Abby Newsham (5:52)

Yeah. Well, I really like hearing your story. I've heard it before, but I feel like I always learn something a little bit new as you go through that, because it's such a kind of winding road. And it does seem, though, that your background lends really well to how you approach development and specifically Looking at urban infill development, which I would say is kind of a special expertise in this realm. And we just don't have enough people doing it. So today this article that we're going to be talking about is about townhouses. So the Washington Post published an article by Amanda Shindrunk and Heather Long called the New American Dream should be a townhouse. I feel like housing is probably one of the predominant topics that we talk about on this show because it's such an important issue nowadays. And this article talks about how townhomes are a sensible antidote to expanding affordability for homeowners. They write that townhouses are the Goldilocks option between single family homes in the suburbs and high rise condos in the city. And basically these fall within this missing middle realm, which are housing types that are, you know, include duplexes, small apartments, row houses, and they only account for 22% of US homes today. Right now, depending on who you ask, the U.S. has a shortfall of 3 to 7 million homes. And last year was a boom for townhouse development where nearly one in five new homes under construction was a townhouse, which was an incredible statistic that I did not know, which is really interesting and I want to talk about. But as you know, affordability is something that is really needed in this economy and is very, very difficult to deliver in this economy. And you have experience with medium scale buildings, smaller scale buildings like townhouses. You actually have a project that's under construction, nearing completion, that include townhouses as well as small scale apartments that I want to talk about and I'd like to get your perspective about. I guess to start with the premise of this article. Do you see townhouses as part of this idea of a new American dream?

Andrew Ganal (8:19)

I definitely see that on a personal level in many respects. There's been several times in my life when either I looked at owning a townhouse or lived in a townhouse type format. So I'm married with kids, so as great as apartments are, having a little bit larger option is fantastic. But I'm also a person who values walkability, values density, and all the things that that, all the good things that that brings with it. So before I actually moved here to Kansas City, I was living in Orange County, California, close to where I grew up, which is just the land of single family subdivisions. And it's in some ways great, but in other ways you see a lot problems that come from a very large area that's just so dominated by a single form. In fact, it's really probably a good Example of an area that's got kind of the two ends of the barbell that you talked about. So it's either like a single family home or it's a big high rise apartment building without a whole lot in between. At least not until probably the last 20 or so years. But when my wife and I were looking at potentially buying a house, we were pretty much priced out of the single family home market. So if you wanted to be anywhere near a walkable community, like a 1920s bungalow in say, Orange, California, you were looking at over a million dollars. And that was just too big for our budget at the time. But a few, I would call them sort of smaller scale developers had done some townhome projects in some infill areas, areas like Tustin, California, Irvine, California, and they were the kind of townhome communities that you see in this, in this article. And those homes were going for, let's say the seven hundred and eight hundred thousand dollars mark. So still quite expensive, but relative to what an existing older single family home even I'm talking about like a 3,000 square foot lot, it was 3 or $400,000 less expensive. And plus you had the bonus of like being able to walk to like a small commercial strip of restaurants and a dry cleaner and so forth. And this was actually new construction as well. So kind of different than maybe some of the older parts of other neighborhoods that already have this form existing. So that's in my mind, like a good successful example of the townhome community and what it could offer.

Abby Newsham (10:59)

Yeah, definitely. And I think it's really interesting how you've approached it in Kansas City. Kansas City is really not a place where there's a strong precedent for townhouses. I think there's a lot of places in the country where when you think townhouses like in Boston or places where they kind of built their traditional city fabric using that model. Kansas City is really, it's really kind of suburban. Even, even the urban areas, there's a lot of single family housing. The missing middle is predominantly small apartment walk ups. We call them colonnades. And so I wanted to ask you about that. What kind of spurred your interest in doing a townhouse project in Kansas City? And how did you approach that being a market that doesn't really have the strong precedent for townhomes?

Andrew Ganal (11:53)

Well, one way was to look outside of Kansas City, right, And look at what developers have been doing successfully in other areas. I mean, when I lived in Washington D.C. kind of similar to some of the other east coast cities, you Mentioned. I mean, row homes are gorgeous, right? It's just street after street of row homes, and they're very expensive. So that kind of shows you that they're in fairly high demand. But specifically in Kansas City. I mean, well, not just in Kansas City, but in more than. Lots of ways. You can think of townhomes versus condos, right? So that's kind of. Sometimes those two different things are lumped together as this middle ground between owning a single family home and renting an apartment. Because there's lots of people, especially in the Midwest, who have a really strong sense of ownership and are looking to own something, whether it's. But they might not be looking for just a single family, single family home. It could be a duplex or it could be a condo. But condos have their own challenges, and we can go into a little bit of that as well. But a few of them are insurance and liability. There are specific rules around that that make a difference. With a townhome, often the land is platted such that you actually own the land underneath your house, as opposed to a condo, where you're just kind of owning the airspace around your unit within a larger project that's owned by condominium. Condominium association. So it really was kind of trying to find what can we do that's like a single family home, but that we're able to get some additional economies of scale, both in terms of material and labor, and as well as the fact that you can share walls, share roofs, there's less infrastructure because obviously the homes are closer together. But that didn't have some of the pitfalls of the condo market. And so you end up with these, with these row homes or these townhomes, which are side by side, where you can own the land underneath you, as opposed to a condo, which I would characterize as more like one on top of the other.

Abby Newsham (14:09)

So I think the big question this article is really talking about how these are an antidote to affordability. And I know through your experience, especially as construction costs have been skyrocketing in recent years, it's been really difficult to make these super affordable. Do you think that any new construction can be affordable? And. And do you think townhomes can be affordable?

Andrew Ganal (14:38)

I think in my head, when I hear affordable, it's always going to be affordable compared to what. And maybe that's the economist in me, but affordability to me is always going to be a relative measure because we're still talking about, like, what I'm doing here in Kansas City. It's a new Construction product. So it's expensive to build and it's going to be expensive to buy. But relative to, well, instead of having 10 townhomes on a parcel, which is what we're building, let's say we had three single family homes or four single family homes, each one of our townhomes at around 2,000 square feet each, each one of those is going to be less expensive, will be less expensive, will be more affordable than a alternative project where we built single family homes. Now fortunately, the zoning in the neighborhood that we're doing our project allowed for this kind of form. That's one of the big challenges we can talk about. It's not that you can just build a townhome or duplex anywhere you want to, but where you can do that, a townhome is just always going to be more affordable than an equivalent single family home. And you get the same product, you just, you know, you don't get quite the yard, you have to share a wall, you're down as close to the neighbors. So there are trade offs and there's a reason it's less, less expensive, but it's still made out of materials and labor and it's just going to cost a certain amount in today's, today's construction, Today's very challenging construction market.

Abby Newsham (16:12)

Yeah, definitely. Let's talk about a little bit about the zoning piece because I think it's interesting that Urals process, I guess allowed townhomes and a lot of neighborhoods don't. Were there any hurdles that you came up against just getting to the point of permitting with the city?

Andrew Ganal (16:33)

Not so much with the zoning, but you start digging into, well, it's good part of the zoning, but you start thinking about things like alleys and water mains and so forth. Kansas City, like many cities, is trying to push as many of its infrastructure costs onto the shoulders of developers in a somewhat self defeating way. But the general idea is that, okay, you know, we, we have this alley that's next to our plot of land. That alley is a great way to be able to push the garages to the back of the homes, kind of keep them out of the public realm and make the fronts look very nice and warm and inviting. But that alley, which has been 16ft wide since it was probably first laid out 100 years ago, the city would like that, or parts of the city would like that to be 25ft wide. And so you get into negotiation of okay, well can we live with 21ft? And that's actually exactly where we ended up compromising at the same time, the fact that we had to widen that alley from 16ft to 21ft means that that 25 foot parcel that we own on the other side of the alley is now too small to build a home on, so it becomes a parking lot. But that's kind of a small example of when you're dealing with the city. And hey, left in the, the brand new suburban subdivisions, of course on the alleys or if they even have alleys are going to be 25ft wider up. But when you're working the urban fabric, those kind of decisions have ripple, ripple impacts that you, you might not anticipate when you first start on a project. And then the other one I mentioned was the water main. Right. It was an 1898 vintage water main in front that the city said, hey, guess what, you want to build townhomes, okay, but you're going to have to replace that water main.

Abby Newsham (18:21)

Yeah, I'm sure that was not cheap. And unfortunately, when, when the infrastructure is very outdated and kind of the onus goes on to the developers and things are going to be updated as things develop, it really, it really takes a toll, I think on the affordability piece as well because obviously homeowners are absorbing all of these costs, right. So somebody has to pay for it. The alley issue is really interesting to me because I mean, a 25 foot alley is a 12 foot lane and a 13 foot lane and a 12 foot driving lane is typically considered to be a wide driving lane, unless you are on a highway or a major thoroughfare. Like those are the lanes that are supposed to support fast speeds. So, so having two lanes for an alley that are the equivalent of two high speed lanes is kind of surprising to me because in an alley, you know, you kind of picture people slowly meandering through to a main street and it's kind of natural for them to be not wide and to be kind of understated pathways in between blocks and neighborhoods. Is that a conversation that you had with, with the city? Was there a particular department that really wanted to have wide alleys? And what's the reasoning behind that?

Andrew Ganal (19:54)

Well, you could imagine, but it was likely the fire department. So a lot of discussions were us plus our civil engineers. And it's. But you know, too often when something gets written down in a regulation or a code somewhere that asking for exceptions creates hassles. Right. So you can do it. But it's a lot of times in development you're trying to figure out what are the important fights to pick and which are the ones I can let go. And that was one where we, I think fought pretty hard, but eventually realized that, okay, they're at least going to compromise. They being the fire department and the public works department. Well, they'll settle for 21ft. Right? Of course, our argument that hey, 16ft seems to have worked well for 100 years. What's the issue here? You know, didn't, didn't win the day.

Abby Newsham (20:44)

Didn't win the day.

Andrew Ganal (20:46)

But especially coming from the strong towns perspective, I mean, thinking about like the water main, this is good for the city. Right. We're making more efficient use of that public infrastructure by putting more homes and more tax, more property tax dollars on that same length of, of infrastructure. So you think they would be seeing the longer term and saying, okay, instead of having to push this cost onto them because they want to build a more dense project, how can we actually help that or encourage that level of density?

Abby Newsham (21:20)

Exactly. I would love to see a program in Kansas City, but certainly in other places where, you know, maybe for certain housing product types that infrastructure can be matched or paid for. Some kind of fund that can actually support certain types of housing that city plans want to see, which I think townhomes would certainly fall under that.

Andrew Ganal (21:45)

Yeah. The good news is that it feels like a lot of people actually want to own a townhome. Right. That might have been not as true when it was less than the public mind. Unless you were lucky to live in one of those few cities with kind of a history of row homes, other sorts of. But the way I tell the story sometimes is, you know, I was building these really great apartment buildings like on the new streetcar line in Kansas City. You'd have a couple who lives there for a few years, decides to get married, it's time for them to own a home. And they would look around like downtown Kansas City or the surrounding neighborhoods and be like, well, there's nothing here to buy. Right. Maybe there's a condo and a rehab building or I'm headed out to the suburbs. And so that's where the townhome I think model really kind of fits is those people who get that taste of the kind of urban, walkable neighborhood life, make friends, join a church, associate their job in a certain location and want to stay there, but want to actually be able to own something as opposed to just rent.

Abby Newsham (22:49)

Exactly. And I think that the neighborhood that you're building these in are actually, it's actually the perfect context. Even though there are a lot of kind of tall and skinny single family houses that really ought to Be connected. They ought to be townhomes. They basically are in a lot of senses. So it makes sense to build this type, especially if it is more affordable. Can you talk a little bit about the market that you are selling to? You mentioned young couples that might be living in an apartment, getting married, looking for maybe a little bit more space, something that they can own are there. Who's looking at these and who are you kind of marketing these to?

Andrew Ganal (23:32)

Well, we want to market it to anybody who's interested, of course.

Abby Newsham (23:36)

Yeah, of course.

Andrew Ganal (23:38)

I would love, as a person who has kids and enjoys living in the city, I would love to see more families. But the reality is that you don't tend to see a whole lot of families, at least with young kids in neighborhoods like Columbus park and near urban areas of Kansas City due to other factors like schools. But you know, you do, I think, see a lot of people who are, you know, dual income couples who have maybe one works in the suburbs, one works downtown, but you know, they're just. The fact of life is that the urban areas have a lot more amenities in terms of places to go out, restaurants, bars, theaters, symphonies, etc. And then it's also empty nester types. Right? So maybe they had kids they lived in. Just again, use something in the Kansas City context. They lived over in Overland park, but now that the kids are grown and moved out, they're looking for potentially downsizing because they don't need 3,000 square feet and a 8,000 square foot lot. So that's the other, the other group we definitely see. Kansas City is growing in population, so you're seeing a lot of people moving from other parts of the country. And even though our townhomes are relatively expensive for Kansas City, I think if you're moving from Los Angeles or Boston or something similar, it looks like actually a pretty good deal, especially given the location.

Abby Newsham (25:06)

Would you say that it costs the same to build a housing product like that in Kansas City as maybe more expensive markets? Is construction pretty construction costs in terms of labor and materials? Is it pretty similar depending on what market you're in? I know you've done work in other places.

Andrew Ganal (25:28)

Some yes, some no. Material I think is probably largely similar. Labor probably varies quite a bit more. It's likely a lot more expensive to pay labor in coastal markets than it would be in Kansas City. Land price for sure varies, right? So land would be much more valuable in other areas. So I think it's. It's a bit of. A bit of both. You know, Kansas City doesn't really have any flooding challenges, doesn't have the earthquake challenges. So there's probably some differences in construction technology as well that might make it more expensive in other areas. But you know what it is better for in some ways is just more efficient use of the land. Right. So as strong towns talks about so frequently, if everybody lives on a single family in a single family home, just the infrastructure costs alone of how do you service all that with roads and sewers and pipes and whatnot, really doesn't work great for society.

Abby Newsham (26:35)

Yeah, it's. It's very expensive to maintain all the infrastructure, certainly. And what I think is really fascinating about your project. So, you know, just to kind of paint a mental picture, it is a like large triangle lot. And you've been able to create this density up on the street with townhouses that have porches in the front, access to the garage access is behind them, not facing the street, which is great. But you have a lot of space on the other part of this big triangle tucked behind the townhomes. And your team decided to do infill like small apartment buildings. Can you talk a little bit about that and how that impacted your Performa, the design, infrastructure, anything else? Because I think that that is a really creative approach to utilizing a very odd lot, I guess, for lack of a better word.

Andrew Ganal (27:37)

Yeah. Because it is an oddly shaped lot. As you mentioned, you kind of have one primary street interface along Pacific street. In this case, that was kind of perfect for townhomes. Right. So you have two buildings, one of four homes and one of six homes with a little break in between just to break up the massing a little bit. But that left this kind of rump street that was. Or this rump area down that alley that I was just talking about earlier without a clear purpose. And we started on the path of like, well, what if we could do like a little cottage court or something with little cute apartments? It would be a great alternative to somebody who wants to rent something in a neighborhood like this, but doesn't want to be in a. In a five over one, for example, for a variety of reasons, we ended up with two, four plexes and a duplex. So. But it's still 10 apartments that we were able to kind of squeeze back there. And again, the city, being supportive of density in general, worked with us, worked with us on that. But the neighborhood in particular, because we did a lot of focus groups of the neighborhood now they love the idea of the for sale homes. Right. They feel like this is a pretty renter heavy neighborhood. We need More opportunities for ownership. That's what we always had in mind with the townhomes. But I'm also a firm believer in renting. I rented myself for many, many years, and I think just having a nice alternative to a big apartment building in this kind of tucked away little neighborhood was going to be a good alternative. I would say it made our financing probably more complex than it needed to be. Here we are about three years later, just almost finished with our construction. So the proof will be in the pudding, so to speak. We hope to get our COO later this month. But I think that kind of mix of uses goes to a lot of what we try to accomplish with our projects, which is kind of meet the neighborhood where the neighborhood wants you to be. In this case, it was a mix of both for sale and for rent options on the same parcel.

Abby Newsham (29:49)

Can you talk a little bit more about how it made the financing more complex?

Andrew Ganal (29:55)

The lenders, as you can imagine, when we first started talking to banks about this, almost wanted to break it up into two different loans, right? So, like, well, what if we gave you a loan for the apartments? And then, because the apartments we actually plan to keep and hold and manage for, for at least a foreseeable future. And then a separate loan for the townhomes, because that's a very different model. Right. So townhome, you build it, you market it for sale, you sell it, and then you pay down your loan right away, as opposed to a typical apartment loan where you kind of build it, stabilize it, lease it up, and then hold it for some period of time. It's just a very different model for the lenders. So we had to talk to some lenders to get a little more creative. And how we looked at this and really what our hope was is that if you think about our financing being pretty simple, like loan plus some investors, if we could pay off the construction loan to build the whole project with the proceeds from the townhome sales, then ourselves as developer and our investors would be basically left owning the apartments free and clear, and we could then manage them, and the rents from the apartments would then be the return on that initial investment. Or we could always go and refinance the apartments, and that's how you would return some of the capital to your investors. So it was kind of a mix of for sale and for rent that enabled that to happen.

Abby Newsham (31:25)

Yeah. So was it one lender that you worked with that was able to kind of take both components and look at them a little bit differently in one package?

Andrew Ganal (31:33)

And I think it Was. Yes, it was. And I think it was because it was a community bank that we'd worked with before. So they were willing to be a little more creative, I guess, in how they looked at it and really bought that story of, hey, there actually might be some distribution of risk here because, you know, some of it's for sale, but some of it's for rent. If for some reason we were delivering the townhomes in a just a terrible sale market and we needed to switch over to for rent, we already kind of had the pieces in place to manage and to market that. So in some ways it's trying to kind of spread out your risk amongst multiple different product streams.

Abby Newsham (32:17)

Yeah, that. That makes total sense. What's been kind of your biggest surprise in building these? Is there anything that you didn't expect when you were first dreaming up concepts for this plan and looking at the site or hurdles that you ran into that you just didn't imagine would happen?

Andrew Ganal (32:42)

I don't think I expected interest rates to go up 5% of time, but that's not really specific to this project. And actually that's where the for sale part, I think, actually kind of helped us in some ways because the home market has stayed very strong now, at least very strong from a seller's perspective. If you're a buyer, you have a very different view of what the market looks like. But I think the site complexity certainly was new to me. Right. So if you think about a typical info urban apartment building, you're pretty much just building lot line to lot line. There's not a lot of complexity there. And here, you know, all these different components of planning individual townhome parcels and where the apartment's going to be and who's going to manage the driveway and who manages the alley. And do we need an hoa? And what does the HOA pay for? And is there a common insurance policy or does everyone get their own insurance? Having to work through all those questions was definitely the surprise for this one. So it's gratifying in some ways, but it's like, wow, it's just a small project.

Abby Newsham (33:55)

Yeah, right. A lot of things to work through for a small project. Something that might be worth getting into a little bit is the difference between a condo association and a homeowners association. And you mentioned before, you know, a condo association would be situation where the land is owned by the condo association and you essentially are like, I guess, leasing error rights and you own the structure on top of the land. With a homeowners association model, you actually do own the house and the land underneath it. But there are shared, I guess, utilities, there are components that are shared that everyone's kind of paying for together. What are the big difference between those two models besides the fact that you own the land?

Andrew Ganal (34:45)

I think it's just the legal structure, as you said, the day to day is probably pretty similar in that there's going to be a president or president and a vice president and a secretary of the association. Sometimes these are called more common maintenance associations. But you're really trying to delineate like, okay, what is going to be sort of maintained and cared for collectively and what is going to be maintained individually. Right. So if you're in a building like a condo building with like an elevator, okay, obviously you're going to have an elevator contract and there's one roof on the building and so forth. Like for example, in our townhome project, we did elect to do insurance commonly. So instead of each buyer having to go buy their own property insurance, we're saying we can actually get some economy of scale here. Because in reality, if you had some sort of casualty, a fire or a windstorm or something, it's not going to be necessarily easy to say, okay, well, each townhomes on their own, working with their own insurance company to fix it, how they will. It almost would be more efficient just to say, okay, we have a roof on this building of four homes. We're going to have one policy that insures all four together. There's an alleyway that needs to be cleared of snow, there's some minimal landscaping that's going to be in common. But it's really, I would say the Continent association probably generally has a higher budget just because it's got more things to fall underneath this purview. And our goal in some ways was to try and keep an HOA fee as low as possible. But while still, you know, showing that, okay, there are these things that are collectively in the collective interest here.

Abby Newsham (36:33)

Yeah, absolutely. And I think people look at Florida and get very concerned about deferred maintenance with the condo situation down there. But what I think is great about townhomes is that it's not a 50 story building with hundreds of units and most people being maybe out of towners leasing up or Airbnb being their units. Having applying a model like this where you have some shared common maintenance needs at a smaller scale I think is a much better application whether you're doing a condo or homeowners association. So it just seems like that smaller scale is a lot more doable for ownership models.

Andrew Ganal (37:17)

And there's always going to be complexity when people live on top of each other. Water could, you know, a burst pipe up above affects a person below you. Not that townhomes would be immune from that, but there's just fewer of those kinds of issues that seem to crop up.

Abby Newsham (37:39)

Yeah, absolutely. Well, Andrew, I really appreciate you joining me to talk about this. If anyone is interested in building a townhome and wants to connect with you, where can they find you?

Andrew Ganal (37:54)

A n. Dkc.com is our website, so that's Apple, Nancy. Dianekc.com and you can just email me@andrewndkc.com and be happy to help anyone looking at this. And I'm glad that this article was published because I do think townhomes need to be sort of more in the collective context. Consciousness is a. As a great way to live. I'm certainly a believer in them. And I think a lot of cities are going to see the value in whether it's like it doesn't have to be in an infill area, per se. I mean, I think a lot of them end up being in that kind of area. But I liked how the article that you shared with everybody showed them in a lot of like, almost suburban type settings, but as a kind of a collective new way to think about what a subdivision could look like. So it doesn't. It doesn't have to be just urban infill, but kind of works, works wherever people want to live.

Abby Newsham (38:52)

Yeah, absolutely. And what I like about them, too, is there's so many different styles of townhomes. They all look so different. I think they. They can fit into many different contexts. Suburban, urban. And I would certainly like to see more of them. I hope that people in Kansas City see your project as a great success and start building more. That would be really cool. All right, well, thank you very much for joining me, Andrew. Have a wonderful Election Day. This is a timely article talking about the new American dream today. So this won't be released for a couple. Couple of weeks, but this is election day as we're recording. So hopefully everybody's now inspired to build townhomes.

Andrew Ganal (39:38)

Yeah, it is great just to take 45 minutes out of thinking about election stuff to talk about something that it matters a lot.

Abby Newsham (39:47)

So, yeah, totally. We cannot have the existential dread today that everybody is feeling cool. All right, well, thanks everyone for listening to another episode of Upzoned. And thank you, Andrew, for joining me. I hope you'll come back again soon.

Andrew Ganal (40:03)

Thanks, Gavin. Take care.

Abby Newsham (40:06)

Bye.

Andrew Ganal (40:10)

Tonight.