The Messy City Podcast

Stop what you’re doing, and listen to this episode. Trust me, it’s worth it.

I came across Joe Jimenez by way of Coach Carson, who has interviewed him twice. Joe lives in Kalispell, Montana, and now owns a business called Switchback Suites. Joe and I discuss his interest in the FIRE movement, (FIRE = Financial Independence, Retire Early) and how he eventually translated that into his own world. A key piece has been using house hacking to get into real estate investing, and to as he says, “play life on easy mode.”

I absolutely loved this discussion, and hope it’s helpful to listeners. I hope it can especially reach younger listeners, as Joe really lays out well what can be accomplished to set your life up for success. All it takes is some intention and a willingness to make a few sacrifices.

Joe and I also get into some depth on travel hacking, which is essentially making a game or system of using credit card bonuses for travel. I’ve used this for years, as has Joe, and we talk about how to do it, the benefits of being systematic, and he shares some very fun anecdotes.

Here’s Joe’s photo of Singapore Suites Class:

A few links we discuss:

* Mr. Money Mustache

* Chris Guillebeau and The Art of Non-Conformity

* Go Curry Cracker

* Paula Pant

* Jillian Johnsrud

* One mile at a time

* Frequent miler

* Choose FI travel

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Before this episode, I knew nothing about Mineral Wells, TX. Now, i’m interested to visit. Mineral Wells is a small, historic resort town west of Fort Worth. It’s the sister city of Hot Springs, Arkansas. And our guest’s family has been on the forefront to save it from recent decline.

For me, this, what Macy Nix Alexander relates to me is how people who truly love their place can be the change that helps turn its fortunes around. This is a remarkable tale that can be relatable to all manner of places, regardless of their historic assets. Mineral Wells has some advantages, to be sure. But what they really seem to have are people willing to put their time and money on the line to make a difference. And as much as anything, Macy’s story speaks to the power of her father’s motto to “live below your means.”

I won’t give it all away, but the story of how they’ve gone from owning inexpensive rental properties to starting local businesses and renovating majestic old hotels is nothing short of inspiring.

Eric Kronberg, of Kronberg Urbanists + Architects, is a wealth of knowledge for people wanting to truly understand the realities of new construction in cities. First off, it’s Kronberg with a long o, not as I initially pronounced it. Apologies to Eric.

Eric and I talk about his work in missing middle housing, working in development in Atlanta, and the opportunities and perils of doing infill new housing. TLDR: it ain’t easy, but there are solutions.

A couple of great takeaways I had from this episode are that the most cost effective way to build is a 3 story walk-up and the typical current strategy of upzoning commercial corridors and protecting single-family neighborhoods does not get us to an affordable place. In fact, it’s encouraging the most expensive forms of housing, and discouraging the least expensive.

I highly recommend checking out Eric’s site for more. Here’s a few links:

Power Plexes

La France Walk

Inc Codes

ATL ADU Co

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

So-called “urbanists” tend to travel to foreign lands and come back with the obvious takeaways: foreign cities good, American cities bad. I get that. I understand the impulse. I’ve done it myself, so who am I to judge?

But let’s suppose for a minute we put that impulse on pause, and ask, what can we learn that can be applied quickly and inexpensively to American cities? If we look past the charm of thousand-year old human settlements, are there other lessons worth learning? I explore this, and have some quick thoughts on the IDA conference in Seattle as well.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Monte Anderson of Neighborhood Evolution and Options Real Estate in Duncanville, Texas joins me to talk about extremely practical matters: making money in real estate. That is, as a small developer, how is it actually done? What are the pros and cons of different approaches, such as buying and holding vs selling?

We start this by discussing a YouTube video from The Real Estate God. Yes, that’s the real channel. Titled, “The best way to 3x your money in 2024,” the video is a good jumping off point for how to structure deals in an ideal world. And, it goes over the differences between general partners and limited partners.

Monte talks about why nothing ever works as quick as he thinks it should, and the realities of development fees. We discuss the challenges, but also the joys, of working in development.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Episode Transcript:

Kevin K (00:01.733)

Welcome back to the Messy City podcast. I'm Kevin Klinkenberg. Got our returning champion, Monte Anderson in the house here today. Monte, it's always great to see you and talk to you. Where are you in Dallas? Are you roaming around the country somewhere?

Monte Anderson (00:16.022)

Yeah, I am in Dallas today. Glad to be here with you, but I am in Dallas. I'll be in Lafayette, Louisiana tomorrow morning and Elkhart, Indiana next week. So lot of traveling coming up, but I'm home for this afternoon. It is. It is. We've been going down there for, this is our second year. And so yeah, there's a lot of good food down there. Yeah.

Kevin K (00:26.257)

Cool, Lafayette's a really cool town.

Kevin K (00:39.449)

Yeah, was going to say amazing food, fun people, it be a great time.

Monte Anderson (00:43.647)

Yeah, they are fun people. lot of entrepreneurial spirit down there, know, they've had to do a lot with a lot of things against them, know, hurricanes and, you all the things that you've got in that part of the country.

Kevin K (00:53.627)

Yeah. Yeah.

That's right. That's right. Well, guess depending on where you are, you've got something. like we don't have hurricanes, but we've got tornadoes and floods.

Monte Anderson (01:06.668)

Yeah, yep, that's right. There's something always out there, the unknowns.

Kevin K (01:10.245)

Yeah, I know. I think I texted you a couple of weeks ago, we were up in Dubuque, Iowa, where I know you're also doing some work and they were dealing with the Mississippi is flooding this year. It's been very, very high. And so they've had some flooding in different portions. So in fact, we were going to take like one of their riverboat cruises and we couldn't do it because the river is too high.

Monte Anderson (01:28.705)

my.

Yeah. my, that's because that town is right in between the river and the bluffs. The downtown is right there in the valley, if you will, between the two hills. Yeah.

Kevin K (01:37.67)

Yeah.

Kevin K (01:42.063)

Yeah. It's really cool. had not spent a lot of, I've driven through, I'd driven through before, but I hadn't really spent any time there. And it's really a neat, neat little town with like incredible bones and, just a really pretty setting there on the river.

Monte Anderson (01:52.802)

Yeah.

Yeah, the great thing is it doesn't have any major interstates that go through it.

Kevin K (01:59.569)

But they had a lot of urban renewal. I'll say that. For a small town, boy, did they have a lot of urban renewal that was done to them. anyway, Monty, I wanted to talk to you today. We were exchanging some emails. I sometimes subscribe to these just kind of random YouTube channels or blogs or whatever that touch on real estate or design or planning or whatever.

Monte Anderson (02:03.544)

Yes.

Monte Anderson (02:07.554)

Yeah. Yeah.

Kevin K (02:27.953)

this is one, that I shared with you that is a YouTube channel, from somebody who calls themselves the real estate God, which, of course kind of made us laugh, but it was a really interesting short video. has some pretty interesting content, especially for, newbies, in this video that, I wanted to talk about today, the email, called it the best way to three X your money in 2024.

but really it was like a seven minute video that was about a basic investment strategy for real estate that I think is real, that is similar to what you teach. And I wanted to kind of walk through this and talk about it because I think it is, it's interesting. we've talked about financing before we've talked about different aspects of development. It's interesting to take it kind of step by step.

and help people understand how, you know, where you put money in, how you get money out, how you make money doing some of these smaller projects.

Monte Anderson (03:30.506)

Yeah, that's a really big deal for people getting started, you know, in this business. I mean, how do you get money out? Right? You put it in, but where does it go? And how does it come out fast? And it doesn't come out fast unless you buy and sell. That's basically the bottom line. If you don't buy and sell, it doesn't come out fast. You know, because if you buy a, you know, if you buy a property and you get a loan and you restore that property,

Kevin K (03:37.969)

Yeah.

Monte Anderson (03:59.286)

and you run it and you get it leased up over time. It's not going to cashflow really great in the beginning. It's going to take, it's going to take a while where I find myself these days and making money as far as making, pulling money out is, and this is what the big, developers do, buying something, fixing it up, getting it all rented up or, or, or buying something and getting it ready to sell, you know, and then selling it. And that's where.

A small developers have to do more like buying and selling. And in my case, you know, I charged myself, you know, brokerage fees and management fees and things like that. So my operating company, you know, gets commissions and gets development fees. And that's how we live. And big, big companies do the same thing. You know, the big developer will buy, you know, build a 200 unit apartment complex, lease it up and sell it to the Ohio state teacher pension fund.

You know, and that's where the money's made. That's where the big quicker money is made. But it's, it is really difficult as a small scale developer to buy a property, fix it up, build it and get, and I mean, you're building wealth. Okay. Because usually the property is going up in value, but you don't get a lot of cash flow out of it really quick. It's just, that's just, I think in my opinion, and you know, of course, I don't know everything. It's kind of unrealistic thinking. It looks good on paper.

but it's unrealistic thinking.

Kevin K (05:29.967)

Yeah, it seems like so generally when we talk about making any money in real estate is either you're making money off of the cash flow of the project itself, whether it's a residential project or a commercial project, you know, it's producing more income than your expenses. So you're making a little money year after year on that, or you make money when you sell it to somebody else, assuming you've added value along the way and you're selling it for substantially more than what.

you put into it.

Monte Anderson (06:01.614)

That's correct. And then depending on how much equity you put in in the front and how much leverage or how much debt, how much loan you put on the property, you know, will depend on what your cashflow is going to be. So if you've like in the, I've always been one for putting as, you know, having as little debt as possible because you can go through the times like we just went through in the last year or two when interest rate, like on one of my properties went from four and a half to seven and a half percent.

like it renewed and just went up. mean, they could have went up to 8 .5%, but my bank lacked me, so they did 7 .5%. But if you have much debt, if you have a lot of debt, first of all, you're not going to probably cashflow for a while. And then secondly, when the markets change, when the markets change or when interest rates go up or when vacancy goes up, then you're going to be in trouble.

And that's when you see foreclosures and that's when you see, like right now we're seeing a lot of properties on the market right now, either not so much in foreclosures, but people just needing cash. So they're selling their properties. So.

Kevin K (07:13.233)

Yeah. So like, you know, let's just say if you, random project that you're a small developer and you scrape together $50 ,000 and you, you put that into a deal and then you have debt on the back of it for the balance of the project. You're, you're either getting that 50 ,000 back to you when you sell it. Hopefully plus a profit or you're getting it like drip, drip, drip over time, over a number of years.

Monte Anderson (07:43.211)

Exactly.

Kevin K (07:43.429)

which like you said, at that small of a scale, that might be maybe make a few thousand bucks a year, but you can't make a living off that.

Monte Anderson (07:52.47)

Right. Well, you can't make a living off the drip, drip, drip part. You can't really make a living off that, but you can if you have a hundred units then. Okay. Then you have it. And you can, if you're in the real, if you have a real estate operating company, like I do, where we do our own leasing and management and development and construction. So we pay ourselves to do those, do those things. If, if the money is available, you know, if there is enough, you know, to do that, but

And many times these days, I put myself in better positions. You know, I should have learned after 30, you know, 35 years, I should learn, but I put myself in better positions where I can get those fees mostly. So even if the property is dripping, I'm still getting the fees for operating the property. Now I've got a big one that I'm sitting in right now in Duncanville, Texas. It's called Wheatland Plaza, which is an old strip center, know, with some townhomes I'm going to put on the parking lot.

And right now I've got all my fees into it. got, you know, I've got, I sold another property to, you know, make the cash calls to keep this thing going because I didn't want to get more debt right now while interest was high. So I made a conscious decision not to add more debt on. In fact, I may not have even been able to get more debt on because I'm in a leasing upstage and I bought a

Kevin K (09:06.673)

Mm

Monte Anderson (09:17.87)

strip center that was 60 % least and it went down to 28%. Now I'm back up to 80, but I'm still not up to really breaking even, know, nearly up to breaking even. And when I put the 20, the 19 townhomes on the parking lot, you know, I'm to have a mixed use building. And then now I've got something that's operating, but it takes, it takes time. So that'll probably take me, what I just described is probably take me four or five years to get that done. So you got to last that four or five years.

Kevin K (09:47.589)

Yeah, yeah. Yeah.

Monte Anderson (09:47.736)

you know, negative cashflow and you've got a cash negative cashflow has got to come from from somewhere. So it's, it's funny to hear like in the, the podcast or the, the YouTube we were talking about, it's funny to hear some of the people talking about this stuff because they, this would be the way I would put it on paper to show you a deal. I would show you that in reality, it's just not that easy. And you're constantly having to,

You're constantly having to look for new ways of financing or finding another property to buy and sell to make cash flow or buy and sell something you've already got or raising capital from what we call community impact investors who don't expect huge high returns but are also, they expect a little return but they're as interested in the community impact as they are the return. They're interested in both.

Kevin K (10:45.541)

Yeah. Well, so let's look at a couple of the basics that he talked about just to clarify. He described the way he looks at it as like being a real estate private equity company. I think, I mean, that's clever, but I think it's just basically kind of the way a lot of real estate deals happen. And that is you have general partners and you have limited partners. And I wonder if you could talk a little bit about like in your experience, how those, what's the difference between the two?

What roles do they play?

Monte Anderson (11:16.29)

Yeah, like I'm the general partner or the managing partner in, in, you know, nearly all the deals I do. And I have partners, limited partners or, or members. These days we call them members of the LLC. Same thing, same, but they're passive, passive investors. And so in any real estate deal, you really need two things. And this is what I talk about in all small scale developers need two things. Really. We need really a good, decent loan from a bank.

And I always say a bank, bank servers are still our best partners. They're going to be the probably lowest interest rate. They're also be the toughest to underwrite you, know, looking at your paperwork and, you know, looking at you closely and asking you questions. And then you need, you need affordable equity. You're either providing that equity or the down payment or your investor partners are providing that down payment.

Kevin K (12:09.617)

Right. Just like if you're buying a house and you have to put 5 % down, 10 % down, 20 % down, whatever it is. For a real estate deal, it's the same way. And a bank is probably going to require 25 % down pretty typically or more. Yeah. Yeah.

Monte Anderson (12:14.079)

same thing.

Monte Anderson (12:23.726)

or 35 % today, or you may want to put 35 or 40 % today at seven and a half or eight, eight and a half percent interest. I can remember years ago that used to be not be that bad of a rate, but we got used to this low rates. we kind of, you know, below 5%, I kind of call that free money. It's kind of free, you know, really. So it really makes deals easier to do. when they go up, but

Kevin K (12:45.265)

You

Monte Anderson (12:51.822)

Yeah, it's the same thing. You you buy a piece of property, you need a loan, you need equity, whether it's 5 % on an FHA loan to buy a house or whether you got a commercial loan at a bank and you need 25, 35%. We used to say 20 % down on commercial loans, but now these days I would say it's minimum 25 to 35 % down that banks are requiring. Not such a bad thing either, to tell you the truth, but it's kind of going back like a hundred years ago when we didn't have financing.

Kevin K (13:21.211)

Mm

Monte Anderson (13:21.678)

Cause if you think about most of you're in my friends, not wealthy, you know, we didn't grow up with extreme amounts of wealth. 35 % might as well be, you know, might as well be a hundred percent, know, we got nothing, you know, you got nothing, you know, it's still a, still a lot of money. But once you get your, your, your investors, your limited partners, your, your members of your LLC, your passive investors, the passive investors don't, don't operate.

Kevin K (13:33.859)

Yeah.

Monte Anderson (13:49.806)

on a day -to -day basis. They're just like they have stock in your deal. And they need to be accredited investors, which means they have to have a certain amount of knowledge or net worth or wealth. They have to make a certain amount of income. They have to be sophisticated and accredited investors of sophisticated investors. In fact, it's a business person that it's not like a little old lady with their last $50 ,000 in the bank.

That's a non -accredited investor or somebody that makes less than a hundred thousand a year. That would be non -accredited investors. So you want accredited investors and these accredited investors, that means they're sophisticated and if they lose their money, they're big boys and big girls. they, buyer beware kind of beware. So they're going to be passive partners. The general partner or the managing partner operates the real estate venture.

hires the contractors, hires the leasing agents, hires the property managers, hires the architects, negotiates with the bank. Quite often in my case, the general partner would personally guarantee the real estate notes, which I do just about on everything I do. I hear people talk about not personally guaranteeing these commercial real estate deals. It's not in my world, really. That's just not realistic. I have to personally...

Kevin K (15:14.949)

Yeah, how does that even exist? Who gets away with not guaranteeing a deal?

Monte Anderson (15:21.514)

I hear people talk about it on YouTube and things like that. But it's just not realistic. there are different kinds of loans where a lender looks at a bigger real estate deal, big, where the asset is so strictly regulated by the bank or by the lender that you may get.

Kevin K (15:25.125)

Hahaha.

Monte Anderson (15:48.098)

you know, a situation that we, know, that you don't have to personally guarantee. So the asset is lots of equity. You know, it's the lender is really looking at everything you do, commissions paid, finish out, you know, construction, you know, things like that. They're approving everything, approved leases. They might as well be the owner. That's the only time I see that where you don't personally guarantee, you know, your real estate in that case. But.

Generally speaking, is general partners got to guarantee the loan, got to run the operation. Also it's got to get, can get paid for running the operation. We get paid a leasing fee, a property management fee. We get paid a development fee. We get paid all these fees if there's enough cashflow. And since I'm the one putting the deals together, I always feel responsible when there's not enough cashflow and end up leaving my fees in.

because I feel responsible if I didn't make the projection quick enough. it seems we just never make the, nothing ever works as quick as I think it should. It never works as quick. It's the nature of the beast. There's so many different things that can happen, whether it be.

building permits or zoning or platting you know, a supplier, subcontractors, or didn't get a tenant, you know, early enough. mean, these days in most cities have hard trouble, have a hard time with building inspectors. So you may not get, you know, inspections as quick. We used to get building permits in two weeks and, you know, we could build a building in six months. That's just no longer the way it is. You know, it just takes a lot longer than that.

You know, it just, and I used to go to California and they'd say, well, it only took me two years to get a permit. And I said, well, we're from Texas. We got a permit in like two weeks. You know, well, we're like California now. It takes us forever. It takes us forever to get things. So all of those things compile up and can cause you delays and stuff like that. And delays are going to cost you money, you know, and, and

Kevin K (17:51.985)

Yeah.

Monte Anderson (18:07.692)

You know, I'm always changing things too. My projects are done incrementally. So we might start in one end and by the time we get through, it's different than what we originally conceptualized. And that's, it's got, it's good and bad. mean, bad is that it's changed and it's different and likely costs more. Good is it might be a better project because we're more curating the type of businesses or people that are there than we are just filling spaces.

Kevin K (18:33.615)

Yeah. I mean, just like on a personal note, the town, like as an example, the townhouse project that I'm working on with my partners, you know, we, as we have progressed through construction, we have found a lot of things that we decided we wanted to change. And a lot of that was really based on, we know like the price we're going to end up selling these at.

And so it kind of changed our minds about who we think like the buyers are. It's a, it's a more expensive, home now than, it was originally. so, you know, we, for example, during the course of construction, we're like, well, you know, maybe we should change that kitchen. maybe that pantry should be different. Maybe we should have a different kind of countertop or finish. And, you would think that all that would be figured out ahead of time. But like you said, during the course of the project,

Monte Anderson (19:04.589)

Yeah.

Monte Anderson (19:14.98)

Yeah.

Kevin K (19:28.355)

you know, especially something I'm at take two or three years, things change.

Monte Anderson (19:32.908)

Yeah, they do. know, time, time happens so fast these days and with AI and other things, mean, the, the speed of, of everything that's happening is, you know, if you're copying something somebody did yesterday, you're already behind. I mean, you've got to be figuring out, you've got to understand this business and know where it's going rather than copying where somebody's been. can, you can learn from someone, but you really can't copy from place to place. know, you principles are the same, but

Kevin K (19:48.027)

Hehehe.

Monte Anderson (20:02.318)

Yeah, like in the center I'm working in now, it's a 90 ,000 square foot shopping center built in the 60s. And we, you know, it was, we're converting it to mix of uses from retail and restaurants to coworking, you know, school and, you know, state of Texas lease and things like that. And we start off thinking we're going to get, you know, $16 a square foot or $18 a square foot. And we'll put a little lipstick on it here and a little, you know, fix some roofs here and stuff. What we find is if we

If we cut the spaces up smaller and we really gut them out and really make them nice inside, we can get $24 a foot. So $24 a square foot versus 16's a lot of money, you know, to the bottom line, which makes the property a lot more expensive. It's just what you just described with the townhome. You got a better kitchen in, you know, we're going to, we can get more money. In fact, if we keep the cheap kitchen in, we may not sell it.

because we found out that the market was a little bit different. And by being an incremental or a nimble type developer, you can make those decisions on the fly and adjust and hopefully profit, you know, hopefully profit from that. In the meantime, you got to get more money somehow. So where do you get it? You either get it from your equity partners or you get it from your, from your bank. And this is a good reason to have community at your partners you want to have. You don't want to have poor partners.

Kevin K (21:17.521)

Yeah. Yeah.

Kevin K (21:30.907)

Yeah.

Monte Anderson (21:30.958)

You want to have rich partners because poor partners can't help you if you get in a situation.

Kevin K (21:34.362)

Yeah.

Kevin K (21:41.297)

Well, and I like your point about the fees part of it, because I think that was something I didn't really know anything about related to development 15 years ago, was that, if I'm the managing partner or the developer of this project, then I essentially pay a percentage fee to myself, and that's part of the construction loan and everything. And I remember in the first workshops that John Anderson did that I

paid attention to, he was like, you know, it's kind of 5 % of hard construction costs in the ballpark. And so I was like, that sounds good. You start to bookmark that. then, you just like you said, that can evaporate during, you know, if things go a little bit sideways. And like on our project, we had budgeted a development fee for all, for the three of us who are managing partners and the construction costs changes and the inflation that's happened over the last few years have really caught up with us.

And we basically having to contribute those fees back to the project to cover other things that we would like to do to it. So we hope to get paid out at a later date, but the reality is we're not going to make that fee during the course of the project.

Monte Anderson (22:53.218)

Yeah. And that's, I would say that's more normal than not. I would just say that's more normal than not. Cause I don't know something about in the idealistic stage, you remember when you were getting ready. I remember when you were getting ready for the townhomes and stuff. And it's the idealistic stage. It's fun during that stage, you know, it's like, it's like new love, right? It's like falling in love and you're in love, you know, all of sudden and everything is, you know, right. Unicorns and rainbows, you know, and then, and then all of sudden, you know, the reality.

Kevin K (23:07.483)

Yeah.

Yeah.

Monte Anderson (23:22.414)

the reality kicks in. But I think that's more normal than not. In fact, I'm embarrassed to say this, but in my one, I had a hotel project in Dallas up here and the, was paid my development fee. I did the project in 2004 and 2005 and I sold it in 2015. And that's when I got my development fee in 2015. And it was my own fault.

Kevin K (23:46.233)

Yeah.

Monte Anderson (23:52.586)

In fact, my own arrogance, my own thinking I knew everything when I started that project that caused that to happen to me. And I wanted to do the project no matter what. I was just going to do it no matter what. I just wanted to do it. And that, and I was like kicking the can down the road, but that own arrogance.

I tell Bernice and I talk about this all the time, Bernice Riedel and I, don't fall in love. She says fall in love with these projects. I say, don't fall in love with them until you own them. Don't fall, because it excuse your, and I fell in love with this project before I did it. And so I just had to do it anyway. Sometimes you just, you and I were talking earlier, sometimes you just, and if you're going to do that, that's fine. Just know that the pain is coming. Just know the pain is coming with it.

Kevin K (24:32.145)

Mm

Monte Anderson (24:51.178)

I understand it. I understand loving a project more than anything and you want to do it. I understand it. Just be prepared, you know, for the stress and the high level of anxiety that will come with that.

Kevin K (25:02.481)

So, Monty, that begs the question then. If you didn't get paid your development fee for 10 years, if that's more common than we'd like to admit, how do you live? How do you make a living during the course of doing these projects? Because you have to have some cash flow to pay the bills on.

Monte Anderson (25:21.774)

Yeah. Yeah. So, you know, I started off as a real estate agent leasing and selling space, you know, and buildings in my commercial real estate agent. And so all in the beginning days back in the early years, 100 % of my business was third party broker. I was doing this for somebody else, you know, and that was easy. You know, I had an easy life back then. And then I decided to be a developer.

Kevin K (25:48.667)

Yeah.

Monte Anderson (25:51.406)

So, but what happened now today, I have about 80 % is my own stuff and 20 % is other people's about 80 % today. And so you still need to be working. We call it working in the flywheel or working in the area. You're still working to crank that flywheel to move your company along, to move your own personal life along. You still got to make income. So I always kept brokering space for others.

people. And if you're an architect, so you would still keep doing architectural work for other people or doing your podcasting or doing your, you know, if you're an IT guy, you still, you know, you're working on your IT in these buildings, you're doing, you're doing work in other buildings, you know, but you're doing in hopefully in your farm or in your community, or anywhere you're where you're, you know, you're committed to where you're committed. That's a really key to this is, is working in an area that you, you know, that you commit to as a small scale developer, you need to

You need to stay close to home and not try to be working in, you know, Kansas city and St. Louis and Oklahoma city and, you know, Dubuque, you know, you'll be, you'll, that's a good way to go broke. You know, it's being too scattered out, you know, like that. You, and some people may can do it, you know, I'm just not capable of doing that. You know, you have to stay close and that's how I make a living. And I keep my, another thing is, you know, you want to keep.

I mean, it's just silly stuff to say this, you know, live on half of what you make, try to get used to that, you know. That's a really hard thing to tell people and that's, you know, try to live on half, you know, try to really live, you know. I've had to sell my houses before. I've had to sell my cars. I mean, I've had to, you know, when the going gets tough, you know, sometimes you got to do what you got to do. Now, on wood and thankfully.

And by the grace of God, I've been able to build my net worth continually. But when you sell a property and you make a lot of money on it or you make a profit, you've got capital gains, you know, then. And so the only way not to pay those capital gains is to do, you know, to trade that property or do a 1031 tax deferred exchange and put the money into another property. So I sell a property and I get some money and I either pay a bunch of taxes on it or I have to re -spend it.

Monte Anderson (28:17.826)

But if I respend it, hopefully I can get a brokerage fee, an architectural fee, construction fee. And so I end up living on these fees. You know, I'll end up in these fees I pay myself. I'm able to pay myself. they're not, you know, they're market fees. They're fair to my partners, fair. You you always want to put these fees and stuff in your partnership agreements.

You want to put what you're going to get paid. You always want to put that in your partnership agreement. So your partners know what you're getting paid. You want to have that upfront. You don't want that to be a surprise. You know, as you're putting, I've got partners for like over 20 years, financial partners, and they just, trust me. It's whatever you want to do, do it. You know, and because they're used to me, you know, taking care of them. And that's really important as you take care of, you know, your

your people that invest with you like that. gotta take, I would, if I had to, would sell everything I had to make sure my people are whole and my banks are paid if I had to. And I'd just start over again. I haven't had to, but thankfully, but I've sold things along the way when I really didn't want to sell them, you know, to be able to keep on going.

Kevin K (29:31.323)

So, I mean, I think it sounds like then, if this is a fair way to say it, that if you're doing this sort of thing, first of all, it's probably, especially for a lot of people, it's better to think of it as like a side hustle, at least initially. But more importantly, it's it's great to be able to have one of those people in the flywheel that you would normally pay a fee to.

it would be great to be able to replace yourself with at least one of those. So whether that's brokerage, property management, design, engineering, anybody that you might normally be cutting a check to, if you have an expertise in one of those areas and you can claim that fee, then that is a way to keep getting yourself paid.

Monte Anderson (30:13.302)

Yes.

Monte Anderson (30:18.538)

Yeah, yeah, think about this. Think about this in your farm up there and your Kansas City farm up there. You're working on this project right now. You're having to put your fees back in, but you're also working on a project for another guy, John Doe and Jane Doe down the street. You're doing the same things. You're still improving the neighborhood. So it's really, I don't look at it as a side hustle. You're doing architecture for yourself and you're doing it for Jane and John and these other people.

Kevin K (30:39.91)

Okay.

Monte Anderson (30:45.42)

And then every third or fourth or fifth deal is your deal. And every third or fourth or fifth deal, it's your deal. And then the more you get going over time, every other deal is your deal. And then every two deals is yours and one is somebody else's. And every three deals is yours and then one is somebody else's. So over time, it becomes, but I think it's good as a small scale developer to have.

the term used, side hustle, is true to be able to start right now. Because right now you can adopt a place, start doing your architecture in that place, stop building, know, start working on hospitals all over the country, just work in your own farm, and do small jobs, do storefronts, come and help people do their lettering on their windows if you're an architect. You know, help them just fix things up.

You you make enough money to make a living and at the same time, now you're working on your townhomes. You know, you're working on your townhomes and now you find another project and I'm always looking for an opportunity. Because if I can find an and what is an opportunity? An opportunity is where something is below the market. Like the shopping center I bought, 90 ,000 square feet, 60 % occupied, the rates were like six or $7 a foot per year. You know.

When I get through, it's 90 ,000 square feet. The rates are 22, $24 a square foot. So I bought it. It was way below the market, but the market site is a $6 building. The market didn't see it as a $24 building because it had the cheap kitchens. Like you say, in the townhouse, had, so we put good kitchen, you know, we did better and we had to do, we had to spend more, but it was, we were able to make a lot more money.

And in the long run, it will be. I can tell you this on all of my projects, all of them, just a hundred percent. If I keep it long enough, I will get all my fees and a really good return because what I'm doing is improving a farm. I'm improving a community together. And as they say, it's the tide rises, so to all chefs. So every time I'm improving something in that farm, the one I've got is going up in value.

Monte Anderson (33:10.412)

And over time that'll go up. If we look at it at three or four years, that's where the problem is on the YouTube video that we talked about is looking at stuff that could get rich quick scheme is, don't know. There's guys who flip houses and do things. Gals that flip houses and do things that probably they get rich. They get somewhat rich, you know, I guess. And some of them get rich, I guess. And you know, you can do that.

Kevin K (33:22.523)

Yeah.

Monte Anderson (33:38.552)

That's just never been my goal in doing real estate. My goal has been one of a townmaker, you know, of making our lives better. And I know you have the same goal in mind. So do most of our friends have that goal. We want to make the built environment better. Money's important, but it's not always the only important thing.

Kevin K (34:02.363)

Yeah, I think it's, kind of took the words right out of my mouth. That's like, you're not, you're not describing a, get rich quick scheme at all. But you're describing something that has a different kind of reward that somebody had. Obviously your, your goal is still to make money and make good money if you, know, if you're smart about it, but you're not going to be rolling up in a brand new Maserati in two years or something like that. It's because your goal is really to improve.

Monte Anderson (34:08.93)

Yeah.

Monte Anderson (34:28.098)

Yeah. Yeah.

Kevin K (34:31.525)

your place and lift your own community up and do really good stuff along the way.

Monte Anderson (34:39.084)

Yeah. And, and like you said, make making money. always tell people wherever I go these days, making money is the most important thing. Doing good is equal, but I didn't say doing good is the most important thing first. And then make it my, you know, I said, making money, said most of them, because without making money, you can't continue. You're going to be stuck. You know, if you build those townhomes.

all your money's gone and all your credit's tied up and you weren't able to sell them or you weren't able to get the rents, then everything you got's tied up. And I can't tell you how many friends I've got all over the country right now that are one time, developer and out. They're one deal and out, you know? And so when I get stuck on a project and I do, I'm on one of those right now, it's just big and it's bulky, you know, and it's hard.

So I've got to continue to do these littler projects around that keep me. That's what keeps me making, know, my own salary, you know, making, you know, got to, we, had a meeting with my staff this morning and said, okay, what are we going to sell right now? What's, what's on the board that we can sell? You know, what can we do? That's when we make our fees, you know, brokerage fees and development fees when we sell these properties. And then we can do another one. We'll fix them up. And hopefully we get to.

sell them to somebody good, you know, that hadn't been the case always with me. I sold some stuff to some people I didn't, I wished I wouldn't have, but sometimes I have no choice. You know, sometimes I have no choice. have to do, but the difference too, in what you and I are talking about today, you're in the middle of it yourself right now. And I am in it all the time constantly is that we're in the middle of this, you know, of

very difficult, you know, complex, you know, maybe more complex than somebody doing a big, you know, $100 million building over here. Because a $100 million building, you've got lawyers and lobbyists and architects and planners and engineers and contractors, and you've probably got a big bid and you're going to build it all at once and it's going to be over and it's financed by the Ohio State Teacher Pension Fund.

Monte Anderson (36:57.602)

know, has financed it and it's probably easier because the developer didn't have to be the developers more of a financial architect, more of a financial wizard, you know, if you will, whereas a small scale developer like us, you know, we're the, you know, we're everything. Yeah, we're quite often we're the contractor, you know, handling leases, we're going to raise the money, we went to the bank to sign the note, you know, if the plumbing's broke, you know,

Quite often I might be the one that's called depending on when it is, if it's in the middle of the night or something like that. We're very close and these are personal. We know the names of our tenants or our buyers. kind of, know our people. That's the big difference. And so you gotta be, you gotta really be, I think more knowledgeable sometimes about building, about developing and building. And I would think that this is the way people were a hundred years ago. I would think.

100 years ago when there was no financing, or maybe a little longer, but 100 years ago when there was no financing and you're building these projects in towns with all cash or borrowed money from the attorney in town who had a little money, or that's quite often who's building those things back in those days. Quite often it was bankers and attorneys back then, bankers built.

We're developers. can't do that these days because of the laws, but quite often bankers and things were developers. And you were raising all cash and you're doing it. That's why all of the buildings are small, a lot smaller back in C. And they were built incrementally. When we talked about incremental development, we didn't invent incremental development. That's the way the beginning of time. Yes.

Kevin K (38:48.143)

Yeah. Yeah. That's the way all development was until really fairly recently. I'm curious about if you could talk about some of the ways things go wrong. So you mentioned you have some friends who are like one project and out. What's going on? How does something like this really go wrong for somebody where, or are there a couple of key mistakes to just really watch out for?

Monte Anderson (38:55.5)

Yeah, it was.

Monte Anderson (39:16.748)

Yeah, the biggest mistake is humility, not enough humility. I mean, really to have that open mind to really look at the reality and the facts, know, really have your ego checked and the reality of facts. You really need to look at those facts. Do not try to, you know, cherry coat it. not try to do that.

What happens in these cases is be a guy like you or me was starting out, you you put together a deal and you put all your money in, you put all your money in just to get the plans done and, you know, know, down payment on the property and engineering and, you know, bank fees and attorney's fees. And you put all your money up, you got your money. And then now you got a couple of partners and you've promised these partners. You've promised them certain things, you know, that are probably too good to be true.

Kind of like the guy on YouTube. Probably too good to be true. If it sounds too good to be true, it probably is. And we've promised those. And we've promised those things and now it's not the right, we said it was. Or we want to upgrade the kitchens. Or I want to change the spaces. In fact, I have a meeting this afternoon at four o 'clock after this to talk to one of my partners about this exact.

Kevin K (40:21.903)

Yeah, if it sounds super easy, watch out.

Monte Anderson (40:44.318)

banking today and saying we need more, we need more money. And then you, then you, can't get much more money. You, you, you spend two or three years getting their project together. You used all your money, you used all your in -laws money to part of your investors. You got your credit tied up. You finally did get, say that in the best cases or in some of the best cases, you got it all built. It's built and you're not, you're for one thing, you're brain dead.

your brain dead, you're just deal dead. And secondly, you've got no more money. You got no more credit. You've got to go back to work wherever you are, doing whatever you can to make money. Because you still had your house and your wife and your kids. You still had to, and so that's actually best case in some scenarios, you didn't go broke. But in many cases where the deal maker, the promoter, the developer promises things.

They might even lose their interest because they can't, especially if it depends on how they promise the payback to the investors. You could actually lose your interest. call that, you there's a preferred return. A preferred return is when you would maybe guarantee an investor return. You would guarantee them maybe a 6 % preferred return, which means you're going to get 6 % from day one in the deal. And if you can't pay me back, that's 6 % plus a percentage of the profit.

then I take your interest. And that happens, that happens a lot. And that's not as bad as a bankruptcy or a foreclosure, but you ended up doing all this work and you end up with nothing. And so I never do preferred returns with anybody. I never do those, just don't do them. There's too many unknown things. There's just too many things that can happen. Preferred returns sometimes it's like having a bad credit card. You can't get the interest, you know, paid.

And it just keeps going every day while you're having delays or not getting the project done quick enough.

Kevin K (42:51.697)

So then for your, do you have a recommendation then for dealing with investors so that you don't have to do the preferred return? How would you structure, recommend structuring?

Monte Anderson (42:59.246)

Yeah, I do. I do. have a, what I call the whole pie. I'd say it's the promoter. And this is, I'm going to oversimplify this, promoter, the developer, you put up the money to pursue all the money to do the deal, the architecture, the due diligence, the earnest money, the legal money, and you sign the note. And then the investors, which you may be an investor in your own deal. If you put cash in your own deal, your investors get 50 % of the deal.

And they put up 100 % of the cash needed, the equity needed. And as the cashflow is there, they get their equity, they get their equity back first. No percentage return. They get their equity back first. And once their equity is all paid back, then you split 50 -50. So you're 50 % going in, you're 50%. But they get all their money back. And here's the thing about investors. Most of time, once they get their money back, they're very...

They're very flexible then once they get their principal back. And then in the meantime, you say, well, I got no fees. How am I going to make a living? Well, you make your living off the development fee, the leasing fees, the management fees. So you're making those fees back. then, then if you get the building leased up and this is what I'm doing here at where we speak right now, is I'll get this thing leased up and stabilized with no more construction going on. Then I can go out on the market and get a better loan.

So I can get a better loan. know, lenders during construction, you know, you've probably experienced this. You lenders are very nervous during construction.

Kevin K (44:35.218)

yeah, that's the riskiest time period.

Monte Anderson (44:38.252)

Yeah. And so they're in, this way, this way people get back, they get back to their percentage when they get it here, when it comes back, you're going to get it when it comes back. Now I got to treat them right. And I got to do my best to get their money back. And that taking me time to build relationships where I can, where I can get this done. And these are also community investors. And I would say, what is a community investor? It's a person that's, it's typically a baby boomer, generally speaking between.

It's worth between three million and $20 million net worth. That's gotta have 100, 200, 300 ,000, 1 ,000 they can put in one of your projects. Maybe there's three or four of them if you need a bigger amount. they're gonna be like around, it's somebody you can have coffee with and talk to. No, they're gonna be...

more empathetic with you, you know, if you're honest with them, you know, always be honest with them. Always telling the bad news and the truth. Always. Don't hold, don't hold back and surely don't hide it. Don't hide. Don't, don't do that. Don't do that. People are, people are, people are forgiving and better when, the truth, when you're, when you have a true, you know,

You have a true relationship that's not full of hidden things and it's just a, it's better. And it always comes out in the end. It always comes out better for you. And they know you're committed.

Kevin K (46:21.263)

Yeah, was gonna say eventually you might be able to hide something for a little bit, but it's gonna come out.

Monte Anderson (46:26.604)

Yeah. Yeah. You're not going to be able to be careful with your numbers. And I've done this. mean, I've, you know, I've been too optimistic on my numbers, you know, I mean, cause I wanted to do the project, you know, and, I have people around me that keep me balanced in that place. said my long time CFO here, he's an old banker back when he he's been with me forever, I always give him proformas and stuff. do. said, look,

Kevin K (46:46.16)

Ha

Monte Anderson (46:56.27)

shoot holes in this, really, just really take my stuff apart. Really look at it, critique it, challenge it. Tell me I can't lease that space for this much, or I can't resell it, or I can't know why I can build a restaurant for $100 a square foot. It's gotta be 150, no matter how you look. Tell me those things. Tell me I can't manage this thing for $5 a square foot. It's gotta be, critique me.

Yeah. Keep me balanced.

Kevin K (47:27.867)

So yeah, I think that's great advice. Always have somebody that you have a relationship enough with that you can ask them to poke holes in what you're doing. So I mean, we've talked about some of the downside, there's also, mean, the reality is we're interested in this and a lot of people are interested in this because there's a ton of enjoyment that comes out of it as well. Some financial, but a lot of it non -financial. I think one of the things just

Monte Anderson (47:37.88)

Yeah.

Kevin K (47:57.243)

For me personally, I'll never be able to shake loose the architect inside me and I just love seeing buildings going up. the incredible reward you have to know that you worked on something and you can see it manifested physically is pretty awesome. So there's all those things and it kind of like we were talking a little bit about earlier, I think one of the things that I remind myself of.

Monte Anderson (48:16.92)

Yeah.

Kevin K (48:26.845)

frequently is that sometimes you just have to make a decision to just go and to just do it. And you can definitely get paralysis analysis here in this always hoping for the perfect timing and the perfect deal. But there's never really any such thing. at some point, you want to do your homework and everything. there comes a point where you just got to pull the trigger and try it and do something, right?

Monte Anderson (48:33.186)

Yeah.

Monte Anderson (48:54.402)

Yeah, yeah, I'm very instinct guided by instinct. I mean, I'm very guided by instinct. Now, mean, you've seen me before work on numbers and stuff, you know, I'm constantly running numbers. When I see projects, I can see it with numbers. I see the numbers and the spaces and the sizes and what the rents should be and.

operations that cost and stuff like that. yeah, at some point, there's no way you're going to be able to prove it and you just got to go for it. You just got to. And to your right to see a project go from like you've seen, you know, go out of the ground to see it come up. mean, to watch the framing and, know, from the plumbing, watching the plumbing stick up and the framing. mean, there's, there's something so great about that, especially when you're doing a project that's worthy, you know, worthy project. It's something.

I mean, we were meant to be builders, think, as humans, especially. I mean, we were meant to build and to do good things upon the earth. Hopefully we could do better things than we've done upon the earth, than some of the things we've done, but we were meant to be builders. And there's nothing like it to see.

project. have photos all around my office of projects and things that and it's just so good to see all of that and to also have made a decent living and built some wealth you know and today I have my daughter and my granddaughter both work with me and to have that that legacy or that start of something is

It's like there's no way any amount of money could make me feel as good as looking at some of these projects and just seeing businesses thrive and people have decent places to live. There's something so special about that. Otherwise, I'd just be a broker today, just brokering deals and wouldn't care. I think there's something in us that wants us to be townmakers.

Kevin K (51:00.581)

Mm

Monte Anderson (51:00.704)

It wants us to make our towns better. And maybe it's you're not the developer. Maybe you're just one of the champions, the community champions, or you're just an activist in the community that supports this. It's nice to have people like that. Those are very important people to me. People that cheer me on and don't just criticize me. They're very important, you know, to me. They're just as important as anybody, you know, but that, but there's something so good about that. And then, then you will, if you can, if you can.

If you can commit, here's why committing to your neighborhood or your farm or your place for the rest of your life is so important. Because once you commit to that place like that, you commit. The universe changes around you. It makes things easier. Well, I don't know about easier. It makes things doable. It gives you resources. It gives you things that you wouldn't have had when you make that.

when you don't have that commitment. gives people come to you and they want to sell you a property cheaper or they want to, you know, people will invest with you. People will do things with you when they know that you're a true, you're champion like that. And then you will make money. And I think people and my partners and stuff, they want me to make money. They allow me to make money on these projects. They want me to make money. You know, I have to make them money too, but, and to...

see all the small businesses that I deal with and the people that I've seen in housing that may not have had housing and subcontractors and welders and carpenters and know painters and people that around me help them build their businesses and stuff I'm involved in all of that there's I mean I can't imagine doing anything better I don't know what it would be maybe I could be a missionary or something do better work or something but I don't know this is good stuff well this is just good

Kevin K (52:49.563)

Yeah. Well, you're a missionary of sorts. You're a certain.

Monte Anderson (52:57.312)

It's good stuff, it's good, you and it helps you help people. You help build a better, you hope you do. Not everything I've done is always the best for sure, because I've made a lot of mistakes, but that would be the hope that you are able to leave something decent. By the way, my other granddaughter just graduated from Stephen F. Austin in Texas to be an architect.

Kevin K (53:24.729)

wow. All right.

Monte Anderson (53:25.644)

So that was really cool. she's, you know, I got kids, so there's family trees, you know, starting to be architects and developers and stuff. it's a good.

Kevin K (53:36.625)

I feel like we're starting to brainwash our kids in that regard too. We've got them, you know, all those like HGTV type shows. We got them watching those and they're really enjoying them. And it's fun to watch with them. The latest one that we found, which I guess is not a new show, I guess it's like seven years old, but there was a show called You Can't Turn That Into a House. And it was actually three guys from Kansas City who

Monte Anderson (53:40.994)

Alright.

Monte Anderson (53:46.396)

yeah.

Monte Anderson (54:01.6)

Yes.

Kevin K (54:05.821)

made the show and they take these things like, you know, they'll take a couple of school buses or a grain silo or a horse trailer or whatever, and turn it into like a little house. and it's just like the coolest thing. And they do it on these ridiculous schedules and ridiculous budgets, but that act of creativity is so just, you know, incredible. And I remember actually, I think the first one we saw that it was like this, this stuff kind of reminds me of Monty because.

Monte Anderson (54:20.78)

Yeah.

Kevin K (54:34.489)

you have done some really cool, creative, unique stuff with your projects that are way outside the box on what people would normally look at, especially for your retail stuff.

Monte Anderson (54:44.15)

Yeah. Yeah. Yeah. Yeah. We use a lot of trailers and stuff like that. love buses and trailers and things. Yeah. Kind of cool. Yeah.

Kevin K (54:49.435)

Yeah.

Kevin K (54:52.977)

So it's fun work and I agree it's fun to share it with others and everything else.

Monte Anderson (55:00.111)

Yeah. We do need to make more money as small middle class developers and stuff. We do need to make more money. So we need to continue to teach each other and help each other. That's another thing about the friends that you and I have. I think we all pay it forward. We're all always trying to help each other, I think. And that's a good thing.

Kevin K (55:21.477)

Yeah. Well, Monty, where can people find you next? Or you mentioned earlier some places you're going to be roaming around to. Where else are you working these days?

Monte Anderson (55:34.934)

Let's see, South Bend, Indiana, Elkhart, Indiana, Denton, Texas, Regina, Canada, Dubuque, let's see, Lafayette, Louisiana, getting ready to start in Orlando, Florida. Of course, Bernice Riedel is working in Buffalo and Jim Cooman in Minneapolis, Minnesota. And then we've done a little bit of work or still doing work in Kansas City or in Grandview.

Missouri with an abandoned golf course down there that you remember. We're still working on that. They got their financing and bought that, the people that were helping. And then you can always reach us at neighborhoodevolution .com and optionsre .com. And we're always here. We do, we only do development, you know, in my farm, in my local area of Southern Dallas County. Southern Dallas County is where I work. And then we...

Kevin K (56:11.867)

Good. Good.

Monte Anderson (56:32.022)

Then we coach and teach and train, help cities create ecosystems all over the country through neighborhood evolution.

Kevin K (56:44.571)

Well, we just ran into Bernice recently. was here in Kansas City giving a keynote speech for a Missouri Main Streets Conference. So that was kind of cool to see. terrific. All right. We'll say hello.

Monte Anderson (56:51.916)

Yeah, and she's right outside my door right now here in Texas. She's riding with me to Lafayette tomorrow. yeah, we're meeting Marcus. Marcus King in Detroit will meet us in Lafayette. So Marcus is coming.

Kevin K (56:59.451)

Good, good. All right, Monty.

cool, good, good. All right, well I'm jealous. Sounds like a fun crew. So. All right, Monty, thanks so much. This was great, very informative and I'm sure we will do it again.

Monte Anderson (57:09.218)

Yeah.

Monte Anderson (57:17.762)

Yeah, thank you, Kevin. See you soon. Bye.

Kevin K (57:19.205)

All right, take care.

Truth is, I wish we talked a lot more about making cities as kid-friendly as possible. The topic is often overlooked. That’s why it was fascinating to see Derek Thompson’s article, “The Urban Family Exodus Is a Warning For Progressives” get so much traction. He clearly touched a nerve.

Today, I give my take in this solo podcast. As a father, as someone that loves cities, and someone that is in fact deeply concerned about the trendlines, I share my observations. This one gets a little personal. Ground I cover includes:

1. How parents really feel about their kids

2. What life in American cities is really like

3. How things are different now from the historic norm in the US

4. What parents really prioritize, not what we wish them to prioritize

5. What cities can do

6. How cities *could* be amazing

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Episode Transcript:

Kevin K (00:01.824)

Welcome back to the Messy City podcast. This is Kevin Klinkenberg flying solo today, doing an episode in a way that I've done occasionally in the past, but I haven't done a little while. I've had some amazing guests. I've got some more coming up and I love talking to people other than myself primarily in this gig, but it is fun once in a while to just riff on something that's in the news or on my mind.

And that's what I'm going to do today. I do want to take a second and say thank you to all of you who are listening and following. The podcast has really grown a lot in audience the last six months. And I really appreciate everybody tuning in. And if you get a chance, please hit that like or follow button. Leave me a review on your podcast platform, especially if you're on Apple. Apple is the biggest podcast platform by far.

So if you're listening through Apple podcasts, I'd really appreciate it if you gave the show a rating. All of that stuff helps get attraction and grow the audience. And the bigger the audience, the better I will be able to be at providing you all with really good programming and interesting guests and the ability to try to help us all out as we navigate how to improve our cities, how to improve our own situation.

if you're a, a small developer or an aspiring small developer, try to become one. if you are someone who's just interested in cities and planning to do whatever you can do to make your community a better place to live and, and, help us, help us all out in our own little world. So that's the point. That's what I'm trying to do here. And, I hope you enjoy it judging by the numbers. A lot of you are enjoying it. So that's really cool. And, it's,

It's definitely a lot of fun for me. So with that, I want to talk about an article that's made the rounds a lot lately and a topic that I've seen discussed in social media and elsewhere. And it really has to do with the subject of families and big cities. And a lot of this most, the most recent flurry of discussion happened at

Kevin K (02:25.002)

as the result of an article in the Atlantic by Derek Thompson titled, The Urban Family Exodus is a Warning for Progressives. And I'm going to commit a cardinal sin here today where I'm going to talk about this topic without having read the actual article. So forgive me for that, but I will say I have read many, many articles on this topic.

And what I really want to talk about today is just kind of my own experience as a father, as a parent, and my own interaction and evolution on this issue. Because I think there's an awful lot in the context of this subject that we just don't talk very much about. Especially those of us who are in this tiny, tiny niche of

people who call themselves urbanists, who care about cities, who care about development in cities. There's an awful lot tied into this issue that overlaps with others that we've talked about here before, but I think there's some that's really specific about having kids that I'd just like to dive into. So the context really in Derek's article, I did see some of the numbers. I don't have them in front of me. You can find them.

out there, it's not hard to find. But the context was that people with children are continuing to move out of big cities. That this trend really started in the early COVID years, 2020, 2021, and has not really abated. so the article really was kind of a warning, especially to people in some of the larger

cities in the country, the places like New York, San Francisco, Chicago, et cetera, that people who have a choice, who have kids have continued to leave. And so that is why he says it's a warning. I guess I would say right off, right up front, I think this should be a concern for everybody. I don't think it should be a concern just for somebody who calls themselves a progressive. I've always had the opinion that

Kevin K (04:42.818)

Communities and cities are for everybody in every age group, every kind of background, every interest. The best kind of communities really embrace everybody. And it's a little strange to me when we say that, when we just kind of dial it down to like a political impulse. I understand why he's doing that. the reality is that most big cities are run by progressives.

And so I think he's talking to progressive policymakers. But I think this issue really should concern everybody because honestly, when you don't have children living in your city, you have to ask yourself, like, what future does your city have? This is often talked about in relation to like places that are like retirement communities. And a lot of retirement communities also go through phases and fads.

And if they don't evolve, since they're not replacing people themselves, there are no children in retirement communities. And so people aren't growing up there. What happens as people die off and those populations change? Well, the same is true of cities. If children are not growing up in cities and having, or if they're not growing up in your community and having a good feeling about it, it lowers the likelihood that they will want to be there as an adult.

And if you're not going to be there as an adult, it's going to hurt your future population as well. everything in cities is a function of time. And there is that fourth dimension that we often neglect, that things change a lot over time. And we don't think about what might happen 10, 20, 30 years down the road. But if your community doesn't have children in it, that's a big red flashing warning sign.

for what happens in the next generation. So I think this is an issue that should concern everybody. And again, I'd say right up front, I am terribly, terribly biased on this because I do have children. I have two young children, two daughters that are six and eight years old. And so I want to share, I think what might be useful for me, first of all, is to share a little bit of a personal perspective on having kids.

Kevin K (07:09.09)

And then I have some thoughts related to what's going on in terms of evaluating and understanding cities and the landscape of cities in the United States. And then also what we might do, what cities might be able to do to course correct. What can they do to turn this around so that cities can be attractive to people who do have kids and reverse that population loss. So let's just start off with the personal.

not a young person anymore. I certainly don't feel old, but I can't deny the math, but I'm not somebody who's in my 20s or 30s. And I have kids, but I came to having kids pretty late in life compared to most people. So my oldest was born when I was 45 and then my youngest when I was 47. So I'm not in...

What is it? Al Pacino world here? Is it Al Pacino that like that recently had a kid or something and he's about eight years old? I'm not in that world, but I am definitely in the category of people who had kids late in their adult life. And so I lived a long period of time without children in cities and now I'm living with children in a city environment.

and I think the thing, you know, the thing, the way I would like to talk about this first and foremost, there's so much about this that changes. You know, there's a lot of cliches about the things that change. And when you have kids and I knew all those cliches, I heard them a million times. It's really hard to fully understand that until you go through it. And, having children completely rewires your brain.

and your priorities in a lot of ways that have really surprised me as a person. And I have often found myself just like shocked at things that are different about me now that I am caring for and responsible for these two young people. Just, you know, one silly thing is just like...

Kevin K (09:29.184)

you know, my wife and I have talked about this, like anytime there is like a movie or a show on TV and there are children that are like at risk, they're abducted, they're being hurt or harmed in some way. It's like, you know, I just lose it now. And it, the emotion that that creates in me and us is, it's hard to describe. It really,

It affects me in ways that are, they seem kind of silly, but I understand and I empathize much more with the families and people in those situations than I ever would have otherwise. And so it's really kind of bizarre, but it's like an incredible way to just like make me all of a sudden choke up, you know, watching a movie, having some harm come to a small child. But I mean, the reality is,

I will tell you from my experience, you do become much more emotional when you have kids. At least in my experience, I have found a protective impulse, the desire to protect them from harm and from the world that I just wasn't sure that I had that. When I was younger, I didn't know about that, but when once you have those children in your care,

It's incredible how protective you are of just every aspect of their life. so I get why we don't want to become helicopter parents. We are not like that. But I get why people have that reaction. I get the instinct that a lot of parents have to really deeply care for every aspect of what happens in their child's life. And I would say,

If you don't have that kind of reaction, if having kids doesn't change you in some meaningful way, then you should probably take a long look in the mirror. I mean, you might be a sociopath, I'm just saying. And it should change you. because it's an incredible thing to have to care for another human being. It's an incredible joy. And there's definitely the part of me that says, God, I wish

Kevin K (11:54.036)

I had done this when I was younger and even had more kids than just the two of them because they really bring you incredible joy into your life. I would say that probably the highest highs and lowest lows come from being a parent. The moments you have them with them that are really great or fun or memorable from a good standpoint, stand out above and beyond anything else that

you I did for myself in the years before I have kids. So it really is very different and it does tend to make you think that the life you led before kids was very like self -centered and maybe selfish. And I'm not saying that as like an accusation to anybody because, I lived it. I lived it myself for a very long period of time, but it is just really different. So

having kids that you care for really does change your priorities in ways that you probably can't communicate perfectly in an article, especially if you're like a childless person and you're just trying to describe like statistics that are happening and analyze what's going on. If you can't understand the emotion of it, then you're really missing something really important. So one aspect of that

is that with small children especially, you spend an awful lot of your time and mental energy trying to come up with activities for them and trying to entertain them, trying to do these things in ways that you're not worried about their safety. mean, you're literally worried about them surviving every moment.

And so we spend a lot of time like trying to chase down those different activities. And for a lot of small kids in particular, in American cities, a lot of those places are in the suburbs. And I'll talk more about that in a little bit and the evolution of all that. But that is part of the day to day that most parents deal with is, you know, maybe you're going to a kid's play area or a play date.

Kevin K (14:21.192)

or a daycare or a swimming pool or aquatic center or whatever it is. And in American cities, most of those are in suburban locations because that's where most of the kids are. so there is this kind of challenge that you have as somebody who lives in an urban area that there isn't as much just kid -focused amenities as you would have in a lot of suburban areas.

So it's true that if you live in the suburbs, you're still driving a lot to all these places, but it is closer and there's just a lot more of it. And so, you know, as a parent, we do find ourselves getting in the car a lot and driving out to suburban locations for any number of activities. And frankly, the family oriented events and activities, there's just so much more of them that are in businesses and other things in the suburbs.

And it's just, one of the things that I think you can't really describe very well is going to, when you have small children, going to a place where you can kind of just let the kids free and roam around and play with other kids and not worry that they're going to be harmed. there's a, there is like a stress reduction on your own life that happens there. And so you're kind of always looking for those opportunities and there's just not much of that in a lot of urban areas or.

urban locations. Now I think cities have gotten better for families in my lifetime. And there are more things. So like in my city, there's something we call Science City, which is basically just like a kids play area that is in the Union Station in Kansas City, Missouri, that's in the city. It's a really cool place. The kids love going there. That's an example of like a very family and kid focused activity.

And there are some people working on creating more activities nearby and adjacent to it that I think will be really cool. We obviously have parks, we have playgrounds, we have a fantastic park that is a block away from our house that the kids walk down to and it's got a playground and everything. So we've used that a lot. We've got some of those types of things. And we have a neighborhood main street that is just up the block from our house.

Kevin K (16:45.054)

And if we walk a few blocks in one direction, you know, we can hit the ice cream place and there's a taco place and there's, there's, there's some places that are, that are fun to hang out. Now, I will say in our area, most of there are some, most of those businesses are not what we would call like kid friendly places. and maybe that's a, that might be an especially American way of looking at businesses. but they aren't.

And they're generally focused on the demographic of people who live in the cities, which tends to be younger and just certain crowds of people that are not dragging their kids around. we have some of those things. It is better. But we also lack a lot. We don't have a swimming pool, for example, in our neighborhood or anywhere near us.

By contrast, both of my sisters live in suburban subdivisions in our metro that both have neighborhood pools. And they can just walk over any time when they visit their aunts and uncles and they can just go swimming all day. Granted, they pay for that. It's part of your HOA dues if you live in one of those subdivisions. But we don't even have that option in our area at all.

in our part of the city. Now, some cities are better than others. Our city is not particularly good at having those kinds of amenities. And that's really something that is very lacking, not to mention some of those kid play areas. And there's just also very little programming of events that are specifically for kids and families in the city.

Parks department is doing a little bit more of that than they used to, but, it's great. We love, we do as much of that as we can. But when you compare it to the sort of routine events that happen in a lot of our suburban jurisdictions, it just doesn't compare. and, and it's frustrating. It's frustrating for us because we wish we had a lot more of that. Cause we don't want to get in the car and drive for 20 or 30 minutes to another location. But we often find that.

Kevin K (19:07.116)

that's just kind of what we have to do. So that, I mean, that's one aspect of all this is, you know, when you are in middle -class family and you are trying to balance, you know, a lot of these needs and really care for your kids and provide them with fun things to do and go to places where you can kind of relax too, it's really important to have those things nearby. So, you know, another aspect of this

I think if you're to step back a little bit, and that's all kind of like personal experience. If I were to look at like, are the things that most normal families really care about when it comes to choosing a place to live? And I've mentioned this before, but one thing that I think almost anybody listening to this podcast would have to understand is that like,

Those of us who are in our little world here are not normal. If you are a quote unquote urbanist, you are probably not normal. You probably do not have like the same value system as the vast majority of people in your city or in our country. I'm not saying that's a good thing or a bad thing. It's just, it just is. It's just different. A lot of us put a high priority in our own life.

in living somewhere where you can walk around to some things or ride a bike to some things. And I love all that. I put a high priority in that. I wish more people did. I wish that was normative in our culture that like the idea of using your body to get around to most things in your daily life was like normal. It used to be normal in our cities. And if I were to say a little sidebar here,

one of the things that's really kind of unique about American cities and culture is that we conflate urban with big city. and by urban, mean like places where you might like walk around to things. so this is, this is different than most countries in the world where, where people small town, whether you're in a small town or a big city, most people walk around, to get around.

Kevin K (21:36.69)

And it's different from our historical legacy as well in the United States, because prior to the 1920s and the beginning of the suburban experiment or the revolution in city planning that happened at that time period, every community in our country was a walkable place. Everything that a lot of quote unquote urbanists would love was normative.

And if you don't believe me, just look at pictures and postcards from literally any community in America prior to the 1930s. And you see that they are all what we would call urban today in terms of how people actually lived. So that was our legacy and that was how our country developed for a couple of hundred years.

until we embarked on this experiment to basically destroy it all and destroy it all kind of on purpose with big money and big policy and for many decades of intentional destruction. And so we're left with this situation now where people tend to conflate like, if you mean walkable and urban, well, that's only in like the big city. And that's just not true.

that's never really been true historically. But on the ground today, that is how a lot of it feels, that you have big cities that are kind of walkable and maybe people take public transit, maybe people ride bikes. And then you have suburbs where people drive cars. And very simplistically, that's how a lot of people look at the world. And I've always been frustrated by that.

And it certainly doesn't have to be that way. But that is how a lot of people look at it. one substacker who I've talked about before here, Addison Delmastro, he does a really good job of writing about this. He kind of talks about this topic frequently on his substack, which I think is called the deleted scenes. Just the notion that small towns, as we think of them today, really are just big cities that haven't matured or

Kevin K (24:03.778)

didn't mature or grow into being bigger places, but they all have the same DNA. The little town where I went to high school, Marshall, Missouri, has this lovely courthouse square and beautiful older neighborhoods from before the 1930s. And it has the exact same DNA as like the neighborhood that I live in now. It's just that Kansas City, Missouri grew to become a big city.

Marshall, Missouri did not grow to become a big city. It kind of stagnated at a certain population and it's been more or less the same population for about a hundred years. So big cities grew and changed and a of small towns did not. And then we also had the growth of suburbia, which was a completely new way of living that was in many ways organized around needing a car to get to places. So.

So anyway, I guess that's a bit of a sidebar. It's kind of thinking about how cities are in America today. But historically, they weren't that way. So anyway, setting that aside, for most normal people in our country today, they look at the landscape and don't really think about these issues. It's just like, it is what it is. You live in America, you have a house, you have a car, you drive to places. And that is baked in to the cake.

that like that's part of the lifestyle. And so as a result, a lot of people, especially families with kids, they're not really like thinking about like urbanism or walkability as a thing necessarily for their children or for their family location. Some people do. I think there's more people that think about it now than used to. There's probably more people who think about it from the standpoint of like, it'd be cool to have like bike trails nearby.

because a lot of suburbs have done a great job of building like bike trail networks. But not many people are thinking about, you know, I want to live in a place where they have like a neighborhood main street that we can walk to with the kids. Again, I wish they would, but it's just not in the minds of most people. What is in the minds of most people, especially people who have a choice in where they want to live, not everybody has a choice, not everybody can afford to move. But for people...

Kevin K (26:29.996)

For middle class people especially who have a choice, and if you have kids, this is the reality. You're thinking about crime and safety first and foremost because you're trying to protect your children from harm. That is first and foremost in the minds of nearly every parent that I know. How do I protect them from harm? And yes, that can include, you know, there are,

can include walking and biking as a part of that, but what most people are thinking about is, I want to live somewhere where our house isn't likely to get broken into, where our car isn't likely to get stolen or carjacked, where it's less likely to run into violent crime, especially in public. Because violent crime is a reality in our society. We have a lot of it. My city is a particularly violent city.

unfortunately, and we can't ignore how prominent that is in the minds of most people who have a choice. So I always put that up there, like that's number one. If people aren't thinking about that or factoring that into, you know, why people might be leaving cities, then they're completely missing the boat. The second thing that people think about really are the quality of the schools when you're thinking about your kids. And

sure that's a loaded topic. We all know the history of public schools is fraught with a lot of different issues. But there's just simply no question that every parent is trying to get their kids into the best possible school that they can, the best one that they can afford. And by afford meaning whether it's a private school that they want to pay for or it's a public school in the place with the house that they can most afford with the best public school.

so that is a major consideration and, you know, frankly, most big cities fail in this area. Most of our big cities in the country, including my own have public school districts that are often at the bottom of the list in terms of rankings for schools in their Metro areas. you can argue with me whether you want, if you want to, about whether that's fair or not fair. It doesn't matter. All people know is.

Kevin K (28:56.65)

school, those schools bad, other schools better. And people are going to act on whatever they think is best for their kids. Because you're a really weird person, I think, if you want to experiment with your children by sending them to a school that is potentially subpar. So again, there are a lot of factors involved with why schools are better or not.

You know, in our city, we happen to have a unique network of charter schools that was started 20, 25 years ago. And so charter schools are public schools, but they each operate as their own independent school district, essentially. And our kids go to a charter school in the city that is an excellent school with some of the best academic ratings in the state of Missouri.

really great school. a foreign, it's a unique foreign language immersion school and we really like it. We're very, happy with it and we have many friends who have had their kids there and have their kids there and so it's kind of a unique situation. That was an incredible enticement. I will tell you before we had charter schools in the city as a choice, people as soon as they had it, as soon as their kids hit like elementary school age, they were out of here.

they were moving to the suburbs. And now that we have a whole selection of charter schools as an option where people don't have to pay, we have many, many more families that are choosing to stay in the city and keeping their kids in those schools. So that's an encouraging thing. That's generally been a good thing. But a lot of cities don't have that choice. A lot of parents don't have that choice.

When we lived in Savannah, Georgia, we didn't really have that choice. think there were two charter schools in the city of Savannah and they were both just unbelievably oversubscribed and very, very difficult to get into. And again, you have to ask yourself as a parent, you know, are you going to just like play a lottery game with your kid's future? And most parents are not. They're not going to if they have a choice. Again, many parents don't have a choice, but if you do have a choice,

Kevin K (31:20.694)

you're just not gonna play that game. And you'll make whatever sacrifice you need to for your kids, if it means moving, if it means moving to somewhere that's more expensive, whatever you have to do for your kids' future. So that's a big deal. The other aspect of schools, things we can't, the discussion we can't avoid, although I think a lot of people would love to avoid it, is that there is still a tremendous hangover from the COVID policies. And the schools that were closed,

the longest during COVID were almost all schools in major cities and especially schools in large school districts in inner cities. And there are many, many parents who have just not forgotten that and have not let go of it and will not let go of it. I think obviously there was plenty of evidence that

people left, a lot of people left those districts during the COVID era so they could be somewhere where their kids could be in school. And I would suspect that there is a hangover from that for a lot of people still looking to get out who are still very angry about what happened during that era, kept keeping their kids out of school for a year, some places, two years. And they want to be somewhere where they know that's not going to happen.

again or where they suspect that won't happen again. that's another aspect of the school situation that in the current era is a big deal. So again, top of the list when you have kids, crime and safety, and schools. I think the third thing after that is cost of living. And this is where the affordability discussion comes in.

You know, this has everything to do with housing affordability primarily, but it also has a little bit to do with taxes and overall cost of living. You know, I live in a city where our city has an income tax, a 1 % income tax. It's the only city in our metro area that has that. And so I get it when people don't want to be part of that.

Kevin K (33:41.068)

when they say to themselves, well, I can live somewhere else in this Metro and not pay an income tax. I can be in a better rated school district and I'm going to have lower crime. I mean, honestly, that's the logical choice. Who wouldn't? You really have to be a weirdo or like me to say we want to like live in the city when those are your basic choices. And it's funny that any of these things get framed otherwise.

Like that is the normal rational choice to make is to live somewhere that's less expensive where you get more for your money that is safer for you and your kids. So that's just the hard truth for how all these things work out that a lot of American big cities fail in those key areas compared to their suburbs. And then unfortunately what's happened over the years

is that the primary political constituencies have adjusted to all this to kind of reflect their populations. big cities tend to focus on policies that are the people who are left in those cities who like them, wealthy people, childless people, and oftentimes people who don't have a choice to move somewhere else. And then suburban cities tend to keep reinforcing and focusing on

like families and kids, oftentimes to the exclusion of attracting younger people and single people and childless people too. So they have that blind spot in a lot of suburban areas. And so there's that issue as well. I think in the minds of a lot of city and urban policymakers, what's really great for kids is just not top of mind. And so it kind of becomes like a self -licking ice cream cone.

in the policy world. And it's just an unfortunate side effect of where we are. So what can cities do? What can urban areas or major cities do about all this? Honestly, that's always a question. I've just never been the kind of person that I am satisfied with stating a problem and not trying to give.

Kevin K (36:03.458)

some concrete ideas on like what to do, what else could be done. And so I'll take a shot at a few things here. I mean, I think a lot of this is kind of going to logically follow from the other part of the conversation. But first and foremost, cities need to be serious, and I mean really, really serious about public safety and crime. And too many cities just are not. My city is not.

just flat out not serious about it right now. We have one of the worst murder rates and crime rates in the country. There is no sense of urgency on this issue from our leadership at all. There are people who care. There are people who are trying to do things. But there's no sense of urgency related to

How do we deal with this immediately and today? It's mostly like about like longer term solutions. And I'm, you know, long, I'm all for the longer term solutions. Those are great. But if you don't deal with things immediately, then you lose people. People just leave and they get fed up and they're going to move on. So if your city is in that category that it's not really serious about crime and safety, you're going to lose people and you're especially lose middle -class families with kids. That's just part of the reality.

Another thing that cities can do is try to find ways to support innovation in education. I'm going to write about this more at a future date here, but I've had long had some thoughts about ways that public school districts, especially really large ones, could be reformed. And I think there's a lot of reform needed in public school administration and education.

And if you are a logical person, you would start with the ones that are the most underperforming. And we are fortunate here in Kansas City, Missouri, that we have more choices than most with charter schools, with private schools, and a public school district. But our public school district needs to be better. There's just no other way to say it. It's got to be better. And we've got to find ways to just innovate much more quickly.

Kevin K (38:28.41)

and in more thoughtful ways than what we're doing right now in education. Or again, people will leave. It's just that simple. If the schools suck, people are going to move somewhere else. So the third area, not really all that surprising, but when we talk about cost of living is cities need to get really serious about trying to be affordable with, and to try to make their housing as affordable as possible.

I've stated this here before in this podcast, but as a refresher, I don't think that means like we need to build capital A affordable housing. That is just generally not as, that's not what I'm talking about. We're talking about housing for middle -class people generally that have kids. The path to affordability there is to do what a lot of cities have started to do, which is really reform their codes and processes.

to actually make it easier to produce new housing and produce it at scale. So whether you're talking about single family houses, townhouses, duplexes, missing middle housing, whatever it is, most cities have become really, really difficult to work in to produce new housing. And their suburban counterparts are quite easy to work in.

For somebody like me, I don't like the housing that is being produced in most of our suburbs. The standard suburban format, industrially spit out house in community. That doesn't appeal to me. But it sure would be nice if our city, if we could produce housing at the pace and ease at which it happens in a lot of suburban places. So that is something that we're seeing progress in.

We're starting to see reform in a lot of cities, but we've got a long, long ways to go to get that better. And obviously the last thing, I think this is a little more challenging, it's probably more from an entrepreneurial standpoint, but we really need more amenities for kids and families in urban places. Like if you really care about having and retaining kids and families in urban places, they've got to have those.

Kevin K (40:52.546)

amenities that families come to expect nowadays. You know, this isn't this isn't 1950 anymore where a lot of places just didn't have amenities. Now there's an expectation and if people don't have it, they're going to go where where those expectations are being met. So, you know, neighborhoods should have pools. They should have swimming pools. They should have play areas and playgrounds and park spaces.

It would be nice if there were more businesses that were more welcoming to families and kids and more like family focused businesses. So those can't be mandated. I'm not saying like those can be mandated from the top down, but it would be smart for people who care about those things to encourage them, try to create them. So I'll just like sum up here by saying that

I think the frustrating part here, and I think probably a lot of you may feel this way as well, is that a lot of our cities could be absolutely amazing for families and for kids. And they can be amazing in ways that our suburban communities cannot be and may never be able to be. By having the freedom of movement

on foot or bicycle and the free, ability to explore and be independent in a really well functioning place that was historically available for kids to be able to like actually walk to a neighborhood school or a neighborhood park or a pool. And there's just an awful lot of suburban communities that will never ever have that.

because of the built pattern that exists, which makes it virtually impossible without like radical change. The built, the physical DNA of a lot of cities is ideal for incorporating all that. But we have an awful lot of policy problems, administrative problems, and just intransigent thinking that is holding

Kevin K (43:19.57)

us back and holding our cities back. time marches on. If you are a parent and you live in a city and you haven't thought about like going somewhere else where a lot of that could be easier, then you're probably unique in that regard. I've thought about it. My wife and I have thought about it. We have had discussions about, know, we are city people. There's a lot we love about the city.

But might it just make more sense for us to live in one of the suburbs in the area? And there's a list of things we just really wouldn't have to think about or worry about very much. And we have never pulled the trigger on that. I don't know if we ever will. We really love our neighbors and our community. And we love the school that our kids are in, which really helps. That's a major.

major factor that would keep us in the city. But the other things are a real source of frustration. We absolutely worry about the crime and safety issues. They are real and extremely concerning for us. We do get frustrated with the cost of living. That is just, it's just more expensive to live in the city and we have fewer amenities.

I mean, that's just the reality. you know, is that the end of the world? No, it's not the end of the world. And we're in a pretty fortunate position compared to a lot of people. But my point is that I think that many, families, the majority of families think about things this way. They're not thinking about, boy, it would be cool if our kids could walk somewhere, you walk down the street to the neighborhood ice cream shop.

and live in sort of an urbanist paradise. You're not thinking about that. You're thinking about very basic things like the safety of your children, the education they're going to get, and how much things are costing you. And that's the part of the discussion that if we want to be honest and if we really want to make things better and fix things, we have to be aware of these and have real frank discussions about.

Kevin K (45:48.332)

That's what I have for you today. This is Kevin. Thanks again for listening to the Messy City Podcast. And please hit that like or follow button and leave me a review if you can. Send me a note. Let me know what you think. Leave a message on the Substack page. Thanks everybody. Talk to you later. Bye.

We travel to the beautiful Pacific Northwest this week to talk with architect Cary Westerbeck. Cary lives and works in Bothell, Washington, a northern suburb of Seattle. He traces his path from being a bicycle mechanic to architect, developer and even Planning Commission member.

One of the really cool things about this episode is hearing Cary take me step by step through his process to build the Fir Street Lofts. This size of project, 3 apartments and one retail space, is the kind of project that should be within reach of many aspiring developers. Cary talks about how he conceived it, designed it, financed it, and general contracted it as well. If I could construct a curriculum for architects, I’d have them all listen to this episode to learn how much more is possible than just being a hired gun for others.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Transcript:

Kevin K (00:01.132)

Welcome back to the Messy City Podcast. This is Kevin Klinkenberg. This week we're off to the Pacific Northwest to talk with another small scale developer and urbanist kind of guy who's done some really cool work and who I haven't really had a chance to talk to a lot in person, but our paths cross all the time, including when this one drops, my most recent guest will have been Jim Hyde from the Small Scale Developer Forums and

And my guest today, Kerry Westerbeck, has been very involved in the Small Scale Developer Forum. there's kind of a fun alignment there that I'm looking forward to talking about. But anyway, Kerry, welcome to the podcast. It's great to see you.

Cary (00:43.968)

Thank you, Kevin. Nice to be invited. Great to be here.

Kevin K (00:46.786)

Well, again, it's a situation where we just know so many overlapping people. It makes it feel like the world is really small.

Cary (00:53.226)

Indeed.

It really does. There's so many connections, whether it's social media or blogs or podcasts. Like, hey, I know that person and they know that person and all these points begin to overlap. It's fun.

Kevin K (01:08.952)

Yeah, and I know there's more than like 20 people doing small scale development in the whole country, but for whatever reason that like circle we travel, and it of feels like there's like 20. So I don't know.

Cary (01:17.162)

Yeah.

Cary (01:20.884)

No, it's true. It's the same bunch of us kind of keep getting hit up. Maybe we're the ones who'll enjoy talking about it. Others are just doing it and being quiet. I don't know.

Kevin K (01:29.816)

Could be, could be. There's a whole lot of people who just, you know, proceed on in the background and do really cool stuff. So anyway, Carrie is in the Seattle Metro area and is doing some really neat stuff up there and has for a long time. And I wanted to talk obviously about some of the projects you've been doing, but you also have a really interesting background getting into this.

Cary (01:36.212)

That's right.

Kevin K (01:56.236)

that our mutual friend, John Anderson, kind of clued us into. And I wonder if you want to start by talking a little bit about like your own journey to being where you are now. I think we're probably around the same age, ballpark. so, yeah. And so, you know, by the time you hit our age, you've probably had two or three different lives, it feels like, or certainly professional lives. And there's lot of different paths that people take. So let's talk a bit about where you started out.

Cary (02:03.541)

Yeah.

Cary (02:09.865)

early 50s.

Cary (02:17.214)

Yes. Yes.

Cary (02:25.974)

Sure, no, I think that's a really good way putting it. I have a lot of friends who are five to 10 years older and some of them didn't know me when I was younger. I do joke, I've had many lives, I've lived many lives because I was a bicycle mechanic for much of the 90s before I finished my undergrad degree and then went later and got a master's in architecture and became an architect 20 years ago. So I...

30 something years ago, I spent six months in the Virgin Islands working as a cook when I was just casting about traveling. So these newer friends, yeah, was great. Yeah, on St. John, US Virgin Islands at Eco Resort. And so yeah, I've had these interesting paths and I worked for Seattle Public Utilities after my undergrad degree before I got my architecture degree. This is in the late 90s and decided

Kevin K (03:01.964)

That's cool. That must have been a... I think we could do a whole podcast probably just on that experience.

Cary (03:23.828)

At the time, my policy wasn't too thrilling to me, but I did some policy work for a while around Seattle Public Utilities work. I was a project manager for a watershed action plan. anyway, my route to where I'm at today, yeah, I was doing that. I've been actively involved in the outdoors here in the Northwest, biking and hiking and backpacking and stuff. But I've always been intrigued with architecture.

Even when I was younger, I thought I'd go be an architect when I was in high school. And then I kind of got into a little more carefree lifestyle in my late teens, early twenties, and really didn't apply myself very well when I was in community college and when my friends were off at the universities and stuff. So I had kind of a more circuitous route to getting married in my mid twenties and then deciding to finish my undergrad degree, doing that policy work, Seattle Public Utilities in the late nineties, and then deciding.

hey, I've got kind of got my life together more. I'm better at studying and applying myself. I'm going to go pursue that architecture degree. So I did do that at the University of Washington from 2001 to 2004. And that's how I got my start as an architect in 2004. I've always been in the Seattle area. I was born in Tacoma, just south of Seattle. And I grew up actually one town over from where I am today in Bothell, Washington. I grew up in Woodinville, Washington next door.

So I've stayed local, love the Northwest. So I became an architect and like many of us, became an intern at a good local firm in 2004. And we were just working as fast as we could as architects with that firm, which is still around today until many of us got, most of us got laid off one by one in 2008, 2009. And as we all who live through that, know that story, I think something like 40,

Kevin K (05:19.468)

Well, nope. Still have the scars.

Cary (05:21.782)

Yeah, you know, yeah, exactly. 40, 50 % of the architects, I think, in the country got laid off within a few months, something like something crazy like that. Yeah. So I'd only had five years experience at that point, but had done all kinds of work and been working a lot. So I had enough to then quickly get licensed within a year or so. And I was in the process of beginning my own firm because my wife's a librarian and a teacher. so

Kevin K (05:29.154)

Yeah, it was brutal.

Cary (05:51.03)

firms didn't have work in 2009 or so, but these teachers are still employed. And so a couple of them, we want to do an addition, we want to do a deck, whatever. I started a small firm kind of out of necessity to make a living. And that actually worked pretty well. So I was actually doing okay during the recession, starting a small firm and learning how to do contracts and all kinds of things.

But all along, we started owning houses. My wife and I bought our first house in 1997 prior to my becoming an architect. And my dad had always been kind of a frustrated engineer architect. we actually lived in a couple of architecturally significant houses growing up. So I was sort of steeped in design. so along with that, he was always remodeling our houses. So I kind of had this DIY spirit. And my brother was, at that time, a

professional contractor and general contractor. He's now a professional architectural photographer. Interestingly enough, he shoots my work. So immediately we would remodel each house we own. We had a few houses through the year before the projects we have now that we own now. And so I wasn't afraid to put on the tool belt and learn how to do things. So I say that because we were starting to look at getting into design build when I was at the firm I worked at, Johnston Architects.

And I actually built out the offices when we moved offices in 2007 or so. I was the lead on that and literally cutting the wood and building the desks and all kinds of things like that. Cause I had experienced doing that and brought remodeling houses. And about that time I learned about Jonathan Siegel down in San Diego. Most people know who he is these days and this line of work. And one of the guys in the office had gone to one of his in -person.

seminars where we taught people how to be architect as developer. I thought, hey, I've always been interested in design build and building my own projects, self -initiated work, but I didn't really understand. You could just decide you're going to be your own client. This is an electrifying idea.

Cary (07:58.932)

So it was planted. didn't do anything about it for a while, but I thought, okay, well, I'll keep remodeling my houses and doing work for clients. And got a lot of on the ground construction administration, construction observation work, doing projects, not only when I was working at Johnston for that five years, but then later on my own being very hands -on, both designing the projects and walking clients through those projects. So that gave me a pretty good feel for working side -by -side with general contractors. And I could be comfortable with that.

So I started getting this bug that I wanted to self -initiate projects and become the architect as developer, you know, idea person like Jonathan Siegel. And I was finding out about others at that time in New York and other places. And so I took the online course by, what was it, 2014 or so that Jonathan Siegel offered online. He decided it was too much work to do tours and keep speaking. So that...

Kevin K (08:55.17)

He was probably having too much fun in San Diego too.

Cary (08:58.3)

Exactly. know, by then he'd already had a lot of good projects under his belt. I think a lot of us saw his stuff winning awards and everything. So he would become pretty high profile. So that course was extremely empowering and convinced me that, I've got the skill set and he, you know, is very empowering in that way. You can go do this and you've got the skills and you've got the, you know, the intelligence and everything. And he was right. So that led to us.

Buying an existing triplex in the downtown core. I'm actually in that triplex right now. And with some extra land on it. And that was 2014. So we learned how to be, had tenants already, so we remodeled some of the units over time. learned how to be landlords.

We even sold our house nearby and moved into one of the units of our family of four, my wife, myself, our two daughters who were younger at the time. And we lived in the upper floor of that existing triplex that we bought in 2014 while I designed and planned a new building for the front yard.

Kevin K (10:06.776)

So how big, just describe the units in that triplex. How big a space were you looking at?

Cary (10:12.95)

Yeah. So the triplex was actually, its origin is, it was a barn built in 1913 by one of the early families, that kind of a founding family, the Erickson family of the city of Bothell. And it was a barn where they raised rabbits, a rabbit hutch. And it's 30 feet by 40 feet, two stories, with the gabled roof. Like literally just like the diagram of a gabled house, basically that children draw.

And it had two units, has two units in the downstairs and one unit upstairs. And then I've carved out a little office out of a shared foyer on the upstairs that I remodeled into my office where I'm sitting now. And we will replace this eventually with a building I'm working on what it will be replaced with.

Kevin K (11:02.552)

So you were in basically 1 ,200 square feet with the four of you then. A couple of little kids.

Cary (11:05.386)

Yep, correct, actually. Including my office. what I'd carved out from my conference room, so just a separate door and a deadlock, deadbolt stuff that I use now. We didn't use it at the time when the family was living in the hall upstairs. My wife's in my bedroom was the small conference room, which I've never really used in conference room, but it worked out great.

Kevin K (11:28.856)

So did that, at the time, that feel like a bit of a sacrifice, kind of moving into that space? Yeah.

Cary (11:33.29)

Yes. Yeah. was, so we've remodeled it. was kind of nice and shiny and new and, know, certainly an old building, but we made it look pretty nice and permitted all the work. I moved a bunch of walls around and built new bathrooms and all kinds of stuff. And we were over here with, with friends kind of looking at it one day after we got the final sign off. And I thought we should move in here and save money so we can build the new building soon. And I thought my wife's, my wife's a gamer. She's pretty flexible.

And I thought, well, I'll wait day or two and see what she thinks. So I proposed the idea a couple of days later, and we'd been living in a nearby town next door, Kenmore, for 11 years, had a quarter acre lot, and a mid -century house. I'd remodeled every square foot. It had pretty good equity in it, and it could help us with the future project. And so I proposed the idea, let's move in, let's save money. We will travel little more for a few years, and she loved it. So that's what we did six months later.

And so yeah, we kind of made a sacrifice about three and a half years we lived in that little 1200 square feet. But the cool thing, you know, cause I'm an urbanist too, this is a small little downtown. We're right in the middle of downtown. City Hall is a block away. They're building multifamily all around us. Most of it's built now. There was more going up, but at the time there was only one out of about 10 buildings that had been built in that last 10 years. So,

Kevin K (12:31.596)

Fantastic.

Cary (12:55.39)

We really wanted to, I wanted to walk my talk and the family was into it too and be in a walkable place where we could drive less and we were in my transit and bicycling and stuff. So we've really been doing that. And we had that, you know, immediately overnight. So it was a, it was an adjustment, but it was really been fun.

Kevin K (13:13.176)

So by way of context, what was the local real estate market like when you bought this place in 2014?

Cary (13:18.966)

So at the time, know, it always seems expensive at the time, right? Never, it's so much worse than it used to be. Well, it seems downright quaint and affordable now looking back on 2014. It was a very hot market. We got a great price when we sold our house and we had a really good price on the Triplex because the family owned this old building kind of, it was one of many and it was very run down and they just wanted to get rid of it. So we got a great deal. It's more than double what we paid for it. So yay for us, right?

but it all felt like a stretch at the time. I honestly don't know that we could get it today. not because of competition, but because of the cost of land and, and, properties down here now. a key factor there was, because of being an architect and into local planning issues. And, and, we lived in the town next door, Kenmore, which does some overlapping planning, at the county level and so forth with, with the city of Bothell where I'm at now.

Bothell had a master plan and a new downtown code and zoning code and things like that. There was sort of a hybrid for the downtown, sort of a hybrid form based code that I was well aware of had been written and put in place. It was kind of a sleepy place. A lot of people didn't know. So I was well aware that this town was going to rapidly change and grow because they had set the table for it. So for once I got in at kind of at the right time, but it was a stretch.

Kevin K (14:47.606)

Yeah, right. So at some point you decided to take a closer look at that vacant lot next to you. And was that the next project you undertook or was there anything else after that?

Cary (15:00.938)

Yeah. So we actually, I guess we would call this the covered land play because with the triplex, the triplex lot here, the city had actually bought about four feet because right after we moved in, they rebuilt streets and sidewalks fringes and really made these beautiful deluxe streets, replaced all the infrastructure, daily at a creek across the street. did millions and millions of tens of millions of dollars worth of downtown improvements as part of this plan.

But otherwise, the triplex came on a lot that was 6 ,750 square feet. And so we already had the land as part of the triplex property. So when I eventually designed and built the building that I'd become known for, I built it in the front yard. already had the land. I short -platted it as part of the building permit. And I short -platted.

because otherwise the old building rides with the new building on the financing. And that would sort of drag it down. So I realized I needed to split the lot and create a brand new fresh lot that would give me some equity because there would be value given to that lot. And at the same time, have the finances completely separate from the old triplex that we owned on the lot. So I turned it from one lot into two. And I would do that over and over if I could.

Kevin K (16:22.336)

Interesting. Yeah, and I

Yeah, so why do you say that? was the advantage of that from your perspective?

Cary (16:32.054)

You basically, give yourself a free lot and in small development, as you and probably many know, the land basis or the cost of land or getting a chunk of land to build on is one of the most difficult hurdles for small operators. Bigger developers can often do a purchase and sale and wait until they entitle a project to pay their five or 10 or 15 million for their property. That's how all the bigger projects are done around here.

But small mom and pop sellers for the size of lots, I'm usually looking at five, six, seven thousand feet, whatever. They just want cash upfront. so you kind of have to commit. So to get a property that already has a building that can sort of help offset the costs, in our case, the mortgage with renters, while you split the lot, you're effectively giving yourself a new tax lot.

at very little cost. Just really the cost of splitting that lot is the cause of any taxes you eventually start paying on the property tax.

Kevin K (17:39.669)

So, what would a like that cost in Bothell by way of comparison, just if you found a vacant lot in a neighborhood?

Cary (17:45.59)

Yeah. So at the time, that lot, is only the building I built is on a lot that's just about 2 ,600 square feet, 2 ,625, very small. There's no minimum lot size in our downtown, fortunately, like there is other places. The valuation five years ago was 400 ,000. It's probably a little bit more than that now. So it's not inexpensive land down here. We're doing a project now that broke ground for a four unit just a few blocks away from here. So it's a good comparison.

Kevin K (18:08.141)

Yeah.

Cary (18:14.358)

I'm working on it with two other partners. doing four townhouses. We wanted it to be more, but that's another story I can talk about later. And that lot is 5 ,400 square feet, I believe it is. And it was $640 ,000. And lots have sold in the two years since become even more expensive per square foot. So, yeah.

Kevin K (18:42.872)

That's That's amazing. My Midwestern brain has a hard time getting around those numbers.

Cary (18:47.772)

yeah. When I look on the social media groups I'm part of, the Neighborhood Development Group that John Anderson started, and Income Mill Development Alliance and others, Kansas, where you are, and of course, Grand Ure in the city, where property probably costs a little bit more. And then in the South and the Midwest, my jaw drops when I see what you guys can get land for and lots for.

Kevin K (19:13.196)

Yeah, yeah. Well, it's a different market in lot of ways. So let's talk about the project you built there, which I've seen pictures of. I haven't seen it in person, but it's a really cool project. It's kind of in many ways like the classic example of a small mixed use project that we talk about in a hundred different seminars that you were actually able to execute. So I'm curious about like why you chose that particular kind of project and some of the pros and cons of doing that.

Cary (19:15.583)

It is. It is.

Cary (19:42.26)

Yeah, no, I love to talk about that. learned so many lessons, but really fundamental to this was meeting John Anderson after I did the Jonathan Siegel course. I really had a lot more I needed to learn about sort of scrappy on the ground, get things done, part of the small development. And John Anderson, I met just at the perfect time.

and incremental development alliance was young then. I actually went down to Texas and took one of their boot camps in 2016. But he taught me about the, for a first project, don't get too crazy. Do three stories you can do with like a single stair. I already knew about that. Single stair is hot now, but at the time it was okay. We'll keep it three stories or less, single stair. International building code allows that. And design it around what can be allowed with an FHA 203B loan.

B or C, can't remember. The ones that are renovation loan. But this is the vanilla FHA home loan that millions of Americans have gotten to buy anything one to four units. So if you're going to buy your first house, this is that loan. The unique thing is, unlike most mortgages, you can do one to four units. So that's not unusual. But they allow up to 49 % commercial. There's no other.

vanilla mortgage that allows that. And I was really interested in doing mixed use because I had a corner lot in downtown. And I just felt as an urbanist who wanted to place make and create places for people that this should be a corner shop, commercial shop. So I had my sort of template then. All right, I'm gonna do four units. Originally I was gonna redevelop the entire lot all at once. And I realized that was.

biting off more than I wanted to chew and I didn't really want to get rid of a cash flowing triplex because this is my first project. So I thought, well, this is perfect. I'll split the lot. I'll do a single stair FHA compliant building that's not going to get me out of my ski tips. This won't be built much differently than a single family home, which I had a lot of experience with, like commercial. And I'll general contract it myself.

Cary (22:05.242)

And I don't get too fancy, it's a simple shape. And that was kind of the premise. And what I call it is a well -detailed simple box. But that was the groundwork for the project. To do that, and I was allowed to work on it for a few years, kind of refining and working on it. But during my spare time.

Kevin K (22:28.504)

Let's talk about a couple aspects of it, the FHA 203B thing, know, not everybody knows about all that. Did you have a hard time like finding a banker or bankers who understood, you know, financing it this way?

Cary (22:33.833)

Mm

Cary (22:41.686)

Yes and no. So most mortgage folks I talked to knew about it. Many of them were unwilling to originate them. I don't know if there just wasn't as much fat in it for them or what. The original, when I was finishing the project in late 2019, just prior to the pandemic, the mortgage broker I was working with at the time had done a great job for me doing a refi and a home equity loan or a

sorry, HELOC on the Triplex so I could use the Triplex as a sort of cash machine, which is another small developer ploy. He'd been really spectacular for me, really experienced. But he was very reluctant and quite frankly unwilling to originate an FHA loan because I suspect he wasn't going to get paid as well. So he brought me a commercial loan just as the pandemic was beginning and it was really

awful terms and we had to bring a lot of money to the table. And so I quickly had to go find another experienced mortgage person. a lot of them will say they're interested and then you get into it and they try and deter you from doing one, the FHA. So that's information that I should share.

Kevin K (23:56.418)

So you really have to kind of push through. I think John has talked about this before. It's almost like you have to know more about some of these programs, or know as much as your banker does, or your lender.

Cary (23:58.571)

Yes.

Cary (24:04.032)

Yes.

Yeah, John makes that point. I completely agree. I downloaded the 600 page, whatever it was, manual on HUD lending that he recommended. Granted, just not to scare everyone, you're not going to read the whole thing. You're going to skim it for certain sections. so, yeah, I would quite literally call these mortgage brokers up, or lenders, and have to tell them they were allowed to make this loan. And this is why. And here's the terms. And so it's so true.

I got a little disgusted at certain points that I was extricating with people on their own business. Yeah, but I did find this guy who was incredible. He was basically ready to retire, but he was just having fun, still doing things. And he found the pandemic loaning to be really tough, but also a challenge. So lucky for me. And I paid a lot of extra interest. That was the only thing in my project that went.

Rye as it were the the designing the permitting the construction. I want really smoothly it was throughout 2019 Getting the final loan mortgage that FHA mortgage to take out the construction loan Which was high interest because I was a new developer was the only really challenging and expensive part of the whole project

Kevin K (25:21.194)

Interesting. what would that product, I guess talk us through if you did the construction loan, like what sort of percentage equity did you have to have to do that? Or how did you finance it? then when you do the permanent financing, how did that convert?

Cary (25:29.813)

Yeah.

Cary (25:37.206)

Yeah, so I was a little unusual in that I did talk to multiple banks. I'll cut to the chase. I got a hard money loan from a small two -person LLC that I was put in touch with from my mortgage guy at the time. And they loved me, these lenders. It was 12%. Doesn't sound quite as bad today, but at the time it was twice what banks were lending for construction loans, so it was expensive. But it was easy and it was fast and draws were

were painless and they trusted me. They visited the site once and completely believed in me and the money was, you know, we did all the paperwork. They had a first position and all the normal stuff a mortgage company would do paperwork wise. was just not fly by night. But because it took extra five or so months at the end to get the takeout mortgage, the final mortgage, that FHA mortgage, I paid something like $125 ,000 in extra interest. So that was painful.

I did that but I had talked to two different kinds of banks and this is the kind of information I love to share with people. I did have banks that were interested in loaning on the building. One type of bank was the one type of loan I should say is banks who are wanted to loan to myself and my wife as a husband and wife entity building basically a house. One to four units they just kind of saw it as a home loan basically. They don't care if you do four units.

And though they were wary of the commercial part, for fair warning, they were like, we don't really loan on commercial. So we hadn't really sort of do that because we weren't offered the loan in the end. so they actually they did offer us a loan. was much it was several hundred thousand less than we needed. Ironically, it was because I had spent a fair amount of time of my own office time working on my project. I didn't make as much money for the prior tax year. So I kind of

was stung by the fact that I was putting my energies into my own building, doing the construction drawings and managing the design. I looked much better on paper for the prior tax year and they were like, well, what happened here? You you you dropped like, well, I was, you know, giving myself as sweat equity as it were, as an architect. And there's value in those drawings, but they don't care about that. They want your tax return. we couldn't borrow enough money.

Cary (28:01.742)

to with a bank that wanted to loan us the money as a private home project. So they're out of the picture. We would have had to bring too much money to the table ourselves. I also talked to a commercial lender. They liked it. They wanted to loan the full amount, but they wanted a guarantor. Not unusual. I did not have a guarantor. So we probably could have used a family member, but we didn't want them to have

power or decision -making power on the project. Because they're the person I'm thinking of, they're in real estate as well. And we thought, well, we want to do our own thing. So we eschewed that and went hard money. So I didn't go a traditional route there. But I also learned that it's not unusual for those of us doing it for the first time to seek out private money or hard money like this. Yeah.

Kevin K (28:55.638)

Interesting. What was the total size of the project? What cost?

Cary (29:01.11)

Yeah, like the stats. Okay, yeah, the the total cost we borrowed 1 .3 million. It cost about 1 .5 in hard cost construction costs total 1 .5 million with with soft costs. No, excuse me. I apologize.

trying to recall here, hard cost for closer to, I think it was closer to the original 1 .3 million. And with soft costs, we were at about 1 .5 million. And the total value of the project in the end at the lower end was about 1 .8 million, putting a lower kind of lower end price on the value of the land. So yeah, was a, you know, so all in, you know, if you're around about a $1 .5 million project.

Kevin K (29:52.672)

Interesting. And then were you as the architect able to pay yourself a fee for that and for the construction management?

Cary (29:59.99)

Yes, I love to talk about that. So I didn't pay myself for construction management per se, but what I did was this project took a lot of planning. And this is the kind of thing I love to share with other architects doing this. I had learned from Jared Devalle back in 2011. He was one of the other people I learned about the architect as developer model when I went to an architecture conference in 2011. And I was intrigued with his

I think his company was called Alloy working in like Dumbo and New York City. And he had expressed how you have these different companies, you own them all, but they're arms length transactions. So you have your development. And in my case, the development, the building is called Fur Street Flats, because the 183rd street out in front of my building was originally called Fur Street, like the tree, Douglas Fur. So it's called Fur Street Flats. And that was one LLC.

And then I had my established architecture firm, Westerberg Architecture. And then I also became a licensed general contractor. And that was my firm for that, Shelter Lab. And so they had arms length transactions with each other. So First Street Flats had a written agreement to provide architectural services. Westerberg Architecture would provide architectural services to First Street Flats.

Now granted, that money is just being shuffled between my different business accounts. And I had to have business accounts and you go to the bank and you get a business account and you have to show them your LLC agreement and your state certificate and all that. But yes, so that's a long -winded way of saying, Westerbrook Architecture got paid by First Street Flats a fee to design the project. What happened then was I made sure that I continued to give myself a paycheck as I acted as the journal contractor for a year building the building.

My architecture firm was giving me a regular salary, even though I was not doing architecture work. This was so that I paycheck consistency that the mortgagers want to see when you're done with the project. So you don't have a, they want two years. So I just had continuity there. So I used that fee. Once I got my loan, First Street Flats paid Westerbrack architecture for the design. And I used that money to live on just basically as my paycheck that I would have been earning as an architect. I just.

Cary (32:22.358)

prepaid it and drew on it as I built the project. So that essentially covered me to work as a general contractor and I did not pay myself a general contractor fee or a developer fee. I considered it all basically I get to keep the building because I'm not selling the building. I get to keep the building and that's my that's my equity stake and my payment. So it's a little unusual but I learned all that from these various people I studied.

Kevin K (32:45.496)

Interesting. Yeah.

Kevin K (32:52.536)

Well, I mean, it's interesting because obviously for any architects in the audience to think about getting into development, that's just an aspect of it, which is paying yourself, covering your overhead during that process, the design process and construction process. I mean, it's pretty cool that you also did the construction management. There's probably a lot of architects who wouldn't do that.

Cary (33:02.838)

key.

Cary (33:14.474)

Yeah. Yeah, that's really a critical thing to understand going in. Are you comfortable being your own general contractor or not? And then if you're not, and you're going to have someone do it, which is not uncommon, you're going to pay a little more. It's smart for lot of people though, because there's so many pitfalls in construction if you're not skilled at it. I had my snafus here and there, but I handled them.

they're going to happen whether you're building it or not yourself or not.

Kevin K (33:48.024)

So when you get this project complete from the construction standpoint, how did it go from a leasing standpoint?

Cary (33:54.55)

so I'll add one more thing that I hadn't shared is, my family designed the entire third floor, top floor for our family to live in. we designed it custom for ourselves. It's not like super fancy, but it's each floor has 10 foot ceilings. There's a lot of glazing. there's a couple of exposed steel beams. It's got the top floor has three bedrooms, two baths, a nice kind of big great room.

People really like the space. It's nicely proportioned. So we were building a home for ourselves as well. So we are living. And that's another thing FHA loan requires. It requires the owner, owner occupancy for the FHA 203B. And that was one of the things I hadn't mentioned. And that's very different from my commercial investment property, where you were actually not allowed to live in the building. It's completely different. They literally disallow it. So that's another reason that FHA loan is unique. But anyway, lease up was

Kevin K (34:31.063)

Interesting.

Cary (34:49.078)

almost effortless. That's not the right word, but we really only had a couple units. So my mom lives in the one bedroom. We have a one bedroom, a two bedroom, and we live in a three bedroom. And then we have the commercial space on the ground floor. October, two months before we got our certificate of occupancy, October of 2019, I started to kind of just.

getting word of mouth out that I had this small commercial space about 650 square feet on the corner available. People saw it too, and it's a very visible corner. So there was already a lot of buzz. And I had a ton of interest. So right away, a broker actually, a very busy broker in town brought me a barbershop. And I actually had gotten my haircut from one of the two owners that wanted to start this barbershop. And I thought, well, they're a good tenant. It's idea was better than the other offers that I'd had.

And so we quickly worked out a you know, broker -ridden lease a couple months prior. I helped them do their, few drawings they needed to submit to the city for a small TI build out. And so that went very quickly. And I always say this, and I say this to my friends in city council, and I'm on planning commission as well. This is really important to know. There aren't enough small spaces in my town and around here, especially these newer...

These younger West Coast cities, they don't have the plethora of old buildings with small affordable spaces. People are always looking for small spaces. I could have leased that 650 square feet out a dozen times over. Whereas when they're building these bigger buildings, these five over ones in town, which we have a lot of, they're sort of a lost leader where they've got the retail that's hard to fill. It gets filled here because we're a busy place on the edge of Seattle, but they're 3 ,000, 4 ,000, 5 ,000 square feet. They take a big...

you know, national or at least a very successful local business to fill those. So there aren't nearly enough of these small ones. So leasing that commercial space was really easy. It went very quickly. And I had mom for the apartment. And then we were advertising on Craigslist at apartments .com, maybe one of the two other places for the two bedroom, which again was filled within a week or two, probably a couple of weeks. I showed it three or four times and it was snapped up. And then we were done.

Kevin K (37:04.728)

Yeah, that's great.

Cary (37:08.406)

And we had to fill our unit because we were moving out of the old triplex, but it also found a newly married couple who started a family right away and they were there for the first few years throughout the pandemic. So we had everything filled in no time.

Kevin K (37:09.218)

Yeah.

Kevin K (37:26.488)

That's ideal in many respects.

Cary (37:30.452)

It is, I mean, I really feel like I should knock on wood or something that went so well. And we've stayed full ever since. I've had a lot of people who've asked me, because the building is popular, the new building's popular, people, get compliments on it still all the time. And people are always asking if there are units available. So I'm flattered, but I, there's been no turnover.

Kevin K (37:50.104)

Well, it's also nice from a small scale standpoint that you just have a handful you have to deal with. That's kind of a real advantage.

Cary (37:57.778)

It is. It's plenty. I've said, so we've got seven units, including the commercial unit and our own personal unit between the two buildings, the old building and the new building. It's about as much as I want to manage because I've got a full, very full life in other ways and volunteer things and run my business and some development. So it's about as much as I want to deal with. If it gets much, if I get more units that I get to, you know, that we get to keep, I will have to go, I will decide to hire a management company.

One of my clients actually runs a good firm doing that, I'll hire her.

Kevin K (38:32.396)

Well, there you go. So what happens after that, after first street's up and leased and then kind of where do you go from there?

Cary (38:41.194)

Yeah. Well, interestingly, so I had been reading about this pattern from John and others who successfully have done this in the past, John Anderson and many other small developers. You get your building stabilized and then you borrow against it to build the next project. And I was all prepared to do that, but the pandemic hit. So I was just happy to get the thing mortgaged and keep it. Because there was a couple of months when we couldn't get the mortgage in line.

very quickly that we were worried we were gonna have to sell the building because the plan was always to hold it. So I was gonna go do another project. So it's been years until I've got a couple years ago another property that I partnered with two other people because I couldn't easily borrow against my building. So it's taken me more years than I planned to try and get to the next project.

So that was kind of what was next as far as the last five years. And it continues to be challenging to really try and find land and investors. And then right now, even if you could find that to make projects pencil out is tough because of interest rates and the cost of land in our area and the cost of construction.

Kevin K (40:00.46)

Yeah, yeah. Have you thought about, I'm sure you've thought about it, but like what types of projects, if you imagine that you would want to do next, if you could find the right site and everything else, what are you looking to do?

Cary (40:02.08)

So it's been hard that way.

Cary (40:10.09)

Mm -hmm. Yeah.

I'm still really intrigued with infill and small scale, urban or close in suburban work. I've looked at and I was pretty serious about a cottage project because I'm on planning commission and we just passed middle housing, missing middle housing code for our city that I helped write.

I was actually the nerd six, seven years ago who would bring articles about middle housing, missing middle, the Opticos had written to council meetings and planning commission meetings to hand them out. So it's really exciting to be that annoying guy and finally get our way. I wasn't on planning commission then. so I've, really been interested in bungalow courts and cottages and stuff. And I say that because it's not necessarily my, to me, that's not like the pinnacle of what I want to do, but I like that it's sort of the,

Kevin K (40:53.944)

Yeah.

Hahaha.

Cary (41:09.867)

the gateway drug for some people who are used to single house on single lot. They seem more open -minded to, we'll put four small homes that are more affordable. They're still expensive, but they're more affordable for our area. And they're gonna be a little closer to schools and shops and services. So it's sort of this entry. And so we're starting to see some proposals in the city that. So I'm interested in that and have had a...

of stops and starts on a couple of those. Doing some townhouses right now with the two partners that I mentioned earlier. We actually wanted that to be about a 10 unit, because of parking, which we're working on eliminating those parking mandates, but because of parking requirements and then interest rates, we couldn't do the build and hold model that we had hoped. we're doing four townhouses, but I remain interested in, you know, if I could have my way, I'd still keep doing mixed use. Very similar to my first First Street Flats project.

but probably more units. I'd love to do 10, 20, 30, ideally over. I'd love to create some sort of a community space that I program, that I could hold and keep. Even if I had to sell condos or something like that and only keep like condo -wise commercial space at the bottom, I'd love to have sort of like a community space I could rent out for events and artists and things like that. It'd be great sort of as my equity piece.

So and I may be to do that in my replacement for this triplex so what I've designed for this this lot to replace the triplex right now that I'm excited about is We had local state legislation here in Washington State legalized co -housing which is also essentially micro units and Because we're right near transit frequent transit in downtown here There is no parking required and we're also about a mile

Kevin K (42:55.234)

Mm

Cary (43:05.078)

from University of Washington Bothell campus. It's a satellite campus. It's about a half an hour to the main campus, but it's a very busy branch of the University of Washington. And they're really close. There's students all around. They don't necessarily have cars. So that need for parking space is not strong. There's a co -located community college there on the same campus. So they're growing all the time.

And there's a lot of people in tech here who ride e -bikes around and walk. And so a lot of people don't necessarily put high priority on car ownership. So suddenly, the project I've been trying to figure out how to make work on this around 4 ,000 square foot site, which is the old Triplex I've been talking about that we own here that I'm sitting in. Suddenly, it works. 20 to 22 units, 350, 400 square feet each, the kitchenette, the bathroom.

The key is you have to have a community space with a shared kitchen and so forth, which is fine. It's fun idea anyway. And a bunch of them have been successfully built in Seattle. So I'm not really excited about that right now because I'm trying to make that happen.

Kevin K (44:09.386)

Interesting. So are there like code, zoning code challenges or anything associated with that building type?

Cary (44:15.538)

Fortunately, nothing special. We have to codify it because there's now a ticking clock. All these cities in Washington have to allow them. So we will be, enough, tackling that in planning commission, I'm sure, in the next year because we'll have to. the similar buildings have already been built, like I mentioned, in Seattle and elsewhere. So it's really going to be a standard, like in my case, five -story, IBC compliant.

building that we've got to put an elevator in, a couple of stairs and so forth. So that would be tight, but it works. But otherwise the zoning here is pretty generous. I'm in the second most dense zoning for the city of Bothell. And so we can go five stories, 65 feet taller bottom story, zero lot line except the back, there's a five foot setback. And then like I said, I get out of those parking requirements, which allows me to really use maximum

Maximum use out of the site.

Kevin K (45:14.826)

That's really cool. And it seems like the student angle really makes a lot of sense for that type.

Cary (45:20.468)

Yeah, yeah, because the students rent apartments around here all the time. And so probably a great option because most of the apartments around here are a little more expensive and a more nicer. Not nice finishes, but I mean, they're larger or more expensive than maybe a freshman or sophomore would want to pay for.

Kevin K (45:41.964)

Yeah, for sure, for sure. Well, and it's nice, you know, as a student to be able to get your own place, you know, even if it's really small, it doesn't matter. Like when you're that age, it's just cool to have your own space.

Cary (45:46.816)

Yes.

Cary (45:50.57)

Yeah. Yeah, I make that point like in planning commission meetings and elsewhere, people say, because there are certain folks who think it's really inhumane to live in a micro unit. And I do not. I don't think they should be making decisions about how other people want to live, make choices about they want to live. But I lived on Capitol Hill in Seattle, a very dense, walkable, urban neighborhood, very popular neighborhood in Seattle when I was younger.

I had a space that was actually the first year about 120 square feet. was like 10 by 12. Bathroom is down the hall, so it's more like a boarding house. I absolutely loved it because it was super cheap and I was just gone a lot anyway. So it was great. And then I had, I felt like I really arrived because the next year I had one that was about 300 square feet. That seemed huge. So it's all relative.

Kevin K (46:27.746)

Mm

Kevin K (46:38.04)

Well, and it's, you know, it's sort of that like what's old is new again. Because that type, you know, back 100 years ago, there were all manner of types like this, not just boarding houses, but there was the classic building called the apartment hotel, which was really this type. And people rented a room in the apartment hotel and it had some shared amenities. And we had dozens of them. Most older cities had them.

Cary (46:44.074)

Yes.

Cary (47:04.476)

yeah. Yeah, Seattle had a ton, like you said, we were all tracking this these days, but most cities had a lot of them. They outlawed them the seventies, eighties, nineties. The building I was in that I mentioned that I lived in with the bathroom down the hall with both units, bathrooms down the hall. It was a similar building. It was like a single room occupancy type, but they were all different unit sizes. There were some full size apartments, small, medium, large. It's still there. In fact, it just sold a couple of years ago.

Kevin K (47:31.872)

Interesting. Yeah. So one thing, you know, obviously in the Pacific Northwest, Seattle, that area has been one of the leaders for quite a few years in the whole single stair building type deal. I wonder if you could talk a little bit about your experience with that and understanding of like how important of a change was that to allow that to happen in Seattle?

Cary (47:44.544)

Yeah.

Yeah.

Cary (47:57.078)

Yeah, Seattle's had it for 50, 60 years, something like that. So we've had it for a long time. And there are lot of sort of sleeper buildings that have utilized that single stair for my entire life. And they make a small site work. In fact, I'm friends with Mike Eliason, an architect who helped put the single stair idea on the map and gets a lot of deserved notoriety for it. And Mike spent many years in Germany.

working and so he was really familiar with that type of building, which so common around the world. Yeah, it's for folks who don't know, and I know Kevin probably knows a lot of this, but it makes a small site much more viable because you can create a lot less hallway and circulation space by doing a single stair. Usually the building will be sprinklered so it's safer than you would think. And it allows each unit, usually you can...

total is usually only four per floor. So you usually have at least a corner and two aspects for light and air and cross ventilation. Sometimes like our building, we've got three. So it makes it much more humane to live in. And most people really respond to a building that it's not, for example, folks listening, we've all been in hotels with a single hallway and then that's a double loaded corridor and they've got apartments or rooms off of each side.

Most apartments in the United States built today are that double loaded. So you might have a long deep unit if it's two or three bedrooms. It's uncommon, but let's say two bedrooms or even one bedroom. And there aren't a lot of windows. So all the windows are on the outside edge and you can't get cross ventilation and you don't have light from more than one side. So a single stair makes a much more livable, desirable unit. Most people, again, walk in one and they respond differently.

than they might to one of these double loaded corridor units. what you see in a lot of countries say they want to do a really big building. They build multiple side by side. every, you you might have one every 50 feet or something like that. each stairway serves a slice. So you might end up with five of them in a row and they each have their own stairway, but then they have like a firewall between

Cary (50:19.272)

each of these individual buildings might look like one big building. So there are different ways to put them together. And they actually have, as Mike Eliason and others have been riding on for some time now, very good safety ratings. In fact, fewer fire incidents that we do in the United States with our two -stair buildings. So there's a lot to recommend them and there's momentum behind making them more legal. Washington State, in fact,

passed a law this last year, one my friends, a representative here at Bothell helped push the legislation that the city, excuse me, the state of Washington has to have a up to six story single stair building code amendment essentially or ordinance that any city can adopt. They're not forced to, but they can adopt it and ready to go in about a year. I think it was a year, year and a half.

I think other states are starting to do it too. California might have it on theirs. But the key thing is that it allows buildings like my three story, but you could do four, five, six, and it makes a small lot instantly more developable. The reason we see a lot of these big block size, half block size buildings, we call them podium buildings, five over ones, whatever, with 100, 200, 300 units is because they have to aggregate land into these huge.

plots so they could do a big enough project to merit two stairs, multiple elevators, and make them viable. Whereas once you can just do a single stair, maybe a single elevator if it's needed for accessibility, you can make almost any little slice of a lot work. So it opens up enormous amounts of our building, our zoning, the fabric, the land in America that we maybe have looked at and not been able to utilize.

Kevin K (52:13.645)

with them.

Kevin K (52:17.976)

Yeah, I kind of think of it myself if I were to go back to thinking about how I lived like when I was in college and the standard college dormitory that I lived in, and I think a lot of people lived in, was a double -loaded corridor, little shoebox rooms that two people stayed in together with one window. And they weren't particularly pleasant. You're 18 or 19 years old, that's not a big priority, but it's not like,

Cary (52:46.025)

Okay.

Kevin K (52:47.244)

They weren't like the most pleasant places to live. And then when I remember, you know, especially at a college and I started having some friends that rented some of these more historic, like four and sixplex apartments that had exactly what you described. So they had a single entry and a stair in the middle of the building. And then they were flanked by usually one bedroom apartments, sometimes two bedrooms, going up two or three stories. And what was so cool was you would walk in, you walk in those places.

and it's windows on three sides. And it just immediately felt, even for like some of these places that at the time were like really old and hadn't been renovated and God knows how long, they just felt so much better because of the presence of the windows and the light and the cross ventilation. And that's a huge benefit of this approach.

Cary (53:33.173)

So true.

Cary (53:39.798)

It's true. I don't even know if I felt completely as strongly about it as I do when I was working on my building and taking advantage of this aspect. I mean, I knew as an architect, because I'm always trying to get bedrooms with two sources of natural light. are pattern language kind of things we reflect on as architects, right? But until you, I think, like you said, walk into one and experience it and kind of know you're comparing it to something with that single window.

aspect type of apartment, it really kind of smacks you up in the head. Like you said, it doesn't matter how old it is, whatever. It's just, it's so much more humane. with us as a culture, as a society, as a country, waking up to how, we could have that and it would be good for us. And a lot of people would enjoy it. And we just kind of have to legalize it as a, it's a pretty powerful thought that, we could have, we could have nice things as the meme guy.

Kevin K (54:33.846)

Right, and it's not like we're giving something up in order to get it. It's really just kind of a silly adaptation of how the building codes have grown and changed over the years.

Cary (54:36.672)

No.

Cary (54:43.702)

Precisely. Yeah, we could just decide to do things differently and have these nice things and hey, we might even be safer for it.

Kevin K (54:51.384)

Yeah, yeah, no doubt. So, you know, one of the things, Kerry, is like we joke about here in the middle of the country is that like all the trends, of course, start on the coasts and then eventually, you know, like 10 or 20 years later, they find themselves here in the Midwest. what other obviously you all, especially a lot of West Coast states have really been leading the charge because of your your housing crisis is much more intense than

Cary (55:02.238)

Hahaha

Kevin K (55:20.118)

what we are having, so there's a lot more reform happening. What else is going on that you're seeing that we might be hearing more about as time goes on?

Cary (55:26.794)

Mm

Cary (55:31.286)

One of the hot ones right now that I think is going to happen and this is gonna fit right into the whole Midwest and Heartland because you guys have to tell me the corner store idea We're starting to warm up in the state here and various cities and and the people like just your average citizen Really responds well to this like why don't we have corner stores anymore? Well, let's set aside the fact that they're hard to necessarily operate and run and make work. Let's you know, that's maybe

going to have to be tackled, but it doesn't have to be a store per se. It could be a wine bar. could be a cafe, whatever. So we're starting to see a trickle of bills and ideas and cities experimenting with the idea of re -legalizing corner stores. Granted that West Coast is covered with these dendritic cul -de -sac laid out neighborhoods that are not grids.

And they do not lend themselves well necessarily like a grid does to having corner stores and walkability and everything. So we're going to have, we have some challenges, but that's one of the things we're seeing people really wake up to is how do we allow low impact mix use in our residential neighborhoods again? And Spokane has a program that goes back, I think to 2017, because Spokane is an older city in Washington.

It's not old compared to Midwest and back East, but for us, it's, you know, they were going gangbusters in late 19th century. They had a lot more corner stores that were turned residential, kind of turned into homes because they outwalled them. Well, they had sort of an amnesty program beginning, I think it was 2017, with some success where you could take anything that was clearly on record as being a commercial store or commercial use.

could be turned back into a commercial use. They have a whole program for it. And Volkan's really been on the forefront of programs like that, Missing Middle and other things as well. So that's one I see coming that gets talked about a lot.

Kevin K (57:36.768)

Interesting.

Kevin K (57:41.248)

Mm -hmm, interesting. Well, if I could marry two things that I just personally really love. One, as an architect, I love small buildings and small spaces. And the second is I love the, especially what you see in Japan, the Japanese approach to really, really small businesses that are run by one person, but are fanatic and excellent at what they do. And to have more of that in our communities would be.

Cary (57:50.656)

Yeah.

Cary (57:56.842)

Yes.

Kevin K (58:10.319)

would be pretty cool.

Cary (58:12.18)

You and me both, I'm fanatic about having those. really, yeah, I'm so envious when I see those cute little, beautiful little Japanese stores serving just specialty teas or donuts or whatever. Yeah, it's amazing.

Kevin K (58:25.25)

Yeah. Yeah. Or like, it's a, it's like the best restaurant you've ever eaten at in a head and it seats like six people, you know, so yeah.

Cary (58:31.958)

Yeah, exactly. back in 10 minutes. Yeah, it's gorgeous. Yeah, exactly. We've got to open the doors just to have people be able to sit on the stools, right? Yeah, it's great. Yeah. And so we're seeing people get more comfortable with that. And like I said, it's actually a popular idea with lot of people who aren't necessarily into policy and planning and design, the people who live in neighborhoods frequently.

Kevin K (58:41.036)

Yeah, no doubt. No doubt.

Kevin K (58:56.13)

So one last thing I wanted to ask you about, Kerry, was obviously you've been on the planning commission for some time and wanted if you could talk a little bit about why you got involved in that way. And maybe as somebody who's not just a designer, but a developer, and you have a foot in all these different worlds, what were some of the advantages for you to get involved in that response?

Cary (59:11.115)

and

Cary (59:15.254)

Yeah. And a little bit of background on that. know we don't have much time. Something I didn't talk about here, but I've been a member of Strong Towns for, gosh, probably 10 years now, of earlier days, not super early. And so I've been on their podcast a couple of times and I've been a fan and been part of some of their classroom, know, their classes and things like that. Anyway, so I've got a

Program background and then I had a very successful now kind of quieter group called Bopop Botha lights for people oriented places Our town is Bothal, which is one of the early local conversations That strong towns now fosters really strongly anyway that led me to going to lots of planning commission and and built a city council meetings and then as friends and I were doing that We've

ended up taking over many of us who were in BoPOP or were peripherally related to BoPOP. City Council, five people now, and most of Planning Commission, and some have cycled from Planning Commission. So anyway, my pitch to getting on Planning Commission was at the time, four years ago, I'll be up for another four years this next winter, there were no people on Planning Commission who were...

architects, developers, builders, engineers, anything like that. And I feel like they usually, she should have at least one or two who actually work in the codes and build and develop or plan or whatever. So that was actually my pitch. And some of my detractors since then have said, he's this, you know, developer, shell, architect, blah, blah. And I very, very, you know, I'm very out.

Kevin K (01:00:55.44)

Ha ha ha.

Cary (01:01:01.086)

out about that. Like, yeah, that was literally my pitch is we should have people who are doing this work who were reading and using the code who are the ones helping to modify it and build it and change it. I'm very unabashed about that. So that is why I wanted to be in there. And that's what we've been doing. And sometimes it's a bit boring and tedious to put it mildly. But

It's important work and I encourage people to seek that out if you have any interest in it. Most people are still somewhat lay people, but we have a couple of people who are civil engineers, planners, lawyers. So there are people who do work related to making code and law who are fit right in. But we like to have people who are not necessarily related to, because we like diverse perspectives on planning commission. As long as they're willing to bone up and learn about how to.

Kevin K (01:01:51.212)

Yeah.

Cary (01:01:53.972)

how to operate and read the code and ordinances and things.

Kevin K (01:01:59.798)

Yeah, it just seems, you know, honestly, logical to me that if you have a commission or anything that is heavily involved in regulating one industry that there ought to be some people from there who interact with those regulations every day and who are involved. Just like, like if you had a commission to regulate barber shops, you would expect like there'd be a few barbers, you know, on the commission.

Cary (01:02:18.72)

Yeah. Yeah. That's why I kind of chuckle when people think there's this conflict of interest. And I say, no, I was, that was literally my pitch was you need people who do this work, who are helping to shape these, these policies. And, it's been, it's been good for me. And then I think, I've helped, helped get a lot done. I believe that it's useful for pushing us forward and streamlining and, and, know, helping to housing is just a major, major issue.

How can we sort of stay safe and compliant, but grease the skids for more housing? It's been a big, focus.

Kevin K (01:02:57.014)

No doubt. Well, Kerry, it's been a real pleasure. It's been a lot of fun. feel like we could easily go on for another hour or two, but I think we'll call it right there. And I really value having your experience and sharing that with everybody. And hopefully we get a chance to talk about this again at a future date.

Cary (01:03:04.874)

down.

Cary (01:03:16.446)

Agreed, my pleasure. Like I said, I can keep, keep put a quarter in me and I keep going, I hope, hopefully some of this is useful.

Kevin K (01:03:23.2)

and how if somebody wants to try to find you either, you know, internet or social media or whatever, what's the best way.

Cary (01:03:30.068)

Yeah, I can be found. Well, my website is westerbeckarchitecture .com. And you can always drop me a note there. But the easiest way, I'm still on Twitter under my own name. We'll see how long that lasts. I've jumped onto Threads social media, which I've been spending more time. And I can be found under my name there. So those are both good ways to find me. And then I have a business page on Facebook.

I don't go on there very often, but if anybody tries to message me there or finds me there, I will see that. So I can be found pretty easily on those platforms or my website certainly. And there's a number for my firm on the website, so people could feel free to call or text me if they want to. And many people have. I've been contacted dozens and dozens and dozens of times since finishing my building five years ago. And I'm always happy to help.

Kevin K (01:04:26.459)

that's fantastic. All right, Kerry, well, really appreciate the time and look forward to talking again. All right, take care.

Cary (01:04:32.736)

Thank you, Kevin.

Abby Newsham and I have some fun with a joint podcast this week, as we host Jim Heid. Jim runs the Small Scale Developer Forum, and has a new book called “Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders, and Great Communities.” He spent some time in Kansas City while preparing to host his next forum here in October. Registration is open now!

Jim is a wealth of great information for emerging developers. A landscape architect by trade, he came to development mid-career. He shares his story about why and how he did this, working as a small developer in the California context, and why he thinks real estate should be the noble profession to solve a lot of our ills of today.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

This week, we take a little different tack and explore a time-worn Missouri rivalry: Kansas City vs St Louis. I invite two born-and-raised St Louisans, Abby Newsham and Jason Carter-Solomon to explore what is working and what is not with these two cities and metros.

These two regions dominate this part of the Midwest, but have entirely different cultures and growth trajectories. If you go back far enough to Joel Garreau’s “Nine Nations of North America” you may remember that he labeled Kansas City as the capital of the “Breadbasket” region, and had St Louis as a border city between the Breadbasket and “Dixie.”

Today, Kansas City is growing with sizeable numbers for a Midwestern city, and St Louis is fairly stagnant. What gives? Why is this so, since St Louis has such obvious assets? We explore this, as well as the horror that is St Louis-style pizza.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

There’s so many acronyms in this episode, it might make your head spin. We talk about IRC, IBC, IEBC, ADA, FHA and more. John Anderson and I don’t do this to punish you, or make you feel confused. But, it’s critical to understanding the world of how buildings actually get built.

John is usually good for at least a couple of one-liners, and this one is my favorite in this episode:

Real estate development is a black box full of money and villains.

You’ll learn in this episode why requiring sprinklers in small and middle-scale building isn’t necessary, and how it makes housing less affordable. We talk about single-stair reform, and understanding how the Fair Housing Act is a very different animal than the Americans with Disabilities Act.

For more from John, check out his blog.

Find more content on The Messy City on Kevin’s Substack page.

Music notes: all songs by low standards, ca. 2010. Videos here. If you’d like a CD for low standards, message me and you can have one for only $5.

Intro: “Why Be Friends”

Outro: “Fairweather Friend”

Transcript of Episode:

Kevin K (00:01.81)

Welcome back to the Messy City podcast. This is Kevin Klinkenberg. You know, we spent a lot of time in the world of whatever you want to call it, urbanism, planning, design, urban design, talking about zoning reform, especially for what we kind of call missing middle housing and the need to reform zoning codes to enable the production of sort of smaller scale.

housing. And so I've had a number of episodes on that. We've talked about it. We'll continue to talk about it. But one thing we really haven't talked much about at all, and that's often overlooked, is the need for reform to building codes and building code and development approval processes generally with local governments. So my friend John Anderson started an email thread the other day.

that, kind of dug into this issue and like a lot of John's emails, it was long and thorough and a little bit grumpy. and so I thought John and I should just, talk about it, because there's a lot of really great stuff here that I'm not sure that people think about, terribly much, especially if you're one of those people who wants to do small scale, development.

whether new construction or rehab, especially for new construction, there's just a lot of other things to think about that you're going to have to consider and other things potentially to work on with your local government to try to reform. So that's a very long introduction to say, welcome John, how you doing?

R. John Anderson (01:44.944)

Good, I'm good. I'm glad that emails are really thin medium, so it's hard to get grumpiness to come across at the right amplitude.

Kevin K (01:55.902)

always comes across, you know, it's okay. But I've known you long enough to be able to even decipher it when it's kind of a little more subtle.

R. John Anderson (02:06.724)

Well, I'll tell you one thing that's.

Kevin K (02:08.766)

And then there are times that you and Gary Brewer go at it and it's not subtle at all.

R. John Anderson (02:13.468)

hi. I, it feels like, having a conversation with someone in Quebec where I just don't, our experience is so different. The world's way operator so far apart. It's it. I feel like we're too, you know, Neanderthal tribes meeting in the dark searching for a common word for fire without success. You know, so.

Kevin K (02:37.63)

Yeah.

No doubt. No doubt.

R. John Anderson (02:41.904)

No, Fog thinks small house 500 square feet. No, Og thinks small house 3000 square feet.

Kevin K (02:47.646)

Exactly. $2 million is a reasonable budget for any new house, Yeah.

R. John Anderson (02:52.046)

Right. And you ought to have it specially designed by an architect because that's the world that he's operating in.

Kevin K (02:58.812)

That's okay. We love, we love Gary too. He's a brilliant designer. but, he long operated in a different stratosphere in terms of architecture. So John, let's, let's get into this a little bit. I think there's, do you want to kind of lead off a little bit, just talking about building code reform generally before we get into some of the

R. John Anderson (03:01.818)

Yeah.

R. John Anderson (03:17.71)

Well, yeah, let's talk about why you'd want to reform the building code. We've seen a fair amount of uptake in zoning code reform where folks are, think, under the banner of making middle scale, missing middle housing legal again.

you see that find its way into comprehensive plans and then policy documents. And then from there, it goes through the gruesome process of actually changing the zoning. Often it takes two mentions in the comprehensive plan or three to get that to happen. It's in the implementation paragraph in the back. We should change the zoning to make this legal. And the, and you

To the credit of people that are trying to move a comprehensive plan forward, they really are trying to engage the big ideas and get enough consensus and buy -in to be able to pursue them. And then that can be a couple hundred thousand dollars down the road and you've exhausted all your staff and you have no budget left to actually change the zoning. So which is why it takes two or three cycles of the comp plan.

But when it finally comes around to it, then you get zoning that allows a duplex, an ADU, a fourplex. And then the fourplexes don't get built. And that's because when you move, in most places, when you move past two units, a duplex, into three units in a building, you move from the International Residential Code to the International Building Code or the Commercial Code. So.

And when that happens, you have fire sprinklers. And in order to have fire sprinklers, you need to make a connection at the water main. You have to protect the water main from stale water in your sprinkler system from washing back, backflow preventer. You need a sprinkler riser and a pressure reducing valve and a flow alarm. And like this red trombone that lives in a little closet that gets inspected by the building is the fire inspector before.

R. John Anderson (05:29.36)

you run horizontally your pipes. And because you're tapping the water menu, that's a serious piece of plumbing work, but it also typically requires a tap fee. in Seattle, that was $16 ,000. And in Chattanooga, it was $18 ,000 if you wanted to build a fourplex.

Kevin K (05:54.204)

That's just the fee. That's just to check you right to the municipality. Right.

R. John Anderson (05:56.664)

Yeah, there's no tap. There's no water coming your way. There's just the promise of water now that you've paid the fee for the privilege. And it's at the discretion, typically, the fire official for an entirely residential building. If you're going to build a residential sprinkler system, the geek term for that is NFPA 13R, National Fire Protection Association, 13R. That means you can use PECs or PVC plastic pipe once

once you're inside the building and you've got it all set up. But for a 13 -hour system, for a residential system, it's the fire official has some discretion about whether or not they want a separate dedicated service, or you should be able to use the domestic service with a backflow preventer or check valve to keep the stagnant water and the fire sprinklers from contaminating your domestic water. But typically fire officials are

are creatures of habit and that habit is usually enforcing the strictest standard possible and not, they're not given to, making concessions. would make a builder's life easier. So it's good. It's got, you're deviating from the system, you

Kevin K (07:08.68)

Plus you're, yeah, and you are practicing the dark arts of real estate development, so you probably are serving to endanger the lives of whoever you're building for,

R. John Anderson (07:21.434)

Well, that's actually how we make our money. It's by endangering other people. The more of our customers we can put at risk, the better for us. And I think, know, in their defense, our culture says that real estate development and construction is a black box full of money and villains, and it's unknowable how much money is going to be made. So why would you complain about saving children from a fire?

Kevin K (07:30.558)

It's

R. John Anderson (07:49.552)

because there's just a huge amount of money you're going to make. it's a technical problem wrapped in myth and caricature.

Kevin K (07:59.518)

So if I just take a step back and think big picture again here, so especially maybe for a lay person, you know, a lot of people, I remember this, a lot of people refer to these codes as like fire codes. That's kind of like the vernacular for people who are not architects or in the professions, but they're actually technically called building codes. When I was a young architect, there were multiple different building codes. There was a uniform building code and there was a Southern building code.

BOKA code, and then they eventually all coalesced into what we call the International Building Code. And that is the standard now that most cities, local governments, and states adopt. There are different cycles and years at which you might adopt a But as you mentioned, there's also this companion piece called the International Residential Code, which for the most part governs just one family and two family

buildings.

R. John Anderson (09:00.428)

or attached one family, like a townhouse with a fire separation wall between them, no common hallways or anything. The entity that issues those codes is called the International Codes Council, it's a private nonprofit. And if you're a fire official or a local building official, this is probably your trade group. Also, if you manufacture

Kevin K (09:07.474)

Right.

R. John Anderson (09:29.872)

fire sprinklers, you're probably pretty active there. Because what happens is there's a code cycle where, okay, we have a new edition of the International Residential Code coming out for 2028 or 24 or whatever. so in between the last time the model, what they call model codes were issued and now folks have made proposals. This last round for the 2024

contains a lot of really good improvements on the codes for building decks, which were kind of a neglected area and there were a lot of deck failures and some smart folks got together and came up with some common sense solutions. So, and if you use those solutions, you don't actually have to have an engineer verify your deck construction. So the issue of the model code and then state by state, state legislatures

they'll review it in committee. It'll come to a vote. They'll adopt the such and such year, the 2024 international residential code, international existing building code, international FAR code, international, you know, all of those codes, kind of all at once. And then depending on your state, you can, when the state adopts it, then it goes over to a codes commission

does rulemaking where they might make some adjustments that are appropriate to that state, local climate and economics. And then it becomes law. And then the process for it to happen at the local level, your county, municipality, town, some places it immediately becomes the one you're supposed to work with. Others you have a window to

adopted in and if you don't do anything to amend it, it's the one you're going to work with. And other places, the only way you, so you could adopt it and make it less stringent in places like California or New York, and I believe Illinois, but in states that are what are called Dillon's rule state versus home rule states, Dillon's rule state, you can only adopt it to make it more

R. John Anderson (11:55.726)

So in Tennessee, recently basically legalized fourplexes without fire sprinklers. And they did that at the state level after attempting to do it just for Shelby County and Memphis. They had to go back and try again. most of the code reform issues that are going on in most states have to be engaged at the state legislature.

level. And a lot of states will eliminate the requirement for fire sprinklers in all new residential units.

Kevin K (12:36.178)

And so we should probably talk about like what's the whole big deal? Why wouldn't you want to have sprinklers required in buildings? And I want to give you a little background from my standpoint, but you go ahead and answer that first. What's the problem here?

R. John Anderson (12:55.662)

Well, I think the problem is one, first of cost, and then second of benefit. A two -story fourplex is actually safer than a single -family house of the same size because there are rated assemblies separating one unit from the rest. You have exiting that meets the requirements.

all those places that are sleeping rooms have to have an egress window. So in addition to going out through the hallway, you could go out through the window or a firefighter could come in from the window and they're sized. So firefighter with a Scott pack can go through the window. the, and there isn't much in the way of actual evidence that fire sprinklers save lives or save structures. They're mostly there even in commercial buildings to increase the amount of exiting

people have to get out of the building. They don't put out fires. They control smoke to a point. So, and it, you know, it makes sense if you're in a big quarter building or a hotel or, you know, a high rise, that getting out of the building in the case of a fire is a big serious issue. There's a big difference in scale between a high rise and a fourplex. So, and also the cost of, again, getting the system just to the building is significant.

actually costs more than running the pipe inside the building. So that additional cost, say you're trying to build market rate apartments adjacent to a daycare and a place for food and drink. And you get actually a little bit higher rents because you have those community amenities. But if the rents are not high enough to support a more expensive kind of construction, then

you probably build townhouses or something else. So the notion of the missing middle, there is a whole strata of easily built wood frame buildings that could be built, but for this fire sprinkler requirement that makes the cost too high to be able to recover either with a sales price or with rent. So basically, you can't get the rent, you probably shouldn't build the building. And it's

R. John Anderson (15:19.536)

I mean $18 ,000 before you install the system. you're going to, that's the same system you would use for 16 units. Just 16 units would have more pipe. But the core system being kind of, that cost being spread over just three or four units, it kills it off. And it's typically six units or more become kind of the threshold.

Kevin K (15:44.958)

Well, and there's also an ongoing maintenance cost. mean, you can't just like put in a backflow preventer in a fire sprinkler system and just like let it sit for 50 years and never touch it.

R. John Anderson (15:53.284)

Yep. Yep. Well, and also the, you'll often hear fire officials talk about, you're going to, you know, okay, so it costs a little bit more on the front end, but people are going to save money on their homeowner's insurance, you know, or, or the building owner will save money on their insurance. And that's just not true because there's more property damage from leaking fire sprinklers than there are from fires. And the folks that issue insurance are smart enough to, you know, look at the actuarial tables and say, Nope, no break for fire sprinklers. So.

Kevin K (16:22.59)

And I think you can – even if you don't know a of this stuff, you might intuitively kind of know it because if you look around and see what is actually built in terms of new construction and that's why I think one reason when you look around you see an awful lot of – not just single family. I mean there's obviously a big single family market but when you go to duplexes or a townhouse rows where you might have four, six townhouses in a row or something like

You're doing all of that with the international residential code and you're avoiding all of the complexities of the international building code or the requirements that come with having multiple units.

R. John Anderson (17:04.996)

Yeah. Also, if you were to do, there's a, there's a paragraph in the international residential code that says, okay, so you could have a duplex and up and down duplex, no fire sprinklers attached to that. know, so you had a ground floor, you know, one bedroom and upstairs, had a two or three bedroom, you know, three story building like you'd see in Savannah. you can't do that without fire sprinklers. Now, once you put two units in a, in a building and attach

with the firewall and everything, now you gotta do fire sprinklers. So, and that's a really, really practical, flexible building type that we can't do because every one of those individual buildings now needs a fire sprinkler system. And there's just, now you're looking at spreading the cost of that red trombone over two units, so.

Kevin K (17:56.882)

Yeah, it's interesting to me because I think about before the codes unified, there were very different philosophies between like the UBC and the BOCA code. broadly speaking, like one of them was, have very, it was more about building materials and assemblies. And then

what became the international code was really just basically about sprinklers. They say we're gonna be a lot more lenient on exiting and materials and other stuff as long as you put in sprinklers. And that's the one that won

R. John Anderson (18:35.93)

Yeah, there are other ways to build without sprinklers, but typically the amount of brain damage required is tough. And a lot of times when you take those alternative routes, the building official or file official will say, no, no, why don't you just sprinkle it? And the evolution of codes over time, it wasn't until the, I think the mid sixties.

It's been a long time since I had to take my journeyman's test as an electrician, but I think it was the mid 1960s. Before that time, you weren't required to ground outlets. So an old house with no ground, your answering machine, computer, television, anything is kind of at risk because there's no ground. So now grounding outlets became the thing. In about 1975, hardwired smoke detectors became required.

And that actually saved a lot of lives. So that was a really effective change in the building code. And when it all got consolidated, the kind of code caulking that was used to bring it all together was, well, yeah, we have all these differences, but I think we can agree that if you sprinkle it, it's no problem. We got it covered. So the end over time.

you see that's also the place where you would go to argue about whether how wide a street needs to be because that's incorporated into the fire code. And in recent additions, it went from being 20 foot clear to 26 foot clear, depending on which appendix you adopt. And this is the kind of thing where if some restrictions are a good idea in the name of safety, then more might be better. And I think that a lot of this comes

We have really specialized rules that are not integrated into making places worth caring about. They are specialized and the builder, the developer, the architect, or the people that are responsible to combine these ingredients in a capable way. And then we have them reviewed by a bunch of specialists who each have their own particular set of goals when they do the review.

R. John Anderson (20:57.956)

And if you've ever worked on a big serious building that had elevators and you had a local electrical inspector and a state elevator inspector, both operating under perfectly good codes, you could be hung up for six months while they fight. And you've built it the way you thought was, the way the architect got it signed off. But in the final turf competition, you could

really jammed up because now you have specialists that are in conflict. And both of them feel like they have the authority to win.

Kevin K (21:36.926)

But of course, one of the great ironies of all this is the sort of buildings that we're often trying to reproduce or emulate or do new again have been around for 100, 100 plus years. The truth is most of those were built with a very similar construction method as how we build today. A lot of them were like balloon framed with like a, maybe they have a brick veneer or something like that. But a lot of them aren't like Clay Chapman's structural masonry buildings. They're actually

wood -framed. have no, right, I mean they have no fire rated assemblies at all between the units or between the hallways. Single stair often in many cases, no sprinklers, none of those features at all. And I'm not to say there haven't been fires and tragedies in any of those buildings, but by and large, if you look around, there's enormous wealth of them that have existed for over a

R. John Anderson (22:09.124)

with really, really thick brick paint that goes on

R. John Anderson (22:36.922)

Yeah, and I think that the.

If the decision about how much risk are we willing to take on, say as a community, that decision is delegated to elected officials and elected officials have staff and they adopt these model codes and enforce them. And the, isn't a lot of defensible territory in the, wait a minute. The rules that you are playing by and you want me to play by are,

What's the technical term? Kind of b******t. And I would like to make a case for that. And people get very defensive because I think also people have a really good internal gyroscope for the slippery slope of having to rethink all their assumptions. And they'll put their heels in the ground and it doesn't take much to say no.

as opposed to, you you make some interesting points. I would really like to dig into the research on this. I appreciate you brought it to our attention. know, that more commonly is like, look, you make a pretty good case, but if we let you do it, we'd have to let everyone do it. And I know you're a very careful builder, but there are some schlocky guys out there that are gonna make terrible things happen. And we have to protect the public from them. So we're gonna throw you under the same bus we throw them under.

So, you know, so a lot of this comes down to how do people perceive and measure risk? How do they communicate about it? And are there benefits out the other side of it that are worth taking that effort? So right now, they're, last count, there are like nine different states that are, that have legislation pending about going to single stair for six stories in a sprinkled building.

R. John Anderson (24:36.56)

And what that does, if you Google single stair buildings in Seattle, you'll see that the ability to do just one stair allows you to work on a smaller footprint. So it creates a lot of really good infill on 50 by 100 lots or 100 by 100 lots instead of a full half block podium building. The requirement for two stairs and

a third of the diagonal distance of that rectangle separating the two stairs. So you got your room to make a choice which stair you're going to. That requirement creates a lot of, and then two rated stair stair assemblies. That creates a lot of corridor buildings to amortize all that common area and all those additional stairs. So they've been building single -story single stair buildings with sprinklers in Europe for a very long time. And it's kind of

it's the established standard for, you know, that portion of the Western world. And so about 12 years ago, there was an amendment made to the local building code in Seattle to allow for single stair buildings. And a lot of them have been built with good success and are perfectly safe. And now the legislature has, I believe, passed it and it's on to the codes commission for rulemaking.

The fourplexes don't need fire sprinklers rule didn't make it out of committee. But the but you can see, you know, looking around the country, there's at least nine states that are looking for single stair. And I think that we'll see a similar Montana, you can build a fourplex with no sprinklers in Vermont. You can build a fourplex with no sprinklers. But the.

These things end up often sponsored by the local home builders association. In North Carolina, home builders came in with that. It passed in the legislature. It also involves some reduction in the requirements for the energy code. So Republican supermajority got it passed. Democratic governor vetoed it. Supermajority overruled them. Now those are

R. John Anderson (26:59.482)

Those are supposed to be the rules except that it still has to go to the codes commission and the codes commission doesn't have enough members and members are appointed by the democratic governor. So it became a turf issue about if those guys are for it, I'm against it. Plus, you know, energy codes are for important purposes like climate change. So we can't give ground on that ideologically. So that's kind of the process. And I think that the kind of bottom

support for these things at a state legislature, you know, one at a time. I think that probably has a better chance than a top -down approach where you make code proposals to the ICC and need to survive the committee review process to be able to have those proposals incorporated in the next round of the

I've, I've resisted, I've resisted joining, but I figured out that membership costs this, you know, the same as buying all the hard copy code books, as the non -member. So.

Kevin K (27:55.038)

Have you

Kevin K (28:06.398)

There you go. Have you seen any discussion at all from the ICC about changing the one and two family to go up to three and four family?

R. John Anderson (28:17.808)

Not at the ICC in general. There's no proposals currently in the mix. But I think that

It's a, you know, I only have so much room for research and development and missionary work in my life. the, and my batting average on that is pretty dismal.

thought about trying to rally the troops and get multiple proposals in from all over the country. So absent a grant from Melinda and Bill Gates, I don't think I'm going to storm the battlements of a top -down solution.

Kevin K (29:09.886)

So it wasn't there, was it Memphis that did up to six units without sprinklers?

R. John Anderson (29:15.118)

Yeah. Yeah. And then it was killed off by the state fire marshal. And so the so the legislative fix to that was to say that the state fire marshal does not have jurisdiction in Shelby County or kind of was like in there, tagged on to some other bill. So the so now you can do six units, no forest reclures, but with

typically two hour separations between units, which is not a heavy cost because by the building code, the sound transmission requirements you have, if you just pick the right wall sandwich, you will exceed the two hour fire rating by the time you get to the sound transmission coefficient number of 59, which is

the minimum between units and multifamily.

Kevin K (30:14.43)

Isn't it mostly just like a double layer of Type X drywall on both sides?

R. John Anderson (30:18.352)

Yeah, typically double layer on resilient channel or double layer on double studs with air gap. So, you know, and it's 5 -8, two layers of 5 -8.

Kevin K (30:27.912)

Yeah, okay.

Kevin K (30:33.65)

Yeah, and the whole scheme of things that's cheaper than the sprinkler deal.

R. John Anderson (30:38.5)

Yeah, it's also the, just makes for a much quieter unit, you know, which is a benefit that your residents would see as a good thing.

Kevin K (30:46.034)

Yeah, no doubt.

Kevin K (30:53.586)

Right. Right. So we've talked a little bit about, you know, the sprinkler issues that relates to three, four, five, six plexes, that sort of thing. We've talked about the single stair exiting possibility. What else are you seeing that like small developers should be really aware of when it comes to, or like red flags when it comes to other code issues besides what you might see in the zoning

R. John Anderson (31:18.698)

the, one of the things that you'll, it's a confusing problem. all, facial tissues are not manufactured by Kimberly Clark called Kleenex, right? But if you said pass me a Kleenex, people know exactly what you're talking about. The brand name has become kind of the generic name. The same thing happens with accessibility requirements.

the Americans with Disabilities Act governs basically places of public accommodation, commercial offices, retail, movie theaters, universities, hospitals, state capitals. And the Fair Housing Act governs the accessibility requirements for residential.

and you need to have four units or more to have that building be covered by that set of standards. So if you were going to have four units in a fourplex, two up, two down, all of the ground floor units would be required to be accessible, adaptable. That doesn't mean they have to be accessible when you build them, but they have to be adapted to be accessible in a reasonable period of time if someone with a disability wants to rent

So what that turns into is doors with enough clearance, lever hardware, enough backing in the bathrooms to put in grab bars, enough space between appliances and counters, and be able to get into the building with a zero -slip entry. So we typically build porches, you know, two and a half feet over the surrounding grade. And the way that we handle

that adaptability issue is in a fourplex with a raised floor. The ramp you put in goes down the side of a narrow deep building and brings you up to the front porch elevation. So, and you don't have to do that until someone shows up and wants to rent that, you know, is in a wheelchair or whatever. So, but the people can, a lot of people conflate accessibility for residential with ADA.

R. John Anderson (33:44.634)

people talk about ADA requirements as if that's all of the accessibility requirements. So for small developers, it's important to understand if you did a mixed use building, the commercial on the ground floor is governed by the ADA, although there's some square footage exceptions for certain things. And then the units upstairs, if you decided to put all four units on top of the commercial space on the ground floor, as far as the Fair Housing Act is concerned,

the second floor is now the ground floor, because that's the first place that housing occurs. So now you either need a really big difference in grade or an elevator, which you're not going to amortize over four units. So the better play is to put one unit, however small or modest on the ground floor, because in a non -elevator building, all ground floor units need to be accessible, adaptable, all one of them in this case.

Kevin K (34:41.534)

John, what might an elevator cost in round numbers, just to by way of thinking about

R. John Anderson (34:47.504)

Well, there's like the base, the cab and the equipment round numbers, that's going to be 50 to 75 ,000. And then you're going to see typically about 25 ,000 a stop in the additional shaft way. And that's for hydraulic. Once you've ever stayed on the fifth floor of a Hampton Inn, that's a hydraulic elevator and you're able to

some maybe some bad life choices by the time you get to the fifth floor because they're very slow at that point. So four stories is kind of the effective maximum for a hydraulic and at which point now you go to a traction elevator which is significant but another 50 to 60 percent more expensive per floor. So again if you are in a situation where you're going to have to have an elevator for market reasons or

for accessibility reasons, you need a lot of units to be able to spread that cost. Because it's not only a first cost, there's the ongoing maintenance and your insurance is gonna go up. But also your construction cost is gonna go up because as soon as you introduce an elevator into the building, kind of all the trades sort of start to move their numbers up or drop out because, yeah.

Elevator inspector as an HVAC guy used to doing two story buildings. I don't think I need that guy in my life, you know, because I'm supposed to provide exhaust for the shaft and they're really picky about how you do that. And I just don't do enough elevator buildings to, and I'm busy anyway, you know, so there there's a point where, it's like there, there are buildings that are scaled right for a small developer. And then there's the next

Kevin K (36:22.034)

Yeah.

R. John Anderson (36:45.104)

which is a significant bump in the number of units, the cost, the overall scale and complexity of the project. there's, and the folks have a, often have a mistaken notion about that being same as, you know, that's the same as, as the four townhouses I built, just 40 units with an elevator and corridors and fire sprinklers. What's the worry? You know, you know, if I'm going to do four units in this town with all the brain damage I got to go through, I may as well do

You know, so now I get to raise more money. It costs more to build on a per square foot basis. My rents have to be higher. Everything sort of starts to snowball in complexity and scale. And what you should have done as a small developer is instead of, you know, swinging for the fences with that home run, that great project that now you don't have to work anymore. You should do a series of small projects and have a portfolio that is made up of things that.

You weren't just doubling down until you lost everything. And you see conventional developers doing the same thing. it's like, you know, if I'm going to, you know, in California, it's probably the best example. If I'm going to do 400 units, may as well do 4 ,000 because the environmental litigation will cost about the same. You know, and also if I can get the stuff approved now, because the barriers to entry are so high, I can definitely make money on 4 ,000 units.

400 is kind of sketchy, I don't know, it's a small deal.

Kevin K (38:17.534)

Yeah, I was just having this conversation with a couple of developers, friends the other day here and like in our city. Like there's just, there's no, there's a lot of great discussion and talk about reform to enable small scale stuff. But when you actually put pencil to paper and start to do a project, like the, the review machine has no mechanism to handle.

smaller scale stuff or at all. And so everything pushes for bigness. And it's frustrating because there are a lot of us who I think would like to do some smaller scale stuff. But know, John, this is one reason like you developed, you created the 4F building prototype was to really kind of help smaller developers understand like a hack around some of these different codes.

R. John Anderson (39:12.622)

Yeah, and that's around the same time that, at that time you could in Texas, Idaho, Nevada, and a few other places, you could build a fourplex without, fire sprinklers. and those were some of the very few places during the great recession that you could build anything. So, it seemed to make sense. What's happened since then is that the fire sprinklers will, you know, the form follows finance fourplex really at this point should be two duplexes on the same lot or.

a four unit cottage court or something. David Kim was really instrumental in hacking the code to come up with the three story single stair walk up. And that could be a mixed use building with one unit on the ground floor and then no more than four units on each of the second and third floor and had a maximum exiting number. So we kind

It's kind of like working an investment strategy around the tax code. You know, it's like that's that we're going to have to fit this box. And what we found was that you do wood frame construction. You could do a tall ground floor if you needed retail. And you could do either nine units, four on each of the second and third floor and one unit on the ground floor, the rest commercial, or you could do 12 units all the way down to the bottom, or you can add additional units on the ground floor as long as they

direct access for exiting on the outside wings or something on the back. So that type is getting a lot of traction. The same time Eric Brown and Union Studio had developed similar buildings using the same analysis of the code. So there's a number of those that have been built.

That one of the benefits when you're doing a small multi -family building with fire sprinklers and the like is that you, if you're only doing four units on a floor, the common area is basically the stairway at a very large landing. So you end up with maybe four, about six to 8 % of the building area is common area compared to the 15 to 18 % you see in corridor buildings.

R. John Anderson (41:36.752)

So got to pay to build it, you got to pay to clean it, maintain it, insure it, et cetera. And so being able to reduce the common area, being able to reduce the number of stairs, together buildings that would fit on a 50 or 100 foot lot opens up a lot of opportunities for three story buildings and for mixed use. But again, ADA for the commercial and Fair Housing Act for the rest.

Kevin K (42:04.712)

Right. So it's really kind of funny because I think I don't think I ever really learned about the Fair Housing Act until you and I started working together, which was, you know, easily almost a decade into my career as an architect. And then we started like looking at the Fair Housing Act. There actually are some interesting workarounds besides like the ground floor thing in the Fair Housing Act. So one or two that I want you to talk about the townhouse rules for fair housing.

But one I remember is I think it was adopted in what 1983 and it exempts all buildings built before that year if I remember right. 91, okay.

R. John Anderson (42:45.127)

1991, May, March of 1991, March 30th, 1991. So if you have an older built.

Kevin K (42:48.902)

Okay. It's almost like you'd memorize that or like tattooed it somewhere.

R. John Anderson (42:53.712)

You remember back in the early days of computers when offices didn't have IT people and whoever had figured out how to stay on hold for three hours with Dell computers to get a technical support answer?

Kevin K (43:13.534)

or was like me, was like the 18 or 19 year old who just grew up with computers, that was the IT person.

R. John Anderson (43:16.644)

Yep. Yep. And the fact that you could figure out how to download a print driver, you were now the go -to guy. And the more people came to you and asked for help with their print driver, the more problems you solve. the, you know, the fact that you never got a raise because you were the de facto IT guy. So these days for our own purposes, we have dug into this stuff. And then you start to look around and say, wait a minute, not everybody has done this homework. No, no, it's like

Kevin K (43:23.228)

Yeah. yeah.

R. John Anderson (43:46.126)

No, we're really busy and it's really hard and really complicated already. You know, we already have the building code and the fire code and everything else. Fair Housing Act. Jesus. So the, so I really, I have a hard time passing up on a chance to reduce my sense of imposter syndrome. It's like, I really am a legitimate guy, you know? No, no, I've read this. Let me send it to you, you

Did you read it? No, I didn't. just took a word for it. So no, you got to read it and tell other people about it. You know, it's like, so you, you, ended up coming across as some sort of, you know, uh, crazy person, you know, the kind of people who nailed their 19 thesis to the door of the church and Wittenberg kind of guy, you know, like, uh, that was not my intent, but it's sort of evolved that

Kevin K (44:40.072)

So anyway, one thing I remember, so a great workaround in the Fair Housing Act, I've had a lot of people over the years talk to me about, have like a old historic mixed use building and they don't want to, they're scared to renovate the upstairs for residential because of what they say ADA, just like to your point, it's not ADA, it's actually fair housing. And my point was no, you're exempt.

R. John Anderson (45:06.212)

You're exempt. One of the problems, those buildings are covered by the international existing building code, which gives fire officials and building officials a lot of latitude about how you get to the intent of the code, how much effort is going to be required given the level of renovation you're doing. And that same sort of metric is applied

accessibility upgrades for places covered with the ADA, know, more than 20, you know, can you devote 25 % of your budget to accessibility? Well, $25 ,000 in bathroom upgrades doesn't go very far. It's pretty easy to do. But when it comes time, when, when, uh, the current building code says, if you have residential occupancy over mercantile or business or, know, anything else, that's a big.

hazard and now you need to have fire sprinklers because it's under the international building code. International residential existing building code says look if you can put another layer of drywall on the ceiling and create a two -hour rating around the stairway you're good you know. Also you need to use a firecock anytime conduits go through a through a rated floor or

A lot of building officials are not ready to, you know, to learn about how much discretion they have or why they should use it in order to be able to get those second story apartments back online on Main Street. So the so even though it's in the code that they have adopted that this could happen, they're not trained at it. They don't get any practice at it. It basically, you know, goes through kind of the code egg sorter. Let's you know, you're spending this much money. You're now you need to bring it all up to code.

So in those settings,

R. John Anderson (47:06.434)

Eric Cromberg is probably the best person to talk to about what the international existing code will allow you to do if you can explain it to the people enforcing it. And I think it's important to do that before you submit your plans with your code analysis and your stamp and wet signature next to the code analysis that says, I really do know what I'm talking about. Please look up these sections.

You need to, you you need to talk with your building officials about the intent of the code and the like. And have you seen this section of the, know, you have to cultivate those relationships so that people trust you rather than they feel like they have to defend their turf. So, but the, the, the townhouse exemption and fair housing act is two story units are exempt from being covered by fair housing act, which.

accounts for some of the enthusiasm for building rental townhouses.

Kevin K (48:07.868)

Yeah, yeah. And can you stack them then?

R. John Anderson (48:12.75)

No. No, if you stack a townhouse now, that's two units between, even though they have a firewall, once you put two units into a townhouse, now you're into fire sprinklers.

Kevin K (48:24.86)

Okay, yeah. Yeah, that makes sense. All right, so yeah, so just again to clarify a little bit in case we're making people's heads spin a little bit. I think it might be, but like when you talked about the international existing building codes is yet another code that's part of the model code family and it has to be adopted. I don't think like my city has adopted it. I think there are a lot of local governments

R. John Anderson (48:36.624)

I think the odds in that are pretty high.

R. John Anderson (48:53.392)

I would, if you look, it's in there in the alphabet soup of adopted codes. Most, most folks.

Kevin K (48:56.188)

Yeah. Okay. But it was, it was created, okay. It was created for the express purpose of making renovation of more historic buildings easier.

R. John Anderson (49:07.588)

Yeah. And the, all of the, the, the best parts of the international existing building code are all the paragraphs about intent, you know, and if you're sitting down with a code official about that, said, okay, so this says the intent is this, can we agree that that's, you know, that's a good intent? And if we can get, if we can satisfy that, you know, this project, can we get to yes, you know, the,

But folks in those kind of positions don't want to be called out for being wrong or dogmatic or they wouldn't want to be characterized as Pharisees, which is usually the word that's like, I'm thinking that really loud and I'm in those meetings. The blind guides. So I think that it's about building relationships with the staff that are dealing with that.

And I think in order to get to that point, small developers probably need to international residential code compliant buildings and establish trust with their neighbors so that you've built that foundation of support and you're blunting some of the opposition that might come if you're looking for some kind of entitlement later. But if you're just asking for building permits,

build your track record and build your trust, be the person who does what they say they're going to do. Hire local folks, train local folks, create enough daylight in between you and the big production builder from out of town or the developer from the other side of town where you are, if this is going to happen, we would rather our person do it. Janine is the person who's built all those great carriage houses in our neighborhood.

And we would like to see her be able to continue to do that. So we think that, you know, it's reasonable that we should, you when she renovates the old trolley stop, mixed use buildings, she shouldn't have to put in fire sprinklers, you

Kevin K (51:19.954)

Yeah. Yeah. And to kind of put a last piece on it that is ever much so fun is there's the human element to all of this. And I was, I actually saw a tweet this morning from our friend Aaron Lubeck about, I think a builder friend in where he is in Durham had a project submitted and one staff reviewer for some, I can't remember the exact story, but there were like two different staff reviewers or code reviewers on it. And one of them came back with like

No,

R. John Anderson (51:53.264)

Hard to get good help.

Kevin K (51:54.686)

That's OK.

R. John Anderson (51:57.216)

I'm being protected from marauding squirrels on the telephone wires.

Kevin K (52:01.022)

I fully understand. But basically, one staff person had no comments, and another one came back with 25 comments. And so there's a human element to this that the people who review your application and are looking to apply the building code may end up with very different interpretations of what is required and what is not required. So John, advice on how to navigate

R. John Anderson (52:27.182)

Well, the plan checkers and the building inspectors report to the chief building official. And that's a position that you have to identify when you adopt the building code. You know, you're, you're, you know, that's a job description that, that has to get filled. And sometimes that person has many other responsibilities, but there's somebody identified as the last word as the chief building official. Appointments with that person.

and conversations about intent and, you know, demonstrating that you're trying to build something that will be safe and reasonable. And that you're trying to get to the intent of the code. If you can build that relationship,

if you're sideways with a plan checker, it's like, well, we have, we have two very different opinions about this. Can we bring in the chief building official to, you know, break the tie or maybe advise a different approach? You know, are you okay with that? It's like, it's, it's, you know, it's not personal, you know, I definitely think this is working and my, my architect who's responsible for the safety of this building until the end of their natural life,

that person, you know, has signed off on it. The city's got no liability here, even though you believe it does. So we think we've got you covered for liability. We think we've been responsible as professionals. How about it? I mean, come on, you know, but you need to build that relationship demonstrating that you are not not someone who's, you know, given to tantrums

or calling city council members, city manager, you're not gonna go over their head. You wanna work it out within that smaller circle. The day you go overhead, you go up the food chain, you can mark that day because now from now on, all your plan checks are gonna be given extra scrutiny and given to the most senior person and the most careful person in the group.

R. John Anderson (54:41.014)

More difficult is the situation where somebody will pick up a set of plans that are pretty much done by a junior person and then redline it and say, no, no, it has to be like this. And your conversation likely when you get your plans back is going to be with the junior person who can't actually articulate what the senior person did. And it's quite possible that they were wrong.

but now you got that extra layer to go through. So to be able to get to the person who can say grace on the whole arrangement and build that relationship and demonstrate that while you have that relationship, you're not always going to pull that card. You're not going to do it for every little thing. And it's like the...

There's kind of a quick sorting system that plan check and building inspectors have. If this person is basically doing a good job, I'm going to give them the benefit of the doubt because they're consistently doing a good job. If this person is a jerk, I think it's my duty to protect my fellow building inspectors from this monster.

You know, and I need to actually maybe cross the line a little bit in order to be able to put this guy in his place because he never read the code. You know, so the, there's a whole lot of high school hallway one -upsmanship that goes on usually between males. I think that female building officials and female contractors and developers typically are more rigorous in

study and their presentation and their communication skills. and I think recovering elementary school teachers who've become small developers, their communication skills are awesome because their expectation for human behavior is fairly modest.

Kevin K (56:41.662)

No doubt, no doubt. All right, John, before we wrap, any final words or thoughts for people to think about as they look at codes?

R. John Anderson (56:53.602)

Well, I think that particularly for small developers, it's really important because of the level of complexity and kind of the possibility that code issue will just stop your project altogether. It's important to become, don't leave it to your architect to be the last word on the code. It's OK to have spirited discussions about it. But

Get Francis Ching's books about, you know, the building codes illustrated or the international residential code illustrated, which when you read the code, there are a lot of things that you end up making a sketch or a diagram. So you see if you've got it figured out because it makes references from one section to another. You can't just hold it all in your head. The great thing about the Frank Ching books is that he's made those drawings much better than you

and they communicate really effectively and you can bring that into the meeting. don't subcontract code compliance to somebody else because just like you wouldn't subcontract your personal guarantee on the construction loan to someone else, it's that serious. And start with small projects. Make small code problems and solve

Kevin K (58:10.386)

Yeah, no

Kevin K (58:16.638)

Yes, some of us may. We may learn to take that advice one day or maybe not, who knows.

R. John Anderson (58:24.448)

Well, I have a steady stream of I told you so's on any day of the week. So I'm happy to help people out with that.

Kevin K (58:33.054)

Yeah. All right, John, thanks so much. this. All right. See you later.

R. John Anderson (58:35.994)

Sure, take care.

Thank you.