I was
wrong. Through their neighborhood
interaction, Dan and Ben Miller identified a potential tenant who will move to
the Millers’ building, expanding a successful business that is now located a
block away. And the neighborhood seems
very happy with the result.
Of even greater
potential importance, it seems that neighborhood involvement in tenant
selection wasn’t the only cutting-edge task in which the brothers were engaged. In an Atlantic Cities article
by Emily Badger, she describes how the Millers decided to seek investment from
their neighbors rather than going to traditional lenders.
It turns out
that securing neighborhood investment is difficult option. For generally good reasons, the Securities and
Exchange Commission (SEC) limits investment in real estate deals to people who
have established their expertise in real estate or to people who have a
first-hand familiarity with the developers.
The prohibitions prevent unsophisticated developers from being bilked by
unscrupulous developers. But they also
prevent unconventional ideas such as neighborhood investment.
The Millers
choose to search for ways around the prohibition. It was a memorable adventure that included a
Goldman-Sachs attorney asking, in response to the Millers saying that they
wanted to seek investment from the small folks, “Why would you want to do
that?”
Eventually,
the Millers found a little-used provision that allowed non-accredited investors
to buy into a real estate project. But
the trade-off was an extensive and costly review by the SEC. It was a route that the Millers took and
eventually completed.
The article
by Badger is long, but worth the read, especially if you have an interest in
how money affects the development of our communities.
In past blog
posts, I’ve noted that decisions affecting communities are disproportionately
in the hands of lenders who have little stake in the communities and whose
decisions are based almost exclusively on financial return-on-investment. What the Miller brothers have done is to
shine a light on an alternative course, one that would allow more of us to help
direct the key decisions in our towns.
However, as
noted by Badger, the mere fact that the Millers found a path doesn’t open up
that path to others. There are at least
two major tripping points. For one, the
Millers probably spent more getting the neighborhood investment option approved
than they can possibly recapture from the value of the neighborhood
dollars. It would have been cheaper and
easier to secure the funds from conventional lenders and to put a more
conventional business into the vacant space.
The Millers pursued neighborhood investment not because it was a
financially prudent thing to do, but because they wanted to prove that it could
be done.
Another tripping point is that the Millers seem to be particularly benevolent investors. If a path to easier approval for neighbor investment can be found, it would likely soon be used by developers without the altruism of the Millers who will do exactly as the SEC fears, scam unsophisticated investors.
I’m thrilled
by what the Millers managed to accomplish.
But it’s only one feeble shot in the effort to take community investment
away from those who do not understand our communities as well as we do.
Follow-Ups
and Schedule Notes
StrongTowns:
In an outstanding example of serendipity, only a short time after publishing my
post on StrongTowns, a pair of links (1 and 2) appeared in an email. They are interviews by Ken Rose of Chuck
Marohn, the founder of StrongTowns.
Being consumed by pre-Thanksgiving writing tasks, I haven’t yet finished
both. (I lack the teenage ability to
write with one part of my brain while listening with another. Actually, I suspect that teenagers lack it
also, but they’re better at pretending.)
As far as I’ve listened, the interviews are great and I recommend them
highly.
Petaluma
Urban Chat: The next Petaluma Urban Chat will be Tuesday, December 11, 5:30pm
at Aqus Café. I wrote the date
incorrectly in a couple of places, but have now confirmed and reconfirmed that December
11 is correct. At this meeting, we’ll
begin discussing the StrongTowns Curbside Chat booklet that can be found
here .
As always,
your questions or comments will be appreciated.
Please comment below or email me.
And thanks for reading. - Dave Alden (davealden53@comcast.net)
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