The Real Estate Crowdfunding Show Syndication in the Digital Age with Guest Scott Choppin

On today’s episode, I welcome the country’s foremost workforce housing expert, Scott Choppin founder of development company, Urban Pacific, known as the creator of the innovative and very successful Urban Town House (UTH) workforce rental housing model.

Scott and I dive deep into the waters of workforce housing. We explore how his model works, how it compares to affordable housing, how developers can get involved, and what makes it so successful. This is an eye-opening, fascinating conversation for developers and investors alike about the underserved workforce housing category of multifamily real estate.

So fundamentally, what I consider workforce housing to be is to serve families that are sitting in the middle between true affordable housing and luxury high end market rate housing.

Adam: [00:00:00] Scott, what a pleasure to see you again. Adam, great to be here with you. Thanks for joining me on the podcast. We’ve been talking a lot. You and I recently and you have a very, very interesting value proposition when it comes to workforce housing with your deals and your opportunities own deal and everything that’s going on. But what I’d like to talk to you about today. Is what is workforce housing, basically, let’s get into the DNA of that, so why don’t you kick off, if you don’t mind, tell me. Define for me what is workforce housing.

Scott: [00:00:38] So fundamentally, what I consider workforce housing to be is to serve families that are sitting in the middle between true affordable housing and luxury, you know, high end market rate housing. So I’m going to give it to you in a few different versions. So on an income level where serving families between 80 and 120 percent of median income and that would vary by county and state and whatever market you’re in, of course. But more importantly, we’re looking for creating a product that serves families however, their income is generated that are basically being ever sort of drop lower in the food chain in the marketplace. So they can’t afford luxury,they don’t make enough generally to for a brand new luxury housing, they make too much to qualify for true affordable housing, what I call, you know, government subsidized, you know, true affordable housing. And there is this gap in between those two spaces. And it’s actually a widening gap when you consider that rents and housing costs are going up generally in all major urban metro markets. But wages are stagnant and they’re stagnant for this group. They are stuck in the middle, in essence. And so our offer of workforce housing is specifically to a family that would rent one of our U.T. H work force housing units at a rate that basically has them afford it at 30 percent of their moderate income.

Adam: [00:02:03] Ok. So it’s based on a percentage of average household income. Right. And a percentage of that income for rent. And is that the broadest? Is that the broad definition of workforce housing as well? Is that you know, the standard?

Scott: [00:02:21] Yeah. And it’s a great question. And, you know, many people have different versions of  workforce, housing. Right. I mean, you know, every person has  their own interpretation of that. So our answer is it’s ours is a rental model that happens to serve the families that I just described. But some people consider workforce housing to be for sale. Right. But I think generally it’s it’s considered to be maybe attainable or more affordable than market rate, but not as deeply as affordable as your government subsidized housing. So I think on a generic fundamental basis, you would have that be the broader definition.

Adam: [00:02:58] All right. And then other any work force housing programs or initiatives of any sort?

Scott: [00:03:03] You know, there are it’s a great question. I think it’s it’s really a how can I put this? It’s an undersupplied market fund in the capital space. And, you know, because traditionally true affordable housing was, I think of it, the most well known need in the marketplace. And the most extreme need, all the government programs are oriented to that marketplace, meaning this true, affordable, the all the nonprofits that serve those communities. And that’s in the more mainstream media. If you think of HUD. You know, federal level housing, urban development department, you know, that’s who  that government entity serves. Right. Luxury housing sort of takes care of itself as if the market sufficiently viable. And we’re in a up tick in the market cycle on the economic cycle, then, you know, there’s capital for that. There has been traditionally. But this space in between is really new. And people argue, what do I mean by new? But if you think about it and you hear stories as I do, that people say, oh, in the old days, I could have my first job and I could afford to rent a unit, you know, on my own or I could afford to buy a house. Now, what you hear today, particularly amongst the younger folks who are in the beginning of their careers, they cannot.

Scott: [00:04:26] And so I think that’s one piece of evidence. I mean, there’s others. One piece of evidence that says basically that housing prices and incomes have diverged. Remember, we talked about this gap in a minute or a minute ago. That is where that middle income space really started to expand. Right. If you in fact, there was a stat I came across the other day, California Housing Partnership Rights, a market report on affordable housing and attainable housing and happen to write about moderate income families in L.A. County in twenty nineteen.  The fastest growth in housing burdened households, meaning they’re paying too much of their income towards rent. The fastest growth was in the moderate income category. It was 56 percent growth in that space. Now that’s L.A. County sets a very specific set of people in that particular geographic region. But I think it really demonstrates that, you know, that is the highest growth area of burden. Right. That they’re having to pay too much and too much really is defined as more than 30 percent of their income. Right. The gold standard in the industry is 30 percent of income is the correct amount of rent to pay as a function of your income so that you can afford the rest of the things that you need to do in your life.

[00:05:42] Is there a working definition of work force housing?

Scott: [00:05:45] I don’t think so. I think when I spoke earlier, this 80 to 120 would be the closest to a bank definition. And let me let me be clear. Moderate income housing 80, 120. And there’s middle income, moderate income, workforce housing those are all used interchangeably in many places, including by myself. There are programs that that serve that and banks that will look for that particular space. But again, it’s new. It’s developing more sources of capital for that. But if you look at it in comparison to the other, you know, true affordable and the market rate, the amount of capital in that space is much, much lower.

Adam: [00:06:24] All right. So let’s move on to the definition or making a distinction between workforce housing vs. affordable housing vs. Section 8 housing. So explain to me the difference to me.

Scott: [00:06:40] So let me define the first two first and then I’ll tag in Section 8 at the end of that, just because I think it’s good to have two reference points to build the defined Section 8. So affordable housing in the way that I consider and I think in the industry standard would be any housing that serves families that are at or below 60 percent of median income. Right. So think zero to 60 percent is what I call, and this is my own definition of true affordable housing, where, you know, families, their incomes and the rents associated with those families that have those incomes are affordable at or below 60 percent right now. Almost every government program out there basically serves that space generally. And there’s a little bit of, you know, bleeding over 60 percent here and there. But just for this conversation, we’ll say 60 percent. Right. And then workforce housing, you could argue, really is between then sixty one percent and some upper figure in some marketplaces like New York. They may use one hundred and twenty or one hundred and fifty or a hundred eighty percent of meeting income right in New York they have moderate that fits in those, you know, 150 and 180 percent figures. But I think definitionally this 80 to 120 would be considered to be the moderate income space.

Scott: [00:07:54] Classically, right. Now, Section 8 fits into both those conversations. And that’s why I answer the way I did. Section 8 provides a voucher to a family that, you know, like most housing authorities issue vouchers. They have waiting lists of families that need help with housing through this government. It’s really a HUD program that’s allocated vouchers through the local housing authority and whatever market that that project is or that where the tenant wants to live. Right. So, you know, in our FULLERTON project, it would be Orange County Housing Authority. It would be the person who issues the voucher. Right. They can go into any unit at all that accepts a voucher. That’s really the key. In fact, California just passed a law that says that landlords cannot not now bar Section 8 tenants because of their Section 8 voucher alone. You know, in others, there’s other criteria that landlords need to underwrite in Canada. Right. You know, you know, credit history, rental history, that kind of thing. But that California state law as of January 1st, 2020, says no landlord can exclude a Section 8 tenant because Section 8 voucher or the fact that they have this.

Adam: [00:09:06] How do they work, actually, Section 8 voucher?

Scott: [00:09:08] So basically the way it works, you know, just high level is, you know, the vouchers issued by the housing authority to the family and then the family will go find a housing unit that will accept the voucher and that the rent is generally coherent with the standards that the housing authority considers to be appropriate. And there’s some published figures out, something called the Fair Market Rent or FMR, for short, which basically says this is what HUD and the local housing authority consider to be the fair market rent relative to what they would pay for a unit that has a voucher. Right, that the tenant moves in and that’s the rent that pays. So like as an example, I’m going to probably not get the numbers exactly correct. But I think one of the markets that we’re in the FMR. For a five bedroom unit and these are these rents, these FMR’s based on housing size. So one, two, three, four or five bedrooms are units or five bedroom, four bath. And so that rent for that that section 8 fmr is $3221. That’s three thousand two hundred twenty one a month. Right. That when that voucher comes into that unit, that’s in essence what the landlord can  expect to receive as income from the voucher.

Scott: [00:10:20] Right now there’s some adjustments and the housing authorities do need to loo at mrket comparables. But it’s based on, you know, published fmr, market comparables,and then and then most importantly, the tenant only pays 30 percent of their income, whatever that is. If their income is zero, then they pay 30 percent of zero. Right. If they make, you know, ten thousand a year, then it’s 30 percent of ten thousand. And then the voucher makes up the difference. Right. So let’s say every year or every month the tenant can pay $221 a month. That’s 30 percent of their income that’s appropriate for how they what their income level is. Then the housing voucher will make up the difference, which is $3000 a month. Now there’s some other adjustments utility allowances that are deducted from the rent assuming that the tenants paying, you know, gas and electric in those kind of things so that rent is lowered to allow them to have money to pay that and then lowers the voucher rent as well.

Adam: [00:11:19] Is there any kind of workforce housing tax credits?

Scott: [00:11:23] There is not. There was at one point one senator put forth the idea of a moderate income tax credit that never ended up going anywhere. In fact, when that idea came out, we were exceptionally excited about it. So at this point, there is not nothing active that could be in the future. I think if this divergence of housing prices and stagnant incomes continues to widen, then I think that you will have that. Now there is a proxy or a related capital vehicle, which, you know, we can talk about as needed. But the opportunity zone capital space to me sorta allows capital to flow into marketplaces and serve moderate income projects. Right. I mean, they can serve any kind of project that’s in a qualified census tract for the opportunity zone but it it’s not a tax credit, but it is a tax incentivized investment vehicle. And I think it pairs well with moderate income housing.

Adam: [00:12:22] And what about grants for low income? Well, for low income housing development?

Scott: [00:12:29] Definitely grants for low income, to my knowledge, I don’t see anything for moderate. Every city and marketplace is different. So I just speak to my knowledge base in the western U.S. and California specifically. But there’s nothing generally out there in the marketplace at this point of any size.

Adam: [00:12:48] No HUD grants or anything? And there’s  no similar programs for workforce housing development?

Scott: [00:12:54] For pure workforce housing…There’s not. Right. And again, we need to be careful about workforce housing because some people will say true, what I call true affordable tax credit financ, some people will describe that as workforce housing. And there is a there is a capability to do income averaging on a tax credit project where you could actually have 80 percent rents. But then the other end of the spectrum, you have a lower rents down to 30, 20, 10 percent of median income, very, very low, as long as you achieve a 60 percent or below average rent. Then you qualify under the, you know, the tax credit programs.

Adam: [00:13:34] That’s really, really technical stuff.

Scott: [00:13:36] And so but I will say this, I think that’s generally not utilized as much.And I’m not. You know, we don’t do we used to do tax cut housing. We don’t do that actively. So some of my knowledge may be a little bit outdated, although the income averaging, you know, that does exist. But I think if you look at a true affordable housing, almost all of the programs are set up, particularly in California, to to give capital to allocate capital to the lowest income families. Right. Extremely low, you know, deeply low income. Those are specific terms defined in the industry, because I think particularly in California, where we have a deep, you know, deep need for homeless housing and homeless housing with services or permanent supportive housing, those incomes need to be even more. And so what you get is that you’ll have nonprofits and other people that are in that space, that their goal is to get all the incomes across the entire project as low as possible. That requires government capital or subsidy. Right. Which we’ve talked about as a finite source. Never enough for that. But I think you see that the ethic of that space of true affordable housing really wants to drive rents as deeply down until, you know, low, very low exception, extremely low as possible.

Adam: [00:14:52] I just typed out a question for you. So affordable housing. So I’ve worked on a project some years ago actually in San Luis Obispo, is trying to put together a deal. One hundred and something units. And they were all small units. And the idea was that they were to be affordable. Now, you’ve used this term as well. Yeah, but affordable with a, the way I defined the difference. Affordable with lowercase “a.” Yeah, right. The uppercase “A” is as defined by the local municipality. Right. So that I call it right. What I call “true affordable housing.”  Yes. What you’ve called true affordable housing. So in that lower case, a the untrue affordable housing would the… So I’ve heard this concepts are affordable by design and these units actually were. Quite in contrast to the ones that you build were tiny little micro units -affordable by design. Does that also fall into the workforce housing category? Do you think? I think it would. Yeah.

Scott: [00:15:53] And there’s a term people use called attainable housing, which is the lower case  “a” affordable as you describe it. Which means that it’s not, you know, government subsidized. It’s just by some other mechanism made more affordable, affordable by design. Right. We lower the cost of the unit. So we make it where we don’t have to charge as much rent in the proforma to make it viable. We can basically lower the rent by lowering costs. So that’s you know, that’s what affordable by design basically is. Now, I will say this, that the U.T. H model, although it is bigger, five bedroom, four bath, seventeen hundred fifty square feet is a version of affordable by design. It just happens to be that  it fits a larger family group with more wage earners. But because they can live in this unit and they can have more wage earners under one roof top, the design has the house be attainable for them or the rental unit be attainable. Right. So this is a version of what I call economic sharing. Right. So in other words, some sharing at some cost of the unit that allows that each individual has a more affordable payment to make. And you could say that you’re micro units that you describe.

Scott: [00:17:06] that’s a different form of economic sharing it just happens to be that they are you know, they’re maybe sharing the common area, sharing the project in a much smaller space. Right. Their unit is much smaller. And so therefore, they can get more units in. You know, one piece of ground, right. One piece of land UTH five bedroom, four bath is just a different version of that fact. Somebody, Richard Green, who’s the director of the USC Law Center and a professor in the USC Price Real Estate Development School, he when we talked about UTH, he goes, oh, what you’re doing is you’re providing density in bedrooms, not density and units. And I go, that’s exactly right. And so when you have a wage earner that has their own bedroom because they’re living with their family, they may pay five or six or seven hundred dollars a month for that bedroom. Right. And the entire family spreads that cost around the all the bedrooms in that particular unit. Micro units are just spreading the cost amongst other units that happen to be unrelated. You know, neighbors in the next unit. Still economic sharing, though.

Adam: [00:18:11] Fascinating. So now we’ve spoken about all the kind of…laid the foundation for understanding what workforce housing is. Let’s get on to the good stuff. How do we how does an investor make money in workforce housing or in workforce housing development?

Scott: [00:18:33] Great question. So so our model, UTH so I’m going to speak about, our model UTH, which stands for Urban Townhouse, and that’s the five bedroom, four bath townhouse with a two car garage. Just to give folks a sense of the format. We can generate really markets per yields on these. UTH workforce housing projects for a number of reasons and I’ll sort of go through the list to describe that. So one of them, the first one we already talked about is the format of the unit is a five bedroom, four bath unit. And that’s really key because basically what it allows us to do is charge a rent. Right now we’re averaging between thirty five hundred and four thousand a month for seventeen hundred and fifty square foot five bedroom four bath unit. Right. So it’s purpose built and designed to rent. But it lives like a house. It’s got the garage. It’s a townhouse. So it’s a three story unit. You live above and below your own family. Right. But that rent allows us to basically create high whole dollar rents in the proforma. Right. If you’re charging thirty thirty five hundred a month, that allows the proforma to operate much more efficiently or effectively maybe is a better way to say it. In other words, the gross rent provides more income for which to afford the cost to the project. Right. Because in development we always have to have the source of the income. And it has to be viably supporting the cost of the project to build it.

Scott: [00:19:59] Right. Right. The dollar we spend has to produce sufficient income. Right. And so that high whole dollar rent is really a unique characteristic of UTH Right. That allows us to to create these high whole dollar rents. Now, remember, there’s still affordable to the family because they have two to four wage earners. Right. And so if they’re producing one hundred to one hundred and fifty thousand a year, which is our average bracket for two to four wage earners in California, Southern California, that they are paying 30 percent of their income, even though it is thirty five hundred dollars a month. Right. So we because of the format of the unit, we’re able to provide these high whole dollar rents and then still have them in actually affordable to tenants. Right. So that’s number one is the high gross dollar. whole dollar rents  we produce. The second part is that we’re able to buy land very efficiently. So one of the tenants of the UTH model is that it only we only want it to go and it’s perfectly coherent, appropriate for us to seek to buy sites and low and lower middle income neighborhoods. And what’s unique about that is that we’re able to buy land more efficiently because we have little or no competition from other builders because they’re not seeking neighborhoods that don’t have sufficient incomes to support their high end luxury, you know, product. OK. But also it compacts the timelines. Right. So we in these neighborhoods are generally finding, you know, land that’s affordable.

Scott: [00:21:27] And we don’t really have much in the way of neighborhood resistance from a political standpoint, which I’ll talk about in the next item, I’m going to talk about. And so that just helps us basically acquire land more efficiently. Right. Cost and time. So so land price is the second one. Third one is that we’re only buying sites that are already zone that are by right to allow the development model UTH that we want to produce, which is about 22 to the acre three story townhouse on grade. Right. And so that also lends itself to compacting the timeline. So we’re again, time efficient because we’re not going through a long, drawn out political entitlement process, which California is famous for. Right. We actually are going the other direction from rezoning and entitlements. We’re going just to seek and buy sites that are already in essence, the zoning is ready to go.  By right, the way we call it. The fourth one is that we’re building very efficiently. Right. So because we’re building a three story on-grade townhouse product, we’re able to simplify the designs is still good product. Right. If you walk the units, you would feel good about the finishes. You know, we’re doing modern colors. You know, we’re doing, you know, a sort of engineered wood plank floor. You know, have a nice production cabinet. We’re doing quartz countertops. And a lot of our units these days. So the unit looks nice. But because of the configuration of the systems and structure of the building, we eliminate, you know, underground or concrete parking structure, what we call a podium in the business.

Scott: [00:22:58] We just don’t do any of that. This is on grade. That we build the same unit over and over again. So we only do a five bedroom, four bath unit. And in fact, that’s the exact same unit that we’ve refined over time. So we’ve been able to simplify across every choice of material structural systems, how we design the buildings, you know, mechanical, electrical, plumbing. And we pair that with subcontractors who we have a great sub base in Southern California. And we sort of use this design over and over again. We use the vendor team, you know, I think architects, engineers, over and over. And then the subs are that basically the same group that we execute over and over with. What that does is it really brings us directly into the production, you know, mentality or the production domain of residential housing, which you would classically see home builders in that space right there, building plan A, they’re going to build that over and over and over again.  Right, production, production stuff. Exactly. In fact, to this, I say internally, this is the most production oriented housing that we’ve ever done. Classically in our business of urban housing and workforce housing, we might have built one off projects. Think a podium that just is designed for that specific site at that building only gets built once and then the next one’s different. Next one’s different.

Adam: [00:24:18] Right.  What kind of what kind of returns to see.

Scott: [00:24:22] So we have really  we have two models, the one we started with, which was our demonstration phase, we were generally in that phase as we’re now complete. It now generated twenty two point six percent portfolio average sale IRR. So we sold those projects to investors and the price they paid, given the invested capital, would produce at twenty two point six six average IRR in the completion of that demonstration phase. Now we’re moving to a long term hold model and that long term hold model has a different orientation because of course, when you invest a dollar day one and you hold it for 10 years, naturally that IRR is going to lower over time. So we’re shooting right now for about a 15 percent average internal rate return on a 10 year hold. But as importantly, we’re cash flowing that entire time and we’re producing a 3x equity multiple at the end of that 10 year hold. So invest a dollar, and at the end of 10 years, you get $3 back. So your original dollar back plus two in yield right, to just give you a magnitude of. Just hold all the returns that you get. And then, of course, we’re cash flowing in a stablize really safe, you know, recession resistant investment model in this workforce, housing over that 10 year period.

Adam: [00:25:38] And what’s the yield on a what’s the current yield during the hold period?

Scott: [00:25:42] You know, we’re averaging probably about 4 percent, 4 to 5 percent cash on cash year 1. And then generally, you know, our models, of course, we’re early in the long term hold phase, but we do underwrite conservatively. So we have, you know, a 3 percent income boost each year, although we are conservative, have three and a half on operating expenses. So we’re ramping up our expense growth cost right at three and a half. But rents go up at 3. People will argue is 3 the right number? What I do say is we don’t trend our rents in the classic multifamily way where hey, where it took us, you know, 16 months to build this,  I’d bumped by rents up by 10 percent. So in 18 months or 16 months, I’ve got 10 percent higher rents. Right.

Adam: [00:26:30] And project an exit at 3 cap. Right.

Scott: [00:26:37] Exactly. (laughter) So, you know, in fact, that’s a great point.  That’s going to keep going lower. You know, the magic. It’s magic.  And rents will keep going up.

Scott: [00:26:49] Right. So, you know, look, I think the story in California for rent growth, I think one of the reasons we love this workforce housing space is because it’s generally undersupplied for the reasons that we talked about before, which is it’s a new idea and it’s a new marketplace to respond to. But right now, it’s it’s deeply undersupplied, those workforce housing families that are being dropped down the food chain of housing. Right. Because there is you know, incomes are stagnant, housing prices are going up. People either will do one or two things here. They pay more and in percentage rent. Right. They become rent burden or the other choices they just move down into inferior housing because it’s cheaper. Right. Or, you know, we can provide units like our UTH models? And there’s other versions of moderate. Don’t get me wrong, it’s not their own, but ours is the only that I know at scale. That’s new construction moderate.

Adam: [00:27:44] So I was going to ask you that. I was going to ask. So what other models are there of workforce housing? So we talked about our role like a broad a broad canvus.

Scott: [00:27:54] So so really that the two food groups that I see in the marketplace are what is mostly talked about in the media today for workforce housing would be people who acquire older apartment assets that are physically obsolete or they’re in bad shape or they’re in secondary tertiary markets. And instead of buying those and value add them to the highest market rent they’ll value add just enough to make it a better project. But they either won’t raise the rents at all. Right. So say they have a moderate income average tenant base in a project in, you know, or is I reading and you know, in like Dallas or Houston. And what people are doing is theircap oriented around keeping the rents similar to what they were when they bought them. But increasing the you know, the the the going to put this increasing the physical plant of the apartment building, you know, they’re rehabbing the interiors, know carpet cabinets. So it’s a better lifestyle for the tenant, but their ethic is around holding rents. You know, basically where they’re out already. So that’s what I call the “value add” workforce housing model. And that’s really it. And then our model of this new construction, you know, naturally, you know, naturally moderate income housing.

Adam: [00:29:12] Right. So let’s let me let’s wrap up with a kind of a bigger picture. Sure. A discussion about kind of from a societal perspective, why is workforce housing important?

Scott: [00:29:29] Yeah. So so I’ll go back to that rent burden, part of the conversation that I mentioned previously. So housing is such a fundamental need for human beings, right? Our  biology requires that we have appropriate shelter. That’s not to say that people, you know, that, you know, die because they move out of housing. But I think homeless populations are at the highest levels that we’ve seen, as best I can tell in the history of the United States, at least as long as they’ve been being tracked. The way we track them now in California is the pinnacle of that. Right. We have the highest percentage of population of any state in  in the United States and we have the most just, you know, people in the United States who are homeless and who live in California. You know, some of those folks are on the street because they have mental health issues. Maybe they have drug addiction issues. But there’s a big component. And actually, the highest percentage of growth in the homeless market is people are are homeless by default. They’re working families. They’re working people. They’re students. But they just don’t make enough money to afford the housing the way it’s priced in the marketplace in California and many urban areas now. Right. So they just got dropped out. When I said it there, dropped down the food chain. Right. Eventually they drop off the food chain.

Adam: [00:30:46] You know, it’s funny you should say that, actually, Scott, because my introduction to affordable with a low lowercase “a” housing and what I tried to replicate in San Luis Obispo excuse me, was actually in the nineteen eighties. I worked for  a family office that was actually building SROs, I say. And they were the single room occupancy. These micro units that they’d never would have been done. But they were basically fleabag hotels. Right. But the city but the city was very encouraging of these. And this has coming to come to come back to your projects in a minute. Yeah, specifically, but with the same punch line, if you like. The city liked them, but they wanted them in nice areas. So they they re zoned certain areas of course there was lots of uproar about it. But we built these really nice units. Actually, it’s my first contact with Japan was going to Japan and looking at how the Japanese live right in these tiny units. And as a side note, when I lived in Japan, I lived- not kidding- I lived in a room a hundred square feet, almost 10 years. It’s quite possible and in a way quite therapeutic for the mind to do that.

[00:32:09] That’s a totally. Yeah. You’ve kind of shed you can’t afford to have stuff. You have to. But here’s what was interesting. That’s what I want to ask you about workforce housing was that. So we built these things and they were they leased up extremely quickly. They were not like your property, like your UTH model. They were not low cost construction. It wasn’t low cost housing.  It was very expensive because we had to have a little kitchen and a bathroom in every single one of these units. So you can imagine what that all that cost. That’s right. But what was interesting was that I actually sold one of these right before the savings and loan crisis. So at the peak of the market, an investor actually bought one of these buildings that we developed and he was the only person that I knew outside of that wave of foreign investors of the 1980s that held onto his asset. Right. And that’s because it was a cash cow. And the reason that I actually want to connect the dots with what you were talking about was that you mentioned. And it’s gone from my mind. You you’d mentioned like defensive stance.

Scott: [00:33:32] Say again, I’d use the term defensive. Right. Like this is a defensive model.

Adam: [00:33:37] Yeah. Exactly. During a during a downturn. Right.

Scott: [00:33:40] That’s your point about the micro unit project you describe is that people basically defaulted to those micro units because they’re probably on a whole dollar basis, some of the lowest cost rental housing in San Luis Obispo. Right.

Adam: [00:33:54] Yes. Well that the point was that it was. Yes. What reminded me of it was you said it brings. What is there if there isn’t this kind of housing, you know, you’ve either got flea pits, or you have no housing, basically. Right.

Scott: [00:34:15] Or the third option is new innovations like micro units or our UTH model? Exactly. They provide a different way of the economic shirt model. Right. I mean, that’s what allows these units to be. You know, how can we put it allows these units to be affordable to these families or in a micro unit would be a single or a couple possibly. Right. And it basically it changes the way the economics work in the real estate project. Right. And the proforma of that project that allows the rents to be delivered that’s attainable to these families or the people, the tenant base that’s appropriate for it, like the micro units. Right. And I think that’s to me, the future of housing in this particular arena, because basically the way I see a government subsidized housing or true affordable housing. We’ve talked about that’s always a limited supply because government subsidy is only ever so much, right. It’s a finite supply. It’s never enough. And the demand is hugely outstripping the supply of those units. And those units are great. I mean hats off to the people who focus on that I have friends and colleagues and and, you know, people I used to work for that, do amazing work in that space. But I also say if we’re gonna solve the housing problem, it can’t be by that mechanism alone because it’s finite. Right.

Adam: [00:35:38] Yeah. And I was gonna say you got that. And the other thing that’s nice how what you build is you actually want to build it. You’re not being it’s not a mandated requirement. Right. Inclusionary housing is not being forced upon you. That’s right. And squeezed into a spreadsheet or negotiated away to somebody else. You actually want to build this because you can make a lot of money doing it.

Scott: [00:35:59] We can. You know, we can. You know, the old the old, you know, idea of doing well by doing good. You know, were were very encouraged by the social mission of supplying, you know, attainable housing to families or middle income housing to families. It also happens to be a great economic story. To your point, which is, you know, another old way of seeing you find a need and fill it. Right. The need is for middle income families to have good housing. Right. If we want to keep our middle class, if we want to have those people be successful. Right. I can’t remember the statistic, but there’s some huge amount of GDP that’s suppressed in the state of California because our housing is so constrained that it all either uses up people’s money to spend if our family and use all your income to pay rent. You have no money left to pay into the economy otherwise, or people just leave here or don’t come here that might otherwise live here because they would like the weather or the lifestyle in California. But they look at housing prices, they go, no. Right. So I can’t remember the statistic that, you know, it was a vast reduction in, you know, overall GDP production. And, you know, it’s like billions of dollars of suppressed economic activity. And, you know, that’s not the only reason to do it. But, you know, if we say that we’re gonna be successful in our economic planning for the future, then this is an issue that needs to be resolved.

Scott: [00:37:22] Otherwise, we continue to be suppressed and we lose people who drop off the housing food chain into homelessness. Right. That’s not a preferable thing. In fact, if you look at the statistics, you know, homeless taking care of homeless from a government cost standpoint is a very, very high cost endeavor. And in fact, if you get a family that’s homeless and get them into housing. Right. Housing First is a model that people use, that the reduction of load on the government for the cost reduction for that family is massive and the family is so much better. Right. Mental health. Physical health. Right. So I think the social impact story of this is very broad. And in fact, I say, Adam, that, you know, our UTH models, one interpretation of how to innovate in the housing space using private capital, pairing it with workforce housing. But I’m like, we need, you know, thousands and thousands of more of these innovations. Right. If we’re gonna be successful, particularly in California, where we are so housing constrained. You know, we need a lot more of this. So we’re we’re encouraging. In fact, this is one of the reasons we get out the marketplace now. You know, we think the model is great and we’re gonna continue to be fully focused. In fact, this is all we do now from a real estate development perspective. Is this moderate-income UTH model is our, you know, entire business plan.

Adam: [00:38:44] Let’s wrap up with please… I’m going to include this on the Podcast page for today’s episode as well, which will be your Web site. But why don’t you tell folks how they can find your amazing, really fabulous web site that you’ve got and how they can reach you if they want to find out more? Because I know you’ve got some serious deal flow and some good pipeline stuff coming along. Yeah, those details and then we’ll sign off.

Scott: [00:39:14] So go to https://www.urbanpacific.com  If you want to get our contact information, there’s a contact page. In fact, my email address and our direct lines are noted there. So reach out. Email, text are the best methodologies when you’re there. Visit the investor education page. We have numerous articles that we write about, you know, how to assess projects as an investor, you know, learning opportunities, videos, both, you know, learning opportunities about, you know, how projects are developed. Right. Background there. But also, you know, how to invest and how to assess projects. You know, we have, you know, full Podcast page that’s on its way that should be up here soon. And then, you know, we’re just an available resource for people in the marketplace that have questions. Welcome to reach out directly.

Adam: [00:40:07] And I took out my phone, not to be rude, but I was looking for anything. But because you mentioned that the best way to reach you is by text. And I want you to know that everybody on the receiving ends of text from me now have you to thank the extreme length of the text that I sent, because you tell me how to use the dictation tool. And these texts are getting longer and longer. Wh at the . Well, what does he do that so far?

Scott: [00:40:39] You know, it’s funny that you say that.   Because I’ve seen more and more of that. You know, now people are like, you know, sort of keeping track. But I have one group that I’m on a group tax, which are obviously very powerful. But, you know, they’re like, OK, this is getting too long. I’m going to email now. Right. It’s like pages. But, you know, I think in this day and age, Adam, it just cuts through all the background noise, you know? Yeah. You know, I mean, I really get hung up in spam filters, which, you know, is always an ongoing. T ext Doesn’t.

Adam: [00:41:07] But, you know,  I don’t know, the Siri and dictation is almost perfect. Right. I’ve been trying all kinds of different ones on my p.c. Yeah. And you got to. I can’t find one that is anywhere near as good.

Scott: [00:41:22] I agree. I’ve bought a couple of software packages and it was like it took so much time to train it and it still didn’t do justice to it. Yeah, that I think, you know, more and more. And of course, the software doesn’t have the A.I. in the background. You know, Google’s you know, whatever teraflops of, you know, AI data in the background. You know, ever improve although Siri’s, not Google, but, you know, think Alexa or Siri has these learning capacities and A.I. behind it.

Adam: [00:41:51] Hey, Scott, what a pleasure seeing you today. Thanks so much for being on the podcast. As always, it’s good to see you. Thanks. Thank you so much. Thank you, Adam. I appreciate it.

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