Gentrification without Displacement? Yes, It Can Be Done, (and He’s Proven It)
The Opportunity Zone Expo Podcast
Gentrification without Displacement? Yes, It Can Be Done, (and He’s Proven It)
Announcer:Sasha Favelukis has created a model for community and economic development that works. You can see it for yourself in the Quartyard neighborhood he developed in San Diego. He's an investor, a developer, and the cofounder of CoPlace, Sasha Favelukis is our guest on this episode of the OZExpo Podcast. Announcer:Welcome to the OZExpo Podcast, where we talk with the people who really know the Opportunity Zone market. From investors, fund managers and developers to tax experts, politicians, and attorneys. The most influential voices in the Opportunity Zone industry are here on the OZExpo Podcast. Jack:Welcome back everyone to the OZExpo podcast. I'm your host, Jack Heald. And joining me today is Sasha Favelukis. Lucas who is the cofounder of CoPlace. I'm so proud of myself for not stumbling over your name the first time. Welcome Sasha, to the show. Sasha:Yeah, thank you very much. I appreciate that. Jack:So, real quickly - tell us just at a real high like 30,000-foot, 600 mile an hour level about what CoPlace is and then we're going to find out a little bit more about you, Sasha:Sure, so CoPlace is an activation of properties. We are a developer and a fund manager. we, we gentrify without displacing, we call it inclusive gentrification or as little displacing as we can. What we do is we temporarily activate projects, include the community and give the community a platform to become entrepreneurial and give them the tools that they need to do that and incubate new business and seed that business out to other properties around there. Jack:Okay. There's, there's a Sasha:That's a short as I can get it. Jack:Well there's a whole bunch we're going to have to dig into, to, to understand all of that right now. I think those, those, those phrases just kick up a lot of questions. So, before we do that, let's find out about Sasha. Sasha. See, I did it. I only did it once. Sasha Favelukis. We'd like to know who you are and where you came from. So, tell us who is Sasha Favelukis, where'd you come from and how'd you get to where you are right now? Sasha:Yes, so I was born in Ukraine and I immigrated from Ukraine to directly San Diego in 1989 as a child. my parents were in their forties at the time, and so it wasn't the easiest transition to get over to the U.S.and with zero language. We had to flee in the middle of the night from Ukraine and grew up here in San Diego. Um, 2001, I got into the mortgage business in the secondary side of things. We were wholesaling packages of loans to banks. Then from there had a ran a mortgage and real estate company. And then in January of 2007 we closed that, and I started lending hard money. And how was doing that since then. And I basically up until a couple of years ago, but I've always done these passion projects that really are near and dear to my heart because I never, I never wanted to get the press on the hard money side. Oh, always tried to do something a little bit more significant. And Yeah, in 2016, I believe, or 2017, 2016, I believe we got an award for being San Diego fastest growing company according to the San Diego Business Journal. And at that point I realized I don't really like any of the press. Um, we, we tried to have a management company before then because on my partner and I own a bunch of units and we were trying to convince other owners to do this, this really weird thing, which is give teachers discounted or free rent in some of our projects because they have, all of our projects have always been an Opportunity Zones as we now know them. Um, and the reasoning behind that would be we take the rec rooms that nobody uses and convert them into tutoring centers and exchange teachers' time of tutoring for rent and give discounts to police officers or free rent to police officers just to be there, park the car in front of the building. And you know, it was, it was something that came natural to us, but if that was to come 2010 and it just didn't translate to people to other owners. :And so, we, we, we didn't, we didn't really approach it in a big way. It was before social impact was a movement. I guess we were early adopters, but we did the, we did trademark a phrase, which is living with purpose. And it's kind of funny because as a hard money lender, living with purpose doesn't make a lot of sense, but I always had this mentality of look, hard, money is a great tool and it should be utilized as a bridge. And so normally hard money lenders have little bit of a negative connotation because they, yeah, a lot of hard money lenders, you know, are just trying to take a property, which was never the case for us. Jack:Yea. Sasha:Um, we've done over 600 loans in San Diego since 2010. and I think we've had one foreclosure or two foreclosures and it was just, it was just the people wouldn't call me back and it was a whole situation. But I, I always, I always like to work it out because industry, Jack:For the mortgage industry, you know, that's, that's a foreclosure rate better than our default rate. Better than the mortgage industry in general. Sasha:Absolutely absolutely. Well, it's because we always underwrote very reasonably. And, you know, looking at the situation, is it reasonable that somebody is, has a clear exit strategy? Jack:You know, I gotta tell you, I'm sitting here, I was first I want to, I want to express my admiration for your foresight to get out of the mortgage industry in January 2007. I don't know if that was luck or are genuine foresight, but if I was you, I would say, oh, we saw it coming. Beyond that, I want to say, all right, I really am genuinely impressed by, by having a default rate that low, particularly knowing that you originated, originate all those mortgages and held them. I mean, good Lord. Sasha:Yeah. Maybe that's why it was so low because we held them well, you know. Jack:Oh boy, that's a whole nother kettle of fish there. But yes, I think absolutely. You actually had skin in the games, so it was, it was the, the loans that you originated, you knew you'd be stuck with one way or another and shockingly enough that kept your default rate down. Okay, lesson is over. Children, I will get back to [inaudible] Oh God. I just love that. A default rate of a, I can't do that in my head, but it's less than a quarter of a percent. That's astonishing. All right, so you've been, you've been involved in, yeah. As it turns out, you've been involved in Opportunity Zone development and investing for a long time. it's just that the Opportunity Zone I guess I found you. Let's talk about these, some of these phrases that, that you, you just shot right past my head that, first of all I get excited about but, but, but also, you know, I will confess that it does raise the question. Okay. How much of this is just bs? These words are easy to use, but the question is what actually makes it work? So, let's start with some of the more obvious stuff, the social impact. Talk about how CoPlace works. I realize you've got a number of projects going, but let's get down to specifics rather than generalities. Give me a project you guys are doing or have done and talk about how CoPlace makes a positive social impact. Sasha:Sure, sure. Jack:That gives you a positive return on investment. Sasha:Absolutely. So, I'll tell you a story. I'm a story guy and this is obviously a true story. There is a project that I reference on, on, our website and it is a project it's called Barrio Logan. And I got in 2014 I came into I, I'm a big data guy. And so when, whenever there's change in zoning or density, I always, I always see those things. I keep track of it pretty well. And I saw this area that was really close to downtown San Diego and it's called Barrio Logan.Prior to this, do you remember there was a, there was a show called Gang Land? Jack:Yeah. Sasha:Yeah. So they had a Gang Land episode about this street. Oh Man. I think it was like 2007 or 2008 or something like that. it was talking about how the game in that area was the tutorials and with the, the, the cartel in Mexico would hire them as contract killers because they had a passport and they can go across border and do shipments and so on and so forth. And that's what I feel when, when, when I was looking at this property, that is what I found online. And I was like, “Oh man, this is a rough part of town.” Um, and it was, it was just, just starting, people were just starting to open that people, businesses, small businesses, like one or two had opened. And it caught my attention. And I went down there and I was looking at this one building, which was the worst, definitely the worst building on the block. It was boarded up. It was a storefront, three storefronts. And then a couple spaces in the back. They were, they were commercial than they were converted into residential, but not legally. It was one of those areas that people had bought properties in next to the ship yards back in the 50s, the 40s and 30s, and they just never would move because those areas weren't very affected by price. Um, and I was looking at this property and I saw this, I was thinking to myself, Wow the bones of this property are really good, but what the heck am I gonna do with it? And I met this guy, going to the community because that's always how I really got a feel for the, for a neighborhood is I would just go there and you know, have a beer and start talking to people and then walk into the businesses that are there and start talking and just to, you know, friendly guy. Um, and I met this guy and, he had started a restaurant with a friend of his down the street, which was a great restaurant. It was a little taco shop, but it was very art forward, which really appealed to me. Then he started an art gallery next door with another friend, which also appealed to me, but he wasn't really part of their businesses. He just helped them kind of range it and bring people and identify it as him. He, he was a community leader, a very, very strong community leader that nobody really knew outside of that community. And He, my community leaders look a little different than most people's. Most people will go to EDC, your CDC or you know, whatever, community development corporation. But my community leader is a guy that's got a, it's got a lot of tattoos, drives a low rider, but he's got this affliction for coffee. He loves coffee. He wanted to open a coffee shop. And so, we connected, and you know, basically I bought this building because of him, opened a coffee shop there. We had this agreement and it was worth a shot at the time. Why don't we do these coworking spaces in the rest of the building? And there was, I believe, 13 of them. We'll get some artists in there because there was a big artist community there. We'll just operate it, will, they'll just operate it. And he said, well, the thing about artists that you've got to understand is they're not really how do you say, like bankable. They can't sign a two year lease. They don't know what they're going to be doing next month. And I said, yeah, this is not a problem. You know, let's, let's just do short term leases and let's see how it goes. I mean, you know I'm going to buy this building. I know that eventually it'll be fine cause it's so close and the zoning and so on and so forth. But it wasn't ready to be torn down and built in the community would have hated me if I did it because that's, you know, communities especially economically depressed communities like this one was so we did it. :We basically gave him an open checkbook with a budget and said, look, whatever you think you want to do to this building, let's just do it. Just run it by me first. And, but you basically, I'm going to give you creative expression, whatever you want, whatever you think is going to work and how we, we, we work closely together. It became like this great, great ecosystem of have this coffee shop that would draw people. And then the rest of the building was really cool looking. It had a mural; it had art spaces. It had really easy, easy lease terms of basically I said, look, if any of you guys at any point need to leave or, you know, whatever, something's not working out, just tell me and I'll give you a 30 day lease. I give you a less of a lease. But, it's just too hard for accounting. Jet's just try it out. No big deal. And it worked really amazingly. First of all, this guy who in a way, he's an artist himself, not with paint, but with the community organization and in tastes and curation. And by giving him creative expression he really did an amazing job. He put 100% of himself into it because, you know, I don't know if you've ever tried to hire an artist for something… JackMy best friends are artists. I know what you’re talking about. SashaYeah. So, in my experience, when you give them some direction you know, they don't, they don't feel like they can really express themselves, you know? So what I like to do is just, and I'm a, I'm a, I'm an art collector as well. What I like to do is I say, look, you, you paint whatever you're gonna paint or you do whatever you're going to do, just do it the best. And they do, because any criticism then falls directly back on them. And not that I criticize just, you know, that's just how it works out. Jack:Yea, you know how to get the best out of them. Sasha:Yeah. Yeah. You have to let them put their best foot forward. Because when you let them do that, there's a pride that comes with that. Jack:Yeah. Sasha:And that pride is kind of irreplaceable. And so, what ended up happening was the people, we created this ecosystem within the building that the people that were renting there, and I wasn't jacking up prices or anything, I just said, look, this is where I need to be for this thing to pencil. And you know, you stay as long as you want, I'm not going to kick you out. I have an affinity for artists. I understand their struggle and they don't have a lot of structure and everybody's trying to screw them over all the time, which is the case a lot of times. And so, I was super friendly and am super friendly.And it created this great system where if an artist would leave, then there was like three or four people behind them that wanted to be in that spot. And so what that does is rather than making you feel like, Oh man, I got this long lease here, and I have to perform, or I have to do this, or I have to, no, none of that.It’s, “look, you don't want, it's not working. Whatever, get out and there's another person that's going to take your spot.” And it makes people really try to stay because they don't want to lose their spot. And then what ended up happening is other investors saw how it was working and they started doing something similar and you know, it began to seed the area.And it wasn't just artists, it was also art makers. So, people that would make something and it turned into this mixed-use retail space. And we would throw events there and have the, this like we call it a flea market, but it's actually a makers' market. And people would come, and it had this like feeling this really good, good vibe about it, people wanting to be around it. And that's that, that, that I believe is the social part, the community part. Because what ended up happening, and this is really a big part of our business model, is like, my goal isn't to keep you in this project. My goal is to get you out of this project onto the main street because I know right now you can't sign a three year lease in your not really bankable, but we are going to educate you and give you the tools you need so that you can be and move you out to another property in the area so that you can move forward as an entrepreneur. Does that make sense? Jack:Oh, absolutely. Sasha:Yeah. Jack:Like in terms of development you've either intentionally or accidentally hit upon a model that really integrates the existing neighborhood into the upgraded or new development that you're doing. Sasha:Yeah. Jack:Social as well as, as physically. Sasha:Yeah. So, the idea is that most neighborhoods have a culture and that culture is never expressed because they don't have the tools. If you think about any commercial or main street of anywhere, the economic development always wants new businesses to come. The owners on the other hand, they want a steady paycheck and I can't blame them, wants to build and they have a 2000 square foot, 1500 square foot space and they want a three year triple net with TI, dah-dah-dah.That's something that really discourages people from renting, starting a business. Jack:Well yeah.By definition, the people who are going to be the most adventurous in terms of trying something new are going to be the least bankable in terms of stability. All right. Sasha:Right. And if you think about the society that we live in in general, you have, we're, we're becoming W or we're, we're moving further and further away from the American dream. And that's something I'm very familiar with because, you know, we, we immigrated to this country and my parents, you know, my mom was a mechanical engineer in Russia and here she was just not qualified. So she had to go above and beyond and become a draftsman again. And you know, convert metric system to non metric, but that's a different, that's a completely different case. Most people right now that are in these areas are blue collar workers in the, the problem that we're having now is due to automation. A lot of their jobs are going away and we're, that that income divide is growing and growing and growing. And if you think about even, you know, not, not blue collar. So think about the person that went to school, they got an education, they got a student loan, they graduated and realize, hey, you know the thing, I got an education in doesn't have a job. But then, you know, family member has a business or works in something and they connect them and you know, all of a sudden they're, you know, an insurance adjuster or something that they didn't go to school for and they don't really have a love for it. And I think that's the case for a lot of people. Working in a job that they don't really like that much. And if you think about that person that went to school, that got into education, they're responsible. They, you know, have a student loan that they have to pay no matter what they have rent, they have life, you know, kids, whatever it is, they don't really have, they, they can't take the risk of a two, three year triple net lease. It can't, it's not even possible then it, and a lot of those people are not even bankable for three year triple net, you know? And so, our goal is to go into an area that's not necessarily exactly tertiary, you know, right next to downtown, like a lot of these Opportunity Zones are, and they're really pretty gentrified already, right? You want the ones that are a little bit further away. We want the ones that is going to be 10 years till or whatever it is. And then what we do is we activate the community and give them this tool to flower. What is, what are the assets within the community and give them a place to do it. And it's absolutely, you know, a capitalist model because we'll give you all the tools and we'll give you a space. And we integrate everything as far as pos systems all, all, you know, these projects, they're very dense. And when you have a bunch of businesses in one place, it gets, it becomes like almost a mall because you go there and you walk and you can't, miss one is hard because they're all right next to each other. And if, if, you know, if somebody can't make it in that environment, at least they know that, hey, maybe I should not try to be an entrepreneur. Maybe I should continue to, to work in this job where I have a paycheck. And so, we have, um a very good system where, because of these projects that we've done, we have a lot of like pop up vendors that do. Um, they, they, they, they're that person that I was describing work as a, let's say an insurance adjuster, but they're there. They really, they're, the thing that they love doing is making Cabo ties or soap whatever, fill in the blank and we say, look, try this out. We throw this market every two weeks. You go into the market, you try your product, if it works, great, do a few of those and just make sure that the numbers are right and you know, the amount of time that it takes you to make the pro product is worthwhile. And then we'll move you up from there into a I guess it's a pseudo brick and mortar these, these smaller units and you maybe just work the weekends. Maybe all of a sudden you take a Friday off and you just work, you know, Fridays, Saturdays, Sunday at this, and then continue your day job. If you really love what you're doing that, that thing, then it shouldn't be work. It should be, you should love doing. And as you take more days off of your standard job and work more days in this job that you love, then at a certain point you're going to be ready to rent a bigger space on the main street. And at that point you should be able to go get a triple net lease or an SBA loan or whatever, you know, and our goal is it's, it's, that's what I call gentrification with less displacement because those people are normally from the neighborhood. Those people are renting in the neighborhood, that 2000 square foot space and who are they going to hire people from the neighborhood. And it creates a very interesting community aspect of, you know, the money stays within the community. Jack:Right. Sasha:In a certain point. What happened here in Barrio Logan is in 2014, it was like a, you don't really want to drive down that street. You may be a little bit before then. In 2017, Barrio Logan became the 14 designated 14th arts district in California. Wow. Now it's, it is just really popping over there. I mean, you know, at the same time as I bought this building, I bought a little house on that same street and um this was in 2014. Purchased. I mean, this is just an example just because it's a, it's a full circle, but there's comparables for that same little house that I bought for 300,000. Back then I thought everybody said, yeah, you're overpaying for this, for this house. But I knew the zoning was good. Eventually it would get better. I didn't in, right now I'm selling that, that property for 950,000. And I'm not saying that that is the case every time or you know, that's, that's going to be the same situation because there's outside market activity and you know, the economy where it is and then building and so on and so forth. But I, I'd have to say that we definitely made an impact on that being the first ones to do this. Otherwise, you know, it have just been these, these properties, it would have gone slower because, you know, it's, it's hard. It's hard to start a business. It's hard to get up to the point where you're bankable and that's a chicken before the egg thing. Jack:You know, I'm, I'm an optimist and this is the kind of thing that just gets me all wound up. I'm looking on your website here and I'm going to go ahead and say CoPlace.com super easy to remember that and check it out. I've just been exploring a little bit. I see at least conceptually some of these, these ways that you seed a neighborhood with these temporary structures to get low cost temporary structures to get people in. Sasha:They're not low cost. That's the temporary structures are definitely not low cost. I can, I can just jump in there if you'd lay out, jump in there please. So, we had this project that was in downtown San Diego and a downtown San Diego had, has been growing and it's been getting better ever since. There was a ballpark that was put in and I think it was like early two thousands and it's been growing ever since then. There was this one property that was kind of on the outskirts a little bit and it was a full city block and it was empty except for this historic house. And then a parking lot. And across the street was a super, super low-income apartment building that was built before the area really turned it was built in. It was, there's some non desirables that live there and it, it's not very well managed. People don't, the, the, the owners don't really take care of it very well. And so, you know, there's all kinds of riffraff that happens around that building. And that building is pretty much across the street from this lot. And so, people would congregate around this lot and it was San Diego police departments their problem block. And it was one of those blocks where on the one side of the block to the other side, there was development on both sides, more or less. ] And people would get into an Uber on, you know, two blocks away and they would get, get out of it two blocks on the other side just because nobody wanted to walk through what was going on there. And so we took on this project where it was a private-public partnership and we said to the city and when I, and when I say we, we, we are a big team where we're all individual pieces and we are entrepreneurs, every single person on the team as something that had mentioned to you when we were talking before the podcast. Um, that's a very important part because we, we really take community on every single level. Everybody participates and everybody, you know, you, you, you eat what you kill, right? And that's the, the whole, it's real, real, true capitalism of, look, if, if you want to make an impact, you have to earn that. You have to earn that with the community. You have to earn that with investors. You have to earn that with, with your coworkers. And so, this particular projectQuartyard it was these young guys in architecture school and that was their thesis project. And they said, okay, San Diego city, we're going to, we're going to activate this this lot with a shipping container modular project, which is going to consist of a bar, a bar a restaurant, a stage, an events space, a community space, a dog park where you can take your dog off the leash a coffee shop and a little bit of office and it was a temporary activation for three years. And they came to us and they said, hey guys, you know I know you guys are doing, you know, some, some construction projects, but we wanted to ask you what your feelings are on this. And we looked at it and he said, yeah, how much money do you need? Let's do it in a, we didn't even let them really pitch the full project because we looked at it and we said, wow, this will really make a big change. As long as it makes sense on paper, you know, let's, let's do it. And we did in 2014 we activated it and we mean it, it until 2016 or 2017, excuse me, right. This lot that the city was really, they couldn't even bring it out to RFP because nobody wanted to buy it. When, when our lease came up, when they brought, when they actually took it up for RFP or put it up RFP their community protested and there was the big gather, there's about 3000 signatures in a matter of days when we didn't, we didn't ask them to do that because we weren't planning to do a second one because we were, we were just going to buy a piece of property and do the next one there. What had happened was that everybody loved this community space. In fact, when I was doing some research recently, I found an article that you can find, I'm sorry, a white paper a that you can find on our website, which was paid for by the UN. it was an Italian university and they said San Diego is innovation hub is one of the startups cities one, I think it was number six or seven or eight, something like that in America and these two projects as case studies. One was WeWork, you know WeWork is sure everybody does, which is coworking. And the other one was Quartyard. And they said those two things are baked in trip contributors because you know, you have a lot of people that are, you know, entrepreneurial. But they also need a place to congregate and go outside and have a beer and walk their dog and, or have a coffee or have a meeting. And this space was very multiuser. It was very much for the community because one, you know, one day you'll have a concert with some big DJ like Scrillex that that pulls in, you know, two, three, 4,000 people and the next day there'll be a wedding or a little art market or you know, it's a very, very changeable, usable space. And what ended up was interesting when we were first going through public hearing on that space there was a developer that was building a, an apartment building across the street and they were concerned. They said, well, if we have this outdoor venue next to this new building that we're building, this is, you know, the value depends on, you know, what the rents are. And in my, in my you know, hinder the valuation and what ended up happening is the units that we're facing, this project ended up renting for about 25% more during that time because people would get a free show, no looking out their window and it would end at 10 o'clock. I mean, it was pretty good, pretty good little situation. And so when are, when all this community said, no, we, we don't want you to close it, and they went to the city, the city said to us, would you open it in another location? And so we picked up the whole project and moved it to another location. It took about eight hours. Jack:I'll be darned. Sasha:And we started in the morning and we were drinking beers by one o'clock. The most difficult part was actually the permits because although these projects are temporary, they're actually permanent as far as permitting goes. So, it has to have - all of that underground infrastructure has to be to code. All of these units are custom, so they're connected to a sewer, water, electrical, everything. Everything is just like it would be in a building. What it did was it gave this moment in time to turn the lights on in a property and get it cleaned up. Just activation in community space as far as how many people would show up and just hang out. And San Diego is a great place to be outside. There's no outside venues. And what now is being built there? I just took a picture, it's on our website under the Quartyard tab. Right now, it's 56,000 square feet of UCSD extension campus with 34 stories of residential on top. And I don't know if anybody has experience with dealing with universities, but there is no way, no way in hell a university would have moved into a block that was the quote unquote problem block according to the San Diego Police Department. And that took about two and a half years, two and a half to three years really. Jack:Wow. Okay. Sasha:That is community activation. No, it's like the pre, pre, pre, predevelopment. And it really was an example of if you do it right, if you activate the community properly, if you do the community outreach. And on that particular project, what we did was we put up these designs all over the property before we put up the first one and they were white, basically white signs that had lines. And above it said, “What do you want here?” And people grabbed the Sharpie, the little string, and they would write. And that's a very big part of what we do, which is more on the community outreach and the data side. What we do is we take what the community wants, we take what the city wants. And then the data side is we have doing projects that have no comps. You need to justify it with data. And so, we're pretty good on the data side. And what we do is we search within a Geo area. We would pull the data from a Geo area of, “what are people searching for on their phones, on Google, what's the traffic counts? Which way's traffic going, when are they going, what's missing? What are they liking on social media?” And when, when you combine all of those, the community, the city, the available data to us and you, you can get the overlap, that's what people want there. So every project is very different. Jack:Well, you know, you told me this, you said you're a data guy, but now - as you've described your actual process for selecting a location in deciding what to do - I get it. You really are making use of a lot of data tools that simply weren't even available 10 years ago. Sasha:Really, five, really five, five to six years ago. Jack:Right? Sasha:This is really, really cutting edge, new stuff. And that the zoning part, that's very important. I mean, only recently our cities well… California definitely mandated to have a certain structure to their data. And prior to that, I mean the zoning in a lot of places is - you look at a map, there's colors, you take that color and you match it to the legend and it gives you a code. You take that code and then you run through all of these pages of documents that are not color coded and you have to pull in.It's hours of research. Jack:Right. Sasha:That you have to pull in to really understand what you can have there between the setbacks, height limits and bonuses and all of that. And what we have done is we have our own system where we've digitized it and it's ugly. When we're looking at a property, we pull that up. It's one of the data points that we're really looking at is, okay, what does it own for when, when did zoning, what is the community, what is the demographics? What do they want? What do they need? You know, a lot of these social impact funds will do something kind of similar, but they have a box that they need to fit into. Jack:Right. Sasha:There's an organization here in San Diego that did a really good thing which is they did something similar where they pulled the data and they went to community outreach and they did all the things. And they found out that this one particular community in a different area, they really needed a grocery store and a bank and a coffee shop. So they built a plaza. And they put in a Food 4Less and a Wells Fargo and a Starbucks. And they did a great job, they gave the community the bare necessities.But at the same time, it wasn't from the community. So they didn't put anything that the community Jack:The community needs emotional investment in it.The community -it was more that the material needs are being met, but not the - if I dare say it - the spiritual needs, that social investment. Sasha:And then what they didn't do that and then what, you know, they didn't give any, any of it because they can't because Jack:Your description of it, you know, it's okay. So, we've got an outside grocery store. We've got an outside coffee shop and we've got an outside bank. I mean, that could be literally anywhere in America. Sasha:Well it's because they're bankable.Because this organization, you know, they can take some risks of, this community needs that. So we're going to put it in, but they can't take some risks of, what if it's not an A credit tenant, you know, what if they can't take those kinds of risks and they don't have a real connection with a part of that community on the micro level, which is what we do. Which is the soul of it, you know? Jack:Yeah, yeah. Sasha:And it's very intense. It's not a simple thing that we really do. It's more of you really have to be involved and have real community leaders and have, and just step aside and let the community do what they're doing and then help when they need help. And you have to take some risks. And you know, years ago, I was trying to figure out how to pencil a mural. How do you justify it on a spreadsheet? That's really hard. I still haven't figured that out, but that's this. It's like trying to explain to somebody how do you, what's the value of a mural? And I said, it has value. Normally when you buy art, when somebody buys art, they put it on their wall so that they can look at it and enjoy it. But in the case of a mural, it's an outward facing. It's almost not for you. It's for everyone around you. And that's actually one of the examples on the website. There's the rainbow building. There's a story behind that one, which is that building was a porn shop for 30 years before we bought it. In San Diego, all the Opportunity Zones are kind of clumped together except for this one. And it was like this gulch between two nice areas. And when we were buying the building it was… My reasoning and I think I'm right as to why this Opportunity Zone is there is because no one wants to live next to a porn shop for 30 years. Because of that, developers built really cheaper units that are smaller. And that's what they built. And so, you know, mostly younger people that don't have a lot of income and they lived in this one Census Tract for all those years. And then we bought this thing. People are like, oh man, you're crazy. It doesn't have any windows. He said, well, yeah, it's a porn shop. :What did he expect? And it turns out it was kind of the nexus of why that was there was a Opportunity Zone and why the area was bad. And so, we bought it and then we have, like I said, some, some friends in the art community and we have this guy that's a part of our team. His name is Risk. He is a west coast graffiti artist, like a legend. He's very, very famous in, in, especially in L.A. but he's done work all over the place and I wanted to get one wall painted and I brought him over and I said, hey, what do you think? And he said, I think I want to paint the whole building. I'm like, okay, sure. He said, do you have any direction? I said, no, just paint whatever you want. And it basically looks like a giant --- It really wasn't meant to be a rainbow originally. But because of the location, it's next to a really big LGBT neighborhood which is right across the freeway, right across the bridge. On one side of it got named the Rainbow Building and it was a really interesting experiment because on the other side of the building is kind of a hipster area and there is a big bridge in between the two. And what we found is the hipsters didn't like the paint being painted because they're like, hey, get that rainbow out of our neighborhood, keep it on the other side of the bridge. And then the other area didn't like it because they said hey, how dare they steal our rainbow. And it was really interesting because of social media, you can see everything going on, especially there's one called “NextDoor” that is basically a platform for people to complain about their neighborhood. It's very localized. You have to verify your address with a piece of mail between, because we're between these two neighborhoods, we qualified for both. And we saw this stuff happening and this guy, the artists, he's pretty famous guy said normally when I paint people come and watch and hear people are driving by yelling profanities at me. It was really weird experience. So we did was we closed down the street and through a block party where we had the, the, the gay men's chorus showed up and sang, and then we had a punk band that came and we had food trucks and you know, a live art being done and all this stuff. And the message was, hey, you guys literally are separated by a bridge, but you live in the same area. This wasn't supposed to be a rainbow originally, but so what if it is big deal? You know, and it was a, it was a very community driven event that was free for both, for both the communities. Whoever wanted to come, and it was a, it was a big success. And now everybody loves it. We got a proclamation from the mayor's office; we got a commendation from the city council men. It's become one of the top Instagram hotspots in San Diego. You know, it's that outward facing art. Yeah. It's fascinating because well you said it, I think pretty succinctly. How do you pencil a mural? It's just, well, I, I kind of figured out one way. Oh really? Yes. Kind of, kind of just one aspect of it, which is the building used to get graffiti all the time, probably once a week. And then no matter what color you have at, you paint and it's just splotches and it looks terrible and you know, eventually you have to paint the whole building because of it and so on and so forth. Since we did that paint job there hasn't been one time that it's been graffitied on, but the fence that goes up on the other side of the street along the same, the same, you know, that whole half a block, once a week they get, they get attacked. Jack:So, what's the cost of repainting the building every time, you know? Well, you know, I, I'm, I'm thinking more deeply in terms of community impact. Sasha:Of course, I've had a saying on a spreadsheet. Jack:Yeah, yeah, that's a good point. What I'm hearing - and I might be getting this wrong and I'm certainly bringing my own preconceptions to the conversation - the fact that you've got the artists and the makers from the community involved at the very genesis of the project seems to me like that is tapping into something deep that can actually have the kinds of long-term generational effects, positive generational effects that we're looking for with the Opportunity Zone program. You know, most of my conversations here, we spend a lot of time talking about the Opportunity Zone program. You know, kind of explicitly referring to it. We really haven't done that in this conversation, and yet… Sasha:But it is literally the whole thing. Jack:This is the spirit of the whole thing. Wow. Well Sasha, I could talk like this for hours. I’ve been going for, gosh, it's gotta be close to an hour. So, let me throw one thing at you. The Quartyard project really proved that you can temporarily activate, build a property, make the improvements and we're truly activated because if it wasn't truly activated that everybody likes to bring up an example for Opportunity Zone specifically putting up a hotdog stand and changing the use. It doesn't create the impact. It doesn't create the hum of a community. And so with, with patient money, with patient capital, patient investors, what it really comes down to is we can activate a community in, in these ways by, you know, if it's modular, it can be modular or it could be adaptive reuse. Sasha:And when you look at these Opportunity Zone, they haven't been built because they're not ready to be built because it doesn't pencil and people are just jumping into them and building something that hopefully 10 years from now it'll pencil, but they don't have any comps. And there definitely you have to displace people because if the people in that neighborhood could afford to live in the new building, then it would already be there. Right? And so what we are doing is we're creating these little hubs of economic activity so that other investors can come in and say, hey, this is all about community. Right? Even on the investor level why don't you, why don't we build housing to accommodate people that are starting businesses or having businesses or whatever it is, because it takes some time to actually build everything. Um, and they don't, they don't have to go to where it's already gentrified and they happen to find a deal. These are deals that you can buy for less. And what our goal is to make it economically feasible to build. So you have to have some sort of draw. Jack:Almost a, it's almost the, the, the tech incubator model for exactly. It's, it's pre tech because tech incubator model works in areas like, you know, Brooklyn or Red Hook or you know, whatever name in any city where you have the artists, the hipsters kind of moving in. But they would never move in if there wasn't something already happening, and we do the something already happening. Wow. Well, I will, I'll, I'll, I'll tell you as I was digging into doing my research on you, I thought actually what I thought was exactly what you're showing me, what you're describing here. As I was digging around, I was going, oh, this looks like what's going on? Not, it can't be what it really is. Sasha:That really can't be what it is. Can that be what it is? Um, it was it everything you thought it was pretty much exactly what I, and I think part of the reason I was struggling was I haven't run into anybody else who's doing anything remotely like this. Yeah. It feels to me like you have come up with a model that bridges that, that gap between these troubled neighborhoods and the, the significant upgrade to the neighborhood that needs to happen in order to make it the kind of place that develop that, that investment and development needs to happen. But it's, it's crossing that chasm between the two that is so problematic. It's, it's what everybody has a difficulty with. Um, just because people that are building investors, developers, they don't have the community that, that thing, they can walk and take community and ask and people believe that they, that they are them and they are going to do whatever, you know, they say. And you know, there's these neighborhoods that are, are, a lot of them have really been abused and developers a lot of times try to come in and seek something under the radar, which never works very, very, you know, and then the community is always thinking to themselves, man, these guys, they don't know who they are. Right? So, it's like, it's, it's whoever that guy is the devil, right? Sure. No, they didn't ask us. They didn't even talk to us. You know, it'd be really great as if we could have fill in the blank. Jack:I mean, there's, there's so much about this that is so that is so emotionally, socially, spiritually, healthy. Sasha:And also there's a, there's the, the bottom line too, which is when you have the community support, which we have in our projects, and you say, Hey city, I want double the density of whatever the zoning is when I'm, you know, when you, when you go on and pull entitlements at the end of the process, they, they always was, there's a hundred percent community support. They'll oblige because of the community is what stops develop. But they're never going to support unless they see something, you know, they're, they're not trusting of developers and, and rightfully so because a lot of developers that have done them wrong in the past. Jack:Sure. Sasha:You know, and so it really pays to work with the community and get it to the point where it's ready to be built with the community support rather than trying to pull in people from other communities to live in the building. Jack:Exactly. Exactly. Oh Man. Well, I love this. I'm, I'm Sasha, this is great stuff. Um, if folks want to, to find out more about CoPlace about the model that you have a, or get in touch with you in any way just to, to pick your brain more about the type of investing in and funds that you're building, what's the best way to do that? Sasha:Uh, you can either jump on our website Coplace.dot com and just fill in the contact us form or give us a call. The phone number is right on there. Um, we are also on the bottom of the screen. There is if anybody has local west coast, we're actually doing an event that's going to be at our project. Um, the, the modular one it's exploring Opportunity Zones. We have Steve Glickman coming in and talking and we just want San Diego to understand and work as a community on the, on the investor level and the developer level. On the city level. There's just all these gray areas of people just don't know what they don't know and they don't have like a resource, anybody that they can reach out to. Jack:Yea. Sasha:You know, to even know what, what is possible. And so, we want to have an open dialogue, open communication on every level because you don't want to overbuild an area and you don't want to under build an area. Jack:Yeah. Sasha:It's just, it's, yeah. Jack:I can't encourage our listeners enough. Go look at coplace.com. Spend a little time digging around. There are some pretty cool things there. Um, and if I've talked to anybody who actually gets the end goal of the Opportunity Zone program, I think it is a Sasha. I really do. Sasha:Thank you. Jack:I'm excited. I've gotten to meet you, Sasha. Thank you for your time. Um, this has been one of the better conversations I've had. Certainly one that I, I love the feeling of all of this and you know, we didn't talk much about the business side, but the reality is if it doesn't pencil out, it's not, it won't last. Sasha:Yeah. We, we try to make sure that our are our projects pencil out to about an 8 to a 10 cap. and then, but that's not taking into account what the value of the property increases and what the value of getting double or triple the density that you had originally gotten when the areas quote unquote better economically. Um, I mean, I, I don't, it's hard to quantify that without sounding ridiculous like a crazy person. Jack:But I appreciate your humility. But the fact of the matter is, if you can, if you can truly integrate the community and get them emotionally invested than upgrading, you know, the, the physical space itself that obviously amplifies, multiplies the value and not just financially, but in quality of life. And that's what, that's what we're all after. Sasha:Absolutely. Jack:Normally what we're all after. Thank you for your time today. Um, I want to, I'm looking forward to following the progress of the coke place. I'm going to call it a movement. I think it was. Thanks. On behalf of Sasha Favelukis, cofounder of CoPlace and please check out that website, coplace.com that information is available on our webcast on, on our podcast website. While I'm Jack Heald for the Opportunity Zone for the OZExpo Podcast, and thanks for listening. We will talk to you next time. Announcer:This podcast is for informational purposes only and does not constitute legal tax or investment advice. For specific recommendations, please consult with your financial, legal, or tax professional.