Affordable Housing | Innovative Real Estate Investing Solutions With Big Returns

I have Kevin Cavenaugh and Suja Shyam. These are two very cool real estate investors that I wanted to bring on so you guys could meet because they’re not your typical investors. They’ve done really, really cool projects in the Portland area where they’ve taken things that you wouldn’t ordinarily think, hey, this is going to be a great investment. They’ve done amazing social change, and also, they get profits.

The term—Kevin, I’m going to steal something that I’ve seen from you in the past—is enough. We don’t need to be greedy pigs. There’s a nice return, you’re doing good things for the world and society, and you’re solving some problems, so I want to make that our theme today.

I’ll let you guys introduce yourselves and talk about what you’re seeing as a housing issue because you guys are in Portland. I know you guys have housing issues, but what are you seeing as the solution? What’s working for you guys there?

Suja, why don’t you jump in first and tell them who you are? Kevin, come on and explain what you do too.

Suja: Hey, Toby, and hey, everyone. My name is Suja Shyam. I am the director of affordable housing right now at Guerrilla Development, which is the company that Kevin founded some 20 years ago. I also have my own real estate investing firm—Luxe Capital Investment Group—where I help investors get into more market-rate deals.

With Guerrilla, we’re really more focused on social impact and making Portland a cooler and better place to live. I’m just so pleased to be working with Kevin. The projects that we’re doing are super inspiring and just going to impact families on such a great level, so I’m excited to jump into that.

Toby: I’m going to share a screen. Let me see if I could screw it up with my technology because sometimes I’m not very smart, but I want them to see the type of projects you guys are doing, and then you guys could explain what those projects are.

These aren’t little projects here and there. They’ve done massive changes to some of these landscapes and brought really cool projects. I love this building, The Fair-Haired Dumbbell.

We’ll get into that. Kevin, tell them about yourself first.

Kevin: One thing I can’t do is explain the names. It’s much as compelling if I let you play with it in your mind. I’ve been called the goat of names.

I like that you called me an investor. That’s the last thing I think I am. I got my degree in Architecture. As you can see from my website, I realized—like Suja said—some two decades ago that I had the most passive seat at the table. All the power was held by the developer. All the decisions were made by the person who held the purse strings.

I remember taking a couple of the enlightened clients that I had back in the day off to coffee and said, hey, how are you a developer? What does that mean? What kind of degree do you need? They’re like, well, you don’t need a degree. I’m like, oh, crap, as an architect, I need a degree. I got to get a license. I can just print a business card and say I’m a developer? They’re like, yeah, you need a lot of money but just be a developer. How’s your risk appetite? I just said, off the charts.

It’s about your DNA or wiring. I went to my bosses and said, hey, I bought two pieces of land. I want to build two little tiny projects. I want to design them myself, but I want us as a firm to be the architect on record. Could I hire us to do that?

They said yes, so every other Friday, I would get a paycheck, and then I would get an invoice for three times the amount of the paycheck. It worked, and I built these two little buildings. They spun off enough money to match my salary, so I quit the next day and never looked back.

I’m only a developer to build the weird-ass stuff that nobody would hire me to design like The Fair-Haired Dumbbell. That paint job cost $500,000.

Toby: What is it?

Kevin: It’s an office building. Five stories of office over retail. The paint job cost $500,000, the city flower of Portland is the rose, and the state rock of Oregon is the thunderegg or the geode. Every single line on that building is either a thunderegg or a rose. You can’t tell since it’s abstracted, but now that I’ve told you, you can’t not see it.

It cost $500,000. We had an international competition. We hand-painted it as you can see right there.

No one’s going to hire me to do that, but when I ran the proforma, I made it work and game on. Everything that we do at Guerrilla is an experiment. Without Suja finding the gasoline for the engine, my ideas are just lovely sketches on a napkin.

It started out as a left-brain, right-brain thing. How can I create art and still have it pencil? How can I still make money? I toggled back and forth between my left brain and right brain. That’s where I was until about five years ago.

I’m talking to you now, Toby, because now it’s a head and heart thing. Homelessness wasn’t a problem a decade ago. I can design really weird stuff and what this restaurant is going to look like instead of Applebee’s. I never want to design Applebee’s, but I’ll do micro restaurants. How can I do really inventive projects? Now, it’s how can I repair the social fabric that’s been frayed in America?

I build buildings for a living, and we have a homelessness problem. I’m stepping over dudes in sleeping bags. That’s just four walls on a roof. I can’t crack that nut shame on me.

I started five years ago diving—instead of left brain and right brain—into the head and heart. How can I still do compelling projects but leave the world in a better place? Not just a prettier place but a better place. That’s what Suja and I wake up every Monday through Friday and do.

Toby: Let’s dive into that because I was just mentioning that I’m a follower of the Joint Center for Housing and I’ve been doing it for years, pointing out that as an investor—and I am an investor—you invest in society.

We all invest in something in my view, but I am a real estate investor. I like to invest in real estate because I believe that as an individual, I can effect better change than somebody who has a bunch of shareholders that they owe a fiduciary duty to like BlackRock. You can’t be too nice to veterans and old ladies, but I can be because it’s my purse strings.

Here you are in this space. What have you found as an architect and as a developer that you’re actually able to pencil because what I have seen is a complete lack? Let me see if I could pull up some numbers. I’ll see if I can annoy you guys with a graph.

I’m going to throw up and share the supply of low-cost rentals in the United States. This is 2011–2021.

Here we are, a 10-year stretch, and you can see that the number of units that were under $600 available was almost 12 million, and now it’s down to 8 million. We’ve lost about ⅓ of the housing units. From $600–$800, and now it’s up to $6400–$6500. When you start adding these things up, you’re realizing, oh, crap, it’s really tough to find a place under $1300 or  $1400. I imagine Portland is really bad.

Kevin: Yeah. We’re just like anywhere else. The West Coast cities, the Northeast, and most big cities are now suffering from this. It’s so funny because I say things that are politically hot. They’ve […], but they’re not political. This is a blue and red problem.

Toby: It’s a personal problem. We’re probably 7 million units behind in this country.

Kevin: Correct. It’s not just because we’re not building enough units—that’s part of the problem—but it’s because we’re not making units, we’re making poor people.

Toby: We’re making poor people, and we’re not making enough units. I would say that when you look at the housing and builds, just look at this last year, raising interest rates. They’re taxing us. That’s a tax.

It makes the builder stop building. I don’t know about you, but did it stop you at all when they started raising interest rates? Did it make projects that would have penciled not pencil?

Kevin: They were ranges in the sky five years ago, and now nothing is starting. Things are just finishing up and there’s nothing following that backlog.

Toby: To me, that’s frightening because I think that we’re already at a deficit, and it’s not going to get better. We’re not going in the right direction. I think that from all estimates that I’ve seen—again, I’m just throwing numbers at you guys—it seems like we’re about 10 years of building at a surplus away from catching up. We’re not building at a surplus. We’re still at a deficit.

Let’s talk about solutions. I think you’re on to some of the solutions. You’re able to build low-cost housing that actually pencils. At what price are you able to rent these units to where it’s actually penciling?

Kevin: I want us to jump in, but that’s a question that I would have answered differently a week ago. It’s moving so fast.

Suja: I think that Kevin’s approach as he said many times before and we’ll say again is that what worked five years ago doesn’t work in this current environment.

For example, let’s just use a case study of Jolene’s First Cousin. Jolene’s First Cousin is a mixed-use project in one of the greatest and cutest neighborhoods in Portland. It’s only about 13 single-room units, so it’s designed for ground-floor retail, a couple of market-rate lofts, and then a section that is an SRO or single-room occupant building. It’s for folks who are coming up the street and ready to pay a little bit of rent but not necessarily enough to afford their own studio or one-bedroom apartment.

Toby: Suja, I don’t mean to interrupt you, but is this a boarding house?

Suja: Yeah, they share a kitchen and a bathroom.

Kevin: This is an 11-bedroom apartment with a big-ass living, dining, and kitchen area, but it’s like an adult dorm. Would you say, Suja?

Suja: Yes, absolutely. It’s very efficient. That means that it was easier and less expensive for Kevin to build that than to build 11 studio apartments. It’s also nestled into the neighborhood really nicely, so the neighborhood was actually excited to have this building come in.

Kevin was at a neighborhood meeting at one point, and someone said, well, are you nervous about having homeless people come into the neighborhood? Then, this person said, well, once they have the home, they’re not homeless.

It just is a really successful project in terms of not concentrating on poverty and in terms of providing a stable place for folks to live. We have a service provider that provides the residents with the services that they might need because they are in a transitional period. It’s really successful. That project penciled five years ago, and now it’s not penciling anymore. Kevin, do you want to speak to that?

Kevin: You touched on it, Toby, with interest rates. We can handle really any one thing. Interest rates going up, okay, we can figure it out and get crafty. Construction costs going up, okay, we can get crafty. There are more vacancies or other issues. Any two of those things happen, and it’s just too much.

Right now, I built Jolene’s First Cousin for $145 per square foot in hard costs. That was twice that. My perm loan was 3.5%. Now it’s twice that. Both those things combined, and it needs a subsidy.

I hate that because I’ve been running along for a good 15–20 years, just the weird guy in the corner getting individual investors on board like syndications, neighbors, and local folk. In this building, we crowdfunded this. There are unaccredited investors who came out for as little as $3000 in total investment. We won’t do that again. It’s a lot of work, but I believe in the idea of democratizing capital and real estate and investing in your neighborhood.

The other neat thing about it is this is internal subsidization. Two market-rate lofts, very expensive. Three retail spaces—a coffee shop, a bakery, and a hair salon—very expensive. I want top dollar for those spaces because top design gets top dollar. I want to show the value of good design, but instead of putting that extra money in my pocket or in my investors’ pocket, that pushes down the rent for the formerly homeless folk all in the same building.

A reporter reached out and asked, hey, why are you going to get anyone wanting to live in the market-rate lofts if they’re sharing a space with the homeless? I said, that’s a good question. We’re going to find out. He’s like, well, no one’s going to want that. I’m like, well, either you’re right or you’re wrong, but if I never build it, we’re never going to find out, are we? He was wrong because it takes about 20 seconds to rent out those market-rate lofts.

Toby: Because they’re just like, boom. You do market rate, and then you do subsidized, right? Some of it is normal pricing and then for another group, you’re actually cutting the price down. Are you receiving anything from the city, state, or anybody else? No non-profit? You’re not getting United Way or anybody else to participate?

Kevin: Nope. I have historically run away from public money. This is the tricky part, Toby, that Suja and I are wrestling with right now. I historically run away from public money. As the developer, I get to decide who’s at the table. I get to hire the architect of record, the structural engineer, or the builder, and which bank we’re going to use. I get to decide that. That’s awesome.

I want a table that has four chairs in it at most. I invite the United Way in, and there are 17 chairs at the table. It took me 15 months from start to finish to build Jolene’s First Cousin. Some big lumbering organizations are at the table, taking me three years. I’m a middle-aged guy. I have more drawings than I have time. I just want to build.

Toby: It depends on the group. I will say this because I’ve worked for the United Way on a number of projects. They’re a placement agency. They may say, hey, do you have a place that you could rent for $500 a month? They pay the first six months, and then they’re out.

Sometimes, those tenants are expected to do something—paint the place, participate in work parties, or things like that. They’re not involved in the building. They’re not involved in speccing it out there. They’re really just saying, hey, I’ve got 10 folks that I need to get housing for.

I buy housing like that, too. You get kicked in the shin sometimes because you’re in it with 10 people that now haven’t been paying rent. They may not want to pay rent to you as you go forward, so you may end up with a bit of an issue there.

Suja: I think you bring up an interesting point, Toby, which is that there are a lot of different creative ways to build and get tenants that can or want to pay a lower rent. There’s a lot of creative financing out there. As Kevin mentioned, we’re wrestling with that right now. We just secured an Oregon State Grant for Unicorn Bed.

Toby: Which one is the Unicorn Bed?

Kevin: The top.

Toby: It’s coming soon.

Suja: It is coming soon. It’s been permit ready for probably a couple of years now.

It was one of those projects that was going to pencil just like Jolene’s First Cousin did. Over the course of COVID—Kevin, you could probably speak more to this—we ended up not penciling anymore, so we ended up applying for a grant from the state. We’re at $2.3 million for that grant. That is going to close the gap in our capital stock. We can continue building, and it’s going to be 13 two-bedroom units for single moms, so we’re really excited about that.

It is one of the ways that we’re trying to move forward with continuing to build these projects. I’m sure we have a lot to learn from you regarding how to work with tenants from the United Way, for example. We’re going to continue to explore that.

Is there anything you want to say, Kevin, about why the Unicorn Bed worked three years ago but not today without that gap funding?

Kevin: It’s sadly and comically simple, construction cost doubling and interest rates doubling. It penciled beautifully pre-pandemic. The pandemic hit, and we couldn’t buy wood and plywood. We all know what happened. The supply chain issues in the middle and post-pandemic and then the current interest rate cycle.

I can build that for $1.8 million in hard costs and construction costs, and now it’s $3 million. My debt service at 3.5% interest was X, and now it’s 2X.

It’s really simple. I don’t know how we’re going to get out of it. Suja basically just got us $2.3 million for this project. She put the project on her back and now we had permits. We had our orange card, we could call in for inspection, and we could pour concrete except we couldn’t because the math didn’t work.

Suja put this product on her back when she came to Guerrilla. As of two weeks ago, we got the grant, and now we’re pouring concrete this year which is fantastic. There are three more right on its heels that we’re going to work on. I hate that it takes public money to build affordable housing.

Toby: Sometimes it does. It shouldn’t, but it does because like what you said, nobody can build and meet the investor expectation at the cost that it is. I’ll just tell you that individually, I’ve started going more towards manufactured housing because it’s $250 for a stick-built a foot, and it’s $78–$80 for a manufactured house. It’s still great, but I could put 30 manufactured homes on a plot and do it that way.

Kevin: It’s interesting because you’re in the Midwest. Different regions have different methods of construction. For one year, when I was 27 years old, I lived in Omaha, Nebraska, and worked for Alley Poyner Macchietto Architecture. Our client was the Omaha Housing Authority. I drew a bunch of fabricated, manufactured houses, and they were really cool. I was shocked that they were half the price.

We don’t do that on the West Coast. Dwell magazine screwed up the industry on the West Coast because manufactured housing actually costs more here than site built. In the Midwest, you guys still are in the sweet spot, thankfully.

Toby: You have a guy actually in the battleground. I think he’s right over there by Vancouver actually. I call them mini homes or tiny homes because he’s doing really cool manufactured homes, but he’s building communities. It’s interesting. The young guy is penciling out. He’s just like, I’m just going to do it. He’s building his own manufacturing facility.

Kevin: When we’re done, please send me his number.

Toby: I will.

Suja: I think that brings up an interesting point in general which is that the cost of building has gone up, not just because of construction costs but because of design requirements and building code requirements. You’ve probably seen that over the course of 20 years, Kevin. Do you feel like it’s prohibitive? What do you see are the solutions there? Obviously, we’ve got one, which is manufactured housing, but that doesn’t go up.

Kevin: Someone that I used to work with said that I do state-of-the-shelf designs. That’s not new to me, but what do you mean by that? That sounds like a backhanded insult or whatever that expression is.

He’s like, no, everything in your buildings, you can get off the shelf at Home Depot or Lowe’s. You’re not getting in your way as an architect, but you create volume. They’re still beautiful spaces, but they’re not trying to be fancier than they need to be. I don’t think anyone’s building cheaper than us, Suja. I think if we can’t do it, that’s a bad sign in society. That’s a tree farm.

Toby: I was just going to ask you. By the way, these are open-source, right? Somebody could take your design and go put it in their own town. You’re not sitting here […] them on the price or anything. You’re just like, hey, if you can build it, go for it.

Kevin: Yeah. On the website, do this. Go down to the bottom. There should be a bunch of links to not just plans but pro forma. Just click on that. It’s not just a PDF, it’s an Excel spreadsheet.

I got an email from some guy in Perth, Australia. He said, hey, by the way, I just built The Zipper here in Perth. I got the plans and proforma on your website. I hope you don’t mind. I’m like, no, I’ve been to Perth once in my life, and I probably won’t go again. It’s a lovely city. I’d rather you build The Zipper than another Olive Garden. Don’t call it The Zipper. That feels weird.

Toby: That’s one of your projects. I’m going to do the share. It’s going to be a lot of numbers, but you’re actually giving them the proforma that everything breaks down truly open source. This is pretty insane.

Kevin: Yeah. You can see what my investors are making. You can see what I’m making. You can see what the 10-year internal rate of return is. These numbers don’t work in Perth but plug in your own numbers, and you’ll get a little spit of what the product looks like for you.

Toby: I’m going to go because you just mentioned The Zipper, and people may not realize that’s another project. I love the fact that you have all these projects. I’m one of those guys that like to see it.

Suja: I would say that one of Kevin’s signature types of projects is these micro restaurant projects with communal eating areas. It’s one of those. There are just all these cute little restaurants. There’s now a great patio in the back and a communal eating area. What would you say this does for the tenants, Kevin? What kind of tenants want to be in there?

Kevin: I bought this for $106 a square foot. It’s the dumbest building ever, and I love it. The artwork costs $35,000. It doesn’t get me more rent, but it’s beautiful and I love it. It’s lenticular art. It’s on a busy thoroughfare. This is on Sandy Boulevard, which is a really gross street in town. Whenever someone looks at my stuff and they’re like, oh, you can’t do that here, I’m like, what, you don’t have a crappy, used car lot boulevard?

Toby: This is when it was before you built it.

Kevin: Yeah. It was a used Cadillac parking lot. It was a triangle. It was a weird site. One thing we do really well in Portland is food. There are 600 food carts and really high-level food. The food carts are fascinating because it’s $25,000 to buy a food cart and to open your own business. It’s a really low level of entry to be an entrepreneur.

A lot of first-generation immigrants are food operators serving amazing food. A restaurant is the opposite end of that spectrum. You need a couple hundred thousand at the very least for a restaurant.

I built The Zipper, The Ocean, and the Rocket Empire machine. As Suja was mentioning, we’ve done a lot of these because I want to bridge the gap between a food cart and a full-scale restaurant. Inside this building, there are five restaurants and a bar.

The restaurants on average are 500 square feet. There’s a big communal indoor dining area. It’s like the mall, except without crappy food and without the mall. It’s got fire pits. It’s just got a cool vibe. There’s a DJ on the weekends. It’s a good time.

Toby: How much is it for rent? If I’m one of these restaurants, what am I paying?

Kevin: I love this question. It’s a lot. It sets a record per square foot. From an investor’s standpoint, it’s a really good return. Sidenote, this is way getting out of affordable housing, but it’s another experiment on how to choose neighborhoods.

Toby: It’s all like that.

Kevin: Totally great.

Toby: It’s still a community. It’s still really doing something cool, and you’re able to use these techniques. You built this thing for less than $110 a foot. It looks like it can almost be a living space too. I’m always looking and realizing we’re going to have this big implosion of commercials. What are these people going to do with it? You can’t use it for storage because the loads are too high for that. You’re probably going to have conversions. You’re going to have people that are going to be pretty creative about converting space.

Kevin: To answer your rental question, per square foot, it’s the highest retail price per square foot in the area by far, but if you’re a food cart operator or a tiny entrepreneur, you’re not looking at the world and a per-square-foot scenario, you’re looking at what’s that rent check I cut you every month.

Typically, if I know that you can gross your rent on your best day of the month, it works. That’s about what rent is. These micro restaurants are grossing about $2500 on a Saturday. That’s rent. They don’t care about price per square foot. This is another one. This is an old auto like this. These are all auto-oriented buildings.

Toby: Rocket Empire Machine, I like it.

Kevin: Each of those spaces used to be where you would drive in and get your car serviced. Now, each of those spaces is a restaurant.

Suja: I would add that the social impact part of the Rocket Empire Machine is that Kevin had put in one of the units a subsidized unit. We have what we call a beneficiary tenant. It’s this Ethiopian restaurant that he found out was just displaced because their rent doubled overnight.

We were trying to also prevent the gentrification of commercial tenants and having them being kicked out. I don’t know if there’s a picture of her on there, but Khadro is the owner of this Ethiopian restaurant. Her rent is fixed, right, Kevin?

Kevin: It’s $999 a month for the first three years. All the research we did shows that if you can withstand the gentrification wave for three years, you do really well. It’s a Somali community. There’s a big Somali neighborhood on Northeast Glisan Street. Because of products like ours and because we gentrify neighborhoods—we don’t want to, but you can take an ugly building and make it beautiful—the math that follows behind you. I can’t keep my neighbor across the street from doubling his rent, but when he did, Khadro was pushed out.

Toby: My whole point is that when you get people better individual investors into things like you, you can actually make that decision. If it’s BlackRock, they cannot. They’d be breaching their fiduciary responsibility unless they were very clear with their investors that they were using a social use, which I think more people are going to start doing because they realize it’s good for society.

It’s tough when you’re like, hey, I need money to live off. I need to generate such a return. I don’t really care about everybody else. You start to get a little selfish there, but if you’re able to accomplish both, it’s hard to get that feeling elsewhere.

People always say money is the root of all evil and money doesn’t buy happiness, and I’m like, well, then you haven’t given enough away. If you want to feel really good about yourself randomly, just give a big chunk away to somebody, and then tell me that same thing.

Kevin: I have a thought on that front, and then I want Suja to talk about the Atomic Orchard Experiment because we’re always crafting different financial models, and Suja’s the finance brain at Guerrilla.

Toby: The Atomic Orchard Experiment. I want to make sure I pull that one up. Is that what it is?

Kevin: Yup. You’re exactly right, Toby. There’s this weird idea of the bifurcated mind of a high-net-worth American. Back in the day, the Carnegies and the Rockefellers, with their left hand, they would do whatever they needed to do to make as much money. I would club baby harp seals if it was profitable. Then, with my right hand, I just give it away and build a library.

The investors that Suja is finding at Guerrilla are folks who aren’t bifurcated. Everything they do has meaning. I’m happy to invest. I’m a capitalist. I’ll invest in your projects, Kevin and Suja. I want to make a return, but I want to make enough. I don’t need to maximize my return.

Whenever I get an investor, we always get a cup of coffee. I want to meet you. We’re dating. I’m not going to take your money until I know who you are. I’m going to Google you and see if you’ve sued anybody. If that’s how you deal with conflict, I don’t want your money.

Toby: Half the investors out there.

Kevin: I say no more than I say yes to investors. I want to know where yield is of importance to you. If it’s number one or two, I guess I’m wasting your time. I introduced you to somebody who’s doing self-storage facilities up by the airport because you’re going to be happier with that person putting your money in those buildings. You’re not going to be happy with me, or vice versa.

Toby: We have those too, by the way, too. That’s the funny part. I love self-storage because they get huge returns, but it’s like, we never want to have a toilet. We never want to have an actual tenant.

Kevin: As an architect, I wake up in the morning wanting to make my […] beautiful and change people’s lives, but Suja, you could talk about the math that you crafted and sold at Atomic if you don’t mind.

Toby: Yeah, do that.

Suja: For sure. The Atomic Orchard Experiment is under construction right now, which is really exciting. It has about 50 units, and 25 of those are eventually going to be affordable for social workers. They’re beautiful lofts. I think it’s 17-foot ceilings, right, Kevin?

Toby: When you say social worker, is it residential, or are these for social work that people that are doing work in society?

Suja: The tenant base will be social workers.

Kevin: These are residents. It’s an apartment building.

Toby: This is residential, but you’re gearing it towards folks that are actually on a low income.

Suja: We wanted to make the housing affordable in Central City, Portland for people who are working on the frontlines of the homelessness crisis, for example, because people like social workers and teachers are also getting kicked out of Portland because rents are just going higher. That’s the idea.

Toby: They can’t live in their city because the teachers don’t get paid enough, the police don’t get paid, or fill in the blank don’t get paid enough.

Suja: Exactly. This has both internal subsidies, meaning that 25 of the units will always be market-rate units, so those are going to be making it pencil for us to have 25 of these at an affordable level.

The affordability is going to grow every year. They’ll start with 3 affordable units. Then, the next year, there’ll be 6 affordable units. By spreading it out like that, we’ll be able to work up to 25 units in about 10 years.

Toby: These are less than $600 a month, right? I think it’s just $582 per month. Is that what they’re locking the loft down to?

Kevin: It’s gone up a little bit, but it’s half-price.

Suja: Half of the market rate.  What we’ve offered to investors, in this case, is a 4% return for 10 years, and then at the end of 10 years, there’s what we call a kicker. I’m trying to remember the exact math. Kevin, do you remember what it is?

Kevin: 100%.

Suja: A 100% kicker. Basically, you get 4% every single year, and then at 10 years, you get your capital back plus a 100% kicker. It is twice that. If you put in $100,000, then you’ll get 4% times 10 years, that’s $40,000. Then, at the end of 10 years, you’ll get your $100,000 back plus another $100,000 which is a 14% average annual return, which is really, really excellent for investing in affordable housing.

Toby: Are you finding that there are nonprofits that are looking to invest in any of these projects because they’re always trying to get a return?

Suja: What do you mean, Toby? What kind of nonprofits?

Toby: Like even a teachers union. Whenever I say nonprofit, I mean exempt organization. It could be a pension or a small mom-and-pop foundation where they’re required to give away a portion of their money every year, but they still have to invest the principal that they have.

Suja: That is a really good question. I think we’re going to be talking to you more about that. One thing that we have going on with your help is that currently, Kevin’s company is structured as a for-profit company. That does make it a little bit more challenging for us to court money from foundations, et cetera, so we’re becoming a nonprofit so that these projects make more sense to folks like the ones you’re talking about.

Kevin: All of our investors have always been individuals who’ve never had any pension fund. I think we have […] a pension fund, but I’m used to this culture of scarcity, so I’m asking investors for $50,000 or $100,000. I’m getting individuals. I don’t know how to talk to the folks who just want to write one check and do Atomic Orchard and get it done. I like the math behind it, 4% fixed and then there’s this 100% kicker.

Toby: It’s a great return. Again, I don’t see why you’d raise it from the for-profit world. That’s a great return, a 14% projected return is not horrible.

Kevin: I would think so, but the funny thing is maybe it’s because it’s Portland and maybe it’s because we’re just the weird kids.

Toby: Oregon’s tax doesn’t help, that’s for sure.

Kevin: If it was easy, I wouldn’t have hired Suja, but it’s hard. I just want to draw, and I just want to make the buildings. Suja does what I am not good at doing and what I hate doing, which is finding the money, making sure it’s the right money, and bringing it in. It really is a hard job. It’s slowed down right now. People are circling the wagons right now. It’s the worst possible time for that to happen because the need is so dire.

Toby: Giving 4% a year sounds great until you can go to a savings account and get […].

Suja: Exactly. A 4% would have worked three years ago, but right now you can just get a T-bill for 5% or whatever.

Kevin: Without the 100% kicker, it doesn’t make sense.

Suja: It still makes sense with the kicker for sure.

Kevin: Two more things on Atomic Orchard. My comment to investors is you’re not buying groceries. Just like in a stock, you don’t buy a stock for the dividend. You buy it for its growth. There’s 100% growth that’s kind of baked in.

The neat thing about the Atomic Orchard Experiment is it’s our first legal discrimination project. We didn’t even know the rules we were breaking.

I called my lawyer and said, hey, what am I allowed to discriminate against? There are the protected classes, obviously, sexual orientation, age, race, and religion. I understand that. How about employment? He was like, no, that’s not protected. You weren’t born an architect, Kevin. You chose that profession just like you chose your white shirt today. It doesn’t matter.

I said, oh, cool. I can say to you, my lawyer, I won’t rent to you because you’re a lawyer. He said, well, you actually can. Legally, that’s weird, but why would you do that? Well, it’s not about that. It’s about saying, I will rent to you because you’re a social worker, a school teacher, or a fireman because I want to honor what you do. Portland needs you desperately, and I want you to live in the central city which is where you want to live, but you’ve been priced out.

It’s our first legal discrimination project because if you’re a social worker working on the frontlines of the homelessness problem, I want to honor you with the key to a sexy-ass loft that’s half-priced.

By the way, you don’t need to be poor. It’s not about affordable housing for poor people. It’s legal discrimination by profession.

Toby: There are other areas that could actually be using some of that. I’ll just drop some at you guys just because it’s fun to watch you guys ponder these things, but there are groups that are trying to do neurodiverse.

You have autistic adult children. Parents are scared to death about what’s going to happen to their children. They’re able to work. They just need somebody there. They’re starting to build neurodiverse communities, meaning that you have both autistic and non-autistic. The autistic might need some sort of subsidization because the parents might be covering two households. They want their child to be independent, but they can’t afford $3000 or $4000 a month. They just can’t do it. They’re exploring these. This type of property would actually fit that quite nicely.

Kevin: That reminds me of all of the years we’re almost doing that. Suja, I keep picking things for you, how do you feel about it? Do you want to talk about the Great Scott Trio, which is quite like what Toby’s mentioning?

Suja: Absolutely. This is a project that we currently have 100% permitted, and we’re looking for that gap funding. We’re currently in the process of applying for it. It is a 39 one-bedroom residential project, and ⅓ of the units are going to be rented to kids who are aging out of the foster care system.

Toby: That is a non-profit activity guys.

Suja: We’re all ears because we know that we have a lot on the table that we need to access to get these projects going.

Toby: I think it’s amazing that you literally just post all your stuff. You’re just like, eh, if you want to steal our design, steal it.

Suja: That’s one of the great things about Kevin. He’s evangelical about this. He’s like, look if you want to go do this, go do it. I will give you whatever I can. Please go do it. The need is so great. It’s not like there’s a lack of need.

Toby: What is this going to cost per foot?

Kevin: $300.

Toby: Wow, so you went from $100 to $300 in all these?

Kevin: It’s really hard.

Toby: What could somebody build it in the Midwest for? Is it just because it’s Portland, or is it just nowadays?

Kevin: The thing I built for $100 was a single-story building slab-on-grade. That kind of building is about the cheapest building to build aside from self-storage with a micro one-bedroom. It’s a pretty small one-bedroom. There are a lot of kitchens and bathrooms per square foot cramped in here. It’s a pretty expensive building regardless.

You mentioned $250 a square foot, so I’m probably 20% more than you.

Toby: No, I’m just saying that just to get started with a stick built, you’re looking at $250. Just bare bones.

The interesting thing is there’s another company called PadSplit that’s doing some of this, but they’re doing it with single families. What they’re trying to do is the old boarding house. You’re buying older homes, and you’re fixing them up. Instead of having a big, huge living room and a big dining room, they may convert those into bedrooms. They have a common area, and each person has a secure room. They’re usually leasing them out for a month at a minimum and then weekly thereafter, but it’s pretty interesting.

That model seems to be working too just to plant more seeds, because, again, we’re all trying to solve the same problem. There are a lot of smart people out there. It seems like Suja, you’ve got the finances down, and Kevin, you’ve got the technical expertise to build these things obviously.

Kevin: I’m not smart. I want to be adjacent to a smart person. I just want to know smart people.

Toby: There are a lot of folks that feel committed and drawn towards this. They know there’s a problem, especially on the West Coast. We have a big issue on the East Coast. In the Midwest, not as bad obviously, but I look at it and I just think, we’re so wealthy. Why the heck do we have homeless? Seattle, San Francisco, Portland, and Los Angeles. What the heck? What’s wrong with us? Why can we fix this?

Anyway, I know we went to different areas in this conversation, but if somebody wants to get in touch with you guys and learn more about ways that they can get involved in your projects, how do they go about doing that?

Suja: If you go back there, Toby, to the web page, I can show you. If you’re interested in being an impact investor with us and getting the types of return we’re just talking about—that 14% average annualized return—if you scroll down, go to the invest and just book a call with Kevin. That would be great to just learn if you would be a fit for us and if we would be a fit for you.

Toby: We will put the link. I’ve been on guerrilladev.co this whole time. I didn’t say what the website is, but I’ll put it in there so somebody can go in here. It’s Guerrilla Development Company.

There’s the participate button right there on that first thing, and there’s your TED Talk, which I did watch.

Suja: Definitely listen to the TED Talk.

Toby: Kevin, I’m not going to say anything about the pants because nothing needs to be said about the pants.

Kevin: That’s what they call a teaser to get people to be like, what is he talking about? What’s Toby saying?

Toby: That’s a teaser. Go watch it.

Suja: Definitely sign up for our mailing list, but especially if you are interested in being an impact investor, make sure to book some time with Kevin.

Toby: There’s a huge need. There are a lot of folks that are actually trying to pry. There’s nothing wrong with capitalism. It’s going to solve a lot of issues.

You mentioned Carnegie, and he’s one of my favorites. He wrote something called The Gospel of Wealth. I don’t know if you’re familiar with it or not. He said millionaires are the trustees of the poor. There are people that are really good at making money, and there are people that are really bad at it. You need the ones that are good at it, and we need to be responsible for the ones that may not be able to or they’re just not very good at it. Through no fault of their own, it could be medical, circumstances, or any fill-in-the-blank.

Kevin: The markets are slowing right now. What is interesting is here in the Midwest, there was an interview with call centers. I forgot the industry. It can be banking, credit card, or whatever, but a lot of the call centers are in the Midwest. It’s interesting because the person on the end of the line who is servicing the call can tell if you’re from one of the coasts or from the Midwest based on how stressed out you sound. The margins are so much thinner on the coast. The middle class has been cored out of the coasts much more than the Midwest.

My wife got her nursing degree at Creighton. Two-income families who are making not significantly more than minimum wage can actually buy a home on the outskirts of Omaha. It’s impossible to even consider in the Northeast, Northwest, Florida, or the big cities.

That’s a change that happened in our lifetimes. It happens slowly like a frog boiling in water. I’m not a policy wonk. We’re not going to get into politics. I have all kinds of theories about why that happened. Both parties have failed us. Other countries can do this.

One thing I mentioned in the TED Talk is that we invented The American Dream. Now, there are 16 countries that do it better than us. There is stickiness to the top 20% in the bottom. If you’re born poor, you could be amazing. You’re going to die poor. It’s not our parents’ economy anymore. We can lament as to why or how that happened, or Suja, you, and I could just go and do what we can to fix it.

Toby: I like that one. I always think that where there’s a will, there’s a way. We just have to decide that we want to solve some of these issues. I think that the individual investor is way more empowered than some of these folks that have their hands tied by the rules that the SEC imposes on them or their fiduciary relationships.

We’re not bound by that. We can decide, hey, I’m good with a 6% return or a 7% return. We don’t need to get a 17% return all the time. It’s certainly great and wonderful, but you don’t have to do that with everything.

Kevin: Have that in your portfolio too. Have your Nvidia stock. That’s great. Do all kinds of fun stuff that just makes really good money. The American investor is more sophisticated. I don’t want to eat the same meal. I don’t want to eat chicken parmesan every time. I want some variety in my investments, in my meals, and in my life.

Toby: Absolutely. You guys have been awesome. I’m going to put your guys’ contact information. I’m going to make sure people can get out to you.

We’re going to have you on the investing side because we do have the investing side where we have a lot of folks that are investing in projects. They can certainly reach out to you, but I know for certain that we’ll have to be on over there so you can talk about some of these projects because they are beautiful projects. Really cool. These are things that you would love to have in your communities.

So many projects that we see especially when they’re priced consciously, I want to drive by it. I want to drive to it. This changes that considerably. You’re using really cool aesthetics to make it something where somebody would feel proud because whenever I think about low-income housing, I don’t know about you, but you think about the projects. You think about some of this same unit 20 times over, and it looks almost like a prison.

Kevin: We’ll save it for the next chat, but there is a myth of efficiency or economy of scale. Suja and I don’t play in those waters. We’re showing that you can have sexy design and affordable housing. It’s not an ‘or’ equation. It can be an ‘and’ equation.

Toby: I like it, sexy and affordable.

Suja, thank you. Kevin, thank you.

Suja: Thank you.

Kevin: Thank you.

Toby: I’m going to get this out to everybody. Again, I encourage anybody who wants to reach out to Kevin. If you’re a builder or developer, you reach out to Kevin and Suja and talk about doing it in your neighborhood because this is the first time in history where an architect is like, here, just take my stuff and do it in your neighborhood. You got a community that’s willing to allow you to do that. Take advantage of it. Thanks, guys.

Kevin: Thanks, Toby. Good talking to you.

Suja: Thanks, Toby.