The Bottom-Up Revolution Is…Re-Localizing the Benefits of Housing Development
Ryan Andrews is the CFO of Hiatus Homes, a small-scale development company in Bend, Oregon. He is also the CFO of the Hiatus Capital Fund, which helps Bend locals invest in development projects in their own community. He’s managed more than 20 investment funds and syndications across real estate debt, equity and venture capital, and he specializes in capitalizing construction and development projects.
In this episode of The Bottom-Up Revolution, Andrews discusses the importance of local investment and explains how to fund small-scale development in a way that channels profits back to locals, instead of outside investors. He and Tiffany discuss the success this model is having in Bend and how it could be replicated in other cities.
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Tiffany Owens Reed 0:06
Hi everybody. Welcome to another episode of the bottom up Revolution podcast. I'm your host. Tiffany Owens, Reid, it's an honor to host this show. This is the podcast one of three strong towns podcasts where I get to interview ordinary people who are improving their communities in a bottom up, grassroots fashion, making them more resilient, more beautiful, more safe. I always feel like it's really an honor to be the one facilitating these conversations. I learned so much from our guests, many of whom are experts in their own right, including today's guests that I'm excited to introduce you to, I, as I'm sure many of you have, you know, kind of kept track of the different strong towns five core campaigns, including the one on housing. And so over the years, I found myself just learning a little bit more about the housing challenges we're facing as a country. And as you may know, there's so many facets to this conversation. There's the development side, there's the you know that the policy side. There's the zoning side, but one really big side that might be one of the hardest ones to understand is actually the finance side. So our guest today, I hope, and I'm confident, is going to bring some insight to that side of things, and he'll also be sharing about a unique solution to the finance side that he has been able to bring to his community of Bend, Oregon. So we had on Jesse hunter. I did not have the name written down in front of me, so I hope I have the right last name there. But he came on a couple weeks ago to talk about his work at hiatus homes. He's the founder of hiatus homes, a tiny house company in Bend, and today we're talking to his business partner, Ryan Andrews. He is the chief financial officer of hiatus homes and the hiatus Capital Fund, Ryan has managed more than 20 investment funds and syndicate syndications across real estate debt, equity and venture capital, specializing in capitalizing construction and development projects in concert with hiatus homes, goal of providing housing to a new type of buyer. Ryan aims to provide local investors with access and opportunities to invest in development projects in their own community. He structured the hiatus capital fund to be owned and funded primarily by local investors who live in Bend Oregon, when a project is financially successful. This model means that the profits flow back to the people who have invested into the local community instead out, instead of into the pockets of out of the area professional investors. We're going to talk more about this unique model in today's conversation, and I'm sure we'll touch on so many other conversations related to housing and finance. So I, I'm excited to learn from this conversation and and I hope you are too, Ryan, welcome to the bottom of Revolution podcast. Thank
Ryan Andrews 2:44
you. Excited to be here. Yeah, I can't wait to dig into some of the work we've done and some of the changes that are happening in capital markets right now. I think it'll be valuable to the audience, because it's not something that's rocket science, like other developers and investors that are wanting to be a part of something like this, I think can reuse a similar model.
Tiffany Owens Reed 3:05
Amazing. Well, I am grateful for the assurance that this is not rocket science. I definitely was a little bit intimidated to talk to you about this topic, because I feel like it's so out of my league, but I, like I said, I think I'm going to learn a lot, and I'm excited for you to kind of break it down in a way that's easy to understand. So to start off, I would love it if you could just share a little bit of your story. Let's start off with your background in finance. Can you tell us how you found this as a career, and maybe, what do you find so interesting about especially given that you work primarily on financing in the real estate context? Can you just share a little bit about that?
Ryan Andrews 3:42
Yeah, of course. So I've worked in finance my whole career, almost 20 years now. I got a finance degree from Cal Poly, San Luis Obispo, and as I went through college, like my senior project, you have to do a senior project at Cal Poly. And my senior project was a kind of mocked up real estate development project where they took folks from the finance department and the architecture department and planning and put everybody together to work on a senior project. So all the way back to college. You know, everybody jokes that, like, you never know what you want to do in college. But all the way back to college, I knew I wanted to do something in real estate. In fact, I even started out at Cal Poly in civil engineering, because I thought I was interested in the more technical side of it, as I got through that, civil engineering degrees is hard. There's just a ton of prerequisites, and I was trying to have a lot of fun in college also. So I switched to business. Got a finance degree, but really was interested in the real estate side when I graduated from Cal Poly in 2007 that was right as the global financial crisis was kind of kicking off in earnest, and so there was really no opportunity to get into real estate development. I mean, if you remember. Marie had just died. That was the era of like, you know, foreclosures and giant subdivisions with, like, stepped out utilities, but no homes and no foundations on them, and it took years for the economy to build and absorb all those homes. So there was no real opportunity in real estate development when I graduated, so I took a bit of a circuitous route. I started working for a couple of finance firms in investment management, and one of those was Pimco, which is a big bond manager down in Southern California, and that was really where I cut my teeth in the investment industry. Like understanding how it works, and you know, had to wear suits and ties every day and all as a kid, and so, you know, that was a fun period. They just work you like crazy, and all those kind of Wall Street styled firms. And I left that feeling like, I want to be an entrepreneur. I don't want to just work for a big corporation. And so I joined a couple of friends that were here in Bend, Oregon, and I'd moved up here to bend. I was actually early on the remote working bandwagon. This was pre COVID. This is 2010 2011 was when I moved here. And I went into my supervisors at PIMCO and said, you know, Hey, can I move to Bend, Oregon? This is where I want to live. And at the time, I was working for account managers that were traveling the country. So they were gone four days a week, meeting with clients, and I was in the office doing marketing material and Client Servicing material for them. So when I was like, Hey, can I work from, can I work remotely from Bend, Oregon? They were like, well, yeah, we don't care. We're gone and you're in the office. You might as well work, you know, and have your home office wherever you want. So I was the first remote employee. I was early on that initiative by, I don't know, about eight years, because then eight years later, during COVID, it was amazing. Bend became one of the highest per capita remote working epicenters in the country. Yeah, so it was cool and fun to be a part of that. I and so I moved to bend, continue to work for PIMCO for a couple of years, but ultimately wanted to be a entrepreneur, so jumped in, did a tech startup and raised venture capital. That was my first time actually raising capital, super hard to do it like on my own and with a couple of partners, and then left that that company, after a year, went to another startup, and this is where I started get back to real estate, because that startup was called crowdstreet, and your audience probably knows about crowdstreet. They're a online platform that connects investors to real estate syndications and funds and deals. So crowdstreet had actually been founded here in Bend and then moved to Portland, and then, I believe, subsequently, Texas and crowdstreet came into the market right after the Jobs Act, which is kind of a big part of the story. We'll get into into that more in a minute. But crowdstreet came into the market as the Jobs Act passed, and all of a sudden you could raise money for investments online. And you know, we'll again pull on that thread in a few minutes. But so I was with crowd street. Then I became a construction lender and ran a fund, a construction lending fund, and through that, I started creating funds and creating syndications for equity development projects. And in doing that, I was like, oh, man, I just this is what I want to do. I want to be on the real development side, the finance side of development, and I don't want to be just a lender or something. And it was also at the same time that Jesse and I met, and so he was trying to syndicate his very first tiny home development here in Bend and got introduced to me and a couple of guys at my company to help him out. And that was really our origin story. That was probably that was like 2017 and he and I connected. We had daughters that had both just been born, like, a month apart. So, you know, we're like new dads trying to figure things out in real estate. We're both pretty motivated. He's about eight years older than me, but, you know, kind of trying to find our way. So that was our original origin story, and I can share more about that story in a minute as well. Yeah,
Tiffany Owens Reed 9:40
I would definitely want to touch on that collaboration. But I want to ask you, just kind of as I'm listening to you tell us this story and this journey, sort of of you finding your groove professionally, I'm curious like, what fascinates you about finance and what fascinates you about real estate? Yeah.
Ryan Andrews 10:00
Yeah, I like, and I would say, kind of my, I don't know, highest and best use or gift to the world in this space, professionally, is in structuring real estate investment products, and then, like, explaining and communicating that to investors. And so I've always joked, well, Jesse and I always joke that, you know, kind of, he goes and gets relationships, and I work as a sales engineer, and I've had that type of role in almost every entrepreneurial venture that I've been a part of, where that starts by sitting down and, you know, crafting the spreadsheet, which is just the, you know, your back of the napkin, pro forma, what are your costs, what are your expected sales? And then how much money is left over, and then you have to figure out what to do with that money, like how much goes to the general partners, in a carried interest, or in fees, or in profit splits, how much goes to the investors? And it really becomes a it's a negotiation, but it's also like trying to understand the psychology of your investor customer, and where do they want the risk. And so you're really pricing a couple different things. Like, you're pricing the risk who's taking the risk of losing money. You're pricing the sweat equity of like, who's working and deferring income into the deal on the hopes of getting more later. Who's signing a personal guarantee, which is a totally different kind of risk. You're not risking your money in the deal. You're risking your entire professional career or your personal assets in your home. And then, you know, you can just kind of weigh money now versus money later, or the hope for money later. And so like, maybe investors want a pref now, but they're going to be willing to give up some upside later. Maybe they want no prep but a higher profit split. And so trying to create that's what I call, like the investment product is trying to figure out what is the actual structure of the investment product, the waterfall, the pref, the fees, in order to price the risk properly, the different risks. Price The sweat equity properly, price the work, and then hopefully create a good outcome for everybody. But then also think about if there's a bad outcome, how do we deal with it? And so crafting that has taken me years to learn, because I've just had to spend a lot of time trying to create investment products, selling them and not selling them, and trying to figure out why, and then having things go wrong in deals, and having things go right in deals, but then also then taking that and explaining it to an investor, and sometimes it's a very sophisticated investor, sometimes that's a very unsophisticated investor. And so you need to be able to explain how the different mechanisms work, and how are we all going to act if things don't go right? And you know, what's the hope, if this goes well, what's the outcome that we're all going for? And so that is so fun for me. I mean, I could do, like, I wish my entire job was just doing that all day long, was creating an investment product, and then, like, explaining and selling it to an investor. And in that regard, Jesse and I work really, really well together in that he's the best business partner I've ever had because he's really good at, like, the vision and the relationship. And so somebody comes into, like, the hiatus brand, or hiatus homes kind of idea, investment idea, and like, Jesse's sold him pretty well on the philosophy and the vision and what we're trying to do and why it's needed in the American housing market. But then now that has to translate into like, a check and profits, yep, and risk allocations and everything. And so then that's where I come in and explain all that, and close people and, you know, get the paperwork done, explain the paperwork, get the wires and everything. And I've also, I've been a CFO for, I don't know, a ton of companies, for at least 1012, years. And so one of the things I always try and emphasize is like, Hey, I'm bringing to the table. Like, you know, I run the financials, and so, like, this is what I do. This is my day job. I, you know, I'm going to be making the journal entries, I'm going to be managing the books. I'm going to be doing the actual cash management. And so you're not going to, we're not going to lose track of your money, or we're not going to, accidentally, you know, spend too much on this and that we ran out. Like there's a real responsibility, fiduciary responsibility, often. And so that's a role that I play as well. Once these deals close. I mean, you're married to the deal often for three years, five years, 10 years. So you stay in it, you continue the relationship with the investors. But my. Favorite part is certainly the creating of the deal and then the selling of the deal. It's just very fun, yeah, and
Tiffany Owens Reed 15:06
to that point, it sounds like the deeper, I guess, fun to all that, I guess I would say I'm wondering if it's helping visions come to life, because I feel like the development side is so important, right? Like someone could say, look at a building and see potential, but someone like you is able to say, like, okay, like you did with Jesse, give me a napkin. Let's look at this and really like, bring the specifics to the table that need, that need to be in place for for these ideas, these creative ideas, to actually take on a life and actually, actually be possible, which I can imagine, is so rewarding. But also, and we're going to talk about this with the local fund, funding model that you all have, you know, people want to be a part of things, and, you know, and I think that's a big part of what it means to be an investor is being part of this, like creative process of making things come to life. And so the fact that you're able to say to the developer, like, Hey, I'm gonna give you the numbers to help make this specific and grounded and help you see, like, what does it take to bring that to like, make this happen, but also to the investor, like, I'm gonna give you the like, very specific roadmap to make your contribution actually happen, right? And make make it feel like a safe, relatively safe process. So I'm I just wonder if, like, that whole process of, like the role you play in and helping people's ideas happen, sounds to me like that's, that's that must also be really rewarding. It
Ryan Andrews 16:36
is. It's really fun. And you know, when I early in my career, when I was talking about working with BIM code and everything, and working strictly on financial assets. It never comes to life outside of the computer. It's always just numbers in the computer. And real estate comes to life and becomes something, and then it gets like, you know, consumed by people that live in the home and they enjoy the home, the bullets, you know, quirks and amazing attributes. And so, yeah, it's certainly really fun for me. It's a really fun part of the development. And I have, I have three little girls, and I've explained to them over the last couple years, as they've gotten a little bit older, like what I do. And so I had them out on a construction site a couple weeks ago, and we were watching a giant beam getting hung 35 feet in the air, and it was pretty cool. And I wanted to watch it, because I wasn't sure how these guys were going to do it and everything. And so when when they were little, or when they were smaller, I used to say they're like, What do you do for work? And I was like, I build houses, because that's something they can, you know, understand. And that's so different from being like, well, I manage bonds, or I'm a bond trader or something. They're like, they don't know what that is, but I'm like, I build houses. And then as they got older, one day, my middle girl informed me, well, Daddy, you don't actually build houses, because, like, she figured out that, like, I'm not swinging a hammer instead of her it was like, Well, you're not actually doing it. So I had to sit her down and be like, Well, okay, here's what I do. I go, it takes a lot of money to build a house, so I'm the one that goes and gets the money, and then I make sure all the people that are building the house get paid for doing the work that they do. And then at the end, when we sell the house, like, I take that money back and, you know, split it up between everybody that was part of it, and that's something that even a six year old could understand. And so, you know, when it comes down to it, that's it. That's the job. Now you can layer on infinite complexity around what we've done as a business model and everything, but when it comes down to it, it's still very simple. Most of the people get into real estate development, not from the finance side, like I did. They get into it more from either the design side as architects or the general contracting side as builders. So they almost always show up to the table. You know, no offense, but weak on the finance side, weak on the investor side, week on the capital side of figuring out what to where to get the money, how to manage it, and how to pay it back. And so
Tiffany Owens Reed 19:10
it's almost like the finance side is the fuel. You know. It's like you need the car. I need the wheels. You know. I don't know why I'm using an auto centric analogy on the shuttle bounce podcast. Everyone forgive me, but I think this is a really important side of the conversation about housing. Is having is, like, the importance of that financial literacy, or at least an awareness of, like, the finance side really is so important, both to properly diagnosing the problem in our country as it pertains to housing, but also properly identifying innovative solutions. You know, innovative solutions can't just be designed, and they can't just be building. They can't even just be zoning for form, right? It's like so much fit also. I mean, you do have to talk about the finance from both perspectives. So it really, yeah, that what you're explaining about, you know, these they come to the table and everyone gets excited. But. It's like some, you know, we have to, we have to know how the finance is going to work, and how is this actually going to become a reality, hmm,
Ryan Andrews 20:06
and, yeah, exactly. And get the capital, whether that's debt or equity or combination. Well, it's always a combination of both. Get it into, into the actual deal. Get it excited. Get it to a yes. So yeah, kind of, I mean, really, kind of drilling into the meat there it. There's an interesting story that's gone on, because we've been innovating kind of on the back end, on the finance side, every bit as much as, like, you know, Jesse and Sean were innovating on our on the design side of our homes, like building small homes, is we were trying to figure out a new way to fund and finance these projects,
Tiffany Owens Reed 20:47
right? Can I pause you there, Ryan? Because I actually want to go back to what you started to tell us a little bit about how you and Jesse crossed paths. What I would love it if you could kind of tell us that story about asta. I'm just curious. Like what stood out to like, what resonated with you about what he was trying to do with the tiny homes. Had you heard of tiny homes before?
Ryan Andrews 21:06
Yeah, good question. And actually, that's, that's a good, really good segue into where I was starting to go. So, yeah. So we met. I'd seen tiny homes, you know, online. I thought they were cool and cute. I had a young family, so I was like, this isn't exactly I'm not. I'm not the customer. I'm not the target market for a tiny home, or a tiny home on wheels. But they just looked so cool, and the idea that, like, you could move them around and park them in an amazing area, or have like, three or four of them and, like, a shared fire pit with like four of your best friends, but have your own private space, you're not running a dream. Is
Tiffany Owens Reed 21:42
it not? Is this not? This is all I want. This is all I
Ryan Andrews 21:46
want. My living in community. And it's so funny, you know, you ask a lot of people like, you know, what some of the favorite times of their life were, what the good old days were, and a lot of times it can be like living in college, in the dorms, because we all had such tight community, or a lot of people experience such tight community there. But the downside is, like shared rooms, shared bathrooms, no private space. Well, we grow out of wanting that when we get out of our, you know, early 20s and so, you know, the tiny home movement, I think, started on a community piece, a kind of like layers of privacy piece, where, like, you have your own private space, but then you also have community space, and that's a big part of our design in our communities, which you know, that's not my space to talk about, but we certainly invest a lot into creating your own private home, then like a little outdoor space that's semi private in the community spaces where you're invited to meet your neighbors. And that's one of the things that makes our developments really unique, and that's kind of the answer to your question of what grabbed me about this space is it wasn't just the tiny home itself, but it was the like community that gets built around the tiny home, and the humans that opt into that kind of lifestyle and what they're looking for, because they're looking for a comp that combination of, you know, community and and also, like by having a minimalist home space, you get rid of stuff, you declutter your life. You can focus just on what's most important to you. And all that really appealed to me, even though I couldn't necessarily move into a tiny home at the time. And so first time I met Jesse, he came into our office to, like, pitch us on this tiny home development he wanted to build, and he and I sat there at the whiteboard, me and him and another colleague of mine that's in finance, we sit and scribbled all over the whiteboard for an hour trying to figure this out, and it did not pencil. Anyway, we sliced it. It did not pencil. You couldn't do it. And there were all these regulatory issues around density, system development charges that were as expensive, that's like, impact fees.
Tiffany Owens Reed 24:03
Yeah, Jesse explained that on his episode, that that was so I had never even heard of that. That's such a big part of it,
Ryan Andrews 24:10
though, that stuff killed deal, tons of good deals, and killed this type of housing for years, for decades. So we wrestled with this stuff for an hour, and at the end, I was like, it just doesn't work. And he was like, heartbroken, um, and so, you know, but I was like, but there's a couple things here. Maybe there are some areas here to explore. He leaves, comes back a month later, and he's like, okay, so I figured this piece out. I figured that piece out. Let's talk again. And we just kind of notched our way a little bit closer and a little bit closer every couple weeks we'd get together. And I loved his tenacity, his good attitude, his just like desire to stick to it and figure things out and not be just like, Oh, it didn't work, and move on. And so that was one, but the aha moment actually came on site. Once the units were under construction. So I was just helping out as a friend, very lightly. Not I was not legally involved in that project, in the partnership or anything, but I'd helped him, you know, kind of structure it, and that was early in my structuring career. And so I was out there on site in the response you'll normally, when you're a developer on your site, you kind of hide, because you don't want people to be like, my shower is leaking, or my, you know, my thing's broken, or this, you know, and so normally you hide. And people would come up to Jesse, specifically, I remember somebody came up to Jesse and is like, Hey, are you Jesse Russell? And he's like, Yeah, a little afraid to decide, like, what's broken? And the guy gives him a huge hug, the great big bald guy gives him a huge hug, and he's like, I love my home. I moved here from Texas for this. I got divorced, and, you know, lost half my assets. But this was a perfect house. I now need community, like all this. He was a this, like kind of unique demographic that now we know is part of the demographic. There's lots of people that are in small households, and he loved his home. And I remember just kind of like nodding my head and being like, man, there's really something to these communities. And it's not just the small home. It's the small home inside the community, the way the community is designed, and so, you know, that's what really got me excited about the space, and Jesse and I starting to talk more about, like, well, what's next after this development? That was the hiatus Benham development, yeah,
Tiffany Owens Reed 26:37
so you kind of started to touch on this a little bit with the story that you just shared. But can you, as you've kind of part, you know, so the partnership with Jesse obviously grew. You're part of the, you know, you're officially part of Heider Sam's team and everything. But I'm just curious, as you were, you know, you see the reaction? You see this, this tiny home piece built. Know what started to click for you, as you're seeing the stories and noticing the trends of the people who are buying them, or in terms of like, where the housing market is heading in the US and what, what does adaptation look like with in light of that reality
Ryan Andrews 27:14
totally and I would say it took me a couple years to figure it out, because we were not like a Couple of MBA students that were sitting around a boardroom of like, you know what, you know, what's missing is missing middle housing in the United States that wasn't even term three or four years ago. And so it took us years to figure it out, because we backed into it. We built this development that had 22 homes, or he did, and I was involved. So, you know, hiatus homes, built this development of 22 homes, and could have sold 100 of them, and that made Jesse and I kind of like, scratch our heads and be like, Wow, there was a lot more demand than we thought for that. We should do more of these. How do we do more of these? And why? Why did this hit such a nerve with people? Why did it resonate so well, and what we backed into is really the demographic story, which in some sense, is similar to the finance story. They follow these kind of like parallel trajectories. So, but the demographic story is that basically, you know, the greatest generation, the generation that fought World War Two gets home from the war, and all the all the wartime production starts going into cars and appliances and all and those people wanted to form families. They didn't want to farm out in a real rural environment, but they didn't want to necessarily work in city. So that was where the suburbs started with these little like, quarter acre, half acre plots of land where you could have your little garden, you would commute, you know, or like, mom stays home with 2.3 kids and a dog, and Dad commutes maybe 25 minutes to work. There's not a lot of traffic, you know, it's a single income household, and so that's where the suburbs were really born. It was in this post war environment. Well, then as the boomers grew up in that environment, they liked the suburbs too. In the boomers, it was when the boomers became adults that they really started to codify that subdivision style building into building code and zoning code and saying, like, you know, a residential should be all residential. And then we drive over to the industrial district, we drive over to the retail district, and then we drive into downtown for our jobs. And, you know, we want the family at home. And the one of the boomers contributions to that was bigger homes. I mean, we went from an average home size of like 13 to 1600 square feet to more like 26 to 3020 600 to 3000 square feet. So it was like bigger and bigger homes. And at the same time, we had interest rates. From the early 80s, when the Boomers were like, really buying homes and everything going down for 40 years until 2022 and so homes are becoming more and more affordable every day, simply because of financing and innovations like mortgage backed securities and Fannie Mae and Freddie Mac and all the agency debt that's like, fueling more and more financing of the purchase of homes and the development homes in suburbs, and it all got codified into law, essentially, or policy. And so then, all of a sudden, the boomers, children, the millennials, grow up and are like, well, we want walkability, and we don't necessarily want a giant home that's only car centric. We want community. And they and the millennials waited till later to have children, waited till later to have kids. And so all of a sudden we look today in 2025 and more than half of all US households are one or two people. And so, you know, it's just a huge shift that was not the case, certainly 70 years ago, even 40 years ago, and so, but all this, but we're on the end of 70, or, you know, almost 100 years, 80 years of building homes in this large, suburban style home, which are unattainable by design. They're big and expensive by design, on a big piece of land, and you got to own a big automobile to get there. And so, by saying so now millennials, as they got into their, you know, mid to late 30s and now early 40s. I'm like, an elder millennial, so I'm 41 they looked around and they were like, well, I can't afford a big home in the suburbs without another adult roommate, so I have no other option but to, like, live in city and rent or to buy a home out in the suburbs and supplement the rent with maybe one of my friends that lives in the other bedroom. And so it created this missing class of homes that we call the missing middle homes. And that's like attainable by design, designed for small households, designed with walkability and community in mind, and not just for a big family that owns two automobiles, right?
Tiffany Owens Reed 32:25
That's such a helpful way to frame the story. I've never, I've never heard it told through this generational perspective, and especially what you were saying about how the boomers it, you know, wanted to preserve, it's almost like they wanted to preserve the way they grew up, you know. And you can kind of understand, you know, yeah, like, if I could codify walkability and community into law, like, if there was this, like, really amazing way that I had been been raised, I can almost understand the impulse to say, like, oh, we should really, we should really lock this in, you know. But I just never, I never thought of it from that more people centric perspective of like, what each generation, what they were experiencing, like the context to their experience, and how that may have motivated how they approached policy and stuff like that. I mean, now you know, you can see, we're in the situation where our generation and and the next generation is having to really not just push back on the options that are available on the market, but also on that law side, on the policy side. And I think that's really where the question of adaptation comes into play. Because I think many people are finding that so much of how our cities function is not around the presumption that adaptation is essential to survival. You wrote this great blog in Phil or die, which I feel like touches on this a little bit. Could you share some thoughts from that and just this kind of the relationship between the work that you all are doing in this bigger conversation of where the housing market is and the desperate, urgent need for more adaptation. Yeah,
Ryan Andrews 34:06
absolutely, an infill or die. Yeah, that was about like, how cities must encourage infill and adapt to infill, or they're going to die. And by die, what I meant there is like they get hollowed out, and, you know, the city center that can be vibrant and fun and amazing and attractive, all it gets hollowed out and nobody wants to live there, and everything gets pushed further out and further out into the suburbs. And as a kid that grew up in Southern California, I just grew up feeling like, you know, when we think about like, how each generation reacts. I grew up feeling in Southern California like this isn't the way we're supposed to live, of like getting on the four or five freeway and sitting in traffic forever. And like all not I had not one friend. Well, I had one neighborhood friend who moved away when I was probably 10 that I could walk to his house. All my other friends were driving distance, and so. Like, I grew up feeling like something's not right about this kind of development, the way Southern California was laid out and designed over the 40 years that it was before I was born. And so, you know, in fill or die, I really tried to focus on why cities need to densify and some options and also some problems, some challenges with it. I mean, there's some amazing options in that you like, get to use your your existing infrastructure, but that that's also like that cuts both ways, because it's very complicated to use the existing infrastructure, because you might find a sewer pipe that's not deep enough, or can't take the capacity for your new development project. And you know, the other piece is land is often very expensive in city. And so, you know, we look at like, what? Well? So then you go to a project and you're like, the only way to make this thing pencil is to maximize density, which is like, you know, mixed use or high density apartments or something. And now you're stuck in the same thing, where your households have to rent in an apartment or buy in an expensive suburban home. And so, you know, recognizing just how cities on the policy side need to address these issues, and one of them is ADUs, and that's been something we've done a lot of work with, because we had a bunch of customers, starting a couple years ago, all of a sudden, reach out to us like crazy about like, Hey, can I get one of your cottages As an adu in my backyard, and we started saying yes, and then designing, permitting and building our cottages, or some of our cottage designs in people's backyards. The reason ADUs are so powerful is you don't have to raise an entire neighborhood like, you know, knock down and demolish an entire neighborhood, displace a whole block of housing. In order to get density, you also maintain the existing character of the neighborhood, but you get more density. And then also, and this is a big key, your homeowners get to make a real estate investment in their own backyard and create a rental property where they likely, or maybe could not afford a rental property if they were buying one on the other side of town, that was just like, you know, a, you know, its own fee simple rental property, because they already own their own land, if they can add a whole new unit in their backyard, that like here in Bend Oregon, costs 250,000 in rents for 2200 a month. That's a way better play than buying a home for 500,000 that runs for 2200 a month. On one you're negatively cash flowing. On another, your you know positively cash flowing because your land is a sunk cost. You already own it, and you can also, then, like take better care of your property. Your tenant knows you. They see you. So anyhow, just like the policy shifts that are taking place and need to continue taking place are monumental to unlock housing for the new American demographic, which is smaller households, and, you know, less car centric,
Tiffany Owens Reed 38:20
it sounds like in that blog, you're really explaining how infill really is the, you know, like kind of a gentle density approach to infill development is sort of the third path in a land in a real estate landscape, where you feel like the only two options are, like what you said, you know, continuing to do the typical suburban development or the high density apartment comp complex, you know, and these, these are very these are both, like water, I guess suburban development, we just kind of, it's very vulnerable, very risky development. And I feel like the apartment high density apartment complex, some could see that as what Jane Jacobs would have referred to as cataclysmic change, you know, like bringing a big change to a community all at one time. But this infill approach, whether that's duplexes, triplexes, ADUs, is kind of a middle you know, sort of this like third path, but it really does require cities embracing a whole different mindset about development and about what it means to even what it means to be a city, or what it means for a neighborhood to be a neighborhood, you know, like, I think that's part of the reason why it's so hard, is because these, these narratives are so deeply entrenched, these at this sense of like, what an American neighborhood is, is just so deeply baked in our consciousness that I feel like this is part of the reason Why the housing reform conversation can be can feel so uphill, because you're not just presenting a product, you're presenting a whole different way of thinking about what does it mean to be an American neighborhood,
Ryan Andrews 39:50
right? And everybody does have a deeply ingrained sense of what that means. I mean an example on just purely the supply side of housing we're under construction on. A project called hiatus ninth that prior to us developing that there was one aged home there with quite a bit of deferred maintenance, with one person that lived there, and four or five years ago, that person passed away. Their heirs didn't want the property. They didn't want to repair the property. So we ended up purchasing it, and in that case, you know, we did knock it down, but we knocked down one structure, and then platted and permitted nine twin homes. So we're putting 18 units on a on a piece of land that previously just had one unit for one human being to live on. And so we will have, you know, potentially, up to 36 units. These are kind of like one bedroom or 36 people. These are one bedroom each in the Twin home. So it's like a little attached duplex. So, you know, you could have 18 two person households in there, and you know, so you go from one person to 36 people in the same footprint, we've created a ton of value. That's a help for the city, and we're selling those at a price point we hope that will be about 35% below the median home price in bend on a per door basis. So when you think about those, like to put, I guess, some numbers to it is those appraised for 895 but you get two units. So you're looking at four, just under 450 a unit, when the median home price in Bend is 700,000 so at 450 a unit, you're 35% below the median home price. And what's great kind of again, maybe pulling a thread into financial innovation. Freddie Mac came out with a program recently where you can use the rents in your adu. In this case, it's an attached adu. You can use the rents in your adu to help increase your income to qualify for a larger loan. So the way we did, we did some quick math on a mortgage and everything on those and basically a two person household where each party is making around the median income, or the area median income, or even a little below, would be able to qualify to buy one of those. And now they've got a built in rental property, and they're now gaining appreciation on their own primary and their attached rental, and they're offsetting it with the rents, because that came into the income calculation. So I mean, that was huge. Prior to that, none of the cheap mortgage financing allowed you to use adu rent as part of your income, and so you had to qualify on your income alone. And that was like too hard that just weeded out a ton of people. So, I mean, the, yeah, the innovations on the finance side are really important. And, you know, there was, um, a there's the same thread when we talked through the demographic side, there's a similar thread on the finance side over the last seven years that has basically brought us as hiatus to, you know, kind of the innovation that that we've ended up, where we've capitalized our projects from the community.
Tiffany Owens Reed 43:27
Yeah, I want to jump into that so, so just keep rolling. Tell us about this unique model that you all have set up. And, yeah, I would just, I would just really love to bring this to life for our audience. Yeah,
Ryan Andrews 43:40
so when we think about it, just like we talked about, like, you know, going all the way back to World War Two, this thread goes back, you know, just, you know, 95 years, basically, to the Great Depression. And so prior to the Great Depression, the finance world was more or less a free for all, you know, you kind of call it the wild west of like snake oil salesman or whatever, where there's lots of banks. Banks are failing, investments are failing. People are lying, stealing money, but there's also people making a ton of money on investments, a lot of speculation and everything. Well, all that rolled into the Roaring 20s, which rolled into the crash of 1929, where Congress and all came out and were like, We have to protect the public from bad, scary investments where they lose their money, because there's this huge public outcry about everybody losing their money. So they put in, in the 30s, some different financial acts that regulate investment products and who can invest in different funds and investments, private investments. And that's when it also started to be harder and harder to publicly list your company or your investment. And so then, from, you know, the 1930s and. Till 2012 so 80 years, 7580 years all, all private deals, private real estate deals, private, you know, venture capital style deals, private equity, all that took place in kind of like back room deals. You could only get investors that you had a previous relationship, and knew you could not talk publicly about your deal. It was only available to accredited investors or high net worth or ultra high net worth investors. So weeded out anybody that wasn't already a millionaire in most cases and so well it didn't necessarily intend to do so it created a world where, because of access to investment deal flow, the rich got richer and the poor never had access to investing. They got locked in just wages, and meanwhile, access to or knowledge about investments became easier and easier. I mean, we got the internet. We got, you know, people became more and more college educated and able to assess for themselves how to manage their own money, and they didn't need the government necessarily to protect them by just eliminating them from being able to look at this massive swath of all private investments. And so when the Jobs Act came in, in 2012 the Jobs Act upended the game. And what was really neat for my career to kind of, you know, pull back to my story, is when I got to work at crowd Street. Crowd Street was one of the very early movers in operating off the Jobs Act, or basically being able to publicly advertise private investments now, and that had been illegal for eight decades, and which is, like, you know, two generations, two and a half generations. And so I got really early exposure to that space when, like, nobody knew exactly, how is it going to work? How do you raise money online for private investments? And so first that was for accredited investors only, and then then the rules got clarified around non accredited investors and really democratized access to investments. And so, you know, kind of, I got some experience through crowd Street, through being a construction lender, and all in creating investment products that were structured for that new world of like reg D, Reg A, plus 504, crowdfunding all that, when not a lot of people in the country had very much experience on it. I was like in the game doing it. I was selling those investments and everything. So when, in 2018, 2019, when the hiatus Bennett project was wrapping up, and Jesse was like, oh, man, this is going so well. He's like, will you help me calculate my investor distributions, and we're about to give a whole bunch of money back. You know, people are starting to ask me, what's next? What do we do next? What should we do? Should we create a fund? And I was like, yeah, totally, let's create a fund. And for a while we started exploring, like, okay, what are the terms of the fund and everything? And in that time, we got an opportunity with some private equity funds that, like, you know, we flew down to LA and, you know, talk to these guys out of New York, and they say things like, you know, what if, what if you had unlimited funds? What would you go do? And it's very tempting to be like, oh, man, unlimited money. A tiny slice of unlimited money is still very big, but we, but Jesse and I, sat down and had a real heart to heart over our principles and what we wanted to do. And we felt like these out of area investors, not only were they going to suck most of the profits out of the projects and, you know, then spread them out to their investors for one case and everything, but they were going to control us. Because when we started throwing out ideas for this project or that project. They were like, No, we don't like that one. No, we don't like that one. We want green field development out on the outside of town. So it's almost like they wanted subdivisions, but just with slightly smaller homes. And we were like, no, no, we're trying to do infill, like detached, high density, missing middle attainable by design housing. And they were like, We don't know if that's going to work. So no, we don't want you to do that. And we need a project to be, you know, 10 million in equity minimum. So that project here and there, that's too small, because it's only a million and a half in equity or 2 million in equity. And so after those experiences, Jesse and I looked at each other, and we were like, Let's just grassroots this. I think the community will support the local projects. And as a bonus, when the projects were successful, that money doesn't get shipped back to New York and then spread out around 100 P you know, or 1000 people's 401, k's and. Mean, no offense to them. But what we've found with investors is when investors are investing in their backyard, they really care about what the product is, what the investment is, and everything. Now, they still care about the return. They want their money back, and they want to earn a little bit of profits, but but that same investor might look at their 401, K statement and the 10, or, you know, 50 companies that they're invested in there, and they don't care what those companies do. They just look at the bottom line of what was their yield last quarter. And these are well meaning, loving people. But then another side of their portfolio, if they invest locally, they don't care quite so much about the return. They care about what the product is. And so we kind of put forth this investment hypothesis that was like, Hey, can we get the local community to fund local development projects? And in doing so, we have local buy in, we have support. And when there's profits, the profits flow back right into the community. So the neighbors and and the city is not bitter of like these big bad developers that just make a bunch of money and then fly out of here on their private jets to Aspen and take all their profits with them. It's like, no, the profits in our investors are people that live here. And so
Tiffany Owens Reed 51:21
that totally changes the game.
Ryan Andrews 51:25
It's, I mean, and it's amazing, amazingly different mindset, like, you know. So we created the hiatus capital fund together. That was about four years ago, and that's kind of when we created this iteration of hiatus homes. And the idea there was to create was to create a portfolio for different development projects in kind of this similar space raise capital from local investors. And so what we did there is we ended up raising seven and a half million in equity from about 60 local investors. Almost all are local. Three quarters, or, you know, 80% are local. And then we're using because we laddered up these projects, they're not all um, under construction at the same time and under peak equity draw at the same time. And then we leverage them with construction loans, we're able to develop 70 or 80 million in total real estate. It's like, you know, 130 plus homes with only seven and a half million of equity. So it generates really strong returns. And then those returns go right back to people in the community that then immediately turn around a week after we gave them a check back, and they're like, what's the next project? Another investment? Yeah, what a virtuous
Tiffany Owens Reed 52:45
cycle. What like a neighborly cycle, in a way, you know, like it's so great, the psychology of like, these homes have been built by people who live here. And everything you're saying about the way people approach development when it's in their own backyard. And I'm sure developers develop differently when their neighbors are relying on them to like, form projects, to build investment projects that and products that that are actually going to work, right? I feel like we could talk for a whole nother hour about how that explains so much of the problem, so many of the problems we're seeing in our cities, because we've lost that sense of, you know, any mechanism to really capture local buy in and thereby create a cycle of local accountability, but also, like, excitement and and, yeah, just this, this, this ecosystem of, like, people actually, literally building their own towns,
Ryan Andrews 53:42
for sure, totally. And you can't be mad about it, because, like, you're part of staff, and you're also part of the decision of, like, you know, what goes in there? Yeah. So, I mean, the way, like, people get mad because Bend Oregon is, like, you know, is a lumber town, turn ski town, turn tourist destination, yeah, and people get mad at the traffic and the tourists and everything. But for me, as a developer here, we could, you know, we could take a lot of flack about it, but the way I see it is, I'm like, Bend Oregon is going to get developed. People want to live here. People want to move here. We can't keep them out, and we're not going to keep them out. And so we have two options. We can either stop building altogether, in which case our real estate will skyrocket and nobody but the elite of the elite will be able to afford to live here, or we can have a say in how our town develops, and we can have a voice in it as collectively, as investors, as developers, as contractors, as designers, city planners and everything. And so, you know, for me, it was really about like, Well, I think we can do a good job. I think we can build a beautiful city and beautiful developments that meet attainable by design. You know. Price points that increase density in a tasteful way, that still give people four walls, that allow small households to buy into the market and start earning equity, you know, an appreciation on a home. And so, you know, I think we can be a part of this shift in ecosystem. And you know, where that's really gone for us is after doing our own fund, and you know, we're four years into that, we're to have two projects under construction, two still in paperwork. We got over the last, I don't know, I'd say year, year and a half, we've gotten inundated with people that want to kind of replicate our model in their community, and that means both from a finance standpoint and a cottage standpoint. So they're like, you know, hey, our local city council is talking about adding cottage cluster code and increasing density. You know, we'd love to talk with you guys about how to do that. Oh, and we heard that you guys like funded projects from local investors like, Man, I'd sure love to do that, but I don't really know how. So we've started now working with either as consultants or CO general partner, you know, true legal partners on projects all over the country where we will bring in basically two big pieces of expertise. You know, one is how to design a cottage community that people love and will buy, and then two is how to fund your project through local investors in your local community, and get that local buy in. And that's been really fun for us, because Jesse and I have talked for three years, ever since we started this fund, is we're like, how do we have a bigger footprint and a bigger impact than Bend Oregon, we want to be, you know, across a dozen states. How do we do that as, just like a couple of guys that are doing our best every day, when you really need boots on the ground in local markets to develop in local markets? Well, this became the perfect solution over the last year, because, like people you know, developers in you know Nashville, Tennessee or Grand Rapids, Michigan, come to us, and they're like, hey, we want a partner. And we're like, great, you bring local contacts, local city knowledge, and a local piece of land, and some local investors, we will bring a financial structure, access to debt, access to capital. You know, construction administration, design, know how, site planning, know how, and all that and like, put together a really amazing partnership. And so for us, that that became how we could have an impact beyond just our little town of Bend, Oregon, property
Tiffany Owens Reed 57:44
in the world. I'm sorry. I didn't mean to cut you off. It strikes me part of what you're doing, you know, I've sometimes when I listen to the conversation around development in cities, it feels like cities have just kind of given up, and they feel like they just have to cater to whatever developers ask for and whatever developers ask for then market it to citizens as like progress, and I'm using air quotes, but what you're talking about with both the emphasis on this cottage code, so you're bringing the code side, right? You guys also have really strong design side, which I'm sure is very inspiring and part of the conversation. So you've got design, you've got the code and the sort of the policy side, and then you have this finance, this, this innovative finance model. And to me, it's like this is a story of, of like bringing agency back to communities and saying you don't have to just pander to whatever the developer says has to happen, which literally will be what they say. You know, you have to do this, if you're gonna whatever, right? If you're gonna, you know, rebuild your economy or be successful or compete with other cities, you have to do the greenfield development or the massive stadium or the big subsidized hotel. You have to. And I feel like what you're saying is actually no, like, if you're willing to rethink the narratives that shape how you approach development of all kinds, and how you approach finance, you can unlock a whole set of options that not only better fit your community, but give you a sense of agency and allow you to begin to exist in this adaptive mode that I think is so critical for cities to perpetuate themselves for the long run?
Ryan Andrews 59:21
Well, yeah, absolutely. And you know, to even kind of take it to a little bit different industry, and different example is maybe you've heard, or maybe your audience has heard, about Mount Batchelor, our local mountain here, it got announced in August that powder Corp, the big corporate owner that owns a bunch of ski resorts, was interested in selling the mountain. And within a couple of days, a an online community in Bend Oregon started to gain some momentum around like, Hey, we should buy our own mountain back. We should buy it back from the corporate owner. And a few weeks into that initiative. Have I contacted the kind of, you know, fledgling group that was starting to get momentum, and was like, Well, hey, do you have somebody to run your securities offering and structure the actual, like, investment product here, you know, do the same thing that I do in my day job for hiatus phones, but in order to buy a mountain. And they immediately were like, No. And then adopted me role that I do here and now that's a deal that's way bigger than anything I've done with hideous homes. You know that? You know that's $150 million plus acquisition to buy our ski mountain back. It's one of the largest mountains in the country and the so the last several months, I've been involved in that group to take this whole philosophy to even, like, a new industry and a new level, a new magnitude, of like, can we buy our mountain back? And I went out publicly in a couple of podcasts and a few news broadcasts, and was like, Hey, we will pay more than anybody else, because we're not out shopping for ski resorts trying to find the most profitable ski resort. We're trying to buy our backyard back, and we believe if we buy our backyard ski resort back, we will be able to get the most financial benefit from it, because like the when the community gets dividends, they can go turn their dividends back into annual passes and back into food and beverage at the mountain and lift tickets. And so that creates that same virtuous cycle. And so, you know, it's really interesting. I got a cool opportunity this last six months to work on that with in a totally different level, outside of, you know, real estate development to try and buy our mountain back, and that that process is still alive. We're still trying to get a bid in to buy our mountain. And I will say to just show, kind of like, how entrenched the world is in the old model. The investment bankers and the sellers have refused to engage us in a conversation. Refused to engage us in like allowing us to review due diligence material, refused to take us seriously, even though, I mean, in 24 hours, we had 1000s of inbound emails of people that were interested, and, you know, well over 100 million and people that are interested in being part of this big numbers, yeah, and yet, like the corporate entrenched, like investment bankers and all, were just like, No, this isn't a normal model. We want to sell to one of the big publicly traded resort management companies or something like that. And so, you know, it was really interesting. I got involved in that because we'd had such success at hiatus funding projects through the local community that I was like, oh, man, we could totally do this mount bachelor thing. And, you know, we're still trying the entrenched capital market, structure sellers, investment banking. World still has not adapted to this idea that, like no the community can totally fund its own projects and wants to wow and So anyhow, we're excited too. You know,
Tiffany Owens Reed 1:03:18
glad you told me about that. What a fun story. Have you ever seen the movie? Oh, it's like a movie in Ireland about, how about building a mountain? I'll have to look it up and email it too. But it's really fun. It's this like little village that really wants their they get very offended when this, like expert out of Towner comes in to measure their their mountain and decides that it's just the hill. So they all work together to, like, make it taller. Anyway, it's great. Okay, we have to, yeah, a lot
Ryan Andrews 1:03:50
of people mentioned, like, Oh, it's just, like, out cold. Do you remember that? I don't know, snowboarders trying to buy their mountain back. But
Tiffany Owens Reed 1:03:58
all right, so Ryan, we have to wrap up here in closing. I would love it if you could tell us a little bit about bend, and maybe two or three spots you like to recommend people go to if they come to visit. Yeah,
Ryan Andrews 1:04:10
I mean, bend is just awesome in the summers. The Cascade lakes are just so fun to get out on, paddle board, kayak, wakeboard, whatever. So those are some of our favorite spots to go to. Ton of hiking up in the Cascades also. But then in town, bend is a really fun brewery town, pub town, patio beers. I mean, we have more per capita breweries, or at least we did, at one point, than any other town in the US. So we love to hang out at cross cut. That's like a little it's like a little pub house, right, not too far from the office here, the Yacht Club is a food trucks and beers spot that we love to go That's right around the corner. Corner from the apartment building that we're trying to build the Penn apartment building. So yeah, a lot of amazing spots for in town, fun, outdoor fun, Summer Fun, winter fun. So yeah, we'd love to run into to other listeners there come up and say, Hi,
Tiffany Owens Reed 1:05:19
I'm sold. I definitely am like begging my husband for a road trip after hearing both you and Jesse rave about how wonderful of a place it is. But Ryan, thank you so much for coming onto the podcast. We're being joined by another guest, my toddler. It was, it was really great hearing your story and hearing more about the work that you're doing to our listeners. Thank you so much for joining us for this episode. If there's someone, say hi, there's someone in your town who you think would make a great guest for the show, please let us know using the suggested guest notes, suggested guest forum at our show notes, and I'll be back next week with another episode.
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Tiffany Owens Reed is the host of The Bottom-Up Revolution podcast. A graduate of The King's College and former journalist, she is a New Yorker at heart, currently living in Texas. In addition to writing for Strong Towns and freelancing as a project manager, she reads, writes, and curates content for Cities Decoded, an educational platform designed to help ordinary people understand cities. Explore free resources here and follow her on Instagram @citiesdecoded.