3-2-1: A Financing Update, Why Building Science Matters, A Killer Beer Garden Concept, & More
I know, I know. In the chaos of moving and blah, blah, blah… I missed sending a newsletter last week.
We’re back on track now.
Here’s your weekly 3-2-1 on small-scale real estate development:
3 things from others
2 things from me
3 THINGS FROM OTHERS
Look Ma, we made it!
Seeing my article featured in a publication that I highly respect and follow avidly is nothing short of an honor. I’m sure many of you already read Strong Towns—but, in case you don’t, now’s your chance!
They are a media publication focused on driving the conversation on how we strengthen communities. From promoting responsible municipal growth, to reshaping how we think about transportation, to creating walkable neighborhoods, to showcasing the importance of local economic development and entrepreneurism.
Their site is jam packed with actionable insights and policy recommendations that will make you question why municipalities and government agencies operate the way they do. Then, they’ll help your community navigate its way out of the mess.
It’s all free content so you have nothing to lose.
Source: Strong Towns
Speaking of Strong Towns, let’s focus for a second on Accessory Dwelling Units (ADUs).
ADUs have been making a comeback lately, with state governments and municipalities racing to update their zoning laws to be more inclusionary. All in the spirit of easing the housing shortage.
But, far too often, these “inclusionary” measures place far too many restrictions on ADU construction. And, in the end, homeowners are left with little incentives to actually build one.
In particular, a common stipulation is that one of the units (either the primary house or ADU) be owner-occupied.
To me, this is entirely counter-intuitive. What happens when you want to move? Well, you can’t rent your home out since that would violate the zoning bylaws. So you’re forced to sell. At which point you’ve limited your buyers to those that want to commit to living there.
Additionally—and, granted, this is a little more self-serving—owner-occupancy requirements effectively prohibit developers from building an ADU on an investment property. Even if they intend to sell it to a homeowner afterwards. This puts unnecessary burden on the average homeowner to become a de facto developer, rather than open up that possibility to the marketplace.
So—if you’re in an area considering changes to ADU bylaws—please (please, please) make sure any proposed zoning updates don’t have unintended consequences.
Source: If You're Going to Allow ADUs, Don't Make It So Hard to Build One
IT CAN BE DONE.
2 THINGS FROM ME
A few weeks ago, I wrote about building trust and working with smaller portfolio lenders. This has been particularly relevant for me given that I am trying to finance my first construction project.
Well, we hit another milestone last week on the debt financing front. After a lengthy qualification process across several lenders, we received a conditional loan commitment for both construction and permanent financing.
This may seem like a run-of-the-mill task checked off the list but it’s not every day you get an institution to buy into your vision for $700k. I’m feeling particularly grateful to have found a lender that shares a similar desire for community development. Not to mention excitement that we’ve moved one more rung up the ladder towards actually breaking ground.
Of course, this is all pending an appraisal. And we’ll need a $950k valuation (post-completion) to make it work. So 12 more weeks of holding my breath.
Yes, you read that right. TWELVE freakin’ weeks for an appraisal right now.
But—at the very least—I was able to squeeze a small sigh of relief in with this minor win.
The study of green building practices and building science is a rabbit hole I’ve been stumbling down lately. And I have absolutely zero regrets—it’s fascinating stuff.
Structurally-intact buildings that don’t fall down are table stakes these days. But building in a way that reduces energy consumption and improves performance is where the next wave of forward-thinking builders are focused.
And, honestly, it’s surprisingly rewarding to finally put my physics degree to the test. Heat transfer, vapor diffusion, and permeance of materials are now all top of mind and relevant once again. That said, it’s probably more high school level than it is Quantum Mechanics 401. But I welcome the challenge anyway.
Anyhow—just think about where we, as a nation, use our energy. 40% of US energy consumption occurs in residential and commercial buildings for heat generation and electricity usage.
And, according to the EPA, the average building wastes a third of the energy it consumes. That’s crazy!
Unfortunately, however, climate change activism is usually not enough of a powerful incentive to drive business adoption of sustainable practices. Especially for capitalist landlords. But, thankfully, other motives exist to get us to the same outcome:
Customer preference. Once tenants start demanding better performing apartments (e.g. better air quality and reduced reliance on fossil fuels), landlords will be forced to adapt. Similar to how most new apartments now come with a washer/dryer and internet connection. And, by the way, this is the same reason why so many Fortune 500 companies are starting to hire Chief Sustainability Officers and set ESG goals. It’s the customer (and/or shareholder) that’s really in control and calling the shots.
Reduced operating costs. Deep energy upgrades can cut a home’s energy use by 50-90% through better insulation, more energy efficient appliances and systems, and use of low-flow water fixtures. Of course, this will vary on a case-by-case basis. But, in apartment buildings, those savings add up to thousands of dollars per year.
Ultimately, what it boils down to is creating a product that is more competitive on the market. If you can cut expenses and/or appeal to more customers in a cost-effective manner, then that decision should be a no brainer.
I plan to kick off a deep energy retrofit mid-October and hopefully will have some good data to bring back to the table.
And if you’re interested in green building practices, I’d highly recommend reading through Martin Holladay’s How To Do Everything on Green Building Advisor.
I stumbled on this gem earlier this summer in Boston: Trillium’s Garden on the Greenway—a seasonal beer garden done in partnership with the Rose Fitzgerald Kennedy Greenway Conservancy.
Two months later and I’m still talking about how brilliant it is. From the custom designed and branded tap trailers to the care in landscaping, tree layout, brick paving, and wooden accents. It’s so simple and so well executed.
📍 Boston, MA
That’s it for today. Thanks for reading. If you haven’t yet, go ahead and subscribe here:
About me: I’m Jonah Richard, a small-scale real estate developer in Vermont. With my company, Village Ventures, I’m currently getting my hands dirty redeveloping mixed-use buildings along Main Street while trying to pick apart and replicate what makes other communities thrive.
Follow me on Twitter for more things related to real estate development and creating great places.
Thanks for your keen analysis of green building principles. Do you belong to PHIUS?