‘Developer’ is seen as a dirty word — this real estate startup is trying to change that

A Sidewalk Talk with Nico CEO and co-founder Max Levine

This Sidewalk Talk Q&A is part of a series of conversations with leaders at Sidewalk Labs incubated and portfolio companies.

At a moment of great division around urban development, the startup Nico is trying to build bridges. As a neighborhood investment company (hence the name), Nico offers residents a chance to own a long-term stake in their community by purchasing shares in a real estate investment trust — or REIT — for a low price. The hope is for renters and other residents who have traditionally been excluded from the financial upsides of real estate growth to benefit from it alongside developers or landlords.

“I think the word ‘developer’ has become a dirty word,” says Max Levine, co-founder and CEO of Nico. “But the reality is, it’s not development itself as a thing that generates housing units (and generates other things) that needs to change from our perspective. It’s the relationship between the benefits of that development … and people who’ve been in these neighborhoods and these communities for a long time.”

Levine spoke to Sidewalk Talk about Nico’s effort to strengthen community partnership in the Los Angeles neighborhood of Echo Park (“the world’s first Neighborhood REIT”), the company’s pandemic assistance program, and why the Green Bay Packers are a great model for neighborhood collaboration.

Watch a video of our conversation above or read an edited transcript below.

Eric Jaffe: For those who aren’t familiar with Nico, can you tell us about what you do and what it means to be a neighborhood investment company?

Max Levine: Sure. Well, I guess the first thing is, we’re very much trying to learn and figure out what it means to be a neighborhood investment company. So I’m not sure we totally know yet, but the idea behind Nico is really that we wanted to create a way for everybody within a community, really with an eye towards renters, to be able to build wealth by investing in local real estate in a way that is aligned with people’s values when they think about their own neighborhood.

Really what the company and the structure is — the structure being a neighborhood real estate investment trust, or Neighborhood REIT, that allows local folks and other investors to invest in a portfolio of income-producing properties within a neighborhood initially here in Echo Park in Los Angeles, starting at $95. And so really trying to create a very low threshold for people who have traditionally been excluded from investing in local real estate, usually through a home-ownership lens, to be able to do so in partnership with us and in partnership with professional investment capital.

Vanessa Quirk: You mentioned that you’re starting in Echo Park in Los Angeles. So would you mind telling us a little bit more about that project? How did it emerge, and what are you hoping to achieve in Echo Park?

Yeah, so we launched Nico Echo Park Benefit Corp., which is the name of the Neighborhood REIT, just over a year ago. We launched in late March 2020. And so we launched right into the early days of Covid, and so our mission changed very quickly. And I wouldn’t say that it was a hard pivot, but it really crystallized for us a lot of the values and the intent that we built the company around. Big picture, what we’re hoping to get through this model is really a vehicle for broadly held local ownership of real estate.

So we think a lot about the Green Bay Packers, and I don’t know if either of you are familiar with the Packers —

Eric Jaffe: Not their real estate investments.

Well, I don’t know. They probably own their stadium. But as a model, as a template, the Green Bay Packers are the only major professional sports team in North America that is actually owned by the community. And so if you think about, okay, so the city of Green Bay, it’s like 100,000 people and it’s super cold, right? The Green Bay Packers on paper probably shouldn’t have an NFL football team for starters. And secondly, they’ve had the longest home sellout streak. I think they’ve sold out every home game since the late ’50s.

And so if you think about those as being very differentiated outcomes relative to their peer group, our question is, what would happen in terms of outcomes for a community if a neighborhood actually had a substantial vehicle for broadly held local ownership? And our theory of change is really around, what is the power of community ownership to deliver a different set of materially better financial, social, and environmental outcomes with an eye towards stakeholders in that community?

And so one of the things we’ve done in support of that is we’ve organized Nico Echo Park as something called a “benefit corporation,” which means that we have an explicit legal and fiduciary responsibility to balance financial returns to our shareholders with the social and environmental impact of the business on stakeholders broadly. And that connects to this idea that lots of the sort of issues that we view through a lens of participants and people who are excluded — and I think gentrification you can view through that lens and many other issues around development — ultimately come down to who participates, who benefits, who is harmed, who is excluded. And we’re really looking to realign that whole mechanism of inclusion in a way that really aligns investment capital broadly with people in the communities where we are deploying this model.

Eric Jaffe: We know that great city neighborhoods are unique — they’re unique places. And so I’m curious to hear how you scale Nico’s approach when you do go to other neighborhoods, knowing that neighborhood is going to maybe need something different, have different goals.

That’s a great question and we are learning that presently, and I think the main thing is really about how do we extend our model as a tool and a resource that a community can invite there? And so Nico Echo Park was a little unique because it was the first one, and we didn’t have sort of a track record of what this model is, who we are as a company, that we could sort of point to. I think moving forward, we will seek to bring this model to different neighborhoods in partnership with trusted, established local actors and based on being invited to bring this model by a broad group of stakeholders within that community.

Vanessa Quirk: I want to go back a little bit to one of the things you said, which was that you started working in Echo Park during the pandemic, and that kind of influenced the way that you went about your project there. And I’m also thinking, too, that the pandemic put a lot of strain on housing stability in a lot of cities. And my understanding is that you and Nico provided some rental assistance during the pandemic. So I was wondering if you wouldn’t mind describing how that program worked, and how has it shaped your approach moving forward?

We’re really proud of that program. And I think just to sort of give a little bit of backstory onto the timeline because it’s always helpful: We just came out with our first neighborhood impact report, our 2020 neighborhood impact report. And that report and the sort of work that went into the results that are included in that report are really at the core of the innovation that we’re trying to create through this model. And so sort of core to that is, there was this big question that we were wrestling with as a team, and that I think stakeholders in the community and observers and different people around our company, were sort of like, “Well, what is a neighborhood investment company, and how does a benefit corp framework — stakeholder capitalism, triple-bottom line framework — apply to a neighborhood housing provider?”

And I was talking to one of our advisors early in the pandemic, and it felt like we did a lot of pre-work on establishing what we call our impact assessment framework. And that was created with a lot of stakeholder input. When you are measuring financial results, there’s a way to do that. It’s very established. There’s accounting standards and public reporting standards and all that stuff. When you’re measuring social-environmental performance, there are frameworks, but it’s less well established. And it also has to be tailored really to the impact that you’re trying to deliver through a business.

So we did a lot of pre-work on what that was. We have five focus areas, and one of them is around helping to preserve and enhance neighborhoods stability and diversity. And so Covid happened, and I was having flashbacks to being a real estate investment analyst in 2008, and sort of that moment of panic and uncertainty and what does this mean? And very quickly we went to: What are the human outcomes that people losing their jobs are going to create, which is, how am I going to pay my rent? What does that mean for my stability as a renter? And all that stuff. And so the pre-work that we did on our impact assessment framework and on sort of really trying to establish our values as a company, even prior to launching, was such that our first act as a public company was to approve this rent assistance program.

The rent assistance program had three parts. The first was immediately — and I’m talking in time for the April 2020 rent cycle — we designed an onboarding flow where members of our community, residents and commercial tenants of our buildings, were able to opt in and self-identify hardship as a result of Covid. People lost their jobs. And the first step in the process was that we released their security deposits, which is their money that we, as a housing provider, are holding. And so the first thing we did was we made those deposits available to be applied towards rent if somebody opted into the program.

By the time the next month came along, we had an additional layer to the program in place, which was that Nico, the sponsor of the REIT, made up to $150,000 of rent assistance grants available to people who had already used their security deposit. And so that was a cash grant assistance fund that was designed really to minimize the extent to which people ended up owing us money coming out of Covid. We were planning around a scenario where maybe it was six months. So here we are 15 months later. That money went further actually than we thought it would.

Then the third part of the rent assistance program actually has nothing to do with rent, it has to do with our core model, which is that we made $1,000 per household in REIT shares available to our community. You would say, “Well, what does that do for me if I can’t pay my rent?” And the answer is, not much, but it is a gesture of partnership, and it is speaking to this attempt that we’re making through this model to really realign interests between stakeholders who at times had a fairly — if you think about the landlord-tenant relationship, those are words that we are very careful about using, but that’s a painful, contentious dynamic. And resetting that through partnership, through this model, is a big part of what we’re trying to do. And I think this program both helped to express our values in a very tangible way early on and also helped us as a team live our values right out of the gate. And that’s always helpful when you’re trying to build culture and figure out what your company’s about as a startup.

Eric Jaffe: You’ve talked a lot about partnership with communities. When you step back and think big picture about the future of cities, the future of neighborhoods, what role do you think private developers should play when it comes to building more equitable places?

Yeah, that’s a great question. I think that we have a major housing shortage. This housing crisis is really about needing more housing units. There’s some other elements to it as well. It’s not just that, but that’s such a big part of it. And so I think the word “developer” has become a dirty word. That’s the truth. That’s the reality of what’s happened in neighborhoods like Echo Park. And there are thousands of neighborhoods where that same dynamic is playing out around the country. And so I think there’s sort of a knee-jerk reaction to demonize that word and what a developer is. But the reality is, it’s not development itself as a thing that generates housing units (and generates other things) that needs to change from our perspective. It’s the relationship between the benefits of that development and the outcomes that that development is generating — the relationship between that and people who’ve been in these neighborhoods and these communities for a long time.

And so I see a future, and I hope for a future, where that word is not a dirty word, where development as a process and the people who are running development companies are seen as providing a resource and a tool and a set of outcomes that are helpful to people in neighborhoods like Echo Park and that are a big part of the solution to the housing crisis. And so to us, it’s about alignment of interests, and it’s about creating ways for that process of development — which is so needed and so necessary and not going anywhere, frankly — to work with and for communities as opposed to the perception that they are against or in threat to communities.

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