Carla Harris: It’s no secret that investing in real estate is one of the most reliable ways to build wealth. Its benefits are many: passive income, tax advantages, leverage, portfolio diversification. If you’ve reaped the rewards of real estate investing though, odds are that you’re white and male. The industry has long been insular, built on relationships, access to generational wealth and the exploitation of people of color. But there are those who are using their experiences to open up real estate investing for more people.
Ryan Williams: It's going to take an outsider to change this insider world. I’m going to take this experience of getting exposure across all asset classes, like multifamily and industrial investing and hospitality. And I want to democratize access.
Carla Harris: This is Ryan Williams. I discuss with him how he's leveraging technology to make commercial real estate investing available at scale. But first, we'll hear from Lisa Phillips, who took what she learned from past mistakes to start a company teaching other Black professionals to invest in affordable real estate.
Lisa Philips: The neighborhoods we tend to invest in are low-income Black communities. So I actually thought it was a beautiful symbiotic circle of people who came from it, got some means, and then we go back to invest to make the life of the people who we resonate with better.
Carla Harris: Welcome to Access and Opportunity, I’m your host Carla Harris. And we’re telling the stories of individuals working to drive change within their communities. We provide context about systemic inequities and share tangible examples of how ideas around access and opportunity are being made real every day.
Lisa Philips: After college, there was definitely this huge urge to get into real estate investing. It was a learning experience…I actually ended up in foreclosure. [laughs]
Carla Harris: That was Lisa Phillips, founder of Affordable Real Estate Investments. As a mother, homeowner, and entrepreneur, Lisa can look back and laugh at her younger self. Then, she only knew what she knew.
Lisa Philips: I grew up in a working class neighborhood in Las Vegas, Nevada. My mom worked in the hospital as a tech. My dad was a sanitation engineer, and it was great. I had six brothers and sisters. Didn't have much money, but we had a lot of fun.
Carla Harris: Flash forward to 2005, Lisa had just graduated college with a degree in engineering. At that same time, the housing market in Las Vegas was abuzz. On the surface it looked as if the city that raised Lisa was being completely transformed and she wanted to be part of it. That's when she bought her first property.
Lisa Philips: Las Vegas had experienced an explosive growth, like across the country of housing prices just increasing. We had all these houses being built. I didn't know anything, but I had a paycheck and sometimes that can be a bad combination. [laughs]
Carla Harris: Lisa bought her first property during the real estate boom back when banks were practically giving loans out to anyone who asked. But, irresponsible lending practices made it so that she was able to buy a house at $400,000 with 0% down. By the time she foreclosed in 2009 the house was only worth $160,000.
Lisa Philips: And I purchased this completely overpriced house that I should have never purchased at that price. It wasn't sustainable. It was more than one paycheck to live in it. I look back and I'm like, wow this was during a time they literally were giving loans to everyone. And I remember asking the housing agent who was just trying to sell, I realize now – “Oh, you know, I make, you know, 60K a year is that enough?” They're like, you know, there's couples I sell these homes to in this price range who make way less than that.
Your housing costs should not be more than 35% of what you make. And if it is even if the banks tell you, “it's okay, you'll be fine.” No, you won't. You have life expenses. Saving isn't as easy as you think it might be over five years, things are going to come up. Like just thinking you're going to have that huge sum of money. It's just not really realistic for most people when you're living life.
Carla Harris: Foreclosing on her first property was a big setback for Lisa, both financially and emotionally. But she wasn't alone.
(Archival News Clips)
Clip #1: House after house, street after street 47% of homes here are underwater.
Clip #2: And it's tough for everybody, whether it's a foreclosure on a $20,000 house or a $450,000 house.
Clip #3: Foreclosures are up again a whopping 81% from 2007 to 2008.
Carla Harris: According to the Harvard Joint Center for Housing Studies, the Great Recession contributed to over 3.7 million foreclosed properties nationwide, in large part due to the same predatory lending that left Lisa with a subprime mortgage she was never going to be able to afford.
But while most homeowners were wary to re-enter the housing market in the coming years, Lisa saw an opportunity to take what she'd learned and apply it to her next investment.
Lisa Philips: I had actually purchased a condo out in Ohio. And it was $35,000, so the mortgage is like $350 a month. Very doable. It's even less than what I was paying to live in an apartment out there. And in Ohio is where I really learned when you get out of the west coast, that there are properties and locations that aren't expensive to live in. You just have to wrap your mind around different neighborhoods, wrap your mind around different demographics. Don't assume things about certain areas. You actually can find some really good gems.
Carla Harris: Once she bounced back from her first setback Lisa was thriving, in part due to her biggest asset she didn't know she had: her lived experiences.
Lisa Philips: I use my background being from a working class neighborhood and environment. I just sort of understood almost instinctively and intuitively how to not only use the numbers, but how to get the lay of the land in a way where if you are from a more affluent place, you really don't know how to navigate maybe low-income environments the way I do, right? It's something that's in your bones. It's in your energy. You were born into it.
Carla Harris: Lisa replicated her success in Ohio and went on to buy properties that each cost less than $35,000 in Baltimore, Maryland and Richmond, Virginia. At this point the properties were paying for themselves and then some.
Things were going great for Lisa and soon she felt a calling to help others like her. People who had been taken advantage of or simply ignored by the traditional real estate industry. That's when she created her consulting business, Affordable Real Estate Investments.
Lisa Philips: I was just struck that there's a lot of people in corporate America who were like me and we just don't fit in. I'm too good at what I do to not be lifted to higher heights because I don't know how to play the politics. And I knew there were people out there like that.
But I have to tell them about this rental property strategy. It's brilliant. And I was like, Do I go to the local library? – No, that's too small. Well, let me just go to YouTube and I'll tell people, this is what I have. I have like three properties. I'm not telling you I'm a millionaire, but I'm telling you if you're someone like me who wants to get started, there is a way to do it and you can do it safely. You can mitigate most of the risks, follow me.
Lisa - YouTube: All right. If you guys are out there, go ahead and say hello and hi. Okay I got a request to do a live on how to buy your first rental property. So we are going to go into that.
Carla Harris: Lisa built an educational platform online, and through it, was able to find an engaged and loyal client base of middle income Black professionals like herself. She coaches them on every aspect of real estate investment, from how to navigate loans to tenant relations.
James: I bought the house.
Lisa - YouTube: Oh my God. Round of applause.
James: So wait a minute. So it was me and four other people were bidding on this house and I was like…
Lisa Philips: The neighborhoods we tend to invest in, they can be any, but generally the majority are low income Black communities. So I actually thought it was a beautiful symbiotic circle of, you know, people who came from it, got some means. And then we go back to invest to make the life of the people who we resonate with better.
Carla Harris: Now, let's be clear: investing in low income communities is complicated. While these communities do need capital to be maintained and revitalized, too often large institutional investments instead go towards gentrification that raises the cost of living and pushes out longtime residents. Lisa does her best to model a different approach.
Lisa Philips: I come from this and I come from a working class background. So we didn’t have a ton of money but we paid our rent every month. Low-income does not mean everyone is out to not pay or to trick you or to scam you because that is a perception and stereotype.
My decision is to make affordable long-term stable housing, and so I do have a really strong ethos about being very careful about coming in and pushing out people who don't have money versus getting long-term stable tenants. I mean, we are definitely in here as investors to make a return, but also be very mindful about what you want your impact to be long-term.
Carla Harris: Through her business, Lisa Phillips is sharing hard-earned knowledge so more Black professionals can benefit from rental income for years to come.
Our next guest is empowering people to tap into returns that were previously only available to institutions. Ryan Williams is the Founder and Executive Chairman of Cadre, a FinTech working to open up access to real estate investing at scale. While historically this industry has been about who you know and how much you can invest, Ryan sees a different future is possible.
I talked with Ryan about his vision for lowering the barriers to real estate investing, diversifying commercial real estate, and bringing more capital to minority owned developers and banks.
Carla Harris: Ryan. It's a pleasure to have you on the show. Are you ready? Can we jump in?
Ryan Williams: Yes, it is a pleasure to be here. Thank you for having me.
Carla Harris: Alrighty. So let's talk about real estate. What was your exposure to real estate? You know, with respect to real estate investment, real estate ownership, as you were growing up in Baton Rouge, Louisiana?
Ryan Williams: Yeah. Well, I never owned a home. Never owned a house. My mom never owned her home or house. And so it was always an aspiration to be able to one day own a home because you know I was always told that’s the American Dream. That's really how you build multi-generational wealth. But you know it was just an ambition, it was just an aspiration. And frankly, it didn't become more than that until I got to college. I went to Harvard undergraduate. That opened up a whole new world for me in that I saw all this wealth around me. And the more I probed and the more I asked, the more I realized a lot of folks had made their money through ownership of real estate. And I said, “Well, why can't more people be able to own or invest in, in real estate? — and why does the hue of ownership frankly, look so white? Why aren't there more folks from working class backgrounds, folks that in Black and brown communities, like the one I grew up in who can also own real estate?” And frankly, that question led me on a whole nother venture as well that got me into this space.
Carla Harris: You know, Ryan, I want you to connect the dots for me to help listeners understand why that first step of owning a home is so important to being able to build wealth going forward. So can you connect some of those dots?
Ryan Williams: Yeah, absolutely. You know real estate, like single family homes and the like, are one of the most commonly owned properties or assets through multiple generations. Real estate has historically appreciated over long periods of time meaningfully. There's unique tax benefits to owning real estate and people generally buy from an emotional perspective because they want somewhere where they know they can be grounded and hold over much longer periods of time than a lot of sectors or asset classes. And so it's a long-term investment in many ways, but it's a personal investment. And so if you can own a house and you can pass it onto your kids and your children's children, you know, you have the opportunity to create long-term wealth. Now, if you don't have that access you have the same challenge with building long term wealth.
Carla Harris: Yeah. And if I can add on to what you said, a house is an asset and it's an asset that can generate and create other revenue – i.e. other things that can be turned into wealth. So with an asset, you can sell the asset and get cash, or you can leverage the asset – i.e. borrow against it and use it as collateral. And you can borrow money to then invest in other businesses or to create a business or to buy other assets. And once those other things start making money for you, you can then pay off the loan that you've used, still own the asset, and now you have all these other things that it has now given you access to.
Ryan Williams: That's right. It's equity and it's that ability to build long-term equity, and then utilize that equity to multiply that equity and that's what I saw early on.
Carla Harris: I hear that. Now you said being at Harvard at the same time you were there the housing crisis was starting to unfold. So how would you say that that impacted your perception of the housing market and how it might've been connected to the inequity or racism in the country?
Ryan Williams: Yeah, so between my first and second semesters. I went down to Atlanta, Georgia, and visited my roommate who was from Southwest Atlanta, predominantly Black community within the Atlanta Metro area. And I had been there the year before – street was almost pristine. When I went down this time though, I looked and it was every two, every three, homes that looked like they were being boarded up or people were moving out. So it was like night and day. And I asked him what was going on. He didn't know, but he said, “Man I know a lot of people are underwater. And so I bet there are a lot of folks who are losing the wealth that they had tried to create and build over generations.” And that experience that awareness tied back to the fact that real estate was this engine of economic wealth led me to ultimately building a business in which I started buying homes, using the Harvard network to raise money, renting them back out to people who otherwise would be foreclosed on and then giving them an option to buy the homes back to really have a second chance, and in some cases, a first chance, frankly, to build long-term wealth again. Because a lot of the communities that were suffering the most were the ones that were most prone to predatory and subprime lending.
Carla Harris: Well now that you've gone there and opened that door, let's talk a little bit about some of the discriminatory policies, frankly, that have led to Black home ownership being as low as 47% depending on your source and White home ownership being 76%. Because obviously if you can’t own your own home, you can't even begin to think about investing in real estate property. So give our listeners two or three examples of some of the discriminatory policies that are out there that helps to institutionalize this problem.
Ryan Williams: Yes. Well, one of the ones I saw firsthand was just discriminatory lending practices and policies. Underwriting certain potential prospective homeowners differently based off of everything from where they're from, to their ethnicity and their race. And so you know what would oftentimes happen in a lot of the neighborhoods we were looking to buy homes and, people said, “Look, I got a loan from this bank, but the interest rate was exorbitantly high, but it was the only loan I could get. And I was told I was a risky borrower.” And you know, many were then underwater. And so from a lending perspective you know, there were a ton of discriminatory policies frankly still exist and you still hear about those today. There's also a lot of red lining you know associated with with those discriminatory policies. And you know general tax incentives and breaks, you know, certain communities got those, certain didn’t. And so those were just a couple of the examples that we saw firsthand and frankly, many have not been addressed. But even if they were addressed, the multiple generations of these kinds of policies add to the wealth gap that we're seeing today. And when you have institutions who aren't invested in being fair and leveling the playing field and individuals who take that same approach, there are people that suffer and oftentimes, the people that suffer the people that look like you and I, and the people that came from the neighborhoods and community that I grew up in and my roommate grew up in Atlanta.
Carla Harris: So let's talk about launching Cadre, because you are clearly positioning yourself to be part of the solution.
Ryan Williams: Yes. So, basically I started Cadre you know as a result of my initial real estate investing experience. I ultimately ended up buying dozens of homes throughout Atlanta. When I graduated, I kind of kept that business as my night job. My day job was being able to pay off my student loans by working in investment banking at Goldman Sachs, which I did for a couple years. And then I got contacted by Blackstone in 2011. They knew that I had a real estate business in single family investing. They were just getting started with theirs and despite the fact I had no institutional real estate underwriting experience, they extended me an offer to join their real estate private equity group. And so that's what I did. I joined their team in 2012 and I got to see firsthand how what many believed was the gold standard for private real estate investing worked firsthand. And the more time I spent there, the more I realized that there was an exorbitant amount of wealth being created. But it was being created for a very small part of our global economy. And maybe I went in naive thinking I'd be able to go in and replicate a lot of what I had done personally within that institution and help more people own their homes and their financial futures, but that wasn't the case. And so I said look, I'm going to take this learning, that it's going to take an outsider to change this insider world. I’m going to take this experience of getting exposure across all asset classes, like multifamily and industrial investing and hospitality, and I want to democratize access. I want anyone to be able to invest in a Blackstone-like real estate property. And I think the best way to do that was through technology to level the playing field. And that was really how Cadre was born, was this idea that you know individuals should be able to invest like institutions. And there shouldn't be, you know, a disconnect between who has access to some of the most lucrative alternative investments in the world.
Carla Harris: So can you share your vision for our listeners for democratizing real estate investing? So what does that look like? What is Cadre actually doing?
Ryan Williams: Sure. What we're ultimately doing is we're leveling the playing field and democratizing the ability to have multi-generational wealth creation for any individual. And what that looks like in practice is giving people low-fee, frictionless access to commercial real estate investments. It means giving them the ability to have liquidity, which is not historically something that has been associated with private real estate investing. But it means giving people more financial flexibility and economic prosperity. It means building a platform and a stock market, so to speak for real estate. And my vision is to make alternatives, any alternative investment, less alternative for the. average individual, so more people can have healthy financial futures portfolios. And I've always felt that if people have stability from an economic and financial standpoint, that's one less worry that they have to be the best versions of themselves. So if we can build a world where there is a truly inclusive global economy because anyone can access some of the most important asset classes to build long-term wealth and leave somewhat of a dent on that gap between the institutions, the individuals, the “haves” and the “have nots” then I believe that we will build an enduring business that hopefully catalyzes greater equity and access for more people.
Carla Harris: And so you've created a way for someone with a smaller amount of money to get access to these diversified real estate portfolios, whether it's multi-family housing, whether it's commercial or whatever the asset class within real estate happens to be. But this is how you can start to invest in real estate at an early stage in your career until you are at the point where you can start buying these assets outright on your own, or maybe you never do that. But here's how you now have real estate as a part of your overall investment portfolio, as opposed to just having stocks and bonds.
Ryan Williams: That's exactly right, you nailed it. That's right.
INTERSTITIAL
Carla Harris: Right now in order to play Cadre you do have to be considered an accredited investor. You have to have a minimum amount of assets or make a certain amount of money, but what are you doing now to perhaps lower that bar in order to play or get access to Cadre?
Ryan Williams: Yeah. So my vision has always been for anybody to be able to invest in either individual real estate properties, or to build portfolios of real estate for all the reasons we've discussed. But I knew that in order to achieve that vision I was going to have to be very methodical about building out a brand, building out a track record, building out credibility and a technology platform that would allow us to support, hopefully billions of people at some point. So now that we've achieved many of those milestones, the goal is to further level the playing field, to further reduce minimums. So we're in the process of working on a number of investment products that will be available to anyone, irrespective of if you're accredited or not. So anybody, regardless of your net worth can invest, but can invest from a position of trust, a position of credibility, and a position of expertise.
Carla Harris: So, do you anticipate that you're going to have any major challenges around that, especially in this environment?
Ryan Williams: Yes, I do think that the biggest challenge that we've had and will likely have is around awareness and is around education. And I've always said that it's not enough just to democratize access. We have to democratize the insights and the understanding of the space because – use a home as an example – it's not enough just to give somebody the keys to a new home. They need to know what they're buying. They need to know where the rooms are, the ins and outs. And so I'd say brand awareness is going to be one challenge. And then the other challenge is education. So how do we also ensure that people know, why it's important to be able to have a diversified portfolio, why it's important to diversify outside of even just your own home and your house, because I always tell people you don't want to invest in just one stock and your only real estate exposure shouldn't be just be your own home. Why not have access to multifamily or industrial, given a lot of the secular trends that have been very lucrative for people who have invested in those spaces.
Carla Harris: Well, I'll tell you just one tip is, focus on the same market that was responsible for you getting exposure and thinking about real estate is to go to the college kids, right? Because there are a whole lot of them, there are millions of them who are going to get a whole lot of graduation gifts. But to get them excited about making their first real estate investment. You know, that can go like wildfire and man, what a great thing to have this next generation of Z-ers who are going to be entering the workforce to be focused on real estate at such an early age in their lives. So just to tip you heard it here first.
Ryan Williams: Absolutely. And you will get credit as well when that takes off for us.
Carla Harris: There, there you go. There you go. So listen, let's talk about the future because the pandemic changed everything. I mean, The acceleration of innovation, the acceleration of the focus on DE&I, the amplification of voice and choice on the behalf of, you know, employees. So how did the pandemic alter your view on access?
Ryan Williams: Yes. Well, I think for me the pandemic didn't change my own personal view too much about you know the disparities and access across every major vector. But what I think it did was elevate our society's collective consciousness that you know, what they saw coming out of the angst, anxiety after George Floyd's murder was not a spontaneous combustion. This has been centuries in the making. I also saw this as an opportunity for action to be taken and we didn’t just put out, you know, how important DE&I was to us. We said, “Let's drive capital to more operators of color and more women operating partners and developers who have been under invested in and under capitalized.” And so in our fund for instance, we made a pretty explicit commitment that at least 20% of the assets we invested in, if not more, would be alongside underrepresented minority operating partners. And if you were to look at what the current baseline is in private equity funds, it's much lower than that. The other thing we did was we said, “Okay, beyond just the operators where a lot of wealth is created, why not be more explicit about partnerships with banks?” Not just give them deposits, but also bring them into the debt, where they can really generate capital and multiply that capital into communities that have been under invested in. And then internally, you know we said, “Look we need to make sure we're holding ourselves accountable in terms of the diversity across our organization and leadership and be public about where we stand.” And I'm really proud of the fact that we have a leadership team and a management team that is much more diverse than anybody else that I know of in our industry, that's much more reflective of society than many other companies. And then, I also again try to use my voice to help speak to things like financial literacy, the importance of education and investment, and tried to make sure that I recognized that I had an obligation to do so, so that others saw what was possible.
Carla Harris: Yeah. Well, I'll tell you, you certainly are representing in this space. Ryan Williams, thank you so much for taking the time to speak with us today.
Ryan Williams: Thank you. I really appreciate it.
Carla Harris: There’s no denying that the real estate industry has a long way to go to become more transparent and accessible. And further yet, to build a more equitable housing and rental market where conscious individual investors can better work alongside tenants, especially in low-income areas. It’s interesting to see the crowdfunding model that Ryan and his team have developed within Cadre. I’m excited to follow along as Cadre works towards that goal, and many other milestones on its path to break down barriers to wealth generation.
Carla Harris: Thank you again to Lisa Phillips and Ryan Williams for joining me on this episode of Access & Opportunity.
What did you think of today's episode? Send us your thoughts at carlapod@morganstanley.com And to continue learning about individuals working to drive systemic change within their communities, subscribe to Access and Opportunity on Apple Podcasts or wherever you listen. Thanks for coming along.
