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211 Jonathan Tate, Architect Developer
From Architect to Developer
Jonathan Tate runs a small architectural practice in New Orleans, Louisiana that prides itself on its experimental approach and its contemporary aesthetic. He has been practicing for 20 years now and has always been interested in housing and so that has been the undercurrent of his practice. He focuses on residential projects across the spectrum whether it is private clients or for a single family house or a multi-family project for affordable housing, and integrates his designs while keep an eye on urban scale issues and urban environments.
The last thing Jonathan ever imagined himself to be was as a developer.  He often saw friction between what development and architectural agendas. The first thing that gets compromised often in that process is the architectural agenda and he enjoys the challenge of trying to exercise an architectural agenda while also addressing the developer's imperatives.  This approach afforded him an appreciation from the consulting side of things of what the pressures were and what the general parameters are around development.
Affordable Housing Market Gap
Two to three years before embarking on the first regulation crowd fund deal on the SmallChange website, Jonathan found himself increasingly aware of the conundrum of housing in New Orleans. He saw an increase in housing prices and a sort of inversion that created the consequence where people were, and are continuing to get pushed out to the periphery as the cost of housing in the city and adjacent to downtown was getting exorbitantly expensive. Historic parts of New Orleans are simply unattainable at any decent price point. Jonathan saw that nobody was addressing this problem, certainly the cost aspect of housing, but also with by taking a closer look at the type of housing that was available. Mostly what he was seeing was renovations of existing housing stock or, if new, then simply a recreation of existing housing stock by manufacturing new homes to look old. Nobody was really offering sort of middle market custom design or contemporary design housing.
Jonathan saw a gap and that is where it started. In fact, it was by paying attention to gaps in the landscape of New Orleans that the process of finding lots began in earnest.
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Starter Home
Their target market for end user was housing catering to first time and last time homebuyers in the middle market price range. In other words, not deeply affordable but not high-end market housing that offered entry opportunities into historic neighborhoods. These areas were otherwise quickly closing up due to the escalation of housing costs in that kind of inner city areas. To put that into perspective, a standard housing lot in the neighborhoods that Jonathan was interested in could be $300,000.  The cost of the nonconforming lots, on the other hand, averaged between $30,000 and $50,000 a lot which, of course, has a significant impact on the cost of the finished home.
The approach was successful, and Jonathan now has either under development or in construction or constructed some 17 houses that are part of the starter home strategy. The two houses that were crowdfunded are two that belong to this whole index of housing in the portfolio.
Tiny House
There has been one notable exception to the spec home formula that Jonathan’s firm generally engages in. They designed one home specifically for an individual. It was a self-built home i.e. the client built the home himself. The home was designed for a small lot and was designed specifically so the client could understand how to build it on their own. The home stands out because it is the smallest permitted house in the city of New Orleans. It is only around 192 square feet in size, and, although you could squeeze another square foot or two out of it, it is basically the smallest house that code will allow in the City of New Orleans – and at a cost of around $100 per foot probably the least expensive house in the city also.
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Small Change
For the most part, the homes that Jonathan builds under the Starter Home banner are not designed for any one particular individual; they are truly spec housing and the process of developing this direction for the firm was just getting off the ground (or into the ground) at roughly the same time Eve had engaged them about to work with her and SmallChange. At around that time, the city of New Orleans was auctioning off a number of their abandoned and vacant properties throughout the city, and in that mix, as it turned out, was a number of nonconforming lots.  NPR ran some coverage on Jonathan’s nonconforming lot Starter Home concept so while people were buying these odd shaped lots at auction, his firm was getting some press coverage. The phone started ringing from people who just bought these funny little lots and did not know what to do with them.
Eve was aware of the work that Jonathan was doing and met with him during a visit to New Orleans for a conference. Jonathan became fascinated with the mechanism of financing his projects in this novel crowdfunding way because it embodied the spirit of investigating creative possibilities in everything he was doing through his work. It presented a fascinating possibility and they tracked the opening up of Regulation CF in May of 2016.
The Reg CF Process – Developer’s Perspective
The first thing that needs to be compiled is a package explaining the project that you can present to the world basically. In many respects it is no different than a package you might put together and walk to a bank and say, ‘here let me tell you about our project and why you should invest in it.’ The developer needs to be able to tell a story about your project, why it makes financial sense, and needs to be able to talk about him/herself and what their qualifications are for doing the deal.
The first person that needs to be sold on the project at the funding portal, because you want them interested in you, and, of course, as Jonathan used the SmallChange funding portal, that person was Eve Picker. Once that hurdle is cleared, there is a background check that covers regulatory requirements, but a lot of the vetting actually comes through conversations and mechanisms that the portal has in place that says OK I need to get to know these people and know something about them. Because the funding portal is so heavily regulated, there is an imperative to be able to trust the developer, know who it is, and understand exactly what they are trying to accomplish.
Marketing
Smallchange has a network of investors that they have developed over the last few years; people who have signed up to newsletters and who get announcements about new opportunities. It is a pool of people that the portal can immediately send information for any of the offerings. For the most part, Jonathan relied upon SmallChange’s network but they did put a sign out on the site to let people know that there was an opportunity to engage in funding, and they conducted personal outreach and alerted people to the project and the process.
The Investors
Having a large social media following would likely have helped Jonathan with his raise. If you already have an embedded audience associated with you that you can reach out to then that is probably the best platform you could have starting out with. For sure there are certainly people familiar with his work but it is not like he sends out e-mail blasts to thousands of people every month. If you do, this could be helpful in conducting a Regulation CF raise.
Jonathan has an investor that he works with all the time and with which he really enjoys working, but the opportunity to pursue the crowd funding option was one that allowed him to broaden what he was doing.  Furthermore, his own investor network is limited and frankly is not a big pool of investors or friends and family that are willing to give money to him and yet from the SmallChange raise he was able to find an additional 38 investors with whom he can now work.
Smallchange itself is essentially a host to an offering and that is it. When the offering is done they close up and then it is up to the developer to manage the rest of it. The Starter Home investors come from all across the country, with concentrations on the coast and as far out as Australia. There are only three people from New Orleans that participated in the offer.
Surprise
But for Jonathan, the process has not been burdensome at all, and in fact he says that it has been quite pleasurable and intriguing and worth a lot beyond just the capital raise because of some really incredible conversations that have resulted. He feels comfortable recommending Regulation Crowd Funding and SmallChange to people who might be interested in it. What he particularly likes about it is that it raises awareness of his work in and around different scales of communities. If you are doing socially minded or urbanistically minded projects, whatever you name it, if there is an agenda around your work then crowd funding is a great platform for people to both to see your work and to be able to contribute and help support it.
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