appraised rental value. So whatever the appraiser thinks that will rent for, if it's un rented, they haven't, you know, because they haven't bought it yet. The appraiser is like we think that'll run for 2000 a month. They can use 1500 of that 2000 as if it's income on their loan application to qualify for the loan from a debt to income ratio standpoint. So that's how the financing works. Basically, you know, for all the way for an acquisition, all the way to the financing for the end user, that's each of those stages.
Atif Z. Qadir 32:53
So is that logic of being able to use income, future income, from that rental property ADU to add to the income for the buyer. That's important to folks that are probably first time home buyers, relatively strapped for the down payment, would something like that help them get over the edge and clear the risk metrics that banks will typically use to decide to qualify or what types of people does that help?
Ryan Andrews 33:23
Yeah, that helps people earning, let's say, around the median or the area median income, qualify to buy this home where they get a home and a rental unit at the interest rate cost of a primary residence and at the down payment requirements of a primary residence. So think of it this way. Let's say somebody has an option. They can either buy a primary and they want to go buy a rental property on the other side of town, primary, they can put a very low down payment on they qualify for a very low interest rate because it's their primary. The rental property is going to require them to put 30% down and carry a higher interest rate, and it's going to be much harder for them to achieve a primary and a rental property. When you combine those into a primary in a rental property or primary and adu that are attached. You can qualify under some different programs where it's a primary with an adu and there's going to be some adu income that offsets it. So lower down payment requirements, lower interest rate requirements. That's going to always vary. There's not a strict rule as to what that is, but it's going to make it achievable for somebody that earns around the median income and has lower down payment resources to qualify to buy this as their primary and a rental property all at once, whereas that would be unachievable for them to do in two steps under traditional finances of a major regular primary.
Ryan Andrews 35:03
And not just to mention that if they're a small household, and there's not a small one bedroom home for them to buy in town that's, you know, under 1000 square feet, they may be forced to go out into the suburbs and buy a three bedroom home, which is that much more expensive, gonna suck up that much more the resources harder to qualify. And if you go, let's say you go to Fannie Mae and you're like, Okay, I'm gonna have a roommate, an unrelated adult roommate, help offset my mortgage. Fannie Mae, traditionally, this may change. I'm not a lender, but traditionally would say, great. Well, they have to that adult, that unrelated adult roommate, has to have been renting from you already in an existing residence for two years for us, rental revenue for that bedroom. And so the financing is just not set up to tackle that. So when somebody is like, Man, I'd love a small home and a rental property by combining them like the financing just works, and it's now accessible in Bend for somebody that makes right around 100 AMI, 100% AMI, the area median income, or maybe up to, you know, kind of 120 AMI, where to afford your typical median home In bend, you have to be making 150 to 175% of AMI.
Ryan Andrews 36:24
Because the price point for the median home price in Bend is between seven and 800,000 for your regular, single family home. And so we're selling these for, you know, just 8% more than that, or 10% more than that, but you're getting your rental property together, and you're getting it all as if it was primary financing, primary down payment requirements. So that's more like the in depth explanation that most buyers don't understand on the financing side. But if we can get them to fall in love with the space and they really want to make this work, then it's like, okay, you got to understand how this all works, and they got to be able to sit down and be patient enough to get the mechanics of it.
Atif Z. Qadir 37:08
Yeah, that's more bang for your buck. That's essentially Totally, yeah, yeah, because you're dividing it, you use laws for your back here, right? If you need a marketing director, I'm happy to fly out to Bend. Okay, that's we talked about financing, and it sounds like the sales process or the marketing, the sales process and the financing are actually quite intertwined with each other because of the unique structures that you described. Great project. And congratulations on getting that across the finish line. What's the current state? How much sold? How much left?
Jesse Russell 37:39
Yeah, so we finished the model home few weeks ago. It was in the Tour of Homes here. We won some awards, which was great. We got best architecture, best high performance home. That's something we did mention, is all of our homes are we try to build our homes really efficiently as far as the utility use goes. The best way to do that is by making a small home. So that's kind of how we went down that road. So the model home is finished. The home that's on the market right now will be finished in the next month or two, and so, yeah, that's where we're at. And then about every two weeks, another home will have the CO and we'll put it on the market. We haven't sold anything yet. We've had a lot of people through, but no offers yet.
Ryan Andrews 38:20
Well, that model, we've sold the model home, as far as the model homes under contract, but that transaction won't take place till we're done using the model homes. So we put the model home under contract, but it's a very long escrow, so we can use that model home for several months, so that transaction hasn't closed yet.
Atif Z. Qadir 38:40
Okay, and if folks that are listening from Oregon want to buy your houses, is it telling the website to go to,
Jesse Russell 38:48
yeah, just hiatushomes.com you can find the link. It's on Zillow. You can just call me directly and I'll take it down there and show it to you.
Atif Z. Qadir 38:56
There you go. And they can join all of your investors that hang out all day on your construction sites.
Ryan Andrews 39:00
Yeah, exactly. And one watch construction and critique.
Atif Z. Qadir 39:04
No, actually, you don't want, you know what those critiques of the site. You do not want that. So, so we talked about hiatus ninth. I don't want to go with bigger picture. So small scale development is a solution to housing affordability and access to housing, particularly at the lower economic strata and for households that don't fit the quote, unquote norm of previous generations. Give us a sense of the scale of the housing affordability challenge that you see where you are and any particular, say, anecdotes you've come across in terms of taking this bigger picture and what you see as the problem across the United States.
Jesse Russell 39:47
Yeah, I mean, I think, you know, we had an inventory. I'll just use bend at first, and then I think it scales nationally. A little bit. We had a huge inventory problem because house prices were, you know, interest rates were 2% to 3% house prices in Bend just skyrocketed all the way up to 22 when the interest rates increased, a lot of people couldn't afford homes anymore, or couldn't afford the home that they could previously. That has created a ton of inventory in Bend, and nationally, that's starting to happen as well. Everyone's waiting for a rate decrease. But what's happening, even you know, so like the story you hear, especially from real estate people, is soon as the interest rates come down, everyone's coming off the sidelines, and they're they're going to purchase all these homes. That could be true.
Jesse Russell 40:33
But the other thing that's going on is builders are starting to slow down their building so we're seeing a lot less building permits, whether that's multifamily or single home, single family homes slow down. So I think that inventory will be eaten up, and we're going to just go through the same cycle again, where once that inventory is gone, it takes so long to create housing. You know, it takes us a year, as Ryan was saying, it took us a year and a half just to get through the entitlement phase to start building the homes. So one of the big pushes we're seeing through legislation in Oregon is to look at these middle income houses like and so that's an 80-120% AMI, where it's been called workforce housing as well. And there has to be incentives for that, or it doesn't. It doesn't sometimes make sense financially to do it.
Jesse Russell 41:22
And those incentives can be what Bend has done, which is just change the code, just allow us to put denser, you know, more houses on a single lot. The other thing that can be done is the off sites that we have to do, oftentimes, these really small developments, it's only four houses. We're still having to do what you'd have to do for a subdivision, and we pay the same city fees. So there's a lot of work to still be done on this, but definitely it starts with the state, and it starts with the city. They create legislation. They see there's a housing issue, and so they come up with all these ideas for how that can happen. A city adopts those in the way the city adopts it, the people in the city agree to it. But then it comes down to the builders and the developers to try to use that to create housing. And sometimes that's really difficult, because the way in which the code has been adopted, there's things in that that you know need to be changed. It's definitely going in the right direction, I think, by allowing these different building types, recognizing that, you know, the household sizes are smaller, and trying to facilitate that type of housing in your city in any way you can.
Atif Z. Qadir 42:26
It feels like the barriers to addressing this crisis you've hit on a couple in this in your response just now and then through the earlier parts of a conversation, I'm gonna numerate a few that I heard you tell me if there's any that that you want to add in. So one of the barriers to scaling small scale development as this housing type is awareness of what it is two it sounds like helping people understand how this contextualizes within their cash flow, their in, their out, what they can afford. It feels like another barrier to this as a solution to housing is zoning code and building codes that are flexible and allow for higher density. It sounds like perhaps formally, financing was an issue on the construction side and or end user side, but that's no longer the case. Can you think of any tariffs, interest rates, but that affects all types of housing construction. What would you say are any other barriers to be able to scale this?
Jesse Russell 43:29
One really big one that was starting to allude to is just the complexity of trying to get to the point where you can actually build a house on a piece of dirt is so complex actually, in Bend that we've hired a person city staff called a navigator. That position is just for me to call that person and say, Hey, has planning talked to engineering and building to try to get our application through the amount of time that it takes? You know, we will raise money or find partners to get the land. That land is just sitting there, and that capital is not is not doing anything while we're doing this paperwork. So we just have to make it less complex to build. We have added so many layers to the process. Ezra Klein's Abundance book. Just read that book. It'll give you some really good examples of how we have just regulated the shit out of this industry, and we're going to regulate it so much that people just can't build anything anymore and make it financially viable.
Atif Z. Qadir 44:24
We'll include a link to the book in the show notes.
Jesse Russell 44:29
I started out to all the city staff and all of our politicians, like, just read this book. This is what I think.
Ryan Andrews 44:35
Yeah. I mean, there are a lot of hurdles, and he does address some of the policy hurdles there, treating it like a supply side issue, and this is to greatly simplify it, but one of the analogies he uses is, he's like, if you have 10 people playing musical chairs, and you have 10 chairs when the music stops, everybody's gonna get a chair, even somebody on crutches. But if you only have. Nine chairs and you have 10 people, the person with crutches is never gonna get a chair. What I would say we found almost like my critique, to take that analogy one more level is okay, we have nine or eight chairs, or maybe it's more like six chairs. Let's pretend it's nine chairs and one of the chairs is designated for the person with crutches that would be like somebody struggling to get home. So that would be deed restricted to 60 AMI or less. That exists. It's a lot of paperwork. It's a pain. It takes a long time, but it does exist, as far as, like, tax credit financing and, you know, lift funds and all that, there's a whole financial ecosystem to support homes offered for 60 AMI workers and below 60 AMI earners and below. And then, of course, there's high earners. Don't have an issue buying homes. They can pay cash. They can qualify for traditional mortgages. The people that actually got left out were the middle that 80 to 120, ami income level, because it was almost like it to use the musical chairs analogy from the book, is like, okay, yeah, there's only nine chairs, but we designated one of those for the person in crutches. So now somebody, somebody that's just like a little slower, somebody with a bad ankle, you're not going to get a chair. And so the some of the legislation that Jesse's referencing we've seen in Oregon and some other states is to say, hey, we need to change things in order to help now at 80 to 120 AMI, so they can get a chair too. And so, you know, on the one hand, there is certainly, you know, politicians solve problems by creating laws. Fine, that's their job. Their jobs create law.
Atif Z. Qadir 46:46
Oh, I thought you're gonna say they solve problems by creating more problems.
Ryan Andrews 46:49
Well, yeah, far more accurate. I mean, a little tongue in cheek here, clearly, part of it is just allow builders to create supply like unleash them. And everybody's really afraid of that, because big, bad developers are going to build terrible things that don't fit the neighborhood. That's the fear. But we've gone so far in the other direction, on over regulation that, like, we can afford to pull back pretty far before developers are then going to be on the other side of the continuum, you know, building big, ugly, monstrosities on every corner that the neighborhood doesn't like and changes the the fabric of the neighborhood. We simply have a big supply problem. That's like the first way to attack this. You know, for us, coming at hiatus. Ninth project, when we took a home, there was a single home on a half acre where one person lived there. And by purchasing the property, subdividing the property, we created nine twin homes. So that's 18 units that are each designed for one to two person households. You could conceivably have 36 people living in the space where Previously one person lived. And those are the kinds of solutions that we need to see in our cities.
Ryan Andrews 48:06
Problem is like, we make, you know, so great. Some of those hurdles have changed related to building code and zoning. Some of them have gotten unlocked related to, like, the financing for the end user and everything we've talked about. The area where we now have a bunch of hurdles is the infrastructure construction, the time cost to get from purchase through entitlement to building, and then all the fees and everything that are paid to the cities we have jokingly looked at pro formas and been like the city is making as much as we are as the developer. They're not taking any risk. They're simply regulating it, and they're forcing us to pay for engineering twice. We have pay for a private engineer, and then the city re engineers our plans. We pay for that with application fees, and they tell us the changes that get made. And that whole time we're doing time, cost of money, we're paying our investors to just hold our dirt for weeks and weeks on end, and even on a small project that's often 900 to $1,000 a day for two years or two and a half years, because you might have a million to $2 million in equity from investors tied up on land, and they need a mid teens investment return on the end of the day, in order for them to invest in in development and construction.
Ryan Andrews 49:26
So what that all creates is a an environment where, when we're looking at new land and new development projects, the only ones we're going to do are not the ones that are like, marginally profitable, but need to get done because they would bring housing supply. We're only going to be able to pick the development projects to start on that are so wildly profitable on paper that we know two and a half years from now, after we've been feed to death and had delays and found hundreds of unexpected costs, there's still. Marginally profitable. And so that's the problem that we're seeing in most of our projects that we look at from a feasibility standpoint, die because of infrastructure costs, like infrastructure utility hookups and just requirements on the city like Jesse was calling off site. So then like, Oh, you have to improve the alley over there. You have to improve the apron. You got to put an eight foot sidewalk on, you know, all the way across here, because the city is forcing its private developers to build the city's infrastructure, and they want to create an amazing, utopian infrastructure. And so then we're like, well, we're only going to do the projects that can survive, the alley improvement and the sidewalk and, you know, the larger water main and the larger and this Vax sewer in order to get the sewer out and all this. And so there are some real hurdles around infrastructure timing and permitting costs.
Atif Z. Qadir 51:02
So a lot of what you're describing is was the inspiration the themes around the road to Housing Act, which passed the Senate just a few weeks ago, as I was sponsored by Tim Scott of South Carolina, Elizabeth Warren of Massachusetts. So if Tim Scott, if you're listening to this, I want you on this podcast, and I'm gonna find my way to you and the other person that's interesting to know. A lot of the good points you brought up by Jesse was Ilhan Omar, who was the sponsor of a Housing Act in 2022 The name was the housing for All Act, and it took a different approach, which was to say that there's a lot of public land that's available, so let's give public agencies at all different levels of government the ability to more smoothly contract out and build on all that land, and let's finance that in a way that's that's cost effective. So that didn't, didn't pass at 2022 but 2025 that Tim Scott spill did, both are super fascinating because they're federal level solutions to local level problems. So Ilan Omar, if you're listening, I'd love to have you on the podcast. So she also had three new housing acts, I think one she proposed with Carolyn Maloney of New York recently. Hope you everyone enjoyed the Capitol Hill update of housing acts here.
Atif Z. Qadir 52:26
But the book that you mentioned is really good, the the allegory of the metaphor of the the seats and who gets to stay there or not. It's basically screws over the middle class. That's essentially the summary of what you described. And there's so many other good anecdotes. I think one in particular probably was the inspiration of the road Housing Act. I mentioned the 2025 one, which is, here's a quote from that book. Liberals might detest the language that the language of Trump, but blue America practice its own version of scarcity politics, and that's zoning regulation, and that's increased costs far more than any influx of immigrants has. So I think that critique of blue state policy is very important when it comes to housing production. So tons of really good points there that you brought up.
Atif Z. Qadir 53:18
Let's now combine this with your experience in Bend, so many cities struggle with zoning for cottage and ADU and other small scale construction. Bend is not one of them, based on our conversation today. But what would you say are some of the tips or the tools that you would recommend developers in other cities that may be coming up against zoning or building code hurdles to do things like this, what they can do to get the ball rolling and start change at that local level.
Jesse Russell 53:50
You know, I grew up here in Bend. I knew we had a city council and I knew we had a city staff. I had no clue how our city worked at all, you know, and I had to figure that out, because there was just a project I wanted to do, and just finding out where the barriers were, and then would talk to those people. It's amazing. If you have an idea that resonates with people, and especially if it's this type of housing, if you can have a specific project, it doesn't have to be large, it can be, you know, a few homes on a lot, and you can get some nice renderings so people can see. I think it's really important to have visuals so people can understand what you're talking about, and then go down to the city, start going to the city council meetings and meet your city councilors. They're all just people who live in your community, and you can talk to them, and you can have coffee with them and find some advocates that believe in this type of stuff and what they're trying to do. I think most people that live in the city want to make sure the middle class is still around and is a place that really cares about that, because we care about our community and we want the lifestyle we have, we recognize that the middle class is a big part of that, and why it's a cool place to live. And I think you can look at other cities that didn't care about that, and now you just have tons of rich people with no workers. Able to work there. But it starts just an idea a lot, and then, you know, try to find some advocates around, through the city council. And that's how all this stuff happened for us. You know, it started was there was no code, land use code or building code that that allowed this. If you look at all the code we have, it's now difficult for us to figure out what to do on a lot, because there's so many options. Yeah, I would just say, don't think that your local voice doesn't work.
Jesse Russell 55:25
It's how America actually. It gives me some faith in America that on this local level, you can get change done, even if the change and I tell people this when they they are like, we don't want your development. There's too many houses. What are you doing? And I say, Look, this is in our code, like we're building to you know, what we can do in the city. If you don't like that, you should go down and talk to the city at some point, maybe the entire city says, Hey, we have too many of these cottages and ADUs, these little houses. We don't like them, and that might change, but it starts with having a really good example, and then talking to the people in your community. And that's not just the city council. That's Chamber of Commerce. There's always some, you know, there's 1000 committees trying to figure this out your city I guarantee it.
Atif Z. Qadir 56:09
Amazing. That is the kick in the butt that a lot of people need to be active in politics. This is the off year election in 2025 so that's New Jersey and Virginia large sweeping elections in both states, a high population, maybe not so high growth, some growth in New Jersey, but definitely high growth in Virginia. And then, obviously, the midterms are in 2026 and that race will start very quickly.
Jesse Russell 56:34
Yeah, it involves. It's it's fun. It's actually really fun to, like, get involved and figure out how all this works. I really enjoy that part of what we do.
Atif Z. Qadir 56:42
So there's one anecdote for me. Is when I got started with Amant Properties after leaving external development that coincided with my interest in politics. So I started by knocking on doors for the person who became the mayor of Hoboken, Robbie Bala the person that became one of the downtown city councilman in Jersey City. James Solomon, he's now running for mayor of Jersey City, and I can tell you, as a developer and someone in the real estate industry, it's so fascinating to do door knocking, because you essentially are prospecting for projects by talking to people. I'm being a little tounge in cheek to be funny, but I think more importantly, you just get an understanding of who actually lives in these buildings and what their concerns are, and that becomes a really good kind of Canvas to have in the back of your mind as you're thinking about where you want to invest your money and where you want to invest your time as a developer, yeah,
Jesse Russell 57:34
Door knocking. We're gonna have to start doing that.
Ryan Andrews 57:38
Yeah, we, I mean, we've ended up, maybe not through intentional door knocking, but we've ended up building relationships with neighbors around our projects, and that's a bit of a consequence of just being on site. And they're not they're not shy, they're not if they don't like something, they're not trying to spare our feelings. They'll tell us that. But in general, they're encouraging on our projects, we try and build tasteful density meet a need in the community that's been an underserved home buyer and everything. And it does. Certainly, it all comes down to the local level. That's where the governance actually takes place. But the legislation at the state and federal level really helps, because it kind of like, at least kicks the local government see, like, Okay, we got to adopt this. We have to do something. And then at the local level, they start to figure it out. And I think we've seen that certainly in Oregon, there's been a lot of housing legislation, you know, I think that's a positive way to go about it. And then we can get a voice in at the local level to try and be like, Hey, okay, that that state law that came down, here's the best way to use it, or here's how it actually works for developer on the ground. It's a very highly regulated industry. You can't just go build homes like you need approval from everybody, and so, you know, it's important to get that buy in.
Atif Z. Qadir 58:59
Excellent. That is a great inspiration to end our wonderful and very great interview. So thank you so much for your time to be here with us, Jesse and Ryan. I appreciate it.
Jesse Russell 59:13
Absolutely. It was great talking with you.
Atif Z. Qadir 59:18
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 Americanbuilding podcast.com