Talking Heads, Jonathan Rose: Jonathan Rose Companies

11 min read

Development was my calling

Jonathan Rose Companies, headquartered in New York, describes itself as a “green” real estate policy, urban planning, development, project management and investment firm. Under the imaginative leadership of its principal, Jonathan Rose, the firm has undertaken numerous noteworthy projects intended to enhance the communities where they are located and serve as examples of what can be done when developers use resources wisely and think holistically.

Rose thrives on completing the types of projects that many other developers avoid because of their complexities. Yet Rose perseveres and is able to do them one after another. The company describes its sweet spot as “transit accessible, mixed-income and affordable housing, sometimes in mixed-use properties, always green, in neighborhoods enriched with social, cultural and educational networks.”

Rose has authored a book, “The Well-Tempered City,” that will be published this fall. The book uses history and social science to better understand trends going back to the very roots of cities and what we as a society can do today to make communities more whole.

Peter Bell, President & CEO of National Housing & Rehabilitation Association, interviewed Rose during the organization’s recent Annual Meeting in Palm Beach, FL. Here is an edited version of the conversation:

Peter Bell: You grew up in a family that was actively engaged in the real estate business. What is your earliest memory of going to a development site?

Jonathan Rose: My father did not call himself a developer. He thought developers were guys who bought land and sub-divided it. He was a builder. His family’s business built a mixture of affordable and market-rate properties. I remember visiting construction sites on school holidays, going into the foundations, seeing the bulldozers and smelling the mud. I recently took one of my grandsons to a construction site for that same experience. I had no idea it would resonate so deeply for me, but while I was there, all these people showed up and said, “Our fathers did this with us.”

Peter Bell: You studied philosophy and psychology at Yale. Had you planned to go off in a different direction?

Jonathan Rose: I have always been interested in the nature of the world and how it works. I started working on construction sites for my family as a teen. I loved development and was lucky to have been born into a real estate development family. To me it was a calling. As a little kid, I was always building sand castles on the beach, so I knew I was going to be doing this, but I also wanted to learn a lot of other things.

Peter Bell: What did you do after college?

Jonathan Rose: I was interested in the environment, but in 1974, that topic was not widely taught. Then I read an amazing book by Ian McHarg (founder of the department of landscape architecture at the University of Pennsylvania) called Design With Nature. Several years later, I earned my Master’s in Regional Planning from the University of Pennsylvania.

Peter Bell: In 1989, you left the family business to start your own firm. You used an interesting mission statement – “to repair the fabric of neighborhoods” – which I understand has now evolved into “developing communities of opportunity.” What does this mean?

Jonathan Rose: We got our first deals by working with non-profits that have a hand deep in their communities and know the issues. It has been a great way to get sites and have community buy-in. We observed that there are some parts of communities that are more viable than others; places that have social services, that have healthcare, that have access to mass transit, that have the things that our residents need to move forward with their lives.

We aspire for our residents to not live there for long.  We want our residents to be able to move beyond affordable housing. Certain communities have much deeper resources to help them do that compared to others. Until recently, we mostly worked in locations with such resources, but now we are expanding our acquisition business and beginning to work in places where we have to do a lot more work. The fabric of the community is not as clear and we need to work harder to weave it together.

Peter Bell: Your website features a set of core values that drive the projects you select, “green” building, mixed income, mixed use properties, sites that combine housing and a charter school in the same structure. What enables you to weave these together when others may find doing so to be too burdensome?

Jonathan Rose: Let me take these one by one. We were early leaders in doing green building, going back to the late 80s. Our first project was housing for homeless people with AIDS. We said this is an immune deficiency disease and people need to be living in a totally benign environment. There are a lot of toxic compounds in building materials, so we built the most non-toxic property we could. We found over the years that building green, if you know how to do it, only increases costs by 1%. I was very involved with creating the Enterprise Green Community guidelines. It’s a fantastic guide and if you are not doing much green building, Enterprise has a lot of resources.

On the issue of transit, there are almost 20 million families in America that spend more than 50% of their income on housing. More than 50% of America’s poverty is now in the suburbs. If households rely on a car, that means fuel costs, car payments, insurance, etc. That could be 30% of somebody’s income. How can these families live when 50% goes to housing and 30% goes to transportation? We deeply believe in locating affordable housing near places where you can get transportation costs down to as little as possible, where you can walk to things or where there is very good bus service. And if we can reduce their energy bills by $50 to $75 a month, that is a huge benefit.

One of the things I’ve heard from my peers is that we are all doing more mixed-income. There are several reasons for this, but one of them is simply because there are not enough tax credits in the high demand areas. Unless states have gap resources, it’s almost impossible to get deals done. Cities are so careful with every dollar they spend, because they want to create as many units as possible. I also believe in the social benefit of mixing incomes. Mixed income deals are higher risk because you are taking on the market risk. On the other hand, if it works there is a higher benefit because you are creating more residual economic value and cash flow as an owner. We are doing more mixed income and I think the industry is moving in that direction.

Lastly, with mixed use, we have always done it. There are two sides, great location with strong retail and some commercial that helps diversify the bottom line. We’ve built affordable housing over a community library, over several medical centers and schools, because these combinations help ensure great resident and community services onsite. We all know how difficult it is to compete for subsidies, so sometimes it gives a project that special advantage to get more subsidies because you are bringing together two constituencies.

Peter Bell: In your blog, you talk about the concept of “toxic stress” that is experienced in many low-income neighborhoods and is caused by overcrowding, environmental issues and noise. What is toxic stress, where does it stem from and how can we create what you refer to as a “positive cognitive ecology” in the communities that we build and operate?

Jonathan Rose: A study came out of Kaiser Permanente involving 17,000 people and what they discovered was a phenomena called Adverse Childhood Experiences (ACES). Sexual abuse. Neglect. Abandonment. Eviction. A parent ripped from the family and sent to prison.

These disruptive experiences in a small child trigger a self-protective fight/flight mechanism. If they have more than four or more “ACES” by the age of three, the fight/flight mechanism gets permanently wired. And so they are in a constant fear mode, adrenalin is pumping through their system, they become jittery and it leads to attention deficit disorder. These children become isolated and have difficulty forming relationships. When they reach puberty, the flight switches to fight. They join gangs. They have physical health issues as well as mental health issues, which often lead to multigenerational poverty.

Now that we know what causes ACE’s, how can we cure it? One possible solution is public policy. Of all the families who are at or below 150% of the poverty line, only 23% have Section 8 certificates. You can solve the eviction problem with more Section 8 and more affordable housing. Any solution must start with a stable base. If a family is always moving, it’s hard to build social networks, or get a good education.

We are beginning to see something called Trauma Informed Property Management, which started in San Francisco with the housing authority. What we need to do is build networks of the home, the school and the healthcare system. There are solutions that can cure ACES. When an adverse experience happens it doesn’t lock into the brain for 90 days, so with a mixture of therapy, meditation and yoga there are several things that can help relieve it and prevent the lifetime effects it might have.

Peter Bell: You made an insightful comment that “harnessing institutional partners is an effective way to make things happen.” You have had some very effective partnerships over the years, with Goldman Sachs, Enterprise Community Partners, TIAA-CREF.  How do you initiate these partnerships and harness the power they bring?

Jonathan Rose: Early on, if I came across good real estate, I would put together groups of families and friends and buy it in an entrepreneurial, patch it together way. As our company grew, I realized that I had to have demonstrable money ready to buy and that larger institutions would be good partners for doing this. My first fund was mostly family members, friends and small foundations, but I grew the scale and ended up with Deutsche Bank and TIAA-CREF in that fund. This helped build our brand and track record. Then, we created a fund with Goldman Sachs, which had just formed a bank and had CRA requirements in Newark, New Jersey. That led to a partnership with CitiBank, which had CRA requirements in Newark and Washington, DC. That led to our expansion into Washington, DC and partnerships with Somerset Development and Eagle Point Enterprises, who needed assistance on building green housing. Citi was looking to fulfill the social responsibility associated with affordable housing preservation – and they were looking for a solid return. The return was a very important part of the formula for them and us. These partnerships have been a key part of the fuel that has grown our company.

Peter Bell: Do you have any advice for developers that are looking to establish such partnerships with institutional entities?

Jonathan Rose: In every case it started with a pre-existing relationship. I didn’t cold call Goldman Sachs. It came from a track record. You need to build a track record in the area that you are in. We also spent a lot of time building the capacity of our company. We became SEC-registered advisors, which is a really annoying process and has all sorts of regulations, but provides us with a Good Housekeeping Seal of Approval. All of our funds are ranked by an independent, global, green rating agency called GRESB, which rates not only the green features of our projects, but also our institutional processes. In many ways, we had to grow up into the next iteration of our firm to have institutional partners and major foundations accept us as a potential partner. The process is slow and long; it takes a lot of cultivation. Most investors don’t make the decisions entirely by themselves; they use investment advisors. You have to go through multiple layers of underwriting and approval and you never know when somebody is going to turn you down. But, we have been doing this for 10 years now and it is really paying off.

Peter Bell is President and CEO of the National Housing & Rehabilitation Association, a 46 year old organization of real estate developers, lenders, equity investors, attorneys, accountants, nonprofit and public officials who are involved in the development, financing and operation of affordable housing under various federal, state and local housing programs. Mr. Bell has served as NH&RA's President and CEO since 1976. Mr. Bell is the owner and publisher of Tax Credit Advisor, a monthly magazine focused on real estate development utilizing various federal tax credits, including the low income housing tax credit, historic rehabilitation tax credit and the New Markets Tax Credit. Mr. Bell is also executive director of the Telluride Society for Jazz, a Colorado nonprofit organization that hosts the Telluride Jazz Festival, August 4-6 in 2017.