After reading my post, the organizers of the City Builder Happy Hour asked me to present my idea for a Neighborhood Real Estate Investment Trust. The following is more or less what I presented on Tuesday night at the happy hour. This market-based approach to “saving” neighborhood buildings was delivered on May Day, not far from the riotous mob of anarchists trashing downtown.
We hear it all the time: “What? That great building with the cool coffee shop just got sold! Damn developers!”
But the truth is that when property changes hands the new owner is making an investment, and an investment is about creating a financial return. Developers aren’t necessarily setting out to destroy existing buildings, but in order to build more housing and make a profit, sometimes they do.
What if all of us pooled our resources to buy real estate and develop it ourselves? Imagine 1200 people in Seattle each contributing $1200 (about the same as buying 1 espresso drink a day for a year) to a Neighborhood Real Estate Investment Trust. That would generate more than a million dollars ($1,440,000) that could be applied to the purchase of that great building with the coffee shop. And if the property is managed well, the funds from operation and increases in equity over time would mean than initial $1000 investment would gradually produce a return, money that could be put back into buying more iconic properties.
In the United States, a Real Estate Investment Trust, or REIT, is a company that owns, and in most cases operates, income-producing real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
What distinguishes REITs is that they have transferable shares. An investor can by a sliver of a project in the form of a share, get a return from dividends paid from increases in equity or profitable operations, and sell the share later at a profit to another investor.
The beauty of a Neighborhood REIT is that it is market-based preservation that would get neighborhoods into the development game. As property owners, average Seattle residents could decide not to build out the site, but keep the building just like it is. But they’d still have to manage it, collecting rents, making repairs, and taking care of overall maintenance. They could choose not to maximize profits, but focus on maintaining use and the existing structure.
There is an example of this in Great Britain called the Ethical Property Company; they buy properties, sell shares, and keep older buildings in use renting them to non-profits and community based groups.
A Neighborhood REIT could allow everyone to invest in dense, walkable, livable, transit oriented communities so we could get all those benefits plus some of the financial ones as well.