The Mindful Marketplace with Joel Skene

Community Support as a Catalyst for Personal Change - Part 2

• Joel Skene / David Lidz

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What if investing in your community could transform not just neighborhoods, but lives? Join us as David shares his extraordinary journey from addiction to entrepreneurship, illustrating how community support can lead to personal and collective empowerment. Through candid conversations, David reveals how his real estate business became a beacon of hope, creating meaningful employment for those in recovery and fostering a culture of giving back. This episode captures the essence of how community investment can catalyze personal redemption and collective well-being.

Together, we explore the complexities of transitioning a property preservation business into a social enterprise aimed at revitalizing marginalized neighborhoods. Inspired by works like "The Color of Law," "Race for Profit," and "Evicted," we dissect the systemic inequities these communities face. We also address the detrimental effects of property flipping and private equity, contrasting these with the benefits of shared ownership models. Discover how our cooperative approach not only stabilizes communities but also enhances worker productivity and economic empowerment, proving that sustainable, regenerative investment is not just possible, but essential.

https://streetwell.co/
https://www.wmar2news.com/local/an-employee-owned-cooperative-is-taking-on-baltimores-vacant-housing-crisis

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Joel :

What if investing in each other could change the world?

Joel :

I'm Joel Skeen with bizradious, and this is the Mindful Marketplace now or after this to hear David's story about how he got started and how he used his own personal transformation journey, through addiction and through some other struggles, to not only come out of that and be successful himself, but to take the business he was in and be able to really help it serve his community in the long run. And we're going to get into how he's been doing that. But, david, welcome back into the show here. Really happy to have you today. Thanks for being here.

David:

Yeah, thanks again for having me, joel. Great to be back.

Joel :

Yeah, so, as I was saying, we talked about kind of your journey of going from being an addict and kind of going through everything that's involved with that and moving through that to starting your own business. That does a lot of different things all within kind of the realm of you know, kind of real estate, but it sounds like the main purpose of it at this point is really to provide those jobs to people who were in the same situation you were in. It sounds like that was really the heart of the beginning of it. Is that right?

David:

Yeah, that's how I started. I found a low barrier to entry job opportunity for myself. That also let me create a business. And then recovery teaches me that as the business grew, I should open up that same opportunity to others trying to rise up out of the abyss.

Joel :

One thing I didn't get a chance to ask you in the first half here was you mentioned that to just as a human being going through a difficult time, whatever it is, whether it's addiction or it's any other issue. You mentioned just the importance of a community in that and how that informed the way you continue to approach your business. I'm curious if you could kind of expand on what you mean by that and why the community aspect you feel like is so vital to that success and why you want to invest back into it.

David:

Yeah, again, that just starts with sobriety. One of the weirdest stories about my journey is I learned so much about business and life in what we call the rooms, but I'll just focus. It all starts there. You learn in rehab and then you learn as soon as you get out and start going to those meetings that the best way to stay sober is to stay connected to your sobriety community. And then the best way to really really make sure that you stay sober within that community is to help others, and you know there's a variety of ways that we do that in a recovery community.

David:

But then there's also this message that, hey, it doesn't stop there, it's just you want to serve your community, serve your brothers and sisters in life, just in life. And then what you get out of that is A sobriety like so your life, you get your life back. But B a joyful life like this is a good way to live. Like you know, you feel like life has meaning, you feel like you have connection, sleep well at night, unlike you, know some of my past careers and certainly the way that I lived life with my drinking and so on.

Joel :

Yeah, no, absolutely. And so what I wanted to really dig in with you here, with the time that we've got on this half, is to talk about this transition that you made. You started talking about it near the end of the last episode, where you talked about how you took this business. You had built where you know you started off just by working it, by essentially cleaning out houses that were getting foreclosed on, and you know some other other, you know kind of jobs like that, um, and then you built the business and it was important to you to, you know, pay your people well to have that low barrier to entry, um. But then there was a point at which, as the business grew, um, you decided it wasn't just going to be your business, that this wasn't going to just be an asset for you, it was going to be an asset for the community. Tell me a little bit about you know kind of about that, that process.

David:

Yeah, sure so. So it starts with the fact that this sector that we work in it has a couple, a couple of euphemistic names. One of them is property preservation, another is REO services loss mitigation but it's like the seedy underbelly of the American housing finance system, you know it's. It's taking figuring out what to do with foreclosures. Once a foreclosure happens, which is an ugly, ugly, ugly moment, so it's dangerous, it's dirty and most aggravating when you're trying to run a social enterprise where you're, you know there's like programmatic support. If you make a commitment to help folks coming back from rehab or from jail or from prison or off the streets to stand back up and to work and to be part of community. There's like cost to that, there's a programmatic commitment to that, and so if you're working for clients, first of all don't give a crap about that mission, but also just don't pay you well to begin with. It's really difficult to support that.

David:

So we were looking for a way to do our employment, social enterprise, better and at the same time, we were like you're in it every day, particularly during the recession. You see what extractive financing really looks like on a house-to-house, community-to-family basis and how really really disproportionately bad it is in neighborhoods that have already been oppressed for generations. So we started to put it all together Can we pay ourselves better? Can we find a way to invest in these neighborhoods that would be mutually beneficial to our team and to the neighborhoods that we're doing a lot of work in? We started researching, like figuring out what was going on, and so started reading great books which everybody should read, like the Color of Law or the Race for Profit or Evicted, which are just stunningly stark but insightful documentation of how the American housing finance system has worked in this land since the New Deal Topic for a different day.

David:

But we really start to become aware that these neighborhoods that we are experiencing we are witnessing yet another chapter of oppression, extraction and exclusion. This is like yet another chapter that goes extraction and exclusion. This is like yet another chapter that goes back generations and decades. So we come up with this thesis hey, if we can raise the money, can we do the work ourselves to lift up neighborhoods? And can we find a way to gentrify neighborhoods, meaning revitalize them, bring them back to their greatness and bring them back to a state of economic robustness and wealth, but keep that wealth and that equity in the community. So that was the idea that we started pitching, and it's the thing that we're doing today.

Joel :

Yeah, and it sounds like there's one of the fundamental dichotomies that I'm hearing you sort of mention or ways to think about this is you've mentioned kind of there being. You know the companies that you've seen in your industry, the way that they approach their businesses. You've mentioned the word extractive a couple of times and you have also talked about how your business I don't know if you've used this word, but it sounds to me like what you're talking about is kind of using, instead of having an extractive model of businesses, to have a more regenerative one where the profits from the companies that's made don't get taken out and sent off to, you know, cayman Islands or you know anything like that, but they get put back into the community that they're in. Did the shift from you privately owning your business to actually transitioning it to a shared ownership model Did that? How did that affect that?

David:

where you were at on that extractive versus regenerative scale, I guess From our own business perspective, it just we were an employment social enterprise all along, but what that meant before the conversion was just that I went into a ton of personal debt to try to keep this thing moving, and now we've transferred ourselves from a place of that kind of awful scarcity to a place of regeneration that's a great word, like a very regenerative. I think the point I would focus on is I don't think we have time for it, but I could rattle off seven or eight different ways that we think of corporations or capitalism, or even the government extract from a neighborhood. Maybe the shortest way to talk about it is let's just go with flipping.

Joel :

We'll leave predatory lending aside, we'll leave redlining for another day, but just flipping it Private equity buying homes just to rent out, so that homeownership keeps going down and down. We can leave out that for now too.

David:

And that's what's going on today, like we're competing in neighborhoods now that nobody cared about and all of a sudden there's people at the auction blocks and it's private equity funded homes investors, and they're not even grabbing properties for rentals in these neighborhoods. It's pure speculation. They're just buying these neighborhoods and letting them sit vacant like the same kind of shit. Yeah, and so I'll lose at an auction to a private equity funded investor on a property that's right next to one that we're working on, and that's like a continued drag blight on us and they are purely speculating. They are not going to do anything on it until the numbers are right that they can sell off to somebody who will. But anyway, yeah, I mean we could leave it at that.

David:

But even flipping flipping is an industry that has these characters in it that are called bird dogs who put out bandit signs. You know, we pay cash for money and we pay cash for houses. Yeah, yeah, yeah, hard money lenders and then ultimately, the flippers. Each one of those characters is taking a cut and it starts with the bird dog finding somebody who has a deed in a very poor neighborhood and is under, you know, financial distress, so they part with that deed at a ridiculously low price and then the bird dog assigns that contract to a flipper. So he might have bought the house for $10,000, and then he assigns it to a flipper for $20,000 or 30.

David:

So what just happened right there? Like $10,000 or $20,000 of equity got ripped right out of that community and then the flipper will use these hard money, high interest loans, to make the renovation happen. So again that high interest in those fees, another form of extraction that gets ripped out and incentivizes, pressures the flipper to do shitty work, and then finally the flipper is going to flip it and try to get his cut. So I have a slide that shows. You know that represents about after the finish the house is finished, 60% of the wealth that was created from that renovation just gets ripped right out of the community.

Joel :

Man. So, when you're thinking about the way that you guys can do your part at least to help address that issue, why did that shift to a co-op model? You know how did model, how did that serve that end goal?

David:

Yeah. So there's two pivotal pieces here. One is our model is dependent upon us being able to raise impact investment so rates that look much better than the hard money lenders that are patient and long-term thinking and a shared equity model. So Seed Commons is a CDFI that supports co-op conversions. They weren't really into like mortgages for residential housing, but they took a chance and they experimented with us and iterated their financing with us over the last three or four years. So we've gotten to this really pretty amazing product now.

David:

But the short of it is, you know, it's a 3% 30-year line of credit that allows us to renovate up to somewhere between 90% and 110% LTV. I know I'm getting a little technical here, but that's very patient, very impactful, very powerful money. And then the other piece of it is if now the workers are the investors, are the developers, we're not looking like to yank that money out of the community. We're just looking to pay ourselves better market wages, middle-class wages, and to train ourselves better, and then, once this portfolio stabilizes and turns into performance and positive value, to distribute that, those dividends and that equity, to the workers and to the tenants that move in. So you see a neighborhood getting lifted up. But, unlike the previous models where just it's just getting ripped apart and waiting for, you know, the affluent to move in and just push whoever's left out, we're like keeping everybody and everybody stays and everybody gets to enjoy the wealth that they've built and that they deserve.

Joel :

What's been the biggest surprise to you in all of this recently?

David:

Well, one surprise we already talked about is when we started all this, we were highly, highly distressed, historically redlined. Just like crumbling neighborhoods full of vacants. Just like if you've driven through West Baltimore, you know what this looks like. And no like there's no competition, nobody cared about these neighborhoods. But now we are competing against a new form of, you know, private equity. That's that's kind of the bad surprising.

David:

I think the good surprising is, you know we're still very early stages, but just like how good it feels and how well it's proving out. We have really great measurement tools. We have built really great financial tools and impact tools. So we're carefully measuring what's going on and you can see us increasing productivity. So we're improving the way that we fully renovate properties and, at the same time, bringing our budgets down just because we're getting better at it and more efficient and building better tools for project management and that, in turn, is converting into better wages for our workers. So maybe I'll just leave it at that one. There's, like so many examples I could give you of where I just on a given day, I'll be like wow, that is beautiful balls man, a thing that's happened. But this one, which I think is a core tenant of cooperative principles or arguments that you would convert worker productivity into better wages for workers is like totally, absolutely and visibly proving out much faster than I expected.

Joel :

Yeah, I mean it just makes sense to me've been companies or or I've worked both on nonprofits and on the business side and there've been companies and groups where you could tell that they wanted to give you more ownership, more stake in what they were doing. And I've also had examples where they didn't really want. You know you were just kind of a paid employee and you know you that you were, you were replaceable and they were basically just renting you every day. And the places where I know that I've been given ownership stake or I've been given, where it's clear that the ownership is interested in investing back into its people at least is, I know, for me personally, I always experience more commitment to my work, more diligence in making sure I'm doing good work and working hard and all those things that typically we are good for productivity, they're good for profits, they're good for all of that. I'm curious if you have seen that play out in this. You know a new experiment in a way that you're doing.

David:

Yeah, so at first, like, everybody's like stunned and doesn't know what to make of it. When you make the announcement we're a cooperative. Now you know it's yours and you've got to show up for committees and become a member and vote and debate and discuss. Everybody's like a little like what. But now it's really taking. Our cooperative governance is really strong. We're adopting a new set of a new operating agreement, for example, so a new constitution set of a new operating agreement, for example, so a new constitution. And we've had this great well-participated work group, study group. To, you know, read the new document the lawyers have written for us and, you know, improve upon it and discuss it, so that. So this thing that was kind of weird to everybody at first is now turning into like real worker democracy, which is amazing to watch.

David:

But to your point about how does it affect worker productivity, I think that took a minute too, because people are often just used to the boss worker situation.

David:

So they, you know dynamic, so they come to the work sites and just expect to stand around and be told what to do.

David:

And we, one of our one piece of our grand experiment is that we are pushing decisions out to the front line as far as possible. So front line worker autonomy is a big part of our experiment and we're building these project systems that do that, that send out bite-sized chunks of the renovation project to small groups, to individuals who are out there and they're responsible for their budgets and their deadlines and their scope of work and the quality of work. And that took a minute also for people to like jam on that, but now they're getting it, because the other thing that we do is we get, we, we, we agree upon a budget and if they hit it or come in below, they get to keep the difference right. So it's like everything that we're talking about pushing the autonomy out there. And so the benefits of that, you know that win, that well run, that interest in your own work is not just like. You know morale and you know feel good stuff, it's real money, which it should be, you know.

Joel :

Yeah, no, and I and I know for me when, when I know that there's some kind of that, my work actually is going to have an impact on you know, like if I help, if I help my company make more money, it's also going to have a positive impact on the same page. Um, in in that way, which I think is is kind of is kind of neat it does. I do feel like there's, um, what I like about your work is you're you're sort of, um, uh, questioning assumptions and sort of busting myths, not necessarily by talking about it, but just by doing it. Um, and some of those myths are that, uh, if you're going to go into business, it has to all be about yourself and all about your profit. And it also, I think, is busting the myth that you know you mentioned before you guys are a for-profit co-op. A lot of times, when people hear the word co-op, they think, oh, they don't make money or there's no profit to be had there. Have you run into that misconception?

David:

It's funny. I testified for a co-op law bill in front of the Maryland General Assembly a couple of weeks ago and this bill just created a co-op structure in the state of Maryland like there are in 30 other states. Sailed through the Senate, unanimous approval through the Senate, but when we got to this House Economics Matters Committee, we testified and then the legislators started to ask their questions and voice their concerns and support. Of course, there was one legislator not going to get into the politics, of which party he might be or from what part of the state, but he started, like, expressing fears that this was communism, you know right, like this was state planning, and. And he got roundly chastised by the chairman for that. But the point, yes, like people still have this idea.

David:

And you know what else is interesting? We have a lot of Latinos in our group and it takes a minute for some of the folks who've come from like Venezuela to understand that this is not, you know, centralized planning. This is capitalism. We've just changed who the shareholders are. That is it. That's it. We are competing on the playing field of capitalism and our thesis is if you really want to win, that's what you got to do. You just got to get out there and you've just got to change who the shareholders are, make the workers the owner of their own work, not in the socialist or communist, marxist kind of way, but by making them shareholders of a corporation that is out there competing against other corporations.

David:

And then the thing that I think is an experiment I haven't heard too much about before is this profit sharing model that we have, which is like micro profit sharing, like small jobs that get pushed all the way out to the front. The idea here is like distributed profits, like profits get in the pockets of the workers long before they accumulate at the top of the corporation, and then there's got to be some kind of dividend distributed. Right, this is not communism. They work for that. They wrote the work order with us and they executed on it in a way that will create a, a, a business that works. But down at that level they get to to enjoy whatever you know efficiencies or profit they, they considered, they, they created within this capitalist, you know, playing field gridiron.

Joel :

Well, yeah, I mean, you know we like democracy and so we should like democracy in business, is just kind of the way I see it. But thank you so much for your time today, david, we do have to run um. Uh for all of you out there. Check out um. Where can they find you?

David:

uh, pretty much linkedin and instagram. If you go to linkedin, there's a page for each one of our entities. There's me, david lids, there's water bottle co-op, rising housing and appellation field services. On Instagram you can find all those entities, great.

Joel :

And we'll put those links in the show notes. Tune in next time and listen on iTunes, iheartradio, spotify, stitcher all of the places you get your podcasts YouTube. And until next time, remember we are each other.