← The Walker Webcast
The Walker Webcast
Jonathan F.P. Rose, Founder & President of Jonathan Rose Companies and Scott J. Alter, Principal & Co-Founder of Standard Communities
00:57:58
Loading summary
Transcript158 lines
- [00:11]
A
Join Willie Walker, Walker and Dunlop's Chairman and CEO as we bring you fresh perspectives about leadership, business, the economy and commercial real estate. Willie hosts a diverse network of leaders as they share wisdom that cuts across industry lines. His guests are experts in their fields, from leading economists and CEOs to Harvard and Yale professors and everything in between. Our one goal is simple, providing you with unique insights, unparalleled data and real time market analyses.
- [00:44]
B
Welcome everyone to what I view as a very, very special both discussion as well as corporate webcast. Jonathan Rose, Scott Alter. I, I can call Jonathan a luminary in the real estate and affordable housing space. Scott, you're too young for me to call you a luminary, but you're, you're, you're quickly becoming a titan. So I guess that's, I've got a luminary and a titan with me on stage. Let me give a little bit of a background on how this all came about and then we'll dive into the discussion.
- [01:22]
So Nathan Taft was someone that many people in this room knew and considered to be not only one of the most talented, but one of the most, I would call.
- [01:38]
Gifted people in our industry as it relates to a combination of personality and smarts and capability. And Nathan was somebody who I just super, super enjoyed spending time with. And as everyone in this room knows, and many watching this on the Walker webcast know, Nathan tragically died earlier this year. And to commemorate Nathan, Jonathan and Scott got together and said, let's create the Nathan Taft Award to remember him and to celebrate someone in the affordable housing industry who embodies the spirit of Nathan and the way that Nathan went about doing what he did. And the moment I heard them announce that, I immediately reached out to the two of them and said, look, let's do something in Chicago at the conference which sheds light on this great gift, this great award on Nathan and what he was to the industry. And let's also then have a conversation on affordable housing and where the industry sits today and what these two incredibly talented investors and owners and developers of properties see going on. So to that, Jonathan and to Scott, thank you both. Jonathan, if I can start with you because Nathan worked with you.
- [02:57]
Talk for a moment about Nathan and then this award and what you and Scott were hopeful in achieving by establishing it.
- [03:06]
A
So thank you and thank you for hosting this.
- [03:10]
As we all know, Nathan was this incredibly compassionate, mission focused, purposeful person who was in this industry.
- [03:20]
To make the world a better place. And he was also really good. As you said, he was a master what he did at the same time. And.
- [03:30]
I really love the affordable housing industry and those qualities of people who. There are some people who are just in it for the money, but there are many, many people who are in it to make the world a better place.
- [03:42]
Through business, through social entrepreneurship. And we felt that Nathan really exemplified that. But.
- [03:50]
He also exemplified perfect trust. He was completely honest. There was not a bit of deceit in him. And he had a way of working which built amazing relationships because people knew they could just trust him and that he was there for purpose. And we thought those qualities which are within this industry should be. We should shine a light on them. And so it was really Scott who came up with the idea at the award.
- [04:17]
C
And.
- [04:20]
B
One of the interesting things about it that I find to be so beautiful is that Nathan was a friend, but he was also a competitor. And so the idea that you came up with, the idea for this, being someone who was a long standing friend, but at the end of the day, if I jumped out and decided to create an award against for a CEO of one of my competitor firms, that seems like quite something.
- [04:42]
A
So.
- [04:42]
C
Well, first of all, Willie, I'm really honored and thrilled to be here with you today. You are a friend and a mentor and a great advocate for housing, real estate and finance. And so I'm thrilled to be here. On the Walker webcast.
- [04:58]
Nathan's memorial, which was in Columbus Circle, this beautiful, beautiful room, really impacted me. And certainly he impacted me for when I first met him, I think somewhere in the mountains in Montana. Also, just over the years of spending time with him, just, he was clearly just a great person. And that started there. And then when this tragedy happened, it really directly impacted me for so many reasons. Just, we all work so hard, we put in so many hours, and we are away from our families for some of those things. And we do want to do the right thing. We really do want to help the residents in our communities. We want to create a better place for the communities that we own and operate. But also, it is a sacrifice in ways. And so to see the way his family responded in the memorial and what they did, just what they talked about. I mean, Nathan was part of an amazing family. And I think that it was just so impactful to me that I just thought it was really important to commemorate him. And also, my mom passed away at a young, young age. And any chance I get to hear her about her or her voice or her impact on the world is just so vital for me and makes me feel good and sad, but it Makes me feel good. And so I really wanted this award to be something that's for his family. It's not even about the industry. I mean, I'm so glad it can be to give, you know, to give, to raise up people who are mentors, who are leaders, who have great character, but. But it's also for his family. And so part of this award is that every year we are going to send a letter to his family, to his kids, to his wife, and make sure they know that he made an impact in the time he was away from them.
- [06:46]
B
It's really quite something. And you are announcing the initial recipient of it today here?
- [06:53]
C
Yes, yes.
- [06:54]
B
And what's that? Is it just the two of you who sit around and say this or people applying for it? How are you going to go about finding who wins this award on an annual basis?
- [07:04]
C
We really wanted it to be independent. I think, as you said, competitors, friends, developers. We wanted this to be an independent award. So we really gave that provenance to ahf, to them to decide who's going to be. We certainly together set out the criteria of who should be the awardee and who exemplifies all the great characteristics that Nathan had. But we are independent from that. So we really wanted to just be something specific to what we set out.
- [07:35]
A
So they selected the winner.
- [07:37]
B
That's great.
- [07:39]
Hearing Scott talk about Nathan and.
- [07:44]
The loss of your mom and.
- [07:48]
Wanting to remember those that have an impact on our lives. Jonathan, before we came up on stage, we were talking about the fact that both of us have had the honor and the privilege of meeting the Dalai Lama. And then you mentioned to me as we were walking up here that you're focused on trying to bring spiritual education to the business world and to the MBA world. First of all, are you going to go back and focus on bringing that to Yale and Penn, two places where you went to school, or are you going to share with some other institutions where Scott and I might have gone to school? And what's the intent there behind teaching spirituality at the MBA level?
- [08:24]
C
I did put a plug in for Cornell.
- [08:26]
B
You know, Scott and I, just as a quick aside, we did a wonderful, wonderful thing at Cornell at their annual real estate conference in New York, what was it, three, four weeks ago? And Scott got to turn the tables on me. And one of the things that I really loved about that was that he knew he was going to be on this stage with me and that I could get back at him if he asked me anything. And that didn't go well. So I've now got him on the other end of the receiving end.
- [08:49]
C
Bring it on.
- [08:51]
B
Jonathan, go ahead.
- [08:51]
A
Great. So by the way, this is part of a whole larger body of work that I do outside of the real estate is although some ways intersects. 25 years ago my wife and I were given a monastery an hour north of New York City in Garrison, New York and we created something called the Garrison Institute that does a lot and our mission was given to us by his Holiness the Dalai Lama and he came three times to hold his own private events there.
- [09:20]
So this has come out of a broader base of work.
- [09:25]
The current economic system is producing very good results for a few but not very good results for the world. So we have climate change and biodiversity loss, income inequality, racism still persists and many other issues in which this current system is exacerbating rather than helping solve.
- [09:48]
Business can be an amazing force for good and this industry really exemplifies that. But that's not always what is taught in business school and business school and if you go to pre1980 many businesses felt a deep sense of multi stakeholder responsibility to their communities, to their employees. And the business schools were the force that really promoted the idea of shareholder primacy, that shareholders are the only thing that mattered. And that became the main curriculum in many business schools in the 80s and 90s. And so it struck us that if we're going to create a more compassionate version of economics and begin to solve some of these great issues that business schools are the leverage point for this transformation. It happens that since 2005 I've been working with this incredible professor at the Harvard Business School Harvard Business School business have a relationship with because it's written many case studies on our work and I teach a class there every year.
- [10:50]
Anyway, Rebecca Henderson, this extraordinary professor has herself come to she's been a leading thinker about purpose and business. I also have an affiliation with the said business school in Oxford which also has been through the scoll center of social entrepreneurship. They've been doing deep work but on the sense of purpose out of what we discovered is that there are many many professors at business schools all over the world who are trying to integrate a deeper sense of purpose spiritual practices into.
- [11:25]
Opening the minds of their students to a more compassionate way of working and then combining that with a rigorous education. All of us need people who can do performers, handle complex financings, keep projects on time, on budget like there are real hard skills we need in the world but those also need to be matched with extraordinary soft skills and a Deep sense of relationality and love and compassion for the world. And if we can put those two things together, then we could really unleash business as a force for good to help solve these issues. So the first thing we've been doing is actually mapping who is doing this work around the world. And we're finding that in many business schools there are amazing professors who seek this.
- [12:11]
But feel like they're alone. So the first thing we're doing is building a network of mutual support amongst them. Then we'll see what happens from there.
- [12:20]
B
As I hear you talk about that, Jonathan, it makes me think about. There seems to be a real bifurcation in the world we live in today between the business side of things and the social side of things. And very few have been able to sort of marry those two things together the way that you and Scott have in your work. I know as I listen to you sort of talk about.
- [12:46]
Taking over the monastery, working with the Dalai Lama, a lot of viewers, a lot of listeners are sort of like, oh, he's like some softy who thinks about all this social importance of this stuff and not the incredibly capable person you are. As a business person that has been so successful at playing on both sides of the aisle, what's the key to being able to straddle those two? Because our world seems to be trying to bifurcate those two and push them aside. I want to come to you in a second on that, Scott, but how do you meld those two together and hold them together the way that you have at the Jonathan Rose Companies?
- [13:22]
A
So, first of all, it's an illusion that they're separate, they are integrated. So we have a.
- [13:28]
One of our values at Jonathan Rose Companies is excellence with kindness. I mean, we think that excellence means you gotta be tough and kindness means you gotta be soft. But.
- [13:42]
To me, kindness means that your purpose, the reason why you're being excellent, the reason why you're being disciplined, the reason, the reason why you're doing the work is to make the world a better place. But if you want to do the work at scale, we need to attract capital, all kinds of capital. And to attract the capital, you got to pay it back or pay a return. I mean, so.
- [14:11]
B
Do you think the new mayor of New York understands that?
- [14:15]
A
I'm going to get to that in a minute. But here's the key. The key is that.
- [14:22]
Deep spiritual practice actually helps people become more relational. It actually helps people see reality more clearly beyond their biases and premises that they bring to things. These are skills that Actually should help make us be better at using business to make the world a better place. I don't see them as in conflict at all. I see them as integrated.
- [14:47]
B
Scott.
- [14:48]
C
I think that at Standard Communities and I think Walker and Dunlop as well, and you and I have talked about this at length, it is so important to be a company that is relational. I mean, we are transactional businesses. We have to operate in transactions. That's what we do. That's how we make money. But I think if we're good companies, we are relational, we are friendly, we are kind. And actually our core values are sweat the details, move with urgency and act with kindness. And we talk a lot about. It's really important that we are a company that's relational. But also, and also that relational.
- [15:26]
Integration allows for a sense of purpose too. And we are lucky in our industry. We really can do good things, make money, provide investors returns and also provide a sense of purpose for our team, for the people that we work with day to day outside of our team and in turn potentially if we're really good for the residents and meet and really be able to show that what we're doing is maybe making the residents lives just a little bit better and that is a sense of purpose that really allows for happiness. I think that's like a core pillar and so all of it ties together.
- [16:01]
A
Yeah. So can we get to your question.
- [16:03]
B
About mayor of Leora?
- [16:06]
A
So what I appreciate about him is I think he's got a deep sense of social mission. I wish by the way, he had more of an environmental mission too. I think those things are deeply integrated. But he has a deep sense of social mission and that he really wants to serve all of New York.
- [16:26]
And make it a better place. There are amazing models for how to do this that I'm not sure he's aware of that I'd love to help him find.
- [16:38]
And the rest we're going to see. So interestingly, Enterprise just put out a report that in New York City over 50% of the tax credit projects currently lose money. That's going to destroy particularly the smaller owners.
- [16:55]
And the smaller not for profits. Enterprise west coast put out the same report in San Francisco. Also 50% more than 50% of tax credit deals lose money. So if he really wants to serve low incoming working class people and he really wants to help solve their problems, he has to walk up to the underlying conditions as to why these projects are losing money and try and solve those. And I hope that he will have the wisdom to do that.
- [17:27]
B
Does he understand the affordable housing industry well enough and how the sort of sausage gets made or is he going to bring people in that will allow him to get to the root cause? Because clearly, I mean it's one thing to talk about rent control, it's another thing to really understand where the capital comes from, how you make money, what you need to do as it relates to housing assistance, et cetera. I mean, does he understand housing deeply enough?
- [17:53]
A
I've never personally met him, although I have actually created a 10 point plan for what I feel New York City should do going forward. And I've reached out to him. I've not heard back. I know many other people in the affordable housing industry, like people like Ron Moles and stuff, who I actually met with him. And my sense is that.
- [18:16]
Not only does he not understand this industry, but most people don't understand I'm not sure many politicians understand this industry. He appears to be making good appointments and the key is my sense is there'll be a year of learning and that and that I hope he's a good learner.
- [18:36]
C
SCOTT I think it's pretty clear he has no idea what he's going what's going on within affordable housing. And I think to take it even further, I think the things that he talks about he really doesn't he can't control the state is going to is the governor of a lot of that the policy that is creating the problems we have in the city and he does have state legislature experience. But when you look at what he wants to do, it really goes in the face of what he says is going to be better for the people.
- [19:08]
B
So both of you invest across the country. Are there certain states or cities that really get this and others that don't that you're right now saying I want to put additional dollars in you and I were just talking about the fact of Denver and Mike Johnson is the Mayor of Denver vs. San Francis or Tucson, Arizona. You both are across the country and both have the opportunity to invest capital with both the mission behind it. But at the end of the day, for the returns that you're trying to get done, you just closed your most recent fund, your sixth fund, raised over $600 million in that fund, have incredible investors into that fund. If you had to sit there and say here are the states at the top of the list or the cities at the top of the list and those at the bottom as it relates to where you have a footprint today, can you give us some insight into that? Jonathan yeah.
- [20:01]
A
So first of all, we continually do this assessment and it's a multi factor assessment. So number one, I actually begin with a climate assessment because as you all know, insurance is a big cost and availability of insurance is a big cost. And there are places where it's becoming extremely difficult to get insurance. Now half of insurance is about climate risk and the other half is about liability risk. And so we look at both those sides and there are states that are better and locations within states that are better and worse for climate and liability risk. We then look at government policies. So rent control policies is a series of things which can either support affordable housing. For example, California has a wonderful real estate tax abatement for housing that's affordable to less than 80% AMI, we would love to invest in Nashville and Chattanooga. There's some great cities in Tennessee, but that state forbids real estate tax abatement. So we again then look for a range of public policies, eviction policies, rent control policies, tax abatement policies. Our company is very green and we spend a lot of effort reducing the climate impacts of our projects. So we're looking for local or utility programs that will support those things. We deeply believe in being areas with job growth because essentially all of our work is related to area median income and we want to be in places with rising area median income. So we're trying to project where job growth may go. So we're looking at all those factors to try and figure out where to buy. We're currently in 16 states.
- [21:47]
But the proportion that we're in those varies. So for example, in New York City we still think it makes sense to do project based Section 8 deals there, but I'm not sure it makes sense right now to be doing tax credit deals.
- [22:01]
B
So.
- [22:03]
Hold on for a second there, Scott, I want to come to you, but jump down there, Jonathan, on you said you want growth and a lot of this. So let's, let's try and bifurcate between urban gateway cities and Sunbelt. Right, because Sunbelt's been where all the growth has been. But the tax policies, as you just pointed out, don't necessarily play to your favor. Right, but they've got the growth drivers behind them versus some of the urban gateway cities that don't quite have the growth dynamics to them, but they've got the tax policy that plays to your business strategy. How do you bifurcate between, how do you change between those two?
- [22:38]
A
So I have some other criteria, which is.
- [22:44]
I've been avoiding this south. We were quite active for a while in Santa Fe and Albuquerque. We're getting out of those markets. But.
- [22:56]
We'Re long range investors and I just don't understand why people want to be in cities where there's over 100 degrees of heat, 100 days a year of over 100 degrees of heat, of which is a good chunk of the Southwest. I understand those cities are growing and that works, but that ultimately and the water crisis that is hitting those areas just doesn't quite work for me. So you look at a place more like the Carolinas where I think you're seeing the growth and some positive the dynamics for those places seem to be. By the way, we've not been. We've only done one deal in North Carolina and I'd like to do a whole lot more, but those feel like places that, where the factors congeal together.
- [23:43]
B
So have you, have you purposely avoided places like Phoenix? I mean, you just said you're getting out of.
- [23:48]
A
Yeah, so I've never invested in Phoenix. One of the things, by the way, we shop our insurance globally, you know, we at the Lloyd's market as well as in the United States. And when I meet insurers and say we've never invested in Texas and Florida, they go, you guys are smart. There's another reason why I've never invested in Texas and Florida. I've been in this industry for a long time and every time there's been a major recession in the past, I've seen it's been the New Yorkers who've been holding the bags in Texas. The Texas and Floridians did very well selling to New Yorkers. And so they've been in the past cyclical markets. And I have found I try and avoid more cyclical markets.
- [24:30]
B
Really interesting only because, I mean, you think about, I remember sitting with David Nethercutt when he was running EQR and we were talking about Dallas and Nethercutt said to me, I don't like Dallas because there's just kind of urban sprawl everywhere. And therefore there's a single family home that competes with an apartment building every other day. And so we've sort of stayed away from Dallas. And then EQR saw that Dallas had growth dynamics to it that you just couldn't avoid any longer. And now EQR is one of the largest donors in Dallas that there is and has bought up a whole ton. Interesting that you have. I would put forth the discipline, but then also the optionality to look at other markets rather than, if you will, chasing that demand driver that's in those markets because the demand driver in those markets is unavoidable.
- [25:16]
A
And I love Austin, but look what happened to Austin. I mean, it's 27% vacancy right now. So the.
- [25:25]
And there's more than enough. I mean, if people want to invest in Phoenix and Texas, if they should, and I bet you they're going to do great.
- [25:34]
If we choose not to go to market, doesn't mean it's the wrong move. It may just be we have to make some choices. Right.
- [25:41]
B
So Scott, you and Jeff have been buying some pretty sizable portfolios where you're sort of, rather than, if you will, rifle shooting, you're kind of taking a shotgun out and spreading the pattern a little bit more. And therefore, I would assume a little bit, I don't want to say less discerning because you're clearly discerning about where you're going to go, but you're buying big portfolios rather than saying, I like, well, Charlotte over Santa Fe. How are you and Jeff looking at that as you're looking at the portfolios you're buying and where you want to be and where you don't want to be.
- [26:16]
C
So, I mean, the affordable housing industry that we are in now, the tax credit world, the LI tech world, it's about 40 years old, right? 1986 was the tax reform act. And that is really what kicked it off and what we're seeing and the reason we're buying portfolios, which really are not necessarily that we are specifically focused on the location of them. I mean, certainly we want to understand that. But I think in the situation where we are in, we're sort of 40 years in to an industry that when I started almost 20 years ago and Jeff and I started, it was really a little subsector of multifamily, just like sort of even student housing or manufactured housing. And now they're their own industries. I mean the AHF we're all here now, it's a big, it's its own affordable housing is its own industry. It's not really a subsector multifamily. And so as the as the industry started to mature and the early adopters of the tax credit are generations and started to generation out and without the right succession plans, they are willing to sort of sell their portfolios. And we see a big opportunity in buying portfolios because.
- [27:21]
That'S sort of coming together. And so but I do, I mean specifically on markets, I do agree that the Carolinas are a market we've actually invested heavily in. Florida actually has been a market we've invested heavily in. And we continue to believe in California and some of the gateway cities. But you're right, I mean, I think we are sort of rifle shotting and saying as a whole we need more affordable housing and we need to be able to do, you know, to bring more capital to the industry. So those are things we look at.
- [27:51]
B
And as you think about the portfolios, that standard is buying beyond the structuring of, if you will, buying. Well, where are you differentiating on the value you're providing once you buy these assets?
- [28:05]
C
Well, I think we look at a few things. I mean we're buying properties, we're praying portfolios that are fee simple, general partnership interests really in a way there's some heavily structured products that we're buying in. And so we also are looking very much at the growth dynamics in the markets that the portfolios that we're buying and we're just looking in one by one of what are the opportunities. So.
- [28:31]
We still think that there's a big way that the portfolios can be a growth driver of our business.
- [28:39]
B
Jonathan Scott mentioned the Tax reform act of 86. You started in 89, the Jonathan Rose companies.
- [28:49]
You were clearly one of the pioneers in saying this is a area that needs focus, needs if you will, a differentiated product. And as you said previously, you're in 16 states today.
- [29:02]
Are we doing enough? If you think about LIHTC, LIHTC is the federal government saying that they'll forego 12 to 14 billion dollars of tax revenue a year in exchange for somewhere between 70 and 90,000 units. So if you go back to 86, it's a total of I think 3.6 million units have been developed due to lihtc over that 40 year period. Are we doing enough?
- [29:28]
A
Not absolutely not enough. And.
- [29:32]
By the way, not enough. In the affordable world, we're not doing enough. In the first time homebuyer world, we're not doing enough. There are many, many sectors in which the housing world is behind the demographic demand and just the life cycle demand in the United States, interestingly. And the good news is that as you know, there is tremendous bipartisan support for more housing and that every time that for example, the project based section 8 goes through the budget, for example, even in this current budget, it's got unanimity of complete unanimous support from Democrats and Republicans as the 2026 bill moves through Congress.
- [30:19]
Where I think we're now lacking is innovative vision. So the Locomotive Housing Tax Credit was conceived of by Jim Rouse and a few other people and.
- [30:29]
Nobody thought of such a thing before. So we need now to think of a bunch of things that we haven't thought of before that can dramatically scale up housing access in the United States.
- [30:40]
B
Like what?
- [30:43]
A
So there's a lot of work talking about zoning and obviously if we can unleash more zoning and more density, if you can build twice as much on a piece of land, we're going to get more housing production. So there's not one silver bullet. So.
- [30:57]
B
But aren't we increasingly acting more and more like Europe in the sense of saying hey, we're rich, we like the way it's been in our ancestors world, let's not increase density, let's hold onto things. I mean, I guess the issue is I hear this about zoning and I understand the point, but we as a society don't seem to want to make those changes.
- [31:19]
A
Well, interestingly, for example, the city of Copenhagen, which was pretty down in the dumps 30 years ago, has done a whole bunch of urban renewal and a whole series of up zoning taken port areas and.
- [31:33]
And old industrial areas that are no longer of use and significantly upzone them so that there's a whole lot more density there. They also have. By the way, I know the President has gotten a lot of grief about this idea of a 50 year self amortizing loan. But in Denmark one of the ways they fund affordable housing is they give these 2% 50 to 75 years self amortizing mortgages to not for profits to be able to build affordable housing. So there I actually think a long term amortization is a very good tool if you can combine that with. So anyway, we need to increase density and we just have to have the will to do that. We're seeing with the EMB movement that's beginning to shift.
- [32:18]
You all know that it could take decades to get approval to build housing in San Francisco. We have a project in San Francisco that because of SB35 and its affordable housing has a 90 day approval period and it's in a thriving prosperous community. So zoning is one area. Finance is an essential area that we have to solve. And we can build a lot more housing with 2 or 3% money than we can with 6% money.
- [32:53]
And I think think this is something again where the federal government can step in and make these resources available. And then we have the cost of construction which is another issue that we have to solve. And.
- [33:08]
There'S tremendous benefit in manufacturing, but we haven't really seen it on the.
- [33:12]
B
Cost side on the.
- [33:17]
Park for a second interest rates. And the federal government can move interest rates because they're clearly trying to move the short end of the curve, but, but we'll see how successful they are moving the long end of the curve, which is really the rate that is important to the two of you. But as it relates to Fannie, Freddie and Hud and their role in providing debt capital for affordable housing, is there anything more that you think they can be doing? Because I can list here a number of different things that they are both doing and that FHFA has Fannie and Freddie focused on from an affordability standpoint. HUD, clearly with the D4 product and other things. Is there anything else as it relates to the application of it? Forget rates for a second, but the application of it. Is there anything else that you think should happen?
- [33:57]
A
I can actually turn that back to you because you're in the finance business.
- [34:00]
B
Well, you know, I mean, look, we, we clearly.
- [34:06]
We clearly. One of the things that I find about Fannie and Freddie up until now and the current director of FHFA seems to be trying to pull them off of that, but because they have their affordable housing goals, it's the one thing in conservatorship they know they have to go after every year. It's not necessarily revenue growth, it's not necessarily bottom line growth. There is a return hurdle that they have on their capital. But when they wake up on January 1, the first thing they have to do, go do is go do their affordable housing goals. And it's the one thing that has made it so that in past years, Fannie and Freddie on January 1st say let's go hit that affordable housing goal. And then we can look more broadly at the overall market and what we're doing. And so if you have a brass and glass non affordable product that needs to be financed on January 15th, good luck really, that you're not going to get great competitive pricing from Fannie or Freddie. And then as you move through the year, once they've gotten to their affordable housing goals, then they'll kind of rotate and say, okay, great, now we can do that brass and glass deal. They need to be looking at their annual lending, I think in a more holistic view. But that says to me that they think affordable out of the gates every single moment. So I'm not sure how much further out on that continuum they could get. Go ahead, Scott.
- [35:17]
C
So I think there's a lot to be said. So I mean I can certainly talk about federal housing policy, but let's just staying on the debt financing at standard. We are constantly accessing various financing structures that are not Fannie, Freddie or hud. And I think one of the things that we're seeing more and more is insurance capital really marrying up well with affordable housing and the idea of reading a product. And so we've certainly accessed securitization markets, we've used the public finance markets quite a bit over the years in creating almost 3,000 units of middle income housing in California and working closely with California housing authorities. There's so much that you can do with affordable housing that I think doesn't get fully accessed. So the conventional Fannie, Freddie, hud, great question. They are doing what they can do. I think they could, they could actually work closely with insurance companies and that could really actually bring down the cost of capital additionally. So we are doing that without the help of Fannie, Freddie and hud and I think that there's opportunity there. I mean the classic situation is affordable housing is really bond like right? So you can just sort of splice out the cash flows and try to find out, figure out ways to finance it in more creative ways and that's really worked well for us.
- [36:34]
B
Have you Jonathan, you mentioned construction loans. Obviously the HUD D4 product is a great product but also A they're not doing enough of it and B the conventional market has been a challenging market to actually get construction loans from over the past couple of years as the banks have been dealing with exposure to that anything. Scott, mentioning life insurance companies is a great one on the construction side of things. Would you like to see Fannie and Freddie get into the construction lending space or would you like to see life insurance companies go backwards, if you will, in the stack or in the timing and say that they'll start putting out capital on construction loans?
- [37:16]
A
Number one, I take it all number two, in terms of the D4.
- [37:23]
You get a 90% non recourse loan, a fantastic loan, but it takes forever. And so if everybody else can figure out how to lend in 30, 60 days, they should be able to. We need to really upgrade those systems so they can be underwritten fast. That's number one. And number two, we have to solve the Davis Bacon problem because it's just adding cost and.
- [37:47]
I believe in paying fair wages and there must be a way to ensure fair wages without Davis Bacon.
- [37:55]
And so if HUD could process and issue a loan in 30 or 60 days a construct D4 and get rid of Davis Bacon or have a different set of labor. The problem with Davis Bacon is not just the cost, it's many, many contractors just don't want to be in the whole compliance regime. It's very, very burdensome. Davis Baking reporting, et cetera. And so if we could unleash that product with some modifications, and this probably is the administration that could do it.
- [38:27]
B
This is very clearly the administration that could do it.
- [38:31]
I purposely didn't jump in after that because I wanted to let that comment sit in about you saying we should do something about Davis Bacon. Because I think that someone with your track record, someone with your focus on both making a difference in the communities as well as your environmental focus, and then saying, but Davis Bacon is holding back more supply in the affordable housing space is a message that needs to be sent and understood.
- [38:55]
A
All right, so I'm going to give you an example. We completed about a year ago, in partnership with L and M and the Akasha Network, a 706 unit building in East Harlem called Sendero Verde. It is the largest passive house affordable housing project in the world. Super green, has a fantastic charter school with Harlem children's Zone, has all kinds of amazing things in it. 32 stories tall and it cost us $550,000 a unit total development cost to build. We just completed a four story low rise, less green project with not all the community facilities in San Francisco. And it cost us a million two to build a unit literally twice as much. So why would it cost twice as much in San Francisco? Davis Bacon in essentially union required construction in New York.
- [39:49]
New York City has long understood that to get affordable housing built, we need to get every unit we can for a dollar. And contractors are paying very fair wages in New York, but they are not Davis Bacon. And one of the reasons why I was not enthusiastic about Cuomo as a potential mayor is because Cuomo has consistently been trying to force the affordable hous industry to be more unionized, which is simply going to take us to San Francisco costs.
- [40:21]
B
Fascinating. You got anything you want to add to that? Because I find this issue to be so fundamental and so important to getting the capital to be able to build the supply. And you get to these extremes where it's, okay, let's just go to rent control, because we can't seem to fit it on the supply side of things. And anytime I hear someone who talks about rents going up at a rate that is unsustainable, and they say, well then rent control is the solve to that. They just don't understand the economics behind it all. And it has to be on the supply side.
- [40:59]
A
So I just want to point one more thing. In the 1970s, early 80s, the Bronx burned and we Lost as a City at least 500,000 affordable housing units in the South Bronx and Lower east side, in Harlem, in Brooklyn, et cetera. And we lost them because we were at a time in which there was high inflation. Labor costs went up, insurance costs went up, energy costs went up and interest rates went up. We're seeing all. And taxes went up. We're seeing all those things happen right now. But because there was rent control, there were two factors. One was because there was rent control, rent couldn't equalize it. And the second thing is New York City lost 900,000 jobs, manufacturing jobs, in that same period due to secular trends of offshore. So we're now in a period where interest rates are high, they're coming down a little bit, but not enough. Energy rates are absolutely going to be going up. Our tax rates are going up. Insurance is undeniable that it's going up and we'll continue, continue to go up.
- [42:04]
And so we've already learned the lesson that controlling the income and we already said that half the tax credit projects are losing money.
- [42:13]
There's no insurance control costs, there's no utility control costs. So.
- [42:18]
You can see what's coming. And.
- [42:23]
One of my goals is for, by the way, there's some amazing new mayors all. A new mayor just got elected in Seattle. There's a new mayor in San Francisco, Francisco, there's a new mayor in Denver. There's an amazing crop of new mayors who are innovative and want to make the world a better place. And we have one now in New York. And part of them is just to understand the fundamental issues that are at play.
- [42:46]
So that they can then harness those to make a better world versus to create the waves of abandonment that we've seen in the past.
- [42:54]
B
Scott, there's a. Jonathan talked about they're huge assets and de. In. In.
- [43:01]
A
In.
- [43:01]
B
What is it, 111 Street.
- [43:03]
A
Yeah.
- [43:04]
B
That has 600 and some odd units. Is there a size that it gets too big in the affordable housing space to managing it well, so we don't.
- [43:16]
C
Typically operate in these major cities. We operate around them. I think that just to highlight what you guys were talking about with Davis Bacon, I mean, I think we really look in markets where we, you know, we want a free market. I mean, I was talking earlier about how we can bring financing costs down through, through various creative structures. We don't want the government to be providing housing finance to us directly dollars. We want policy that's put in place with a clear playing field and we can then operate within it. And so, you know, if you're setting up things like rent control and DAVA speaking and putting restrictions on funding that you're providing, we tend to shy away. We're tending to go into markets where they're putting legislation, California's state level legislation, North Carolina, South Carolina, state level, even Florida legislation. And with that we can then go and find creative structures, bring as much capital to bear to the table as we can that's cheap and be able to provide upgrades to, you know, desperately needed upgrades to housing and preserve housing. So, and, and also I want to add, we'll constantly bring in federal dollars. Right. So using the Section 8 program, I think in order to really solve and, and create more housing, it has to start at the federal level because that's where the real money is. But the states and the local, local authorities have ways that they can do property tax reform, they can do zoning changes. So it has to be all integrated.
- [44:45]
A
Right.
- [44:45]
C
I think you can't just say federal government provide funding that needs to start there. I mean, if you really look at the housing booms that have occurred over the last hundred years, it's been because the federal government has stepped in and said, we're giving you all sorts of funding, but then you have to go to the states and to the local cities and even just the sort of local jurisdictions and say, provide a level playing field for the affordable housing industry. And we'll bring federal dollars to your markets. And that's one of the things, when we go into a new market, we're in 22 states. When we go into a new market, we're constantly saying, look at what the other states are doing. This is things that you can bring to your state and we'll help bring federal dollars so that we can leverage those federal dollars and be in a public private partnership. So we are almost never bringing public financing, public capital to a project, but we are working with the public programs that exist.
- [45:36]
B
So Jonathan talked about a couple states that he likes and a couple others that he might not be putting dollars into. Do you and Jeff have similar view as it relates to where you're liking to buy right now versus others that you would avoid?
- [45:49]
C
Actually, not exactly. I mean, I think we have avoided Texas over the years. We've been wrong for many years, but then sometimes you're right. So it is a cyclical market. We look at growth drivers, we look at local policy.
- [46:06]
And so we are heavily investing in the Carolinas. We are still heavily investing in California, Florida. We've gone back to the gateway states that were gateway cities that we already are in the Boston areas, Philadelphia, and we still need. I mean, the growth drivers are there now, the supply, who didn't come online the same way. And so, yeah, we see those markets as good. Even some of the Midwest states, we've just just bought a big project and are heavily investing in Cincinnati. So there are certain markets that we think are really poised for growth, but also they're set up in the right way. So they set up programs that exist that we can then work within and bring federal dollars to the table.
- [46:49]
B
Any concern about the Trump administration pulling back on Housing Assistance program and the funding at either the project level or at the individual level?
- [46:58]
C
I've spent a lot of time, and Jeff and I have spent a lot of time in Washington talking to various housing policy people. I mean, one of the things that is clear is it is a bipartisan issue. They're not sure exactly how to do it. But what we've seen consistently is when one party takes control, they add to the programs or create new programs. So the one big beautiful bill did a bunch of really good things. One, they doubled the amount of tax credits that we can use as an industry. And two, they made permanent the opportunity zone laws, which proved to be a really great driver of housing and growth. And so, you know, he definitely had some theories out there and put out a budget that said, well, we're going to throw all budget authority down to the states and the states are going to figure it out. But there's, there's no evidence that that will happen. And in talking to people on the Hill, that's not something that he's really focused on. I think he has bigger things he's focused on.
- [47:53]
A
I want to go back to your question about size because it's an interesting one and it's not one that I've. Your question has caused me to think about some things that I hadn't.
- [48:03]
B
Well, as I looked at, I looked at the most of your assets are sort of between 100 and 200 units. If I said the typical asset that you own, it's 165 units or something.
- [48:13]
A
And partly because that's what the world built. And smaller than 100 is really inefficient. 150 to 200 is really the most easiest to manage, etc. But I want to expand on your question. So, as a society, we are seeing a lot of malaise now. We're seeing a lot of mental health issues. We're seeing a sense that we are no longer a nation of opportunity. In many ways, we're seeing a decline in even the aspiration, the will to move forward.
- [48:45]
And.
- [48:47]
A lot of the social issues that come from this show up at our properties.
- [48:54]
Not just ours, but in the affordable housing world, we focus a lot on bringing social, health and education services to our residents, with resident service coordinators and with partnerships, et cetera. And we have made, in some cases remarkable transformations of the culture of the communities that, that we own and that has had both positive economic benefits and social benefits and quality of life benefits. But really, most importantly, it's been transformational for the families to be able to live there. When I think about scale now, it's become clear to me that that gets harder and harder. The bigger the project is, that it just the end.
- [49:39]
I think all of us in this affordable housing world, when we particularly those in the acquisition side, when we take over older properties, there's new roofs to be put in and elevators to fix and new windows to revisit. There's a whole bunch of physical things we need to do and sometimes there's social, cultural enhancements we can also bring. And.
- [50:01]
Your question has provoked me to see there's also an efficiency side. There's a size probably in which that happens best.
- [50:10]
B
Do you have a view on size?
- [50:12]
C
Well, I tend to agree that when you get larger, it's harder. I mean, one of the things that we really try to focus on is that we want the residents to feel that this is a property, a community that they live in, they own. Right. I think if they feel, and I do think that a social component is so important at the properties. And what we do at Standard is we do housing so we can bring partnerships on and we can do resident service corridors and we certainly bring as many as much capital to the table to help with programming. But there's also a mental health crisis in our country and that's not, you know, that's not. We're not going to be able to just solve that alone. There's a few things that need to happen. And certainly in certain markets, when you go to sort of the Southeast, you see institutional poverty and when you get too large, you can't create that sense of community. So I do agree with that. But if we can sort of provide drivers of economic growth where there's potential for some sort of prosperity, that's huge. But I mean, that's not the industry we are. So if we can partner with that industry, that's usually helpful. And one of the things that Jeff and I are doing is we've created a private equity Fund that is investing in healthcare industry businesses that can help the residents or residents of properties similar to ours. And so we want to be able to do that, but it really can't be in the housing industry. We in housing need to focus on housing and where we're good at. And so, I mean, it's so important. I'm sure if you come home from a long day and you have a little bit of a. You have some sort of leak or something, it's the last thing you want to deal with. And so what we talk about at our company is how do we make sure that when someone comes home from their day that they just get to enjoy their family, they get to enjoy whatever it is they want to do. And that's what we can do for housing, is provide a clean, safe, dignified place to live.
- [51:59]
B
Both of you are focused on the continuation space. Is there something more that needs to be done to make it so that units, properties that were designated as affordable, remain affordable?
- [52:12]
A
So first of all, one of the interesting things is depreciation. I always thought depreciation. In my young days, I thought depreciation was this fantastic benefit. Now I know that depreciation is real and that when properties are 30, 40, 50 years old, they need new everything. Not just roofs and elevators and boilers, but they need new wiring and plumbing and fire alarm systems. And we could go on and on with what they need.
- [52:37]
So as a nation and the expansion of the 4% is a wonderful tool. It's not going to preserve. Everything needs to be preserved, but it's a tool. We are seeing that states have such a new product demand that they're not allocating so far, not allocating enough, we think, to preservation. We think a lot more needs to be allocated to preservation. And maybe there need to be other tools for preservation too. But.
- [53:04]
Older buildings, they need a lot of tender love and care and investment.
- [53:11]
C
One of the things that Jonathan Rose and companies, and Jonathan and Nathan in particular did such a great job at was bringing institutional attention and capital to this industry where it just was not as much. But I think over the years now we are seeing substantial capital come into our industry and that is subsidizing some of the lack of tax credits that can go into acquisition and renovation, preservation of housing. So, yeah, I mean, I think it's coming. I think the industry as a whole is doing a good job of attracting capital and we'll see that continue to, you know, capital flows continue to come to this industry.
- [53:49]
B
So I'm almost out of time, Jonathan. Usually I would have asked this question at the beginning, but I wanted to get it in, which is that before you started the Jonathan rose companies in 89, you actually were in the recording industry and had a. Had a record label. I'm assuming, given that you almost started your career focusing on that, that music is still a big part of your life.
- [54:13]
A
Music is absolutely a big part of my life.
- [54:15]
B
What was the last concert you went to?
- [54:17]
A
So the last concert I went to was on. But I'm going to tell you about two separate things. So the very last. So I have an amazing band and we play this conjunction of jazz, blues and Indian raga. I was influenced by an amazing guitar player named John McLaughlin in the early 70s. And literally the guitar player and I have been playing together for 50 years. But anyway, this is a really, really fine band. And a subset of ours actually played on Saturday night at the Garrison Institute, but on Thursdays. I've also been very involved in jazz, in the world of jazz, and helped create Jazz at Lincoln center with Wynton Marsalis and a bunch of other amazing people. And on Thursday night, Wynton wrote an amazing violin concerto for his wife, who's an extraordinary classical violinist. And there was a performance at the New York Philharmonic, and there's recordings of this piece. It is just.
- [55:15]
Extraordinary. Anyway, it's solo violin and an orchestra.
- [55:20]
B
It sounds like you have access to some pretty unique, both artists and performances. But if you were given, if you said, I'm going to drop everything and go to listen to one performer perform in the next year, who. Whom would it be?
- [55:39]
A
I gotta think about, you know, I gotta think. I'm gonna answer that in a different way.
- [55:43]
B
He's like. He's like, I go down the street and listen to Wynton Marcellus play. I mean, it's kind of tough to go beyond that.
- [55:48]
A
But I will tell you. I will tell you something, which is that when I. When I travel, I work. I mean, I work day and night. When I go to cities, like I'm there full force. And I broke that pattern two weeks ago. I had to come to Chicago and I saw that David Byrne was on tour, used to be the Talking Heads and playing here in Chicago. So that Wednesday night, instead of having more business dinners, I went and heard David Byrne. And that was pretty great.
- [56:14]
B
That's really great. So, Scott, you're an avid skier. You and I have spent many, many times in very, very remote places. Where's the 2026 ski stop? That's outside of the typical altar travel schedule.
- [56:29]
C
We are going to Lech Austria. I'm really excited to experience the Alps with my family with the kids. Let them get a different experience than the US But I'm also looking forward to British Columbia and watching you filming you or are you filming me going down the mountain?
- [56:50]
B
That's great. Thank you both. Thank you for the Nathan Taft award. It will be a super, super meaningful add to this industry the way the two of you designed it, the way you've given it.
- [57:05]
Away if you will to allow them to determine who's going to win it. I think we'll make it so it continues to go long beyond the 2 of your involvement in this industry was wonderful. Our thoughts to Nathan's family for the loss of their beloved father and spouse and family member and thank you both for all you do in the affordable housing industry. I greatly appreciate both of you taking the time to do this talk and thank you to everyone who joined us today.
- [57:30]
C
Thank you Willie.
- [57:31]
A
Thank you.
- [57:41]
It.